China Confidential

A weekend for mining and environmental news--all bad.

China's state owned news agency reported that at least 24 miners died in an explosion at a coal mine in northwestern China.

Xinhua said 39 miners were working underground Saturday at 0820 GMT when the gas blast occurred at the Wayaobao Coal Mine in Shaanxi province. At least 24 died, seven survived with light injuries, and eight were still missing as of Sunday.

Xinhua said an investigation into the cause of the explosion, which was not clear as of this writing, had begun.

China has the world's deadliest coal mines. More than 7,000 workers die each year in fires, floods and explosions mostly caused by lax safety rules and poor equipment.

Booming China relies on coal for more than two-thirds of its electricity; and mine managers have increased production--and generally ignored safety precautions--to meet surging demand.

Booming China is also Polluting China--an environmental nightmare on a scale that few foreigners can appreciate. On this note, officials in southern China reported Saturday that a chemical factory illegally discharged waste water into a river, affecting the drinking supply of about 40,000 people.

Xinhua said an eight kilometer stretch of the Sancha River in Guangdong province was contaminated by the chemical discharge. It did not specify the type of chemical, but reported the presence of large quantities of dead fish and poisoned livestock.

Xinhua said the local government has ordered waterworks companies and residents to avoid using the river for its water supply, particularly in the town of Changqi.

The environmental impact of China's economic expansion does not stop at its borders.


The New York Times reported that timber-hungry China is planning to invest $7 billion in an unprecedented forest-to-palm oil project in Indonesia that will level much of the remaining tropical forests in Borneo.

The Times said the affected area is so ecologically important that is known as the lungs of Southeast Asia.

Wood from the forest will reportedly provide flooring and furniture for China's growing middle class. The trees will be replaced with vast plantations for palm oil, which is increasingly used in detergents, soaps and lipstick.

China's appetite for wood is also spurring illegal logging in Burma. Environmentalists say Chinese logging operations have moved further into the Burmese interior because a quarter of the forest cover near the border is already gone.

Unregulated logging is illegal in Burma; China bars imports of illegally cut timber; and government officials have downplayed the extent to which Chinese companies are responsible for Burma's devastation.

But there is growing concern that over-logging in the jungles of Southeast Asia is causing severe environmental and social problems. When hillsides are stripped of trees, soil erosion, landslides and floods become more common, and the destruction of forests destroys wildlife habitats. In addition, traditional communities that depend on forests for their livelihoods often are forced out of their homes.

Activists have urged China and Burma to enforce laws forbidding illegal logging. They are also urging other countries to ban imports of Chinese wood products that might be made from illegally cut trees.

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China is tilting away from Israel, but not turning against it.

In the Chinese view, the difference between tilting and turning is subtle but significant. The world's most populous country wants "to be pro-Arab without being anti-Israel," says a veteran, Tel-Aviv-based China watcher.

Oil and politics are driving the policy.

Booming China runs on oil. It is the world's second largest importer after the United States. And there is no sign Beijing plans to leapfrog American-style oil addiction for Brazil-like reliance on ethanol or other alternative fuels.

The Arab nations (and non-Arab Muslim Iran) are major oil exporters. Tiny Israel is an oil importer.

Politically speaking, showing sympathy for the Palestinian cause is a way for China to further establish itself as an alternative center, or pole, of power and influence to Israel's main ally and protector, the United States.

So China is increasingly inclined to improve relations with the Arab world, as shown by its deepening involvement in Islamic-leaning Sudan, its decision to maintain friendly relations with Hamas-led "Palestine"--Chinese diplomatic communiques and state media stories refer to the Palestinian-ruled Gaza and West Bank areas as a state--and the warm reception Chinese President Hu Jintao received in the world's largest oil exporting nation--Saudi Arabia-- after his visit to the US and disappointing discussions with US President George Bush at the White House. Hu and Saudi Arabia's absolute monarch, King Abdullah, signed energy exploration and security cooperation agreements; and high-ranking Saudi officials spoke about China's rise in glowing terms, stressing the need to "look East."

Hu also met with Saudi businessmen, became one of the few foreign leaders ever to address the consultative council that advises the king and cabinet, and visited East Province, Saudi Arabia's premier oil-producing region.

Most important, possibly, Saudi Arabia agreed to move forward with a plan to assist China in setting up its strategic petroleum reserve. The project faces numerous hurdles; but it could strengthen China's economic and political ties with Saudi Arabia and other Persian Gulf countries.

Saudi oil sales to China have more than doubled in recent years, and now account for almost 17 percent of China's oil imports.

Israel, as already noted, has no oil to sell energy-starved China. But Jerusalem does have something else to sell: weapons. Israel is China's second largest supplier of arms, potentially providing Beijing with a significant technological edge over increasingly isolated, breakaway Taiwan. The flourishing military trade upsets the US, which is committed to helping Taiwan defend itself against an attack by China.

The Jewish State also exports telecommunication products, software and medical equipment to China; and many high-tech Israeli companies have not only managed to profitably penetrate, but now dominate, some specific market niches.

Israel represents an additional value to China: world Jewry, especially the US Jewish community. Impressed by its influence--the America Israel Public Affairs Committee is considered the most effective registered lobbying organization in Washington--Beijing would like to avoid alienating US Jewish leaders while seeking stronger ties to the Arab world.

Leaders of the Anti-Defamation League (ADL), an influential US Jewish organization that has historically fought against racism and anti-Semitism at home while defending Israel and overseas Jewish communities against attack, recently visited Harbin. The ADL delegation toured historical sites of Jewish interest--Harbin boasted a thriving Jewish community before the Second World War--but China's real intent in allowing the visit was to inspire trust and build goodwill that could come in handy in the future, especially if Beijing's relations with Washington worsen or hit a crisis point over Taiwan.

"American supporters of Israel will find themselves in an uncomfortable position if it ever appears that China is actually going to invade Taiwan," a longtime US Jewish community leader tells China Confidential. "On the one hand, they will not want to go against China. On the other hand, they will be sympathetic to the plight of a small, democratic country facing an existential threat and in danger of being sacrificed by a world that needs to do business and get along with China. No matter how it is rationalized and justified, regardless of how much people buy Beijing's arguments about Taiwan being part of One China, the threat of an all-out war, which Taiwan is certain to lose, would cause many American Jews, and many Americans in general, to wonder if the world could one day decide to sacrifice Israel for Arab oil."

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China's official news agency reported Friday that more than 40,000 police officers are being trained for the 2008 Summer Olympic Games in Beijing. They will be assigned to security and anti-terror details.

Xinhua said that party officials launched the training program on Thursday with a hostage rescue demonstration at Beijing's People's Police College.

Officials said units led by the Olympic Security Coordination Group have engaged in intensive combat training to better prepare police officers to cope with any unexpected situation.

Police officers will receive a three-phased program over the next 18 months, including language training, crowd control, martial arts, and other basic skills.

France, Germany, and Britain have reportedly shared their security expertise with Beijing.

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Kenya capped the trip.

Chinese President Hu Jintao ended his African oil safari Friday by closing an offshore exploration deal in Kenya.

The agreement gives China National Offshore Oil Company (CNOOC) an exclusive, 20-year right to search for oil in six somewhat risky blocks covering more than 100,000 square kilometers in the Indian Ocean area. No oil is presently produced in the areas.

Exploration-focused CNOOC is China's third-largest state-controlled oil company, after China National Petroleum Corporation and Sinopec.

Officials from both countries did not give details of the oil pact, which was not mentioned in a joint statement listing agreements signed during Hu's visit.

The statement said that China would give Kenya a modest $7.5 million (60 million yuan) aid grant as part of an economic and technical cooperation package.

Additional grants will be made for anti-malarial medicine and rice; and China promised to maintain a sports stadium in Nairobi, help carry out studies to rehabilitate Nairobi roads, and provide educational opportunities for Kenyan students.

In addition to the right to explore in the offshore areas, Kenya gave China a public expression of support for its sovereignty claim over breakaway Taiwan.

Reading from the joint statement, Kenyan Foreign Minister Raphael Tuju reiterated Kenya's position that the island belongs to the People's Republic of China.

"The Kenyan government expressed its opposition to Taiwan independence in any form and expressed its support for China's efforts to realize national reunification," he said. "The Chinese side highly appreciated the position of the Kenyan side."

The Kenya business comes just two days two days after China completed a $4 billion deal for drilling licenses in Nigeria that included grants for economic and technical cooperation, anti-malarial medicine and rice.

Kenya and other African countries are eager for investment from China, which offers aid without demands for good governance, unlike the United States and other Western donors.

Hu reiterated China's no-strings stance, which, according to critics, allows Beijing to ignore human rights abuses, corruption and political repression.

"We pursue a policy and ... the principle of non-interference in others' internal affairs," Hu told reporters.

As shown by today's developments, China is moving to consolidate its involvement in East Africa in a stepped-up effort to extract resources to fuel its booming economy.

Trade between China and Kenya totaled $475 million in 2005. Of this amount, China's exports to Kenya totaled $457 million in 2005--a 30 percent increase from the previous year--while Kenyan exports to China barely reached $18 million.

Critics fear that cheap Chinese imports will flood Kenyan markets, endangering the fragile livelihoods of many Kenyans.

Using a favorite expression, Hu told reporters in Nairobi that China's economic dealings with Kenya and other African countries are based on "win-win" outcomes, with both countries mutually benefiting from the arrangement.

In Nigeria, Hu proposed a "strategic partnership" with Africa; and Nigeria's president indicated that he sees Beijing as the coming superpower, an alternative to US power and influence in the world (see story below).

Kenya was the final stop of a tour that took China's president to the US, where he met with President George Bush; Saudi Arabia, where he signed energy and security cooperation agreements; Morocco; and Nigeria.

Energy-hungry China's global quest for oil and other raw materials clearly concerns the US. Bush administration officials make no secret of their view of China as an increasingly aggressive competitor and potential adversary.

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Do African leaders see China as an alternative to America, as many analysts have suggested?

Yes, but they also see China as something else: America's replacement.

Nigeria's president made this quite clear in his meetings with Chinese President Hu Jintao.

"From our assessment this is the century of China to lead the world," Olusegun Obasanjo said Wednesday night at a celebratory banquet for the visiting Chinese leader. "And when you are leading the world we want to be very close behind you."

One would have to go back many years to find a similar statement by an African head of state about the United States.

In the eyes of African leaders like Obasanjo, China is a huge potential source of no-strings aid, trade, arms, and investment.

The no strings angle is critical. Unlike Washington, Beijing is all about business. It does not hector, lecture or pressure countries about human rights or democracy or anything else. The only rule, really, is to shun Taiwan.

The approach seems to be paying off, as shown by Hu's visit. In all, Nigeria and China signed seven agreements. Nigeria agreed to give China four oil exploration licenses in exchange for a commitment to invest about $4 billion in refining and power generation in Nigeria. The two leaders also inked deals designed to consolidate what Hu called "a strategic partnership," including providing Nigeria with $500 million in Chinese export credits.

China has invested substantially in various sectors of the Nigerian economy in the past few years, particularly in telecommunications, petroleum, agriculture, and building infrastructure; and a large Chinese business delegation is visiting Nigeria to identify additional investment opportunities.

Hu's push for a strategic partnership does add an intriguing political dimension to China's Africa strategy, however. Without indicating intention to meddle in internal affairs, he is seeking to raise relations with African countries to a new level and positioning China as a so-called second pole of power and influence in what until now has been a unipolar, post-Cold War world.

No strangers to great power rivalry, African leaders apparently appreciate the message. Usman Bugaje, who chairs Nigeria's House of Representatives Committee on Foreign Affairs, seemed to speak for his government when asked for his reactions to Hu's visit.

"We have a relationship with the West that is essentially colonial," Bugaje told a reporter. "Even after independence, this relationship did not substantial change. We still do not participate in fixing the prices of the primary commodities that we sell. We are still treated very much like colonies in terms of our trade relationship. All these things are bound to change. Because if we have an alternative in China and indeed it is a promising alternative, then the West stands to lose out and that means there will be competition now for products from the African continent."

With a population of 130 million, Nigeria is Africa's top oil exporter and a major market for Chinese products.

