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Federal officials Sunday confirmed 29 cases of bacterial poisoning linked to fresh apple juice as investigators tested for contamination in samples pulled from Western U.S. and Canadian store shelves. Bob Howard of the U.S. Centers for Disease Control in Atlanta said the agency had confirmed that 29 children and young adults had been infected with a potentially fatal strain of the E. coli bacterium after drinking Odwalla Inc. fruit juice in California, Washington, Colorado and the Vancouver area of British Columbia. At least 36 additional cases are suspected or under investigation, state, county and provincial officials said. State and federal officials continued to test Odwalla juice samples over the weekend but said they had not found any evidence of contamination. "We're going to have to wait a few days to know for sure whether the samples are negative or positive," Arthur Whitmore of the U.S. Food and Drug Administration said. "It is quite possible we won't actually find anything, but we have a good selection of samples, including those from the company's library of samples." Odwalla, a rapidly growing juice company based in Half Moon Bay, California, was able to provide samples from production runs of two weeks ago, when the first cases surfaced in the Seattle area. Whitmore said he did not know of any cases in which illness set in after Oct. 23, although the disease can incubate for up to two weeks. At least four children remained hospitalized because of complications caused by the E. coli O57:H7 bacterium, including a 2-year-old girl in critical condition in California. Tara Azizi was in critical condition "but improving slightly," Stephen Texeira of Children's Hospital in Oakland said. Young children are most susceptible to the bacterium, which causes stomach cramps followed by bloody diarrhea. In severe cases the illness can lead to kidney failure, which is treated through dialysis but may cause brain damage and death. The bacterium, which normally lives in the digestive system of cattle, can enter the food chain through fecal contamination, because of either improper slaughtering or contact with manure. Health officials speculated that Odwalla may have used apples that had fallen onto the ground, although company officials say they do not use "ground apples" and all produce is thoroughly washed before processing at the company's Dinuba, California, plant. Odwalla juices are not pasteurized. Heat processing kills bacteria but can also alter flavor. The outbreak of E. coli O157:H7 is the biggest in the United States since 1993 when more than 500 people fell ill in the Pacific Northwest and three children died after eating tainted meat, mostly at Jack-In-The-Box hamburger restaurants. The same strain of E. coli sickened 9,500 people and killed 11 in Japan last summer. No source was identified in that outbreak, though raw radish shoots were suspected. The CDC's Howard said the agency recommended that people boil unpasteurized cider or juice.

Boeing Co defense and space group President Gerald King said he thought the company had a "better than 50-50" chance of surviving to the next round of the military's Joint Strike Fighter program. He said in an interview he was "not quite as bullish" about the company's chances of surviving into the next round of competition to win a contract to develop a so-called Evolved Expendable Launch Vehicle for the U.S. Air Force. (corrects program from "...develop the next-generation space shuttle launch vehicle.") In the joint strike program, Boeing is competing with McDonnell Douglas Corp and Lockheed Martin Corp to win a contract to build about 3,000 jets in the next century for the U.S. Air Force, Navy, Marine Corps and the British Royal Navy. The Pentagon will eliminate one of the bidding companies next month in a "downselect." "This is high on our priority, so we put a lot of effort into coming up with what we think is the right solution," King said in an interview. He said he thought Boeing had a good chance because of the high degree of commonality in its design, which should allow it to come up with a lower price for the single modular aircraft with three different configurations. "I think our chances our better than 50-50 of going to the next phase because I think we've come forward with a very innovative solution," he said. "The customer is almost obligated to give us an opportunity to demonstrate that we can in fact deliver what we've committed to." But he said he was concerned the Pentagon might favor the other bidders, particularly McDonnell Douglas, on the theory that a broad national "industrial base" needs to be maintained. He said such an argument would make "absolutely no sense" because the United States already has excess capacity to build commercial and military aircraft. If Boeing were eliminated the company would be "available" to partner with the surviving contractors, King said. On the space shuttle program, the U.S. National Aeronautics and Space Administration is expected to select two finalists in December from among Boeing, McDonnell Douglas, Lockheed Martin and Alliant Techsystems Inc. "Even though I think we have the best solution, I think the competition is extremely tough, with Lockheed Martin and McDonnell Douglas having present launch systems that they can evolve from," King said. -- Seattle bureau 206-386-4848

Pyramid Breweries Inc. PMIDO Tuesday warned of lower-than-expected sales and earnings for the fourth quarter, blaming increasing competition in the craft beer industry. Seattle-based Pyramid said sales would be 20 percent to 25 percent below last year's levels on a wholesale basis and said it expected to just break even for the quarter, compared with analysts' projections it would earn 9 cents a share. In last year's fourth quarter, the company posted gross sales of $7 million and net income of about $1 million, or 13 cents a share. Pyramid's warning was the latest to roil the trendy craft beer industry, which has disappointed investors who snapped up stock sold in a spree of offerings over the past two years. Pyramid stock, which went public at $19 as Hart Brewing Co. in December 1995, fell 12.5 cents after the announcement to $4.125 a share in Nasdaq trading. It ended an abbreviated trading session 25 cents lower at $4. Pyramid's crosstown rival, Redhook Ale Brewery Inc. , which just last week warned of weak sales, was trading at $10.625 on Nasdaq, compared with its August 1995 offering price of $17 a share and a peak of $35. Boston Beer Co., maker of Samuel Adams beer, was trading at $10 on the New York Stock Exchange, compared with an offering price of $20 little more than a year ago and a peak of $33. Brewers have blamed tough competition, particularly in the Northeast and on the West Coast, where the premium-priced beers have caught on most quickly with consumers. But market share for craft beers may have peaked in many of those initial markets, while an increasing number of varieties crowd grocery store coolers. "Not a lot of new consumers are trying craft beers any more," said analyst Diane Daggatt of Dain Bosworth, referring to more mature markets. "The people who are going to try them have tried them. They just haven't built any brand loyalty." She said about 400 craft brewers nationwide were distributing beer, up from 300 just a year ago. And brewers are adding more specialty beers, increasing competition and confusing consumers. While breweries have been offering promotional discounts, analyst Scott McAdams of brokerage Ragen MacKenzie said the industry may be ripe for more serious price cuts and consolidation. "People are going to have to think about addressing the price issue and spending more on marketing," he said. "They're going to have to play the beer game more than they have been playing the beer game." But analysts said there was still a lot of room for growth in new markets. Nationally, craft beers account for about 3 percent of sales, compared with 8 percent to 10 percent in markets such as Portland and Seattle, she said.

A federal appeals court on Wednesday overturned a jury verdict that ordered Nintendo Co. Ltd. to pay $253 million for patent infringement. With interest, the company could have been forced to pay nearly $300 million to tiny Alpex Computer Corp. for a technology allegedly used in the hugely popular Nintendo Entertainment System game device, Nintendo of America Chairman Howard Lincoln said in an interview. But in a 16-page decision, the U.S. Court of Appeals in Washington, D.C., overturned the jury's decision that the Alpex patent had been infringed. "It's a complete victory," Lincoln said. "I think our nightmare with these folks is over." Alpex, which Lincoln described as a bankrupt mining concern, filed suit in 1986, charging Nintendo's 8-bit game device used a patented "bitmapping" display technology patented by two Alpex engineers in 1977. In 1994 a U.S. District Court jury agreed and ordered Nintendo to pay a 6 percent royalty on each of the more than 35 million game units sold in the United States. But a three-judge panel of the appeals court in Washington, which handles patent cases, said in a 16-page decision it found a "lack of substantial evidence to support a finding of infringement either literally or under the doctrine of equivalents." Alpex's technology was used in early generation video games made by Mattel, Atari and Coleco. The company later won patent infringement settlements from Sega Enterprises Ltd. and others. But with the appeal victory Nintendo preserved what Lincoln said was a perfect record of fighting in court to protect its intellectual property rights. Lincoln said the case "cries out for a change" in the patent litigation system because it required a jury of laymen to sit through an eight-week trial that hinged on complex technical details of data storage and image display. "The problem is you ask these juries to in effect become electrical engineers, and quite frankly the jury was not composed of electrical engineers," Lincoln said. He also said the case was kept alive by lawyers working on a contingency-fee basis who stood to make huge profits. While Alpex could appeal to the full appeals court or the Supreme Court, Lincoln said he was confident Nintendo would prevail. Lawyers for Alpex could not be reached for comment.

Microsoft Corp is expected to report modest earnings growth for the latest quarter on Friday despite tough comparisons with the year-earlier period and a sales slowdown ahead of an upgrade of a popular software package. Industry analysts surveyed by First Call on average expect Microsoft to report earnings of 51 cents a share for its second quarter ended December 31, up about 16 percent from the 44 cents a share reported a year earlier. Sales are expected to rise about 14 percent to more than $2.5 billion. Analysts consider that a strong performance against tough comparisons with the year-earlier period, the first full quarter of availability for the Windows 95 operating system. In the 1995 second quarter sales soared 54 percent and net income jumped 48 percent. "These guys are just incredibly strong now," said Rob Owens of Pacific Crest Securities in Portland, Ore. "They'll probably meet or beat (Wall) Street's estimate again." Investors will have all weekend to analyse the results, which are due to be released after the close of trading on Friday. Microsoft executives originally had scheduled the release for Thursday but decided to delay the report until a day after an event publicising the launch of Office 97, its best-selling package of business software. Analysts estimated that revenues of Office and its component applications account for up to 30 percent of Microsoft's total, but the figure will be lower for the quarter just ended because of the impending upgrade. For much of the quarter Microsoft offered Office 95 buyers coupons good for a free upgrade, which will result in some revenues being deferred into future reporting periods. But strong growth in personal computer sales and in acceptance of Microsoft's high-end Windows NT operating system continue to buoy the company's profits. "The ongoing strength of the NT cycle is what's carrying the day," said Chris Galvin of Hambrecht & Quist. "Countervailing that is the tough comparison last year with the Windows 95 release, so it's a mixed scenario." Owen said that while sales of PCs to consumers were sluggish in the latest quarter, declining prices and increased processing power had sparked a new wave of corporate buying. He said 30 percent or fewer of corporate desktops have made the transition to the Windows 95 or Windows NT systems. "That's a tremendous opportunity for Microsoft," he said. The Malaysian Prime Minister said participants had raised concerns about shortages of skilled knowledge workers, and about how to market products in neighbouring countries. Malaysia's newly formed Multimedia Development Corp is preparing to take formal applications beginning in March from "world-class companies" wanting to set up operations in the Multimedia Super Corridor. McNealy said Sun Microsystems was already planning to put a Java Software Development Competency Center in the new high tech zone, and a senior executive of NTT Corp said the Japanese telecommunications giant was also planning to locate a research and development centre in the multimedia corridor. NTT also wants to join other participants in forming a Multimedia University which Malaysia envisions for the area. Some of the executives said the project was ambitious, and would likely face many pressures for the plan to change as it progressed, despite its success in attracting initial support. "You cannot command creation," said Bishop. "We have an impeccable plan, but execution still has to happen. We know enough in this new digital world that there are a lot of unpredictable discontinuities that occur. No country has a monopoly on these things." Mahathir said individual panel members would continue to meet over the next year, and that a further full meeting would be called in Malaysia a year from now to review progress.

Underdog Boeing Co., pitted against the nation's top two defence contractors, hopes to emerge as one of the winners next week when the Pentagon narrows the field to two competitors for the biggest weapons project of the early 21st century. Boeing, Lockheed Martin Corp. and McDonnell Douglas Corp. are each leading teams bidding on a Pentagon contract to build 3,000 new joint strike fighters -- a deal that could be worth more than $170 billion over the next two decades. Defence officials will announce on Nov. 18 the results of a hotly contested "down select" that will eliminate one of the three teams and leave the remaining bidders to build prototypes for a "flyoff" and final decision in fiscal year 2001. "We have identified the joint strike fighter as our No. 1 new business opportunity," said Lee Whitney, a spokesman for Lockheed Martin, the nation's biggest defence contractor. "We have focused resources from throughout the corporation on our configuration and all the effort necessary to emerge as the winner." The contract also is regarded as crucial for No. 2 McDonnell Douglas Corp., which recently announced its intention to reduce its commercial aviation efforts. "Winning is more critical to Lockheed and McDonnell than it is to Boeing," said analyst Paul Nisbet of JSA Research. But, he said, Boeing's entry was aggressive, promising up to 95 percent commonality among the three versions of the jet and a "flyaway" cost averaging less than $30 million for each plane, excluding billions in research and development. "I think they're still viewed as being the dark horse, but if I really had to bet some money, I'd bet that Lockheed Martin is going to be the loser," Nisbet said. "They already have two-thirds of the F-22, and the other two proposals are at least as good or even better." The joint strike fighter is aimed at cutting costs by serving the needs of the Air Force, Marines, Navy and the British Royal Navy with a single common airframe. Some within the Pentagon chafe at the concept of a multi-purpose jet design with three versions -- including advanced air-to-ground strike capability for the Air Force and vertical "hover" landing capability for the Marines. But the project appears to have the momentum to carry it forward into the 21st century, when it would replace four existing fighters after delivery begins in fiscal 2008. In addition to the 3,000 jets being ordered by the four services -- including more than 2,000 for the Air Force -- industry executives believe another 1,000 could be sold for export to U.S. allies. While Boeing has major roles in current projects, including the B-2 bomber and F-22 fighter, the Seattle-based company, best known for its commercial airliners, has not been the prime contractor on a tactical military jet since the Army's P-26 "Peashooter" of the 1930s. But analysts say the company's innovative design for the joint strike fighter, which includes one engine type and one wing for all three versions, may well earn it a place among the two finalists. "Boeing's design became much more credibly viewed because they're leveraging their derivative technologies that they've built up over years of commercial production," said Nick Heymann, an analyst at Natwest Securities. Boeing has signalled its intention to remain a major player in the military arena with its planned purchase of Rockwell International Corp. 's defence and space properties for $3.2 billion. "We've come forward with a very innovative solution," Boeing defence and space President Jerry King said. "The Pentagon is almost obligated to give us an opportunity to demonstrate that we can in fact deliver what we've committed to."

Airbus Industrie's preliminary restructuring agreement may help the consortium become more efficient, but poses no near-term threat to Boeing Co's market dominance, industry analysts said Friday. Although details of the Airbus agreement were not revealed, it appeared to represent a step forward from last July's announcement that the four-nation consortium would be transformed into a single corporate entity by 1999. "I think it's a step in the right direction," said Wolfgang Demisch of BT Securities. "They have a good franchise and they are going to be a contender." Pressure on Airbus to act has increased since last month's stunning news that Boeing plans to acquire McDonnell Douglas Corp, its last remaining U.S. rival in commercial jets. Analysts say Airbus needs to streamline its unwieldy management structure to have any hope of competing with highly centralized and rapidly expanding Boeing, which has access to enormous resources and the ability to subcontract work around the world. "If they are much more like a private company than they are now, certainly it would be to their benefit," said Paul Nisbet, an analyst at JSA Research. Officials at Boeing, which controls about 60 percent of the worldwide market for commercial jets, compared with some 35 percent for Airbus, said they welcomed the news. "We welcome an Airbus reorganization that would make its financial arrangements agree with generally accepted accounting principles and become transparent to public scrutiny, which includes the publication of regular financial statements," a Boeing spokesman said. He added that Boeing officials expect any reorganization would "further remove Airbus operating decisions from government control and influence." Demisch believed the latest Airbus agreement would enable the consortium to better integrate aircraft development, although manufacturing would still be done by the four member companies. The consortium members are French state-owned Ste Nationale Industrielle Aerospatiale, British Aerospace Plc, Daimler-Benz AG's aerospace unit and Construcciones Aeronauticas SA (CASA) of Spain. He said Airbus's success as a multinational should position it to compete in areas beyond its core commercial jet market such as defense and space. While the Airbus restructuring is aimed in part at raising the billions of dollars needed to launch its planned A-3XX jumbo jet, Boeing officials have aggressively disputed the market projections put forward by the consortium. Boeing, which is mulling a possible stretch version of the 747, says the market for a super-jumbo jet is barely big enough for one player, much less two. And Boeing says an all-new jet would cost far more than the $8 billion Airbus projects. Meanwhile, Airbus recently postponed a decision on a far cheaper plan to stretch its A340 model to compete with the sallest 747 and largest 777 models. ((-- Reuters Seattle bureau 206-386-4848))

Boeing Co's planned $13 billion acquisition of McDonnell Douglas Corp. will propel it to a leading position as a military contractor, matching its stature as the world leader in commercial aviation. While Europe's Airbus Industrie is likely to feel competitive pressure because of Boeing's increased resources, industry analysts said the chief benefits for Boeing would be on the military side. "Historically Boeing's military business was something of an also-ran," said Cai von Rumohr, an analyst at Cowen & Co. "With this transaction in one fell swoop they become a very major player." One analyst said the combined company could get nearly 50 percent of its revenues from government contracts, up from Boeing's historical 25 to 30 percent. The deal follows by little more than a week the completion of Boeing's $3.2 billion acquisition of Rockwell International Corp's defence and space business. And it comes just a month after McDonnell Douglas was eliminated from consideration to build the military's 21st century joint strike fighter plane. Instead the Pentagon chose Boeing and Lockheed Martin Corp -- the nation's largest military contractor -- to build prototype versions of the new fighter jet in a contract that could be worth $200 billion or more to the eventual winner. The addition of McDonnell Douglas' expertise makes Boeing "the team to beat" on the crucial programme, said Paul Nisbet of JSA Securities. Analyst Nick Heymann of Natwest Securities said the loss of the joint strike fighter was the crowning blow for McDonnell Douglas, which already had announced its intention to back away from the commercial aviation market, where it has been only a marginal player in recent years. "McDonnell Douglas just didn't have the resources to aggressively fund its development programmes," he said. "They got stretched too thin on transports and fighters and commercial, and they underinvested." Nevertheless the friendly all-stock deal does not necessarily mean that McDonnell Douglas executives failed in their effort to turn around the company, analysts said. For one thing the offer price of about $62.89 a share based on Friday's close is well beyond the stock's all-time high and about 10 times its level of the early 1990s, said Wolfgang Demisch of BT Securities. In addition the merger is being done at the very beginning of an expansion cycle in the industry, meaning layoffs can be minimised and the companies have several years to rationalise their operations before the next expected downturn. "It isn't a case that you're merging because you're starving to death," said Demisch. "It's a case that there's lots of opportunity. ... That's a much healthier basis on which to consolidate." Indeed Boeing chief executive Phil Condit said the combined companies would have revenues of $48 billion next year, up more than 30 percent from a projected $35 billion this year. "We are going to be going after $1 billion or more of savings a year, but we are going to be doing in it in an environment where the overall growth is occurring," Condit said at a news conference. "That's the advantage we have got right now." Condit, who will become chairman and chief executive officer of the combined company, said final merger negotiations began Tuesday, the day after he was elected to become Boeing's chairman effective Feb. 1. While Boeing does not currently need additional capacity to produce commercial jets, it will benefit from additional engineering strength, which will allow it to produce new models or variations of existing jets more quickly. Analysts predicted the deal would win clearance from federal antitrust regulators, noting that no protests were raised this month when the two companies struck a deal to work together on engineering new wide-body jets. And analysts said they thought the deal would win approval from the Pentagon, which has encouraged industry consolidation and backed the deal that created No. 1 defence contractor Lockheed Martin in 1994. Perhaps the chief concern for federal regulators will be Boeing's overwhelming size, which will be nearly twice that of its nearest rival Lockeheed Martin if the deal goes through.

Microsoft Corp. is expected to report modest earnings growth for the latest quarter Friday despite tough comparisons with the year-earlier period and a sales slowdown ahead of an upgrade of a popular software package. Industry analysts surveyed by First Call on average expect Microsoft to report earnings of 51 cents a share for its second quarter ended on Dec. 31, up about 16 percent from the 44 cents a share reported a year earlier. Sales are expected to rise about 14 percent to more than $2.5 billion. Analysts consider that a strong performance against tough comparisons with the year-earlier period, the first full quarter of availability for the Windows 95 operating system. In the 1995 second quarter sales soared 54 percent and net income jumped 48 percent. "These guys are just incredibly strong now," said Rob Owens of Pacific Crest Securities in Portland, Ore. "They'll probably meet or beat (Wall) Street's estimate again." Investors will have all weekend to analyse the results, which are due to be released after the close of trading Friday. Microsoft executives originally had scheduled the release for Thursday but decided to delay the report until a day after an event publicising the launch of Office 97, its best-selling package of business software. Analysts estimated that revenues of Office and its component applications account for up to 30 percent of Microsoft's total, but the figure will be lower for the quarter just ended because of the impending upgrade. For much of the quarter Microsoft offered Office 95 buyers coupons good for a free upgrade, which will result in some revenues being deferred into future reporting periods. But strong growth in personal computer sales and in acceptance of Microsoft's high-end Windows NT operating system continue to buoy the company's profits. "The ongoing strength of the NT cycle is what's carrying the day," said Chris Galvin of Hambrecht & Quist. "Countervailing that is the tough comparison last year with the Windows 95 release, so it's a mixed scenario." Owen said that while sales of PCs to consumers were sluggish in the latest quarter, declining prices and increased processing power had sparked a new wave of corporate buying. He said 30 percent or fewer of corporate desktops have made the transition to the Windows 95 or Windows NT systems. "That's a tremendous opportunity for Microsoft," he said.

Microsoft Corp Chief Financial Officer Mike Brown Monday said he expected the company's revenues to rise sequentially in the next two quarters from the $2.3 billion reported for the three months ended September 30. In an interview, Brown also said he thought the company's cost of goods sold could decline "a little bit" in the long term from the 10.9 percent of revenue just reported, already down from 16 percent a year ago. "We'll grow a little bit in December and then a little bit more in March, I think," Brown said. "I'm very happy with the general revenue trend, and I was very pleased with the pattern of costs in the quarter." Brown said revenue in the December quarter would be driven in part by holiday season cyclicality, while the March quarter would get a boost from the release of the company's Office 97 suite of business applications, an upgrade to one of the software company's core products. Brown said cost ratios were falling because of increased use of CD-ROMs for distributing software, rather than more costly diskettes, and because of the growing popularity of enterprise software licenses over sales through the retail and reseller channels. Brown also said the company's spending on research and development was "right on target," with its announced plans to spend $2.1 billion in the current fiscal year ending June 30. In addition, he said unearned revenue on the company's balance sheet -- up to $651 million as of September 30 from $560 million three months earlier -- would rise further as a result of growth in the "subscription" model of sales, such as licenses and upgrade. -- Seattle bureau 206-386-4848

Louisiana-Pacific Corp. said Monday it will close its Ketchikan pulp mill in southeastern Alaska next year after the failure of negotiations with the Clinton administration over timber supply. The company said it planned to take a $350 million charge against third-quarter pre-tax earnings -- $215 million or $2 per share after taxes -- to reflect shutdown of the pulp mill and nine smaller plants nationwide as well as settlement of a shareholder lawsuit. The closing of the controversial 48-year-old pulp plant, which had been expected, will idle about 500 workers in Ketchikan, a city of 15,000 in the heart of the sprawling Tongass National Forest where the mill has long been the biggest employer. Company executives said the mill would close March 24, 1997, after the existing supply of timber is processed. Under an agreement worked out by the White House and Alaska Sen. Frank Murkowski, Louisiana-Pacific said it expected to get enough timber to continue operating two sawmills in the region for two more years, employing 400 to 500 workers. Portland, Ore.-based Louisiana-Pacific blamed the closure of the pulp mill, which lost an estimated $40 million in the first nine months of the year, on "the Clinton administration's opposition to any compromise that would allow the pulp mill to operate profitably." In a conference call with reporters, Louisiana-Pacific Chairman Mark Suwyn spoke of forces outside Alaska who wanted to reverse years of development in the state. "There clearly is a push by many people who have a significant amount of power to shut down all of Alaska, and I am assuming they're going to turn it into some great big national park whereby only tourists can visit," he said. Environmentalists called Suwyn's charge an exaggeration and said they were satisfied by the closure of a mill they claim has benefited from "sweetheart" federal timber contracts while causing significant air and water pollution. Buck Lindekugel of the Southeast Alaska Conservation Council called the mill closure a "business decision to jettison a money-losing mill that can't compete in world pulp markets." But Suwyn blamed changes imposed by the U.S. Forest Service after passage of the 1990 Tongass Reform Act, aimed at protecting the 17-million-acre reserve of old-growth rainforest that sprawls over islands, mountains and glaciers. Louisiana-Pacific has filed lawsuits in the U.S. Court of Federal Claims, seeking $200 million for breach of contract, and will be filing "significant additional claims in the very near future," Suwyn said. He acknowledged what he called "stupid" environmental mistakes that resulted in Ketchikan Pulp Co.'s agreement last year to pay $6 million in civil and criminal penalties. Louisiana-Pacific also said it planned to close or sell several plants that are no longer competitive or essential to its operations, including several structural panel plants being hurt by market overcapacity. The company also said it has agreed to pay $65 million to settle shareholder lawsuits stemming from a drop in the company's stock price last year after revelations of civil and criminal actions. Among them were class-action lawsuits over allegedly defective home siding developed by the company. Louisiana-Pacific agreed last year to pay up to $375 million to settle claims by homeowners in Florida, Oregon and Washington, among other states. Suwyn said the shareholder lawsuits were the last major cloud over a company the he joined this year after the ouster of its longtime Chairman and Chief Executive Harry Merlo. "We're simply trying to clean up all the things that are not going to contribute to moving this company forward," he said.

