As China Slows, the Pain Hits Home

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DealBook: For Banking Group, Australian Open Becomes a Marketing Opportunity in China

Listening Post: China Rails at U.S., Seeing Its Own Money at Risk

But China does not have many options beyond wringing its hands. Despite its efforts to steer its economy away from exports and toward domestic demand, China generates billions of dollars of excess cash that it needs to park somewhere. And for all the chaos in Washington, Treasury bonds remain a safer investment than most of the alternatives.

That dependence may help explain the stridency of a recent commentary published by the official Xinhua news agency. It called for the replacement of the dollar as the world’s reserve currency “so that the international community could permanently stay away from the spillover of the intensifying domestic political turmoil in the United States.”

“As U.S. politicians of both political parties are still shuffling back and forth between the White House and the Capitol Hill without striking a viable deal to bring normality to the body politic they brag about,” the news agency said, “it is perhaps a good time for the befuddled world to start considering building a de-Americanized world.”

Chinese officials made similar noises five years ago, when the United States was being buffeted by a banking crisis. In March 2008, the leader of China’s central bank, Zhou Xiaochuan, proposed creating a new “supersovereign currency” that would diminish the importance of any individual national currency, not least the dollar.

But economists who follow China’s monetary policy say that while Beijing has somewhat diversified its foreign exchange reserves, it continues to rely heavily on Treasury bills and other American government-backed debt.

Part of the problem is the lack of easy alternatives: euro-denominated debt has been hurt by the European Union’s crisis, except in Germany. Analysts estimate that 60 percent of China’s $3.66 trillion in reserves are still in dollar-denominated debt, though the precise numbers are a secret.

In its commentary, Xinhua embellished its call for a new reserve currency with a scathing indictment of the United States’ broader role in the world, saying that the Obama administration claimed “the moral high ground” while covertly “torturing prisoners of war, slaying civilians in drone attacks and spying on world leaders.”

Edwin M. Truman, an economist and former Treasury Department official, said: “This is political blather. It is a politically defensive response to the choices China has made.”

That does not mean a brush with default will not have long-term damaging consequences for the United States. Even if China continues to buy Treasury bonds, economists said, it may opt for those with shorter maturities, which would drive up long-term interest rates in the United States, hurting home buyers and owners of small businesses.

The sour taste from the budget impasse will also motivate the Chinese to intensify their efforts to deepen their own debt markets. Already, China has negotiated swaps for its currency, the renminbi, with the European Central Bank and other institutions, a step toward making the currency convertible and, someday, a rival to the dollar and euro.

“This gives them a kick in the pants to do it,” said Kenneth S. Rogoff, professor of public policy and economics at Harvard and a former chief economist of the International Monetary Fund.

Any decline in the status of the dollar will be gradual, said Mr. Rogoff, who pointed to the erosion of the British pound sterling over several decades as a precedent. But, he said, “Memories are long: you do this once, you do this twice, and people start to think.”

President Obama appeared to have those long-term effects in mind when he was asked last week what message he had for big bondholders like the Chinese and Japanese. After saying that he had assured world leaders that the United States would continue to pay its bills, he noted that the specter of default, and the fact that the United States had flirted with it once before, could sow lasting doubts overseas.

“We saw what happened in 2011,” Mr. Obama said. “I think the assumption was that the Americans must have learned their lesson, that there would be budget conflicts, but nobody again would threaten the possibility that we would default. And when they hear members of the Senate and members of Congress saying maybe default wouldn’t be that bad, I’ll bet that makes them nervous. It makes me nervous.”

For all the anxiety, though, the prevailing belief overseas is that the United States will avert a default. At last weekend’s meetings of the World Bank and I.M.F. in Washington, Mr. Rogoff said, none of the visiting finance ministers expressed genuine fear that Congress and the White House would not find a way out.

The fiscal deadlock, he said, cast such a long shadow over the gathering that the ministers did not have to dwell on the financial and structural problems in their own economies.

China is a case in point. While the Chinese government has taken steps to shift its economy from a dependence on exports toward one fueled by domestic demand, the progress has been fitful. At the behest of its exporters, it continues to artificially depress its exchange rate, which it does by using its export earnings to buy dollars and other foreign currencies.

In the first quarter of this year, economists say, the Chinese government added more to its foreign exchange reserves than in all of 2012.

On one level, China’s $3.66 trillion hoard is a symbol of its financial might. But on another, it has tied Beijing’s hands. China’s central bank, the People’s Bank of China, cannot dump its Treasury bonds without driving down their value and incurring a painful loss on paper.

“This is certainly a wake-up call for them that holding U.S. government securities is not risk-free,” said Nicholas R. Lardy, an expert on the Chinese economy at the Peterson Institute for International Economics. “What they should be doing is quit adding to their foreign reserves.”

This article has been revised to reflect the following correction:

Correction: October 15, 2013

An earlier version of this article misspelled the name of the president of China’s central bank.  He is Zhou Xiaochuan, not Zhao.

Sunnier Data From China Lifts Wall Street Trading

The stock market moved sharply higher on Monday, with the Nasdaq composite index ending at its highest since September 2000, after upbeat data from China increased optimism about the health of the global economy.

Investor sentiment was also lifted by merger activity and easing concern about a potential American military strike on Syria.

The Standard & Poor’s 500-stock index closed higher for a fifth straight session, posting its best daily performance since Aug. 1, while all 10 S.& P. sectors ended higher. More than 70 percent of companies that trade on the New York Stock Exchange and Nasdaq exchange posted gains.

