Where the MH370 Search is Focused After Latest Satellite Images

A new operation has been launched in the search for missing Malaysian Airlines flight 370 after Australian satellite images showed possible objects floating in the Indian Ocean along one of the jet’s suspected flight paths.

Search crews found nothing after investigating Chinese satellite images that appeared to show debris floating in the Gulf of Thailand along the original flight path of the Beijing-bound Boeing 777, which was carrying 153 Chinese citizens when it disappeared on March 8. But Australia’s prime minister and Malaysia’s defense minister both described the new information as “credible.” WSJ’s Ross Kelly and James Glyn report:

The operation has dispatched four aircraft to an area about 2,500 kilometers (1,553 miles) southwest of Perth, in Western Australia, to assess the finding, Australia’s maritime safety authority said Thursday.

An Australian PC-3 Orion aircraft is already at the scene but hasn’t sighted any debris. Three other aircraft from the U.S. and New Zealand are expected to arrive later Thursday, along with a nearby merchant ship. Australia has also sent a warship to the zone to accommodate recovery of large items, if necessary.

The largest of the two objects spotted is thought to be up to 24 meters long, said John Young, a maritime authority official, to reporters.

“The indication to me is that they are objects of a reasonable size and probably awash with water, bobbing up and down on the surface,” he said.

Australian authorities cautioned that the satellite images were indistinct and the search could be complicated by poor visibility.

As the graphic below shows, the potential site of the objects is located off Australia’s western coast, roughly 1,500 miles southwest of Perth, and slightly east of one of the plane’s possible routes. Read the rest of the story on WSJ.com and see CRT’s other coverage of the missing plane here.

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Alibaba’s Spurning of Hong Kong Listing Has Downsides

Alibaba’s choice to ditch a Hong Kong listing for a U.S. listing of up to US$15 billion will allow the ecommerce behemoth to keep control over the company’s board, a privilege denied Alibaba by Hong Kong regulators. While getting into the U.S. may be easy, and a successful New York IPO is all but assured for China’s biggest ecommerce player, Alibaba is unlikely is to find being listed in the U.S. easy sailing.

First, the risks of investor lawsuits loom. By listing in the U.S., Alibaba exposes itself to class-action lawsuits from investors since Hong Kong lacks a class-action mechanism. A suit filed in 2004 by U.S. shareholders against giant China Life Insurance Co. over its alleged failure to disclose sensitive information–including a government audit–alerted many Chinese companies to U.S. litigation risk, although those claims ultimately were dismissed by courts in 2008. China Life, the country’s largest insurer, listed in both the U.S. and Hong Kong in 2003.

Second, Alibaba’s listing implies the need to turn over books containing valuable data on the Chinese economy to U.S. regulators. That might make Chinese officials uneasy.

“There’s a lot of what China might consider to be state secrets inside of Alibaba,” said Paul Gillis, a professor of accounting at Peking University. “Giving U.S. regulators access to that information is something that I think China doesn’t really relish.”

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Third, Alibaba faces uncertainty from an ongoing battle between the Securities and Exchange Commission and PRC affiliates of the Big Four accounting firms. The SEC has demanded access to working papers from the Big Four affiliates, which they say they cannot provide without violating Chinese law. In January, an SEC administrative judge suspended the PRC affiliates from auditing U.S-traded clients for six months, a decision the firms have appealed. Alibaba is insulated from the immediate suit; it says its principal auditor is PricewaterhouseCoopers Hong Kong, which is unaffected by the ruling. But sources previously have told Moneybeat that issues surrounding Chinese secrecy laws might also apply in some cases to Hong Kong auditors, leaving them vulnerable to SEC sanction in the future.

And lastly, while a favorite venue of Chinese tech firms, the U.S. remains an unfamiliar market. Hong Kong has a larger investor base that understands–and is willing to invest in–Chinese companies. Alibaba Executive Vice Chairman Joe Tsai has written on Alibaba’s corporate blog that since most of Alibaba’s business is in China, “it was natural for Hong Kong to be our first choice.” In an emailed statement, the Hong Kong Exchange echoed that sentiment, noting that HKEx has been “the leading offshore capital formation centre for companies from Mainland China” for the past 20 years.