Microsoft Corp is expected to report on Friday that it had modest earnings growth in the second quarter, despite tough comparisons with the year-earlier period and a sales slowdown ahead of an upgrade to its top-selling software bundle. Industry analysts surveyed by First Call on average expect Microsoft to report earnings of $0.51 a share for its second quarter ended December 31, up about 16 percent from the $0.44 a share reported a year earlier. Revenues are expected to rise about 14 percent to more than $2.5 billion. Analysts consider that a strong performance against tough comparisons with the year-earlier period, the first full quarter of availability for the Windows 95 operating system. In last year's second quarter revenues soared 54 percent and net income was up 48 percent. "These guys are just incredibly strong now," said Rob Owens of Pacific Crest Securities in Portland, Ore. "They'll probably meet or beat the Street's estimate again." Investors will have all weekend to analyze the results, which are due to be released after the close of trading Friday. Microsoft executives originally had scheduled the release for Thursday but decided to delay the report until a day after an event publicizing the launch of Office 97, its best-selling suite of business software. Analysts estimate that revenues of Office and its component applications account for 20 to 30 percent of Microsoft's total, but the figure will be lower for the quarter just ended because of the impending upgrade. For much of the quarter Microsoft offered Office 95 buyers coupons good for a free upgrade, which will result in some revenues being deferred into future reporting periods. But strong growth in personal computer sales and in acceptance of Microsoft's high-end Windows NT operating system continue to buoy the company's profits. "The ongoing strength of the NT cycle is what's carrying the day," said Chris Galvin of Hambrecht & Quist. "Countervailing that is the tough comparison last year with the Windows 95 release, so it's a mixed scenario." Owen said that while sales of PCs to consumers were sluggish in the quarter that just ended, declining prices and increasing availability of 32-bit applications are sparking a new wave of corporate buying. He said 30 percent or fewer of corporate desktops have made the transition to the Windows 95 or Windows NT systems. "That's a tremendous opportunity for Microsoft," he said. ((-- Reuters Seattle bureau 206-386-4848))

American Airlines is planning to place a long-awaited order for about $6 billion worth of Boeing Co. airplanes, according to reports published Wednesday. Airline Chairman Robert Crandall was scheduled to make a "major company announcement" at a news conference Thursday. Officials of Boeing and American declined to comment on the order, reported in the Wall Street Journal and New York Times, although an airline spokesman confirmed that directors of its parent company, AMR Corp., were meeting. According to the reports, American will announce an order for more than 100 new Boeing jets, including 12 wide-body 777s and 75 narrow-body 737s. Although American officials have said privately they have chosen Boeing for their fleet modernisation programme, the exact size of the initial order has not been revealed. The orders are expected to be contingent on ratification by pilots of a new six-year contract, which could be put to a vote next month. The board of the pilots union was voting Wednesday on a tentative labour pact reached in September. Industry analysts saw the order as a signal American could order hundreds of Boeing jets over the next two decades as it updates and expands its fleet, now a mix of planes built by Boeing, McDonnell Douglas Corp., Airbus Industrie and Fokker NV. "I think basically this is a commitment to the Boeing family," analyst Bill Whitlow of Pacific Crest Securities said. "If you look at their fleet, they (American) have kind of a hodgepodge of things," he said. "I think you can make the case that most of the airplanes they will be buying in the future will be these Boeing models." American currently does not operate the 737, which seats from 108 to 189 passengers and initially will be used to replace the 75 older 727 jets used by the airline. But analysts said that over the next decade American likely will buy more 737s to replace its fleet of 260 ageing McDonnell Douglas MD-80 jets. American already has announced plans to sell most of its wide-body MD-11 jets to Federal Express Corp. for use as cargo jets, and analysts said Boeing's 777 would be a likely replacement choice suitable for the carrier's potential expansion in the Far East. Analyst Paul Nisbet of JSA Research said American, the nation's No. 1 airline by revenue, appears to be turning over "the whole fleet to Boeing aircraft." "It's a huge fleet," he said. "Over the next decade there's going to be a lot more than $6 billion in planes delivered." For beleaguered McDonnell Douglas Corp., the decision would be yet another blow for a company that has acknowledged it will be only a niche player in the commercial aircraft market and last week was knocked out of contention for the Pentagon's biggest weapons programme of the early 21st century, a jet fighter. Analysts said they still expect a big fleet-renewal order from No. 3 carrier Delta Air Lines Inc., which could go at least partly to McDonnell Douglas. "Somewhere along the line this is going to bubble over in McDonell Douglas' favour," Nisbet said. Other major U.S. carriers already have announced their intentions to buy new airplanes now that the industry has returned to financial health after a long downturn. Earlier this month, USAir Group Inc. chose Europe's Airbus Industrie to supply it with narrow-body jets in an order that could be worth $18 billion over the next 13 years. The carrier is negotiating with Boeing and Airbus for new wide-body jets. Boeing stock rose $2.375 to $96.375 Wednesday and AMR stock was off 62.5 cents at $91, both on the New York Stock Exchange.

Boeing Co. took orders for a record 717 jets valued at $53 billion last year for a 64 percent share of the world market, company officials said Tuesday, adding that this year should be as good or better. Figures compiled by Boeing show the Seattle-based aerospace giant had net orders for 559 airplanes with a "catalog" value of $42.8 billion after excluding cancellations and conversion. That compared with 301 jets worth $21.6 billion for Boeing's European rival Airbus Industrie, which took a 32 percent share of the market. McDonnell Douglas Corp., which Boeing has agreed to acquire, took net orders for 38 jets valued at $2.2 billion for a 3 percent share of the market for airplanes with 100 seats or more. "Our customers put us on top again in 1996 because of the superior value of our complete family of airplanes," Boeing commercial airplane group President Ron Woodard said. "Our goal is to remain No. 1." Woodard told reporters he expected 1997 to be as strong or stronger and said 1998 could see orders continue to roll in at a strong level as the international airline industry expands after the long downturn of the early 1990s. "Airplanes are flying extremely full right now," Woodard said. "The orders we've seen to date are still catching up with what is a reasonable level given the demand.... It looks to us to be a pretty sustained, healthy cycle." Boeing's order book went far beyond analyst expectations or the previous peak years of the late 1980s. "It's an unbelievable year," said Paul Nisbet, analyst at JSA Research. "Nobody expected that at the beginning of the year. Boeing's previous best year for total orders was 1990, the year the 777 was launched, when it took orders for 483 jets valued at $41.4 billion. Calculating the order book each year is something of a public-relations exercise as airplane orders are frequently revised, canceled or converted. For example, Boeing's total is comprised mainly of firm orders, but the manufacturer also included its massive $6.5 billion order from AMR Corp.'s American Airlines which was announced but not signed. An Airbus spokesman said the European consortium did not include such "commitments" for an additional 172 airplanes received last year such as USAir Inc.'s stated intention to buy 120 jets worth at least $5 billion. Nisbet said despite the gamesmanship, it seemed clear Boeing is on the way to its goal of a two-thirds share of the market, up from its historical 60 percent level. Airbus will have about one-third of the market as virtually the only other player, assuming Boeing wins federal approval for its plan to absorb McDonnell Douglas, including its commercial jet operations. The Airbus spokesman, David Venz, said the four-nation consortium still hoped to achieve its stated goal of a 50 percent market share around the turn of the century. Airbus officials confirmed Tuesday they were negotiating with South Korean firms to help finance its planned A3XX jumbo jet, which would break the stranglehold on the lucrative top end of the market now held by Boeing's 747 jumbo jet. Woodard said the business case for a new large jet was very difficult to make because of predictions the trans-Pacific market will "fragment" into less heavily traveled point-to-point routes rather than routes between the largest markets. He noted that Boeing has not yet been able to drum up sufficient customer interest even to launch a stretch version of its 747, which would presumably be less expensive to develop than an all-new airplane. Boeing delivered 218 airplanes last year, only slightly higher than the 206 delivered in 1995, when production was hampered by a 10-week strike. Analyst Bill Whitlow of Pacific Crest Securities said he expected Boeing to deliver some 360 jets this year and 430 in 1998, based on announced increased in the company's production rates.

Microsoft Corp. reported better-than-expected profits for the latest quarter Monday as strong demand for its Windows 95 and Windows NT computer operating systems helped fuel record sales. The world's largest software maker said earnings rose 23 percent to a record $614 million, or 95 cents a share, in its fiscal first quarter ended in September, from $499 million, or 78 cents a share, in the 1995 quarter. Revenues jumped 14 percent to $2.30 billion from $2.02 billion. The profits exceeded Wall Street's expectations of 90 cents a share, and shares of the software giant rose to $136.375 in after-hours trading from the earlier close of $134 on Nasdaq. Microsoft cited strong acceptance of the company's high end Windows NT operating system. "We shipped version 4.0 of Windows NT this quarter, and the momentum behind the product is outstanding," said Jeff Raikes, Group Vice President, Sales and Marketing. "Corporate customers made the decision to adopt Windows NT servers and workstations in record numbers, driving 19 percent revenue growth over last quarter in the U.S. and Canada. Sales of Windows NT server grew at nearly double the rate of other operating system environments." Microsoft's results were considered a crucial measure of its progress since the year-ago period included the launch of the company's much-hyped Windows 95 operating system. Industry analysts have said Microsoft's sales and earnings growth would slow from last year's blistering pace of more than 46 percent but noted it should continue to benefit from higher sales of personal computers and the growing use of Windows 95 and Windows NT. Microsoft Chief Financial Officer Mike Brown said he expected revenues to rise sequentially over the next two quarters from the $2.3 billion reported for the quarter ended on Sept. 30. In an interview, Brown also said he thought the company's cost of goods sold could decline "a little bit" in the long term from the 10.9 percent of revenues just reported, already down from 16 percent a year ago. "We'll grow a little bit in December and then a little bit more in March, I think," Brown said. "I'm very happy with the general revenue trend, and I was very pleased with the pattern of costs in the quarter." Brown said revenues in the December quarter would be driven in part by holiday season sales, while the next quarter would get a boost from the release of the company's Office 97 business applications upgrade to one of its core products.

Boeing Co, the world leader in commercial aviation, flew into the ranks of the top military contractors as well on Sunday when it announced its planned $13 billion acquisition of McDonnell Douglas Corp. Boeing's increased resources should put competitive pressure on its commercial rival, Europe's Airbus Industrie. But industry analysts said the chief benefits for Boeing would be on the military side. "Historically Boeing's military business was something of an also-ran," said Cai von Rumohr, an analyst at Cowen & Co. "With this transaction in one fell swoop they become a very major player." One analyst said the combined company could get nearly 50 percent of its revenues from government contracts, up from Boeing's historical 25 to 30 percent. The deal follows by little more than a week the completion of Boeing's $3.2 billion acquisition of Rockwell International Corp's defense and space business and comes just a month after McDonnell Douglas was was eliminated from consideration to build the military's 21st century joint strike fighter plane. Instead, the Pentagon chose Boeing and Lockheed Martin Corp -- the nation's largest military contractor -- to build prototype versions of the new fighter jet in a contract that could be worth $200 billion or more to the eventual winner. The addition of McDonnell Douglas' expertise makes Boeing "the team to beat" on that crucial program, said Paul Nisbet of JSA Securities. Loss of the joint strike fighter was the final blow for McDonnell Douglas, said analyst Nick Heymann of Natwest Securities. McDonnell had already announced its intention to back away from the commercial aviation market, where it has been only a marginal player in recent years. "McDonnell Douglas just didn't have the resources to aggressively fund its development programs," he said. "They got stretched too thin on transports and fighters and commercial, and they underinvested." Nevertheless the friendly all-stock deal does not necessarily mean that McDonnell Douglas executives failed in their effort to turn around the company, analysts said. For one thing, the offer price of about $62.89 a share based on Friday's close is well beyond McDonnell's all-time high and about 10 times its level of the early 1990s, said Wolfgang Demisch of BT Securities. In addition, the merger is being done at the very beginning of an expansion cycle in the industry, meaning layoffs can be minimized and the companies have several years to rationalize their operations before the next expected downturn. "It isn't a case that you're merging because you're starving to death," said Demisch. "It's a case that there's lots of opportunity. ... That's a much healthier basis on which to consolidate." Indeed, Boeing Chief Executive Phil Condit said the combined companies would have revenues of $48 billion next year, up more than 30 percent from a projected $35 billion this year. "We are going to be going after $1 billion or more of savings a year, but we are going to be doing in it in an environment where the overall growth is occurring," Condit said at a news conference. "That's the advantage we have got right now." Company officials said any job losses would likely be minimal. There may be overlaps in some areas, Condit said, but he added: "I don't think those are going to be significant numbers." Executives said the merger would cause "reassignments," and operations were expected to continue at existing major locations, including St Louis, where McDonnell Douglas is based. Murray Weidenbaum, chairman of the Centre for the Study of American Business at Washington University and former chief economist for Boeing, said the deal could have benefits for St. Louis. Boeing has a better chance of landing the $200 billion U.S. fighter-jet contract, which is still up for grabs, with McDonnell Douglas on board, he speculated. That could mean more work for St. Louis. "It's an opportunity and a threat to the St. Louis economy," he said. Condit, who will become chairman and chief executive officer of the combined company, said final merger negotiations began Tuesday, the day after he was elected to become Boeing's chairman effective Feb. 1. While Boeing does not currently need additional capacity to produce commercial jets, it will benefit from additional engineering strength, which will allow it to produce new models or variations of existing jets more quickly. The merger will leave Airbus Industrie as the only other major player in the business of making large commercial aircraft. An Airbus spokesman said McDonnell Douglas has not been a competitor in the civilian aircraft business for a number of years "so it hasn't altered the equation in the commercial field at all for Airbus." Analysts predicted the deal would win clearance from federal antitrust regulators, noting that no protests were raised this month when the two companies struck a deal to work together on engineering new wide-body jets. They thought the deal would win approval from the Pentagon, which has encouraged industry consolidation and backed the deal that created No. 1 defense contractor Lockheed Martin in 1994. Perhaps the chief concern for federal regulators will be Boeing's overwhelming size, which will be nearly twice that of its nearest rival Lockeheed Martin. Major U.S. airlines said it was too soon to forecast the impact of the proposed merger on airliner prices or their airplane-buying strategies. "It is too early to tell," Delta Air Lines Inc spokesman Todd Clay said.

American Airlines is planning to place a long-awaited order for about $6 billion worth of Boeing Co. airplanes, according to reports published Wednesday. Airline Chairman Robert Crandall was scheduled to make a "major company announcement" at a news conference Thursday. Officials of Boeing and American declined to comment on the order, reported in the Wall Street Journal and New York Times, although an airline spokesman confirmed that directors of its parent company, AMR Corp., were meeting. According to the reports, American will announce an order for more than 100 new Boeing jets, including 12 wide-body 777s and 75 narrow-body 737s. Although American officials have said privately they have chosen Boeing for their fleet modernization program, the exact size of the initial order has not been revealed. The orders are expected to be contingent on ratification by pilots of a new six-year contract, which could be put to a vote next month. The board of the pilots union was voting Wednesday on a tentative labor pact reached in September. Industry analysts saw the order as a signal American could order hundreds of Boeing jets over the next two decades as it updates and expands its fleet, now a mix of planes built by Boeing, McDonnell Douglas Corp., Airbus Industrie and Fokker NV. "I think basically this is a commitment to the Boeing family," analyst Bill Whitlow of Pacific Crest Securities said. "If you look at their fleet, they (American) have kind of a hodgepodge of things," he said. "I think you can make the case that most of the airplanes they will be buying in the future will be these Boeing models." American currently does not operate the 737, which seats from 108 to 189 passengers and initially will be used to replace the 75 older 727 jets used by the airline. But analysts said that over the next decade American likely will buy more 737s to replace its fleet of 260 aging McDonnell Douglas MD-80 jets. American already has announced plans to sell most of its wide-body MD-11 jets to Federal Express Corp. for use as cargo jets, and analysts said Boeing's 777 would be a likely replacement choice suitable for the carrier's potential expansion in the Far East. Analyst Paul Nisbet of JSA Research said American, the nation's No. 1 airline by revenue, appears to be turning over "the whole fleet to Boeing aircraft." "It's a huge fleet," he said. "Over the next decade there's going to be a lot more than $6 billion in planes delivered." For beleaguered McDonnell Douglas Corp., the decision would be yet another blow for a company that has acknowledged it will be only a niche player in the commercial aircraft market and last week was knocked out of contention for the Pentagon's biggest weapons program of the early 21st century, a jet fighter. Analysts said they still expect a big fleet-renewal order from No. 3 carrier Delta Air Lines Inc., which could go at least partly to McDonnell Douglas. "Somewhere along the line this is going to bubble over in McDonell Douglas' favor," Nisbet said. Other major U.S. carriers already have announced their intentions to buy new airplanes now that the industry has returned to financial health after a long downturn. Earlier this month, USAir Group Inc. chose Europe's Airbus Industrie to supply it with narrow-body jets in an order that could be worth $18 billion over the next 13 years. The carrier is negotiating with Boeing and Airbus for new wide-body jets. Boeing stock rose $2.375 to $96.375 Wednesday and AMR stock was off 62.5 cents at $91, both on the New York Stock Exchange.

Microsoft Corp stock is ending 1996 near where it began -- at slightly more than $80 a share. But after adjusting for a stock split, the value of those shares is up a stunning 91 percent, and company chairman Bill Gates, the richest man in America, has seen his stake rise to about $23.6 billion from $12.4 billion. While analysts are not predicting Microsoft will repeat that performance in 1997, the computer software giant carries a lot of momentum into the new year. The company will start the year by launching the latest version of Office -- its biggest revenue producer -- and plans to flesh out its package of computer network software for the red-hot Internet market. A new Internet browser due by midyear will change the look of the computer desktop, and upgrades to both of Microsoft's core Windows operating systems could be out by the end of the year. Microsoft's high-end Windows NT system, which failed to catch on when it was launched in 1993, now forms the core of a business that could account for 25 percent of the company's estimated $10.6 billion in revenues in the current fiscal year ending June 30. "The fundamentals are strong and getting stronger," said David Readerman, an analyst with brokerage Montgomery Securities. On average, analysts expect Microsoft's earnings to rise about 20 percent to $2.06 a share in the current fiscal year from $1.71 last year and then another 20 percent in fiscal 1998 to $2.48 a share, according to the First Call service. While that falls well short of last year's 51 percent earnings gain, it still represents a hefty increase for a $10 billion company, and Microsoft has a way of pleasantly surprising Wall Street with its earnings growth every quarter. Analysts say Microsoft shows no signs of growing complacent despite holding a market share of 80 percent or more in its main businesses of personal computer operating systems and productivity applications. In the past year alone the company virtually has tried to reinvent itself to focus on the rapidly growing Internet marketplace and beat back rivals led by Netscape Communications Corp. "They've done a fabulous job. They've changed themselves from a company that was threatened by the Internet to one whose future is dependent on the Internet," said analyst Scott Winkler of the Gartner Group, a research and consulting company. Virtually all Microsoft's upcoming products have strong Internet tie-ins: from the Office 97 upgrade, which makes word-processing and spreadsheet applications more compatible with Internet protocols, to server, or computer network, software in its BackOffice line that helps companies do business over the Internet. Microsoft is spending some $500 million this year on media-related projects, including its relaunched Microsoft Network online service and MSNBC joint news venture with NBC. While some of the projects could lose money for years to come, analysts say the media efforts represent a classic example of Gates' fondness for making big bets -- in this case, for a chance at a piece of online transaction fees that ultimately could be huge. "If they are successful in pursuing their vision, this will be their core business five years from now," said Scott McAdams, analyst with brokerage Ragen MacKenzie. "It's analogous to the early work they did with Windows itself," he said. "You start small and you keep chipping away."

Declaring their belief that the Internet will be the "next mass medium," Microsoft Corp. executives Thursday unveiled the new version of the company's MSN online service, with a heavy emphasis on entertainment programming. Despite bandwidth limitations and other technical obstacles that make full-motion video impractical, many of the new MSN programmes resemble daily and weekly television shows, with the service organised into six core "channels" aimed at specific demographic groups. In little more than a year, MSN has become the No. 3 online service, with 1.6 million subscribers. Company executives told a news briefing they expected to double that figure by mid-1997 and take market share from leader America Online Inc., relying in large part on a $100 million marketing campaign. But the executives, conceding that the older America Online had a deeper and broader selection of content, said they planned to compete for new online customers, especially those under 30, rather than trying to persuade existing AOL customers to switch. They were eager to heap criticism on the existing MSN service, launched along with the Windows 95 operating system in August 1995 but almost immediately overtaken by the rapid growth of the Internet. "MSN was probably the worst of the bunch in terms of ease of use," said Laura Jennings, Microsoft vice president for the online service. But she also noted that the service had been gaining 100,000 subscribers a month despite virtually no advertising and problems, including a computer snafu that has delayed bills to most customers for three months or more. The new ad campaign will begin almost immediately with billboards and print advertisements followed by television commercials beginning in early November, when the service officially launches. Microsoft also announced a new pricing scheme with an offer of unlimited access for $19.95 a month, instead of 20 hours for the same price under the current service. The minimum monthly fee will rise to $6.95 for five hours, in line with rival services and up from $4.95 for three hours under the current service. The heart of the relaunched MSN is an uncluttered browser interface dominated by a promotional "billboard" in the centre of the screen and the six "channels" at the bottom corresponding to broad categories such as news, entertainment, education and children. Clicking on the channels leads into programming developed by Microsoft and its partners that ranges from the MSNBC news service to new interactive serial programmes. Among the programmes demonstrated were quiz shows, a humorous daily news audiocast and magazine-type presentations such as "Underwire," produced by and for women. The service also includes electronic mail, "chat" and a more traditional menu of online categories that leads users to areas within MSN or out on the Internet. Most content in the service will be restricted to subscribers using the company's Windows 95 computer operating system and Internet Explorer browser, and executives would not say whether they have plans to produce a version for the older Windows 3.1 system still used by tens of millions of computer owners. Some features of MSN, including MSNBC news, electronic shopping and the planned Expedia consumer travel service, will be available at no cost to anyone with access to the Internet. Patty Stonesifer, Microsoft senior vice president for interactive media, said the company's broad involvement in online consumer services was driven by "our belief that the Internet is the next mass medium. "We need to provide compelling reasons to go online and stay online," she said. "There aren't enough compelling reasons to do that today." By some estimates, only 10 million of the nation's 99 million households are currently online, though others say even that figure is high.