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While international media attention was focused on oil-rich Nigeria, where President Hu Jintao of China signed important energy and infrastructure agreements on Wednesday, one of its envoys was making local news in a much smaller west African nation that has few known natural resources--Togo.

In the country's capital, Lome, China's ambassador spoke at the festive inauguration of a new presidential palace that was built--and paid for--by Beijing. Togo President Faure Gnassingbe, who visited China for a week last month, cut the ribbon on the 60,000-square-foot structure.

The Chinese are not disclosing the cost of constructing the two-story complex, which includes more than 40 separate offices, banquet and conference halls.

Built by the Beijing Institute of Architectural Design, the project employed more than 700 workers.

The unusually tight security surrounding the project raised eyebrows in Lome's expatriate community. Roads to the site were blocked off during construction; and nobody--not even Togo's president--was permitted to see the palace before completion. The veil of secrecy spurred suspicions among foreign observers that Beijing wanted a free hand to install sophisticated surveillance devices, prompting dinner party jokes about Togo's "Chinese trojan horse."

"Togo is a poor and politically unimportant country, so it's difficult to see why China would even want to spy on it," said a foreign business executive who has regularly visited the country for many years. "On the other hand, in Africa, as elsewhere, it never hurts to be able to read a fax or listen in on a telephone conversation. You never know what you might learn."

China has a long and close relationship with Togo. The current president's controversial late father, President Gnassingbe Eyadema, who ruled for more than three decades after coming to power through a coup--Africa's first--laid the foundation stone for the palace when work started in April 2004.

China has also promised to give Togo a new parliamentary building; and work on it is expected to begin before the end of this year.

The prestige projects speak volumes about Beijing's approach to Africa--even to countries such as Togo, which seem incapable of offering little but minimal trade and goodwill in return for financial largesse.

Togo is a former French colony; and French companies continue to dominate the country's commercial scene, despite recent corruption scandals that have produced something of an anti-French backlash. Top executives of the giant Bollore media and transportation conglomerate--a corporate symbol of traditional French influence and intrigue in Africa--were recently arrested by Togolese police and charged with bribing local officials to get a lucrative port management contract. The executives, who have since been released on bail and allowed to return to Paris, were hauled off their gleaming corporate jet as it awaited take-off on the tarmac of Lome airport.

Though cultural ties between Paris and the French-speaking nation remain strong, the current president is said to resent French (and European Union) efforts to pressure him on matters of political reform.

The United States has tried to get a foothold in the country at France's expense; but heavy-handed US meddling, dating to the country's first multiparty presidential elections in 1998--which Washington criticized, siding with opposition leaders and other critics who accused the government of fraud--have also backfired.

In contrast with the US and France, China has only moved ahead in Togo. As a former diplomat assigned to Lome put it, "With China, there are no lectures, no pressures about human rights or democracy or rule of law, only money and business. The US gives advice and threatens all kinds of things if a country does not do things its way. China gives money and does business--simple."

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With oil prices hovering around $75 a barrel, today's contrasting news reports from Nigeria seemed to symbolize a developing story of changing great power fortunes in resource-rich Africa.

On the same day that Nigeria said it will give China four oil exploration licenses in exchange for a commitment to invest $4 billion in badly needed infrastructure, American energy giant Exxon Mobil disclosed that it is reinforcing security at a major oil export terminal in southern Nigeria due to a threat of attack by rebels who have been conducting a campaign of sabotage, bombings and kidnapping in the region.

The attacks, which have until now been directed against Royal Dutch Shell, have reduced oil output from Nigeria--the world's eighth's largest exporter--by a quarter since starting in February.

Chinese President Hu Jintao, who has been visiting Nigeria, was expected to ink the drilling deal before leaving for Kenya, his final stop on a week-long hunt for African resources and expanded trading opportunities. Hu went to Nigeria after visiting Morocco, where he signed several trade deals with King Mohammed VI.

Before heading to Morocco, Hu visited Saudi Arabia, where he signed energy and security cooperation agreements.

The Saudi and African visits followed a long-awaited visit to the United States, where he was warmly received by business and intellectual leaders--from Microsoft chairman Bill Gates to the president of elite Yale University--but treated to disappointing discussions with President George Bush.

Unlike the Saudis and Africans, the Americans refused to elevate Hu's trip to the level of a state visit and instead insisted on calling it "official" in an obvious attempt to signal US displeasure with Chinese policies on trade and currency reform, among other contentious issues casting a chill over relations between Beijing and Washington. As reported here and around the world, the Bush administration's refusal to honor Hu at a formal state dinner--in favor of a working lunch at the White House---constituted a diplomatic slap in the face, made worse by an arrival ceremony that was marred by an embarrassing series of gaffes and disruptive protests.

Back to Africa. Hu's current state safari is his second in three years, highlighting the resource-rich continent's importance for fast growing, oil-thirsty China.

Under the terms of today's transaction, China will buy a controlling stake in Nigeria's 110,000 barrel-a-day Kaduna oil refinery and build a railroad and power stations.

Nigeria will also grant China National Petroleum Corp. first refusal rights for four oil exploration blocks that are to be licensed to foreign companies late next month.

Two of the blocks are in the oil-producing Niger Delta--one on shore and one in shallow water--and two are in the inland Chad basin that presently produces no oil.

Hu's trip was preceded by a last week's announcement by state-run China National Overseas Oil Company that it had closed a deal to buy a stake in an offshore Nigerian oil field.

China's global quest for energy supplies as well as minerals--from the oil-soaked tar sands of western Canada to the awesome heavy crude deposits of Venezeula's Orinoco River region--is putting it in direct competition with the US. Combined with the bilateral trade imbalance--which the US blames in part on China's managed currency regime--and Beijing's opaque military buildup, the race for oil, especially, is beginning to look like a classic contest between imperial rivals.

African nations--given their colonial and Cold War legacies--can be counted on to exploit the rivalry to the maximum possible extent. Whether the wealth generated by the wheeling and dealing ever filters down to the masses of ordinary Africans--for whom life is mainly a miserable exercise in survival--is of course another story.

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The pressure for yuan reform is building, but Beijing is resisting--or so it seems.

The International Monetary Fund, World Trade Organization and Japanese government have joined the United States in seeking a speedier rise in China's managed currency.

Chinese officials have signaled an intention to stick with their go-slow approach toward currency reform for at least the next six months, after which the pace of change could accelerate. But some analysts believe that growing international pressure could force Beijing to widen the band within which the yuan is allowed to move sooner--say, in six weeks.

The US is leading the charge for yuan reform. Washington says a weak yuan unfairly promotes China's exports by keeping its products artificially inexpensive. The US trade deficit with China has risen to record highs for five straight years, reaching $201.6 billion in 2005.

Surging exports are driving China's rapid economic expansion. The country's gross domestic product grew 10.2 percent in the first quarter from a year ago, the fastest of the world's 20 largest economies. Its GDP doubled in size in the past decade, making China the world's fourth-largest economy last year.

US lawmakers are pressing the US Treasury Department to label China a currency manipulator in its semi-annual review of the world's exchange-rate systems. The report, initially scheduled for release earlier this month, was delayed by Chinese President Hu Jintao's US visit last week and meeting with President George Bush.

After meeting with Bush in Washington, Hu said that his government "will continue to make adjustments'' in its exchange rate regime.

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It's all about oil.

Like a player in a modern version of the Great Game--the classic contest between the British empire and Czarist Russia for mastery of Central Asia--China is roaming the world in search of energy supplies to feed its economic expansion.

And Washington is watching.

Not for nothing, as Soviet officials used to say, did Chinese President Hu Jintao go directly to Saudi Arabia following his visit to the United States last week and a distinctly disappointing meeting with US President George Bush. Saudi Arabia is the world's largest producer of oil, and China wants its share of the resource.

Judging by what we know of the trip, China will get what it wants--and more. Hu's first official visit to the kingdom was a stunning success that could tilt it toward Beijing at America's expense.

Hu signed a series of agreements with King Abdullah to strengthen bilateral cooperation in several areas, including energy exploration and security.

Hu also met with Saudi businessmen and became one of the few foreign leaders ever to address the consultative council that advises the king and cabinet. The Chinese leader also visited East Province, Saudi Arabia's premier oil-producing region, according to Saudi media reports.

Most important, Saudi sources say, the kingdom agreed to move forward with a plan to assist China in setting up its strategic petroleum reserve. The project, which faces numerous hurdles, could strengthen China's economic and political ties with Saudi Arabia and other Persian Gulf countries.

Saudi oil sales to China have more than doubled in recent years, and now account for almost 17 percent of China's oil imports. Trade between the countries exceeded $15 billion in 2005, having grown an average of 41 percent a year since 1999, according to the China's Ministry of Commerce.

Before departing Riyadh, Hu also met with Abdulrahman al-Atiyyah, the secretary general of the oil-rich Arab Gulf Cooperation Council, or GCC. The GCC is made up of Saudi Arabia, Kuwait, Qatar, Bahrain, Oman and the United Arab Emirates.

Hu's visit to Saudi Arabia came only three months after King Abdullah made a trip to Beijing in January, the first by a Saudi king to China since diplomatic relations were established in 1990.

Saudi Arabia is China's largest oil supplier and its biggest trading partner in the Middle East, with bilateral trade reaching 16 billion in 2005, up 56 per cent over 2004.

The game is on.

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In the wake of last week's disastrous summit meeting in Washington, DC between Chinese President Hu Jintao and President George Bush--an encounter, marred by a series of diplomatic gaffes, which failed to produce any signs of improvement, let alone breakthroughs, in worsening bilateral relations--the United States has apparently decided to increase pressure on Beijing to revalue its managed currency, the yuan.

US Treasury Department officials confirmed Monday that they were readying a report that could accuse China of currency manipulation. The report will be sent to Congress within the next two weeks.

Branding Beijing a currency manipulator would strengthen the position of US lawmakers who have threatened to place tariffs on Chinese imports unless Beijing takes more aggressive action on currency reform. These lawmakers and other China critics, including labor leaders and many manufacturers in the US, contend that China's currency, the yuan, is intentionally undervalued by as much as 40 percent to give Chinese exporters an unfair edge.

Resisting calls for rapid revaluation, Beijing brushes off criticism of its currency regime. China says its soaring trade surplus with the US is caused by so-called structural factors, including declining US competitiveness, and has signaled its intention to continue to let the yuan gradually rise against the dollar. Besides, Beijing argues, as China transitions from exporting low-profit margin contract-made goods to value-added, branded products in line with its push for an innovation-based economy, the surplus will shrink.

US and European experts say China's changeover to a new economy will take many years to affect the trade imbalance.

Beijing's go-slow approach to the yuan started last July, when it widened the band within which the currency is allowed to trade. Since then, the yuan has risen only 1.2 percent, and most economists expect it to rise an additional 3.5 percent over the remainder of this year--not nearly enough to satisfy US demands.

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In Beijing's eyes, Osama Binladen's call for jihad in Sudan's anarchic western Darfur region could not have come at a worse time. The tape recorded message by the fugitive Al Qaeda leader, which was aired Sunday by the Al Jazeeera satellite television network and authenticated by the United States, is likely to focus attention on China's deep and controversial involvement in the Islamic-leaning, northeast African nation, which accounts for approximately eight percent of China's oil imports and represents its biggest overseas oil project.

The China National Petroleum Corporation is the largest investor in the Sudanese oil industry; and China buys more than half of Sudan's oil output.

China is also Sudan's largest supplier of arms. Weapons deliveries since 1995 have included tanks, fighter planes, bombers, helicopters, machine guns and rocket-propelled grenades. The arms prolonged and intensified Sudan's 21-year-old north-south civil, which ended in January 2005. China's weapons--supplied under easy financing terms--have also been deployed in Darfur, where a government-backed, Arab tribal militia, Janjaweed, has been responsible for indiscriminate killings, mass rape and mass homelessness directed against the local, non-Arab population.

All told, more than 400,000 civilians have died and 2.5 million have been driven from their land in Darfur.

Western oil companies have avoided Sudan for roughly a decade, largely because of US pressure. The boycott has created an attractive opportunity for China's state-owned oil giant.