In fact, Alibaba rival, Tencent Holdings Ltd., is up roughly 10% since the beginning of 2014 in Hong Kong and has surged nearly 700% since it raised around US$200 million in its 2004 IPO. It now has a market capitalization of roughly US$140 billion. Meanwhile, Baidu, Inc., China’s leading search engine and another internet rival of Alibaba’s, is down 9% year to date. It hasn’t done badly however, a reflection of the huge investor base in the U.S. covering fast-growing Chinese tech companies: Since its roughly US$4 billion IPO, Baidu is now worth US$56.63 billion.

Ironically, Alibaba may be exempt from the burden most companies associate with a U.S. listing–onerous requirements on disclosures and transparency. Foreign issuers are exempt from some of the stricter reporting requirements under the U.S.’s landmark Sarbanes-Oxley Act. Hong Kong, meanwhile, has more burdensome barriers for entry for companies using variable interest entity structures, or VIEs, which allow Chinese companies in industries where foreign ownership is restricted-web companies, for example-to list on overseas exchanges, according to Antony Dapiran, a partner at Davis Polk. Under VIE structures, the offshore listed company owns a Chinese shell company which contracts with the underlying Chinese firm to receive all its profits. Because the arrangement relies on contracts, if a company fails, foreign investors don’t have much access to the underlying company’s assets in China. Compared to Hong Kong, U.S. VIE regulation is light.

“In a way the U.S. is less burdensome than Hong Kong for a company like Alibaba,” said Mr. Dapiran. The VIE structure already worked to Alibaba’s advantage in 2012, when Alibaba founder Jack Ma transferred the contractual assets of Alipay, Alibaba’s online payment system, to a private company he controlled-over the protests of Alibaba investor Yahoo.

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Search for Flight 370 Troubled by Terrain

A week after the disappearance of Malaysia Airlines3786.KU +4.35% Flight 370, rescue teams are no closer to finding the missing jet. During a press conference Saturday, Malaysian Prime Minister Najib Razak said satellites had last been in contact with the plane at 8:11 a.m. a week earlier – much later than previously thought. He then shared information about two possible “corridors” where experts said this last signal could have come from.

The northern corridor includes mountainous terrain that reaches up to around 20,000 feet (6,096 meters), and crosses the borders of countries such as China and Kazakhstan. The southern corridor, apart from a small corner of Indonesia, traverses nothing but ocean. It includes an ocean trench that is deeper than the Tibetan Plateau on the northerly corridor is tall.

Both areas will present considerably difficulties to search parties looking for Flight 370.

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China’s Capital Account – An Open and Shut Case

As part of its push to give markets a “decisive” role in the economy, China has pledged to drop controls on the movement of capital and make its currency, the yuan, fully convertible.

China for years has maintained a “closed” capital account, meaning companies, banks and individuals can’t move money in or out of the country except in accordance with strict rules. The limit for individuals is currently $50,000 a year, while corporate investments need government approval.

Loosening those controls could bring in investment, not to mention offering Chinese savers new options beyond a sky-high property market and shady “wealth management products.” The risk is that it leads to unwanted swings in asset prices as speculative capital herds in and out. Capital controls are the main thing that has saved China from the turmoil that hit other emerging markets at the start of this year.

Officials have suggested that China could respond to dangerous movements of money by simply closing the capital account again. But backtracking would be a bad idea, according to a recent report from the London-based Official Monetary and Financial Institutions Forum.

“If you do this, don’t go back,” Gabriel Stein, an economist at the organization, told reporters in Beijing last week. “Don’t go back on your reforms in the face of opposition… The problem is that if you do people will say ‘we told you so’.” That could make it harder to push ahead again in the future, he said.

Mr. Stein knows whereof he speaks. He worked in Israel’s Finance Ministry in the 1980s, when the country was recovering from a botched capital account liberalization that ended in high inflation and a banking crash. Capital controls  were reintroduced in 1979, two years after being removed.

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The second time around, Israel took things more slowly, liberalizing over a period of 18 years from 1987 to 2005 – with more success.

In any case, China has to do a lot of work first to get interest rates in line with international norms. The central bank scrapped most controls on lending rates last year, but deposit rates are trickier. Officials fear that banks may jack up rates to grab more deposits, and then find their finances stretched to the breaking point. That in turn means a deposit insurance scheme has to be in place to protect depositors if a bank fails.

How long will it take to get all this ready?

