China blurs A380 order, backs 747 amid EU row (Reuters)

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LE BOURGET, France (Reuters) – China downgraded the announcement of an Airbus superjumbo order and signed up for the Boeing 747-8 as deals worth $9 billion coincided with a row over European emissions trading rules, industry sources said.

The deals both involved parts of the HNA airlines group and had been planned before the Paris Air Show, they said, but the decision not to announce the names of the buyers triggered one of the mysteries of this week's event.

Industry sources said plans to announce a high-profile $3.8 billion deal between Airbus and Hong Kong Airlines for 10 A380 superjumbos were called off on Thursday because of China's anger over European plans to charge airlines for emissions.

China threatened last month to hold back on purchasing Airbus aircraft because of the EU emissions trading scheme, which airlines body IATA has called illegal.

Additionally, industry sources said a company affiliated to the same carrier, Hainan Airlines, was behind the unexpected announcement of an anonymous deal at Boeing this week.

Boeing said an unidentified airline had provisionally committed to 15 747-8 passenger jets worth $4.8 billion.

Airlines often choose to buy jetliners without identifying themselves to their competition, but such announcements are rarely made at air shows which are designed for publicity. Boeing also rarely announces deals before they are confirmed.

Airbus (EAD.PA) and Boeing (BA.N) declined to comment and representatives of the HNA Group were not available.

Hong Kong Airlines is 46 percent owned by HNA Group, the parent of Hainan Airlines Co Ltd (600221.SS).

TEMPTING TARGET

Airbus and Boeing both brought their largest passenger jets to the show, a biennial event which rotates with the Farnborough Air Show in Britain.

The 747-8 with 467 seats is Boeing's first stretched version of the 747 and is in the midst of flight testing. It will enter service initially as a freighter, then in a passenger version.

The 525-seat A380 is the world's largest airliner and Europe's most high-profile aircraft since Concorde, making it a tempting target in any political tensions affecting aerospace.

The Airbus deal has not itself been blocked and is in the manufacturer's order book, but the decision to cancel a signing ceremony is a clear protest signal, the industry sources said.

Aircraft purchases also need Chinese government approval.

The 747-8 purchase followed competition between Airbus and Boeing for the Hong Kong Airlines order.

While advancing development of its own smaller airplane, China tends to balance orders between the two foreign suppliers.

From Jan 1 next year, the EU will require all airlines flying to Europe to be included in the Emissions Trading Scheme (ETS), a system that compels polluters to buy permits for each tonne of carbon dioxide they emit above a certain cap.

China's top aviation industry body ramped up pressure on the European Union earlier this month, saying it would give full support to legal action against the forced entry of airlines into the EU's carbon trading scheme. [ID:nL3E7H60D5]

China says the scheme is unfair for developing countries and costly.

(Additional reporting by Matthias Blamont; Editing by Jon Loades-Carter)

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China accounting scandals put Big Four auditors on red (Reuters)

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HONG KONG (Reuters) – The string of accounting problems and stock plunges at publicly traded Chinese groups has sparked deep concerns across the world's biggest audit firms, putting the so-called Big Four on alert from worries that their reputation could be brought down along with a growing list of stricken companies.

Auditing Chinese firms preparing to go public on overseas exchanges is a lucrative business and one that plays into the strengths of the top, international auditing partnerships known as the Big Four: KPMG, Ernst & Young, Deloitte Touche Tohmatsu and PricewaterhouseCoopers.

Yet fears are growing that the struggle to find enough high-quality auditors in China and Hong Kong means it may only be a matter of time until one of the top firms finds itself caught in a blow-up rivaling Enron, which brought down their old rival Arthur Andersen.

"Costs have gone up, fees have gone down, as competition for fees is enormous. You can easily see there is a real risk of an audit firm failing," said Paul Winkelmann, the partner in charge of risk and compliance for PWC in Greater China. According to interviews with professionals at the four firms, each firm is getting more and more cautious about the work they take on from mainland companies looking to IPO. "The whole industry, I will say, is very sensitive and cautious to China IPOs," said an auditor at one of the Big Four, who handles IPO work, who did not want to be named.

The Big Four are also getting nervous about work with existing Chinese clients, turning to lawyers at an earlier stage if they think something might be amiss.

"If a risk situation arises they're now consulting lawyers earlier and dealing with it in a much more structured way than was perhaps the case in the past," said Tom Fyfe, a partner at law firm Barlow, Lyde & Gilbert in Hong Kong who acts for some of the big four in litigation issues.