In his message, Binladen accused the US of waging war on Islam and seeking to steal Sudan's oil in Darfur. He urged Muslims to go to Darfur to fight the "crusaders."

The Al Qaeda leader based himself in Sudan before moving on to Afghanistan, where he planned the September 11 attacks on the US.

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China's propagandists have begun putting forth an intriguing new defense of their country's alarming and opaque military expansion, which has raised red flags of warning (no pun intended) from Asia to America.

Beijing's buildup, the spinmeisters say, is no big deal because it is "domestic." In other words, foreigners need not be concerned about China's rapidly rising defense expenditures because they are mainly directed at Taiwan--which Beijing regards as a renegade province.

China reportedly has some 800 missiles aimed at the island democracy, which separated from the mainland in 1949, and against which Beijing has threatened military force if it moves toward formalizing its de facto independence.

Using the word domestic in connection with the "Taiwan Question," as Beijing refers to the festering issue, is exceptionally clever because in a single stroke it seeks to undercut arguments for Taiwan statehood and allay regional and international fears concerning China's "peaceful rise"--the principal propaganda concept supporting the country's foreign, economic, and military policies.

China's newest piece of party line code may actually be imported. It is rumored to have originated with former Secretary of State Henry Kissinger, with whom Beijing has enjoyed a long and close relationship, dating to his instrumental role in arranging President Nixon's 1972 trip to China, which paved the way for normalization of US-China relations. The summit breakthrough began with Kissinger's secret advance trips to China, in 1971, during which he discussed Taiwan with Chinese leaders and assured them that the US, which had sided with the self-ruled island against the mainland Communist regime, was now prepared to recognize Beijing and back its "One China" doctrine.

Throughout the years since his historic secret diplomacy, Kissinger has consistently characterized US support for Taiwan independence--by any name and in any form, as Chinese officials like to say--as a dangerous Cold War relic.

Regardless of authorship, the domestic defense buildup argument was reportedly tested during last week's visit to the United States by Chinese President Hu Jintao. Hu and other Chinese officials are said to have used the D word in discussions with business and political leaders.

It seems to be developing some traction. On a popular NBC-TV public affairs discussion program Sunday, the network's US foreign policy correspondent, Andrea Mitchell (a longtime Kissinger admirer whose husband is recently retired US central banker Alan Greenspan), told TV host Chris Matthews that contrary to the questioning stance taken by US Secretary of Defense Donald Rumsfeld, Pentagon sources have assured her that China's military buildup is "domestic" and therefore not threatening to the US. Rumsfeld, who is regarded by Washington insiders as a hardliner on China, has become a lightening rod for criticism over the Iraq war and military matters in general.

Kissinger is known to be among those in the US who argue that the defense chief has been overly influenced by Bush administration ideologues seeking to pressure China into liberalizing its authoritarian political system on the grounds that it is inherently threatening to the US and its ally Japan.

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Someone with real influence needs to tell the Bush administration that America's foreign policy is supposed to serve its national interest, which means, first and foremost, defending America's national security, and, second, protecting American business. Not specific companies, of course, but a system of business--arguably, the most productive and progressive business system the world has ever seen. With the exception of intervening with other nations when necessary to stop genocide--and other clearly humanitarian missions in line with American democratic ideals and values--nearly everything else is at best distracting and at worst dangerous.

If that seems stark, so be it.

Protecting the American system of business means many things, including preventing war, because, setting aside the narrow interests of a relative handful of arms makers, conflict is the enemy of prosperity. Protecting business also means endeavoring to keep markets open and ensure that no foreign power blocks or significantly inhibits American access to vital natural resources.

Not required is the reshaping and reordering of the rest of the world. In principle, no regimes need to change, no dominos need to fall--or stand--to defend national security and make most of the planet safe for free and fair trade and investment. That is, not if diplomats do their job well. Contrary to conventional wisdom, global crusades are costly and counter-productive--and terribly dangerous--and there is no greater peace-preserving, war-preventing, market-opening tool available to a great power than smart, skillful diplomacy. In the words of a great American political scientist, "Diplomacy must be divested of the crusading spirit." Doctrines of all kinds--even those put forth in the name of lofty ideals--are enemies of peace.

But you would not know this from the actions of the Bush administration, as shown by its bungling of last week's, long-awaited visit to the United States by Chinese President Hu Jintao. Mounting frustration with China's contradictory positions and suspect policies apparently led an inept, weak-minded White House to deliberately disrespect China's head of state. Not a good thing.

It was left to Microsoft chairman Bill Gates and former Secretary of State Henry Kissinger to properly receive and entertain the leader of the world's most populous and fastest growing nation. In sharp contrast, the Bush administration treated Hu to a stunning lesson in face loss, starting with its stubborn refusal to hold a formal state dinner in Hu's honor. Instead of the elegant and elevating event Chinese officials sought for domestic political and international prestige purposes, Hu was invited to an awkward working lunch; and the White House arrival ceremony, marred by disruptive protest and an astonishing series of embarrassing gaffes, is likely to be remembered as a diplomatic disaster.

Evidently, the Bush administration's idea of diplomacy is to lecture or bully its rivals--and allies--into going along with every US scheme, dream, policy and program ... every American-sponsored solution, prescription, remedy, and reform ... or else. Or else what? Sadly for the US, it is steadily losing influence in China when it most needs it. American leverage is limited--and shrinking. As the huge trade imbalance between the countries continues to swell, China is increasingly viewing Washington, which ironically depends on Beijing to help finance America's ballooning debt, as a bit of a ... paper tiger ... a dying hegemon, to use an old Maoist propaganda term.

So, if ever there was a time to cool the crowd pleasing rhetoric and lose the hairy-chest posturing--even in defense of liberty--it is now. Somehow, however, we are less than hopeful that will happen. History has shown that when things get tough in Washington, weak leaders and officials typically try to compensate for failure by acting tougher.

And the national interest inevitably suffers.

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Human rights will not be on the agenda.

After leaving the United States--where he was dogged by protestors for democracy and religious freedom, among other causes--Chinese President Hu Jintao arrived in Saudi Arabia Saturday for a visit expected to focus on economic and energy cooperation between the countries.

Saudi oil minister Ali al-Nuaimi welcomed Hu at Riyadh airport.

Hu will hold talks with Saudi King Abdullah and Crown Prince Sultan during his three-day visit. He also will meet with Saudi businessmen before flying to the oil-rich Eastern Province Sunday to meet industry leaders.

A series of carefully scripted cooperation agreements are expected to be announced.

Hu's visit comes three months after the Saudi monarch visited Beijing on his first overseas tour as king. During that trip, the countries signed agreements to cooperate on energy, economic and trade policies, among others.

China has been aggressively seeking to strengthen relationships with major oil suppliers as it grows more heavily reliant on oil imports. Saudi Arabia is China's leading oil supplier, accounting for about 17 percent of its imported oil.

The kingdom--an absolute monarchy that does not allow religious freedom and bans all non-Muslim worship--sits atop a quarter of the world's oil reserves. It has an old and tight relationship with the United States; but Beijing has been encroaching. Edging out US companies, China's state-run oil giant Sinopec is one of only five companies recently granted permission to explore for natural gas in Saudi Arabia's vast Empty Quarter.

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Chinese President Hu Jintao wrapped up his visit to the United States Friday with an address to students and faculty at Yale University, in the Northeastern state of Connecticut.

The speech--which was televised live in China--to some extent reinforced the view that for all the talk of a new China, its leaders yearn to make up for centuries of political inferiority. The term "constructive partnership," which Hu used in connection with relations with the US, signifies a desire for equal status with the world's most powerful nation.

History, Hu seemed to say, is important to understanding China. While emphasizing the "peaceful development" doctrine that Beijing has advanced to allay fears about its economic ascent and military might, China's president treated his audience to an overview of thousands of years of his country's history.

Hu referred to China's "arduous" national development dating to the Opium War of 1840--which led to a prolonged period of subjugation and exploitation at the hands of foreign powers.

The conflict centered around a dispute over the opium trade, which China's emperor had banned, and which Britain wanted to maintain as a means of balancing its big trade deficit with China.

Since the Opium War, Hu said, "the Chinese people have fought courageously and unyieldingly to rid themselves of poverty and backwardness and to realize national rejuvenation, thus profoundly changing the destiny of the Chinese nation."

Referring to US unilateralism in world affairs, Hu said a composer cannot write an enchanting melody with one note, and a painter cannot make a landscape with one color.

He also said China would move "prudently" to expand political rights, but would not simply copy the political model of other nations. Translation: don't expect Beijing to opt for democracy anytime soon. Hu stressed continued economic progress over political reform.

Outside the campus, more than 1,000 demonstrators--representing Taiwan, Tibet, the Falun Gong spiritual movement and the cause of human rights in China--gathered under the watchful eyes of US Secret Service agents and local police.

The Chinese government bused in a crowd of Hu supporters from New York City.

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Taiwan is the flashpoint; and Chinese President Hu Jintao made that clear during his visit to the United States.

In discussions at the White House yesterday, Hu reportedly stressed the importance China places on reunifying with the self-ruled island, which Beijing regards as a renegade province.

Hu again raised reuinification at a subsequent speech before US business leaders in Washington. Emphasizing that China seeks a peaceful resolution of the Taiwan issue, Hu invoked Beijing's sacrosanct "One China" principle and said Beijing will never allow the "Taiwan independence secessionist forces to split Taiwan from China under any name or in any form."

A little over a year ago, China essentially escalated the dispute by adopting a law--the Anti-Secession Law--authorizing military force against Taiwan if the island moves to formalize its de facto independence, dating to 1949, or, more ominously, if efforts to peacefully reunify fail.

In other words, while Beijing may be willing to negotiate Taiwan's future status, the outcome of the negotiations--Chinese sovereignty over Taiwan--is not negotiable.

Taiwan's President Chen Shui-bian heads the "independence secessionist forces" to which Hu referred in Washington. Chen responded to China's Anti-Secession Law by formally scrapping a long dormant reunification council--which China has interpreted as a provocation.

Taiwan is a democracy; and America's Taiwan Relations Act (TRA) commits the US to help it in in the event of a Chinese attack. Beijing has some 800 missiles pointed at the island and is adding more each year; but there is deep disagreement over the meaning of the US defense commitment. It is commonly assumed to include intervention; and US officials and military commanders have made comments that support this interpretation; but a careful reading of the TRA--and a common sense analysis considering China's size, formidable military buildup, and nuclear deterrent--leads most observers to believe that the US intends to confine its efforts to protect Taiwan to supplying it with weapons.

The Taiwan issue is left-over business from China's long civil war. The island split--the word makes Beijing bristle--from the mainland following the end of fighting between the Koumintang (KMT) and Communists. Defeated KMT forces fled to Taiwan--their last stronghold--and established an authoritarian regime that ruled the island with an iron fist for years before gradually reforming itself and Taiwan's political system. The KMT lost power in the island's 2000 presidential elections; it opposes the push for formal independence led by Chen's governing Democratic Progressive Party (DPP), and has been courted by Beijing in an attempt to undermine popular support for the DPP.

China's president is likely to refer to the Taiwan issue when he caps off his US visit with what is expected to be a major policy address at Yale University, in New Haven, Connecticut. Above all, however, Hu is certain to play up the compelling theme of fast-growing China's "peaceful rise," a path he says is rooted in thousands of years of Chinese culture.

Yale has an exceptionally close relationship with China. The ties goes back more than a century, when the first Chinese student to study in the United States attended the university.

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Beijing's bad behavior is no excuse for Washington's diplomatic incompetence.

That is how many people around the world--from sophisticated analysts to ordinary citizens--are certain to see Thursday's events in the capital of the United States, where a bumbling Bush administration appeared to go out of its way to ruin an important opportunity to improve relations between the world's most powerful nation and a rising rival representing more than a fifth of humanity.

We agree with that gloomy assessment, and urge the administration to take appropriate steps to correct the damage.