“I would expect China will have a fully liberalized capital account by 2020,” said Mr. Stein. That’s because the leaders will be nearing the end of their tenure, and feeling their power wane as flunkies turn their attention to making nice with the next generation. If they want to make this their legacy, they had better get on with it, Mr. Stein reasons.

Yi Gang, the vice governor of the People’s Bank of China, said  last month that the central bank would study the so-called Tobin tax – a levy on financial flows that would keep investors from selling the currency – as well as other methods to curb short-term, speculative “hot money.”  Malaysia used a form of the Tobin tax during the Asian crisis, to stop cash from fleeing the country.

Mr. Yi made the comments in an article he wrote for the Communist Party journal Qiushi, or Seeking Truth, widely read by senior and up-and-coming officials. He was echoed by Guan Tao, head of the payments department of the State Administration of Foreign Exchange, who also said the Tobin tax was a possibility.

Mr. Stein contends that a Tobin Tax sends the wrong signal to investors, who want to know “If I go in, can I go out?” He notes that, after years of crises where markets periodically lost faith in the pound, the British currency actually rose after exchange controls were lifted in 1979. Mr. Stein attributes that to investors feeling more comfortable in the knowledge that the currency was convertible.

Even if a temporary reintroduction of capital controls works for a smaller country, reimposing them just at the time when investors want their money most could scupper China’s hopes of making the yuan a global reserve currency.

While countries like Malaysia, Nigeria and Chile have already started to hold a small part of their reserves in yuan, the currency still  has a long way to go before it can rival the dollar – or even the Swiss franc.


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Sochi Winter Olympics: How Did China Do?

The Sochi Winter Olympics, with its often balmy weather and strange “Hot. Cool. Yours” motto, has drawn to a close.

Who knows why the organizers chose that motto. It sounds like something a selfish person shouts when using up all the nice water in the shower. What is clear is the medal table, and China’s position on it.

Actually, that’s not altogether clear either. It depends on whether you count the overall medals won or give greater weight to the golds. In terms of overall medals, China finished 11th with nine medals, while on the gold medal count it was 12th after winning three golds. Russia won on both counts, with 33 medals in total and 13 golds.

China’s haul is one above The Wall Street Journal’s pre-Games forecast, which may come as a shock to some of our esteemed readers, including a commenter called weiwei who wrote this on Feb. 14: “It seems that WSJ’s prediction on China winning 6 medals overall is once again way off the mark. I have never paid attention to such prediction. It’s ludicrously US-centric.” The Wall Street Journal had forecast China would win eight medals.


Team China enter the stadium during the Opening Ceremony in Sochi, Feb. 7. European Pressphoto Agency
China’s best day in Sochi was the day before Valentine’s Day, when Li Jianrou won the 500-meter short-track skating event and Zhang Hong won in the 1,000 meters speed-skating. China’s other gold, again won by one of its female skaters, arrived on Feb. 15, when Zhou Yang retained her 2010 Olympic title in the 1,500 meters short-track race.

China had another good night at the Iceberg Skating Palace toward the end of the Games on Friday, when it bagged two silvers and a bronze. That left it with six short-track skating medals in total, more than any other nation. Russia, inspired by Victor An, who used to skate for South Korea, finished the Olympics with one more short-track gold than China but only five medals overall.

Han Tianyu followed up his silver in the men’s 1,500 meters with a bronze in the 5,000 meters relay on Friday. He narrowly missed out on a third medal, as he came fifth in the men’s 500 meters. Wu Dajing got silver in that race, which was won by Russia’s An, who finished the Olympics with three golds and a bronze.


Li Jianrou cries after winning the women’s 500 meters short-track final on Feb. 13. Associated Press
After missing out in earlier races Fan Kexin, the senior skater in the injured Wang Meng’s absence, finally got an Olympic medal on Friday, when she won silver in the women’s 1,000 meters short-track race.

There was disappointment in the freestyle aerials skiing events. China won medals in both the men’s and women’s finals, but it didn’t top the podium. In the women’s aerials, world champion Xu Mengtao had to settle for silver after missing her landing in the final.

“I do still feel a little regret. This is the fourth silver medal China has won at the Winter Olympics in aerials, and we have always wanted to get a gold medal, but sadly I didn’t get the chance,” Xu said.

Despite having four skiers in the men’s freestyle aerials, China emerged with only a bronze in that event, won by Jia Zongyang. In both the men’s and women’s final, China had the agonizing misfortune of a fourth-place finisher – Li Nina in the women’s and Qi Guangpu in the men’s.


