China Reform Monitor: No. 735

December 18:

The Pakistan Air Force (PAF) has struck a $278 million deal with Beijing to become the first country to purchase China’s modern Airborne Warning and Control System (AWACS), Pakistan’s The News reports. The agreement was inked during the Sixth Sino-Pakistani Defense and Security Talks in Beijing, co-chaired by Chen Bingde, Chief of General Staff of the Chinese People's Liberation Army (PLA) and Tariq Majid, Chairman of the Joint Chiefs of Staff Committee of Pakistan. Beijing started developing its AWACS in 2004 after Washington – led by China hawks in Congress – stopped the Israeli government from selling the $1 billion system to Beijing. In response China turned to Russia, its traditional source of military equipment. Beijing first concluded a deal to buy four Beriev A-50 Mainstay radar planes, which are roughly the Russian equivalent of the US Air Force's E-3 Sentry AWACS. The purchase was believed to be the first phase of an agreement for eight Russian aircraft. At the same time, Chinese scientists were working on their own radar equipment. Beijing agreed to supply the system to Pakistan over the next four years based on "deferred" payment and awarded the contract to MS CETC China. Military specialists said the Chinese system uses domestically-produced advanced radar mounted on a Russian-made Il-76 transport aircraft.


December 20:

According to a Shanghai Zhengquan Bao report, information from Chinese financial institutions shows that next year China is likely to reduce its acquisition of U.S. Treasury bonds. “As China and other countries help it maintain economic growth, the United States…action on economic reform obviously is slow. The early warning light for US long-term debt is already flashing,” the official Hong Kong-based Zhongguo Tongxun She wrote. China recently published data that showed by the end of November it owned $652.9 billion worth of U.S. Treasury bonds, up 11.2 percent from September, when it surpassed Japan as the United States' largest creditor nation. In October, China's trade surplus topped the $35 billion mark, setting an all-time high; in November, another new record was set, at $40.1 billion. China's foreign exchange reserves balance was $1.9 trillion by the end of September, and it will certainly top $2 trillion this year. In November, despite the growing US trade deficit, China’s total exports saw negative growth for the first time in seven years, thus slowing the increase in total foreign exchange reserves. If a trade deficit appears, China almost surely will reduce its T-bill holdings. “If it does not reform the economy, China, which is holding large quantities of US Treasury bonds in its hands, probably will suspend the purchase of US Treasury bonds to avoid risk,” Guo Tianyong, professor at the Central University of Finance and Economics, was quoted as saying.


December 22:

The Ministry of Public Security said that gangs are expanding their reach into more areas and industries, such as construction, transportation and mining and in response it is creating a new division that will focus on gang-related crimes such as organized prostitution, gambling, drug production and trafficking, the official China Daily quoted a senior ministry official as saying. "In the foreseeable future, gangs will remain active as the country undergoes dramatic social and economic change," said the official, who declined to be named for security reasons. The Ministry will also focus on rooting out corrupt government officials who shelter gangsters. China's court system reported that 337 gang crimes were prosecuted in 2007, a 161 percent increase from the previous year.

Beijing and Taipei have signed an agreement to allow the island's banks greater access to the mainland market. The two sides have also agreed to establish a financial supervisory mechanism and provide a currency clearance system to help Taiwan’s banks to offer financial services to customers on the mainland. Seven Taiwanese banks, including the First Commercial Bank, Hua Nan Commercial Bank and Chang Hwa Commercial Bank, have already opened representative offices in China, but until now had faced a number of restrictions. As a "thank you" gesture towards those Taiwanese companies operating in mainland China who played a crucial role in the Beijing-Taipei rapprochement in recent years, China’s state-run banks will extend them loans worth $19 billion. In addition, mainland companies will buy $2 million in electronic goods from Taiwan. China will also encourage Taiwanese companies to participate in various other industries including construction, energy development, electronics and pharmaceutical, the Times of India reports.