The background to the story is discouraging. Contrary to advice from older and wiser China hands--including, we are told, former Secretary of State Henry Kissinger, who was instrumental in orchestrating US President Richard Nixon's historic 1972 trip to China--the White House denied visiting Chinese President Hu Jintao the pomp and ceremony he wanted and deserved to make up for his ascending country's long history of political inferiority. Instead of entertaining Hu in style, administration officials, operatives, and ideologues followed through with their determination to use the symbolism surrounding Hu's visit as a means of signaling US displeasure with China's failure to make meaningful progress toward (a) narrowing the yawning bilateral trade deficit by seriously reforming China's managed currency system; (b) reducing, rather than escalating, tensions with self-ruled Taiwan; (c) increasing transparency in military affairs; and (d) liberalizing China's authoritarian political system.

But there is a huge difference between dealing with China's suspect policies and deliberately disrespecting the country. Much as we agree with the need to effectively and properly prod--or pressure--China into becoming a "responsible stakeholder" in the international community, to use a currently fashionable Bush team term, the administration's handling of Hu's visit was shocking in its insensitivity to the political needs and prestige of a nation that is both a powerful competitor and potentially dangerous adversary.

A word or two of explanation would seem to be in order. As China Confidential readers know, we are no fans of Hu and his repressive regime; and our pessimistic predictions for breakthroughs at the summit meeting have unfortunately been borne out by news reports. But as journalists, we are sensitive to the difference between China bashing and responsible analysis and criticism, no matter how sharp. Regardless of our skepticism over Beijing's intentions toward its neighbors--and the US--and our critical coverage of China's atrocious human rights record, rank exploitation and oppression of its (always) left-behind rural poor and growing urban underclass, rejection of democratic ideals, relentless censorship of the Internet and traditional media, opaque military expansion and missile buildup opposite Taiwan, and cynical manipulation and instigation of popular anti-Japanese feelings--for who-knows-what-purposes--we fail to see the wisdom or usefulness of what the White House did, apart from attempting to placate politicians and citizens understandably upset over the effects of globalization on a hollowed-out US economy.

What, exactly, did the Bush administration do? First and foremost, it refused to elevate Hu's visit to the formal state visit status that China sought; instead of inviting Hu to a black-tie dinner at the White House, the administration treated him to lunch in the framework of several hours of discussions about the most important and contentious issues affecting relations between Beijing and Washington.

In other words, the White House welcomed Hu with a diplomatic slap in the face. It would have cost the White House nothing, in terms of political capital, to give Hu his state visit--and the Chinese know it. In fact, as diplomats the world over can attest, a well done state visit is a proven tool for softening hardened positions and setting a tone conducive for compromise and negotiation.

Making matters worse, an administration led by an unpopular president who has staked his administration's reputation and legacy on protecting post-9/11 America from further terrorist attacks--and has himself benefited handsomely from skilled crowd control and a series of carefully staged political events--proved to the world that the US is incapable of properly protecting a visiting head of state. Astonishingly, a Falun Gong heckler managed to mar a White House arrival ceremony--which was marked by unusually candid comments by Bush on US differences with China. The protestor, who used press cover to infiltrate the event, was able to shout and even threaten Hu ("Your days are numbered!" she yelled in Chinese) for several minutes before being dragged away by Secret Service agents.

Outside the White House gates, hundreds of unruly demonstrators protested Hu's visit. The protest could clearly be seen and heard inside the White House by the visiting Chinese delegation.

US officials may argue that this sort of spectacle demonstrates the enduring vitality and inherent strength of American democracy; but in the eyes of China and other nations, especially in the developing world, the alarming security snafu and close proximity of protestors must have appeared at best incredibly inept and at worst intentional.

And neither Bush's personal apology to Hu for the arrival ceremony incident, nor excuses and explanations citing US press freedom and the tradition of permitting protestors to assemble across the street from the White House are likely to help. Hu rose to power in a system distinguished by secrecy and intrigue. At the national political level in China, very little, if anything, happens without a reason. Administration officials will no doubt try their best to persuade the Chinese that disruptive protests are as American as the apple pie reportedly served for dessert at the White House lunch; but the country that has shown an ability to turn protest on and off like a faucet--as revealed by the rowdy anti-Japanese demonstrations that rocked Chinese cities only a year ago--will inevitably draw its own conclusions. Hu is considered a pragmatic centrist on relations with Washington; but there is no shortage of hardliners in Beijing who will seek to make hay (to use an old American expression) out of the way things played out for their president when he visited there.

It would be no exaggeration to say that the longterm consequences of Thursday's events for the US--and people everywhere yearning for a lowering of international tensions--could turn out to be both negative and significant.

Going forward, we respectfully suggest that President Bush and his top advisors--including Secretary of State Condoleezza Rice, who asserts the power of "transformational diplomacy" to spread democracy and freedom across the globe--might possibly benefit from consulting a classic world diplomacy text, Politics Among Nations: The Struggle for Power and Peace. Written by the late, preeminent American political scientist, Hans J. Morgenthau, and first published in 1948, early in the Cold War, the book includes some illuminating and still relevant sections on the importance of symbolism, ceremony, and prestige in international relations.

Nothing that diplomats are "symbolic representatives of their respective countries," Morgenthau says: "The respect shown them is really shown their countries; the respect shown by them is really shown by their countries; the insult they give or receive is really given or received by their countries."

Of course, that which applies to diplomats also holds true for heads of state--only more so.

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As far as the United States is concerned, China's military matters.

Beijing's growing military role in Latin America--a region Washington has historically seen as within its sphere of influence--is a likely agenda item when Chinese President Hu Jintao meets US President George Bush at the White House for formal talks.

US and Chinese officials did the advance work. Ahead of Thursday's summit, US officials traveled to Beijing for two days of discussions with Chinese officials on their nation's increasing involvement in training and advising armed forces in Latin America. The meetings, which also covered political and economic issues, were reportedly the first between the two countries devoted exclusively to Latin America.

The Pentagon is especially sensitive to the issue. The commander of the US Southern Command, General Bantz Craddock, last month told a US Senate Armed Services Committee hearing that China's military presence in Latin America is "widespread and growing every day." Craddock said that "more and more Chinese nonlethal equipment" was showing up in the region and that growing numbers of Latin American military officers were going to China for training.

More specifically, Craddock said high-level defense officials from China have made 20 visits to Latin America and the Caribbean, while defense ministers and chiefs from nine regional countries have visited China.

Craddock recently told analysts that entire military units from Latin America are increasingly training and spending time in China.

Chinese analysts say tightening military ties with Latin America are logical and natural in light of their country's growing global reach and influence.

Latin America is rich in oil, metals, timber, and other natural resources China needs to fuel its economic growth.

China's trade with the region has doubled since 2000, to $50 billion a year. The figure, while much smaller than the $800 billion that the US does in business with Latin America each year, is growing rapidly.

Beijing's aim: $100 billion in Latin American trade by 2010.

Military diplomacy is clearly a part of China's expansion strategy. In less than a decade, the world's most populous nation has reportedly established direct, military-to-military relations with Venezuela, Argentina, Chile, Peru, and Uruguay.

Cooperation with Brazil began in 1999, with China providing rocket launch expertise in exchange for digital optical technology and access to Brazil's space tracking facilities. On a 2004 visit to China, Brazil's president said he sought stronger bilateral relations, including trade, scientific, cultural and military ties.

It has been relatively easy for China to bond with nations with leftist governments--including Cuba, Venezuela, and Bolivia. Their leaders are ideologically inclined to favor China over "imperialist'' America, despite China's love affair with global capitalism. China's opposition to a unipolar--US dominated--world pleases Latin America's populist leaders.

For other Latin American countries, such as Chile, the prime motivation for seeking closer relations with China is trade. Last November, China signed a free trade agreement with Chile--Beijing's first with a Latin American country--and talks are underway with others in the region. But even with Chile, military matters matter. Significant exchanges have taken place between China's National Defense University and Chile's War College. Chilean army officers have also been studying Mandarin Chinese and Chinese history, politics and culture.

China has also tightened its military ties with Venezuela, taking advantage of worsening relations between Caracas and Washington. Major military exchanges have taken place between China and Venezuela; and last August, Caracas purchased three military grade radar systems from Beijing. The systems--including a sophisticated command center--are designed to significantly enhance Venezuela's ability to manage its airspace.

Peru is a wild card for China. In theory, its modest military relations with the mineral-rich country could grow stronger if the plurality winner of Peru's recent presidential elections, Ollanta Humala, wins the second-round runoff contest late next month or in early June. Humala is a populist former army officer (and failed coup plotter), who seems inclined to boost military spending. But he is also an ultranationalist whose well known dislike for the US (and animosity toward neighboring Chile) is matched by his opposition to globalization and foreign investment.

None of which appeals to China. When all is said and done, Beijing's military diplomacy is meant to support--not supplant--its economic policies.

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China's global quest for energy supplies is making Washington nervous as the price of oil hits record highs.

The statistics are staggering. With its economy growing by eight to 10 percent annually and the number of cars on the road expected to double over the next 15 or so years, China is the world's second largest oil consumer after the United States. Japan is in third place.

China's overall energy consumption is expected to increase by 150 percent by the year 2020.

Oil is critical. Though coal is China's principal energy component, demand for oil is rising rapidly. The country's domestic oil output only accounts for 60 percent of its oil needs. In less than 15 years, that number is expected to be cut in half.

Put another way, by 2020, the world's most populous nation will have to import 70 percent of its oil.

Soaring demand for oil is certain to be accompanied by increased competition for secure oil supplies.

Key word: secure. Says one analyst: "China is getting more and more worried about the security of its oil supply. This not only applies to China, but to all oil importing countries. They are all concerned about supply safety."

China's biggest competitor for oil, of course, is the US.

The potential for friction--and conflict--is seemingly ubiquitous, as Chinese oil companies scour the planet for access to the precious resource that was trading, as of this writing, at over $70 a barrel because of renewed Middle Eastern violence and an alarming nuclear standoff with Iran.

From Sudan to Canada, Chinese firms are suddenly on the hunt for oil, including conventional and heavy crude and even solid and more costly tar sands.

"I can tell you that nothing has really taken me aback more as secretary of state than the way that the politics of energy is--I will use the word warping--diplomacy around the world," US Secretary of State Condoleezza Rice said in testimony before the US Senate Foreign Relations Committee on April 5. "It is sending some states that are growing very rapidly in an all-out search for energy--states like China, states like India--that is, really sending them into parts of the world where they've not been seen before, and challenging, I think, for our diplomacy."

Islamist Iran, which advocates annihilation of US ally Israel, is now China's second largest oil supplier and an important trading partner and recipient of Chinese diplomatic support. Arms are part of the picture. China has sold Iran weapons, including ballistic missile components and cruise missiles, giving the radical regime, according to some analysts, the capability to attack US naval forces in the strategically vital Persian Gulf.

More worrisome, the International Atomic Energy Agency says China has probably provided nuclear technology to Iran; and many experts believe that Beijing also sold a blueprint for a facility to produce highly enriched uranium to Iran. If Iran is at all close to developing a nuclear-weapons capacity, they say, it is China's fault.

China's number-one oil supplier? Surprisingly to some, it is Saudi Arabia, which sits atop a quarter of the world's oil reserves, and with which the US has an old and tight relationship, to put matters mildly.

Chinese state-run oil giant Sinopec is one of only five companies exploring for natural gas in Saudi Arabia's vast Empty Quarter desert region. The kingdom selected Sinopec over US companies.

The Chinese-Saudi relationship is a sign of the times and a harbinger of things to come.

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Concerning the festering East China Sea dispute ... cooler heads have prevailed ... perhaps ... at least for now.

A potentially significant escalation of the maritime boundary disagreement between China and Japan apparently subsided Tuesday. Japan's Chief Cabinet Secretary Shinzo Abe (l.) told reporters that China has clarified a ban on ships entering a contested section of the sea straddling a disputed Sino-Japanese dividing line.

Abe, who is considered the frontrunner to succeed Japanese Prime Minister Junichiro Koizumi when he steps down in September, said Beijing has informed Tokyo that it will redraw the banned area so it does not affect the Japanese side of the economic zone, which includes the Pinghu gas field.