All four of the audit firms responded to a Reuters request to comment on the matter. The four firms said they have a rigorous approach to risk management.

CHINA BOOMING BIZ

The big four have basked in China's emergence as an economic powerhouse. In 2009 their revenue from work on the mainland stood at 9.1 billion yuan ($1.41 billion) according to the Chinese Institute of CPAs (CICPA), around half of China's accounting industry's revenue. Last year's figures were not immediately available.

As the revenues have risen, so have the risks.

Most of the accounting scandals in the U.S. have come from small Chinese companies who went public via a reverse takeover. Those companies were audited by smaller U.S. or Hong Kong-based accountancy practices, not the Big Four's China firms. But some recent high profile cases have started to drag in the names of the world's most prestigious auditors.

Last month, Deloitte quit as auditor of Longtop Financial Technologies after working on the company's books for six years, citing "recently identified falsity" in their finances.

Ernst & Young was named in two class action lawsuits over its work on Sino-Forest, the Toronto-listed company accused by short-seller Muddy Waters of accounting fraud.

In Hong Kong, KPMG said in January that it had found possible irregularities in the books of China Forestry, leading to a suspension of its shares.

Accounting experts say the firms have been acting as they should by raising the alarm once they find irregularities that can't be explained by the company. They also point out that the Big Four's China businesses and its broad global resources are much better placed than small U.S. firms to conduct audits on Chinese companies.

"I think firms here have always been aware of the risks associated with audit work in China. There is more endemic fraud in Asia, but people are much more aware of it here and so manage the risks accordingly," said PWC's Winkelmann.

Winkelmann, on behalf of the Hong Kong Institute of CPAs (HKICPA), is drafting a paper to present to the Hong Kong government later this year calling for changes to the law on auditor liability. The IPOs are now so large -- last year saw two greater than $20 billion in Hong Kong -- the worry is that a massive IPO liability, if it were to hit an auditing firm, would be too big for the firm to handle. The change calls for a cap on the liability.

The latest string of scandals has laid bare some of the difficulties auditors have in China, forcing the big firms to reappraise their methods, given that a loss of reputation could bring them to their knees.

"There's no doubt about it -- the firms are very alert to these issues and very sensitive to what it means. They will be looking at their risk assessment procedures," said Chris Joy, executive director, HKICPA.

STAFF SHORTAGES

Two of the biggest challenges facing the big four are staffing and the type of companies they audit.

Together the firms now employ just under 40,000 people in mainland China, Hong Kong and Taiwan. While that's a relatively high number compared to other regions, it's not enough to handle the huge demand created by the rapid economic growth of the world's most populous country, experts say.

"We are in tremendous need of experienced accounting professionals and graduating college students," said a spokeswoman for Ernst & Young, which plans to recruit 1500 new staff this year.

Finding them might be tough.

"Between us and the CICPA and other bodies that offer qualifications, we can't produce enough at the moment, but we're not going to compromise the quality of our program just to mass produce accountants," said Joy at the HKICPA.

That skill shortage is likely to be felt even more keenly now that the type of IPO work the big firms are handling is shifting. Whereas 10 years ago the majority of firms going public in China were state-owned enterprises (SOEs), a lot more of the work now is for privately-run businesses.

"Previously the market was for SOEs, and China is not going to allow a major embarrassment with an SOE," said PWC's Winkelmann. "But now it's changing as international firms are starting to do more of the private enterprises in China, which don't come with that government support."

(Reporting by Rachel Armstrong; Additional reporting by Benjamin Lim in BEIJING, George Chen in HONG KONG; Editing by Michael Flaherty)

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China sentences jailed journalist to 8 more years (AP)

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BEIJING – The lawyer for a Chinese journalist jailed after he wrote about suspected wrongdoing by local officials says the reporter has been sentenced to another eight years behind bars.

Wang Quanzhang said Friday that the imprisoned journalist Qi Chonghuai was about two weeks away from being released from a prison in eastern China's Shandong province when a court put him on trial again on June 9.

Wang says the court convicted Qi on a new charge of embezzlement but also tried him again for extortion and blackmail — the same charges he faced in 2008 when he was first sentenced.

The Committee to Protect Journalists says Qi was arrested in 2007 after he wrote about a local official who had beaten a woman for coming late to work.

