China This Week: Hu Visits Canada, The Currency Issue, Building Ties with Australia

Hu's Canadian visit & G20 summit: Chinese President Hu Jintao left Beijing for Canada on Wednesday to pay a state visit and to attend the 4th Group of 20 (G20) summit scheduled for 26-27 June in Toronto.

Strained ties between Beijing and Ottawa started to warm when Canadian Prime Minister Stephen Harper visited China last December. Ottawa had aggressively criticized Beijing for its human rights record, but after the financial meltdown last year, its tone softened slightly. The Harper Government, asserting that "new global realities demand a modernized Canada-China relationship", began to downplay rights-related issues.

Sources said the two countries are expected to sign contracts on energy, telecommunication industries, and tourism.

Looking towards the G20 summit, China said the meeting should focus on the recovery of world economy rather than a specific issue such as the RMB (yuan) exchange rate.

The fluctuations of the Chinese currency: The yuan rose by more than 0.4 percent --- the biggest rise in a day since it was revalued in 2005 --- on Monday, close to hitting its trading limit of 0.5 percent. But the currency on Tuesday then went through its biggest decline since December 2008, weakening 0.23 percent to 6.8136 per dollar.

"The dollar has been strong on the international markets in the past two days and it's normal for the yuan to weaken against the dollar today," said Liu Dongliang, currency analyst of China Merchants Bank. The yuan will not rise continually and strongly, contrary to the expectations of some US politicians and industry players, Liu added.

The Fair Currency Coalition, an alliance of US industry, agriculture, and worker organizations, urged the US Congress to pass effective legislation on the yuan issue, despite China's pledge to make its currency more flexible.

Brenda L. Foster, President of American Chamber of Commerce in Shanghai, warned that the yuan policy move will not significantly reduce the US trade deficit with China.

Chinese VP wants trade deal with Australia: China is keen to strike a free trade pact with Australia soon and opposes any return to protectionism in response to the global economic crisis, China's vice-president, Xi Jinping, said Monday.

His visit to Australia has focused on its burgeoning exports of iron ore, coal and natural gas that are supporting the expansion of Chinese manufacturing.

China has been quick to fill a slump in investment in the Australian resource sector since the global downturn. But Australia is cautious about allowing Beijing-controlled companies to buy the mines that are commanding record prices because of Chinese demand.

China is Austria's biggest trading partner, biggest export market and biggest importer. Despite the global financial crisis, Australia's exports to China rose by 31 percent in 2009.

South China floods toll continues to rise: Heavy rains and floods in south and central China killed 211 people and left 119 others missing as of 4 pm Wednesday, according to the Ministry of Civil Affairs.

More than 29 million people in southern and central provinces have been affected by the inclement weather, with about 2.4 million people evacuated, a statement from the ministry said.

The floods have caused economic losses of around 42.12 billion yuan ($6.2 billion), with more than 1.6 million hectares of farmland flooded and about 195,000 houses collapsing.

China’s auditors find local misuse of  funds: According to a report to the 15th session of the Standing Committee of the 11th National People's Congress, the country's local governments had run up bank loans totaling 2.79 trillion yuan ($410.3 billion) by the end of last year, most of it to fund infrastructure construction and to help pay for government stimulus package projects.

Auditors also found more than 20 billion yuan ($2.9 billion) of policy loans were misused by policy-based financial institutions

Funds embezzled from public finances totaling more than 94.116 billion yuan ($ 13.82 billion) had been recovered or returned. More than 790 people in connection to the cases had been investigated.

Tariff concessions for 33 countries: The Ministry of Finance said  that China would grant zero tariff status to 4,762 categories of commodities now imported from 33 of the world's least developed countries from 1 July.

The list include 26 African countries and seven from other regions. Aquatic products, textiles, farm produce, glass products, steel, and minerals are to be exempted from tariffs.

Since 2001, China has put 41 of the world's least developed countries on the zero-tariff list.

Hong Kong, Ireland sign tax pact

Hong Kong signed its 13th comprehensive agreement for the avoidance of double taxation (CDTA) with Ireland on Tuesday.