On March 1, China issued a seven-month ban on maritime traffic entering the waters over the field, including some of the area claimed by Japan. Japanese media reported the ban over the weekend; pressed for a response, government officials said they would seek clarification from China before lodging a formal protest.

Abe said Beijing told Tokyo that the notice was a technical error, and that his government believes it was just a simple mistake. But Abe questioned why it took several weeks for the matter to be clarified.

In Beijing, Chinese foreign ministry spokesman Qin Gang (pictured below) allowed that the Chinese notice contained "technical inaccuracies," while objecting to Japanese comments on the issue.

Qin said China does not recognize the median line claimed unilaterally by Japan. He also expressed dissatisfaction at "the Japanese practice of accusing China on the basis of their claim, and making an issue of this problem."

Japanese Foreign Minister Taro Aso took a tougher tone than Abe.

The foreign minister said it would have been common courtesy for China to notify other countries of the ban before or when it was implemented. He said the Japanese Coast Guard did not find out about it until the end of March.

Qin told reporters there was no need to inform Japan about the operation--which is intended to protect Chinese workers while they lay pipes and cable to expand the gas field. The temporarily banned area, Qin asserted, is well within China's maritime territory.

Despite repeated protests from Tokyo, China is working in the gas fields next to waters Japan claims for exclusive economic rights. China's wider territorial claim overlaps the Japanese claim.

Japan, in response to Chinese exploration efforts, has granted test-drilling rights to a Japanese company, although the company has not begun work.

Foreign Minister Aso has threatened to take unspecified counter-measures if Beijing begins full-scale production.

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The state-run energy companies of China and Brazil signed a major contract Monday.

Under the terms of the $239 million deal, China's Sinopec will build a 300-kilometer stretch of natural gas pipeline for Petrobras in southeastern Brazil. The pipeline will connect Rio de Janeiro state gas fields to the city of Vitoria (in Espirito Santo state), farther north.

The 28-inch diameter pipeline will have a daily capacity of 20 million cubic meters of gas.

Increased availability of natural gas on the Brazilian market is a key Petrobras strategy. The company plans to extend the pipeline from Vitoria to the town of Catu, in the northeastern state of Bahia, eventually covering a total distance of 1,300 kilometers.

The entire project, known as Gasene, is aimed at improving gas distribution in northeastern Brazil.

Petrobras has delayed the project for months in an effort to rein in rising construction costs caused in part by skyrocketing steel prices. Brazilian media put the total construction cost of the pipeline at $2.3 billion--nearly double the initial estimate.

China and Brazil have been developing closer economic ties. Beijing has become a major importer of Brazilian commodities, while some Brazilian manufacturers have set up operations in China, taking advantage of low labor costs.

China's increased involvement in Latin America--part of a global quest for raw materials and markets--concerns the United States, which has historically regarded the region as within its sphere of influence. China's approach to Latin America could come up during this Thursday's White House summit meeting between Chinese President Hu Jintao and US President George Bush.

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Relaxed rules for currency exchange and investment abroad are lifting hopes in Hong Kong for increased capital flows from the mainland.

The new rules, regarded as key steps on the road to liberalizing China's tightly controlled and much criticized foreign exchange regime, will make it easier for companies and individuals to buy foreign currency and invest in overseas capital markets.

China's central bank said the regulations are meant to widen the investment options available to individual and institutional investors--including fund management firms and insurance companies--allowing them to diversify their risks and get better returns. Most residents are presently not permitted to invest abroad.

Regulators explained that China's banks will be allowed to pool their clients' domestic currency deposits for conversion into foreign currencies and investment overseas.

The changes coincide with President Hu Jintao's visit to the United States, where China's management of its currency, the yuan, has been blamed for fueling China's surging trade surplus.

China has the world's largest foreign currency reserves; and critics charge China with manipulating the yuan to keep it--and Chinese exports--artificially cheap in support of the engine driving the country's economic expansion.

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In preparation for Chinese President Hu Jintao's visit to the United States, his propaganda meisters have been playing up Beijing's notion of dramatic differences between America's two Washingtons: the capital district, where the world's most powerful man, US President George Bush, lives and works, and the Pacific Northwest state that is home to the world's wealthiest man, Microsoft chairman Bill Gates, with whom Hu will meet before his White House summit with Bush.

Additional Chinese propaganda themes and arguments include the following: Taipei's maverick, independence-leaning leader, President Chen Shui-bian, is the primary threat to peace in the Taiwan Strait; Japan's incredible insensitivity to its legacy of inflicted cruelty and pain--its stubborn unwillingness to fully face up to its record of war crimes and aggression against the Chinese people--is the cause of worsening bilateral relations; and China's trade imbalance with the US has little or nothing to do with the relatively low value of its managed currency, the yuan, which helps keep Chinese products inexpensive, and everything to do with declining US competitiveness and other so-called structural factors.

Obsolete policies make matters worse, Chinese spinners say. They argue that America's overly restrictive high-technology export policies--influenced by Pentagon planners and other analysts who doubt China's peaceful rise--contribute significantly to the surging US trade deficit with the world's most populous nation and fastest growing consumer market.

Which brings us back to Washington--the state--where China's president will sit down for dinner Tuesday with Gates and his wife Melinda in their $100 million super-mansion. In official Chinese eyes, everyone in that Washington, apart from some protestors representing Taiwan, Tibet and the Falun Gong faith, is keenly aware of what matters most in the evolving US-China relationship: business.

As Beijing sees it, people in the state of Washington are properly pro-business. Like good corporate employees, they look inward for solutions to America's problems--instead of unfairly blaming China as folks in Washington, DC do.

In Washington the state, Chinese officials suggest, even the founder and head of giant Microsoft can be expected to avoid raising the thorny issue of Beijing's censorship of the Internet and to more appropriately and effectively focus the conversation on the intellectual property (IP) piracy that has hurt the company's software business in China.

In an attempt to court opinion ahead of Hu's visit, Beijing has promised increased IP protection and has signaled a further widening of the band within which the yuan can trade on a given day.

Simply stated, say the Chinese, people in the state of Washington know that at the end of the day, what is good for the shareholders of Microsoft and America's largest exporter, Boeing--the Seattle aircraft manufacturer that has enjoyed great success in China--is also good for the USA.

In comparison, folks in Washington, DC are obsessed with an array of nettlesome but politically potent issues, such as human rights and China's opaque military buildup. Regarding the trade imbalance, these Washingtonians unrealistically pressure Beijing for a free-floating yuan, which is contrary to its interests, buying the line that a more expensive Chinese currency will magically reduce Chinese imports and raise US exports.

Washington the state represents correct, wise, forward thinking; Washington the capital, the old ways and ideas of out-of-touch officials, cynical, crowd-pleasing politicians, and an annoying White House press corps. Whereas the state stands for productive accommodation over pointless confrontation, the capital increasingly and incorrectly equates accommodation with appeasement.

That is how Hu, his advisers and spinners see America; it remains to be seen if the American people, their leaders and elected representatives share their view.

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Ahead of Chinese President Hu Jintao's visit to the United States and meeting with President George Bush, Beijing is displaying the softer side of its Taiwan reunification strategy in an effort to impress Washington and influence public opinion on the self-ruled island.

On Sunday, Hu told Lien Chan, former chairman of Taiwan's main opposition party, the Koumintang (KMT), that China and Taiwan should "resume talks as soon as possible on an equal footing" to maintain peace in the region. Bilateral talks broke off in 1999.

On Saturday, China offered Taipei an array of potential economic agreements, including aviation, agriculture, and finance deals. The offers were made at the end of a two-day meeting in Beijing between Chinese officials and Taiwan business and opposition leaders favoring reunification. Lien led the Taiwanese delegation.

Absent from the forum were representatives of Taiwan's independence-leaning President Chen Shui-bian and his Democratic Progressive Party.

China regards Taiwan as a renegade province, and has threatened to take it back by force if necessary, in keeping with Beijing's "One China" principle and Anti-Secession Law. Adopted a little over a year ago, the law authorizes military action against Taiwan if it moves toward formalizing its de facto independence or if reunification efforts fail.

Backing Beijing's threat is the hard side of its reunification strategy--a military buildup opposite Taiwan that includes a growing arsenal of conventionally armed ballistic missiles and steadily improving amphibious warfare capabilities.

The US, which supports the status quo, is committed to helping Taiwan defend itself. On that score, Chen unveiled two new US-supplied surveillance aircraft Saturday during a televised ceremony at an air force base on the island's southern Pingtung region. The early warning E2K planes are designed to expand radar coverage of the 100-mile-wide strait separating Taiwan from China while simultaneously guiding fighter jets on interceptor missions.

The Taiwan issue is contentious, confusing--and ironic. The mountainous island split from the mainland in 1949 when rightwing KMT forces led by Chiang Kai-shek fled to Taiwan--their final stronghold--after losing a long civil war with the Chinese Communist Party. The KMT established an authoritarian state that brutally suppressed the local population. Championing its interpretation of the One China principle, the party claimed sovereignty over the mainland, with which it vowed to reunite following a Communist crackup or defeat.

Over time, the KMT liberalized; Taiwan evolved from martial law into a multiparty democracy; and the KMT lost its monopoly over power in 2000. In its moderate, modern incarnation, the party stands for reunification with some form of autonomy ... and uses the hoary One China principle to rationalize the position.

Beijing's bitter enemy has become its best friend across the Taiwan Strait.

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America's chief crusader for global democracy, President George Bush, will probably be disappointed by his upcoming White House meeting with the leader of the world's most populous nation.

Instead of signaling progress with respect to human rights and political reform, Chinese President Hu Jintao (seen here with Bush during his visit to Beijing) is expected to tell his host that China has no intention of letting outside powers dictate development. In Hu's view, democracy--as the concept is understood by the United States and other nations--is not in the cards for the authoritarian Asian giant, whose pressing problems include rising rural unrest and a growing urban underclass barely surviving on the fringes of the greatest economic boom in human history.

More troubling from a US perspective, Hu is also likely to make clear that as far as he is concerned, the world actually needs to lose a democracy: Taiwan. In return for flexibility on politically potent trade and currency reform issues, Hu is seeking a public expression of support from Bush for Beijing's sacrosanct "One China" principle and steadfast position on Taiwan.

China regards the island as a renegade province that must be "reunified" with the Chinese mainland--by force if necessary. An Anti-Secession Law, adopted a little over a year ago, authorizes Beijing to take military action against Taiwan if it moves toward formal independence ... or if peaceful reunification efforts eventually fail.

In Hu's eyes, reunification is a piece of unfinished business from China's long civil war. The fighting ended in 1949 when the defeated forces of the Koumintang (KMT) fled to Taiwan with enough treasure to establish a rightwing dictatorship, which, with Washington's backing during the Cold War, for decades claimed sovereignty over the mainland in accord with the KMT's own interpretation of the One China principle.

Ironically, in today's democratic Taiwan, an out-of-power, revamped KMT twists the One China principle to rationalize the party's support for reunification (coupled with assurances of autonomy) and ingratiate itself with China's ruling Communist Party. In sharp contrast with the KMT, Taiwan's pro-independence President Chen Shui-bian and his governing Democratic Progressive Party (DPP) regard the One China principle as at best a relic and at worst an existential threat.

Chen recently angered China by officially scrapping a dormant National Unification Council that was tasked with achieving reunification. Chen also attended and addressed a large, DPP-sponsored pro-independence rally in Taipei. Chinese officials responded with tough rhetoric reaffirming their commitment to One China.

All of which would mainly be of interest to historians and political scientists if it were not for two factors: China's military buildup and America's obligation to defend Taiwan against aggression. China has nearly 800 conventionally armed ballistic missiles pointed at Taiwan and is said to be adding at least 40 and perhaps as many as 100 or more a year. Already capable of launching waves of missiles against all of Taiwan's cities and military bases, China is also building its amphibious warfare capabilities and developing a formidable conventional force deterrent against possible US intervention. Within a decade, Taiwan's President and analysts warn, China will be in a position to conquer the island at will.

The US favors maintaining the status quo. Caught off guard by Chen's provocative gestures, Washington pressured him into promising that he would refrain from further "surprises."

