China says "board and search" sea rules limited to Hainan coast

BEIJING | Mon Dec 31, 2012 4:01am EST

BEIJING Dec 31 (Reuters) - Contentious new rules allowing Chinese police to board vessels deemed breaking the law off the southern island of Hainan are only valid within a narrow coastal zone, the government said on Monday, seeking to calm regional tensions.

The regulations, which go into effect in the new year, sparked widespread concern in Southeast Asia that China was taking a tougher line on the disputed South China Sea, where several nations are involved in a bitter territorial dispute.

Worries were compounded as Hainan is technically the province which has jurisdiction over China's extensive South China Seas claims, raising the possibility Chinese police could board ships anywhere in those waters.

But Chinese Foreign Ministry spokeswoman Hua Chunying said the scope of Hainan's rules, announced by state media in November, represented no change from regulations passed in 1999 limiting enforcement to within 12 nautical miles of Hainan's coast.

"What I want to stress is that these local rules were formulated by the Hainan provincial government to strengthen border controls over the coast and maritime management," Hua told a daily news briefing.

"Their aim is to tackle crime at sea and maintain peace on the seas. There is no change to the scope of how these rules are used compared to the 1999 rules," she added, without elaborating.

It is the first time the Chinese government has provided a detailed explanation of where the rules would be applied.

Southeast Asia's top diplomat had warned that they could spark naval clashes and hurt the region's economy, while the U.S. government said it was seeking clarification.

China is in an increasingly angry dispute with neighbours including the Philippines, Taiwan, Vietnam, Brunei and Malaysia over claims to parts of the potentially oil and gas-rich South China Sea.

China lays claim to almost the whole of the sea, which is criss-crossed by crucial shipping lanes.

Hua repeated that the Chinese government's stance had not changed, and that it advocated resolving the issue by talks between the claimant nations.

"I think that all sides should adopt a fair and objective attitude towards this and be constructive and show goodwill towards the reading of these rules." (Reporting by Ben Blanchard; Editing by Nick Macfie)

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Hong Kong shares have worst day in 3 weeks, China slips too

* HSI -0.8 pct, H-shares -1.1 pct, CSI300 -0.5 pct

* Investors cut risk ahead of holiday next week on cliff concerns

* A-shares outperform HK 3rd week in a row

* China alcohol sector hit by more contamination reports

By Clement Tan

HONG KONG, Dec 21 (Reuters) - Hong Kong shares suffered their worst loss in three weeks on Friday as investors reduced risky holdings at the end of the year's last full trading week when the Republican House Speaker abandoned his Plan B bill to avert a "fiscal cliff"."

Onshore Chinese markets also fell, with weakness in alcohol and resource-related sectors helping trim index gains on the week, but they are still set to outperform offshore peers for a third straight week.

The Hang Seng Index went into the midday trading break down 0.8 percent at 22,486.7, slipping from a 17-month high. If losses persist, this would be its worst day since Dec. 3. The benchmark is now down 0.5 percent on the week.

The China Enterprises Index of the top Chinese listings in Hong Kong fell 1.1 percent. It is now down 0.7 percent on the week. Both Hong Kong indexes are set for their first weekly loss in five.

On the mainland, the Shanghai Composite Index and the CSI300 of the top Shanghai and Shenzhen listings each fell 0.5 percent. On the week, they are still set for a third-straight weekly gain, up 0.3 and 0.8 percent.

"It certainly looks like people are cutting risk (in Hong Kong) before the holidays next week, but things are not that bad," said Benjamin Chang, chief executive officer of LBN Advisors, a firm that manages more than $400 million in two China funds.

Republican lawmakers delivered a stinging rebuke to their leader, House of Representatives Speaker John Boehner, late on Thursday when they failed to back an effort designed to extract concessions from President Barack Obama in fiscal cliff talks.

On Friday, Chinese banking and energy majors were among the biggest losers of the Hang Seng Index components. Industrial and Commercial Bank of China (ICBC) dived 2.1 percent, while China Coal Energy Co Ltd fell 1.8 percent.

A more than 40 percent bounce from July 12 lows had helped ICBC had return to its highest since early March on Thursday. Friday's losses trimmed ICBC's gains on the year to 18.9 percent, compared to the 22 percent jump on the Hang Seng Index.

