China's Wen says prices under control: report (Reuters)

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LONDON/BEIJING (Reuters) – China Premier Wen Jiabao sounded his most upbeat note this year on Beijing's fight against inflation, saying he expects price pressures to decline steadily even as the country keeps up its brisk economic growth.

In an opinion piece published in Friday's edition of the Financial Times newspaper, Wen wrote he was "confident price rises will be firmly under control this year," and that China is "fully capable of sustaining steady and fast economic growth."

Wen's remarks came as he kicks off a visit to debt-stricken Europe and is a timely response to investor worries that China, in its struggle to tame near three-year high inflation, could over-tighten monetary policy at the expense of economic growth.

"There is concern as to whether China can rein in inflation and sustain its rapid development," Wen wrote. "My answer is an emphatic yes."

"China has made capping price rises the priority of macroeconomic regulation and introduced a host of targeted policies. These have worked," he said.

"The overall price level is within a controllable range and is expected to drop steadily."

But some analysts said it was too early for China to declare victory in its fight against inflation, and warned investors against thinking that Wen was signaling an imminent change in monetary policy.

Ting Lu, an economist at Merrill Lynch-Bank of America, argued Wen might have deliberately sounded so positive as he knew he was addressing foreign readers of the Financial Times.

In Chinese culture, there is a tendency to play up one's achievements when speaking to the outside world, and swing the pendulum the other way to emphasize challenges when speaking to one of your own, Lu said.

"Readers should read the article with some grain of salt," he said. "Despite these positive messages from Wen, it could be wrong to expect the Chinese government to change its policy stance soon."

Lu said he still expects China to raise interest rates once more this year. That is roughly in line with market forecasts for a 25-basis-point rise in benchmark lending rates, and a 50-basis-point increase in deposit rates.

On the global economy, Wen said it was recovering from the turmoil seen in the financial crisis, but said many uncertainties remained and that the recovery was fragile.

He pointed to uneven global growth, stubbornly high unemployment in developed economies, mounting debt risks and inflationary pressures.

"While the shock of the crisis has yet to end, new risks have emerged," Wen wrote. "The world must co-operate closely to meet the challenges."

STILL EYEING RATE RISE

Wen's latest remarks on China's inflation were a marked shift from his comments in March when he warned about rising price expectations, and likened inflation to a tiger that is hard to cage once it is let out.

China's inflation ran at a 34-month high of 5.5 percent in the year to May, and is expected to quicken to 6 percent in June or July.

That would be well above China's 2011 inflation target of 4 percent, which Wen did not mention on Friday.

Some analysts have noted, however, that China's official inflation target is among some malleable objectives that the central bank can breach. For instance, Beijing has for years trounced its official economic growth target of 8 percent.

Given wages in China are expected to climb in coming months and a stubbornly buoyant property market that has kept house prices at record highs, economists doubted China can rest easy in its anti-inflation campaign anytime soon.

"Inflation may peak in June or July, but there are many underlying factors that could push up prices such as labor cost and agricultural product inflation," said Hua Zhongwei, an analyst with Huachuang Securities in Beijing.

Still, shares in Hong Kong and Shanghai bounced on Friday morning after Wen's remarks on inflation. China shares have been among the worst performers in Asia this year on persistent worries of further policy tightening to combat price pressures.(.HK)

(Reporting by Paul Hoskins in LONDON, Koh Gui Qing and Zhou Xin in BEIJING; Editing by Jacqueline Wong)

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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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Released Chinese artist-activist Ai's associates freed (Reuters)

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BEIJING, Jun (Reuters) – Four associates of Chinese artist-activist Ai Weiwei detained along with him in a controversial case were freed after Ai's release, friends of the artist said on Saturday.

The four included journalist Wen Tao, detained along with Ai in early April when the two were at Beijing airport heading to Hong Kong, said Liu Yanping, a volunteer worker involved in Ai's campaigning on rights issues.

