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Shenzhou 9 spacecraft rocket launches from the Jiuquan Satellite Launch Center in Jiuquan, China, Saturday, June 16, 2012.

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Chinese toddler dangling over 40ft drop plucked to safety by rescuer who scaled side of building to save him

This is the dramatic moment a Chinese toddler came terrifyingly close to a deadly plunge - after getting his head stuck on a balcony handrail while his parents were out.

The young boy had wandered towards a fourth floor balcony in an apartment building in Guangzhou, China, only to get his head wedged in the handrail.

But after exploring the view in his parents apartment, the boy's accident left his head jammed between the railings - and his body dangling perilously over a 40ft drop.

The dramatic scenes continued when neighbours below climbed up towards the boy to prevent him falling to his death.

The boy is supported by a brave neighbour, who put his own life at risk by climbing out to support his feet and prevent him falling

A man dressed in a yellow t-shirt was spotted climbing up from a balcony below along window grid bars, before supporting the child with his feet as the infant tried to haul himself back indoors.

China's results in international education tests - which have never been published - are "remarkable", says Andreas Schleicher, responsible for the highly-influential Pisa tests.

These tests, held every three years by the Organisation for Economic Co-operation and Development, measure pupils' skills in reading, numeracy and science.

Pisa tests - the Programme for International Student Assessment - have become the leading international benchmark.

The findings indicate that China has an education system that is overtaking many Western countries.

While there has been intense interest in China's economic and political development, this provides the most significant insight into how it is teaching the next generation.

'Incredible resilience'

The Pisa 2009 tests showed that Shanghai was top of the international education rankings.

But it was unclear whether Shanghai and another chart-topper, Hong Kong, were unrepresentative regional showcases.

Mr Schleicher says the unpublished results reveal that pupils in other parts of China are also performing strongly.

"Even in rural areas and in disadvantaged environments, you see a remarkable performance."

In particular, he said the test results showed the "resilience" of pupils to succeed despite tough backgrounds - and the "high levels of equity" between rich and poor pupils.

"Shanghai is an exceptional case - and the results there are close to what I expected. But what surprised me more were the results from poor provinces that came out really well. The levels of resilience are just incredible.

"In China, the idea is so deeply rooted that education in the key to mobility and success."

Investing in the future

The results for disadvantaged pupils would be the envy of any Western country, he says.

Mr Schleicher is confident of the robustness of this outline view of China's education standards.

In an attempt to get a representative picture, tests were taken in nine provinces, including poor, middle-income and wealthier regions.

The Chinese government has so far not allowed the OECD to publish the actual data.

But Mr Schleicher says the results reveal a picture of a society investing individually and collectively in education.

On a recent trip to a poor province in China, he says he saw that schools were often the most impressive buildings.

He says in the West, it is more likely to be a shopping centre.

"You get an image of a society that is investing in its future, rather than in current consumption."

There were also major cultural differences when teenagers were asked about why people succeeded at school.

"North Americans tell you typically it's all luck. 'I'm born talented in mathematics, or I'm born less talented so I'll study something else.'

"In Europe, it's all about social heritage: 'My father was a plumber so I'm going to be a plumber'.

"In China, more than nine out of 10 children tell you: 'It depends on the effort I invest and I can succeed if I study hard.'

"They take on responsibility. They can overcome obstacles and say 'I'm the owner of my own success', rather than blaming it on the system."

Education's World Cup

This year will see another round of Pisa tests - it's like World Cup year for international education. And Mr Schleicher's tips for the next fast-improving countries are Brazil, Turkey and Poland.

Mr Schleicher, a German based in the OECD's Paris headquarters, has become the godfather of such global education comparisons.

Armed with a spreadsheet and an impeccably polite manner, his opinions receive close attention in the world's education departments.

The White House responded to the last Pisa results with President Barack Obama's observation that the nation which "out-educates us today will out-compete us tomorrow".

The next round of global league tables will test 500,000 pupils in more than 70 countries - with the results to be published late next year.

Education ministers will be looking nervously at the outcome.

"In the past, politicians could always say we're doing better than last year - everyone could be a success," he says, describing the tendency for national results to rise each year.

The arrival of Pisa tests sent an icy draught through these insulated corridors.

No excuses

Perhaps the biggest discomfort of all was for Germany - where "Pisa shock" described the discovery that their much vaunted education system was distinctly average.

And the biggest change in attitude, he says, has been the United States - once with no interest in looking abroad, now enthusiastically borrowing ideas from other countries.

"Education is a field dominated by beliefs and traditions, it's inward looking. As a system you can find all kinds of excuses and explanations for not succeeding.

"The idea of Pisa was to take away all the excuses.

"People say you can only improve an education system over 25 years - but look at Poland and Singapore, which have improved in a very short time, we've seen dramatic changes."

The biggest lesson of the Pisa tests, he says, is showing there is nothing inevitable about how schools perform.

"Poverty is no longer destiny. You can see this at the level of economies, such as South Korea, Singapore."

Fair comparison?

A criticism of such rankings has been that it is unfair. How can an impoverished developing country be compared with the stockpiled multiple advantages of a wealthy Scandinavian nation?

Here Mr Schleicher makes a significant distinction. It might not be fair, but such comparisons are extremely relevant. "Relevance and fairness are not the same thing," he says.

Youngsters in the poorest countries are still competing in a global economy. "It's a terrible thing to take away the global perspective."

He also attacks the idea of accepting lower expectations for poorer children - saying this was the "big trap in the 1970s".

"It was giving the disadvantaged child an excuse - you come from a poor background, so we'll lower the horizon for you, we'll make it easier.

"But that child has still got to compete in a national labour market.

"This concept of 'fairness' is deeply unfair - because by making life easier for children from difficult circumstances, we lower their life chances."

'Sorting mechanism'

So why are the rising stars in Asia proving so successful?

Mr Schleicher says it's a philosophical difference - expecting all pupils to make the grade, rather than a "sorting mechanism" to find a chosen few.

He says anyone can create an education system where a few at the top succeed, the real challenge is to push through the entire cohort.

In China, he says this means using the best teachers in the toughest schools.

The shifting in the balance of power will be measured again with Pisa 2012, with pupils sitting tests from Stockholm to Seoul, London to Los Angeles, Ankara to Adelaide.

"I don't think of Pisa as being about ranking, it tells you what's possible. How well could we be doing?"

(Reuters) - China's ZTE Corp, which recently sold Iran's largest telecommunications firm a powerful surveillance system, later agreed to ship to Iran millions of dollars worth of embargoed U.S. computer equipment, documents show.

The American components were part of an 8 million euro ($10.5 million) equipment-supply contract, dated June 30, 2011, between ZTE, a Chinese trading firm and a unit of the consortium that controls the Iranian telecom, Telecommunication Co. of Iran, according to documents reviewed by Reuters. ZTE is China's second-largest telecommunications equipment maker.

The documents shed further light on how Iran obtains sophisticated American tech products despite U.S. sanctions on Iran. China is a major conduit. Reuters in March revealed an earlier deal between ZTE and TCI, which centered on non-American surveillance equipment but also included some U.S. tech goods. The latest deal, though smaller in scale, was much more reliant on U.S. products.

Beijing and Moscow have vetoed Western attempts to strengthen sanctions against Iran over its nuclear-development program. ZTE, based in the city of Shenzhen, is publicly traded but its largest shareholder is a Chinese state-owned enterprise.

According to the contract's parts list, the equipment to be delivered from China included IBM servers; switches made by Cisco Systems Inc and Brocade Communications Systems Inc; database software from Oracle Corp and a unit of EMC Corp; Symantec back-up and ant-virus software; and a Juniper Networks firewall. The parts were intended for business-support services, including a ZTE billing system.

A spokesman for ZTE said last week in an email that "as far as we know" the company had not yet shipped any of the products. Asked if ZTE intended to do so, he emailed a new statement Monday that said: "We have no intention to implement this contract or ship the products."

He also said ZTE decided "to abandon" the agreement after "we realized that the contract involved some U.S. embargoed products."

The contract had made clear the American provenance of the goods: Its accompanying parts list, signed by ZTE, lists more than 20 different computer products from U.S. companies. Washington has banned the sale of such goods to Iran for years.