Basic materials shares led the day’s gains, rising 1.5 percent, after China’s August exports handily beat market expectations while consumer inflation there held steady. United States Steel shares jumped 66 cents, or 3.5 percent, to $19.53, while Alcoa rose 16 cents, or 2 percent, to $8.08.

“This is more proof that the Chinese government’s attempts to stabilize the country’s economy are helping, and that really got us up and running,” said Donald Selkin, chief market strategist at National Securities.

Equities added to their gains in afternoon trading as it appeared less likely that a resolution authorizing military strikes against Syria would be approved easily by Congress.

Geopolitical uncertainty related to Syria has been a major market driver in recent weeks, with investors especially concerned about the potential impact on the oil market.

Senator Harry Reid, Democrat of Nevada and the majority leader, scheduled a test vote for later this week, but it was unclear whether the measure would attract enough backing to clear anticipated procedural roadblocks.

“Every poll shows it would be very difficult for Obama to get authorization, and that might be enough to delay any action or at least make the action more cautious,” Mr. Selkin said. “Both of those would give the market a leg up.”

Separately, a Russian proposal to place Syria’s chemical weapons under international control was welcomed by the government in Damascus, which praised the Kremlin for seeking to “prevent American aggression.”

The Dow Jones industrial average rose 140.62 points, or 0.94 percent, to 15,063.12. The S.& P. 500 gained 16.54 points, or 1 percent, to 1,671.71. The Nasdaq picked up 46.17 points, or 1.26 percent, to 3,706.18.

Deal news gave a further lift to market confidence.

Koch Industries agreed to buy the electronic connectors maker Molex for about $7.2 billion.

Ares Management and the Canada Pension Plan Investment Board reached a deal to buy the privately owned luxury retailer Neiman Marcus for $6 billion.

Molex shares surged $9.29, or 31.7 percent, to $38.63 as the S.& P.’s top gainer.

Shares of home builders rallied as investors bet that the rise in mortgage rates was nearly over. Pulte Group stock added $1.16, or 7.5 percent, to $16.63.

In the bond market, interest rates eased. The price of the Treasury’s 10-year note rose 6/32, to 96 15/32, while its yield dipped to 2.91 percent, from 2.93 percent late Friday.

China Exports Up More Than Expected

BEIJING — China’s exports rose more than expected in August, data showed Sunday, bolstered by improving demand for the country’s goods in major markets.

The Customs Administration said Sunday that exports had risen 7.2 percent in August from the level of a year earlier and that imports had risen 7 percent, leaving the country with a trade surplus of $28.6 billion for the month.

The figures compared with market expectations in a Reuters poll of an increase of 6 percent in exports, an 11.3 percent rise in imports and a trade surplus of $20 billion.

“China’s August trade sustained the upward trend seen since July, in line with accelerating growth momentum and improving market sentiment, pointing to an upside bias” in third quarter growth in gross domestic product, the ANZ economists Liu Li-Gang and Zhou Hao said in a note after the data appeared.

After slowing in nine of the past 10 quarters, the Chinese economy has shown signs of stabilization, with surprisingly firm rebounds in trade in July and surveys in the past week showing manufacturing regaining momentum and growth in the services sector at a five-month high.

Investors had as recently as a month ago worried that China’s economy was slipping into a deeper-than-expected downturn, especially after its money market suffered an unprecedented cash crunch in June.

But policy makers have stepped in with measures to steady the economy, like quicker railroad investment and public housing construction and introduction of policies to help smaller companies with financing needs.

Attention now turns to other data for August due in the next two days, with investors looking to figures for industrial output, inflation, money supply and investment to further gauge the impact of those measures. G.D.P. data for the third quarter are due in October.

A Reuters poll shows factory output is expected to have grown an annual 9.9 percent in August, matching the January/February figure as the biggest increase of 2013, while investment should tick up and inflation stay muted.

The trade figures on Sunday showed exports of electronics, textiles and machinery rose in the month. Exports to members of the Association of Southeast Asian Nations jumped 30.8 percent in August, outpacing the July gains, while exports to the United States rose 6.1 percent, faster than the 5.3 percent gains seen in July.

Exports to the European Union rose 2.5 percent, little changed from July’s figure, while exports to Japan contracted for the seventh consecutive month.

“There is no doubt that the external demand is improving, especially in developed countries,” said Lu Zhengwei, chief economist at Industrial Bank in Shanghai. But “Emerging market economies are struggling even though advanced economies are on the mend. Many Chinese companies, such as steel firms, are exporting at losses.”

DealBook: Bribery Charges in China for Official Whose Child Worked for JPMorgan

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China Graft Inquiry Sweeps Up Billionaire Oil Entrepreneur

The entrepreneur, Hua Bangsong, 47, is “now assisting the relevant authorities in the P.R.C. in their investigations,” according to a filing made late Monday to the Hong Kong Stock Exchange by Mr. Hua’s company, Wison Engineering Services.

A crackdown on corruption in China has intensified in recent weeks, focusing on the oil industry. Mr. Hua’s company is one of the largest nonstate contractors to the oil and gas industry in China, and counts the China National Petroleum Corporation, or C.N.P.C., as one of its biggest customers.

Last week, four senior managers of C.N.P.C. and its subsidiary, PetroChina, were removed from their positions and placed under investigation on suspicion of what an official statement called “grave violations of discipline,” almost always a reference to corruption, bribe-taking or embezzlement.