"All of the people connected to the case have been released," Liu told Reuters by telephone.

"That's a big relief. But I do think the Ai Weiwei studio's work will remain suspended for now," she said, adding that she was referring to Ai's politically-charged activism, not to his artistic work.

The detention of Ai and his associates marked the start of the contentious case which the Chinese government said was about suspected tax evasion, while Ai's family and supporters said it was part of a political drive to silence him and other critics of the ruling Communist Party's censorship and controls.

Ai's accountant Hu Mingfen, a designer in Ai's studio, Liu Zhenggang, and the artist's driver, Zhang Jinsong, who all went missing in April, were also freed on Thursday or Friday, according to Liu, the volunteer, as well as Liu Xiaoyan, a lawyer close to Ai Weiwei.

The 54-year-old artist Ai (whose name is pronounced "Eye Way-way") was freed on bail on Wednesday, a day before Chinese Premier Wen Jiabao left for Europe, where he will visit Britain and Germany, two nations that decried Ai's detention.

The release of Ai and other activists has marked a stepdown of sorts by Chinese authorities, who have rarely flinched in prosecuting critics of Party rule.

But the tax charges and release conditions that hover over Ai and his released friends are likely to ensure they stay publicly silent for now.

Other Chinese dissidents and human rights lawyers detained and then released in recent months have also said they must stay quiet in return for their release.

Zhang, the driver, was also released on bail, said Liu Xiaoyan, the lawyer. But he and Liu Yanping, the volunteer, were unsure whether bail terms applied to the other three freed.

"My understanding is that Wen Tao is not allowed to speak out about what happened," said Liu Yanping. "I think the others will be in the same situation."

Officials have told Ai that he cannot speak out, tweet or travel without their permission for a year, a source close to the family told Reuters on Friday.

China has denied that the international outcry over the detention of Ai pressured Beijing into releasing him.

Analysts say Ai's release is far from a sign of a U-turn by the ruling Communist Party. Authorities have muzzled dissent with the secretive detentions of more than 130 lawyers and activists since February, amid fears that anti-authoritarian uprisings across the Arab world could trigger unrest.

(Reporting by Chris Buckley; Editing by Sugita Katyal)

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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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Analysis: Sino saga shows flaws in Canada's regulatory regime (Reuters)

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TORONTO (Reuters) – Canadian regulators are under fire for their disappearing act as shares of Chinese forestry company Sino-Forest melted down, raising new questions about a regulatory regime that's long been criticized for lacking teeth.

Sino-Forest, which three weeks ago had a market capitalization of about C$4.7 billion, is now worth just C$700 million, after accusations of fraud leveled by Hong Kong-based short-seller Carson Block and his one-man firm Muddy Waters sent its shares and bonds into a downward spiral.

Regulators said they had launched an investigation, but then stayed silent, doing nothing to quell the speculation, halt the stock or drill down into the problems.

There were similar complaints of inaction during the huge Bre-X stock fraud of the 1990s, while shareholder activists noted bitterly that press baron Conrad Black was successfully prosecuted in the United States and not in Canada.

"We have a system in Canada that is 80 years behind the times," said Al Rosen, a forensic accountant with Rosen & Associates, who said Canada's current reporting standards serve the interests of auditors more than investors.

He said Ontario regulators, responsible for Mississauga, Ontario-based Sino-Forest under Canada's patchwork of provincial regulators, have let investors down, and Canada would be better served by a single securities regulator, with separate prosecution and regulation arms.

"If you don't have these people with proper supervision and leadership and guts and courage you've got nothing," he said.

The Ontario Securities Commission, the biggest of Canada's provincial regulators, did not return repeated phone calls seeking comment.

"The OSC's policy all the time is to not comment, which is a convenient policy, right?" said Rosen. "So when the OSC say, we're giving it the same treatment we've given everything else, you can read anything you want into that. I read into it that they're doing nothing again."