Chinese alcohol counters were hit by fresh mainland media reports of more products containing the toxic plasticizer elements, crimping a mild December rebound from the November rout suffered when the first allegations first emerged.

Jiugui Liquor fell 3.3 percent, while the sector's premium brand Kweichow Moutai fell 0.6 percent. Moutai is now up 0.5 percent on the month after diving 12.7 percent in November, its worst monthly loss in more than two years.

Gold miners were also weak as gold prices neared four-month lows, as investors took profit on rare earth producers which outperformed earlier this week.

Shandong Gold shed 1.5 percent, while Inner Mongolia Baotou Steel Rare-Earth Group lost 1.7 percent, cutting its weekly gain to 11.8 percent.

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China the frontrunner to buy Exxon out of Iraq oil

* Exxon expected to decide soon, some say may not pull out

* CNPC has rival bidders for Exxon's 60% in $50 bln project

* Beijing will accept tougher terms than Western majors

By Charlie Zhu and Peg Mackey

BEIJING/LONDON, Dec 20 (Reuters) - China National Petroleum Corp (CNPC) has emerged as the frontrunner to take over Iraq's West Qurna-1 oilfield from Exxon Mobil, a move that would diminish Western oil influence in Iraq a decade after the U.S.-led invasion.

U.S. oil major Exxon is giving up its stake in the giant southern oilfield after clashing with the central government in Baghdad over exploration contracts it had signed with the autonomous Kurdistan region in the north.

Iraqi and Chinese sources said CNPC unit Petrochina is negotiating for Exxon's 60 percent in the $50 billion West Qurna-1 project and that there are rival bidders. Royal Dutch Shell is a minority partner.

"CNPC has shown interest; they are there. And from our side, there is no problem with them taking on a bigger position. We are not sensitive about this," a senior Iraqi official said.

"These are service contracts, not production-sharing contracts (which give companies an ownership stake), so it doesn't matter if they have 10 fields or one."

For energy-hungry China, a major buyer of Iraqi crude, access to reserves is a strategic imperative, and Beijing is prepared to accept tougher terms and lower profits than Western oil majors and even Russian firms such as Lukoil, which have to answer to shareholders.

Iraq has the world's fourth-largest oil reserves and wants to at least double its production in the next few years and ultimately challenge Russia and Saudi Arabia as the world's biggest oil nation.

China's stealthy advance in Iraq, supported by piles of cash, has already given it a formidable position in prized southern oilfields, and through Chinese oil company Sinopec , its reach has extended into the northern Kurdish region.

By taking on West Qurna-1, Chinese companies would come to dominate Iraq's oilfields with roughly 32 percent of the reserves found in service contracts awarded to foreign companies, up from 21 percent now.

"PetroChina is in talks to buy the stake from ExxonMobil. There are rival bidders," a source familiar with the Chinese company said. "A decision is expected from ExxonMobil soon."

Iraq has already signalled it would favour bids by CNPC and Lukoil if they decided to buy Exxon's stake and that it had received "positive signals" from both companies they would consider making an offer.

But Russia's Lukoil has made no commitment so far. Russia's second-largest crude producer is already developing West Qurna-2.

FEAR OF WAR

Control of oil resources is at the heart of a dispute between Iraq's Arab-led central government and the autonomous region run by ethnic Kurds in the north, which Baghdad accuses of usurping its constitutional right over oil.

Kurdistan has upset Baghdad by signing deals directly with oil majors such as Exxon and Chevron, providing lucrative service contracts and better operating conditions than in Iraq's south.

By turning its focus to Chinese and Russian companies, Baghdad would be extending a push for a more independent foreign policy, which Prime Minister Nuri al-Maliki initiated after the last U.S. troops left the country a year ago.

Exxon's departure would all but wipe out the American presence in Iraq's southern oilfields. Occidental Petroleum has a small stake in the Zubair oilfield development project.

With oil majors now shifting their focus northward to sign deals with Kurdistan and away from Iraq's southern oilfields, leaders on both sides are warning of the risks that the dispute could slide into an ethnic war.

As tensions rise, industry sources suggest Exxon might have a change of heart and decide to stay in southern Iraq. Earlier this year, Baghdad said it had called on U.S. President Barack Obama to persuade Exxon not to invest in Kurdistan.

"I would be surprised if Exxon actually exits. I'm betting on some twists and turns ahead," said a Western oil executive, who works for a rival. "They might get nervous in the north."