The investigation appeared to escalate on Sunday when Jiang Jiemin, director of the powerful commission that oversees the government’s stakes in the largest nonfinancial state companies in China, was also cited on suspicion of “grave violations of discipline,” according to a statement on the Web site of the party’s Central Commission for Discipline Inspection. Mr. Jiang had been general manager, then chairman of C.N.P.C. until March.

Mr. Jiang, a full member of the party’s elite Central Committee, became the highest-ranking official to be publicly cited for scrutiny since President Xi Jinping came to power last November. Mr. Xi pledged to battle official corruption at levels high and low, taking down “tigers and flies.”

People with knowledge of the matter who cited senior officials said the investigations were centering on associates of Zhou Yongkang, one of China’s most senior leaders, who retired in November after five years in charge of the state security apparatus and had been a longtime oil executive and general manager of C.N.P.C.

In announcing that Mr. Hua, the entrepreneur, was assisting the investigations in China, Wison sought on Monday to defend its business ties to PetroChina.

“The company operates legally,” Wison said, adding that prior to its December listing on the Hong Kong stock market, it “completed the necessary compliance check.”

DealBook: China Brokerage Firm Fined $85 Million Over ‘Fat-Finger’ Trades

DealBook: Hiring in China By JPMorgan Under Scrutiny

Rebound in Trade Hints at Stability in China Economy

HONG KONG — China’s trade rebounded in July in a possible sign that its economy is stabilizing after a slowdown over the last year.

The improvement offers small but encouraging hope for China’s leaders, who are struggling to arrest a downturn that dragged growth to a two-decade low in the latest quarter.

China’s exports rose 5.1 percent in July from a year earlier and imports were up 10.9 percent, according to customs data. China is the world’s second-largest economy, after the United States.

Economists had expected trade to grow after it shrank in June, but the rate of growth surpassed expectations.

China’s politically delicate global trade surplus narrowed to $17.8 billion.

Economists said the surge in imports suggested that domestic demand was holding up, a major goal for China’s policy makers, who are trying to reduce the economy’s dependence on trade and investment in favor of more self-sustaining domestic consumption.

Imports of iron ore, an important commodity used to make steel, surged 24 percent by volume, while copper imports grew 12 percent. Both figures were the fastest rates in more than a year, said Yao Wei, China economist at Société Générale.

She said the return to growth was a sign of “some stabilization in external demand, at best — not yet a solid recovery.”

Analysts said the figures were a sign of improvement but cautioned about reading too much into a single set of numbers.

“July seems to reflect a return to a normal, relatively uninspiring trend after a weak June, rather than the beginning of acceleration in growth,” said Alistair Chan, an economist at Moody’s Analytics. “While the worst seems to be over, the upturn will be relatively flat.”

Chinese leaders are facing pressure to meet a goal of 7.5 percent growth for the year, which is far stronger than the forecasts for the United States, Europe and Japan, but would be the country’s weakest performance since 1991.

Exports to the United States, China’s biggest foreign market, edged up 2.3 percent, leaving a trade surplus of $19.1 billion. Exports to the 27-nation European Union shrank 2.8 percent, for a trade gap of $10 billion.

Mead Johnson Settles With China Over Price-Fixing

Mead Johnson Nutrition said on Tuesday it would pay about $33 million in connection with a Chinese investigation into possible price-fixing and anticompetitive practices by foreign makers of baby formula.

Mead Johnson, the maker of Enfamil formula, said that as a result of its antitrust review, China’s National Development and Reform Commission had assessed administrative penalties against Mead Johnson and a number of other milk formula companies doing business in China.

Foreign infant formula is highly coveted in China, where public trust was damaged by a 2008 scandal in which six infants died and thousands of others were sickened after drinking milk tainted with the toxic industrial compound melamine. Foreign brands now account for about half of total sales.

Mead Johnson said the payment, which resolves the commission’s review, would reduce its full-year earnings by about 12 cents a share, but it reiterated its 2013 earnings forecast for profit, excluding one-time items, of $3.22 to $3.30 a share.

The company said in recent weeks that it was being investigated, along with Danone, Nestlé, Abbott Laboratories and Biostime International Holdings, by the Chinese commission, an economic planning agency, for possible antitrust violations including price-fixing.

As a result, Mead Johnson and others cut prices on their baby formulas.

Representatives from Danone, Nestlé and Abbott Laboratories were not immediately available for comment.

Biostime, which imports most of its products, said on Tuesday that its shares had been suspended pending an announcement related to an investigation by China’s top economic planning agency. The company said previously that a unit based in Guangzhou, a city in southern China, was being investigated by the commission over possible price-fixing.

In a statement to the Hong Kong stock exchange in late July, Biostime said it planned to lower prices of infant formula products by 5 to 10 percent.

Coin of Realm in China Graft: Phony Receipts

“Receipts! Receipts!” calls out a woman in her 30s to passers-by as her two children play near the city’s south train station. “We sell all types of receipts.”

Buyers use them to evade taxes and defraud employers. And in a country rife with corruption, they are the grease for schemes to bribe officials and business partners. Making them and using them is illegal in China. Some people have been executed for the crime. But demand is so strong that a surprising amount of deal-making takes place out in public.

It is so pervasive that auditors at multinational corporations are also being duped. The British pharmaceutical company GlaxoSmithKline is still trying to figure out how four senior executives at its China operation were able to submit fake receipts to embezzle millions of dollars over the last six years. Police officials say that some of the cash was used to create a slush fund to bribe doctors, hospitals and government officials.