Hong Kong's Secretary for Financial Services and the Treasury, K C Chan, said: "The agreement will encourage Hong Kong enterprises to leverage on the success of Irish companies in the areas of technology, research and development, while facilitating Irish enterprises to tap into the Asian market, particularly the vast Mainland market, using Hong Kong as a gateway."

Hong Kong is actively seeking to establish a network of CDTAs with major trading and investment partners, and has concluded them with partners including Belgium, Thailand, Vietnam and the United Kingdom.

Chinese boat seized by Indonesia: A Chinese fishing boat, registered to South China's Guangxi Zhuang autonomous region, and its crew of nine were detained by an Indonesian gunship Tuesday in the South China Sea.

After negotiations, the boat was released the same day. However, eight fishermen who had been taken aboard the Indonesian ship were injured, with one seriously. A preliminary investigation by the region's border defense department showed there might be abuse involved, said Qin Yongjun, spokesman with Guangxi's public security department.

China This Week: Kyrgyzstan, Beijing's Help for US; Latest on Economy

Shan Shan writes for EA:

China and Kyrgyzstan: China has evacuated 1,299 nationals from Kyrgyzstan where ethnic clashes have left at least 187 people dead, the Foreign Ministry said Thursday.

The ninth and last chartered flight of China Southern Airlines, with 148 Chinese nationals aboard, landed at an airport in Urumqi, capital of northwest China's Xinjiang Uygur Autonomous Region, early Thursday morning from Osh in southern Kyrgyzstan.

"After three days of efforts, the vast majority of Chinese nationals in Osh have been flown home," said Sun Dali, deputy director of the Department of Consular Affairs with the Foreign Ministry. "But we will continue to pay attention to and contact the Chinese nationals who are still staying in Kyrgyzstan, and offer immediate assistance to them in light of the changes of the local situation."

Meanwhile, China's Ministry of Commerce (MOC) said that the Chinese government has offered emergency humanitarian aid to Kyrgyzstan. The 5-million-yuan ($732,064) in assistance, including medicine, medical equipment, food, drinking water, blankets and tents was announced by the Chinese Foreign Ministry.

Beijing boosts holdings of US Debt: China has boosted its holdings of United States Treasury debt for the second straight month. The move is a gesture of assistance to Washington, easing concerns that lagging foreign demand --- and thus lower American exports --- will force the US Government to pay higher interest rates to finance its debt.

China's holdings of US Treasury securities rose by $5 billion to $900.2 billion in April, the US Treasury Department said. China is the largest foreign holder of Treasury securities, and the monthly gains in March and April come after six consecutive months when Beijing was either reducing its US holdings or keeping them constant.

The Chinese gesture to the US was made despite (or possibly because of) public exchanges between Beijing and Washington over the value of the Chinese currency.

China's Foreign Ministry on Monday responded to US calls for a rise in value of the yuan, thus assisting US exports to China,  saying that this was not to blame for the American trade deficit with China. The statement was also aimed at the US Congress, which has been threatening to press China over exchange rate policy.

During the first quarter of this year, US exports of goods to China increased about 50 percent compared to the same period in 2009.

The Latest on the Chinese Economy: China's consumer price index rose 3.1 percent in May compared to 2009, the National Bureau of Statistics has announced. This was a rise from April's figure of 2.8 percent and the trend earlier this year of 2.5 percent.

There may be further pressure on the economy: the producer price index rose 7.1 percent in May, up from April's 6.8 percent.

The official news was balanced by figures showing a 27.5 percent rise in foreign direct investment and a 48.5 percent rise in Chinese exports.

VP on Overseas Tour: Chinese Vice President Xi Jinping is travelling this week, making official visits to Bangladesh, Laos, New Zealand, and Australia.

As is often the case, the reasons for the trip are vague in Chinese official media, but the Australian and New Zealand legs, with meetings with New Zealand Prime Minister John Key and Australian Prime Minister Kevin Rudd, are likely to focus on Pacific security. Laos and Bangladesh? Look for some signs regarding Chinese overseas investment.