U.S. companies that responded to requests for comment said they were not aware of the Iranian contract; several said they were investigating the matter.

A spokesman for IBM said: "Our agreements with ZTE specifically prohibit ZTE from the transfer of IBM products to Iran. If any of IBM's business partners are breaching our export compliance agreements, then IBM will take appropriate actions."

A Brocade spokesman said the company doesn't sell any products to Iran "and we certainly have not shipped these products to" ZTE. A spokesman for Greenplum, the EMC unit, said: "We have no knowledge of the contract described, but are actively researching this matter." A Cisco spokesman said: "We continue to investigate this matter, as any violation of U.S. export controls is a very serious matter."

According to the U.S. Treasury Dept., a U.S. company would violate sanctions if it shipped products requiring an export license to a third party knowing the goods would end up in Iran.

The United States, Europe and the United Nations have been imposing increasingly tough economic sanctions on Iran to pressure it to refrain from developing nuclear weapons, which Iran denies it is doing. The five permanent members of the U.N. Security Council - the U.S., China, Russia, Britain and France - plus Germany are scheduled to hold talks with Iran Saturday in Istanbul over its nuclear program, which it maintains is peaceful.

Reuters reported on March 22 that ZTE had sold Iran's TCI a surveillance system capable of monitoring landline, mobile and internet communications. The system was part of a 98.6 million euro ($128.9 million) contract for networking equipment signed in December 2010.

The article reported that despite a longtime U.S. sales ban on tech products to Iran, ZTE's "Packing List" for the contract, dated July 24, 2011, also included numerous American hardware and software products, although they were not part of the surveillance system.

The U.S. product makers - which included Microsoft Corp, Hewlett-Packard Co and Dell Inc, among others - all said they were not aware of the Iranian contract, and several said they were investigating the matter.

The day after the article was published, a ZTE spokesman said the company would "curtail" its business in Iran. The company later issued a statement saying, "ZTE no longer seeks new customers in Iran and limits business activities with existing customers."

Three other telecommunications equipment makers - Ericsson, Nokia Siemens Networks and China-based Huawei Technologies - previously have said they would reduce their business in Iran. Huawei and ZTE have emerged as the largest equipment suppliers to Iran, according to people involved with the country's telecom industry.

The parts list for the June 2011 contract was much more dominated by U.S. products than the earlier equipment contract. The earlier pact was between TCI, ZTE and a Chinese trading company called Beijing 8-Star International Co. The latest contract was between ZTE, Beijing 8-Star and an Iranian company called Aryacell.

Aryacell is a unit of Iran Mobin Electronic Development Co., part of a consortium that controls TCI along with the Iranian government. According to the contract, Beijing 8-Star was required to provide "third-party equipments," while ZTE was responsible for supplying equipment and collecting payment. The contract was to last until December 31, 2015.

Officials at Aryacell and TCI did not respond to requests for comment. A representative of Beijing 8-Star, reached in China, declined to answer questions, saying: "Concerning my business matters, it's not necessary for me to tell you anything."

The contract's parts list included products made by manufacturers from several countries. But most were from the U.S., with IBM items accounting for the bulk of them. The IBM parts included 30 servers and other computer equipment with a total cost of more than 6.8 million euros ($8.9 million), minus about a 30 percent discount.

Several of the IBM server models, though new, were discontinued shortly before the contract was signed. It called for a 12-month warranty on all equipment.

It is not clear how ZTE will get out of the contract. According to the terms, the contract only can be terminated if Aryacell breaches it, becomes bankrupt or can't pay its debts.

SEOUL (Reuters) - U.S. President Barack Obama urged China on Sunday to use its influence to rein in North Korea instead of "turning a blind eye" to its nuclear defiance, and warned of tighter sanctions if the reclusive state goes ahead with a rocket launch next month.

"North Korea will achieve nothing by threats or provocations," a stern-faced Obama said after a tour of the heavily fortified border between the two Koreas resonant with echoes of the Cold War.

Such a launch would only lead to further isolation of the impoverished North, which much show its sincerity if on-again-off-again six-party aid-for-disarmament talks are to restart, Obama told a news conference in the South Korean capital.

Seoul and Washington say the launch will be a disguised test of a ballistic missile that violates Pyongyang's latest international commitments. North Korea says it merely wants to put a satellite into orbit.

Even as Obama warned North Korea of the consequences of its actions, he spoke bluntly to China, the closest thing Pyongyang has to an ally, of its international obligations.

Obama said Beijing's actions of "rewarding bad behavior (and) turning a blind eye to deliberate provocations" were obviously not working, and he promised to raise the matter at a meeting with Chinese President Hu Jintao in Seoul on Monday.

"I believe that China is very sincere that it does not want to see North Korea with a nuclear weapon," he told a news conference in Seoul before a global summit on nuclear security. "But it is going to have to act on that interest in a sustained way."

It was Obama's sharpest message yet to China to use its clout with North Korea in a nuclear standoff with the West, and dovetails with recent calls for Beijing to meet its responsibilities as a rising world power.

In an election year when Republicans have accused Obama of not being strong enough with Beijing, talking tough on China is seen as a potential vote-winner after three years of troubled diplomacy in dealings with Iran, Afghanistan and Pakistan.

China is host to the six-party talks, which involve Japan and Russia as well as the two Koreas and the United States.

DMZ TOUR

U.S. President Barack Obama (R) poses for a photo after his speech

Obama earlier visited a U.S. base on the edge of the Demilitarized Zone (DMZ) as a solemn North Korea came to a halt to mark the 100th day after "Dear Leader" Kim Jong-il's death.

"You guys are at freedom's frontier," Obama, wearing an Air Force One bomber jacket, told about 50 troops crammed into the Camp Bonifas mess hall at one of the world's most heavily fortified frontiers.

He spent about 10 minutes on a camouflaged viewing platform at the DMZ, talking with some of the soldiers on guard and peering with binoculars across the border into North Korea as flags flapped loudly in the brisk, cold wind.

The White House cast Obama's first visit to the DMZ, which has bisected the peninsula since the end of the Korean War in 1953, as a way to showcase the strength of the U.S.-South Korean alliance and thank some of the nearly 30,000 American troops still deployed in South Korea.

The 4-km (2.5-mile) wide DMZ was drawn up at the end of the 1950-53 civil conflict, which ended in a truce that has yet to be finalized with a permanent peace treaty, leaving the two Koreas in effect still at war.

ROCKET LAUNCH CONDEMNED

Washington has condemned next month's planned rocket launch as a violation of North Korea's promise to halt long-range missile firings, nuclear tests and uranium enrichment in return for a resumption of food aid.

Obama said that if the North goes ahead with the rocket launch, a February food aid deal could fall apart and Pyonygang could face a tightening of international sanctions.

Obama said he was sympathetic to China's concerns that too much pressure on North Korea could create a refugee crisis on its borders, but insisted Beijing's approach over the decades had failed to achieve a "fundamental shift" in Pyongyang's behavior.

South Korea's Yonhap news agency quoted a military official on Sunday as saying the main body of the rocket had been moved to the launch site on North Korea's west coast. The launch will coincide with big celebrations marking the 100th anniversary of the birth of the state's founder, Kim Il-sung.

North Korea's defiance is clouding Obama's much-touted nuclear disarmament agenda, which is also being challenged by Iran's persistence with nuclear research in the face of sanctions and international criticism.

Obama will join more than 50 other world leaders on Monday for a follow-up to the inaugural nuclear security summit he organized in Washington in 2010 to help combat the threat of nuclear terrorism.

While North Korea and Iran are not on the guest list or the official agenda, they are expected to be the main focus of Obama's array of bilateral meetings on the sidelines.

NORTH KOREA MOURNS

Obama's visit coincided with the end of the 100-day mourning period for Kim Jong-il, who died in December. Tens of thousands of people crammed into Kim Il-sung Square in central Pyongyang to mark the occasion.

The state's new young leader, Kim Jong-un, the third member of the Kim family to rule the state, bowed before a portrait of his father at the palace where he lies in state. He was joined by his uncle, Jang Song-thaek, and military chief Ri Yong-ho.