Signs posted throughout this city advertise all kinds of fake receipts: travel receipts, lease receipts, waste material receipts and value-added tax receipts. Promotions for counterfeit “fapiao” (the Chinese word for an official invoice) are sent by fax and through mobile phone text messages. On China’s popular e-commerce Web site, Taobao.com, sellers even promise special discounts and same-day delivery of forged receipts.

“We charge by percentage if you are looking for invoices written for a large amount of money,” said one seller in an interview, quoting 2 percent of the face value of the receipt as his fee. Another seller boasted, “I once printed invoices totaling $16 million for a construction project!”

Detecting fake or doctored receipts is a challenge for tax collectors, small businesses and China’s state-run enterprises. While there are no reliable estimates of how much money is involved in the trade, as China’s economy has mushroomed and grown more sophisticated, so has the ability to falsify receipts.

With considerable tax revenue at stake, the Chinese government has announced periodic crackdowns. In 2009, the authorities said they detained 5,134 people and closed 1,045 fake invoice production sites. A year later, they said they “smashed” 1,593 criminal gangs and raided 74,833 enterprises that had filed false invoices with the government.

In one of the biggest cases this year, a businessman in Zhejiang province was jailed for helping 315 companies evade millions of dollars in taxes by issuing fake invoices, a crime sometimes punishable by death.

That could be the fate of Liu Baolu, a government official from northwest China’s Gansu province. In February, he was sentenced to death with a two-year reprieve for using fake receipts to embezzle millions of dollars.

As harsh as the crackdowns sound, experts say they are often ineffective. One reason, analysts say, is that even government officials take part in black market activity. In 2010, for instance, the National Audit Office said it caught central government departments embezzling $21 million with fake invoices.

And state employees, whether they work for government agencies or state-owned enterprises, seem as eager as anyone else to bolster their compensation by filing fake invoices.

“Their salaries are relatively low,” said Wang Yuhua, an assistant professor of political science at the University of Pennsylvania and the author of a study on bribery and corruption in China. “So they supplement a lot of it with reimbursements. This is hard to monitor.”

China’s fapiao system took root in the late 1980s and early 1990s, when the government began requiring companies to use official receipts issued by the tax authorities for every business transaction. The receipts usually come with a number and government seal.

White Collar Watch: Lessons From the Glaxo Case in China

Europe and China Agree to Settle Solar Panel Fight

The settlement essentially involves setting a fairly high minimum price for sales of Chinese-made solar panels in the European Union to try to prevent them from undercutting European producers. Those producers accused Chinese manufacturers of benefiting from enormous loans from state-owned banks and other government assistance that enabled them to charge prices that would otherwise be uneconomical.

“We have found an amicable solution that will result in a new equilibrium on the European solar panel market at a sustainable price level,” Karel De Gucht, the European trade commissioner, said in a statement.

The deal immediately met with ferocious criticism from the European manufacturers that had filed the complaint, and it complicates a similar dispute between the United States and China.

Mr. De Gucht’s decision in June to carry out his threat to impose tariffs on solar panels from China generated significant fears within the union about retribution from China. Chancellor Angela Merkel of Germany called for further negotiations to avoid harm to German exporters. European importers of solar products from China also opposed the tariffs.

At the time, Mr. De Gucht said he had been left with no choice but to impose the tariffs since his investigators found a systematic effort by Chinese companies to sell solar panels in Europe below the cost of making them, a practice known as dumping.

On Saturday, officials at the European Commission said they could not give details of the deal, including the price that Chinese exporters would pay to sell their panels in Europe, until the arrangement had been formally approved by the commission. But a European Union official, who spoke on condition of anonymity because the deal had not yet been formally approved, said the two sides had agreed to a minimum price of 0.56 euros per watt (74 cents), which would base any potential surcharge on the amount of electricity generated by each imported panel.

The European solar manufacturers who lobbied for tougher action against the Chinese exporters on Saturday promised to sue over the settlement.

The agreement “is contrary in every respect to European law,” said Milan Nitzschke, the president of EU ProSun, an industry group. A minimum price of 0.55 to 0.57 euros was at the level of “the current dumping price for Chinese modules,” the group said in a statement.

The arrangement would cover exports from 90 of about 140 Chinese exporters that were examined during the investigation, and that represent 60 percent of the panels sold in Europe, the government official said. Those 90 companies would no longer face tariffs that were put in place in June. Chinese exporters that did not agree to the terms will still face tariffs that are set to rise to 47.6 percent on Aug. 6 from the current level of 11.8 percent, the official said.

The Chinese government hoped from the start of the trade case with the European Union for a negotiated settlement instead of a legal battle. This deal comes as a relief, said He Weiwen, the co-director of the China-United States-European Union Study Center at the China Association of International Trade in Beijing.

The European settlement with Beijing in some ways complicates a similar dispute between the United States and China. The United States Commerce Department imposed final anti-dumping and anti-subsidy tariffs last spring on imports of solar panels from China. China responded on July 18 that it was preparing to impose tariffs of more than 50 percent on polysilicon, the main material for solar panels, on imports from the United States and South Korea.

The United States began trying in early summer to arrange a comprehensive deal among Beijing, Brussels and Washington that would set new global trade arrangements for solar panels in exchange for the removal of the American tariffs and the preliminary European tariffs. But faced with a complex process in the United States for removing tariffs once the Commerce Department has made them final, the European Union pushed ahead with its own negotiations with China, a Senate aide with detailed knowledge of the issue said on Friday.