Sierra Semiconductor Corp jumped 23 percent Thursday on the expectation the company would emerge as a smaller but more profitable operation after its planned exit from the computer modem business. The San Jose, Calif., company was up 2-1/8 at 11-3/8 after its announcement Wednesday that it planned to pull out of the highly competitive modem-chip business and focus instead on the fast-growing market for computer networking equipment. "Certainly the company will be a much smaller company now, but it will be a more profitable business," said analyst Elias Moosa of Roberston Stephens & Co. But analysts noted that Sierra still has much painful work ahead of it, including cutting as many as 150 jobs from its workforce, which currently has 500 people, and building up the business of its PMC-Sierra unit, which makes routing devices and chipsets for high-speed computer networks. The company has announced plans to take a charge against earnings of $50 million to $80 million to write down the value of assets and inventories and cover severance payments. Scott Randall of Soundview Financial Group said the company likely would have difficulty selling its modem-chip business. "Once you announce your intention to exit a business, it becomes a complete buyer's market," he said. And he said that while the company is focusing on the fastest-growing part of its business, the market for networking chips has begun to attract the attention of much-larger players such as International Business Machines Corp. "As the market develops the question is, are they able to make that transition to be a much larger company?" Randall said. Other analysts were more bullish, even though the company is expected to shrink to slightly more than half its current size in sales. "It's a positive strategic move," said Miles Kan of Hambrecht & Quist. "The modem business is a low-margin, commodity business," he said. The company's PMC-Sierra unit generated $33 million of the company's $117 million in sales in the first half of the year, compared with $45 million in sales of modem chips, Kan said. But the PMC unit is far more profitable, he said. Sierra's stock has fallen from a high of nearly $25 this year as the computer chip sector has been battered by falling prices and concern about slowing demand. -- Seattle bureau 206-386-4848

Microsoft Corp's share price rose to recored levels Monday despite a warnings by the software giant of slowing growth in fiscal 1998. Microsoft, which reported "blowout" second quarter results on Friday, was up 4-3/4 at 91-7/8 and sparked a broad rally on Nasdaq, where it was the most active issue with nearly 15 million shares changing hands. After the market closed Friday the company reported second-quarter earnings of $0.57 a share, up from $0.45 a year earlier and easily surpassing a consensus estimate of $0.51. "They had a great quarter," said Frank Michnoff of Donaldson, Lufkin & Jenrette. "(And) the outlook for the next two quarters looks very good; they said so themselves -- uncharacteristically." More characteristic were comments by Microsoft executives in the earnings statement and a conference call with analysts afterward: They warned of a slowdown in growth in fiscal 1998, which begins July 1. Microsoft Chief Financial Officer Mike Brown even went so far as to question the high valuation of the company's stock. In a comment worthy of Fed Chairman Alan Greenspan, Brown said Microsoft's high price-to-earnings multiple was a "cause for curiosity." But while Piper Jaffray downgraded the stock to hold from buy, based on its 100 percent increase over the past year, few investors heeded the warning. "They do that every year," Michnoff said, referring to Microsoft's conservative forecasts. "It's a bit like the boy who cried wolf. People are just not believing it." Most analysts who follow Microsoft raised their earnings estimates for the company. First Call, which tracks estimates, said a consensus of 19 analysts surveyed today was that the Redmond, Wash.-based company would earn $2.33 a share for fiscal 1997, ending June 30, up from a previous consensus was $2.07. The company earned $1.72 a share in fiscal 1996. For fiscal 1998, analysts now see the company earning $2.71 a share, up from a previous consensus of $2.48. Analysts say fiscal 1998 will be a year of tough comparisons for Microsoft after the 1995 introduction of the Windows 95 operating system, last year's upgrade of Windows NT, and this year's launch of the Office 97 application upgrade. While Microsoft plans an upgrade to Windows 95 more tightly integrated to its Internet browser, it is unlikely to derive the benefits of another price increase or significant further operating cost reductions, analysts said. "I think that Microsoft does have a lot of hurdles to get over," said Rob Owens of Pacific Crest Securities, who calls the stock "fairly valued" at its current level of more than 30 times fiscal 1998 earnings. But analyst Scott McAdams of Ragen MacKenzie said investors are happy to pay a premium for a company that dominates one of the biggest growth industries and consistently surpasses Wall Street expectations. "They've delivered consistent earnings, and Wall Street hates ugly surprises," he said. Analyst David Readerman of Montgomery Securities said Microsoft would like to slow the meteoric rise in its stock price, if only to meet the challenge of providing enough shares to fulfill employee stock options. "Yet it's difficult, with such a compelling long-term growth story, to keep a great stock down," he said in a published comment. ((-- Seattle Bureau 206-386-4848))

An outbreak of bacterial food poisoning that sickened at least 13 children and young adults in the Seattle area has been traced to one company's tainted apple juice, health officials said on Wednesday. Odwalla Inc, a rapidly growing fresh juice and beverage company based in Half Moon Bay, California, issued a nationwide recall of products containing fresh apple juice, and many retailers pulled all Odwalla beverages from their shelves. State and county health officials said 10 of the 13 confirmed cases of E. coli food poisoning had been conclusively traced to the unpasteurized Odwalla juice and the remaining three were under investigation. At least eight more suspected cases have been reported, Dr. Mimi Fields, the state's deputy health secretary, said. "It's difficult to know where we are on the epidenmic curve, although I don't think we are going to see a large influx of masses of new cases," Fields told Reuters. The outbreak was the state's worst since some 500 people became ill in the Seattle area and three children died in 1993 after eating undercooked hamburgers. While adults may suffer diarrhea, stomach cramps or more mild, flulike symptoms after eating food tainted by the bacterium, young children are more susceptible to the disease and may suffer sudden kidney failure that can lead to permanent brain damage or death. In the current outbreak, six children have been hospitalized, including two who required dialysis. Officials said all the children had been released except for one 2-year-old boy, who was in satisfactory condition. The strain of E. coli implicated in the outbreak normally lives in the digestion system of cattle and can spread into the food chain through slaughterhouse contamination or fertilizer that includes steer manure. Health officials said juice can be tainted when fruit falls onto fertilized ground and is not washed properly. The U.S. Food and Drug Administration has launched an investigation and will be inspecting Odwalla's plant in Dinuba, California, health officials said. "Our first concern is for the health and safety of those affected," Odwalla chief executive officer Stephen Williamson said in a statement. He said the company was cooperating fully with health authorities. Although so far all the cases have been traced to Odwalla juice, authorities recommended that consumers in the Seattle area boil unpasteurized apple juice or cider for 10 seconds before drinking it until the investigation was complete. Odwalla, which bills itself as the "leading branded fresh juice and beverage company," distributes its beverages in pint plastic bottles to supermarkets and retail outlets in Washington, Oregon, California, Texas, Colorado, New Mexico, Nevada and British Columbia. In the fiscal year that ended Aug. 31, the company reported its sales rose 65 percent to $59.2 million from $35.9 million. But net income fell to $633,000, or 12 cents a share, from $997,000, or 22 cents a share.

Microsoft Corp Chief Financial Officer Mike Brown said he expected earnings and revenues to rise sequentially in the fiscal third and fourth quarters compared with the just-ended second quarter. Brown said in an interview he expects the recent release of Office 97 to provide a "nice step" up in earnings in the third quarter from the $0.57 a share reported for the second quarter, and he sees a "small sequential step up" in the fourth quarter. Brown also said he expected revenues and earnings growth in the 20 percent range for fiscal 1998 beginning July 1, 1997. "It doesn't seem wise to get beyond that with data we have today," he said. Brown said he was pleased with the record results of the just-ended second quarter, which he said was strong "across the board." But he said the company thought it was prudent to issue a warning about slower growth in fiscal 1998, when Microsoft will not enjoy the benefit of major revenue-enhancing upgrades such as Windows 95 last year and Office 97 this year. While the company does have an opportunity to boost its OEM revenue with the increasing penetration of the high-end Windows NT operating system, which generates more revenue per unit than Windows 95, Brown said he expected that to be more significant in fiscal 1999. "It's just a good time to be a little bit realistic about '98," he said. Brown said he expected research and development spending to continue to grow faster than revenues in fiscal 1998, although he declined to be specific. He noted that the company's R&D spending now exceeds an annual rate of $2 billion, and he expected that to exceed $3 billion "at some point" in the future, putting pressure on profit margins. He said while the company has reduced its cost of goods sold this year, it is unlikely to be able to reduce them much further next year. But he said the company could continue to reduce its sales and marketing expenses as a percentage of revenues. Brown also said the company's cash position spiked up in the second quarter, in part because of a hedging transaction connected with its stock option program. ((-- Reuters Seattle bureau 206-386-4848))

Boeing Co. is expected to use the biennial Farnborough Air Show in England next week to formally launch the long-awaited stretch version of its 747 jumbo jet, industry analysts say. While officials of the aerospace giant remain tight-lipped, analysts say it is all but certain executives will make a major announcement on Monday regarding two new members of the 747 family that will be known as the 747-500 and 747-600. "They're going to announce the airplanes -- there is no doubt," said Joe Campbell, an analyst at Lehman Bros. He said the only question was whether Boeing would announce massive orders of $10 billion or more from launch customers or merely disclose that its board of directors had given authorisation to offer the jet. The announcement of the new models, which would include a jet with 30 percent more capacity than today's largest commercial airliner, is expected to be the highlight of the air show, frequently the stage for major order announcements and other industry news. Boeing officials have said they are talking with at least six airlines about the potential new versions of the jumbo jet, including British Airways Plc, Singapore Airlines Ltd. and UAL Corp.'s United Airlines. Boeing President Phil Condit said the company's board of directors discussed the new plane at a regularly scheduled meeting Monday but had not made a decision on whether to launch it. "That will depend on airline orders," he said in a brief interview Tuesday. Specifications being circulated within the industry call for the 747-600 to hold 548 passengers in a typical three-class configuration with a range of up to 8,900 miles (14,300 km), compared with 416 passengers and 8,400 miles (13,500 km) for the current-generation 747-400. The long-range 747-500 would hold 462 passengers in three classes and have a range of up to 10,000 miles (16,000 km). Analysts say the 747 stretch is essential for Boeing to continue dominating the lucrative top end of the market -- which it has had to itself since the introduction of the four-engine jumbo jet in 1970, which nearly bankrupted the company. Now Boeing's own new 777 twin-engine jet is replacing older 747s, and possible new versions of jets from rivals Airbus Industrie and McDonnell Douglas Corp. could threaten the lower end of the jumbo market. "They really do need to be able to move up to again have a position of complete monopoly for the aircraft as they have had for a number of years," said analyst Paul Nisbet of JSA Research. Meanwhile Airbus has signalled that it intends to go ahead with plans for its own all-new 550-seat plane, dubbed the 3XX, although analysts question whether the market for jumbo jets is big enough for two manufacturers. "From an economic point of view, I don't think there's enough demand to justify the $10 (billion) to $15 billion cost" of an all-new jet, said Bill Whitlow of Pacific Crest Securities. He and other analysts said they expect air travel in the fast-growing Pacific region to follow the Atlantic in migrating to pairs of smaller cities rather than routes between world capitals that require the largest jets. The trend toward such more thinly travelled routes was among the reasons cited by Boeing when it shelved a project to jointly develop with Airbus a double-decker airliner that would hold up to 800 passengers. But Lehman's Campbell predicted Europe's Airbus, which is transforming itself from a consortium into a single company, would go ahead with its own jumbo jet for commercial delivery in 2003, about three years after Boeing's new 747 models. "They're not going to leave Boeing alone at the upper end," he said. Campbell estimated that Boeing's 747 revision, which would include a new wing, new engines and possible new cockpit electronics, would cost from $5 billion to $8 billion to develop. Rolls-Royce Plc has said it plans to offer a variant of its Trent turbofan engine to power the new Boeing craft, while rivals General Electric Co. and United Technologies Corp.'s Pratt & Whitney unit have formed a joint venture to develop an alternative power plant.

A year after its massively publicized introduction, Microsoft Corp.'s Windows 95 computer operating system has fallen short of the most optimistic expectations for the software giant and the industry. Even though more than 40 million copies of Windows 95 have been sold, making it the fastest-selling new software ever, it would have been impossible for any product to live up to the unprecedented hype of the Aug. 24, 1995 launch, when stores around the world opened at midnight to greet long lines of customers. The Redmond, Wash.-based company spent tens of millions of dollars promoting the product with stunts that included buying the entire print run of the Times of London and lighting New York's Empire State building in a Windows color scheme. But the product, delivered eight months late, has fallen short of its sales potential in part because Microsoft delivered a mixed message to business customers, analysts said. "It didn't do as well as it could have," said Rob Enderle, an analyst with Giga Information Group. Scores of software and hardware companies that had hoped for a big boost in sales were disappointed when only a brief spike materialized. "People who were expecting major coat-tails were somewhat disappointed," said Scott Winkler, an analyst with Gartner Group. "It's not as though it hasn't had an impact," he said. "It just hasn't had the huge earth-shattering impact some people were looking for." Symantec Corp., which had been among the most bullish of software companies at the time of the Windows 95 launch, ended up posting disappointing financial results when retail sales of the operating system fell short of its projections. Touchstone Software Corp. had to pay $1.3 million in cash and stock to settle a shareholders lawsuit brought after the company's sales failed to meet expectations tied to the Windows 95 launch. Many software developers apparently saw their crucial holiday season sales suffer last year because store shelves were jammed with blue-and-white boxes of Windows 95, resulting in a shortage of space for seasonal products, said Ann Stephens, president of PC Data Inc. To be sure, sales of Windows 95 and the accompanying Office 95 upgrade drove Microsoft sales up 46 percent last year to a record $8.67 billion and cemented the company's status as the industry's dominant company. Microsoft executives say they are thrilled with the sales figures, and industry analysts estimate that by sometime next year, the installed base of Windows 95 will surpass that of the older version of Windows, now used on about 100 million computers worldwide. But Enderle said the figure could have been even higher if Microsoft had done a better job of handling the huge demand for technical support from customers who were frustrated trying to install the system. He and other analysts said corporate America adopted a go-slow approach because Microsoft already was promoting the new version of its high-end Windows NT operating system, expected to be available in stores in the next several weeks. "Microsoft sent a lot of signals that NT was going to be the answer," Winkler said. "Many people began to believe that Windows 95 was being downplayed." But now that Windows NT 4.0 has been launched, Winkler and others believe only a relatively small proportion of corporate users will elect to pay the added software and hardware costs needed to use it instead of Windows 95. "Windows 95 is going to do great," he said. "The mistake people made was in thinking it was going to be a fast, sweeping change rather than a slow, building change."

Sierra Semiconductor Corp.'s stock jumped more than 27 percent Thursday on expectations the company will emerge as a smaller but more profitable operation after it exits the computer modem business. The San Jose, Calif.-based company's stock gained after its announcement Wednesday that it plans to pull out of the highly competitive modem-chip business and focus instead on the fast-growing market for computer networking equipment. The stock rose $2.625 to $11.875 in late trading on NASDAQ. "Certainly the company will be a much smaller company now, but it will be a more profitable business," said analyst Elias Moosa of Robertson Stephens & Co. But analysts noted that Sierra still has much painful work ahead of it, including cutting as many as 150 jobs from its work force, which currently has 500 people, and building up the business of its PMC-Sierra unit, which makes routing devices and chipsets for high-speed computer networks. The company has announced plans to take a charge against earnings of $50 million to $80 million to write down the value of assets and inventories and cover severance payments. Scott Randall of Soundview Financial Group said the company likely would have difficulty selling its modem-chip business. "Once you announce your intention to exit a business, it becomes a complete buyer's market," he said. He said that while the company is focusing on the fastest-growing part of its business, the market for networking chips has begun to attract the attention of much-larger players such as International Business Machines Corp "As the market develops the question is, are they able to make that transition to be a much larger company?" Randall said. Other analysts were more bullish, even though the company is expected to shrink to slightly more than half its current size in sales. "It's a positive strategic move," said Miles Kan of Hambrecht & Quist. "The modem business is a low-margin, commodity business," he said. Sierra's PMC-Sierra unit generated $33 million of the company's $117 million in sales in the first half of the year, compared with $45 million in sales of modem chips, Kan said. But the PMC unit is far more profitable, he said. Sierra's stock has fallen from a high of nearly $25 this year as the computer chip sector has been battered by falling prices and concern about slowing demand.

Boeing Co. said Thursday that profits climbed 13 percent in the third quarter on stronger sales of its commercial jets and higher interest income. The world's largest aircraft maker said net income for the three months ended on Sept. 30 climbed to $254 million, or 74 cents a share, from $225 million, or 66 cents a share, in the 1995 quarter. Sales soared to $5.60 billion from $4.38 billion in last year's third quarter as it delivered 54 airliners, up from 51. The results were in line with Wall Street expectations, but Boeing stock fell $1.50 to $95.25 on the New York Stock Exchange, where blue-chip issues were dragged down by weakness in the bond market. "It's a good quarter," said analyst Cai von Rumohr of Cowen & Co. He and other analysts said they expected Boeing to announce further production rate increases soon, particularly on its narrow-body 737 and jumbo 747 models. Boeing already has announced plans to raise overall production to 36 airplanes a month by next year's third quarter from 22.5 currently in response to rising orders from the airline industry. As the airline industry has pulled out of a long tailspin and begun posting healthy profits, Boeing has been scrambling to meet demand, boosting its work force by nearly 15 percent this year after years of deep layoffs. Boeing Chief Executive Officer Phil Condit said in a statement that "airline-announced order activity continues to be encouraging." As of Sept. 30 the company had orders for 435 planes worth $34.9 billion, compared with 346 planes worth $31.2 billion ordered in all of 1996. "Based on current trends and barring unexpected disruptions, Boeing should be positioned for several years of sharply increasing earnings," said analyst Wolfgang Demisch of BT Securities. Boeing revenues are expected to rise to about $22 billion this year from $19.5 billion last year and should hit nearly $36 billion next year, one analyst said. On average, analysts see earnings of $2.94 a share this year compared with $2.57 last year, excluding one-time items, according to First Call, which tracks estimates. Analysts see earnings rising to $5.36 a share next year and $7.23 in 1998, First Call said. Boeing said its sales increase for the quarter was slightly offset by higher costs from developing new versions of its 737 airliner and by a higher effective income tax rate. For the first nine months, net income soared to $841 million, or $2.44 a share, from $175 million, or 51 cents a share, in the 1995 period, when the company took a $600 million charge for an early retirement programme. Sales grew to $16.17 billion from $14.98 billion, though Boeing delivered only 156 airplanes, down from 170 a year ago.

Boeing Co.'s stunning agreement to acquire longtime rival McDonnell Douglas Corp. won a ringing endorsement from Wall Street and sent shock waves through the aerospace industry Monday. Stock in both companies soared on expectations the deal would boost Boeing's operating profits immediately after its completion, targeted for mid-1997. Boeing rose $4.375 to $101.125 and McDonnell Douglas jumped $10.375 to $62.375, down from earlier highs on the New York Stock Exchange but good enough to give the all-stock transaction an indicated value of nearly $14 billion. Industry analysts saw few obstacles to the deal, which marks a startling transformation for a company that just a year ago was completing a final round of cutbacks that had slashed its work force by 30 percent in five years. Since then Boeing has completed the $3.2 billion acquisition of Rockwell International Corp.'s ROK.N defence and space business, won the right to compete for the richest military contract in Pentagon history and announced orders for a record $45.6 billion in new commercial jets. "It's an incredible turnaround story," said Jon Kutler, president of Quarterdeck Investment Partners, which specialises in aerospace. "These are very bold, dramatic, uncharacteristic moves for Boeing and I applaud them for it." While Boeing had been moving to cut costs and transform its management style under outgoing Chairman Frank Shrontz, the pace has accelerated at the once-sluggish company since Phil Condit was named chief executive officer in April. Condit began the final round of merger negotiations with McDonnell Douglas last Tuesday, just a day after being formally elected Boeing chairman as of Feb. 1, 1997. "We're seeing Boeing evolve from kind of a stodgy company to being very aggressive, nimble," said Bill Whitlow, a longtime Boeing analyst at Pacific Crest Securities who praised Condit's energy and stamina. Executives at the two companies said the deal would be additive to operating profits immediately and reiterated their prediction that Boeing could achieve $1 billion in annual savings without any layoffs because of rapid growth. Analysts said the merger was a good strategy for McDonnell Douglas, which already had announced plans to pull back from commercial aviation when it was eliminated from bidding for the Pentagon's 21st century joint strike fighter. But Harry Stonecipher, chief executive of McDonnell Douglas, denied that the merger was born of desperation. "This is the deal we wanted and we are very happy with it," Stonecipher told CNBC. "This is the only deal we considered." Boeing executives told analysts they had no immediate plans to make further acquisitions, even though the combined company will generate cash flow of more than $4 billion a year on projected 1997 revenue of $48 billion. The surprise merger immediately turned up the heat on Europe's Airbus Industrie to move ahead quickly with a restructuring plan. Without such a plan, the consortium would be unable to go ahead with a proposed super-jumbo aircraft to compete with Boeing's 747, which now is unchallenged at the profitable top end of the market, analysts said. "Airbus Industrie and its partners must agree as soon as possible on an optimal structure that will allow Airbus Industrie to match its American competitors as a powerful, integrated European enterprise," German Economics Minister Guenter Rexrodt said in a statement. Analysts noted that Boeing had ended any chance that Airbus would partner with McDonnell on a new large jet, and some said Boeing's own plans to stretch the 747 might now be deferred. But both Airbus and Boeing could benefit from stabilised airplane prices with the No. 3 player out of the market. Despite some overlapping businesses, including helicopters, rockets and missiles, experts saw little possibility the deal would be stopped by the Defence Department, although the combination of the nation's only manufacturers of commercial jets could give pause to federal antitrust regulators. "It will be interesting to see what the airlines have to say about this," said Don Baker, a former antitrust official now with the firm Baker and Miller in Washington. "It's worth remembering that there would be just two players in the worldwide market for big planes," he said. "But maybe two is enough competition for the airlines." On the defence side, analysts said they expected the marriage of Boeing and McDonnell to spur further consolidation, with players such as Raytheon Co. and Northrop Grumman Corp. looking for partners. Cowen & Co. analyst Cai von Rumohr said the deal gives Raytheon, which supplies missile systems, "a window of opportunity" to buy Hughes Electronics Corp.. "It's not a long-term window," he said. "It will probably last until the (Boeing-McDonnell) deal is closed."

Declaring their belief that the Internet will be the "next mass medium," Microsoft Corp. executives Thursday unveiled the new version of the company's MSN online service, with a heavy emphasis on entertainment programming. Despite technical limitations that make true video impractical, many of the new MSN programs resemble daily and weekly television shows, with the service organized into six core "channels" aimed at specific demographic groups. In little more than a year, MSN has become the No. 3 online service, with 1.6 million subscribers. Company executives told a news briefing they expected to double that figure by mid-1997 and take market share from leader America Online Inc., relying in large part on a $100 million marketing campaign. But the executives, conceding that the older America Online had a deeper and broader selection of content, said they planned to compete for new online customers, especially those under 30, rather than trying to persuade existing AOL customers to switch. They were eager to heap criticism on the existing MSN service, launched along with the Windows 95 operating system in August 1995 but almost immediately overtaken by the rapid growth of the Internet. "MSN was probably the worst of the bunch in terms of ease of use," said Laura Jennings, Microsoft vice president for the online service. She also noted that the service had been gaining 100,000 subscribers a month despite virtually no advertising and problems, including a computer problem that has delayed bills to most customers for three months or more. The new ad campaign will begin almost immediately with billboards and print advertisements followed by television commercials beginning in early November, when the service officially launches. Microsoft also announced a new pricing scheme with an offer of unlimited access for $19.95 a month, instead of 20 hours for the same price under the current service. The minimum monthly fee will rise to $6.95 for five hours, in line with rival services and up from $4.95 for three hours under the current service. Industry analysts said the new pricing probably would force America Online to follow suit and offer a package with unlimited service. Currently AOL offers heavy users 20 hours a month for $19.95. David Readerman of Montgomery Securities pointed out that Microsoft has the advantage of a hugely profitable business in desktop software and operating systems, while rivals AOL and CompuServe Inc. are dependent on the online business. "Microsoft has $8 billion in cash," he said. "That gives them the financial strength to make a long-term investment, and that's what they're doing." Microsft stock ended down 75 cents at $133.75 and Compuserve lost 25 cents to $12, both on Nasdaq. America Online fell $1 to $25.75 on the New York Stock Exchange. The heart of the relaunched MSN is an uncluttered browser interface dominated by a promotional "billboard" in the center of the screen and the six "channels" at the bottom corresponding to categories such as news, entertainment, education and children. Clicking on the channels leads into programming developed by Microsoft and partners that ranges from the MSNBC news service to new interactive serial programs. Among the programs demonstrated were quiz shows, a humorous daily news audiocast and magazine-type presentations such as "Underwire," produced by and for women. The service also includes electronic mail, "chat" and a more traditional menu of online categories that leads users to areas within MSN or on the Internet. Most content in the service will be restricted to subscribers using the company's Windows 95 computer operating system and Internet Explorer browser, and executives would not say whether they have plans to produce a version for the older Windows 3.1 system still used by tens of millions of computer owners. Some features of MSN, including MSNBC news, electronic shopping and the planned Expedia consumer travel service, will be available at no cost to anyone with access to the Internet. Patty Stonesifer, Microsoft senior vice president for interactive media, said the company's broad involvement in online consumer services was driven by "our belief that the Internet is the next mass medium." By some estimates, only 10 million of the nation's 99 million households are currently online, though others say even that figure is high.

A startup Seattle software company Tuesday launched a product aimed at solving one of the Internet's most vexing problems: information overload. Intermind Corp., formed a little more than a year ago by a software consultant and a former Microsoft Corp. executive, said its Intermind Communicator allowed users to seek customized information from World Wide Web sites that use the program. For example, a music fan visiting the popular "Addicted to Noise" Web site could seek to be notified by a message similar to electronic mail every time new CD reviews were available. A mouse click on the notification message would take the user directly to the information. Intermind President David Arnold said the software aims to go beyond news dissemination systems from Pointcast Corp. and others to allow more sophisticated "dialogue" between consumers and publishers, technology companies and retailers. Customers who frequent Spiegel Corp.'s web site could choose to be notified of any sales in selected categories and then easily could link up to the site and place an order. High-tech companies like Apple Computer Inc. and Visio Corp. will use the system to send customers technical bulletins or information about new products. "This is the ultimate in custom publishing and narrowcasting," said David Strom, an industry constultant and newsletter publisher. Company officials said they hoped to distribute 2 million copies of the software, which is free to non-commercial users, by the end of the year. Commercial users will pay a fee based on revenue generated or subscribers reached, Arnold said. Arnold said the company, with 72 employees in several offices, was "strong financially." He declined to identify the investors but confirmed published reports that cellular telephone pioneer Craig McCaw is among the minority holders. The software, which works from within either of the two major Internet browsers, is available for Microsoft's Windows 95 and Windows NT platforms and will be available within one week for Windows 3.1. Apple Macintosh and Unix versions are expected by year-end. So far more than 35 Internet and Intranet sites provide Intermind "Hyperconnectors" that can be personally customized. Company executives said the software takes only five minutes to set up for customers or 15 minutes for publishers, who do not need separate server software.