Standing alongside South Korean President Lee Myung-bak, Obama told reporters it was difficult to get an accurate impression of how the succession process was going because it was not clear who was "calling the shots" in the North.

The young Kim himself made a surprise trip to the DMZ in early March. He looked across the border through binoculars and told troops to "maintain the maximum alertness since (they) stand in confrontation with the enemy at all times".

Oil prices have dipped from a 43-month high after Saudi Arabia denied reports that a key pipeline had exploded.

Brent crude fell back to $125.6 a barrel after jumping almost $6 to $128.40 in New York on Thursday. US light crude fell slightly to $108.5.

A number of factors had pushed prices to their highest level since July 2008, including tensions over Iran's nuclear plans and regional unrest.

Thursday's high beat the level seen during the Libyan civil war last year.

The problem facing the oil market at the moment is that events in a number of countries could have an impact on supply and demand, often causing traders to react more quickly to speculation and increasing volatility.

On Thursday, the trigger was a report in Iranian media that an explosion had occurred at a pipeline in Saudi Arabia.

The report came at a time when there has been a steady increase in friction between Iran on one side and the United States and its allies on the other.

The US has imposed fresh sanctions against Tehran targeting the country's oil exports, while the European Union has announced a ban on imports of Iranian oil.

For its part, Iran has threatened that it will close the Straits of Hormuz, a vital trade route for oil from the Gulf - including Saudi oil - if the West were to impose more sanctions.

Analysts said all these issues had created an uncertainty over oil supplies and the latest reports had only fanned those fears further.

"The sharp move up on the pipeline story points to the market nervousness on anything related to supply problems," said Gene McGillan of Tradition Energy.

Among the biggest buyers of Iranian oil are Asian economies such as China, Japan, India and South Korea.

The US has been trying to convince these nations to reduce their imports of Iranian oil, to put further pressure on Tehran.

Earlier this year, US Treasury Secretary Timothy Geithner visited China and Japan to drum up support for US sanctions.

But there have been concerns that if nations stop buying oil from Iran they will have to turn to other oil producers in order to meet their demand, pushing up prices and hurting global economic growth.

However, US authorities tried to allay those fears, saying that global oil producers were well placed to make up for any shortfall in Iranian oil.

"I think there is sufficient spare capacity," said Steven Chu, US Energy Secretary.

At the same time, some analysts said that change in global weather may also help in keeping oil prices in check.

"Oil prices have overshot in the short-term, and with warmer temperatures as we move from winter to spring, oil demand could start to fall, starting in March," said Gordon Kwan, head of energy research at Mirae Asset Management in Hong Kong.

"Brent could fall back below $120 (per barrel) if Iran doesn't flare up."  

(Reuters) - Major powers signaled on Friday their willingness to reopen talks about curbing Iran's suspected pursuit of nuclear weapons but said Tehran must show it is serious about any negotiations.

The focus on diplomacy follows weeks of rising tensions between the West, which is seeking to cut Iran's oil sales, and Tehran, which has threatened to close the Strait of Hormuz through which almost one-fifth of oil traded worldwide flows.

Alarmed Arab neighbors made a plea to avoid escalating the dispute over Iran's nuclear program while an ally of Iran's supreme leader called for Israel to be "punished" for allegedly killing an Iranian nuclear scientist.

The West suspects Iran is using its civilian nuclear program as a cover to develop atomic weapons and has pursued a two-track approach of sanctions and diplomacy to try to rein it in. Iran says its nuclear program is solely to produce electricity.

While major powers stressed their openness to renewed talks,

diplomats said they remain divided on their approach, notably on whether to let Iran keep enriching uranium at some level.

The group, known as the P5+1 and as the EU3+3, includes Britain, China, France, Germany, Russia and the United States.

EU foreign policy chief Catherine Ashton, who represents the group, issued a statement making clear that a diplomatic path remains open to Iran despite tougher sanctions and fresh speculation of a military strike on its nuclear facilities.

"The EU3+3 has always been clear about the validity of the dual track approach," Ashton's spokesperson said in a statement that included her October 21 letter to the Iranians laying out the possibility of talks. "We are waiting for the Iranian reaction."

The release of the statement and letter appeared to reflect frustration at Iran's statements hinting at a willingness to resume talks but Tehran's failure to formally respond to the letter and commit to discussing the nuclear program in earnest.

CONCILIATORY TONE FROM CLINTON

U.S. Secretary of State Hillary Clinton struck a decidedly conciliatory tone at a news conference with German Foreign Minister Guido Westerwelle in Washington.

"We do not seek conflict. We strongly believe the people of Iran deserve a better future," she said. "They can have that future, the country can be reintegrated into the global community ... when their government definitively turns away from pursuing nuclear weapons.

"We have to see a seriousness and sincerity of purpose coming from them."

Westerwelle said, "One thing is clear: the door for serious dialogue remains open but the option of nuclear weapons in Iran is not acceptable."

Diplomats said major powers are divided over what incentives to offer Iran if talks were to resume.

A central issue is whether the group might ask Iran to cease enriching uranium to the higher level of 20 percent but allow it, at least for a time, to continue enriching at lower levels -

a stance partly at odds with the group's past positions.

Uranium enrichment is a process that at low levels can yield fuel for nuclear power plants or, if carried out to much higher levels of purity, can generate fissile material for bombs.

To let Iran enrich at lower levels would be something of a concession by the P5+1, although it has previously offered a temporary "freeze-for-freeze" in which Iran would not expand its nuclear program and the powers would not pursue more sanctions.


IRANIAN CALLS FOR PUNISHING ISRAEL

After Supreme Leader Ayatollah Ali Khamenei paid his respects to the families of two scientists assassinated on what Tehran believes were Israel's orders, one of them just last week, a close ally demanded retribution.

"Terrorism has a long history in some countries like the Zionist regime," Ali Larijani, speaker of Iran's parliament and a former nuclear negotiator, said Israel, which views an atomic bomb in Iran's hands as a threat to its survival.

"The Zionist regime should be punished in a way that it can not play such games with our country again."

Such threats have been made before in Tehran and it is unclear how or when they might be carried out. Israel, widely assumed to have the only nuclear arsenal in the Middle East, is on guard against attacks on its borders and within, notably by Lebanon's Hezbollah movement, which is supported by Iran.

Obama's top military official, chairman of the Joint Chiefs of Staff General Martin Dempsey, briefly visited Israel and was quoted by its Defense Ministry as telling officials there that Washington was keen to coordinate on strategy.

"We have many interests in common in the region in this very dynamic time and the more we can continue to engage each other, the better off we'll all be," Dempsey was quoted as saying in a statement issued by the Israeli Defense Ministry.

The comments may reflect U.S. concerns about the possibility that Israel, which has previously bombed nuclear facilities in Iraq and in Syria, might launch an attack on Iran.

French President Nicolas Sarkozy said on Friday that time was running out to avoid a military intervention and appealed to China and Russia, veto-wielding U.N. powers who have been reluctant to tighten sanctions, to support new sanctions.

"Time is running out. France will do everything to avoid a military intervention," Sarkozy told ambassadors gathered in Paris. "A military intervention will not solve the problem, but it will unleash war and chaos in the Middle East."

"We need stronger, more decisive sanctions that stop the purchase of Iranian oil and freezes the assets of the central bank, and those who don't want that will be responsible for the risks of a military conflict," Sarkozy warned.

"We really need you," he said in an appeal to Moscow and Beijing.

With tensions, including mutual threats of disrupting the oil trade, creating worries across the region, the foreign minister of the United Arab Emirates, the wealthy, U.S.-allied state sitting across the Gulf from Iran, offered a warm welcome to a call for calm on Thursday by his Iranian counterpart.

"It's important to get far away from any escalation and we stress the stability of the region," Sheikh Abdullah bin Zayed al-Nahayan was quoted as saying by state news agency WAM.

(Reuters) - Yahoo Inc co-founder Jerry Yang has quit the company he started in 1995, appeasing shareholders who had blasted the Internet pioneer for pursuing an ineffective personal vision and impeding investment deals that could have transformed the struggling company.