“The administration has been doing the right thing on this, pushing for talks and trying to get a joint settlement with Europe, but the Europeans have not had the same attitude and instead are pursuing talks with China independently of the U.S., which has stalled progress on U.S.-China talks,” said the aide, who spoke anonymously because of the diplomatic sensitivity of the issue.

The Office of the United States Trade Representative, which is part of the White House, had no immediate response to the European deal, which was announced shortly before dawn in Washington.

Solar panels represent more than 6 percent of China’s exports to the Continent, making them one of the largest Chinese exports to the European Union. In 2011, Chinese exports of panels and their main components to the European Union were worth about 21 billion euros or $27.4 billion.

China grew from a tiny player in the global solar panel market five years ago to the world’s dominant producer now through a program of enormous lending by state-owned banks and a wide variety of manufacturing incentives by local and provincial governments. That has allowed Chinese producers to drive down the price of panels by three-quarters over the same period.

But Chinese manufacturers have expanded faster than the market, and the largest of them now face severe financial difficulties.

James Kanter reported from Brussels and Keith Bradsher from Hong Kong.

China Details Allegations Against Glaxo

The company also late Thursday named Hervé Gisserot, one of the company’s top executives in Europe, to succeed Mark Reilly as the head of its operations in China. Mr. Reilly left the country for London after the company’s offices were raided by the police in late June.

The company said Mr. Reilly was not a target of the bribery and corruption investigation and would remain at the company to help conduct an internal review of the China operation.

On Friday, new details in the case were presented in interviews published by Xinhua, the official state-run news agency in China.

According to those reports, several Glaxo employees have confessed to bribing doctors with gifts, travel, lecture fees and cash bonuses to persuade them to prescribe more of the company’s drugs. In some cases, the Glaxo employees reportedly said, doctors were compensated for conferences or lectures that never took place.

One 35-year-old Glaxo employee told Xinhua she regularly visited doctors’ offices to offer assistance and even “to meet their sexual desires,” according to the report.

The government has said it has detained four Chinese-born senior executives from Glaxo’s China operations. Xinhua reported Friday that 18 more Glaxo employees have been held in the city of Zhengzhou, in Henan Province in eastern China.

Although no formal charges have yet been filed against Glaxo or its employees, the scandal has been a huge embarrassment for the company in one of its fastest-growing markets.

Glaxo’s top executives in London have apologized and pledged to cooperate with Chinese investigators.

In a conference call after the company released its earnings on Wednesday, its chief executive, Andrew P. Witty, called the accusations against his company’s China operations “deeply disappointing.”

Glaxo also said on Friday that Steve Nechelput, a British national and the company’s head of finance in China, was no longer being barred by the authorities from leaving the country.

The scandal appears to be part of a broader crackdown on bribery and corruption in China. The Chinese government has sent investigators to other global pharmaceutical companies operating in the country. Officials have also begun to review drug pricing policies and question doctors and hospital employees about whether they have accepted bribes.

In Glaxo’s case, the government accused the company of using travel agencies to help funnel bribes to doctors, hospitals and government officials. The company was also accused of committing tax fraud and cheating consumers with artificially high drug prices.

In interviews with the state-run news media, Glaxo sales representatives said they had been trained in how to increase drug sales by bribing and entertaining doctors and that some of this was done through the use of fake invoices.

One hospital employee told Xinhua that a Glaxo representative, identified only by the surname Wang, offered bribes for business.

“After we got familiar, Wang visited me during festivals, treated me to dinner and bought me gifts,” the hospital employee said. “When our department held events, Wang also paid the bill.”

2 Infant Formula Makers to Cut Prices After China Starts an Investigation

Wyeth Nutrition, which Nestlé bought last year, said this week that it had been cooperating with the investigation by the National Development and Reform Commission of China and was responding by cutting prices and improving sales and marketing practices.

Danone, which has also acknowledged that its Dumex unit was cooperating with the Chinese commission, said in an e-mail statement that it was preparing a price cut proposal with details to be disclosed later.

Both companies, along with Mead Johnson Nutrition and Abbott Laboratories, said earlier this week that they were being investigated by the Chinese commission.

In a statement, Wyeth Nutrition said it “decided to implement a price reduction” of products from July 8 through 2014. “The average reduction will be at 11 percent, with the biggest single product price reduction at 20 percent.”

The company said it would not raise prices on any new products over the next year. Wyeth did not give any further details.

Analysts said the investigation could result in fines and tougher rules governing imports into an infant milk market expected to grow to $25 billion by 2017. The firms could face fines ranging from 1 percent to 10 percent of their annual sales, the state-run Xinhua news agency quoted experts as saying.

Some analysts see the inquiry as possibly part of a broader Chinese plan to increase consumption of local infant-milk products. Mothers turned away from Chinese milk powder in 2008 when infant formula tainted with the industrial compound melamine killed at least six babies and made thousands sick with kidney stones.

China has since made efforts to crack down on persistent food safety problems that have included chemical-laced pork and infant milk contaminated with cancer-causing agents.

Some Chinese producers of infant formulas have started forming partnerships with foreign companies to try to increase brand recognition and gain technical expertise.

Foreign brands may also soon have to rely on their Chinese partners if they want greater access to the Chinese market. The Chinese government has expressed an interest in bringing the supply chain under the control of Chinese firms as part of its goal of reducing the number of local infant formula producers to 10 from more than 200 within two years.