Boeing Co. is expected to use the biennial Farnborough Air Show in England next week to formally launch the long-awaited stretch version of its 747 jumbo jet, industry analysts say. While officials of the aerospace giant remain tight-lipped, analysts say it is all but certain executives will make a major announcement on Monday regarding two new members of the 747 family that will be known as the 747-500 and 747-600. "They're going to announce the airplanes -- there is no doubt," said Joe Campbell, an analyst at Lehman Bros. He said the only question was whether Boeing would announce massive orders of $10 billion or more from launch customers or merely disclose that its board of directors had given authorization to offer the jet. The announcement of the new models, which would include a jet with 30 percent more capacity than today's largest commercial airliner, is expected to be the highlight of the air show, frequently the stage for major order announcements and other industry news. Boeing officials have said they are talking with at least six airlines about the potential new versions of the jumbo jet, including British Airways Plc, Singapore Airlines Ltd. and UAL Corp.'s United Airlines. Boeing President Phil Condit said the company's board of directors discussed the new plane at a regularly scheduled meeting Monday but had not made a decision on whether to launch it. "That will depend on airline orders," he said in a brief interview Tuesday. Specifications being circulated within the industry call for the 747-600 to hold 548 passengers in a typical three-class configuration with a range of up to 8,900 miles (14,300 km), compared with 416 passengers and 8,400 miles (13,500 km) for the current-generation 747-400. The long-range 747-500 would hold 462 passengers in three classes and have a range of up to 10,000 miles (16,000 km). Analysts say the 747 stretch is essential for Boeing to continue dominating the lucrative top end of the market -- which it has had to itself since the introduction of the four-engine jumbo jet in 1970, which nearly bankrupted the company. Now Boeing's own new 777 twin-engine jet is replacing older 747s, and possible new versions of jets from rivals Airbus Industrie and McDonnell Douglas Corp. could threaten the lower end of the jumbo market. "They really do need to be able to move up to again have a position of complete monopoly for the aircraft as they have had for a number of years," said analyst Paul Nisbet of JSA Research. Meanwhile Airbus has signaled that it intends to go ahead with plans for its own all-new 550-seat plane, dubbed the 3XX, although analysts question whether the market for jumbo jets is big enough for two manufacturers. "From an economic point of view, I don't think there's enough demand to justify the $10 (billion) to $15 billion cost" of an all-new jet, said Bill Whitlow of Pacific Crest Securities. He and other analysts said they expect air travel in the fast-growing Pacific region to follow the Atlantic in migrating to pairs of smaller cities rather than routes between world capitals that require the largest jets. The trend toward such more thinly traveled routes was among the reasons cited by Boeing when it shelved a project to jointly develop with Airbus a double-decker airliner that would hold up to 800 passengers. But Lehman's Campbell predicted Europe's Airbus, which is transforming itself from a consortium into a single company, would go ahead with its own jumbo jet for commercial delivery in 2003, about three years after Boeing's new 747 models. "They're not going to leave Boeing alone at the upper end," he said. Campbell estimated that Boeing's 747 revision, which would include a new wing, new engines and possible new cockpit electronics, would cost from $5 billion to $8 billion to develop. Rolls-Royce Plc has said it plans to offer a variant of its Trent turbofan engine to power the new Boeing craft, while rivals General Electric Co. and United Technologies Corp.'s Pratt & Whitney unit have formed a joint venture to develop an alternative power plant.

An outbreak of bacterial food poisoning that sickened at least 13 children and young adults in the Seattle area has been traced to one company's tainted apple juice, health officials said on Wednesday. Odwalla Inc, a rapidly growing fresh juice and beverage company based in Half Moon Bay, California, issued a nationwide recall of products containing fresh apple juice, and many retailers pulled all Odwalla beverages from their shelves. State and county health officials said 10 of the 13 confirmed cases of E. coli food poisoning had been conclusively traced to the unpasteurized Odwalla juice and the remaining three were under investigation. At least eight more suspected cases have been reported, Dr. Mimi Fields, the state's deputy health secretary, said. "It's difficult to know where we are on the epidenmic curve, although I don't think we are going to see a large influx of masses of new cases," Fields told Reuters. The outbreak was the state's worst since some 500 people became ill in the Seattle area and three children died in 1993 after eating undercooked hamburgers. While adults may suffer diarrhea, stomach cramps or more mild, flulike symptoms after eating food tainted by the bacterium, young children are more susceptible to the disease and may suffer sudden kidney failure that can lead to permanent brain damage or death. In the current outbreak, six children have been hospitalized, including two who required dialysis. Officials said all the children had been released except for one 2-year-old boy, who was in satisfactory condition. The strain of E. coli implicated in the outbreak normally lives in the digestion system of cattle and can spread into the food chain through slaughterhouse contamination or fertilizer that includes steer manure. Health officials said juice can be tainted when fruit falls onto fertilized ground and is not washed properly. The U.S. Food and Drug Administration has launched an investigation and will be inspecting Odwalla's plant in Dinuba, California, health officials said. "Our first concern is for the health and safety of those affected," Odwalla chief executive officer Stephen Williamson said in a statement. He said the company was cooperating fully with health authorities. Although so far all the cases have been traced to Odwalla juice, authorities recommended that consumers in the Seattle area boil unpasteurized apple juice or cider for 10 seconds before drinking it until the investigation was complete. Odwalla, which bills itself as the "leading branded fresh juice and beverage company," distributes its beverages in pint plastic bottles to supermarkets and retail outlets in Washington, Oregon, California, Texas, Colorado, New Mexico, Nevada and British Columbia. In the fiscal year that ended Aug. 31, the company reported its sales rose 65 percent to $59.2 million from $35.9 million. But net income fell to $633,000, or 12 cents a share, from $997,000, or 22 cents a share.

Microsoft Corp is expected to report a sharp slowdown in earnings growth Monday due largely to a sales surge last year when the software giant launched its Windows 95 operating system. On average, industry analysts expect the company to post earnings of $0.90 a share for its fiscal first quarter, up 15 percent from last year's $0.78, according to First Call. "It's a tough comparison because in the September quarter last year was the initial release of Windows 95 and all the sell-in associated with that, so it was a great quarter," said Chris Galvin of Hambrecht and Quist. But he and other analysts said Microsoft's business was continuing to expand steadily, benefiting from rising sales of personal computers and the increasing penetration of Windows 95 and the more lucrative Windows NT system. Microsoft's already-high profit margins also are rising as the company sells a growing proportion of its software by preloading it onto new computers or selling licenses to large customers rather than shrink-wrapped boxes at retail stores. Microsoft's business is expected to gain momentum through the fiscal year as the recently updated Windows NT wins more acceptance and the company rolls out a major new version of its Office application suite beginning in December. For the fiscal year ending June 30, 1997, analysts on average see earnings of $4.07 a share, up 19 percent from last year's $3.43, First Call said. "I think NT will really start ramping in the December quarter and in the first part of '97," said analyst Scott McAdams of Ragen MacKenzie. "It's going to be a very powerful driver of earnings," he said. One cloud on Microsoft's horizon is the imminent arrival of a wave of "thin client" products such as the Network Computer championed by Oracle Corp Chairman Larry Ellison. Late this month Sun Microsystems Inc is expected to launch a line of products code-named "Mr. Coffee" based on the increasingly popular Java language, which is being positioned as an alternative to the "Wintel" combination of Microsoft operating systems on Intel Corp processors. While corporate users are not rushing to desert their personal computer networks, the increasing publicity about alternatives could hurt Microsoft's stock price, which is at near-record levels and up more than 50 percent since its 1995 closing price of $87.75. "It's been a bit of a back burner issue, ... but it will move to the front burner," said Rick Sherlund of Goldman Sachs. Microsoft's earnings picture also is becoming blurred by revenue that the company defers to account for delayed costs such as service updates and technical support for its operating systems and business applications. Microsoft had "unearned revenue" of $545 million on its balance sheet as of June 30, a figure that could rise to $1 billion by the end of the current fiscal year, McAdams said.

Microsoft Corp.'s share price rose to record levels Monday despite a warning by the software giant of slowing growth in fiscal 1998. Microsoft, which reported "blowout" second-quarter results on Friday, closed at $90.75, up $3.625, and sparked a broad rally on Nasdaq, where it was the most active issue, with more than 18 million shares changing hands. After the market closed Friday,the company reported second-quarter earnings equal to 57 cents a share, up from 45 cents a year earlier and easily surpassing a consensus estimate of 51 cents. "They had a great quarter," said Frank Michnoff of Donaldson, Lufkin & Jenrette. "(And) the outlook for the next two quarters looks very good; they said so themselves -- uncharacteristically." More characteristic were comments by Microsoft executives in the earnings statement and a conference call with analysts afterward; they warned of a slowdown in growth in fiscal 1998, which begins July 1. Microsoft Chief Financial Officer Mike Brown even went so far as to question the high valuation of the company's stock. In a comment worthy of Fed Chairman Alan Greenspan, Brown said Microsoft's high price-to-earnings multiple was a "cause for curiosity." But while Piper Jaffray downgraded the stock to hold from buy, based on its 100 percent increase over the past year, few investors heeded the warning. "They do that every year," Michnoff said, referring to Microsoft's conservative forecasts. "It's a bit like the boy who cried wolf. People are just not believing it." Most analysts who follow Microsoft raised their earnings estimates for the company. First Call, which tracks estimates, said a consensus of 19 analysts was that the Redmond, Wash.-based company would earn $2.33 a share for fiscal 1997, ending June 30, up from a previous consensus was $2.07. The company earned $1.72 a share in fiscal 1996. For fiscal 1998, analysts see the company earning $2.71 a share, up from a previous consensus of $2.48. Analysts say fiscal 1998 will be a year of tough comparisons for Microsoft after the 1995 introduction of the Windows 95 operating system, last year's upgrade of Windows NT and this year's launch of the Office 97 application upgrade. While Microsoft plans an upgrade to Windows 95 more tightly integrated with its Internet browser, it is unlikely to derive the benefits of another price increase or significant further operating cost reductions, analysts said. "I think that Microsoft does have a lot of hurdles to get over," said Rob Owens of Pacific Crest Securities, who calls the stock "fairly valued" at its current level of more than 30 times fiscal 1998 earnings. But analyst Scott McAdams of Ragen MacKenzie said investors are happy to pay a premium for a company that dominates one of the biggest growth industries and consistently surpasses Wall Street expectations. "They've delivered consistent earnings, and Wall Street hates ugly surprises," he said. David Readerman of Montgomery Securities said Microsoft would like to slow the meteoric rise in its stock price, if only to meet the challenge of providing enough shares to fulfil employee stock options. "Yet it's difficult, with such a compelling long-term growth story, to keep a great stock down," he said.

Boeing Co defense and space group President Gerald King said the company's planned acquisition of Rockwell International Corp's defense and space business was on track to close in early December. In an interview, King also said he expected the defense and space group to remain "a significant part of the Boeing Co" with 30 to 40 percent of the company's total revenues "over time." King said he expected federal regulators to complete an antitrust review of the planned Rockwell deal early next month. The proposal also needs to be approved by Rockwell shareholders at a meeting set for Dec. 4 and should close within a few days after that, he said. "Something could always happen to the merger to keep it from going through, I suppose, even though it looks like a slam dunk in comparison with some of the other things that have been done in this industry," King said. Last year defense and space revenues of $5.58 billion were 29 percent of the company's $19.52 billion in revenues, with commercial aircraft sales accounting for the rest. This year defense and space revenues are expected to be nearly flat, while overall company revenues rise to about $22.6 billion, reflecting growth in commercial jet deliveries, said analyst Peter Jacobs of Ragen MacKenzie. The Rockwell acquisition will add about $2.6 billion in revenue to the defense and space group next year, and King said the company has no immediate plans for further acquisitions. "We're looking only to make this one work first," he said. "If there's a next step, we'll think about that later." King said the defense and space group continues to pursue commercial opportunities, including the Sea Launch program, which he said was on track for initial satellite launch in mid-1998. King also said the company and its partner, Textron Inc's Bell Helicopter division, are offering a nine-passenger civilian version of their V-22 Osprey tiltrotor aircraft that will be available in 2001. -- Seattle bureau 206-386-4848

Microsoft Corp. faces increasingly stiff competition and some skeptical corporate customers as it launches the latest version of its hugely profitable Office suite of applications. Company Chairman Bill Gates has predicted Office 97 will be the biggest upgrade ever in percentage terms for the market-dominating product, which has an installed base approaching 50 million users including component applications such as Word and Excel. While early reviews of Office 97 have been positive, industry analysts said corporate users in particular will take a hard look before deciding whether the dozens of new features are worth an upgrade investment of $200 per seat or more. "Corporations are realizing they don't need to upgrade their office suite environment nearly as often as Microsoft would like them to," said Michael Pinckney, research director for the Gartner Group. By most estimates Microsoft dominates the market for desktop productivity suites, capturing more than 90 percent of revenues. Office and its component applications have been a key driver for the company's earnings, contributing some $1.8 billion of Microsoft's $8.4 billion in sales for the fiscal year that ended June 30, 1996, estimated analyst Scott McAdams of Ragen MacKenzie. He projected Office would account for nearly $3 billion of a total $10.2 billion in revenues this year. "There's no question, it's enormous," he said. In addition to its financial importance the new Office is filled with Internet hooks designed to drive broader acceptance of Microsoft's Internet Explorer browser, "so it's an important product strategically," McAdams said. But Microsoft, which will launch the product Thursday at a glitzy media event featuring Gates on the stage of New York's Alice Tully Hall, faces increasingly aggressive competition from Canada's Corel Corp. and International Business Machines Corp.'s Lotus unit. Corel, which uses WordPerfect word-processing software as the core of its suite, made a significant dent in Microsoft's retail market share in the second half of last year, according to PC Data. "Corel has proven that if a competitor has the right offering at the right price point, even Microsoft is vulnerable -- at least temporarily," said Liz Buyer of T.Rowe Price in a newsletter. And Corel has gotten a jump on the market by announcing a new version of its suite based on Java, the Internet-friendly programming language. Analysts say the emergence of network computers and their "thin client" applications pose no immediate threat to Microsoft Office, which demands over 100 megabytes of hard disk space for a standard installation. "Over time you will move toward a more Internet-intranet driven model, where the basic applications reside inside your Internet structure and you download it as you need it, but that's going to take a few years," said Tim Bajarain, president of Creative Strategies consulting. In the near term, the biggest threat to Office 97 is intertia, analysts said. Most Office users take advantage of only a small percentage of features as it is. Analysts are divided on whether significant demand will be driven by Office 97 features including a built-in system to track appointments and phone numbers and animated assistants to guide users through tasks. More importantly, many large enterprise users have not upgraded to the Windows 95 or Windows NT operating systems, which are required to use Office 97.

Boeing Co.'s stunning agreement to acquire longtime rival McDonnell Douglas Corp. won a ringing endorsement from Wall Street and sent shock waves through the aerospace industry Monday. Stock in both companies soared on expectations the deal would boost Boeing's operating profits immediately after its completion, targeted for mid-1997. Boeing rose $4.375 to $101.125 and McDonnell Douglas jumped $10.375 to $62.375, down from earlier highs on the New York Stock Exchange but good enough to give the all-stock transaction an indicated value of nearly $14 billion. Industry analysts saw few obstacles to the deal, which marks a startling transformation for a company that just a year ago was completing a final round of cutbacks that had slashed its work force by 30 percent in five years. Since then Boeing has completed the $3.2 billion acquisition of Rockwell International Corp.'s defense and space business, won the right to compete for the richest military contract in Pentagon history and announced orders for a record $45.6 billion in new commercial jets. "It's an incredible turnaround story," said Jon Kutler, president of Quarterdeck Investment Partners, which specializes in aerospace. "These are very bold, dramatic, uncharacteristic moves for Boeing and I applaud them for it." While Boeing had been moving to cut costs and transform its management style under outgoing Chairman Frank Shrontz, the pace has accelerated at the once-sluggish company since Phil Condit was named chief executive officer in April. Condit began the final round of merger negotiations with McDonnell Douglas last Tuesday, just a day after being formally elected Boeing chairman as of Feb. 1, 1997. "We're seeing Boeing evolve from kind of a stodgy company to being very aggressive, nimble," said Bill Whitlow, a longtime Boeing analyst at Pacific Crest Securities who praised Condit's energy and stamina. Executives at the two companies said the deal would be additive to operating profits immediately and reiterated their prediction that Boeing could achieve $1 billion in annual savings without any layoffs because of rapid growth. Analysts said the merger was a good strategy for McDonnell Douglas, which already had announced plans to pull back from commercial aviation when it was eliminated from bidding for the Pentagon's 21st century joint strike fighter. But Harry Stonecipher, chief executive of McDonnell Douglas, denied that the merger was born of desperation. "This is the deal we wanted and we are very happy with it," Stonecipher told CNBC. "This is the only deal we considered." Boeing executives told analysts they had no immediate plans to make further acquisitions, even though the combined company will generate cash flow of more than $4 billion a year on projected 1997 revenue of $48 billion. The surprise merger immediately turned up the heat on Europe's Airbus Industrie to move ahead quickly with a restructuring plan. Without such a plan, the consortium would be unable to go ahead with a proposed super-jumbo aircraft to compete with Boeing's 747, which now is unchallenged at the profitable top end of the market, analysts said. "Airbus Industrie and its partners must agree as soon as possible on an optimal structure that will allow Airbus Industrie to match its American competitors as a powerful, integrated European enterprise," German Economics Minister Guenter Rexrodt said in a statement. Analysts noted that Boeing had ended any chance that Airbus would partner with McDonnell on a new large jet, and some said Boeing's own plans to stretch the 747 might now be deferred. But both Airbus and Boeing could benefit from stabilized airplane prices with the No. 3 player out of the market. Despite some overlapping businesses, including helicopters, rockets and missiles, experts saw little possibility the deal would be stopped by the Defense Department, although the combination of the nation's only manufacturers of commercial jets could give pause to federal antitrust regulators. "It will be interesting to see what the airlines have to say about this," said Don Baker, a former antitrust official now with the firm Baker and Miller in Washington. "It's worth remembering that there would be just two players in the worldwide market for big planes," he said. "But maybe two is enough competition for the airlines." On the defense side, analysts said they expected the marriage of Boeing and McDonnell to spur further consolidation, with players such as Raytheon Co. and Northrop Grumman Corp. looking for partners. Cowen & Co. analyst Cai von Rumohr said the deal gives Raytheon, which supplies missile systems, "a window of opportunity" to buy Hughes Electronics Corp.. "It's not a long-term window," he said. "It will probably last until the (Boeing-McDonnell) deal is closed."

Microsoft Corp. reported better-than-expected profits for the latest quarter Monday as strong demand for its Windows operating systems and applications helped fuel record sales. The computer software giant said earnings rose 23 percent to a record $614 million, or 95 cents a share, in its fiscal first quarter ended Sept. 30, from $499 million, or 78 cents a share, in the 1995 quarter. Revenues jumped 14 percent to $2.30 billion from $2.02 billion. The profits, announced after the market closed, exceeded the Wall Street consensus expectation of 90 cents a share, and Microsoft shares rose to $136.375 in after-hours trading from the earlier close of $134 on Nasdaq. Treasurer Greg Maffei said the 14 percent revenue increase was the smallest ever posted in the company's 21-year history, reflecting a surge in sales last year when Microsoft launched its Windows 95 operating system. But with the high sales, marketing and manufacturing costs of Windows 95 also behind it, the company's operating profit margin surged to a record 39.3 percent of revenues, compared with about 35.1 percent a year earlier, said analyst Scott McAdams of Ragen MacKenzie. "It looks like it was just a great quarter, and there's more to come," he said. Microsoft executives said in a conference call with analysts that business would continue to be boosted by an expected holiday surge in sales of personal computers and the December release of Office 97, an update to the company's business applications product. Microsoft Chief Financial Officer Mike Brown said he expected revenues to rise sequentially over the next two quarters and indicated revenue for the current quarter could be in the range of $2.4 billion, about 12 percent over last year's levels. But he said the company's cost of goods sold should remain at about 11 percent of sales, compared with 15 percent in last year's second quarter. "I'm very happy with the general revenue trend, and I was very pleased with the pattern of costs in the quarter," Brown said in an interview. Microsoft also cited strong acceptance of the company's high end Windows NT operating system. Maffei said sales of the NT workstation were up 400 percent over year-ago levels, while revenues from the BackOffice suite of server products doubled. Officials declined to give figures, but the BackOffice line currently generates about $1 billion in annual revenue. Microsoft's overall revenues are about evenly divided between operating systems -- most of which are shipped loaded on new computers -- and applications. Excluding sales directly to manufacturers, European revenues were flat in the quarter compared with the year-earlier period, and revenues in the United States and Europe rose 9 percent, reflecting the tough comparison. But revenues from other markets such as Japan, where Windows 95 was not released until later, were up 32 percent, Microsoft said. Overall last year Microsoft revenues and profits grew 46 percent, driven largely by the Windows 95 launch. Brown also said the company was on track to spend $2.1 billion on research and development in the current fiscal year, including such ventures as its MSNBC cable and Internet news venture with NBC. And the "unearned revenue" in the company's balance sheet from cyclical products such as Windows grew to $651 million as of Sept. 30 from $560 million three months earlier. The company's cash hoard grew slightly to $7.1 billion from $6.94 billion.

Upscale apparel retailer Nordstrom Inc. Monday posted a 16 percent increase in earnings for its third quarter as it boosted sales and reduced markdowns. For the fiscal third quarter ending Oct. 31, Nordstrom posted sales of $984 million, up 9 percent over last year's $907 million. Net income rose to $34 million, or 42 cents a share, from $29 million, or 36 cents a share, last year. When certain one-time gains and costs were excluded, the company earned about 38 cents a share, compared with a Wall Street consensus forecast of 36 cents, said Piper Jaffray analyst Saul Yaari. He and other analysts said they expected to raise their estimates. "It was a great quarter," said Jennifer Black Groves of Black & Co. in Portland, Ore. She noted the company had a difficult summer because of an over-reliance on unpopular body-hugging fashions and a merchandise reconfiguration that confused customers and sales executives. The result was heavy markdowns in July and August that ate into earnings, but company executives said the deepest of the markdowns appear to be behind them. "They sacrificed the short term for what will be very beenficial for them in the long term," Groves said. She said the merchandise reconfiguration, aimed at bringing the company's clothing selections more into line with its customer base, has "rejuvenated the company." "I think you're going to see some great numbers in the year ahead," she said. Nordstrom said comparable-store sales, a closely watched measure of industry performance, fell 0.3 percent in the latest quarter but were up 1.5 percent for the year to date. And executives told analysts in a conference call that their plans called for comparable-store sales to rise at least 2 percent in the critical holiday quarter compared with a relatively weak 1995 period. "We have plenty of ability to respond to sales above that," Nordstrom co-Chairman John Whitacre said in the conference call. Comparable-store sales are adjusted to represent only that retail space that has been open at least a year. Nordstrom has opened several new stores this year and plans to open three new department stores and several smaller stores next year, adding about 719,000 square feet of store space to its current total of 11.74 million, executives said.

The Internet browser wars heated up Monday as market leader Netscape Communications Corp launched its latest Navigator software and officials of rival Microsoft Corp. said they saw little new. Netscape, countering Microsoft's high-profile launch of its Internet Explorer 3.0 last week, said it had linked up with more than 20 content providers, including The New York Times and Sportsline USA, to offer tailored news and information to users. Microsoft last week made a similar offer, saying that users who download its new browser would get free trial subscriptions to The Wall Street Journal Interactive Edition, ESPN SportsZone and other services. While Netscape has a commanding lead in the growing browser market, with a share estimated at over 80 percent, industry analysts say Microsoft's latest software poses a threat to that dominance. "I'd say at the very minimum Microsoft has leveled the playing field, and the real battle can now begin," said Adam Schoenfeld of the Jupiter Communications research firm. Microsoft said more than 1 million users had downloaded its browser off the Internet since it became available last Tuesday. Microsoft stock fell 75 cents to $123.50 a share, while Netscape dropped $2.375 to $36.50, its lowest close since October. In launching the latest version of Navigator, Mountain View, Calif.-based Netscape highlighted a new electronic mail feature that will deliver information from selected content providers directly to the user's computer "in box." The new software also offers enhanced audio, video and three-dimensional animation. In a statement sent to reporters, Redmond, Wash.-based Microsoft called Netscape's new electronic mail feature "glorified junk mail" and said its own Internet Explorer offers faster access to multimedia clips. On its World Wide Web site, Microsoft was less blunt but invited users to try both products and compare. "We're confident that in this scenario Internet Explorer 3.0 will fare very well," Microsoft said in the Web statement. Schoenfeld agreed, saying, "To the average user now, the products are probably indistinguishable in terms of quality." Microsoft also pointed out that its product is free, while Netscape charges most users a $49 license fee after a free 90-day trial period. While Navigator is available for a variety of computer platforms, the new version of Internet Explorer so far requires Microsoft's most recent operating systems, Windows 95 or Windows NT. Microsoft officials said versions for previous versions of Windows and for Apple Computer Inc.'s Macintosh system were forthcoming. Analysts said while the rapidly expanding Internet market was big enough for both players, Netscape was certain to see its share of the browser market diminish. They said the browser war was likely to become even more intense when Microsoft unveiled its Internet Explorer version 4.0, expected early next year. The new browser will be integrated into the Windows operating system, allowing users to "browse" through their local computer as well as the Internet. "Netscape doesn't own the operating system, so it will be very difficult for them to counter that," said Michael Wallace of UBS Securities.