But Beijing is apparently bent on taking Taiwan back one way or another; and given the obviously unacceptable risks of engaging in a military confrontation with an emerging, nuclear-armed superpower, there does not seem to be much the US can do for its old ally apart from selling it more arms to defend itself.

One thing is certain: China will not be persuaded by lectures about democracy.

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New rules.

In another blow to fawning foreign media moguls mesmerized by China's rise, Beijing's broadcasting watchdog has banned Chinese television stations from using international news coverage from foreign satellite programs and other non-state sources.

According to the State Administration of Radio Film and TV (SARFT), Chinese TV stations can only use international TV news content from China Central Television (CCTV) and China Radio International when broadcasting global news.

Chinese officials have made no secret of their intention to build CCTV into a global broadcaster on par with the biggest foreign networks.

SARFT says the ban is necessary because "some overseas news services and media have used various methods to sell international news material to domestic stations, and the reports have a clear political intention."

The new rules transcend news: historical soap operas involving "major or sensitive" issues--namely, political, military, or religious topics and themes--must get official approval.

Government bureaucrats overseeing TV drama productions are required to submit monthly reports to ensure shows follow pre-approved scripts.

The TV crackdown comes in the wake of a moratorium on licensing new foreign magazines for publication, which killed the chance for Rolling Stone to enter the booming China media market under a "copyright cooperation" deal with a local company. Rolling Stone owner Wenner Media and its Shanghai licensee managed to put out one issue of the music and pop culture magazine before they were ordered to stop publishing.

Last August, China's media watchdogs, including the Propaganda Department and Ministry of Culture, announced an array of new regulations designed to prevent additional foreign satellite channels from entering the Chinese market, while strictly controlling and seriously limiting the influx of foreign TV programs, films, books, newspapers, magazines, Internet sites, video games, cartoons, and performing acts, including theatrical performances.

The regulations also severely restrict Chinese-foreign co-production of films and TV programs for the foreign market.

Those new rules followed a previous month's ban on Chinese broadcasters and foreign investors jointly operating TV channels in China.

A ban on Chinese-foreign co-production of TV programs for the Chinese market has been in place since early in 2005.

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One of the world's worst violators of human rights--an Islamist-oriented African country known for prolonged civil wars and genocidal conflict--is emerging as an important player in China's relentless pursuit of oil.

In fact, this country accounts for approximately eight percent of Chinese oil imports.

The country is Sudan, where, in the anarchic western region--Darfur--government-backed militias are responsible for indiscriminate killings, mass rape, and massive displacement of civilians.

All told, more than 400,000 civilians have died and 2.5 million have been uprooted in Darfur.

Pressured by the United States, Western oil companies have stayed away from Sudan for about a decade, creating an attractive opportunity for China's state-owned oil giant.

The China National Petroleum Corporation (CNPC) is the largest investor in the Sudanese oil industry; and China buys more than half of Sudan's oil output.

In a joint venture, CNPC and the Greater Nile Petroleum Operating Company--in which CNPC has a 40 percent stake--are exploiting Sudanese oil deposits in the Muglad Basin.

The JV has invested over $8 billion in Sudan, including construction of a 1,500 kilometer pipeline to transport oil to the Marsa al-Bashair harbor terminal near the Port of Sudan on the Red Sea.

China is also an important arms supplier to Sudan. Weapons deliveries since 1995 have included ammunition, tanks, helicopters, fighter aircraft, and antipersonnel and antitank mines. Easy financing associated with many of the deals supports the view that Beijing uses arms to support its energy quest.

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In the face of a surging trade surplus with the United States and Europe, Chinese officials can be expected to emphasize a longterm growth strategy focused on value added exports and increased domestic consumption. The former component will focus on brand development, intellectual property protection and high-technology production; the latter, on boosting consumer spending in depressed rural areas designated for upgrading under the new "socialist countryside" initiative.

The policies and programs will dovetail with the developing party line on the politically potent trade issue--that the surplus (a) is "structural," owing to China's competitive advantages compared with developed countries, (b) is significantly caused by foreign/contract manufacturing inside China, which, in the case of low-profit-margin textiles and toys, does not benefit China greatly over the long run, and (c) is destined to decrease as China moves into a so-called innovation economy.

The structural argument will be deployed to counter pressure to let China's currency, the yuan, float freely. US and European critics contend the yuan is seriously undervalued--perhaps by as much as 40 percent relative to the dollar--as a result of Chinese government manipulation. An artificially cheap yuan, critics say, makes Chinese products unfairly inexpensive in support of the export engine driving China's economic growth.

Chinese officials prefer the term "management" over manipulation. Vowing to resist outside pressure for currency revaluation, they seem committed to a policy of gradual liberalization, or reform, which would widen the band within which the yuan can move on a given day.

Ahead of President Hu Jintao's trip to the US and White House summit meeting with President George Bush, Chinese trade officials are making the case for reform of a different kind: US rules for high-tech exports to China. China's argument: Washington's restrictions on high-tech exports based on outdated security concerns--the China threat notion--contribute to the trade imbalance between the two countries.

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China's view of Sunday's nail-biting presidential election in Peru--a country that plays a relatively small but potentially significant role in Beijing's plans for Latin America--is improving.

Chinese officials focused on the region were encouraged by news Wednesday that their preferred candidate, former president and left-leaning social democrat Alan Garcia (pictured here), held his narrow lead over center-right pro-business rival Lourdes Flores for the runoff spot in the second round of polling, scheduled for late May or early June.

The second-place winner will face former army commander and failed coup plotter Ollanta Humala, a populist firebrand, who won a plurality with nearly 31 percent. With more than 87 percent of the votes counted, Garcia was second with 24.45 percent and Flores, a lawyer and ex-congresswoman backed by Peru's business elite--including a powerful billionaire banking family--was in third place place with 23.38 percent.

In order to win the runoff, Garcia will have to overcome the legacy of his 1985-'90 administration--five ruinous years marked by hyperinflation, corruption allegations, and an uprising by Shining Path (ironically Maoist) rebels, whose terrorist insurgency almost succeeded in toppling the government.

As China Confidential reported Monday, Beijing takes a dim of view of Humala. An ultranationalist linked to an openly racist "Incaist" movement that preaches "copper" supremacy over "whites," "blacks," and "yellows," Humala has vowed to curtail foreign investment and restrict imports from China. He has also targeted the mining industry, promising to end exemptions that presently permit global companies, such as giant gold miner Newmont, to avoid paying royalties on mineral production.

In the context of its global quest for raw materials and markets, China is challenging the United States in Latin America, a resource-rich region regarded as part of the US sphere of influence since the Monroe Docrine of 1823. As such, Beijing stands to benefit in principle from Humala's anti-Americanism--including a campaign promise that he will refuse to sign Peru's free-trade pact with the US. But Humala's anti-globalization rhetoric--and pledge to introduce "21st Century nationalization"--makes China nervous.

An analyst familiar with Beijing's Latin America strategy put it this way: "Garcia is a man the Chinese can do business with. His leftwing credentials are in tune with the so-called pink tide sweeping Latin America, but he appreciates the need for foreign investment and trade. And he will be under pressure to prove that he has learned from his past mistakes. The Chinese know what they are getting with Garcia. By comparison, Humala is an unpredictable, unknown actor."

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Speculation that China is ready to let the yuan rise in value against the dollar is driving investors to the soaring Hong Kong stock market.

China is under considerable pressure from the United States to liberalize its managed--make that manipulated--currency ahead of President Hu Jintao's US visit next week. Washington contends that an artificially low yuan--perhaps undervalued by as much as 40 percent--makes Chinese exports unfairly inexpensive and contributes to the surging US trade deficit with China.

And the trade deficit, according to US lawmakers, labor leaders, and manufacturers, translates into American job loss.

The politically potent issue has fueled US pressure on China to let the yuan float freely; but, like European and Japanese officials critical of the yuan regime, the Americans will probably settle for a gradual widening of the band within which the currency can move on a given day. Flexibility, rather than revaluation, is the new buzzword.

Regardless of whether the yuan floats freely or rises gradually, the bottom line, in most investors' eyes, is a stronger Chinese currency relative to the dollar. Ignoring those analysts who argue that a cool-down of the Chinese economy could cause the yuan to decrease in value late this year, the dollar bears are making Hong Kong red-hot. As many large Chinese companies are listed in Hong Kong, the territory is a proxy market for betting on the yuan.

The money flooding into the market has lifted it 800 points in two weeks--on trading turnovers of $5 billion a day. Volumes like these have not been seen since 1998, when the Hong Kong government intervened to support the market at the height of the Asian financial crisis.

Generally Bullish on the region, foreign investors are also pouring cash into Asia's other stock markets. Tokyo's Nikkei 225 index jumped three percent last week to a six-year high. Thailand's SET gained five percent last week to its highest in two years. The Morgan Stanley Capital International Asia-Pacific index, which represents Asia's leading listed companies, rose to its highest level in 16 years.

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As expected, the world's most populous nation and leading intellectual property (IP) pirate promised today to protect intellectual property rights. Chinese officials said their government will open enforcement offices in 50 cities to handle piracy complaints.

The announcement comes just ahead of Chinese President Hu Jintao's long-awaited visit to the United States next week and summit meeting with US President George Bush.

Chinese Commerce Minister Bo Xilai (l.) told reporters in Beijing that his government is increasing efforts to combat IP piracy--music to the ears of America's entertainment and software industries, who lose tens of billions of dollars a year because of the Chinese theft industry.

But ... like the good cow that gives milk and then kicks over the bucket, as some American farmers used to say ... Bo rejected the notion that IP piracy was a significant cause of China's surging trade surplus with the US--which hit a record high of $202 billion last year.

In Bo's view, the US is to blame for the surplus (a) because it is "structural," meaning a function of China's relative advantages and strengths, and (b) because Washington, citing security concerns, continues to restrict exports of the one thing China most wants to buy from the US: high-technology.

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America's entertainment and software industries are most likely to benefit from Chinese President Hu Jintao's trip to the United States next week.

Responding to pressure from US officials and lawmakers, Chinese trade officials are expected to pledge a new crackdown on intellectual property (IP) piracy, which costs US businesses more than $250 billion per year. China--the world's main supplier of copycat and counterfeit products--is responsible for most of that piracy.

Beijing is expected to crack down on IP piracy by shutting down the worst offenders--plants known to be manufacturing movies, music and software on a large scale.

The US government has been working with entertainment and software industry representatives to prepare and file a case against China at the World Trade Organization (WTO). Chinese officials are eager to avoid this before Hu's trip.

US lawmakers have repeatedly expressed frustration that the Bush administration has not already taken action against China, which acceded to the WTO in December 2001.

US Commerce officials have told reporters that progress could be made in the days immediately leading up to the summit meeting between President Bush and Hu at the White House.

A group of top US and Chinese economic policymakers is scheduled to meet next Tuesday to discuss economic concerns that will come up at the summit. The group, formally known as the Joint Commission on Commerce and Trade, was created about two decades ago to ease trade frictions between Washington and Beijing.

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Despite their rivalry and competition with the United States, Chinese officials focused on Latin America were less than overjoyed to learn that an anti-American, populist firebrand won the plurality in Peru’s presidential polling Sunday.

Former army officer and failed coup-plotter Ollanta Humala, who will probably face centrist lawyer and pro-business candidate Lourdes Flores in a late May or early June second-round runoff election, is a radical nationalist who has vowed to curtail foreign investment. His anti-American (and anti-democratic) rhetoric is matched by his anti-globalization rants; and he owes much of his support to a racist, xenophobic “Incaist” movement founded by his controversial father, who boasts that he reared his son “to take power.” The movement’s bizarre ideology urges Peruvian and Andean region “coppers” to unite against “whites” and their “black helpers,” while keeping “yellows” at a distance.

China is increasingly challenging the US for influence in Latin America, a region long considered within the US sphere of interest—Washington’s backyard, as Americans often say. But Beijing would rather deal with a free-market reformer, or a left-of-center social democrat, or a somewhat more predictable leftwing populist demagogue, like Venezuelan leader Hugo Chavez, than an unknown ultranationalist like Humala, who divides the world into the “globalizing” and the “globalized.”