DealBook: Buyout Offer Brings China Into the Orbit of Club Med

Club MedThe Club Med Guilin is the company’s second resort location in China. The first is in Yabuli.

7:52 p.m. | Updated

Fewer “crazy signs.” More karaoke.

That could be the future for Club Med, the French resort operator, which said Monday that it had received a $700 million buyout offer led by its two largest shareholders, an investment unit of the French insurer AXA and a Chinese conglomerate called Fosun International.

The proposed deal gives a Chinese company an unusually visible role in the acquisition and development of a prominent Western brand, which was founded in 1950 by a Belgian water polo player and for years defined the packaged exoticism of beach vacations for Europeans and North Americans. Now, though, the ascent of the Chinese tourist is helping reshape the world’s idea of the ideal getaway.

Club Méditerranée has long been known for the blend of escapist fun and Frenchness in its vacation formula — including the staff’s frequent performance of synchronized, heavily gesticulated dance moves set to pop music.

With Chinese co-ownership, Club Med cannot help becoming a bit less French. It has been hit hard by the euro crisis, during which its name has been borrowed by economists as an epithet for the debt-ridden and austerity-ravaged countries of Southern Europe.

Club Med is looking to emerging markets, especially China, for new customers and new resorts, which it calls villages.

“We have to accelerate our growth in emerging markets, the largest of which is China,” Henri Giscard d’Estaing, chief executive of Club Med, said by telephone on Monday. “That takes time, and you need shareholder and management stability. The goal of this agreement is to provide that stability.”

Club Med ventured into China in 2010, opening a village at a ski resort called Yabuli, in the northeastern province of Heilongjiang. Since then Club Med has added a second Chinese village, in the southern city of Guilin, known for its unusual, tombstone-shaped peaks.

At Yabuli, which attracts mostly domestic visitors, Club Med has adapted its entertainment offerings to suit local tastes, adding karaoke evenings, for example. Mah-jongg tables have replaced the poker and bridge tables, or Scrabble boards, at other Club Med villages.

China overtook the United States two years ago as the world’s biggest source of foreign tourists. Mainland Chinese made 70 million overseas trips in 2011. That outpaced the 58.5 million overseas trips by Americans the same year. And last year, China for the first time became the biggest spender in global tourism. Outlays by Chinese traveling overseas reached $102 billion, up 40 percent from 2011, according to the United Nations World Tourism Organization. Germans and Americans ranked second and third, each spending about $84 billion on their foreign trips, the agency said.

Club Med, while sticking to the concept of all-inclusive packages, in which it was a pioneer, has gone through many changes, and owners, since it opened its first resort on the Spanish island of Mallorca in 1950. In the early years, the resorts were designed as prototypical New Age retreats, where the visitors mingled socially with the staff.

The offbeat atmosphere evolved with the times. The stereotypical Club Med customer of the 1960s and ’70s was satirized in “Les Bronzés,” a racy 1978 French film directed by Patrice Leconte, in which a group of European visitors to a Club Med village in Ivory Coast take turns hooking up.

In the 1990s, Club Med tried to attract budget travelers, but was unable to compete with low-fare airlines and the Internet. It also branched into sports clubs. Over the last decade, it has moved upmarket, closing dozens of resorts, revamping others and repositioning its marketing to appeal to families.

So far, though, Club Med remains heavily dependent on Europe, which is a reason it has booked annual losses for five of the last seven years. Revenue has not regained the level of 1.1 billion euros ($1.4 billion) reached in 2008.

Investors cheered the 17 euros a share French-Chinese buyout offer on Monday, sending Club Med’s stock up 22 percent, to 16.95 euros, in Paris trading. The offer is a 23 percent premium over Club Med’s closing price on Friday.

Central to Club Med’s strategy to win more Chinese customers was a deal in 2010 that first brought in Fosun, which is based in Shanghai, as a strategic investor. Fosun has bought further shares since 2010, so that it now owns 9.96 percent of the share capital and 16.48 percent of the voting rights of Club Med.

France still accounts for 600,000 annual visitors, half of Club Med’s total. But Mr. Giscard d’Estaing — son of the former French president Valéry Giscard d’Estaing — said the company hoped to attract 200,000 Chinese guests in 2015, up from 90,000 last year. By the end of 2015, Club Med aims to have five villages in Asia, including one, at an unspecified beach location, that it plans to open this year.

“Fosun is a group that believes the upscale holiday is an area where growth will be well above the average economic growth for China,” Mr. Giscard d’Estaing said.

Until recently, Chinese companies have tended to be cautious when it came to efforts to buy publicly traded companies, a wariness that stems in part from memories of a bid by the Chinese offshore oil company Cnooc for the United States oil producer Unocal in 2005.

That deal was effectively blocked by Congress. Instead, Chinese buyers have been aggressively pursuing privately held businesses, focusing mainly on European companies in machinery sectors like wind turbine component manufacturers.

The Fosun-backed offer for Club Med reflects the unusual relationship between the two companies. Many Western companies have expanded in China by setting up joint ventures with Chinese companies. Club Med chose a different route, allowing Fosun to buy a stake in the French parent company.

“It ensured full alignment of interests between the Chinese and foreign partners,” André Loesekrug-Pietri, the chairman and managing partner of a Brussels-based private equity fund, the A Capital China Outbound Fund, said by telephone.