A bankruptcy judge Monday cleared the way for Montana construction mogul Dennis Washington to take over storied engineering giant Morrison Knudsen Corp., rescuing the company from near-insolvency. U.S. Bankruptcy Judge Peter Walsh, in Wilmington, Dela., approved the prepackaged reorganization plan under which Washington's main operating company will acquire the much-larger Morrison Knudsen for about $283 million in cash, stock and debt assumption. Washington, 61, a billionaire through his interests in bridge and highway building, copper mining and shipping, will become non-executive chairman of the Boise, Idaho-based company when its merger with Washington Construction Group Inc. becomes effective Sept. 11. Robert Tinstman, a company veteran appointed to be president and chief executive officer last year after the ouster of its high-flying former chairman, William Agee, will retain those titles in the new company. The merger requires approval of Washington Construction Group shareholders, but that is a formality because Washington owns 68.5 percent of the shares. The merged company will retain the Morrison Knudsen name and its Boise heaquarters, but shareholders of the old company -- known for such projects as the Hoover Dam and Alaskan oil pipeline -- will be left with little value. A distribution of stock in the new company was valued by one analyst at about 15 cents a share, compared with nearly $30 before revelations of losses that stunned Wall Street and led to the ouster of Agee, whose lavish lifestyle had made him a lightning-rod for criticism. "From a shareholder's point of view it's a pretty bad outcome," said the analyst, John Rogers of Jensen Securities. Shareholders also get warrants to purchase additional shares in the new company at $12 a share, compared with Washington Construction's current price of $9.25. Bondholders will get from 93 to 95 percent of the $365 million they were owed, one banker said. Executives say the new company will be profitable from the outset, with revenues estimated at $1.59 billion and net income at $31 million for its first full fiscal year beginning Dec. 1, according to bankruptcy court documents. That compares with revenue of $2.72 billion and net income of $36 million in 1993, before the company reported losses that totalled more than $600 million over two years. Analysts traced Morrison Knudsen's woes to a disastrous forway into railroads, including huge losses on bids to build new commuter transit cars, a business the company has exited. Agee's ambitious plan to build new locomotives from the ground up never materialised, and its minority stake in MK Rail Corp. is being distributed to bondholders. Agee himself, who once used a corporate jet to shuttle between Boise and his company-bought estate in Pebble Beach, Calif., was forced to give up some of his lucrative pension and severance benefits in a $63 million company settlement of class-action shareholder lawsuits. The new Morrison will get about 90 percent of its revenues from three businesses -- industrial construction for Fortune 100 companies, heavy civil construction, and environmental remediation, mainly for government agencies, Tinstman said in an interview. "Dennis very much wants this to be a well-balanced, diversified company," Tinstman said. The remaining 10 percent of the company's business is mining. Washington, who usually stays behind the scenes at his companies, will help set strategy at the new Morrison Knudsen but will not have a day-to-day role, Tinstman said. Morrison Knudsen Chairman Robert Miller, who was brought in last year and is best known for helping to engineer Chrysler Corp.'s turnaround in the 1980s, will be vice chairman of the new company. The other vice chairman will be Washington aide Dorn Parkinson.

Boeing Co. chief executive officer Phil Condit did not take long to leave his mark on the company. Just one day after he was elected to become chairman of Boeing's board of directors Dec. 9, Condit began the final round of on-again, off-again negotiations that resulted in a $13.3 billion deal to acquire McDonnell Douglas Corp. Condit, 55, an engineer who began his career with Boeing in 1965, will serve as chairman and chief executive of the merged company under the agreement, which requires approval from shareholders and federal regulators. Condit, credited with spearheading the programme to design and build Boeing's new 777 twin-engine jet, was promoted to chief executive in April after more than three years as president under current Chairman Frank Shrontz, 65. Condit's promotion to chairman is not even effective until Feb. 1, after Shrontz's retirement. While Shrontz is a lawyer by training with a somewhat formal demeanor, Condit is known for his habit of changing clothes from a business suit to sweater and slacks for his frequent meetings with workers at all levels of the company. "I'm real impressed with Phil," said Bill Whitlow, a longtime Boeing analyst at Pacific Crest Securities. "Phil's strength is he's a real communicator." Condit shows an almost boyish enthusiasm for his work, exclaiming "Wow!" to sum up major business triumphs and declaring he is "overwhelmed" by his latest promotion -- no matter that it had been long expected. Behind that enthusiasm is a drive to cut costs at a company once derided as the "Lazy B" and create a military and commercial aerospace giant better able to ride out the deep industry cycles that have whipsawed Boeing in the past. "We're seeing Boeing evolve from kind of a stodgy company to being very aggressive, nimble," Whitlow said. Over the past several years, as Boeing went through the final years of a long industry downturn, Condit was busy putting into practice the philosophy of "working together," which became a mantra for the 777 programme. At Boeing the phrase means that engineers, contractors and factory workers, once happy to throw problems "over the wall" to the next division, work more closely than before to speed changes and improve processes. The new philosophy and an overhaul of the company's computer equipment have allowed Boeing to cut the time between an airline order and delivery by as much as 50 percent. The changes have hardly been accomplished easily. In addition to the layoffs that shrank Boeing's workforce by about one-third over the five years ending in 1995, the company endured a bitter 10-week strike last year by its 32,000 unionized Machinists. Condit acknowledged last week that the company has "a long way to go" to repair relations with its workers. Condit got his bachelor's degree in mechanical engineering from the University of California in Berkeley and has master's degrees in engineering and management from Princeton University and Massachusetts Institute of Technology.

Boeing Co. took orders for a record 717 jets valued at $53 billion last year for a 64 percent share of the world market, company officials said Tuesday, adding that this year should be as good or better. Figures compiled by Boeing show the Seattle-based aerospace giant had net orders for 559 airplanes with a "catalog" value of $42.8 billion after excluding cancellations and conversion. That compared with 301 jets worth $21.6 billion for Boeing's European rival Airbus Industrie, which took a 32 percent share of the market. McDonnell Douglas Corp., which Boeing has agreed to acquire, took net orders for 38 jets valued at $2.2 billion for a 3 percent share of the market for airplanes with 100 seats or more. "Our customers put us on top again in 1996 because of the superior value of our complete family of airplanes," Boeing commercial airplane group President Ron Woodard said. "Our goal is to remain No. 1." Woodard told reporters he expected 1997 to be as strong or stronger and said 1998 could see orders continue to roll in at a strong level as the international airline industry expands after the long downturn of the early 1990s. "Airplanes are flying extremely full right now," Woodard said. "The orders we've seen to date are still catching up with what is a reasonable level given the demand.... It looks to us to be a pretty sustained, healthy cycle." Boeing's order book went far beyond analyst expectations or the previous peak years of the late 1980s. "It's an unbelievable year," said Paul Nisbet, analyst at JSA Research. "Nobody expected that at the beginning of the year. Boeing's previous best year for total orders was 1990, the year the 777 was launched, when it took orders for 483 jets valued at $41.4 billion. Calculating the order book each year is something of a public-relations exercise as airplane orders are frequently revised, cancelled or converted. For example, Boeing's total is comprised mainly of firm orders, but the manufacturer also included its massive $6.5 billion order from American Airlines which was announced but not signed. An Airbus spokesman said the European consortium did not include such "commitments" for an additional 172 airplanes received last year such as USAir Inc.'s stated intention to buy 120 jets worth at least $5 billion. Nisbet said despite the gamesmanship, it seemed clear Boeing is on the way to its goal of a two-thirds share of the market, up from its historical 60 percent level. Airbus will have about one-third of the market as virtually the only other player, assuming Boeing wins federal approval for its plan to absorb McDonnell Douglas, including its commercial jet operations. The Airbus spokesman, David Venz, said the four-nation consortium still hoped to achieve its stated goal of a 50 percent market share around the turn of the century. Airbus officials confirmed Tuesday they were negotiating with South Korean firms to help finance its planned A3XX jumbo jet, which would break the stranglehold on the lucrative top end of the market now held by Boeing's 747 jumbo jet. Woodard said the business case for a new large jet was very difficult to make because of predictions the trans-Pacific market will "fragment" into less heavily travelled point-to-point routes rather than routes between the largest markets. He noted that Boeing has not yet been able to drum up sufficient customer interest even to launch a stretch version of its 747, which would presumably be less expensive to develop than an all-new airplane. Boeing delivered 218 airplanes last year, only slightly higher than the 206 delivered in 1995, when production was hampered by a 10-week strike. Analyst Bill Whitlow of Pacific Crest Securities said he expected Boeing to deliver some 360 jets this year and 430 in 1998, based on announced increased in the company's production rates.

Software giant Microsoft Corp. MSFT.N plans to pay dividends to stockholders for the first time through a new issue of preferred shares, according to documents filed Monday. The hugely profitable company, which has not paid dividends in its 10 years as a public company but has hoarded a cash pile that has grown to more than $7 billion, said it planned to issue $750 million worth of the new class of stock. "We are responding to the desire of some investors for an income-yielding stock, while still allowing them to participate to a significant degree in the growth potential of our company," Chief Financial Officer Mike Brown said in a statement. The preferred shares will protect investors against risk, guaranteeing they will get back their principal in cash or common stock at the end of three years along with quarterly dividends that will be specified at the time of the offering. But investors will have only a limited opportunity to enjoy the kind of stock appreciation available to owners of Microsoft common stock, which has risen nearly 80 percent this year. The value of the preferred shares will be capped at a percentage to be established when the offering is completed. Similar convertible preferred shares have been capped at 25 percent to 30 percent growth. In the past, Microsoft Chairman Bill Gates and other board members have resisted calls for a common stock dividend, saying the fast-moving computer business required high research spending levels and the flexibility to make large acquisitions if needed. Treasurer Greg Maffei said the planned issue of preferred shares was consistent with that philosophy, noting that the $750 million would represent less than 1 percent of the company's market capitalization. "We dont believe the bulk of our investors want a common dividend," Maffei said. "We believe that the best use of (cash) is to reinvest in the business. On the other hand we do understand that some investors want a common dividend, and we created a security that offers them the opportunity to become investors in Microsoft." The amount of the offering could rise to $862.5 million if underwriters Goldman Sachs and Morgan Stanley exercise options, Microsoft said in the filing with the Securities and Exchange Commission. Pending SEC approval the offering could be completed in the next several weeks.

Boeing Co. chief executive officer Phil Condit did not take long to leave his mark on the company. Just one day after he was elected to become chairman of Boeing's board of directors Dec. 9, Condit began the final round of on-again, off-again negotiations that resulted in a $13.3 billion deal to acquire McDonnell Douglas Corp. Condit, 55, an engineer who began his career with Boeing in 1965, will serve as chairman and chief executive of the merged company under the agreement, which requires approval from shareholders and federal regulators. Condit, credited with spearheading the programme to design and build Boeing's new 777 twin-engine jet, was promoted to chief executive in April after more than three years as president under current Chairman Frank Shrontz, 65. Condit's promotion to chairman is not even effective until Feb. 1, after Shrontz's retirement. While Shrontz is a lawyer by training with a somewhat formal demeanor, Condit is known for his habit of changing clothes from a business suit to sweater and slacks for his frequent meetings with workers at all levels of the company. Condit shows an almost boyish enthusiasm for his work, exclaiming "Wow!" to sum up major business triumphs and declaring he is "overwhelmed" by his latest promotion -- no matter that it had been long expected. Behind that enthusiasm is a drive to cut costs at a company once derided as the "Lazy B" and create a military and commercial aerospace giant better able to ride out the deep industry cycles that have whipsawed Boeing in the past. Over the past several years, as Boeing went through the final years of a long industry downturn, Condit was busy putting into practice the philosophy developed with the 777 programme of "working together." At Boeing the phrase means that engineers, contractors and factory workers, once happy to throw problems "over the wall" to the next division, work more closely than before to speed changes and improve processes. The new philosophy and an overhaul of the company's computer equipment have allowed Boeing to cut the time between an airline order and delivery by as much as 50 percent. The changes have hardly been accomplished easily. In addition to the layoffs that shrank Boeing's workforce by about one-third over the five years ending in 1995, the company endured a bitter 10-week strike last year by its 32,000 unionized Machinists. Condit acknowledged last week that the company has "a long way to go" to repair relations with its workers. Condit got his bachelor's degree in mechanical engineering from the University of California in Berkeley and has master's degrees in engineering and management from Princeton University and Massachusetts Institute of Technology.

Pyramid Breweries Inc. Tuesday warned of lower-than-expected sales and earnings for the fourth quarter, blaming increasing competition in the craft beer industry. Seattle-based Pyramid said sales would be 20 percent to 25 percent below last year's levels on a wholesale basis and said it expected to just break even for the quarter, compared with analysts' projections it would earn 9 cents a share. In last year's fourth quarter, the company posted gross sales of $7 million and net income of about $1 million, or 13 cents a share. Pyramid's warning was the latest to roil the trendy craft beer industry, which has disappointed investors who snapped up stock sold in a spree of offerings over the past two years. Pyramid stock, which went public at $19 as Hart Brewing Co. in December 1995, fell 12.5 cents after the announcement to $4.125 a share in Nasdaq trading. It ended an abbreviated trading session 25 cents lower at $4. Pyramid's crosstown rival, Redhook Ale Brewery Inc., which just last week warned of weak sales, was trading at $10.625 on Nasdaq, compared with its August 1995 offering price of $17 a share and a peak of $35. Boston Beer Co., maker of Samuel Adams beer, was trading at $10 on the New York Stock Exchange, compared with an offering price of $20 little more than a year ago and a peak of $33. Brewers have blamed tough competition, particularly in the Northeast and on the West Coast, where the premium-priced beers have caught on most quickly with consumers. But market share for craft beers may have peaked in many of those initial markets, while an increasing number of varieties crowd grocery store coolers. "Not a lot of new consumers are trying craft beers any more," said analyst Diane Daggatt of Dain Bosworth, referring to more mature markets. "The people who are going to try them have tried them. They just haven't built any brand loyalty." She said about 400 craft brewers nationwide were distributing beer, up from 300 just a year ago. And brewers are adding more specialty beers, increasing competition and confusing consumers. While breweries have been offering promotional discounts, analyst Scott McAdams of brokerage Ragen MacKenzie said the industry may be ripe for more serious price cuts and consolidation. "People are going to have to think about addressing the price issue and spending more on marketing," he said. "They're going to have to play the beer game more than they have been playing the beer game." But analysts said there was still a lot of room for growth in new markets. Nationally, craft beers account for about 3 percent of sales, compared with 8 percent to 10 percent in markets such as Portland and Seattle, she said.

Microsoft Corp expects desktop applications led by its Office suite to bring in about $5 billion in revenues in the current fiscal year ending June 30, an executive said in an interview. Richard Fade, vice president in charge of the desktop applications division, also said in the interview he expected 35 to 45 percent of users to upgrade to the new Office 97 version, although he declined to project a timeframe. Office has an installed base of some 24 million customers, and another 30 million use its component applications such as Word and Excel, which also are being upgraded. Analysts estimate the software giant will post overall revenues of slightly more than $10 billion this year, up from $8.7 billion in fiscal 1996. With an expected spike in sales driven by Office 97, the productivity applications alone could account for $3 billion, analysts say. Office 97 is "a huge release for us," Fade said. "It's probably the most significant thing aside from the browser work that we've done since the simultaneous introduction of Office 95 and Windows 95 a little more than a year ago," he said. Fade said hundreds of person-years went into the new release, in the works since late 1994. He said virtually the entire Office division of nearly 1,000 people had been working on the product since August 1995. In addition to a new information management system called Outlook, the product includes better integration of applications and better compatibility with the Internet. Fade said Microsoft plans to target different user types through four separate packages of the Office components and other Microsoft applications. Office standard and professional versions will be available widely Thursday, while versions for small businesses and home users will be out within two months. Fade expressed skepticism that an alliance of Corel Corp and Netscape Communications Corp announced this week would be able to achieve the tight integration of the Office suite. But he said the plan by the two companies is an indication of the continuing tough competition in a category Microsoft has dominated for several years. "It's a very competitive, alive category," Fade said. ((-- Reuters Seattle bureau 206-386-4848))

After months of denying that a $500 Internet appliance would pose a threat to its industry dominance, Microsoft Corp. plans to announce a new push for inexpensive, easy-to-use personal computers. Microsoft is working with Intel Corp. and major compouter manufacturers such as Hewlett-Packard Co. and Compaq Computer Corp. on the intiative and will announce details at a conference Monday, said a spokesman for the software giant, confirming a published report. The announcement will come one day before the widely anticipated unveiling of an $800 device from Microsoft rival Sun Microsystems Inc. The Sun product is among the first of an expected flurry of appliance-like devices dubbed network computers being positioned as Internet-friendly alternatives to PCs based on the "Wintel" standard of Microsoft Windows and Intel processors. While Microsoft Chairman Bill Gates and other executives have downplayed the threat from network computers, they have been scrambling to come up with ways to make personal computers easier to use for home consumers and cheaper to maintain for businesses. "They and Intel have certainly heard the network computer mantra and have discovered a new religion," said Rob Enderle, an industry analyst with Giga Information Group. "The threat is very real," he said. "Particularly for the (corporate) community, the concern surrounding the cost of managing multiple Wintel systems has been driving them to consider other alternatives." At the same time personal computer penetration into the home appears to be hitting a plateau far short of other mass-market electronic devices. In a report early this year that set off alarm bells throughout the industry, Dataquest forecast sharply slowing growth. The research group predicted PCs would be in 38 percent of U.S. homes by 1999, compared with 29 percent last year. But since Oracle Corp. Chairman Larry Ellison and other executives began publicizing the network computer a little over a year ago, Microsoft officials routinely have minimized its importance. "We dont think it's likely that Internet appliances, network computers or whatever you call them are going to displace the PC anytime soon," Gates told a Harvard University audience in May. At the same time Microsoft has been stepping up efforts to make the PC easier to use, acknowledging the machines are dauntingly complex for many consumers. In April Gates unveiled a set of technologies for what Microsoft called the "Simply Interactive PC," which he said would make the personal computer "as easy and convenient to use as other home appliances." Monday's announcement apparently will go further to bring consumers lower prices, which are being made possible by falling prices of memory and other components. "They're validating the proposition we've been taking to the market for the last year," said Jon Kannegaard, vice president of software products for Sun's JavaSoft unit. Jesse Berst, executive editor of Windows Watcher, an industry newsletter, agreed that Microsoft was late to acknowledge the importance of network computers. "They're awful late to respond to what has been a very, very strong message from customers," he said. "If they had been doing what they should have been doing, which is really driving down prices aggressively, they wouldn't have been in the position where someone has the opportunity to come and take their franchise away."

Microsoft Corp. is expected to report a sharp slowdown in earnings growth Monday due largely to a sales surge last year when the software giant launched its Windows 95 operating system. On average, industry analysts expect the company to post earnings of 90 cents a share for its fiscal first quarter, up 15 percent from last year's 78 cents, according to First Call, which tracks earnings predictions. In last year's fiscal first quarter Microsoft reported net income of $499 million. Analysts generally said the Redmond, Wash.-based company would post revenues in the $2.3 billion range for the period that ended Sept. 30, up from $2.02 billion. While Microsoft's growth rate is still healthy, and results are expected to be slightly higher than in the quarter ended in June, the company is facing difficult comparisons after last year, when revenues and earnings grew more than 46 percent. "It's a tough comparison because in the September quarter last year was the initial release of Windows 95 and all the sell-in associated with that, so it was a great quarter," said Chris Galvin of Hambrecht and Quist. But he and other analysts said Microsoft's business was continuing to expand steadily, benefiting from rising sales of personal computers and the increasing penetration of Windows 95 and the more lucrative Windows NT system. Microsoft's already-high profit margins also are rising as the company sells a growing proportion of its software by preloading it onto new computers or selling licenses to large customers rather than shrink-wrapped boxes at retail stores. Microsoft's business is expected to gain momentum through the fiscal year as the recently updated Windows NT wins more acceptance and the company rolls out a major new version of its Office software package beginning in December. For the full fiscal year, analysts see earnings and sales up about 20 percent over last year. "I think NT will really start ramping in the December quarter and in the first part of '97," said Scott McAdams of Ragen MacKenzie. "It's going to be a very powerful driver of earnings." One cloud on Microsoft's horizon is the imminent arrival of a wave of "thin client" products such as the Network Computer championed by Oracle Corp. Chairman Larry Ellison. Late this month, Sun Microsystems Inc. is expected to launch a line of products code-named "Mr. Coffee" based on the increasingly popular Java language, which is being positioned as an alternative to the "Wintel" combination of Microsoft Windows operating systems on Intel Corp. processors. While corporate users are not rushing to desert their personal computer networks, the increasing publicity about alternatives could hurt Microsoft's stock price, which was off $1.25 Friday at $134.25 in afteroon trading on Nasdaq but still up more than 50 percent so far this year.

Microsoft Corp. Friday reported better-than-expected second-quarter profits on broad strength in sales of its personal computer software but warned of slower earnings growth next year. The Redmond, Wash.-based software giant posted earnings of $741 million or 57 cents a share in the second quarter of fiscal 1997, a 29 percent increase over the $575 million, or 45 cents a share, in the year-ago quarter. Revenues rose 22 percent to $2.68 billion from $2.2 billion a year earlier. The results, issued after the market had closed, beat analysts' highest forecasts, sending shares of Microsoft as high as $89 in after-hours trading, but the stock later fell to $85.50 due to the warning about slower earnings growth. In regular Nasdaq trading, Microsoft had gained $1.125 to $87.125. "It was a terrific quarter," said Goldman Sachs analyst Rick Sherlund. "Compared with expectations, revenue was quite a bit stronger than expected, as was the earnings number." Wall Street analysts on average had expected Microsoft to report earnings of 51 cents a share, with estimates ranging from 47 to 55 cents, according to First Call. Microsoft's earnings in the quarter were driven by strong sales in virtually all areas, including its Windows computer operating systems, BackOffice server software and desktop applications such as Office, executives said. Revenues from "OEM" sales through computer manufacturers rose 29 percent to $866 million, while revenues from countries outside the United States, Canada and Europe rose 32 percent to $424 million, with Japan a particularly strong performer. But in the earnings statement and in a conference call later with reporters and analysts, Microsoft chief financial officer Mike Brown warned that the company's growth is likely to slow in fiscal 1998, which begins July 1. "We are pleased with the current financial results and growth prospects for the next two quarters, particularly with the outlook for sales of Office 97," Brown said in the statement. "However I do anticipate slower earnings growth in fiscal 1998 (beginning July 1997) due to lower revenue increases in our maturing businesses and margin pressure from continuing aggressive spending on research and development and new business ventures," Brown said. In the conference call he went so far as to wonder aloud about Microsoft's high stock price compared with its anticipated earnings growth. "It's not my purpose to second-guess the market," he said. "However I will say that our current EPS (earnings per share) multiple is cause for curiosty at least to me." Sherlund said such cautionary comments were typical of the company's financially conservative nature. "Directionally those comments were quite consistent with what we've heard before," Sherlund said. Scott McAdams, an analyst at Ragen MacKenzie, said that while Microsoft's price-earnings multiple is higher than would be expected given its slowing growth, investors pay a premium for its ability to consistently beat earnings estimates. In a sign of Microsoft's financial strength, the software giant said it ended the quarter with $9.16 billion in cash and short-term investments, up from $7.1 billion just three months earlier. And the company's "unearned revenues," representing sales deferred to reflect costs incurred over the life of cyclical products such as Windows 95 and Office, rose to $1.013 billion from $651 million at the end of the previous quarter.

China said on Monday it expected talks with the United States soon on a dispute over U.S. sanctions on its textiles and its own threat to retaliate. Beijing also said it was still too soon to say which U.S. imports would be banned if Washington failed to withdraw penalties on imported Chinese textiles. "We expect to see working level talks with the U.S. in the near future," an official of the Ministry of Foreign Trade and Economic Cooperation told Reuters. "The two sides will exchange views," he said. Beijing said on Sunday it would suspend temporarily its imports of some U.S. textiles, farm goods, animal husbandry products, fruits and alcoholic drinks in retaliation for Washington's imposition of punitive charges on American purchases of Chinese textiles. The temporary import ban would take effect on December 10. In September, Washington announced punitive charges against import quotas for Chinese textile goods, accusing China of using transshipments to avoid U.S. quota restrictions. China said the action was taken without consultation and with no clear supporting evidence, adding it had no choice but to impose retaliatory sanctions. "We are still seeking the views of Chinese enteprises about which products should be included under the ban," the Chinese official said. "That will be determined in another 30 days." The total of trade affected by Washington's action was estimated at $19 million -- only a fraction of Sino-U.S. trade, which is now heavily in China's favour. The United States says its trade deficit with China last year was more than $35 billion. But China's threatened trade ban, made ahead of a planned visit to Beijing this month by U.S. Secretary of State Warren Christopher, meant yet another face-off in the frequently testy Sino-U.S. ties. Relations have been strained over the last year by a range of issues from Taiwan to arms proliferation to trade and human rights. China and the United States have said they saw an improvement in relations since they narrowly averted a trade war over copyright piracy and exchanged diplomatic fire over Beijing's political rival Taiwan earlier this year. The two sides are preparing for high level exchanges next year, including a possible visit to China by U.S. Vice President Al Gore and a summit between Chinese President Jiang Zemin and U.S. President Bill Clinton. Christopher's visit was expected to pave the way for these meetings.