Globalizing China has embarked on a worldwide quest for raw materials—mainly oil--and markets. Its interest in Venezuela, for example, has little to do with Chavez’s dislike for “US imperialism” (though Beijing is perfectly willing to exploit the sentiment) and everything to do with the South American nation’s tantalizing oil reserves. China’s state-owned oil companies are attracted to the Orinoco River region, a belt of heavy crude deposits, which, while difficult and costly to commercially exploit compared with conventional crude, constitute a truly awesome potential supply of energy.

As important as oil is to China, its interests in Latin America and the Caribbean transcend the resource. China has announced $100 billion worth of investment in the region over a decade, and is now the region's third largest trading partner. Trade between Brazil and China increased by 33 percent in 2005.

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Target Taiwan.

The breakaway island democracy will be a priority discussion item for Hu Jintao during his long awaited visit to the United States this week. China's President is seeking a public expression of support from US President George Bush for Beijing's "One China" principle and depiction of Taiwan's independence-minded President Chen Shui-bian as a loose cannon.

Hu's trip comes roughly a year and a month after official passage of China's so-called Anti-Secession Law, which authorizes military action (a) if Taiwan formally moves toward statehood, and (b) if reunification efforts fail. The law is clearly provocative--by definition an escalating act against Taiwan--but Beijing has managed to cast Chen as a dangerous maverick bent on confrontation. His government recently scrapped a dormant reunification agency; and Chen personally addressed a huge pro-independence rally protesting the first anniversary of the Anti-Secession Law--which codifies a long history of policy positions and statements by China's civilian and military leaders regarding reunification.

Washington was quick to criticize Chen; under US pressure, he publicly assured the Bush administration that he would not be responsible for any more "surprises" in cross-Strait relations.

Having maneuvered Chen into the hothead role, Hu can be expected to strike a statesmanlike stance in meetings with Bush and other US officials and lawmakers. He is certain to stress his government's stated preference for peaceful reunification while avoiding discussion of the overhanging threat of attack against Taiwan--a threat backed by an arsenal of missiles.

China has nearly 800 ballistic missiles pointed at Taiwan and is adding dozens a year--40-50, according to US analysts, and 100 or more, according to Taiwan's government. Even without adding to its arsenal, China has the ability to launch wave after wave of missiles against all Taiwanese population centers and military bases.

Taiwan's missile defense system is almost non-existent. The island has relatively few interceptor missiles, which would be vastly and easily outnumbered by China in the event of an all-out assault.

The US is obliged to come to Taiwan's defense in the event of war with China, but Chinese and Taiwanese analysts alike increasingly doubt if Washington has the will--or ability--to save the island from Chinese conquest. One reason: China's unprecedented military modernization and expansion, including an ability to effectively deploy new anti-ship cruise missiles, submarines, and fast-attack boats against intervening US warships.

It's a new world.

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A weekend for good, bad, and more or less meaningless news about foreign pop culture icons entering--or hoping to enter--the booming China market.

First, the bad news. Continuing a crackdown on Western media--to the disappointment of fawning foreign moguls and investment bankers--Beijing's bureaucrats have basically killed the chance for the world's greatest music and pop culture magazine, Rolling Stone--for which this reporter wrote many years ago--to enter the growing Chinese media market. The government announced a moratorium Friday on licensing new foreign magazines for publication.

Under a so-called copyright cooperation deal, Rolling Stone publisher Wenner Media and a Shanghai licensee launched a local version of the year-old magazine last month. But they were ordered to stop publishing after only one issue.

Now for the more or less meaningless news. The world's greatest rock-n'-roll band, The Rolling Stones, have dropped four of their greatest hits from Saturday night's first-ever concert in Shanghai at the request of Chinese censors, according to the Times of London. The forbidden tunes: Brown Sugar, Honky Tonk Woman, Beast of Burden and Let's Spend the Night Together. All four songs are banned in China because of suggestive lyrics.

Legendary Stones frontman Mick Jagger, who has wanted to perform in China for more than three decades, downplayed the importance of the ban, saying the Stones had some 400 songs to choose from.

Finally, the good news. The world's greatest motorcycle company, Harley-Davidson, opened its first dealership in China on Saturday. The gleaming showroom and workshop is located on the edge of Beijing's Fourth Ring Road -- just a 20-minute drive from the heart of the capital -- where farmers can still be seen pushing carts on the street. Bikes range in price from $12,000 to $37,450--hefty prices in a country where urban incomes average around $2,000 a year.

Wisconsin-based Harley-Davidson, which began selling motorcycles in 1904, said it expects market entry into China to be a "gradual process."

The leisure-oriented market for premium, heavyweight motorcycles is just beginning to emerge in China, with market development limited by ownership and riding restrictions in most large cities and on highways, and by limited but growing disposable income.

In July 2004, China's first Harley-Davidson club opened in Guangzhou, in Guangdong province. It attracted 15 members after Chinese authorities approved their application to form the club.

Last year, Harley-Davidson sold 266,500 motorcycles in the United States and 62,500 through its global operations.

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Chinese Communist Party officials are reportedly debating ways of alleviating the plight of China's urban underclass--a growing, desperately poor population barely surviving on the margins of booming cities.

Accounting for 20 percent of all city dwellers, the urban underclass is made up of penniless migrant laborers and workers fired from state-owned enterprises. They constitute a potentially serious threat to social stability--more serious, say some experts, than the left-behind rural poor who have been responsible for thousands of violent uprisings and protests.

Compared with poor peasants who can still eke out a living from farming--provided the village cooperative-owned lands they work but do not control have not been sold out from under them by corrupt local officials--the urban poor are destitute. They live on the edge, with no rights, no protection from abuse and exploitation--and no hope of improving their lives.

And there are more of them each year. China is urbanizing at a rate--and on a scale--never before seen in human history. The government plans to move more than 300 million peasants from the countryside to the cities by 2020. In contrast, Western nations took hundreds of years to reach this level of urbanization.

"Cities are becoming the habitat of China," says a Chinese urban affairs analyst. "In less than two decades, urban centers will become the daily environment for much of China. This is a big challenge."

Indeed. According to official statistics, 540 million people presently live in Chinese cities. The government plans to boost the current 41.8 percent urbanization rate to 75 percent by the middle of the century in order to raise living standards, increase consumer demand and create conditions for permanent economic growth.

The growth has come at a price. China's booming cities have been built on the backs of millions of rural migrant workers who have been lured from their homes in the countryside by the promise of an easier life and relative material wealth in the cities. Official figures put the number of people who leave the fields to labor in cities--from construction sites to sweatshops--at about 130 million.

In other words, the majority of the urban working class are migrants who have been denied a fair share of China's wealth.

Many of them are lucky to get any share at all, because they have no legal right to live in the cities in the first place. They work without assurance of getting paid--it's not uncommon for workers to be cheated out of a year's wages--and can be let go and kicked out of their homes at a moment's notice.

In response to the plight of the rural poor, China's rulers recently announced a sweeping new initiative aimed at creating a "socialist countryside." The intention is to narrow the wealth gap beween rural and urban areas.

But what about the chasm inside the cities? It's a more complex problem that defies easy answers, because painfully cheap and exploited migrant labor has been the dirty secret of the Chinese economic miracle.

As the urban affairs analyst put it: "Don't expect to see a call for socialist cities."

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Japan's investment in China reached a record high of $6.5 billion in 2005, a 19.8 percent increase over a year earlier.

According to the Beijing office of the Japan External Trade Organization (JETRO), Japanese companies that worried about anti-Japanese demonstrations in China in early 2005 regained confidence in the latter half of the year.

The one-year anniversary of the demonstrations in Beijing and Shanghai is approaching. Japan was shocked by the rowdiness and violence of the street protests, which appeared to have been government orchestrated.

JETRO says Japanese automakers contributed greatly to the increased investment in 2005 as they built new manufacturing facilities in China.

Tensions between China and Japan have been brewing over competing claims to undersea resources and Beijing's growing military power, which Japanese leaders have described as threatening.

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The Asian Development Bank (ADB) is forecasting a slight slowdown in economic growth in developing Asia, from this year's estimated 7.2 percent to 7 percent next year. The forecast was released Thursday, in the bank's flagship publication, Outlook.

ADB chief economist Ifzal Ali says the decline is partly a result of persistently high oil prices and an anticipated cooling down of China's economy, which accounts for a third of developing Asia's total gross domestic product.

"This will be brought about mainly because export growth is expected to moderate, particularly in East Asia," Ali explains. "Monetary policy will be less accommodative. Some of the pass-through of oil prices that has not occurred in countries like India and China will have to occur, adding to inflationary pressure. And finally the reorientation of the PRC [Peoples Republic of China] with greater emphasis on quality with life, being traded up against higher growth rates … will affect overall growth in Asia."

Asia's developing nations grew 7.4 percent last year, driven largely by China and India.

ADB estimates China's economy will grow by 8.8 percent next year, down from this year's expected 9.5 percent. The decline will be due to a fall in industrial production, a slight decline in exports and generally higher prices.

Another driver of the region's growth, India, is expected to continue its rapid economic development, despite possible interest rate hikes and oil price adjustments. India's economy is expected to grow by 7.6 percent this year, further expanding to 7.8 percent next year.

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China's official Xinhua news agency reported today that the country's foreign exchange reserves will continue to grow rapidly this year, increasing by more than $100 billion. If this happens, it will be the fourth year in a row China's reserves have grown at this level.

In a related development, Chinese President Hu Jintao's visit to the United States later this month is encouraging expectations of a 3-5 percent appreciation of China's currency, the yuan.

US lawmakers and officials have accused China of manipulating the yuan in order to keep it and Chinese products artificially low relative to the dollar in an effort to boost exports. The Americans (and Europeans) want China to let the yuan float freely; but Beijing has thus far rejected the pressure for radical reform.

Hu's trip could provide China with an opportunity to mollify its critics by widening the band within which the yuan can move on a given day. This, plus speculation that the dollar will continue to show weakness in the coming weeks, is helping to fuel expectations of a rising yuan.

Some US investors, as reported here recently, have in part shown interest in late-stage venture capital deals in China because of a growing sense on Wall Street that China will eventually switch to a free-floating yuan.

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Chinese Premier Wen Jiabao (l.) underscored Beijing's commitment to its eight South Pacific allies Wednesday.

The group includes: Fiji; Samoa; Papua New Guinea; the Cook Islands; Vanuatu; Micronesia,; Niue and Tonga.

Speaking in Fiji at the first China-Pacific Islands economic forum, Wen promised the countries zero-tariff entry for exports, more than $370 million in loans over the next three years, debt cancellation for the poorest countries, health cooperation and other incentives.

The South Pacific has been a diplomatic battleground for Beijing and Taipei. But as China's economic influence has expanded in recent years it has managed to gain diplomatic recognition at the expense of Taiwan, which China regards as a renegade province.

Analysts say China has several aims in the region beyond isolating Taiwan.

James Chin, a Pacific islands expert at the University of Malaysia Sarawak, says: "The Chinese are basically interested in their natural resources and maybe getting support from these countries in international forums Other than that, their idea is to make sure that none of these countries switch diplomatic recognition from Beijing to Taiwan. And for those countries which currently recognize Taiwan, their main aim is to basically buy recognition of these countries."

At the forum, Wen said China's friendship is not a matter of diplomatic expediency but "a strategic decision". He said China has funding and technical expertise while the South Pacific nations have natural resources. Chinese companies have invested heavily in the region's timber and mineral industries.

The six South Pacific nations that recognize Taiwan did not attend the forum in Fiji. The group includes: : Kiribati; Marshall islands; Nauru; Palau; Solomon Islands; and Tuvalu.

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Rising rhetoric about rising China.

Taiwan's independence-minded President Chen Shui-bian (seen here) told a national television audience that China is planning for a "military showdown" with the breakaway island before 2015. Chen said China has at least 787 missiles aimed at Taiwan and is adding 100-120 missiles per year to the arsenal. He made the comments on Sunday, in the course of a televised, two-hour meeting with opposition Kuomintang leader Ma Ying-jeou, who favors reunification negotiations with the mainland based on Beijing's sacrosanct "One China" principle....