Mr. Loesekrug-Pietri said he had approached Fosun and Club Med in March 2010 with a proposal for Fosun and A Capital each to buy stakes in Club Med. Club Med was looking for a partner in China, and Fosun was seeking a way to use its extensive real estate in China.

Mr. Giscard d’Estaing said that while Fosun would be increasing its stake, the deal would keep a majority of Club Med in the hands of French shareholders. Analysts said, however, that they would not be surprised if AXA bowed out eventually, allowing Fosun to take over full control.

The inclusion of a pillar of the French corporate establishment may have been aimed at smoothing over any concerns in France about a loss of control over one of the country’s best-known brands at a time when economic nationalism appears to be on the rise. For example, Arnaud Montebourg, the minister for industrial renewal, recently moved to block a possible takeover of a French online video site, Dailymotion, by Yahoo.

“The presence of AXA can have no other purpose than to reassure politicians like Montebourg that this will remain a French company,” said Jean-Jacques Manceau, the author of a 2010 book on Club Med, “Réinventer la Machine à Rêves” (“Reinventing the Dream Machine”).

Mr. Manceau said that to the increasingly wealthy customers that the company aims to attract, nationality might matter less. Karaoke aside, Chinese and French tourists are looking for a similar vacation experience.

“It’s true that we have different ways of amusing ourselves,” he said. “But the Club Med culture supersedes the individual cultures of any of the people who visit it.”

China Divides European Union in Fight Over Tariffs

HONG KONG — Adroitly alternating the threat of a trade war with the lure of its huge import market, China appears to have driven a deep wedge between Germany and the rest of the European Union. And it may even have caused a rift within the German business world.

As Chinese and European trade officials stare each other down over next week’s scheduled imposition of big tariffs on the $27 billion worth of solar panels China sells to Europe each year, Germany has come down on China’s side.

Notably, Berlin is backing Beijing, even though Europe’s biggest producer of solar equipment, SolarWorld, is a German company that desperately wants the European Union to impose tariffs on the Chinese equipment. Unless the bloc backs off under German pressure, tariffs of up to 50 percent would go into effect June 5, to punish China for the ostensible “dumping” of solar panels at below cost in Europe.

“Europe cannot succumb to blackmail — dumping is illegal, and the E.U. is obliged to defend itself by applying the international trade law,” said Milan Nitzschke, a spokesman for SolarWorld and the president of ProSun, a lobbying group for the European solar energy industry.

But many other German companies, which rely more heavily than other European manufacturers on China as a significant market for their exports — whether Volkswagen cars or Siemens factory equipment or various other goods — fear that the dispute over solar panels could lead to an all-out trade war with China, which would be disastrous for their businesses. So far, the German government appears to agree.

And little wonder. Germany is China’s most important trading partner in Europe and China is Germany’s leading partner in Asia. The Federation of German Industry estimates that one million German jobs are dependent on exports to China. Of those, the German solar industry has about 99,000.

For half a century, Germany has been one of the most loyal and enthusiastic supporters of European unity. And since the advent of the European Union in 1992, Berlin has advocated giving Brussels greater scope in the range of issues it handles. But the solar tariff showdown illustrates the way domestic priorities can sometimes trump pan-European loyalties.

Chancellor Angela Merkel of Germany played host last weekend to Prime Minister Li Keqiang of China. More than a dozen trade agreements were signed, including between VW, Siemens, BASF and their Chinese partners, all supporting further expansion for German industry in the Chinese market and further investment by the Chinese in Germany. Special privileges that China offered German companies in its agricultural and recycling industries were clearly aimed at trying to win Berlin’s support.

After her meeting with Mr. Li, Ms. Merkel told reporters on Sunday that her government would lobby against the solar tariffs, saying the situation was “rather complicated.”

“Germany will do everything possible to resolve the conflicts that we have in trade,” Ms. Merkel said, “through as many discussions as possible to prevent it from falling into a sort of conflict that ends in the raising of tariffs from both sides.”

Germany’s economics minister, Philipp Rösler, said Monday that Germany had told the European Commission in Brussels that it was voting against the imposition of preliminary tariffs on Chinese solar panels. While the commission routinely consults member countries on preliminary tariffs, in the past that has tended to be more of a formality, and opposition has been infrequent.

But on Tuesday, a trade official in Europe with direct knowledge of the matter said it appeared that a majority of the governments were officially opposed to preliminary tariffs on Chinese solar imports. And yet, the European commissioner for trade, Karel De Gucht, could still go ahead on June 5 and impose the preliminary duties without any further approvals. That deadline was established at the opening of the commission’s investigation in September.

Whether Mr. De Gucht proceeds with the preliminary duties remains to be seen. But he “will not be intimidated in any way” and “will not bend to external pressure,” Mr. De Gucht’s spokesman, John Clancy, said at the commission’s daily news conference Tuesday.

Preliminary tariffs, which would last six months, in the past have tended to be imposed as a negotiating ploy before the European Commission decides whether to impose so-called final tariffs that last for five years. A voting majority of member nations could overturn the preliminary tariffs, although such a move would be unprecedented.

Melissa Eddy reported from Berlin. James Kanter contributed reporting from Brussels and Chris Buckley from Hong Kong.

Europe and China Trade Talks End Bitterly

The European Union accuses Chinese firms of selling solar panels below cost in Europe, a practice known as dumping, and has already proposed antidumping tariffs of nearly 50 percent on Chinese solar panel shipments. That is one of the largest categories of Chinese exports to Europe and worth about $27 billion a year.