The United States would consider some form of peaceful nuclear cooperation with China even before a previously signed accord is fully implemented, U.S. Secretary of State Warren Christopher said on Wednesday. "As we move forward on nuclear non-proliferation, the U.S. is prepared to consider, as consistent with U.S. laws, further steps in the area of peaceful nuclear cooperation even in advance of our full implementation of the 1985 agreement," Christopher told a news conference in Beijing. Christopher did not specify what types of cooperation might go ahead before implementation of the agreement or give any timetable. "If they (the Chinese) are making progress towards putting the 1985 agreement into effect, we are prepared to consider other things," Christopher said. Christopher also said the two sides had agreed to establish a regular dialogue on arms control and non-proliferation issues. "I made clear our strong concern about (China's) nuclear cooperation with Iran," Christopher said. China pledged in May not to provide assistance to any unsafeguarded nuclear facilities. The United States has held up the full implementation of the 1985 agreement on peaceful nuclear cooperation because of concerns over Beijing's nuclear sales, although the two sides have recently begun talks aimed at allowing the accord to proceed. Before the 1985 agreement can be implemented, the U.S. president has to certify to Congress that China is not transferring nuclear technology to countries that have nuclear facilities without safeguards. China is eager to buy billions of dollars worth of nuclear power reactors from U.S. firms. Christopher arrived on Tuesday for a three-day visit that included meetings with Chinese President Jiang Zemin and Premier Li Peng. Chinese Foreign Ministry spokesman Cui Tiankai later told reporters the Sino-U.S. agreement on peaceful use of nuclear technology was signed 11 years ago. "We believe it is high time to put this agreement in practice," Cui told reporters. He said if the U.S. moved ahead with providing nuclear technology to China, U.S. companies would benefit. "The China market is very big," Cui said. Asked to comment on the agreement on proliferation, Cui said: "All I can say is the two sides will meet every year and hold a dialogue... to discuss comprehensive issues about global security and non-proliferation."

China's foreign debts reached $109.5 billion at the end of June but the governor of the central bank said the country was confident of paying its bills. Governor of the People's Bank of China Dai Xianglong said the nation's foreign exchange reserves of about $96 billion -- among the biggest in the world -- were comfortable, but not excessive. "We are very prudent in our borrowing," he said, adding that the level of debt measured against exports -- or the debt service ratio -- was well within international warning levels. "On the whole the repayment situation is good," Dai told Reuters in an interview. "It is hard to say exactly where the debt level will be next year, but every year an additional $10 billion is possible," he said. He said $10 billion had been the average annual addition to the debt level over the past five years. "For a country of China's size, (the level of foreign exchange reserves) is not a big sum," he said. "We can only say it is comfortable." Most of Beijing's debt was long term, but China needed reserves sufficient to maintain repayments as well as to finance four months' worth of imports, he said. Beijing also had new needs for foreign currency following the recent move to make the renminbi -- China's currency -- convertible on the current account. He described China's repayment status as good, although he conceded there were repayment problems with enterprises under the direction of local governments. "There are some local government-run enterprises that are overdue," he said. But Dai also said foreign banks had a responsibility to ensure that credit went to deserving enterprises. "Foreign creditors of Chinese enterprises must be selective in their lending," he said. The central banker said he expected the renminbi to remain stable though he saw upward pressure on the Chinese currency, partly due to an expected trade surplus of more than $10 billion this year. That would be down from the $16.7 billion surplus China recorded last year and much better than initial forecasts for 1996. Economists say faster payments of export tax rebates have encouraged many companies to turn to the export market, thereby helping the trade picture. The renminbi currently trades at about 8.3 to one dollar.

China should take advantage of easing inflation and switch its fund raising efforts to longer term bonds, an official newspaper said on Tuesday. The Financial News, published by the central bank, said that the reduced interest rates meant that Beijing could lock in long-term funds at cheaper rates. "Now that we are in a period of lower inflation, this is the time to shift to longer term maturities for government funds," the newspaper said. China's retail price inflation rate slipped to 6.9 percent for the first seven months of the year, well below a target of 10 percent for the year and down sharply from the 14.8 percent for all of 1995. That persuaded the central bank to cut bank interest rates once this year, and many analysts expect another rate reduction by the end of the year. China also felt confident enough to eliminate a hefty subsidy on new bank deposits and government debt of more than three years as of April. The subsidy, paid on top of the normal interest rate, was aimed at attracting investors during a period of high inflation. The subsidy hit a peak of 13.24 percent in December of last year, paid in addition to interest of 12.24 for three-year bank deposits. In 1995, China issued 151 billion yuan ($18.18 billion) in domestic treasury debt, representing 2.6 pct of its gross domestic product, according to the daily. "The government had to raise interest rates on bonds and to give a subsidy on top of this. As a result, this increased the the cost of raising funds and the burden of repayment," the newspaper said. In July, Beijing issued its first tranche of 10-year bonds. They paid annual interest of 11.83 percent but with no subsidy, making them a far cheaper way for the central government to raise funds. "The advantage to the state is that it is simpler to manage," said Xu Hongyuan, an economist at the State Information Centre. "From the investor's standpoint, the bonds are also quite attractive," he told Reuters. The newspaper said in addition that China also had too much of its debt concentrated in three to five-year maturities, bunching up repayments and straining government finances unnecessarily. "If we can rely on a certain amount of 10-year treasury bonds that will ease the problems," the newspaper said.

China's recent string of satellite launch failures may help Russia's commercial space drive, a senior Russian space official said on Wednesday. Russia should benefit from its strong space technology, despite lagging behind China in turning technical expertise into commercial success, said Vladimir Oumnikov of the Russian Space Agency. "We have good prospects," Oumnikov told Reuters at an international conference on astronautics in Beijing. Asked if Chinese setbacks had helped the Russian programme, he said: "We think so." Although China once had a reputation for providing cheap and reliable launch services, it has been stung by a series of launch failures. China's commercial space drive suffered a setback in August when a communications satellite failed to reach its orbit after launch aboard a Long March 3 rocket. Last February, an Intelsat satellite was destroyed in a spectacular explosion as a Long March 3B rocket veered wildly seconds after launch from China's Xichang space centre in the western province of Sichuan. At least six people were killed and 57 injured in the incident, which also destroyed 80 homes near the launch site. In January 1995, a Long March rocket exploded, destroying the Apstar 2 satellite it was carrying. Last month, a Russian Proton rocket booster successfully launched a U.S.-built satellite for the international telecommunications organisation Inmarsat and a Proton-K booster rocket launched a satellite for domestic telephone and television use. "We think we have a good system for ensuring reliability," said Oumnikov, who is deputy director for economic issues in the Russian Space Agency's division of space projects. Failures were common in the space industry and China was not the only supplier of launch services to have such problems, the Russian official said. He added that Russia needed to catch up with China, which has moved ahead with economic reforms that have reduced the reliance on central planning and expanded the role of the marketplace. "We do not have enough experience in commercialisation," he said. "China had a head start in this area." Russia's parliament was expected to discuss by the end of this year a law that would give a legal basis to the commercial space business, he said. That would remove some of the legal obstacles to Russia's efforts to make a profit from space technology, he added.

China said Monday it expected talks with the United States soon on a dispute over U.S. sanctions on its textiles and its own threat to retaliate. Beijing also said it was still too soon to say which U.S. imports would be banned if Washington failed to withdraw penalties on imported Chinese textiles. "We expect to see working level talks with the U.S. in the near future," an official of the Ministry of Foreign Trade and Economic Cooperation told Reuters. "The two sides will exchange views," he said. Beijing said Sunday it would suspend temporarily its imports of some U.S. textiles, farm goods, animal husbandry products, fruits and alcoholic drinks in retaliation for Washington's imposition of punitive charges on American purchases of Chinese textiles. The temporary import ban is to take effect on Dec. 10. In September, Washington announced punitive charges against import quotas for Chinese textile goods, accusing China of using shipments through other countries to avoid U.S. quota restrictions. China said the action was taken without consultation and with no clear supporting evidence, adding that it had no choice but to impose retaliatory sanctions. "We are still seeking the views of Chinese enterprises about which products should be included under the ban," the Chinese official said. "That will be determined in another 30 days." The total of trade affected by Washington's action was estimated at $19 million -- only a fraction of Sino-U.S. trade, which is now heavily in China's favour. The United States says its trade deficit with China last year was more than $35 billion. China's threatened trade ban, made ahead of a planned visit to Beijing this month by U.S. Secretary of State Warren Christopher, meant yet another face-off in the frequently testy Sino-U.S. ties. Relations have been strained over the last year by a range of issues, from Taiwan to arms proliferation to trade and human rights. China and the United States have said they saw an improvement in relations since they narrowly averted a trade war over copyright piracy and exchanged diplomatic fire over Beijing's political rival Taiwan earlier this year. The two sides are preparing for high-level exchanges next year, including a possible visit to China by Vice President Al Gore and a summit between Chinese President Jiang Zemin and President Clinton. Christopher's visit was expected to pave the way for these meetings.

The Stone Group, a Chinese high technology company, plans to inject assets into its Stone Electronic unit to boost trading in the Hong Kong-listed firm, a top group official said. The asset injections could begin next year as the Hong Kong company recovers from its steep slide in profits in 1995, president Duan Yongji told Reuters. "We want to expand our float," Duan said in an interview late on Tuesday. "We don't have enough stock on the market. Many investors say 'you are not big enough'," he said, adding that more shares would be sold once the assets were injected into the listed vehicle. The plan requires a sharp reduction in the price-to-earnings ratio of the company's stock -- now at about 23 -- to about 10. Duan said a sharp rise in earnings expected this year and in 1997 would help to set the stage for the plan. The Beijing-based Stone Group Corp listed shares in 1993 with a HK$300 million ($38 million) flotation for Stone Electronic Technology Ltd. The group still has a controlling 57 percent stake in the Hong Kong company, which makes integrated word processors and printers and distributes a wide range of products, including computers as well as office and lighting equipment. Stone Group now has 18 joint ventures and it plans to start placing some of those assets into the listed firm. "We are preparing to inject some of the profitable companies into that vehicle," Duan said. Stone Group probably will inject a large part of its 40 percent stake in a $60 million China-based joint venture with Matsushita of Japan to produce light fixtures. The plant has required heavy start-up costs but should be profitable next year, Duan said. Stone Group also has a stake in a $1.6 billion semiconductor project with Mitsubishi Electric and Mitsui in China, although that will not begin production until late 1997 or early 1998. Stone, one of the success stories of China's electronics industry, was started with a loan of 20,000 yuan ($2,400) in 1984. "We used to compete with just the little guys," said Duan. "That has changed dramatically in recent years," he said, adding that all major multi-nationals were now in the domestic market as China has relaxed its once-tight curbs on imports. "Technology is also changing rapidly so we have to make use of our capital," the executive said. "We can't let it stand still." Stone Electronic's profits slumped to HK$17 million in 1995 from HK$63.88 million in 1994. But earnings for the first half of this year were up 44 percent over the year-ago period to HK$10.22 million. "I can't give a profit figure for all of this year but the full year growth will be better than first-half growth," Duan said, adding that 1997 should continue that trend. Stone sees specialised electronic products for the banking system and tax collection as areas where it has major advantages over its competitors. The parent company has also diversified into finance, setting up securities and futures trading operations and investing in a bank. Income from financial operations already has exceeded the company's electronics business. ($1= 8.3 yuan) ($1= 7.8 Hong Kong dollars)

China's oil and chemical trading giant Sinochem hopes to list shares in Singapore as a first step in its plan to become a world-class conglomerate, a top official said on Friday. "Our objective is to build our company into a transnational conglomerate," President Zheng Dunxun said. "We are looking at big Korean and Japanese conglomerates as models," he said. Zheng, speaking to reporters and security analysts at Sinochem's Beijing headquarters, did not say how many shares would be offered or who much money would be raised. Timing would depend on the Singapore stock exchange, which was now reviewing Sinochem's plan. However, company officials said the review period might be longer than usual because the firm was a trading operation and had no production in Singapore. The company had said last June it was confident of the success of its application and expected to be listed in two months. Sinochem would retain 60 percent control of the listed company, Zhang said. Sinochem, whose full name is China National Chemicals Import and Export Corporation, had net assets of more than $1.0 billion at the end of last year. Besides oil and chemical trading, its operations range from oil refining to shipping, warehousing and finance. Sinochem officials said the company accounted for 40 percent of all of China's oil imports and the remaining 60 percent went through a joint venture in which it had a 50 percent stake. Company officials said Sinochem had net profits of $75 million last year, down from $100 million in 1994. Turnover rose to $18.21 billion from $14.98 billion in 1994. Asked why profits slid when revenues rose, officials said market conditions were to blame. They did not elaborate. The Singapore listed unit would be Sinochem Asia Holdings (Company) Ltd and would include oil and other commodities trading operations in Singapore as well as trading vehicles in Thailand and South Korea. Sinochem Asia Chairman Fu Yong declined to give the value of the assets of the Singapore listed company, but said they would not include Sinochem's big Hong Kong arm. "Sinochem Hong Kong would be too big to be put into Sinochem Asia," he said. Asked if this suggested another listing, for the Hong Kong operations, Fu said: "If the Singarpoe listing goes smoothly we might try other centres." If the offer gains clearance form the Singapore stock exchange, Singapore's United Overseas Bank Ltd is expected to be the lead underwriter.

China on Tuesday announced a ban on poultry and poultry products from two U.S. states affected by what it said was the outbreak of a deadly disease. The ban is already in effect and covers poultry from the states of Missouri and Oklahoma, an official of the Ministry of Agriculture told Reuters by telephone. It was aimed at preventing damage from the "very destructive" Newcastle disease, the ministry official said. Official news reports said the ban was slapped on poultry products from the two states because of five cases of the disease discovered between July and September. A U.S. embassy official in Beijing said he could not immediately confirm that the disease had broken out in the United States this year. "That is what we are trying to confirm," said the diplomat, who asked not to be identified by name. Beijing has also banned all U.S. poultry brought into the country either by mail or hand-carried by travellers, according to the Ministry of Agriculture official. "Travellers are barred from bringing in any poultry goods from the United States," he said. "These products also cannot be brought into China through the mail." An official of the State Bureau of Animal Plant and Quarantine said the ban went into effect on Monday. The disease, known as viscerotropic velogenic Newcastle disease, or VVND, is deadly, Phillip Holloway, representative for Hong Kong and China for the Oklahoma state agriculture department, told Reuters on Tuesday. "It's a very, very dangerous disease -- the most feared of poultry diseases," he said. "The symptoms are like influenza, and once one bird gets the disease, all the poultry will die." But Holloway also said he had not heard of any recent cases of VVND in Oklahoma. The last major outbreak of VVND in the United States occurred in California in the 1970s and led to the eradication of the state's entire poultry population, he said. The Chinese quarantine official told Reuters that the action was unrelated to other trade disputes with the United States and there were no plans to delay implementation of the decision. Beijing and Washington are at odds over textile imports, and that dispute has threatened to spill over into the farm sector. China had threatened to ban some U.S. farm goods -- as well as textiles and alcoholic drinks -- in retaliation for U.S. penalties on textiles purchased from China. On Sunday, Beijing announced it was delaying for one month implementation of those curbs, which had been scheduled to take effect on Tuesday, because the two sides were planning to hold further talks on the issue. In October, China announced a ban on imports of poultry from 10 U.S. states because of fears it carried a virus called highly pathogenic avian influenza. China and the United States held talks on the issue and the ban did not go into effect. China is the second-biggest market in the world, after Russia, for U.S. poultry products. Some 330,000 tonnes of U.S. poultry products -- worth a total of $445 million -- were exported to China through Hong Kong last year, according to the U.S. Poultry and Egg Export Council. Every day 700 tonnes of U.S. chicken feet are transported across the border from Hong Kong into China, the council said.

China has captured the big prize in its recognition battle with rival Taiwan after South Africa announced plans to switch formal ties to Beijing. But the lengthy transition of more than one year signals that much bargaining remains on the shape of future relations between the three governments, diplomats in Beijing said on Thursday. "We...welcome (South African) President Nelson Mandela's positive statement concerning normalisation of relations between China and South Africa," Chinese Foreign Ministry spokesman Cui Tiankai told a news briefing. "If South Africa can recognise reality at an earlier date it is in its own interests to do so," he said. "This is in keeping with the basic interests of the peoples of the two countries," Cui said. Mandela told reporters in Johannesburg on Wednesday that Pretoria would switch diplomatic recognition from Taipei to Beijing by the end of 1997. Cui declined to comment on Pretoria's decision to switch only by the end of next year. "South Africa must recognise there is only one China, recognise that Taiwan is a part of China and sever so-called diplomatic relations with Taiwan," Cui said. "Taiwan is an inseparable part of China. The People's Republic of China government is the sole, legitimate government of all China," he said. "This has been our longstanding stand. It is very clear... Our stand has not changed," the spokesman said. South Africa is the biggest of just 30 states that recognise Taiwan's exiled Republic of China rather than the communist People's Republic on the mainland. Taiwan and China have been separated since a civil war ended in 1949. China sees Taiwan as a rebel province not entitled to foreign ties while Taiwan insists its 21 million people should have a voice in international affairs. "The South Africans have been the big fish for China," said a Beijing-based diplomat. "The others are just minnows." But in most diplomatic divorces, the break is swift, and diplomats said South Africa was still trying to work out its future relationship with both sides. "They are trying to gain maximum concessions out of the two sides," said a diplomat. South Africa is probably looking for a package deal that includes investment and trade guarantees under a formal legal framework with Taiwan. It is also hoping to limit damage. Mandela, announcing the break wtih Taiwan, pointedly thanked the island for its economic support during his nation's transition from minority, white rule to democracy. The announcement well ahead of formal recognition would also help South Africa preserve its consulate in the British colony of Hong Kong - which returns to Chinese rule on July 1, 1997. South Africa had been hoping to maintain official relations with both sides, a goal that proved unrealistic. Taiwan had also been looking to duplicate a framework with the Pacific states of Fiji, Vanuatu and Papua New Guinea which have formal relations with Beijing but have signed a "mutual recognition pact" with Taipei, diplomats said. "These smaller states may get away with a format such as this but South Africa apparently was not in the same category," said a diplomat.

Officials with Volkswagen-First Automotive Works in northeastern China on Monday dismissed a report that the joint venture faced possible closure. "This report is incorrect," said a spokeswoman of the joint venture, referring to a report by the German news magazine Der Spiegel. "Production is still continuing," she said in a telephone interview from Changchun. "We have a 25-year agreement. If the German side withdrew unilaterally, they would have to pay compensation," she said. She added that the two sides would soon hold a ceremony marking the full implementation of the joint venture project. A spokesman for Volkswagen AG's Volkswagen Asia-Pacific arm in Hong Kong also said production at the joint venture would continue. "There is no reason to leave Changchun," he said. Der Spiegel said the Changchun plant was losing money and production of the Jetta car had practically ceased. The Hong Kong-based official said the factory had produced 14,700 Jetta cars in the first eight months of this year, up 10 percent from a year ago. The Jetta was not selling as well as the Volkswagen Santana produced at Volkswagen's Shanghai joint venture, but that operation had taken the lion's share of the domestic passenger car market, he said. However, some changes in the joint venture agreement were being negotiated, including the introduction of new car models as well as the possibility of Volkswagen taking over sales and after-sales service, the official added. First Automotive Works had been producing Audi 100s at its own production line in Changchun under a seven-year licensing agreement that expired in June. The Audi 200 was now being built at the joint venture, and 400 have been produced since June. A total of 7,445 Audi 100s were built from January to June this year, the Volkswagen official said. First Automotive has also sold 4,120 of its Red Flag cars, an Audi-based car that the Chinese company produces separately from the joint venture using a Chrysler Corp engine, according to Volkswagen.

Russia will push to expand economic ties with China at a top level meeting in Moscow next month as old political hostilities fade in the background, a senior Russian diplomat said on Friday. "The big task in bilateral relations is to boost economic cooperation to the level of political cooperation," said Russian Ambassador Igor Rogachev. Chinese Premier Li Peng and Russian Prime Minister Viktor Chernomyrdin will meet in Moscow to map out practical economic steps in a relationship described by the two sides as a strategic partnership. The two former rivals for the leadership of the world communist movement have not seen such smooth relations since 1949 -- when the Chinese communists proclaimed the birth of the People's Republic of China, according to the Russian diplomat. "Relations have never been on such a healthy and rational basis," said Rogachev, one of Russia's top China experts. The two sides would now push to deliver oil, natural gas and electricity from Siberia to China while Russia wanted a role in China's nuclear power development, he told reporters. Rogachev said Russia was hoping to see other neighbouring countries participate in the projects, though he gave no indication of how likely that was or what form it might take. China and Russia have already proposed an oil and natural gas pipeline linking Siberia to China but financing is certain to be a key hurdle for the huge project. "I don't expect an agreement on these issues at the (December) meeting but perhaps we'll be ready by the spring," he said. That is when China's President Jiang Zemin travels to Moscow for a summit with Russian President Boris Yeltsin, a meeting arranged during the visit to China this week of Russian Foreign Minister Yevgeny Primakov. China and Russia are expected to sign another accord soon, this one on troop reductions along their 4,300 km (2,580 mile) border, the official Xinhua news agency has said. Rogachev said Russia was eager to reduce the high cost of stationing troops along the lengthy border, particularly when the strains of the 1960s Sino-Soviet split were so far behind them. "We don't think that China creates a threat for our country and they (China's leaders) don't see Russia as an enemy," Rogachev said. During Yeltsin's April visit to China the two nations -- along with the three former soviet states of Kazakhstan, Kyrgyzstan and Tajikistan -- signed a treaty agreeing to inform each other of military exercises along the border and not to attack each other. However, China and Russia been unable to reach agreement on one area of cooperation -- further deliveries of Russia's Sukhoi Su-27 interceptors. China's armed forces have already put into service a first group of the planes but talks for further sales have long been stalled over payment and technology transfer issues. "Talks are going on," Rogachev told reporters. "There will be more talks in future."

China has vowed to wind up the lengthy probe of the disgraced former boss of Beijing, saying the case had seriously damaged the Communist Party in the nation's capital. Beijing party chief Chen Xitong stepped down in April last year, only weeks after his protege and vice-mayor Wang Baosen was targeted in a probe of economic crimes and committed suicide. "The cases of Chen and Wang absolutely will not just fade away," the Outlook magazine quoted Beijing's current party chief, Wei Jianxing, as saying. "These cases have had a very bad effect on municipal affairs.. and have destroyed a number of comrades in the party," it quoted Wei -- the Communist Party's top graft fighter -- as saying. The weekly magazine, published by the official Xinhua news agency, carried the remarks in its latest edition, seen in Beijing on Wednesday. The 66-year-old Chen has been out of the public eye since his fall from grace, becoming the most prominent victim of a campaign against corruption. He was deprived of his seat on the party's powerful Politburo and was officially said to be under investigation for "serious mistakes". Unpublished party documents say that Chen, who ran Beijing for 12 years, first as mayor and then as party chief, had abused his office by amassing $24 million in unauthorised funds and lavishing favours on friends, associates and a long-time mistress. Vice-mayor Wang was found to have used his position to obtain 116 houses illegally and built himself a villa on the outskirts of the city. He also masterminded a $37 million embezzlement and graft scam, officials have said. The inability of investigators to announce a conclusion to their investigation had triggered much speculation, particularly in the case of Chen who was said to be refusing to cooperate and was threatening to implicate others. It also contrasted sharply with the speedy trial and sentencing last week of dissident Wang Dan, who was jailed for 11 years on subversion charges after less than four hours in a Beijing courtroom. The magazine also said that 22 people had been linked to the probe of the late vice-mayor, including Zhou Beifang, the former chairman of Hong Kong listed affiliates of a major Chinese steel company, and Chen Xitong's secretary, Chen Jian. Earlier this month, prosecutors filed corruption charges against 30 people, including Zhou, who was detained in February last year. The magazine also said that a former senior member of the Beijing city assembly, Tie Ying, had been arrested and expelled from the party earlier this year for accepting a large bribe from a Hong Kong businessman. It did not give further details. The city government had been virtually paralysed since the disgrace of Chen and Wang, Chinese sources have said. The campaign to clean up the Beijing administration was widely believed to have been a factor in the departure last week of Li Qiyan as mayor. Corruption was virtually eliminated in the years after the communists came to power in 1949, but has staged a comeback along with economic reforms in the past 17 years. Communist Party chief and state president Jiang Zemin has declared war on corruption, warning that the scourge was a virus that threatened the party. Courts frequently impose the death penalty in major corruption cases.