At the heart of the dispute is the oil wealth under the swathe of land know as the "Disputed Territories" along the vague internal border that includes the ethnically mixed city of Kirkuk, known to some as the "Jerusalem of the Kurds".

Baghdad has warned Exxon and other companies that deals struck with Kurdistan are illegal. The Kurds say the constitution's federalism guarantees their right to develop their region's oil resources.

"The government will take all necessary measures to stop Exxon working, especially in the disputed areas. They should know this is a red line they can't cross," one Iraqi oil official said.

"If they think they can do that, then they will face dire consequences. They should expect everything including confiscation of their equipment and face the results of violating the constitution," he added.

U.S. officials and Iraqi President Jalal Talabani have mediated to prevent a confrontation across the line dividing the two regions. Neither Baghdad nor Kurdistan appear to have the appetite for an open conflict that would risk oil exports.

"Fortunately cooler heads have prevailed for now," said a senior oil industry source. "Unfortunately President Talabani may not be around to mediate in the future."

Talabani suffered a stroke earlier this week, and may be unable to return to work for a prolonged period at a time when tensions between Baghdad and Kurdistan are rising.

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REFILE-Hong Kong shares at 17-mth high, China hovers at August peaks

* HSI +0.6 pct, H-shares +0.8 pct, CSI300 +0.1 pct

* China energy majors up on hopes for pricing reforms

* Consumer plays rise on reports of stimulus measures

* Financial A-shares weak, stall China rally

By Clement Tan

HONG KONG, Dec 19 (Reuters) - Hong Kong shares climbed to a near 17-month high on Wednesday as investors cheered signs that the U.S. can avert its "fiscal cliff" and welcomed Chinese news reports that Beijing planners want to give markets more freedom to determine energy prices.

On mainland markets, though, a three-day rally ran out of steam due to weakness in financial sector stocks after media reports said the banking regulator ordered banks to tighten checks on the sale of third-party financial products.

The Hang Seng Index closed up 0.6 percent at 22,623.4, its highest close since Aug. 1, 2011. Stiff chart resistance is next seen at about 22,800, peaks reached in July-August 2011.

The China Enterprises Index of the top Chinese listings in Hong Kong climbed 0.8 percent. It is now up 14.6 percent on the year, compared with the 22.7 percent jump on the Hang Seng Index.

In the mainland, the Shanghai Composite Index ended flat, while the CSI300 of the top Shanghai and Shenzhen listings edged up 0.1 percent to 2,371.1, its highest close since August.

A 12.4 percent bounce off Dec. 3's lowest point since early 2009 has moved the CSI300 edge into positive territory for the year. Now up 1.1 percent in 2012, it next faces chart resistance at around 2,412, peaks in August this year.

The Shanghai Composite Index is still down 1.7 percent on the year.

On Wednesday, Shanghai volume was the lowest since last Thursday, while Hong Kong turnover dipped below its 20-day moving average for the first time since Dec. 4.

"I think the market might be too optimistic on the pace of reform or additional policy support that the incoming Chinese leadership will take in 2013," said Edward Huang, Haitong International Securities' equity strategist.

"I won't be surprised if turnover drops off as we close out 2013 and people go on holiday, stalling the rally in Hong Kong," Huang added.

On Wednesday, state-run newspapers reported that China's National Development and Reform Commission, the powerful economic planner, vowed to further push resources price reform for refined oil, natural gas and coal among others.

China Shenhua Energy Co Ltd, the country's biggest coal producer, jumped 3.2 percent to its highest in a month in Hong Kong. It rose 1.2 percent in Shanghai.

The Australian Financial Review reported that Shenhua was told to come back with a full takeover offer after it had talked to Australia's Whitehaven Coal about taking a stake.

In Hong Kong, CNOOC Ltd rose 1.1 percent, while PetroChina gained 1.5 percent and China Petroleum and Chemical Corp (Sinopec) climbed 1.7 percent.

Chinese consumer stocks rose after state-run media carried comments from China's Ministry of Finance saying that consumption stimulus measures will be introduced in 2013 and reported a ministry estimates that retail sales rose 14.3 percent this year.

Haier Electronics rose 2.1 percent in Hong Kong, while Suning Appliance moved up 1.2 percent in Shenzhen.

Li Ning, the beleaguered Chinese sports brand that has shifted focus to the domestic market, surged 8.1 percent.