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US seeks to help defuse tensions in South China Sea (AFP)

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在 ServiceModel 客户端配置部分中，找不到引用协定“TranslatorService.LanguageService”的默认终结点元素。这可能是因为未找到应用程序的配置文件，或者是因为客户端元素中找不到与此协定匹配的终结点元素。

WASHINGTON (AFP) – The United States said it will seek to help defuse tensions in the strategic and resource-rich South China Sea when it holds talks with China in in Hawaii on Saturday.

Tensions in the South China Sea have escalated in recent weeks, with the Philippines and Vietnam alarmed at what they say are increasingly aggressive actions by Beijing in the disputed waters.

"The United States has no intention to fan the flames in the South China Sea and we have a very strong interest in the maintenance of peace and stability," Kurt Campbell, the top US diplomat for East Asia, told reporters on Friday.

He said he expected the South China Sea disputes to be raised Saturday at a US-China meeting in Honolulu which is part of the two countries strategic and economic dialogue. He will attend the talks.

"We've been very clear that the United States does not take a position on sovereignty issues," said Campbell, the assistant secretary of state for East Asia and Pacific Affairs.

"But we also have strong principles that are long-standing in the maintenance of freedom of navigation, and free and unimpeded legal commerce and the maintenance of peace and stability," he said.

"Those principles are long-standing and will continue, and we underscore them in all of our interactions in the Asia-Pacific region," he added.

"It is not our desire to see, as I said, these flames fanned. We want recent tensions to subside and cooler heads to prevail," he said.

Campbell said the US delegation will ask the Chinese "some specific questions" about "the direction of Chinese military developments" as well as sound them out on diplomacy with North Korea and Myanmar.

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China to remain long-term investor in Europe's debt (Reuters)

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在 ServiceModel 客户端配置部分中，找不到引用协定“TranslatorService.LanguageService”的默认终结点元素。这可能是因为未找到应用程序的配置文件，或者是因为客户端元素中找不到与此协定匹配的终结点元素。

BUDAPEST (Reuters) – Chinese Premier Wen Jiabao said on Saturday he was "still confident" that Europe can overcome the debt crisis and said China would remain a long-term investor in Europe's debt market.

The Chinese Premier spoke at a press conference with Hungarian Prime Minister Viktor Orban during a visit to Hungary.

"I have confidence in European economic development," he said. "China is a long-term investor in Europe's sovereign debt market. In recent years we have increased by a quite big margin holdings of euro bonds."

"In the future, as we have done in the past, we will support Europe and the euro," Wen added.

He said China stood willing to help Europe "work for expeditious recovery and stable growth," but did not give exact figures on how much euro zone sovereign debt China might buy.

Wen also said China was willing to buy a "certain amount" of Hungarian government bonds and aims to boost bilateral trade to $20 billion by 2015. He did not specify the amount of Hungarian bonds China would be willing to purchase either.

He said China's state development bank would provide 1 billion euros for development projects between Hungary and China.

The Chinese premier is visiting Europe as the euro zone grapples to contain Greece's worsening debt crisis and possible default which analysts fear could roil global markets and trigger another financial crisis.

China has large holdings of euro-denominated assets in its vast $3.05 trillion foreign reserves and is desperate to do what it can to preserve the value of its holdings, though analysts say the extent to which China may commit fresh funds toward purchasing distressed European debt as a market-calming gesture, will likely be limited.

Wen Jiabao, the first Chinese head of government to visit Hungary for 24 years, is also seeking to explore greater trade ties with the country given its strategic location and increasing role as a logistics and trade processing hub in Eastern Europe for Chinese goods.

Hungarian Prime Minister Viktor Orban said China's buying of Hungarian government bonds would increase the security of debt financing for Hungary in the medium term.

"The purchase of government bonds is also important for Hungary as Hungary is able to finance itself from markets but the fact that China will buy further will bring huge security," Orban said.

While Wen is expected to face a barrage of protests and criticism from governments in Britain and Germany over China's human rights record and its recent clampdown on dissent, the release of prominent activist and artist Ai Weiwei on the eve of Wen's visit could ease some pressure on this front.

The 54-year-old artist Ai was freed on bail on Wednesday, while a batch of Ai's associates and other activists have also been freed since then, marking a climbdown of sorts by Chinese authorities, who have rarely flinched in prosecuting critics of Party rule.

The 27-member EU bloc is now China's largest trading partner with bilateral trade worth nearly 400 billion euros ($573 billion).

(Writing by Krisztina Than and James Pomfret; Editing by Toby Chopra)

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