But Germany’s economy minister said that his country had informed the European Commission, which is the executive branch of the European Union, that it opposed proceeding with the solar panel tariffs. If a majority of the European Union’s 27-member states oppose tariffs during the current consultation period, then the commission could be forced to abandon the tariffs. But that could risk undermining the commission’s long-term ability to negotiate trade deals on behalf of the bloc.

Zhong Shao, China’s vice minister of commerce and chief international trade representative, denounced the European Commission for not reaching a deal at the talks, which were held in Brussels.

The commission’s plan to impose tariffs on Chinese solar panels starting on June 6, together with the commission’s preparations to begin a similar trade case against Chinese exports of wireless communications gear, “would seriously hurt the Chinese industries and workers concerned and seriously sour the climate on bilateral trade and economic engagement,” he said in a statement.

He added, “Such practices of trade protectionism are not acceptable to China,” and asked that the European Union delay the tariffs.

European officials have said repeatedly that they face statutory deadlines for actions in trade cases and have little or no discretion to delay action.

The commission has been discussing the tariffs with member governments; Germany, with large exports to China that could be vulnerable to retaliation by Beijing in any broader trade conflict, has been particularly vocal in calling for a negotiated deal.

Karel De Gucht, the European Union’s trade commissioner, issued an unusually blunt complaint late Monday that China was bypassing the European Union’s leaders by going to member governments. Mr. De Gucht “also made it very clear to the vice minister that he was aware of the pressure being exerted by China on a number of E.U. member states,” said John Clancy, Mr. De Gucht’s spokesman.

Mr. Clancy added, “It is the role of the European Commission to remain independent, to resist any external pressure and to see the ‘big picture’ for the benefit of Europe, its companies and workers based upon the evidence alone.”

The United States has already imposed antidumping and antisubsidy tariffs totaling about 30 percent on Chinese solar panels. The Obama administration has recently decided to seek its own negotiated settlement with China to replace the tariffs. Such a settlement could take the form of setting high minimum prices for Chinese exports to the United States, a ceiling on the volume of exports, or both.

While Washington, Brussels and Beijing are all saying now they want a negotiated settlement, Chinese solar companies and their many local government patrons are divided on what a settlement should look like.

James Kanter contributed reporting from Brussels.

Under Pressure, China Measures Its Impact in Myanmar

China’s ambition of transporting energy through the Indian Ocean and across the mountains of Myanmar seems close to fulfillment. Natural gas is scheduled to start flowing in July from wells deep in the Bay of Bengal through a 500-mile pipeline. Oil will run in a parallel pipe at the end of the year.

But for China, the cost of the pipelines has been far greater than the several billion dollars that the China National Petroleum Corporation, China’s energy giant, has spent on construction. With its projects challenged more than ever by activists energized by Myanmar’s democratic opening, China has been trying to repair its tarnished reputation among residents here, and in the country at large.

Farmers and fishermen in this remote coastal region — who made little headway while objecting to lost lands and diminished catches under Myanmar’s repressive military junta — are winning some concessions. In central Myanmar, monks have joined with ancestral landholders to stop a Chinese-led conglomerate from leveling a fabled mountain embedded with copper.

And last week, in a new ominous sign for the Chinese, guerrillas of the Shan State Army attacked a compound belonging to the Myanmar Oil and Gas Enterprise, a partner with the Chinese oil company, not far from the pipeline and close to China’s border.

In response to the broad opposition, Beijing has ordered secretive state-owned Chinese companies to do something they have rarely done before: publicly embrace Western-style corporate social responsibility practices and act humbly toward the people who live near their vaunted projects.

The grass-roots protests against Chinese projects disturb Beijing because they come amid a scramble for influence in Myanmar between China and the United States.

Official visits give a glimpse of the diplomatic jockeying. President Thein Sein of Myanmar, who heads the quasi-civilian government, will visit the White House on Monday in what will be the first encounter in Washington between an American president and a leader of the country formerly known as Burma, since 1966.

A member of the military junta that China backed for decades, Mr. Thein Sein met President Obama in November during what was the first visit by a sitting American president to Myanmar. Mr. Thein Sein has visited China twice in the past six months. The leader of the opposition, Daw Aung San Suu Kyi, was at the White House earlier this year and is expected in Beijing soon.

“It is in China’s self interest to think about the impact of their investments,” said Thant Myint-U, a Myanmar historian and author of “Where China Meets India: Burma and the New Crossroads of Asia.” “In the long term, it is difficult to see a Myanmar where China is not important. But there is a chance that China will no longer be the dominant actor in Myanmar, and that is worrying for some people in China.”

That concern has prompted Chinese officials, worried about losing Myanmar to the Americans, to push back. When a veteran Chinese diplomat, Wang Yingfan, was appointed several months ago as special envoy to Myanmar, he immediately flew there and spoke about the social obligations of Chinese state-run corporations.

And Gao Mingbo, the head of the political section at the Chinese Embassy in Yangon, said: “The companies must retain the support of the local communities. That has been the consistent message of the embassy: to be open, to be engaged.”

He created the embassy’s Facebook page; although Facebook is blocked in China, it is a tool that Chinese officials in Yangon, Myanmar’s commercial capital and main city, are using to reach citizens.

“If you don’t walk the walk and just talk the talk, you won’t win the hearts and minds of the local people,” Mr. Gao said.

Whether China’s outreach efforts will quell anti-China protests is an open question.

Wai Moe contributed reporting.