Chinese automakers were also strong on hopes of improved domestic demand in the lead-up to the Spring Festival in February 2013, the state-run China Securities Journal reported on its website.

The bigger gainers were those with joint ventures with Japanese counterparts, which rose on a weaker yen on the day.

Changan Auto, which has a JV with Suzuki, surged the maximum 10 percent in Shenzhen. Dongfeng Motor Group , with Nissan and Honda JVs, jumped 5.4 percent in Hong Kong.

ESPIRT TUMBLES AFTER WARNING OF LOSS

Bucking broader market strength, Esprit Holdings tumbled 4.5 percent to its lowest since Nov. 14 after the Europe-focused retailer warned of a possible loss for the six months ending in December, triggering a raft of broker downgrades.

Morgan Stanley downgraded Esprit to "underweight" from "equal weight" while revising its earnings forecast for the year ending June 2013 to a net loss of HK$144 million from a HK$695 million profit.

Chinese banking shares listed in the mainland were also weak, as investors took profit after the sector's recent outperformance. In Shanghai, Industrial and Commercial Bank of China (ICBC) shed 0.5 percent from a six-month high on Tuesday.

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Hong Kong shares hit near 17-mth high, China slips on weak property

* HSI +0.7 pct, H-shares +0.8 pct, CSI300 -0.2 pct

* China Shenhua climbs on news of Australia interest

* Esprit slumps, profit warning triggers downgrades

* China property weak again in the mainland

By Clement Tan

HONG KONG, Dec 19 (Reuters) - Hong Kong shares touched a 17-month high on Wednesday, buoyed by renewed hopes of a deal in the U.S. on spending cuts and tax hikes, but looming chart resistance could limit a market rally into the year's end.

Weakness in property stocks, standout outperformers this year, dragged mainland markets into the red. A fourth monthly price increase in five for home prices, on top of Beijing's reiteration that curbs will remain in place in 2013, has hurt the sector this week.

The Hang Seng Index went into the midday trading break up 0.7 percent at 22,652.8, its highest intra-day level since Aug. 1, 2011. Stiff chart resistance is next seen at about 22,800, peaks reached in July-August 2011.

The China Enterprises Index of the top Chinese listings in Hong Kong climbed 0.8 percent to its highest since March 12. It is now up 14.7 percent on the year, compared with the 22.9 percent jump on the Hang Seng Index.

In the mainland, the Shanghai Composite Index and CSI300 of the top Chinese listings both slipped 0.2 percent. Shanghai midday volume was its lowest since last Thursday.

The CSI300 has bounced up 12 percent since Dec. 3, when it was at its lowest since early 2009. The index, which fell in both 2010 and 2011, is now up 0.7 percent on the year. The Shanghai Composite is down 1.8 percent in 2012.

"I won't be surprised if turnover drops off as we close out 2012 and people go on holiday, stalling the rally. Most investors are already looking to the new year," said Edward Huang, Haitong International Securities' equity strategist.

"I think the market might be too optimistic on the pace of reform or additional policy support that the incoming Chinese leadership will take in 2013," Huang added.

On Wednesday, Chinese banking and energy majors were among the biggest boosts to the Hang Seng Index. The mainland's two largest banks, Industrial and Commercial Bank of China (ICBC) and China Construction Bank (CCB) rose 0.9 and 1.3 percent respectively.

China Shenhua Energy Co Ltd climbed 2.6 percent to its highest in a month in Hong Kong and 0.8 percent in Shanghai.

The Australian Financial Review reported that China's biggest coal producer was told to come back with a full takeover offer after it had talked to Australia's Whitehaven Coal about taking a stake.

Chinese property shares in the onshore market were weak again, although those listed in Hong Kong rebounded after two days of falls.

Poly Real Estate shed 1.5 percent in Shanghai, but China Resources Land rose 1.7 percent in Hong Kong.

ESPRIT TAKES A TUMBLE

Bucking broader market strength, Esprit Holdings tumbled 5.7 percent to its lowest since Nov. 14, shaving 2012 gains to 19 percent after the Europe-focused retailer warned of a possible loss for the six months ending in December, triggering a raft of broker downgrades.

Morgan Stanley downgraded Esprit to "underweight" from "equal weight" while revising its earnings forecast for the year ending in June 2013 to a net loss of HK$144 million from the previous HK$695 million profit.

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