Yang's abrupt departure comes two weeks after Yahoo appointed Scott Thompson its new CEO, with a mandate to return the once-leading Internet portal to the heights it enjoyed in the 1990s.

Wall Street views the exit of "Chief Yahoo" Yang as smoothing the way for a major infusion of cash from private equity, or a deal to sell off much of its 40 percent slice of China's Alibaba, unlocking value for shareholders.

"Everyone is going to assume this means a deal is more likely with the Asia counterparts," Macquarie analyst Ben Schacter said. "The perception among shareholders was Jerry was more focused on trying to rebuild Yahoo than necessarily on maximizing near-term shareholder value.

"It certainly seems things are coming to a head as far as realizing the value of these assets."

Yang, who is severing all formal ties with the company by resigning all positions including his seat on the board of directors, has come under fire for his handling of company affairs dating back to an aborted sale to Microsoft in 2008.

Yang's exit comes roughly a month before dissident shareholders can nominate rival directors to Yahoo's board.

The remaining nine members of Yahoo's board, which includes Hewlett-Packard executive Vyomesh Joshi and private investor Gary Wilson, are all up for reelection this year.

Yang's departure could be part of a broader board shakeup, said Ryan Jacob, chairman and chief investment officer of Jacob Funds, which owns Yahoo shares.

"If they don't move quickly on these things, they run the risk of a proxy battle and they are doing everything they can to avoid that."

The company did not say where Yang was headed or why he had suddenly resigned. CEO Thompson offered few clues in a memo to employees obtained by Reuters following the announcement.

"I am grateful for the support and warm welcome Jerry provided me in my early days here. His insights and perspective were invaluable, helping me to dig deeper, more quickly than I could have on my own, into some of the key elements of the company and how it operates.

Yang and co-founder David Filo, both of whom carried the official title "Chief Yahoo," own sizable stakes in the company. Yang owns 3.69 percent of Yahoo's outstanding shares, while Filo owns 6 percent as of April and May 2011.

In a letter to Yahoo's chairman of the board, Yang said he was leaving to pursue "other interests outside of Yahoo" and was "enthusiastic" about Thompson as the choice to helm the company.

Yang, 43, is also resigning from the boards of Yahoo Japan and Alibaba Group Holdings.

Respected in the industry as one of the founding figures of the Web, Yang has come under fire over the years from investors and to some extent within the company's internal ranks.

"Lots of people think he holds up innovation there with old ideas and (is) slow to decide and that he's not an innovator himself for being at such a high level," said one former Yahoo employee.

"People have very high expectations for founders. Everyone wants a Steve Jobs," the employee said, referring to Apple's co-founder who brought the company back from near death and transformed it into the world's most valuable tech company.

Some analysts say the Yahoo board's indecision stems in part from Yang's sway in the company. Disillusioned by the company's flip-flopping, they warn that the rest of the board remained much the same as the one that rejected Microsoft's unsolicited takeover bid when Yang was CEO.

"Jerry Yang was certainly an impediment toward anything happening," said Morningstar analyst Rick Summer. "This is a company that's been mired by a bunch of competing interests going in different directions. It was never clear what this board's direction has been."

Microsoft's bid was worth about $44 billion. Its share price was subsequently pummeled by the global financial crisis and its current market value stands at about $20 billion.

More recently, Yang and Yahoo chairman Roy Bostock have incurred the wrath of some major Yahoo shareholders for their handling of the "strategic review" the company was pursuing, in which discussions have included the possibility of being sold, taken private or broken up.

Yang's efforts to seek a minority investment in Yahoo from private equity firms enraged several large shareholders, including hedge fund Third Point, which accused Yang of pursuing a deal that was in "his best personal interests" but not aligned with shareholders' interests.

Yahoo has also been exploring a deal to unload most of its prized Asian assets in a complex deal involving Alibaba, valued at roughly $17 billion, sources told Reuters last month.

Alibaba Group's founder, Jack Ma, whose personal relationship with Yang led to Yahoo buying a 40 percent stake in Alibaba in 2005, said he looked forward to continuing a "constructive relationship" with Yahoo.

Susquehanna analyst Herman Leung said: "I had thought that Jerry Yang was a lifer at Yahoo.

"Without him on the board, this could smooth a potential transaction. What that transaction is, is any of our guesses right now."

(Reuters) - Chinese legends have long extolled the benefits of the Tian Shan Xue Lian, a rare white flower found in snowcapped mountains that is revered as a panacea, an elixir so powerful it can supposedly bring the dead back to life.

But in laboratories in Shanghai and Hong Kong, scientists are poring over this cusped, wrinkly flower the size of an avocado, from which they hope to develop a new drug to treat irregular heartbeat, or atrial fibrillation, a serious disease that raises the risk of stroke.

In the quest for better and newer drugs, scientists in China are re-examining traditional Chinese medicines TCM.L -- roots and herbs that have been used for thousands of years -- to find and reproduce the active ingredients so they may be made into drugs that can be easily manufactured and consumed.

But unlike many Chinese drugmakers who already sell TCMs in powders and capsules, scientists are going a step further by putting these experimental medicines through rigorous clinical tests so that they may find wider acceptance globally.

"This flower has been used for thousands of years in Xinjiang, Tibet and India to treat a range of illnesses...For the Chinese, it was used for 'disorderly heartbeat,'" said Li Guirong, a cardiology professor at the University of Hong Kong.

"I have worked eight years on this. Our aim is to return an irregular heart rhythm to normalcy...with a drug that has fewer side effects," he said.

As Beijing shifts its growth engine to cleaner hi-tech industries, committing $1.7 trillion over the next five years to nurture them, Chinese scientists are enjoying unprecedented government support and access to funding to design better drugs and diagnostic tools for chronic illnesses such as heart disease and cancer.

Backed by government funding, Li and colleagues at the Shanghai Institute of Materia Medica began studying eight years ago the Tian Shan Xue Lian, or Herba Saussureae Involucratae, which thrives 3,000 metres above sea level in the Tibetan highlands.

They extracted its key ingredient, acacetin, created its synthetic twin and found success in experiments on dogs with atrial fibrillation.

They are now refining the compound and hope to begin human trials in three years with China National Pharmaceutical Group Corp , parent of the country's largest Hong Kong-listed drug distributor Sinopharm Group Co Ltd (1099.HK).

"We received a patent for it (acacetin) and hope to make it into a drug together with Sinopharm. We hope to market it in China and internationally eventually," Li said.

While TCM has been used for thousands of years, it is far less understood and accepted outside of China. By subjecting TCM-derived compounds to clinical trials, experts hope to prove their efficacy and sell them into foreign markets.

FLUSH WITH CASH

Coinciding with China's push to upgrade its domestic drug sector, Western drugmakers are muscling into China to maintain margins amid a patent cliff and fall in earnings in Western markets.

In the last two months alone, Merck & Co Inc (MRK.N), Pfizer Inc (PFE.N) and Astrazeneca Plc (AZN.L), have announced ambitious research plans with Chinese companies to design new drugs for Chinese patients and also announced plans to expand their distribution grids.

The reason is simple: China's prescription drug market, set to be the world's second largest by 2020, is estimated to be worth more than $110 billion by 2015, from $50 billion in 2010, according to various industry researchers.

While much attention is paid to what Western drugmakers are doing in China, insiders say significant resources are quietly being directed to TCM research and the best TCM drugs will eventually figure among the world's prescription medicines.

In the last two years, the government has allotted 6.7 billion yuan to support biotechnology companies and the search for new drugs.

Apart from Sinopharm, which aims to compete globally with quality and well-accepted drugs, other notable TCM producers are Yunnan Baiyao Group Co Ltd (000538.SZ), which makes an anti-bleeding powder, Zhangzhou Pientzehuang Pharmaceutical Co Ltd (600436.SS) and Jiangsu Hengruli Medicine Co Ltd (600276.SS), all keen to put more resources into R&D over the next five years.

Beijing Tongrentang Co Ltd (600085.SS) will focus on developing products using rare raw materials that have strong medicinal qualities, while China Shineway Pharmaceutical Group Ltd (2877.HK) will give priority to state-protected and patented Chinese medicines.