Joseph Groia, a securities lawyer and former director of enforcement at the OSC, also believes regulators were slow to respond in the Sino-Forest saga.

"As best I can tell, they've done nothing. My view is that the horse is out of the barn and there is probably no point in them doing anything now," he said.

MARKET 1; REGULATORS 0

Block, in his fifth successful assault against the stock of a North American-listed Chinese company, said Sino-Forest had fraudulently overstated its assets in a gigantic Ponzi scheme.

Sino-Forest denies the charges.

But while some experts said the OSC should have halted Sino-Forest shares pending probes into the allegations, others said the market should decide the company's fate.

"With 20/20 hindsight you can always say regulators should have done more. But that doesn't mean that at the time there were any warning signs, or red flags that suggested they should have done more," said Cristie Ford a University of British Columbia professor and an expert on securities regulation.

Ford is less sure that U.S. regulators would have been more proactive in their response than their Canadian counterparts and said the Canadian framework is more "compliance-oriented."

"It's about trying to catch things before they require enforcement action rather than hitting the company with the big stick after they've done the bad thing," she said.

"The Americans are very much outliers when it comes to how much enforcement and how much strong action they take in these kinds of situations, relative to everybody, not just Canada."

Sino-Forest's collapse has prompted parallels with Canada's 1997 Bre-X mining scandal, when rock samples were salted with gold to create the impression of a massive gold strike.

That scandal led to a whole new regulatory framework to govern how miners outline mineral resources, and some said Sino-Forest's woes could prompt new rules on other matters, regardless of whether the accusations turn out to be true.

"It is very likely that once the matter of Sino is fully determined one way or the other, the regulators will take a more proactive role in closing any gaps that might have occurred," said Darryl Levitt, a lawyer with Macleod Dixon.

WHO'S IN CHARGE?

But for now, investors burned by the scandal are left to wonder who is actually in charge.

"There are quite a few regulatory bodies in Canada and it would appear that the buck is being passed," said Levitt.

Federal government officials defer to provincial regulators, while officials at IIROC, which oversees trading activity, and the Toronto Stock Exchange operator TMX Group point to the OSC as the organization that handles cases like this.

"I think they've been lax right across the board," said Rosen, author of the book "Swindlers," which says Canadian regulators who should watch corporations and protect investors are all too often missing in action, or asleep at the wheel.

"It's like having signs on the highway that say it's 50 km/h. But there's never any police, there's never any radar, there's never any helicopters. How many people are going to treat it seriously?"

BLAME THE ANALYSTS

The Sino-Forest case and accounting scandals at other North American-listed Chinese companies have also shone a spotlight on the murky world of reverse takeovers, that let small private entities go public via listed shell companies with far less scrutiny than through an initial public offering.

"For certain types of transactions, even if they are done via RTO's, regulators may ask for a prospectus, as opposed to an information circular and thus up the nature of disclosure required," said a lawyer who asked not to be named due to a conflict of interest.

Even as class action lawsuits pile up against Sino-Forest, its directors, its management and its auditors, some say analysts and short-sellers like Muddy Waters should also be held accountable for their actions.

"There are eight research analysts covering this company, all of whom had a buy or an outperform rating on this stock. It's their job to kick the tires in a way that regulators never do," said UBC's Ford.

"If you're going to lay this at the foot of the regulators for not having put a cease trade on this company it seems a little bit misplaced. What about all those research analysts? Why weren't they doing the job they were meant to be doing?"

Any case against analysts who touted the stock, or others that have slammed the company is unlikely to proceed until the allegations are proven, or quashed by an independent probe.

Groia said regulators should watch short-sellers like Muddy Waters too.

"This ought to be a lesson that the regulators learn from, so that they put more liability on the Muddy Waters of this world," he said. "They are not doing this because they are altruists; they are doing it because they are capitalists."

(Additional reporting by Louise Egan and Randall Palmer; Editing by Janet Guttsman)

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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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