United States Secretary of State Condoleezza Rice told a US Congressional hearing on Tuesday that Washington has to look at the "real sources" of the country's surging trade gap with China. She referred to the need for "structural reform" in China--an apparent allusion to allegations that Beijing prevents its currency, the yuan, from floating freely in order to keep it and Chinese products artificially cheap in dollar terms....

Japan's Chief Cabinet Secretary Shinzo Abe said his country and China differ on fundamental issues such as freedom and human rights, and added that Tokyo needs to strengthen ties with countries that share its values. Abe, who is regarded as the frontrunner to succeed Prime Minister Junichiro Koizumi when he steps down in September, added that Japan wants to resolve bilateral disputes with China through dialogue. Abe made his comments in an interview with the financial daily Nihon Keizai Shimbun that was published on Tuesday.

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Shades of Indiana Jones!

China Confidential has learned that Chinese energy officials, geologists, and other technical experts have been making discreet, preliminary inquiries about heavy oil deposits in a tiny country that barely produces more than 2,000 barrels of crude per day--Israel.

The heavy oil deposits--including both tar sands and heavy crude--are located along the western margins of the Dead Sea, an area associated with heavy oil since Biblical times. The Old Testament book of Genesis refers to bituminous pits in the valley of Heimar, on the southwestern shore of the land-locked, salt sea; and the destruction of the Dead Sea Plain cities of Sdom and Gomorrah, as described in Genesis, is considered by some scientists to have been caused by the ignition of solid bitumen that may have overlain the shallow southern part of the sea and adjacent areas.

The intriguing historical record points to the possible presence of large heavy crude deposits beneath the Sea itself. It was known to ancient Greeks as Lake Asphaltites--from which the term asphalt was derived--because of the lumps of semisolid petroleum that were washed up on its shores from underwater seeps. In Roman times, much of the asphalt recovered from the Asphalt Fishery was taken to Egypt, where, under the Pharoahs, it was used for many purposes, including the waterproofing of cisterns and as a preservative coating on certain wooden articles.

In 1840, an American geologist described large quantities of floating asphalt that drifted ashore after earthquakes. As recently as 1925, a mass of asphalt weighing around 150 tons rose from the Dead Sea bottom near Ein Gedi, a Biblical site now associated with an Israeli kibbutz (communal farming village). Exploratory drilling for conventional oil since Israeli independence has produced more information concerning occurrences of solid and semisolid types of heavy oil--dismissed by Israelis are uneconomic "tar and asphalt shows."

In the early 1980s, American independent Tapco Oil established the existence of shallow on-shore heavy crude deposits with a test drilling and mapping program. The exploration effort was led by Joseph Barnea, a retired United Nations official responsible for numerous natural resource discoveries. An Israeli national, Barnea championed heavy oil development around the world and worked with tar sands producers and government officials in Alberta, Canada to raise awarness of their reserves.

Interest in heavy oil rose and fell with the price of oil--in Israel and around the world. Apart from squeezing production from some old and marginally commercial wells, Israel imports all its oil. Seventy-five percent comes from Russia and the former Soviet Union; the rest, from West Africa, Egypt and Mexico. Iran was a supplier before the Islamic revolution.

While coal will remain China's principal energy component for years to come, demand for oil is rising rapidly. The country has embarked on a global quest for oil supplies, including conventional and heavy oil. From Canadian tar sands to Venezuelan heavy crude--a giant chain of deposits beneath the Orinoco River belt--state-owned Chinese companies are apparently willing to consider heavy oil plays deemed too risky for Western companies.

In Israel's case, of course, it is the political risk that may prove unacceptable, even for energy-starved China. Though Israel and China are on good terms--the Jewish State has been an important supplier of military technology--Beijing is not likely to anger Arab and Muslim nations for a speculative heavy oil play, no matter how interesting. Inquiries are one thing--energy bureaucrats are in the business of collecting and analyzing data--and actual exploration is something else, entirely.

Which means that Dead Sea heavy oil, like the lost Ark of the Covenant and so many other ancient mysteries, may remain just that: a mystery.

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Yale University is preparing for a visit by China's President Hu Jintao as part of his trip to the United States later this month.

The Ivy League university--which, along with Harvard, is arguably America's most influential and elite--has not yet received official confirmation of the visit, which is expected to occur on Friday, April 21, and consist mainly of a speech by Hu on the US-China relationship.

A Yale official said Hu's visit "would be a testament to our faculty's extensive scholarly activities in China and to the long-standing relations between Yale and China."

Hu was originally scheduled to speak at Yale early last September as part of a state visit to the US. But that trip was postponed because of the Hurricane Katrina disaster. Instead, Hu met briefly with US President George Bush in New York later that month on the sidelines of ceremonies commemorating the 60th anniversary of the founding of the United Nations.

Both Bush and his 2004 Presidential challenger, US Senator John Kerry, are Yale graduates. Former President Bill Clinton and his wife, US Senator Hillary Clinton, are graduates of the university's prestigious law school. Democratic Party Chairman and former Vermont Governor Howard Dean, who ran against Kerry for the party's presidential nomination, is also a Yale graduate.

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China and Australia signed two agreements Monday that open the way for Australia to supply uranium to China's growing nuclear energy industry.

The accords will make Australia the world's largest uranium exporter.

The agreements put in place strict safeguards to ensure that Australian uranium supplied to China will be used only to generate electricity, and not for China's decades-old nuclear weapons program.

Australian officials say the exports to China will not start for at least two years, because Australia's total production is committed until at least 2008.

In a signing ceremony in Canberra, Chinese Premier Wen Jiabao assured his hosts that his country would use the uranium only for peaceful purposes.

Wen said China is a responsible nation, a member of the International Atomic Energy Agency (IAEA) and a signatory to the Nuclear Non-proliferation Treaty (NPT). He said China will observe the provisions and regulations laid out by both the IAEA and the NPT.

Australia has 40 percent of the world's uranium deposits, but sells the radioactive mineral only to nations that have signed the Non-Proliferation Treaty.

The new agreements open the way for Australian miners to supply China with billions of dollars worth of uranium to fuel its increasing number of nuclear power plants.

Critics, including Australian environmental groups, opposed the deal, saying that China could divert the uranium to build nuclear weapons.

Australian Prime Minister John Howard said China's weapons program would go ahead with or without Australian uranium, and said he is confident that the safeguards will be enforced. He also paid tribute to Canberra's strengthening relations with Beijing.

"Of all the major relationships that Australia has with other countries, none has been more completely transformed than our relationship with China over the last 10 years," Howard said.

Howard welcomed the economic expansion and outward development of China as good for the world. In a nod to critics who have accused his government of allowing the United States to draw it into efforts to counter Beijing's rise, he said Australia did not see merit in a "policy of containment towards China."

"We see it as in the interests of this country, the interests of our region and, indeed, the interests of the world to be an active partner in the long journey China has begun to undertake towards realising her full potential," Howard said.

Trade with China has quadrupled in the last decade and it has become a major market for Australian minerals. The two countries agreed Monday to step up negotiations on a free trade agreement.

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Shinzo Abe amplified--and escalated--his criticism of China today.

Japan's Chief Cabinet Secretary (seen here) said the Japanese government disagrees with China's assertion that the visits by Prime Minister Junichiro Koizumi to a Tokyo war shrine are the biggest barrier to improving ties.

Following remarks made on a Sunday television program, Abe told reporters China is to blame for the failure to hold a summit meeting at which the two country's leaders could discuss their country's differences.

He said Japan cannot accept Chinese President Hu Jintao's assertion that Koizumi is totally to blame for the frayed Sino-Japanese relationship.

Hu met former Japanese Prime Minister Ryutaro Hashimoto in Beijing on Friday. He said that Koizumi must end his visits to the Yasukuni Shrine in Tokyo before the relationship can improve.

Koizumi told parliament Monday it is wrong of China to refuse to hold a summit just because of one issue.

The Yasukuni Shrine honors all of Japan's war dead, including those convicted of war crimes in Asia during the early 20th century. China was the scene of many of those crimes, and the Chinese see the visits as an indication that Japan has not sincerely repented for its actions.

In an additional verbal jab at Beijing, Abe, who is considered the frontrunner to succeed Koizumi, hinted that he would also visit Yasukuni if he became prime minister. He said he would like to continue praying for the souls of those who died for their country.

Relations between Beijing and Tokyo have plunged to their worst point in decades since Koizumi became prime minister five years ago, and began making public visits to the shrine.

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China was criticized on Sunday by the two men considered frontrunners to succeed Japanese Prime Minister Junichiro Koizumi when he steps down in September.

Foreign Minister Taro Aso told a national television talk show audience that he was concerned about China's increased military budget and lack of transparency in military matters, which "gives nearby countries a sense of threat."

On the same program, Chief Cabinet Secretary Shinzo Abe rejected last week's comments by Chinese President Hu Jintao, who said he would be willing to meet Koizumi if he stopped visiting the controversial Yasukuni war memorial--a shirne housing the spirits of 2.5 million Japanese war dead, including a number of convicted war criminals.

"It is wrong for China to refuse talks just over one problem," Abe said.

China has repeatedly condemned the shrine visits--which Abe referred to as an internal issue--as offensive to victims of Japanese aggression in the first half of the 20th Century.

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Human Rights in China (HRIC) said Saturday that Mao Hengfeng, a veteran Shanghai human rights petitioner, was subjected to physical and mental abuse while detained for more than a month for her participation in a hunger strike.

The New York-based organization said Mao was confined to a room in a Shanghai apartment shortly after being detained in mid-February.

Mao told the organization that she was beaten on several occasions, including one instance when a police officer knelt on her chest and grabbed her neck. She was quoted as saying that the officer said he could "cause the blood to flood to my brain so that cause of death could not be determined."

HRIC said Mao's lawyer was not permitted to see her.

Chinese authorities have not publicly commented on the matter.

Mao said that she was held in soft detention in an apartment in Yangpu District's Gongqing Forest Park, with five or six people keeping watch on her every day.

Mao was kept confined to one of two rooms, and even had to ask permission to go to the bathroom, she said.

"Apart from the psychological torment, they also physically abused me," she said. "They beat me on several occasions, and a police officer surnamed Bai with badge number 039351 knelt on my chest and grabbed me around the neck, saying he would cause the blood to flood my brain so that cause of death could not be determined."

Mao’s husband, concerned for her health, asked Mao's lawyer, Wu Guoce, to visit her in detention on February 20. Wu was reportedly refused access to Mao on “state secret” grounds.

According to HRIC, several other petitioners detained around the time of the National People'’s Congress session in February remain in custody. The human rights group says the elderly parents of three detainees, Ma Yalian, Chen Xiaoming and Fu Yuxia, went to the Shanghai office of the official Xinhua News Agency and asked Xinhua to produce an “internal report for central government officials on the unlawful detention of petitioners in Shanghai. However, HRIC says, the Shanghai police deployed dozens of police officers to block access to the Xinhua office, and the parents, all aged in their 70s and 80s, were not allowed to talk with Xinhua officials.

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International environmental organizations say China's appetite for wood is fuelling illegal logging that is destroying Burma's forests.

The foreign environmentalists say Chinese logging operations have moved further into the Burmese interior because a quarter of the forest cover near the border is already gone.

Unregulated logging is illegal in Burma; and China bars imports of illegally cut timber.

The Chinese government has played down the extent to which Chinese companies are responsible for Burma's devastation.

China's Foreign Ministry spokesman Qin Gang, for example, recently told a reporter that only a handful of Chinese companies are involved.

"Some Chinese companies have logging operations in Burma," Qin said. "But most of the businesses are following the contracts between the companies of the two countries and most of the business conforms to the laws and regulations in that area."

There is growing concern that over-logging in the jungles of Southeast Asia is causing severe environmental and social problems. When hillsides are stripped of trees, soil erosion, landslides and floods become more common, and the destruction of forests destroys wildlife habitats. In addition, traditional communities that depend on forests for their livelihoods often are forced out of their homes.

Activists have urged China and Burma to enforce laws forbidding illegal logging. They are also urging other countries to ban imports of Chinese wood products that might be made from illegally cut trees.

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