Xu Mengtao. Associated Press
The men’s curling team was a surprise package, making it all the way to the bronze medal match, but it lost that to Sweden and was left without a medal. The Chinese team, led by Liu Rui, was shunted into the bronze medal showdown after losing to a Canadian team that brushed aside (to use curling parlance) Great Britain in the final.

The men’s team will resurface again soon as Beijing is hosting the World Curling Championship from March 29 to April 6.

The women’s curling team, which includes three former speed-skaters and a former figure skater, was tipped for a medal in Sochi but missed out after finishing seventh in the round robin.

China’s overall performance fell short of that four years ago in Vancouver, at least in terms of medals won. China left the 2010 Games with 11 medals, including five golds. It did well in Turin in 2006 too, with 11 medals, including two golds. Sochi yielded one more gold but fewer medals overall. Still, it was an improvement from Salt Lake City in 2002 and Nagano in 1998, when China won eight medals.

But the Olympics aren’t all about winning. Even the founder of the IOC, Pierre de Coubertin, said as much. “At the Olympic Games, the important thing is not winning but taking part. What counts in life is not the victory but the struggle,” he said. “The essential thing is not to conquer but to fight well.”

Russia, which topped the table both in terms of overall medals and golds won, probably won’t be quoting him for a while.

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China Fuels Olive-Oil Rush

Wealthy Chinese consumers are switching to olive oil for cooking, fuelling spending on imports and spurring companies to snap up olive groves in Australia. As Simon Hall and Robb M. Stewart report:

Buying has been driven by shoppers looking for prestigious and healthy products that aren’t tainted by domestic food safety scandals at home. A raft of advertising campaigns showcasing the benefits of the oil not traditionally used in Chinese cuisine is also boosting demand at the expense of other cooking oils.

China spent $184 million on imported olive oil last year, 9.3% more than in 2012 and up from just $1 million a decade earlier.

Extensive television advertising by Chinese importers and foreign trade-promotion bodies on its uses—extra-virgin for drizzling or lower-temperature cooking, regular olive oil for higher-heat frying–and the opening of hypermarkets in second- and third-tier cities across the country stocking overseas foods has helped drive sales, even though olive-oil import volumes are less than 1% of those of palm oil.
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For More Hollywood Movies, China Needs More Theaters

If Hollywood wants more of its movies shown in China, it might take more than diplomatic finesse. It might take a hammer and nails.

A need for more movie theaters is holding back government support for an expanded quota of foreign films allowed in Chinese theaters, according to Victor Koo, the chief executive of China’s largest online video company, Youku Tudou Inc.YOKU +0.74%

Chinese officials don’t want to let in more foreign movies until they have the screens to accommodate them, said Mr. Koo. The quota system will be “relaxed over time” as exhibitor infrastructure grows, he predicted in an interview last week with The Wall Street Journal. Youku has stepped up its efforts recently with Hollywood studios by using its site to promote American films and streaming whole movies not shown in Chinese theaters.

Mr. Koo didn’t say what, if any, threshold of theaters is required to raise or eliminate the quota. He is part of a close-knit consortium of entertainment officials in China—a market second only to North America for box office sales—and Chinese consumers have shown a particular appetite for big-budget Hollywood spectacle.

But the market comes with strings attached—34, to be exact.

That’s the maximum number of foreign titles the Chinese government allows into its nation’s theaters every year, a quota in place to try to protect China’s own nascent movie business. Hollywood studios have wondered when that number might be boosted—the last time was in February 2012, when Vice President Joe Biden announced a deal increasing the quota to the current 34 titles, from 20.
The construction crews are already apparently working around the clock: China currently has a total 17,740 movie screens, according to film-research company EntGroup. A Chinese state agency said in January that the country added more than 5,000 screens in 2013 alone. The United States has a population about one-fourth the size of China’s, but had nearly 40,000 screens at the end of 2012, according to the National Association of Theatre Owners.

Mr. Koo’s remarks come after a story in The Hollywood Reporter earlier this month anonymously quoted a source saying the Film Bureau in Beijing was mulling a decision to increase by 10 the number of foreign films allowed into the country.

An official at China’s State Administration of Press, Publication, Radio, Film and Television told The Journal and China’s official Xinhua Agency that the country has no plans to raise its film limits.


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