This reverse approach -- working backwards with proven TCMs to find the active compound -- has been encouraged by China's best-known medical export, the anti-malaria drug artemisinin.

Artemisinin is derived from the sweet wormwood shrub, which has been used for thousands of years to treat malaria. A project by the Chinese army in the 1960s managed to isolate the active compound and it has since become the world's best line of defence against the disease.

"We will see a rebalancing away from what was an exclusive focus on Western chemical drugs to include more traditional Chinese medicines," said Jason Mann, pharmaceuticals and healthcare analyst with Barclays Capital in Hong Kong.

"The Chinese government is supporting TCM. It is a key heritage; something to be proud of. Five thousand years of history can't all be wrong. And it is just pragmatic. These are difficult, expensive diseases. Whatever approach you can take to keep patients healthy and out of hospital will be good."

Taipei - Taiwan began voting on Saturday in a tight presidential election that will decide who will run the island and manage crucial ties with China over the next four years.

Polls opened at 08:00 for the island's 18.1 million eligible voters in an election where the choice is essentially between pro-China incumbent Ma Ying-jeou and his main challenger Tsai Ing-wen, a China-sceptic.

"I voted for Ma because I am doing business with China and I often travel there," said businesswoman Ane Wei as she left a polling station in downtown Taipei.

"It'd be more convenient for me and good for my business if he remains in office."

Ruby Yang, an office worker, said she had cast her ballot in favour of Tsai "because I want to see the first female president in Taiwan".

Tsai cast her vote shortly before 10:00 in a suburb of Taipei, and Ma was expected to vote shortly afterwards.

For the past ten days, no opinion polls have been allowed, but the final surveys published last week showed a race too close to call, with Ma of the Kuomintang (KMT) party leading Tsai by as little as three percentage points.

Beijing and Washington are watching closely, as victory for Ma, 61, would likely be seen as a renewed mandate for policies that have brought about the most dramatic thaw in ties with the mainland in over 60 years.

"The reason why the Chinese mainland is so concerned about the Taiwan election is because we are worried that the idea of 'Taiwan independence' will be further spread by the process, as it was in the past," the state-controlled Chinese paper Global Times said on Friday.

Boosting trade

But it went on to say that "with democracy developing, rationality is growing while extremism is on the wane in Taiwan. In the future, the rotation of ruling parties will have a smaller influence on Taiwan's policymaking".

Ma was elected four years ago on a promise to improve Taiwan's economy by boosting trade and travel links with China and the key achievement of his term is a sweeping trade pact signed in 2010.

A win for 55-year-old Tsai could usher in a period of uncertainty in ties with China, as her Democratic Progressive Party (DPP) has traditionally favoured distancing the island from the mainland.

China and Taiwan have been governed separately since the end of a civil war in 1949, but Beijing still claims sovereignty over the island, and has vowed to get it back, even if it must go to war to make it happen.

The United States, too, is keeping a close eye on the election, hoping the outcome will not upset the stability that the strategically vital Taiwan Straits area has experienced since Ma assumed power in 2008.

Further complicating the race is the third candidate, former KMT heavyweight James Soong, 69, who could cost Ma the result by taking crucial votes away.

Officials believe a relatively large proportion of the eligible voters will cast their ballots because of the tightness of the race.

Both Ma and Tsai staged huge rallies in Taipei on Friday to whip up support and try to win the undecided voters who will decide the outcome.

Chang Poh-ya, chairwoman of the Central Election Commission, said on Friday she expected the turnout rate to reach about 80%, compared with just over 76% in the 2008 vote.

The nearly 15 000 polling stations will close at 16:00. The presidential vote coincides with a poll for Taiwan's 113-member parliament, where the KMT currently has a majority.

(Reuters) - Debt-riddled Japan Tuesday relaxed its self-imposed decades-old ban on military equipment exports in a move that will open new markets to its defense contractors and help the nation squeeze more out of its defense budget.

The government's security council agreed to the relaxing of the ban to allow Japan to take part in the joint development and production of arms with other countries and to supply military equipment for humanitarian missions, Chief Cabinet Secretary Osamu Fujimura said at a news conference.

"The new standards (on weapons exports) are a result of the government considering measures that required attention amid recent changes to the environment surrounding international defense equipment," Fujimura said, referring to rising arms costs that could put strain on the government, with public debt twice the size of its economy.

The rule adopted in 1967 banned sales to communist countries, those involved in international conflicts or subject to United Nations sanctions.

It later became a blanket ban on exports and on the development and production of weapons with countries other than the United States, making it impossible for manufacturers to participate in multinational projects.

"The regulations on weapons exports are based on the concept that as a pacifist country Japan should aim to avoid fanning international conflicts, and we will keep a close watch on exports," Fujimura said.

The relaxing of the rules does not mean Japan will begin openly selling its military products to the world -- exports will be limited to strategic allies like the U.S.

The move could still allow companies such as Mitsubishi Heavy (7011.T) to join the development of Lockheed Martin's (LMT.N) F-35, which Tokyo picked last week as its next frontline fighter, planning to buy 42 machines at an estimated cost of more than $7 billion.

MORE THAN DOUBLE

Although Japan is the world's sixth-biggest military spender, it often pays more than double other nations for the same equipment because local export-restricted manufacturers can only fill small orders at a high cost.

Removing the ban would stretch its defense purse further as military spending in neighboring China expands.

This year, Beijing raised military outlays by 12.7 percent. That included money for its own stealth fighter, the J-20, which made its maiden flight in January.

In contrast, Japan's defense budget has been shrinking in past years as ballooning costs for social security and servicing its growing debt pile squeeze other spending.

Given fiscal restraints, Tokyo is keen to make its defense program more efficient to maintain its military capability in the face of China's rise and growing uncertainties in the region.

The relaxation of the ban, that has been modified in the past to allow sharing of military technology with the U.S., could also be a boon for Japanese manufacturers as the strong yen weighs on their civilian exports and weak domestic demand and budget constraints restrict growth at home.

(Reuters) - More than 5,000 people have been killed in nine months of unrest in Syria, the U.N. human rights chief said, as an insurgency began to overshadow what had initially been street protests against President Bashar al-Assad's 11-year rule.

Navi Pillay reported the death toll to the U.N. Security Council as 1,000 higher than the previous toll just 10 days ago. It includes civilians, army defectors and those executed for refusing to shoot civilians, but not soldiers or security personnel killed by opposition forces, she said.

The Syrian government has said more than 1,100 members of the army, police and security services have been killed.

Syria's actions could constitute crimes against humanity, said Pillay, issuing a fresh call for the council to refer the situation to the International Criminal Court.

"It was the most horrifying briefing that we've had in the Security Council over the last two years," British Ambassador Mark Lyall Grant said after the session, which was arranged despite opposition from Russia, China and Brazil.

The sharp rise in the death toll is bound to lend weight to those arguing for increased international intervention to stop the bloodshed in Syria.

Assad, 46, whose minority Alawite family has held power over majority Sunni Muslim Syria for four decades, faces the most serious challenge to his rule from the turmoil which erupted in the southern city of Deraa on March 18.

A violent security crackdown failed to halt the unrest -- inspired by popular uprisings in Tunisia, Egypt, Yemen and Libya -- which turned bloodier in the last few months as defecting soldiers join armed civilians in fighting back in some areas.

DAWN BLOODSHED

In the latest violence around dawn on Tuesday, security forces shot dead 11 people and wounded 26 others in Idlib, a northern protest hotbed, the British-based Syrian Observatory for Human Rights said.

At the flashpoint central province of Homs, an explosion set a gas pipeline on fire on Monday, the second reported pipeline blast in the area in a week. "The fire lit the night sky," said a resident who gave his name as Abu Khalaf.

State news agency SANA said the pipeline, near the town of Rastan, supplied gas to an electricity power plant.

SANA also said border guards foiled an attempt by "an armed terrorist group" to cross into Syria from Turkey on Monday, the second such reported incident in a week. It said they shot dead two of the 15-strong group.

The Observatory said a pro-Assad armed group was holding 17 workers seized in Homs on Saturday.

Despite the spiraling violence, Syrian authorities held local elections on Monday as part of what they say is a reform process, but Assad's critics described the voting as irrelevant.