China will avoid bold moves in tackling its ailing state enterprises as it focuses on stability ahead of this year's crucial Communist Party congress, analysts said on Monday. They said policy makers would err on the side of caution in a year billed by Beijing as one of the most significant of the communist era. "Reform of state enterprises is the nation's biggest economic problem but it is an extremely difficult one to solve," said economist Cheng Xiusheng of the Development Research Centre of the State Council, or cabinet. "I would not expect any major breakthroughs this year." As China sheds the vestiges of a centrally planned economy, it wants state-owned companies, which have grown fat under government nurturing, to be leaner and better able to compete in the marketplace. About 75 percent of state firms are losing money. Losses surged to about 69 billion yuan ($8.3 billion) in the first 10 months of last year, a rise of 45 percent over the same period of 1995, officials have said. Halting those losses would mean shedding much of the workforce and in some cases making use of bankruptcy laws to dissolve companies. China's rulers have vowed to push ahead with reforms of the state sector but analysts are betting that the scale of any changes will be limited. Analysts note that China has set a target of keeping urban unemployment around three percent this year, little changed from the official figure issued in the recent past. "The problem is there is no social safety net," said a Western diplomat. China has no real unemployment insurance system and retirement schemes cover only a fraction of the working public. As most social welfare benefits stem from the employer, the loss of a job could have a huge impact on the individual. On a wider scale it could mean social unrest. "The Chinese realise where the problem lies," said the diplomat. "The trick is being able to make tough political decisions." That is unlikely this year as China's leaders prepare for the party congress that will set policies over the medium term. "No one wants to go into that meeting with the threat of social unrest," said another diplomat. Beijing is also loath to take risks as it awaits the recovery of Hong Kong on July 1 after more than 150 years of British rule. It wants a smooth handover. Some economists had hoped communist leaders would turn their attention to the deep-rooted problems of the state sector this year after Beijing effectively declared victory in its other major campaign -- the battle against inflation. China wrestled inflation down to six percent last year from 14.8 percent in 1995 and a communist-era high of more than 21 percent in 1994, according to official data. Economic leaders were confident enough inflation had been licked to allow state-set prices for postal rates and local telephone calls -- long held at subsidised levels -- to rise sharply last month. But economists said that this year at least, Beijing would prefer to continue with some of its subsidies rather than pay the social cost of putting ailing companies out of business.

China is planning to issue rules to speed development of its key power sector with an expanded role for foreign companies, a Chinese planning official said on Tuesday. Beijing was reviewing rules governing build-operate-transfer (BOT) projects, which so far have been off limits for foreign companies on major power projects, said Wang Hong of the State Planning Commission. "The State Council (cabinet) is considering temporary regulations," said Wang, director of the commission's department of foreign finance utilisation. China has said it needs $20 billion in foreign capital through the year 2000 to meet its targets for power industry development. Wang said the BOT rules would not be ready in time for the award of the nation's first such power sector project which is expected soon and could cost $600 million to $700 million. China is now evaluating tenders for the Laibin power project in Guangxi province in southern China, which calls for construction and operation of two 350-megawatt power units. Beijing says it is using the BOT method on a trial basis. The winner could be announced within the next month, Wang told Reuters at an energy conference. Major bidders include industrial giant ABB Asea Brown Boveri AG of Switzerland and a group including Germany's Siemens AG and Hong Kong's China Light & Power Co Ltd. The winner would construct and operate the plant for a period of time before turning the plant over to China. Its bid would include a plan for domestic electric power rates. The rules under review would define BOT projects and state when they are acceptable. They would also specify the approval process, require the use of international tenders and determine the apportioning of risk between China and foreign companies, Wang said. China generally does not allow foreign entities to hold than a 30 percent stake in key power projects, which are those with a capacity of about 250 megawatts. Western bankers at the conference said the lack of a clear legal framework for BOT projects coupled with problems in setting domestic electric power rates made it difficult for foreign commercial banks to finance the Laibin project.

China is preparing to tap overseas capital markets by listing shares of one or two of its chemical companies abroad, a senior Chinese official was quoted as saying on Sunday. But as Beijing looks for foreign capital to upgrade its technology it plans to tighten foreign access to its own chemicals market by adding new restrictions on joint ventures. Chemical Industry Minister Gu Xiulian told the Business Weekly that one or two chemical companies were getting ready for share offerings abroad, though she did not name the companies or the exchanges. She also said that one or two Chinese companies would issue convertible bonds -- bonds convertible into stock -- on a trial basis, though regulatory guidelines were not yet in place. China securities regulators are known to be preparing another batch of companies for share offers outside the country. It was unclear from Gu's remarks whether the chemical firms would be among those companies. Tianjin Bohai Chemical Group already has a listing on the Hong Kong stock market as well as on the Shanghai exchange while Jilin Chemical Industrial trades in Hong Kong and New York as well as on China's southern bourse in Shenzhen. Gu said that China's chemical industry needed to raise funds to make technical upgradings and that stock and bond offerings would help reach these goals. "We are trying to achieve the shift to a quality, intensive mode (of production) from the quantity, extensive model with the aid of foreign capital," she said. China will bar foreign companies from holding controlling stakes in joint ventures with big state enterprises in priority areas such as in soda ash and "sensitive materials". There was no indication of when the move might go into effect, and the policy "does not mean we are totally opposed to stock control by foreign businesses", Gu said. Gu had previously told reporters that China was planning to review its policies towards joint ventures in the chemical industry. She had suggested that areas where new technology was vital to the development of domestic industry, foreign companies would be allowed to control joint ventures. But other areas where China had already developed sufficient expertise would be closed to more than 50 percent foreign ownership. China is particularly encouraging direct foreign investment in fertilisers, ethylene, synthetic materials as well as fine chemical products -- either as wholly owned or jointly owned operations, Gu told the newspaper. She also criticised the "westernisation" of well known domestic products, saying that China needed an integration of foreign brands and domestic products.

A Chinese appeals court, in a rare move, sharply reduced on Friday to five years a prison sentence for an International Monetary Fund (IMF) employee accused of corruption. The court's decision followed a brief suspension of technical assistance by the IMF and a Beijing visit by IMF Managing Director Michel Camdessus to voice concern over what he described as judicial shortcomings in the case. The Beijing Municipal Higher People's Court sentenced Hong Yang, 44, a Chinese national, to five years in prison for accepting bribes totalling 100,000 yuan ($12,000) in 1993, before he joined the IMF, the Xinhua news agency said. "The sentence was dealt with leniently... and according to law," Xinhua quoting the court as saying on Friday. Hong, a former employee of the People's Bank of China, or central bank, was arrested in December while on an IMF mission to China. He was found guilty on June 28. Beijing sources said the original sentence was for 10 years, although statements by the IMF in Washington put it at 11 years. Hong appealed. Chinese courts rarely cut sentences on appeal, though an admission of guilt may lead to more lenient treatment. Camdessus has confirmed reports that Chinese authorities pressured the IMF to include Hong, who had been working at the international organisation's headquarters in Washington, on a mission to China. The Chinese actions created a furore at the IMF and Camdessus said in a letter to the organisation's staff he would closely monitor a second trial. "I also urged that the second open trial be transparent and complete and remedy the shortcomings of the first trial," Camdessus said after he visited Beijing last month. Xinhua did not mention the original trial but it highlighted the legality and openness of the second. It said the case was put on open trial on August 9 and that Hong, his two defence lawyers and four witnesses appeared in court and were involved in the proceedings. It also said that 200 people, including Hong's relatives and IMF officials, were present. It added that the man accused of offering the bribe, Fan Honggen, and other individuals from the Agricultural Bank would be dealt with in a separate case. It did not give further details.

China warned on Monday against reinforcing military alliances, saying Cold War ideology lived on. In an apparent dig at the United States, it also hailed what it called a trend towards a multi-polar political and economic world order. "The practice of reinforcing military alliances runs counter to the current tide of peace and development, and will have to arouse great concern among the people," Vice-Premier Qian Qichen was quoted by the official Xinhua news agency as saying. "The Cold War has ended but confrontational 'Cold War thinking' still exists," said Qian, who is also foreign minister. Qian did not name specific targets for Beijing's ire but the remarks closely followed a visit by Premier Li Peng to Russia, a trip that prompted China's official news media to trumpet the rise of a power centre to balance the United States. Chinese political analysts have noted they shared Russian concerns over the planned expansion of the North Atlantic Treaty Organisation to admit Moscow's former Cold War allies in eastern Europe. China has also vented its anger at closer U.S. military ties with Japan stemming from an agreement this year that enhanced security ties between the two countries. Beijing has tried to strengthen its own links with the United States and other Western countries, but it is keen to see some check on Washington's power, diplomats said. Qian said a key trend of the past year was the movement towards economic and political "multi-polarisation". Relations between the world's big powers were undergoing major readjustments, marked by mutual reliance and restraint, which have brought about a complicated and changeable situation, he said. This was underscored by widespread opposition to the Helms-Burton and D'Amato legislation put into effect by the United States with the aim of tightening economic sanctions against Cuba and Iran, he said. The two laws had been strongly condemned and extensively boycotted, Qian said. China sees these laws as U.S. interference in the affairs of other states, a sensitive subject for a country that has come under sharp criticism for its human right policies at home. Qian said that over the last year, Beijing had moved to counter practices that interfered in its internal affairs, safeguarding the state's sovereignty, territorial integrity and national dignity. Beijing was willing to work with the United States to improve ties, adding that relations had stabilised after a "period of turbulence" earlier this year. Sino-U.S. relations were badly strained by Beijing's war games and missile tests near Taiwan in March. Relations between Washington and Beijing were also marred by tensions over trade, human rights and arms proliferation although a series of meetings between senior officials helped to ease strains in recent months.

China needs to extend bank credits to help boost its flagging export sector, a top trade official was quoted as saying on Sunday. Minister of Foreign Trade and Economic Cooperation Wu Yi wanted commercial and subsidised bank credits, particularly for machinery and electrical equipment makers, the Financial Daily reported. "First of all, I believe that the state should expand the size of its export lending," Wu said. "It should maximize its use of domestic credits, finding new sources of credit, and expand use of foreign loans to boost exports of complete plants and equipment." China's exports for the first eight months of the year were $90.61 billion, down 4.2 percent over the previous year, according to official figures. Exports in July and August showed an improvement, however, after the government speeded up long delayed payments of export rebates. Wu said commercial banks should be encouraged to make policy loans that might not be commercially attractive, and that state subsidies would be required. "We want to encourage commercial banks to take on policy loans. With the assistance of the Export-Import Bank, the state will implement necessary financial subsidies," she said. The minister said that big, turnkey projects required large amounts of capital and lengthy periods before they were completed. While the projects were in progress, exporters had to deal with inflationary cost pressures, exchange rate fluctuations and tax rebate delays. "In order to expand exports of complete plants and equipment we need an overall system to provide financial security for these companies," she said. "This will effectively encourage exports of machinery and complete plants and equipment." Wu said she was confident China could reach its total trade goal of $281 billion this year, though she gave no figure for exports.

Asia gave a cautious welcome on Friday to U.S. President Bill Clinton's appointments for the key posts of secretaries of state and defence, mixing public praise with some private misgivings. U.N. Ambassador Madeleine Albright, tapped to become the first woman secretary of state, and Senator William Cohen, who would take up the defence post, were seen as able appointees, though both were perceived as short on Asian expertise. Analysts said Asian nations that had been targets of U.S. pressure on human rights might also have cause for new concerns, particularly with the outspoken Albright in the top foreign policy job. Clinton named his United Nations envoy and the Republican senator from Maine on Thursday as his choices for the Cabinet posts to succeed Warren Christopher and William Perry. Senate confirmation for both nominees was widely expected. Japanese Prime Minister Ryutaro Hashimoto said he did not foresee any impact on U.S.-Japan relations. "I do not expect any changes in U.S.-Japan ties and I hope we can work together to deepen our relations," he told reporters. But government sources said both appointees were unfamilar with Japan and their counterparts in Tokyo would soon begin the task of getting acquainted with them. China, which has seen an easing of its strains with the United States of late, said it welcomed Albright's appointment and looked forward to a continuation of improving ties. "We congratulate Ms Albright on her nomination as secretary of state," a foreign ministry spokesman said. "We hope that while she is secretary of state, China and the United States ... will grasp the opportunities and make mutual efforts to improve and develop Sino-U.S. ties." Sino-U.S. relations had been buffeted over the past two years by disputes over Taiwan, arms proliferation, trade and human rights. Relations have improved markedly in recent months, most notably with a meeting between Clinton and Chinese President Jiang Zemin in the Philippines last month. But Chinese specialists in U.S. policy issues said a lack of experience in Asian affairs would prove a handicap for the two new Cabinet members, though they expected this to be overcome. They said that human rights issues, still a source of friction, had been put aside for the time being, and were unlikely to upset bilateral ties. Burma could be one Asian state to have misgivings about the new post for Albright, particularly in the sphere of human rights, analysts said. There was no official comment from the Burmese government but a Western diplomat in Rangoon said Albright's appointment would be viewed negatively as her past statements on human rights and women's issues have not been welcome. The United States has also been critical on occasion of Indonesia's human rights record though Jakarta's reaction to Albright's appointment was upbeat. Indonesian Foreign Minister Ali Alatas described her as an able and experienced diplomat. South Korea saw the new U.S. Cabinet appointees as likely to maintain pressure on rival North Korea as both are wary of the potential threat posed by Pyongyang. "The U.S. policy of trying to guide North Korea to a soft landing and keeping the freeze on Pyongyang's nuclear programme will continue," a government official said. "The new team is also likely to promote dialogue between South and North Korea," he added. North Korea invaded the South in 1950 and the two sides remain technically at war. Hostilities ended in 1953 with an armistice, not a peace treaty. Albright won an enthusiastic response from some quarters, such as in the Philippines where she was called an inspiration to women worldwide. "I am glad that the United States showed the way," said Katrina Legarda, one of the country's prominent women lawyers. "This development is so rare," she said.

China said on Thursday the highest-level U.S. visit in two years had produced results and the task now was to push Sino-American ties forward. Beijing made the upbeat assessment as U.S. Secretary of State Warren Christopher wound up a three-day visit by urging China to seize an historic opportunity to build a new era of cooperation. "We believe this visit has produced results," Foreign Ministry spokesman Cui Tiankai told reporters. "Both sides believe that Sino-U.S. relations have improved in the last few months," he said. "Both sides believe it is necessary to maintain and develop this improving trend." Christopher met Chinese President Jiang Zemin and Premier Li Peng and held lengthy discussions with Foreign Minister Qian Qichen during the visit. One significant gain for Beijing was Washington's willingness to consider cooperation in nuclear technology despite lingering concerns over possible re-exports. The United States and China signed an accord in 1985 for cooperation on the peaceful use of nuclear technology. But before the accord can be fully implemented the U.S. president must certify to Congress that Beijing is not providing nuclear assistance to states with unsafeguarded facilities. Concerns about assistance to countries such as Iran and Pakistan have long blocked China's access to the technology it wants to spur its nuclear power industry. For its part, China agreed to regular meetings on arms proliferation, though Beijing made clear that as far as it was concerned, the main such issue is U.S. arms sales to Taiwan. "This is the most important arms proliferation issue," Cui told reporters. China views Taiwan as a renegade province and it used Christopher's visit to make the point it expects to see an eventual end to American arms sales to the island. Washington insists these are two separate issues and it will continue to sell defensive weapons to Taiwan. The foreign ministry spokesman also pointed to results on trade issues, particularly a broad agreement that China should join the World Trade Organisation as soon as possible. But the two sides have different views over how that can be achieved. Beijing wants admission under the more favourable terms of a developing country while Washington insists the Chinese economy is too big for such treatment. Cui played down other areas of disagreement -- such as human rights -- saying there were major differences between the two sides but these should not become obstacles to improving ties. More high-level contacts were agreed on, though an announcement on summits was deferred, apparently until U.S. President Bill Clinton meets the Chinese president in Manila on Sunday. Those talks could touch on possible dates for an exchange of visits by the two leaders.

China's central bank chief has said that inflation would be a modest seven percent this year and this showed the state's economic policies were working. But Dai Xianglong, governor of the People's Bank of China, lashed out at companies that had taken advantage of tight money policies used to tackle inflation by lending money at excessively high rates. "The appropriately tight monetary polices have achieved clear results which have been acknowledged both in China and abroad," Dai was quoted as saying in the Financial News on Monday. "We can now control inflation to about seven percent for the full year," he said. China's retail inflation stood at 6.9 percent year-on-year in the first seven months and at 5.9 percent in July alone. Beijing has said it wanted to keep inflation within 10 percent for 1996, down from 14.8 percent last year and a communist-era high of 21.7 percent in 1994. But the central bank chief had harsh words for companies that had taken advantage of the tough austerity programme put in place three years ago to deal with the worst days of inflation. He did not name any of the offenders but he said that some "monopoly groups" and publicly listed companies were lending out money at excessively high rates. Tsingtao Brewery, which has stock listed in Hong Kong as well as in Shanghai, has run afoul of regulatory authorities in the British colony in the past for lending out funds raised from its public offer. A senior Chinese economist who asked not to be named said several big ministries were cash-rich and able to earn more than bank deposit rates by lending out their funds. "The big offenders are some cash-rich ministries," said the economist. "They can earn 16-18 percent on their money." That would compare with interest of 7.47 percent earned on one-year bank deposits. Other economists have said that higher rates were available for even more speculative lending. Dai gave no indication of whether any measures were being planned to address these problems, although he said that funds in the banking system were unevenly distributed. He said that China had already taken steps to curb illegal money market trade and that it had taken steps to ensure that other unauthorised financial organisations did not act as commercial banks. "There are many violations of financial regulations," Dai was quoted as saying. "There must be an expansion of supervision over the financial sector."

China gave U.S. President Bill Clinton a signal on Sunday that the election had not cleared away nagging trade disputes, saying it planned tit-for-tat curbs on American imports. Beijing said it would suspend temporarily its imports of some U.S. textiles, farm goods and alcoholic drinks in retaliation for Washington's imposition of punitive charges on American purchases of Chinese textiles. The announcement came only days after Clinton's re-election triumph and ahead of a planned visit to Beijing this month by U.S. Secretary of State Warren Christopher. Sino-U.S. relations have been strained over the last year by a range of issues from Taiwan to arms proliferation to trade and human rights. China and the U.S. have said they saw an improvement in relations since the two sides narrowly averted a trade war over copyright piracy and exchanged diplomatic fire over Beijing's political rival, Taiwan, earlier this year. Beijing said last week that it saw Clinton's re-election as a good opportunity for better ties in a "somewhat improved atmosphere". The temporary import ban, which would take effect on December 10, was in retaliation for what China called severe violations by the U.S. of a bilateral textile accord. "The decision was made in response to the U.S. unilateral cut of import quotas of Chinese textiles, which severely violated the bilateral textile agreement," the official Xinhua news agency said. In September, Washington announced punitive charges against 1996 import quotas for Chinese textile goods, accusing China of using transshipments to avoid U.S. quota restrictions. The action -- which was expected to cost China about $19 million -- marked the first time Washington had imposed so-called triple charges against repeated violations of a bilateral textile accord. The U.S. move was made without full consultation and clear supporting evidence, Xinhua said. Beijing accused Washington of imposing a series of barriers that had seriously affected Chinese textile export to the U.S. as well as China's ability to pay for American imports. China said it had urged the U.S. to withdraw the penalties but its pleas had been ignored, leaving it no choice but to take action. China's import suspension would also apply to U.S. fruits and animal husbandry products, though there was no indication of which specific items would be barred within the broad product categories. The Ministry of Foreign Trade and Economic Cooperation and the General Administration of Customs would have a detailed list ready before December 10, according to Xinhua. China also said it opposed any attempt to impose the will of one side upon others in trade matters, and called on the U.S. to avoid such measures in future. "Once again, we wish to urge the United States to handle trade disputes in the spirit of advancing bilateral trade, and refrain from taking any actions harmful to bilateral trade in the future," it said.

China could list more railway companies and is studying a plan to create a fund to boost foreign investment in the sector, a railway official said on Monday. The moves would be aimed at bringing in cash to help modernise the nation's huge rail system and fend off competition from planes and buses, Ministry of Railways senior engineer Zhang Yanzhao said. China's first railway stock offer -- the Guangshen Railway Co Ltd -- was being watched for its performance as a possible model for future offerings, Zhang told Reuters in an interview. "If Guangshen is seen as successful, we could use the same method again," said Zhang, assistant director-general of the department for cooperation with foreign countries. The Guangshen Railway links Guangzhou -- capital of fast growing Guangdong province -- with Shenzhen, which borders Hong Kong. In May, the company's shares were listed in Hong Kong and in New York as American Depositary Receipts. The offer was only a modest success, managing to hold just above its offer price. The Hong Kong shares were now trading at HK$2.925 ($0.38) each compared with an offer price of HK$2.91. "Any operations listed in the future would have to be making money and would probably be along the east coast," Zhang said. The key was corporatising the regional railway bureaus under the ministry's supervision. So far, only Guangzhou and Dalian in the northeast have taken this step. Another form of financing under study is the creation of a fund that could offer fixed income to foreign investors. "This is still far off," Zhang said without giving details. The railways have long been the backbone of China's transport sector, but are now facing new competitive pressure for both freight and passenger markets. Guangshen Railway had to cut ticket prices as of November to compete with bus traffic. The move was expected to hurt revenue and has already pressured the company's share price. China's railways carried 448 million passengers in the first half of the year, down 14 percent from a year ago, according to official media reports. Zhang said that overall China's railways were profitable, although some routes were losing money. And overall, profits were not keeping up with past performances. "As of last year, we have not been doing as well," he said without giving any figures. Overstaffing was a key problem because the railway system has 3.3 million workers on its payrolls. But shedding jobs requires tough political decisions because unemployment is seen as a source of potential social unrest. Government control over rail rates is also a problem. The ministry would like to raise rates but has little room to do so. "This is a sensitive area," said Zhang. The ministry is trying to speed up its trains, increase capacity and provide more comfortable passenger cars. It plans to expand electrified rail service to 28 percent of its capacity by 2000 from 19 percent now. New plans for electric locomotive production are under discussion, and Switzerland's ABB AG and Germany's Siemens AG are among the top contenders. Discussions are under way with Canada's Bombardier for joint production of modern passenger cars, and plans are moving ahead for a computerised, nationwide ticketing service. "If we don't compete we will lose market share," said Zhang. (US$1 = HK$7.73)

China has begun a national drive to test all blood products since the discovery of HIV contamination earlier this year, a health official said on Friday. "We have requested all local health authorities to inspect blood products and report the results to us," said an official at the Ministry of Public Health. The official, who declined to be named, said the testing followed the discovery in April of some samples of a HIV contaminated product manufactured and sold in the southern province of Guangdong. The product was known as "Wolongsong" brand blood albumin, a protein. HIV -- Human Immunodeficiency Virus -- is the virus that can lead to Acquired Immune Deficiency Syndrome (AIDS). "Following the incident we instituted a national inspection of blood products," the official told Reuters. Asked how the tainted product had been uncovered, she said: "I can't tell you that. This is a very sensitive question." Results of the tests from several provinces had been turned over to central authorities, she said without giving any further details. An official at the Foreign Ministry said public health authorities in Guangdong had called for government agencies around the country to stop the sale and use of the 50- millilitre "Wolongsong" albumin. Guangdong health officials, contacted by telephone, declined to give any information on the manufacturer or say how much of the product had been on the market when the action was taken. They also declined to say how the item became contaminated, what conditions it was used to treat or how serious the risk was to people who used the product. Officials in Beijing said that an order had been sent to have the Wolongsong product destroyed. Official figures show China has 4,305 reported HIV cases and the total is expected to reach 5,000 by the end of this year. Chinese officials quote health experts as saying they believe the actual number is anywhere from 50,000 to 100,000, as many cases go unreported. A total of 131 people have been infected with AIDS in China, according to the official media. China has been grappling with growing drug use and prostitution and experts warn these two problems could increase the number of AIDS cases across the country.