Monday was also the second day of the opposition's "Strike for Dignity," but its success was hard to gauge in some cities where violence has kept many residents in their homes.

Though the strike has found support in protest strongholds around the country, it has not taken hold in central parts of the capital Damascus or the business hub of Aleppo.

Syria has barred most independent journalists, making it hard to assess conflicting accounts of events there.

"SYSTEMATIC ATTACK"

In New York, Western envoys on the Security Council said Pillay's briefing on Monday was horrifying and termed it scandalous that the council, paralyzed by opposition from Russia and China, had taken little action on Syria.

"Independent, credible and corroborated accounts demonstrate that these abuses have taken place as part of a widespread and systematic attack on civilians," Pillay said, according to briefing notes seen by Reuters.

French Ambassador Gerard Araud said, "It is scandalous that the council, because of opposition from some members and the indifference of others ... has not been able to act to exert pressure on the Syrian authorities."

More than 14,000 people were reportedly in detention, at least 12,400 had sought refuge in neighboring countries and tens of thousands had been internally displaced, Pillay said, also citing "alarming reports" of moves against the city of Homs.

Russian Ambassador Vitaly Churkin said he too was troubled by Pillay's report, but he said outside intervention could lead to civil war and a far higher death toll.

He repeated accusations that Western countries had gone into "regime-change mode," adding, "The tragedy is that if things were allowed to degenerate and to go in the direction of further provocation, of fanning further confrontation, then maybe (there would be) hundreds of thousands dead."

Russia joined China to block Western efforts to pass a resolution against Syria in the U.N. Security Council.

Syrian Ambassador Bashar Ja'afari said Pillay should never have appeared before the council for a session that was part of a "huge conspiracy concocted against Syria from the beginning."

POLLS -- REFORM OR SHAM?

Assad's government portrays the municipal polls as part of a process leading to a parliamentary election next year and constitutional reform. But critics say local elections have little meaning in a country where power is highly centralized.

Prime Minister Adel Safar urged voters to "stand together to save our country from the conspiracies against us" and SANA said Syrians had flocked to the polls in 9,849 voting centers.

Assad has said reforms cannot be rushed in Baathist-ruled Syria, which is a close ally of Iran, a key player in nearby Lebanon and supporter of militant anti-Israel groups.

Some of his opponents see civil disobedience such as the strike action as preferable to armed confrontation, with the risk of civil war looming.

"The cost will be more human lives I am afraid," said Rima Fleihan, a member of the foreign-based opposition Syrian National Council.

"But it is less costly than an armed uprising and the regime dragging the country into a Libya-type scenario."

Iran's Press TV on Thursday broadcast an extended video tour of the U.S. spy drone that went down in the country--and it indeed appeared to look mostly intact.

American officials have acknowledged that an unmanned U.S. reconnaissance plane was lost on a mission late last week, but have insisted that there is no evidence the drone was downed by hostile acts by Iran. Rather, they said, the drone likely went down because of a malfunction, and they implied the advanced stealth reconnaissance plane would likely have fallen from such a high altitude--the RQ-170 Sentinel can fly as high as 50,000 feet--that it wouldn't be in good shape.

But Iranian military officials have claimed since Sunday that they brought down an American spy drone that was little damaged. And now they have provided the first visual images of what looks to be a drone that at least outwardly appears to be in decent condition, in what is surely another humiliating poke in the eye for U.S. national security agencies.

The Pentagon declined to comment on the released images Thursday, a Defense Department spokesman told Yahoo News. But military analysts said it appeared to them to be the American drone in question.

"I have been doing this for thirty years, and it sure looks like" a stealthy U.S. drone to me," Loren Thompson, a military analyst with the Lexington Institute and consultant to the RQ-170's manufacturer, Lockheed Martin, told Yahoo News in a telephone interview Thursday. "I think we are going to face the high likelihood that Iran has an intact version of one of our most important intelligence gathering tools."

Still, Thompson went on, the intelligence "windfall" to Iran from obtaining the advanced U.S. stealthy drone may be mitigated.

"I don't think the Iranians get as much out of it as they might hope," he said. "It probably came into their hands as a result of a technical malfunction. What that means is they still don't have a real defense against the U.S. flying other vehicles that have similar capabilities, without much fear of interception."

Analysts also noted that the video of the drone released by Iran did not show the drone's underside. "Pretty intact," the Center for Strategic and International Studies' James Lewis said by email. "Interesting that they covered the underside."

The New York Times reported Thursday that--unsurprisingly--the RQ-170 was lost while making the latest foray over Iran during an extended CIA surveillance effort of Iran's nuclear and ballistic weapons program.

"The overflights by the bat-winged RQ-170 Sentinel, built by Lockheed Martin and first glimpsed on an airfield in Kandahar, Afghanistan, in 2009, are part of an increasingly aggressive intelligence collection program aimed at Iran, current and former officials say," the Times' Scott Shane and David Sanger wrote. "The urgency of the effort has been underscored by a recent public debate in Israel about whether time is running out for a military strike to slow Iran's progress toward a nuclear weapon."

Iran in turn has complained that the drone overflights represent an act of aggression and violation of its sovereignty, and summoned the Swiss envoy--who represents U.S. interests in Iran--on Thursday to lodge a protest.

However, while the images of the U.S. drone surely allowed Iran to score another public relations blow against Washington, Iran may find it tough to generate much in the way of international sympathy for being the target of U.S. surveillance.

Last week, Iranian hardliners ransacked the British embassy in Tehran, prompting the United Kingdom to recall its diplomatic staff from Tehran and order Iran's embassy in London closed. Last month, the UN atomic watchdog agency issued a report raising concerns about research Iran is suspected by some nations to have conducted before 2003 on military aspects of its nuclear program. Iran has insisted its nuclear program is for peaceful energy purposes. In October, the United States accused elements of Iran's Qods force of plotting to assassinate the Saudi envoy to the United States. The United Nations General Assembly voted last month in favor of a resolution condemning the Iranian plot.

Amid its growing international isolation, Iran, unsurprisingly, seemed intent to play up the drone incident for all it could.

"China, Russia want to inspect downed U.S. drone," proclaimed a headline from Iran's Mehr news agency Thursday.

The RQ-170 Sentinel, however, reportedly did not use the latest U.S. surveillance technology on board, in part because as a single-engine aircraft, it was thought more likely to occasionally go down.

"The basic principles of stealthy aircraft are fairly well known," Thompson said. "In terms of [the drone's] on-board electronics and information systems, it is fairly routine in combat to require authentication codes to make them hard to unlock."

(Reuters) - Businessmen in sober suits leapt to their feet, jostling with cameras and mobile phones to snap a quick shot as the new U.S. ambassador to China strode to the podium at a hotel ballroom in Jinan, in coastal Shandong province.

Nine hours later, after a speech on energy cooperation, signing ceremonies for deals of a few million dollars each, and dinner with the governor, he was back on the train to Beijing.

This is how Gary Locke, the first Chinese-American ambassador to Beijing and a local celebrity, is trying to raise U.S. sales in China -- deal by deal, ballroom by hotel ballroom, in cities most Americans have never heard of.

While every U.S. ambassador has put in a plug for American goods and services, Locke takes the effort to a new level. The former commerce secretary has hit the pavement in six provincial cities to try to narrow the trade deficit that gives his boss, President Barack Obama, political heartburn.

"Certainly these trips can help publicize the great products and services made in America that could help meet the needs of China but at the same time create jobs in America," Locke told Reuters as the train sped through fields of winter wheat.

"You may not get immediate sales, or the amount of sales from these initial transactions might be small. But really you need to track the growth of these sales, these exports by these American companies over the next several years."

The effort is needed, say U.S. businesses, which often complain about China's opaque markets and the difficulty of selling to the Chinese government and state-owned businesses.

"I'm not aware that previous ambassadors have actually led trade missions organized in the U.S. around China," said Christian Murck, president of the American Chamber of Commerce in China. "It reflects a personal commitment."

American exports to China rose by nearly a third to $91.9 billion in 2010, reversing a fall in sales the previous year, according to the U.S. Department of Commerce. But they are still dwarfed by Chinese exports to the United States of $365 billion.

FROM COFFEE TO CHEMICALS

Even before he arrived in China, Locke made a splash. A photo of him wearing a backpack and buying a coffee in the airport Starbucks drew enthusiastic online comments from Chinese used to seeing their own officials flanked by guards and aides.

Locke, who does not speak Mandarin, has turned his celebrity to promoting everything from machines to energy-saving lights.

The wares displayed at folding tables under the Jinan Hotel's crystal chandeliers were nothing a consumer could touch. While American stores are filled with goods made in China, the companies accompanying Locke to Jinan included specialty chemicals and equipment makers, with products designed to upgrade China's inefficient and polluting energy sector.

Small firms in particular find it hard to meet the right person or figure out when tenders are issued, let alone sell products that are often pricier than the Chinese competitor.

But Locke retains the salesman's optimism. "Everyone that has exported to China reports that what may have started off small builds over time, such that we've seen phenomenal increases in exports from the United States to China," he said.

Trade missions like these are very much Chinese affairs, with the local representatives of the American firms greeting clients effusively in Mandarin. The signing ceremony, as always, was replete with hostesses in red, a champagne toast and piped music on endless repeat.

The buffet lunch featured dishes like kelp with garlic, lotus root with ginger and pork lung in spicy sauce.

Locke's presence meant the Shandong governor was there, and the chance for a meal with both drew many of the hard-to-reach bosses of state-owned companies.

"Lots of our customers are refineries in Shandong, and it's hard to meet them. Heads of state-owned enterprises are hard to access," said X.D. Hu, China managing director for specialty chemicals maker Albemarle Corp.

Two of his major clients showed up after the Shandong government sent out invitations for the event.

"They care less about the U.S. ambassador, but the chance to meet the Shandong governor is very exciting for them."

Shandong, one of China's largest provinces in terms of both population and economy, is famously business-oriented. But with its private factories hit hard by the global slowdown, more sales growth has to come from the state-owned sector.

The Jinan trip is the first of five trade missions, each focused on a specific industry, that Locke has pledged to lead.

On the train back to Beijing, embassy staffers were already planning how to make the next one bigger and better.

"Too often U.S. ambassadors get stuck in the geopolitics, things like nuclear negotiations," said James McGregor, senior consultant for APCO Worldwide in Beijing.

"But they should be out promoting American business. That's what the Europeans and Japanese do."

(Reuters) - China's military denounced the United States and Australia on Wednesday for upgrading military ties, warning that such moves could erode trust and fan Cold War-era antagonism.

Chinese Defense Ministry spokesman Geng Yansheng made the warning about a plan unveiled in mid-November by U.S. President Barack Obama and Australian Prime Minister Julia Gillard to form a de facto base in north Australia for up to 2,500 U.S. Marines.

Geng's comments came on the same day Australian Foreign Minister Kevin Rudd was reported as backing the formation of a security pact with India and the United States, another step that could fuel China's worries of being fenced in by wary neighbors.

"Military alliances are a product of history, but we believe any strengthening and expansion of military alliances is an expression of the Cold War mentality," Geng said in answer to a question about the U.S.-Australian announcement, according to a transcript on the ministry's website (www.mod.gov.cn.).

"This is not in keeping with the tide of the era of peace, development and cooperation and does not help to enhance mutual trust and cooperation between countries in the region, and could ultimately harm the common interests of all concerned," he said.

"We hope that the parties concerned will do more that is beneficial to the peace and stability of the Asia-Pacific region, and not the contrary."

But the Chinese spokesman indicated that Beijing was not shunning Washington. Chinese and U.S. defense officials, led by Under Secretary of Defense Michele Flournoy, will hold talks in Beijing next Wednesday, Geng told the briefing.

Earlier this month, Obama told Asia-Pacific leaders that the United States was "here to stay," announced the plans to set up the de facto military base in north Australia and chided China for trying to prevent discussion of its South China Sea territorial disputes at regional forums.

The Chinese Ministry of Defense is the public mouthpiece of the People's Liberation Army (PLA), but foreign reporters are not allowed to attend its briefings.

COOPERATION OR CONFRONTATION?

Although falling short of full-throated condemnation of the U.S.-Australian move, Geng's words were tougher than earlier reaction from China's Foreign Ministry, which said Washington and Canberra should focus on cooperating with Beijing.

Geng said the idea raised by U.S. and Australian officials of advancing "integrated air and sea combat" amounted to "trumpeting confrontation and sacrificing others' security for the sake of one's own security."

Chinese President Hu Jintao has made clear that he wants to avoid repeating the rifts that soured ties with Washington in the first half of 2011. Hu retires from power late next year, when the U.S. is focused on its presidential race, making China's leaders especially reluctant to risk distracting rows.

Beijing is also still licking its wounds from last year, when loud maritime disputes with Japan, Vietnam, the Philippines and other neighbors fanned suspicions about China's intentions.

Chinese military officers have, however, sometimes taken a tougher stance on security worries than civilian officials.

Earlier this week, PLA Major General Luo Yuan, well-known for his hawkish views, warned that Obama's regional push showed that the United States wanted to encircle China.

The comments from Australian Foreign Minister Rudd could also magnify such fears among Chinese observers.

A new trilateral pact bringing in India into a U.S.-Australian security tent was worth exploring because "from little things big things grow," Kevin Rudd said in an interview with the Australian Financial Review newspaper.

"The response from the Indian government has really been quite positive," said Rudd.

The idea of an Australian, Indian and U.S. trilateral security dialogue, in part to counter China's rising might, has been pushed by a trio of think-tanks in all three countries, but has yet to be adopted by any government.

At a briefing in Beijing, Foreign Ministry spokesman Hong Lei did not comment directly on Rudd's statement.

"China hopes that countries in the region will do more to promote regional peace, stability and development," Hong said in answer to a question about the proposal.

India's Foreign Ministry did not comment on Rudd's statement. But Indian analysts said Delhi was likely to be cool on the idea, partly out of reluctance to risk riling China.

"The Indian political establishment has always been wary of the idea of a military alliance," said Uday Bhaskar, the head of the National Maritime Foundation, a New Delhi-based think tank.

Central banks are contributing to world gold demand. The latest data from the World Gold Council indicate even more changes among the nations holding the most in gold reserves. Those are also some of nations whose creditworthiness is now under question during the debt crisis in Europe. 24/7 Wall St. looked at the 13 nations with the highest gold reserves, as well as two institutions, to see how each might affect future gold demand.

While investment demand was the key driver to increased gold demand during the past quarter, it is central bank gold buying and selling that is going to be a key factor for demand ahead. The council projected that central bank demand is expected to continue as creditworthiness woes of western governments has come front and center. In fact, the council also cited many new central bank entrants have emerged as they move to diversify reserves. Further, the council sees this increased central bank activity trend continuing into 2012.

24/7 Wall St. reviewed the top 13 nations that hold the lion’s share of the world’s gold reserves, according to the World Gold Council’s International Financial Statistics. Of course, many nations will have new gold reserve data in 2012. And some of the data remained unchanged from prior months. Our aim here is to show which nations probably are increasing or lowering their gold reserves into 2012 and why.

The European credit crisis and emerging market weakness are what is likely behind central banks’ demand. Total gold demand rose 6% in the third quarter from a year earlier to 1,053.9 tonnes. This equates to roughly $57.7 billion — an all-time high in value terms. Investment was the large driver for increased gold demand, while jewelry demand was soft.

These are The 13 Countries That own The World’s Gold.

13) Venezuela holds 365.8 tonnes.
Venezuela increased its gold reserves by nearly 5%. Hugo Chavez may be no friend to the United States, but oil sales and business nationalization (or seizure) has continued to add more wealth to the nation’s government. Venezuela’s population is only 27 million and it is the sole Latin American country among the top nations holding gold. In 2010, Venezuela bought 3.1 tonnes, according to the World Gold Council. That’s after buying 4.1 tonnes locally in 2009. Venezuela has continued adding gold, and if history is an indicator it is likely to keep adding gold.

12) Portugal holds 382.5 tonnes.
Surprisingly, one of the PIIGS nations (Portugal, Italy, Ireland, Greece, Spain), Portugal, is also a top holder of gold. The European nation has a population of almost 11 million people. Does this go back to the days of its empire building ambitions, or is it because the nation was able to remain neutral in World War II? If Portugal is really in such dire straights, perhaps the Europeans could start demanding that Portugal pledge some of its gold reserves to bolster its finances. Portugal has already been a part of the prior Central Bank Gold Agreement as a seller in recent years, so it seems logical that the nation would be selling to hold up on its debt and entitlement obligations.

11) Taiwan holds 423.6 tonnes.
Taiwan is another surprise as one of the world’s largest gold holders. It has a vast electronics sector, and maybe its high gold holdings help it stay financially relevant in its long ongoing confrontation with China. The nation is already considered wealthier than many neighboring countries on a per capita basis. The accumulation of gold by China makes it unlikely Taiwan would sell much gold now.

10) India holds 557.7 tonnes.
India’s gold holdings are still officially the same as they were at the beginning of the year, but it seems likely that it will increase its central bank holdings. The nation has about 1.2 billion people and its economy is growing — even though the government has fought inflation in 2011. Gold is entrenched in Indian culture that India is likely to continue accumulating more gold. Almost one-third of the world’s jewelry demand comes from India, and the country acquired 200 tonnes of the IMF gold sales in late-2010. India would seem to be a buyer of gold not just in 2012, but in the years ahead.

9) The Netherlands holds 612.5 tonnes.
Another fairly small nation with only 16.6 million people is ranked as a top holder of gold. The nation used to hold even more gold but it was a seller of gold from at least 2003 to 2008 under the Central Bank Gold Agreement in Europe. Maybe Holland could help to create a Dutch-led bailout for the PIIGS in Europe. The country’s gold holdings seem unlikely to change very much in 2012.

8 ) Japan holds 765.2 tonnes.
Japan has had to deal with two decades of a sluggish economy and its currency is currently considered a safe-haven for international investors. The Japanese people are known for keeping cash under their mattresses. The yen feels inflated with its huge debt-to-GDP and no growth. Prices for Japanese goods are getting too expensive for foreigners due to the strength of the Yen. The country is also still recovering from its tsunami and nuclear incident from earlier in 2011. Perhaps Japan will have proven to be a seller in 2011 rather than trying to bolster its foreign currency reserves. If not, it should be.

7) Russia holds 851.5 tonnes.
Russia has been gobbling up gold to bolster the ruble in the past and this appears to be the case this year as well. The new figure of 851.5 tonnes of gold compares to a previous figure earlier this year of 784.1 tonnes. The council had also noted earlier that Russia accumulated some 120 tonnes during the first 10 months of 2010, and that was after adding over 100 tonnes in 2009 and almost 70 tonnes in 2007. The new figure was due to increased purchases after the prior cut-off date. With Russia having vast oil and commodity reserves and with Russia aiming to increase its clout in the world as a financial powerhouse, it seems a shoe-in that it will have proven itself as a buyer of gold into 2012.

6) Switzerland holds 1,040.1 tonnes.
Switzerland already had to take measures earlier this year to halt the appreciation of the Swiss franc. It is hard to imagine that the nation would be buying gold to prop up its currency even after considering reports in recent years that it ran out of places to securely store gold. Switzerland sold gold under the Central Bank Gold Agreement from 2003 to 2008 before the great gold rush. With a mere 7.6 million people, how much gold does the nation really need? This country could easily lighten up on its gold reserves without its benchmark currency status being challenged.

5) China holds 1,054.1 tonnes.
China has added and added to its gold reserves. There is no reason to expect that to abate, particularly after Barron’s pointed that China is seeking a reserve currency status in the generation ahead. China has a population of 1.3 billion people and a fast-growing economy. The country also bought more than 450 tonnes of gold from 2003 to 2009 and 200 tonnes or more during 2010. With the pressure to get away from the dollar peg, assuring the value of the yuan only leaves the purchase of gold or other hard assets.

4) France holds 2,435.4 tonnes.
The French are not in the same boat as Italy and the rest of the PIIGS, but predicting what will happen with France’s gold reserves is very difficult. With a debt rating downgrade possibly coming down the pipe, France is the second largest foundation of the euro and of the European Union. The nation was part of the Central Bank Gold Agreement as a seller, but this was all before the major run-up in gold and before its own finances have come under question during the European debt crisis. It seems that more light selling is expected, although maybe the nation needs more hard assets as a reserve.

3) Italy holds 2,451.8 tonnes.
Italy was in the Central Bank Gold Agreements as a seller, but now it is the largest concern of Europe and of the PIIGS. It would seem that the Italians are unlikely to sell off their gold reserves. However, it is also likely that to fend off weakness some would argue for asset pledges. The nation has a new government and its economic growth is expected to be limited at best. Releasing gold might address some of Italy’s budget gaps and economic problems. Because Italy’s debt problems are quite large, it is likely that it would be a gold seller into 2012. If not, perhaps pledging those holdings is a runner-up scenario.

2) Germany holds 3,401.8 tonnes.
Germany remains the foundation of the European Union and of the euro. The nation was a seller of gold for coins under the Central Bank Gold Agreements from at least 2003 to 2008, but the sales were not really enough to put a serious dent in its gold reserves. It is hard to see Germany being a buyer of gold, but it likely cannot be a large seller either because it is the largest foundation of the euro. Selling too much gold could further pressure the troubled euro. Still, euro bailout funds have to come from somewhere and Germany could sell some additional gold without challenging its No.2 position among the nations holding gold reserves.

1) United States holds 8,133.5 tonnes.
The U.S. has already lost its prized AAA credit rating and it has magically created a vast amount of dollars to support the bailouts and stimulus packages. The U.S. could always try unloading some gold to fight future commodity price pressures, but the U.S. has now reached the point of leverage and deficits that it has to hold hard assets to fend off another challenge to the dollar as the world’s top reserve currency. Any gold sales today would likely have to be countered by large gold purchases in the future.

Looking from 2011 to 2012, Central Banks, Investment and More
The International Financial Statistics on the World Gold Council’s November report shows that the IMF holds 2,814 tonnes of gold. This technically puts the IMF somewhere between Germany and Italy. If the IMF is going to support bailouts and stabilization efforts, it is easy to consider where that money will come from. After all, the IMF cannot exactly print currency. The IMF’s Executive Board approved the sale of 403.3 tonnes in September 2009, which came to about one-eighth of its total gold holdings at the time.

The European Central Bank had some 502.1 tonnes of gold, according to the same November report. This is more than Taiwan, but less than India.

There are some key statistics to consider as 2011 comes to an end. Investment demand rose 33% from a year ago to 468.1 tonnes in the third quarter, worth about $25.6 billion. Central bank demand in the third quarter added 148.4 tonnes, an obvious effort to support currencies and credit ratings.

The world gold supply was up only 2% to 1,034.4 tonnes in the third quarter over a year earlier. Mine production was up 5% to 746.2 tonnes, while recycling activity was up 13% to 379.1 tonnes.

The investment segment showed that ETFs and investments accounted for 77.6 tonnes, but this was dwarfed by actual gold bars at 294.2 tonnes. Official coins came in a close third place at 76.2 tonnes and another 20 tonnes were for medals and imitation coins. European investment demand reached a record quarterly value of 4.6 billion Euros for 118.1 tonnes, a gain of 13%.

Also, watch Chindia. Chinese jewellery demand was 13% higher year-on-year at 131.0 tonnes; China’s investment demand for gold bars and coins rose 24% to 60.2 tonnes. Indian jewellery demand was down 26% in its seasonally slow quarter and it was compounded by high inflation and gold price volatility, although yearly demand at the end of September was called “very close to the record levels seen in 2010.”

If you tally up the top 15 entities here, the total is close to 26,000 tonnes of gold before counting any of the ETF products. The total tonnes of gold reserves from the International Financial Statistics cited by the World Gold Council is 30,708.3 tonnes. The SPDR Gold Trust (NYSE: GLD) lists some 1,277.36 tonnes worth over $71.5 billion today, but that is live data rather than just third quarter data released by the World Gold Council.

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