China plans to develop bigger rockets to carry heavier payloads into space and expand its role in the commercial satellite market, Chinese aerospace officials said on Thursday. The ambitious, long-term goal was to build rockets that could carry 20-tonne payloads -- more than twice the current capacity of the nation's most powerful launch vehicles, they said. "This is a long-term goal that could stretch into the second decade of the next century," said a spokeswoman for China Aerospace Corp, which coordinates China's satellite launch business. "China needs rockets to put multiple satellites into orbit -- both for its own domestic use and to help its position in the commercial space market," she told Reuters. China's existing rockets have the capacity to carry payloads of 9.2 tonnes for lower earth orbits and 3.4-5.0 tonnes for geosynchronous orbits. It has already launched multiple satellites on a single launch but officials say more development is needed. "We will begin a development programme as soon as possible to lay a firm foundation for the new development of Chinese launch vehicle technology in the 21st century," said Li Jianzhong, president of the China Academy of Launch Vehicle Technology. "We will develop technologies, especially some key technologies for a heavy lift launch vehicle with a payload of 20 tonnes," he said in a paper delivered at an international conference on space technology. He also said China would continue to study reusable space transport systems such as the U.S. space shuttle and manned flights -- although officials said these plans were unlikely to be taken into the development stage anytime soon. China, which put its first satellite in orbit in 1970, has been trying to expand its role in the commercial space market, despite a series of recent setbacks. A Chinese Long March 3 rocket, considered one of the nation's more reliable launch vehicles, failed to put a U.S.-built satellite into proper orbit in August. "It was due to a tiny problem with a valve leakage," a scientist who worked on the rocket told Reuters. "But that small error meant the whole launch was a failure." In February, technical flaws had even more disastrous results when a Long March 3B rocket exploded shortly after lift-off, killing at least six people and injuring 57. China says it still has a high success rate for its satellite launches but the latest setbacks have tarnished its reputation. Beijing also sees a need to step up its satellite production technology. "We are behind the West in rocket technology but we are even farther behind in satellites," said the China Aerospace spokeswoman. "We need to be able to build more sophisticated satellites with more transponders." The development plans will require a lot of funding, and although senior Communist Party officials are backing the space campaign, there are plenty of other government projects that demand a share of the budget. Chinese officials declined to say how much money would be committed to the rocket development project or the space sector overall. "I can say that our space budget is merely a fraction of what the United States spends on its space programme," said a senior aerospace official.

China issued tough new rules on the handling of blood products on Sunday in a move that follows the sale of HIV-tainted blood serum. The official Xinhua news agency said the rules covered the production and distribution of blood products and set strict supervisory standards throughout the health industry. It also said the 5,000-word ruling set harsh punishments for violators, though it gave no details of the regulations themselves and made no mention of the discovery last April of tainted blood products manufactured and sold in China. But the news agency underscored the importance of the order by noting that it had been issued by the State Council, or cabinet, and signed by Premier Li Peng. In a highly unusual move, China's Foreign Ministry admitted in October last year that some samples of blood product serum albumin made under the "Wolongsong" brand name were contaminated with HIV, or Human Immunodeficiency Virus, which can lead to AIDS. China's Ministry of Public Health began a national drive to test all blood products after the discovery of the contaminated product in the southern province of Guangdong in April last year. Health officials banned the sale of at least some types of the product and ordered the destruction of stockpiles. Officials in Guangdong, contacted at the time of the Foreign Ministry announcement, declined to give any information on the manufacturer, explain how the product became tainted or say how much of it was on the market when the action was taken. The number of reported HIV cases in China stood at 5,157 by the end of October last year. But Chinese officials have quoted health experts as saying they believe the actual number was anywhere from 50,000 to 100,000 as many cases go unreported. A total of 133 people have been infected with AIDS in China, according to the official media. China has been grappling with growing drug abuse and prostitution, and experts warn these two problems could increase the number of AIDS cases.

China has sent mixed signals to the United States before the visit by Secretary of State Warren Christopher, combining toughness with conciliation on a range of issues that have tangled Sino-American ties. But diplomats said on Monday the highest level visit by a U.S. official in two years is unlikely to stumble over any of the key hurdles in its path as the two sides focus on repairing past damage. "Both sides seem to be eager to put the relationship back on track," said a Beijing-based diplomat. "The relationship is just too important." China and the United States have seen ties strained by a series of disputes, including human rights, arms proliferation, Taiwan and trade. Christopher's visit is likely to be the first in a series of top contacts in the months ahead aimed at keeping those conflicts from boiling over. Clinton will confer with President Jiang Zemin in Manila on the sidelines of the Asia-Pacific Economic Cooperation (APEC) summit this month and plans are under discussion for an exchange of visits between the two leaders over 1997 and possibly 1998. Vice-President Al Gore may also visit China in the first half of next year. Both sides' eagerness to get their relationship moving forward again has still left plenty of room to manoeuvre. "China has sent mixed signals to create an atmosphere of uncertainty," said another Beijing-based diplomat. "That should put some pressure on the U.S. for some concessions." A key area of disagreement has been human rights where Beijing has publicly thumbed its nose at Washington by turning down the appeal of dissident Wang Dan and upholding his 11-year sentence for subversion. But Beijing has also released dissident Chen Ziming, one of the so-called "black hands" behind the 1989 student movement for democracy. It made its move just as President Bill Clinton won re-election in what was widely seen as a gesture of goodwill. Human rights marred Christopher's last visit in 1994. Leading dissident Wei Jingsheng was detained after meeting Assistant Secretary of State John Shattuck, the top U.S. policy maker on human rights. Shattuck will accompany Christopher on this visit but there are no plans to meet pro-democracy activists this time. China has tried to keep the United States off balance with other seemingly conflicting policy statements. It lashed out at Washington on Sunday, saying it was trying to contain Beijing by forming a defence chain linking other Asian states, notably Japan. It also wagged a finger at the United States for blocking China's entry into the World Trade Organisation and called U.S. policy "self-righteous" and "alienating". And on Monday, Beijing said it supported the candidacy of United Nations Secretary-General Boutros Boutros-Ghali for a second term, a move publicly opposed by Washington. These followed largely upbeat statements after Clinton's re-election, suggesting that Beijing was willing to work with the U.S. administration. Diplomats said that Taiwan would be raised in Christopher's discussions with Chinese leaders, although it would not be the burning issue it was earlier this year. In March, China conducted war games off the island's coast and Washington sent warships there in a show of force. The United States was also expected to bring up the return of Hong Kong to Chinese rule in mid-1997, making its case that a smooth transfer of power in the British colony was in the interests of all parties concerned.

China said on Sunday the United States was trying to contain it and that Washington needed to shift policies to improve ties. In an attack aimed just days before the arrival of U.S. Secretary of State Warren Christopher, China also accused the United States of being "self-righteous" and "alientating" in its foreign policy. "Only when the United States drops the idea of (containing China), removes ideological bias against China and stops basing its foreign policies purely on its own economic interests can we expect significant progress in bilateral ties," said the Business Weekly. Contrary to Washington's stated policy of maintaining contact with China, the United States was employing a strategy of containment based on a security defence chain linking South Korea, Japan, the Philippines and Thailand, said the newspaper, published by the official China Daily. The newspaper was quoting Chen Bingcai, an economist at a think-tank linked to the State Planning Commission. The U.S. secretary of state is scheduled to arrive in China on Tuesay in the first senior-level contact between the two nations since the re-election of U.S. President Bill Clinton. It is part of an effort aimed at repairing relations strained by a series of disputes ranging from Taiwan to human rights to trade and arms proliferation. The most serious damage to ties was inflicted when China held war games and unarmed missile tests off Taiwan early this year, prompting the U.S. to send two aircraft carrier groups near the island in a show of force. Beijing has accused the U.S. in the past of pursuing a goal of containment, often linking Washington's policies to what it sees as a revival of Japanese militarism. The newspaper also made the same policy connection, saying that although there had been fewer conflicts with Japan of late, Tokyo still needed to abandon this path. China and Japan have been at loggerheads most recently over disputed East China Sea islands known in Chinese as the Diaoyus and in Japanese as the Senkakus. An expanded U.S.-Japan security pact signed this year was in fact a cover for a resurgence of Japanese militarism, according to the newspaper. Diplomats in Beijing said this was a theme heard most frequently from China's armed forces. The newspaper quoted Chen as saying the United States, relying on its economic and military might, was becoming increasingly high handed in international affairs -- "and its own foreign policy has become extremely self-righteous and alienating". Without a policy shift, the United States could be expected to continue blocking China's long-stalled entry into the World Trade Organisation and further turbulence was likely in trade and economic relations. The newspaper said the U.S. needed to take into account cultural diferences in handling a range of disputes from the World Trade Organisation to human rights.

China's once strained ties with the United States have improved dramatically in recent months with a series of top level visits healing some of the old wounds. But as the two nations move closer, the United States is sidestepping one of China's most sensitive figures -- Premier Li Peng -- who is still too closely linked to the 1989 crushing of pro-democracy demonstrations in Beijing's Tiananmen Square, diplomats said on Sunday. They said that Li is one Chinese leader who does not fit into the agenda for a visit to Washington. "It may be a bit unfair but he is the one leader everyone remembers for his role in the (1989) crackdown," said a senior foreign diplomat. Last month U.S. Secretary of State Warren Christopher made his first visit to China in two years, setting the stage for the series of meetings between other high ranking officials of the two countries. During Christopher's visit, the two sides reached an understanding that their relationship should not be side-tracked by any one issue. That meant contacts would proceed despite continued disagreements over a range of issues from human rights, to trade and China's political rivalry with Taiwan. Chinese Minister of Defence Chi Haotian is now in the United States after twice delaying a visit -- both times due to tension over Taiwan. He met President Bill Clinton on Monday last week. Clinton and Chinese President Jiang Zemin held talks at the Asia-Pacific Economic Cooperation forum in the Philippines last month, and an exchange of visits by the two leaders is planned over 1997 and 1998. U.S. Vice President Al Gore is expected to visit China some time during the first half of next year. But there is no talk yet of a return visit to the United States by Premier Li, Gore's counterpart in the Chinese government. U.S. officials in Beijing played down the lack of an invitation, saying the timing of the Gore visit itself had not been set. Other foreign analysts said an invitation would be made but there was little chance of a visit before a new premier takes office in 1998. China is expected to sort out its leadership line-up at the Communist Party congress late next year and then formally install new government figures at the parliament meeting in March 1998. "They (the Americans) seem to be waiting for the selection of the next premier," said another foreign diplomat. Western leaders, including Americans, have been willing to meet Li in China. But for some of them, hosting him in their own country is another matter, diplomats said. Li has been tarred with the decision to use military force to crush the pro-democracy protests in Beijing in 1989, though paramount leader Deng Xiaoping was the only man with sufficient clout to order in the army. President Jiang was also elevated to his role as Communist Party chief because of his tough stance on dissent. Li has not visited the United States, the United Kingdom or Australia since 1989. He has travelled to Germany, France and Canada since then, though he has been dogged by controversy on each trip.

China said on Thursday it strongly opposed a visit to Jordan by Taiwan's foreign minister and accused its island rival of trying to disrupt Beijing's ties with other friendly states. It also accused Taipei's leaders of lacking sincerity towards improving relations with Beijing. "We deeply regret and express our strong dissatisfaction with Jordan and other states for allowing a visit by (Taiwan Foreign Minister) John Chang," said Chinese Foreign Ministry spokesman Shen Guofang. "We are resolutely opposed to the development of government links or any other form of official contacts with Taiwan by any states that have diplomatic ties with our country," he told a news briefing. Taiwan's foreign minister arrived in Jordan on Wednesday in a visit shrouded in secrecy. Jordan has diplomatic relations with China but has strong commercial ties with Taiwan. Chang gave an economics lecture at a northern Jordanian university, sources at the university said. Jordanian government officials declined to comment on the visit. China has viewed Taiwan as a rebel province since the end of the Chinese civil war in 1949 and has not ruled out the use of force to recover the island. It has tried to isolate Taiwan by insisting the island was not entitled to formal relations with foreign states. Taiwanese media said Chang, who left Taiwan earlier this week, was travelling to Abu Dhabi and Jordan, en route to Italy. The trip is one of four overseas damage-control missions planned by top Taiwan officials since South Africa, Taipei's largest ally, declared last month it would switch ties to Beijing by the end of next year. "Taiwan authorities are trying to disrupt our friendly relations with other states," Shen said, repeating Beijing's frequent accusation that Taiwan was trying to create "two Chinas". "Taiwan's leaders...lacked sincerity towards improving relations between the two sides," Shen said. Taiwan's leaders had taken a negative attitude towards improving economic and trade ties with the mainland and this would not help improve relations, he said.

The choice of Singapore for the listing of China's big oil and chemicals trader was at least partly a political decision, Chinese officials and foreign securities analysts said. They said that close ties between China and Singapore helped in the choice of the island state for the proposed offer of Sinochem's shares. "The decision to list in Singapore was partly due to good relations between China and Singapore," said Fu Yong, chairman of Sinochem Asia Holdings, the Sinochem arm which could be listed in Singapore. "Singapore is also a stable and prosperous environment," he told securities analysts and reporters invited to the company's headquarters. So far, Hong Kong has attracted the bulk of the foreign listings of Chinese companies. Sinochem, whose full name is China National Chemicals Import and Export Corp, is a major state trading company that has used some of the cash from its lucrative trading operations to expand into numerous new businesses. Under the proposed stock offer, currently under review by the Singapore bourse, Sinochem would place only some of its Asian trading operations -- including those in Singapore -- into the listed company. It has not said how many shares would be offered or how much money might be raised. Securities analysts said they were unsure how much profit could be expected from the operations in the listed company. But they added that the parent firm clearly had the financial clout to list assets on any of a number of foreign stock exchanges. Sinochem's trading turnover swelled to $18.21 billion last year from $14.98 billion in 1994. Company officials said the firm controls 40 percent of all of China's crude oil imports and has a 50 percent share of the company that accounts for the remainder. It owns a share of a big joint venture oil refinery in the northeast city of Dalian, has a newly formed insurance joint venture with Manufacturers Life of Canada and has taken a stake in China's fledgling second telephone network. It is now a major real estate holder, having splashed out with 700 million yuan ($84 million) to build its Beijing headquarters, and it is part owner of an 88-storey commercial tower being built in Shanghai. Company officials hinted strongly that further stock offerings were to be expected -- most likely in Hong Kong -- if the Singapore listing went smoothly. Singapore has become a model of sorts for China's vision of the future, according to Western diplomats. It has raised living standards through rapid economic development while keeping tight political controls, they said. Singapore has carefully cultivated political and economic ties with China since diplomatic links were forged in 1990. It has pushed hard to make a success of its flagship project in China -- a big industrial park in the eastern city of Suzhou. If Sinochem's listing proposal obtains final approval, it would not be the only such Chinese state company to offer shares in Singapore as several China-linked firms have already listed. Fellow Chinese company Guangzhou Investment -- the Hong Kong-listed investment arm of the southern city of Guangzhou -- is also looking to Singapore. Sinochem said that Singapore's key role in the Asian oil refining and trading business was also a factor in its choice as the place of listing. Securities analysts said that Sinochem probably would get a better price for the shares in Singapore than in Hong Kong. But the analysts noted that strong political ties helped gain support from Beijing. "In this case, politics clearly played a role," said a Singapore-based analyst.

China ushered in 1997, a year it has hailed as one of the most significant of the communist era for the impending recovery of Hong Kong, with a paean to senior leader Deng Xiaoping, the man who made it all possible. China Central Television broadcast on Wednesday the first episode of a documentary lauding the 92-year-old political patriarch, a man whose pragmatic policies turned a backward Stalinist state into an economic powerhouse and helped regain capitalist Hong Kong from Britain. The primetime programme, to be shown over 12 days, would set the tone for a crucial Communist Party congress due later this year, largely by defining Deng's legacy to the current party leadership, Chinese and Western political analysts said. "This is an extremely important year for the Communist Party with the recovery of Hong Kong and the holding of the 15th party congress," a Western diplomat said. "China's leaders are reminding people that Deng was instrumental in regaining Hong Kong, and they are also using him to define their own policies at the congress and in the post-Deng era." Deng has not been seen in public in nearly three years. At his last appearance he looked frail and unsteady. The documentary showed a vigorous leader, larger than life and portrayed against a background of golden clouds radiating across the sky. He was seen inspecting factories while donning a hard hat, shaking hands with children and receiving gifts of poppies in Paris in the 1970s. The main theme of the one-hour show was clearly reform, underlining China's commitment to its course of market-oriented economic change charted by Deng and continued under his chosen successor President Jiang Zemin. But its use of adulatory tones -- opposed by Deng who abhorred the personality cult of revolutionary leader Mao Zedong -- suggested that the ageing party veteran had little or no control over the documentary's contents. Speculation about Deng's health surfaces periodically and an unconfirmed report described him as lapsing briefly into unconsciousness this week. Some Hong Kong newspaper reports said he had been admitted to a top military hospital but there were no unusual movements this week at the Beijing medical centre where senior officials are usually treated. Deng had vowed to visit Hong Kong to witness the historic transfer of power at midnight on June 30 this year but a Beijing official believed to be close to the Deng family said recently this was unlikely. On Wednesday, the People's Daily, the Communist Party newspaper, called on China's 1.2 billion people to uphold Deng's credo of pragmatism known as "socialism with Chinese characteristics". In an article published earlier this week the newspaper described the television series on the life of the nation's paramount leader as one that "showed in their entirety the glorious achievements and greatness of the theories of comrade Deng Xiaoping." The documentary had taken four years to complete and included interviews with more than 100 senior officials, according to official media. Previews from the series showed Deng giving words of encouragement to party officials and reviewing China's military might -- interspersed with glimpses of sleek skyscrapers and modern factories, symbols of the material progress inspired by the party patriarch. "This is very much linked to the party congress," said a Chinese academic. "It is setting the tone for those taking part in the party congress." President and Communist Party chief Jiang narrated parts of the episode seen on television and was shown giving his assessment that Deng had made an important contribution to the building of a modern, socialist China. Jiang is widely seen as the man who has the most to gain from the adulation for the paramount leader. "This shows he (Jiang) has the mantle of Deng," said another Western diplomat. "He is building up himself by building up Deng."

China on Tuesday announced a ban on poultry and poultry products from two U.S. states hit by an outbreak of a deadly disease. The ban is already in effect and covers poultry from the states of Missouri and Oklahoma, an official of the Ministry of Agriculture told Reuters by telephone. It was aimed at preventing damage from a "very destructive disease", the ministry official said. The official said, however, that China had banned all U.S. poultry brought into the country either by mail or hand-carried by travellers. "Travellers are barred from bringing in any poultry goods from the United States," he said. "These products also cannot be brought into China through the mail." An official of the State Bureau of Animal Plant and Quarantine said the ban went into effect on Monday. Official news reports said the ban was slapped on poultry products from the two states because of five cases of a deadly poultry flu discovered between July and September. The quarantine official told Reuters that the action was unrelated to other trade disputes with the United States and there was no plan to delay implementation of the decision. The virus in question, known as viscerotropic velogenic Newcastle disease, or VVND, is deadly, Phillip Holloway, representative in Hong Kong and China for the Oklahoma state agriculture department, told Reuters on Tuesday. "It's a very, very dangerous disease -- the most feared of poultry diseases," he said. "The symptoms are like influenza, and once one bird gets the disease, all the poultry will die." But Holloway said he had not heard of any recent cases of VVND in Oklahoma. The last major outbreak of VVND in the United States occurred in California in the 1970s and led to the eradication of the state's entire poultry population, he said. Beijing and Washington are also at odds over textile imports, and that dispute has threatened to spill over into the farm sector. China had threatened to ban some U.S. farm goods -- as well as textiles and alcoholic drinks -- in retaliation for U.S. penalties on textiles purchased from China. On Sunday, Beijing announced it was delaying for one month implementation of those restrictions, which had been scheduled to take effect on Tuesday, because the two sides were planning to hold further talks on the issue. In October, China announced a ban on imports of poultry from 10 U.S. states because of fears the meat carried a virus called highly pathogenic avian influenza (HPAI). China and the United States held talks averting the ban, worth nearly $500 million a year. China is the second-biggest market in the world, after Russia, for U.S. poultry products. U.S. poultry exports to China in 1995 totalled 330,000 tonnes transshipped through Hong Kong and were worth $445 million, according to the U.S. Poultry and Egg Export Council. Every day 700 tonnes of U.S. chicken feet are transported across the border from Hong Kong into China, according to the council.

A top Chinese defence official has stepped down in a reshuffle linked to China's string of satellite failures, political sources said on Friday. General Ding Henggao has been replaced as Minister of the Commission of Science, Technology and Industry for National Defence (COSTIND), a key body charged with overseeing high technology projects related to defence. Ding, 65, was succeeded at the helm of the ministerial level COSTIND by 61-year-old Cao Gangchuan, a lieutenant-general and deputy chief of general staff of the People's Liberation Army. "I can confirm that (Ding) stepped down and the change was made in late November or early December," said an official of the Defence Ministry. "I do not know the reason," he said. Sources with close ties to the defence industry told Reuters that Ding had been at the centre of controversy, largely over satellite issues. "This is partly a matter of age and partly a dispute over satellites," said a source. China successfully launched a satellite in October but that followed a series of failures, the most recent of them last August when a Long March 3 rocket put a U.S.-built satellite into the wrong orbit. Last February, a Long March 3B rocket exploded shortly after liftoff, killing at least six people and injuring 57 on the ground. In January 1995, a Long March 2E blew up, killing a family of six on the ground and destroying the Apstar 2 satellite it was carrying. "There have been bitter disputes over where the responsibility for the failures lies," said a source. COSTIND is responsible for launches while China Aerospace Corporation is in charge of rockets and satellites. The Soviet-trained Ding, who has a background in missiles and precision engineering, coordinated research and production of strategic missiles as well as satellite launches, according to an official biography. Ding's departure probably coincided with a reshuffle that replaced the nation's air force and naval commanders, both of whom were also 65 years old. Ding is the son-in-law of the late Marshal Nie Rongzhen, one of the veteran military leaders of China's communist revolution. Nie Li, Ding's wife and daughter of Marshal Nie, stepped down from a senior post at COSTIND two years ago.

Two years ago, China's second telephone network set out to challenge the powerful Ministry of Posts and Telecommunications (MPT) and bring competition into the country's a fast-growing market. But the fledgling network has found it hard to tackle a seasoned competitor -- one that is also the market regulator. "Are they (the MPT) supposed to be the referee or one of the athletes on the playing field?" asks Li Huifen, president of China United Telecommunications Corp, also known as Unicom. The arrival of Unicom and the end of the MPT monopoly was initially hailed as a boost for China's long-suffering telephone subscribers, who often had to wait up to a year for a telephone line and endure indifferent service afterwards. But Unicom has captured only a tiny slice of the market as its entrenched competitor has kept a tight grip on the telecommunications sector, using its regulatory clout to slow the upstart network's advance. "They have delayed interconnections and won't give us telephone numbers for our customers," Li said in an interview. "We need a telecommunications law to give us a legal framework." Unicom has 16 shareholders, but the key backers of the project were the ministries of electronics industry (MEI), power and railways. MANUFACTURING MUSCLE The MEI has manufacturing muscle with a corps of factories producing telecommunications equipment. But it feared the MPT's equipment-making capacity would eventually squeeze it out of the market unless it had its own captive customers. The other key partners had private telecommunications networks with spare capacity, while the MPT's public network was heavily overcrowded. The feud between the rival Chinese government camps was often bitter, sometimes ensnaring foreign companies. Firms that did business with the new network were threatened with blacklisting by the MPT, according to Western industry sources. Those frictions have eased somewhat in recent months, but it still took an order from the State Council, or cabinet, for promised network interconnections to emerge. China expects to have more than 60 million telephone lines installed by the end of this year -- adding a breathtaking 10 million in 1996 alone. The total is likely to top 100 million by the turn of the century, still only a small segment of the nation's 1.2 billion people. MPT says it should not be considered a competitor to Unicom because it has a separate operating arm called China Telecom. "Since 1993, we have separated policy making from business operations by creating China Telecom," said an MPT spokesman. "The MPT is not both regulating and competing," he said, blaming Unicom's slow progress on its own technical problems. STRUGGLE TO BE IMPARTIAL But China Telecom officials concede it is hard to say where one entity ends and the other begins. And even if they can draw the line cleanly, the MPT must struggle to remain impartial. "They always say they are being fair," said Unicom's Li. "But China Telecom is their own child, and parents are always partial to their own children." Li took up the Unicom reins in August, becoming the third president in the company's brief history. She was tapped from her job as deputy mayor of the big industrial city of Tianjin to put political clout behind the second network. The company started with mobile telephone services, first in the big cities of Beijing, Shanghai, Tianjin and Guangzhou, and eventually expanded to 16 cities. It has made its greatest inroads in Shanghai where it has about 20,000 mobile phone customers, Li said. "In 10 years we will have 10 percent of the fixed line market and 30 percent of the mobile phone market," Li said. One clear success has been in bringing mobile telephone prices down. They now cost 7,000 to 10,000 yuan ($840 - $1,200) compared with 10,000 to 20,000 yuan before Unicom came along. Li says Unicom is profitable on its operations, but that excludes heavy investments in building network infrastructure. Despite the cost of putting a network in place, Unicom has one advantage. Foreigners are not permitted to operate telecommunications networks in China, and many foreign firms give Unicom capital in return for a share of the income. That will at least ease the growing pains for the infant network, analysts said.

China on Thursday tried to play down friction with the United States over a rising trade gap and called on the U.S. to end curbs on technology exports to put trade back in balance. "The two sides should avoid taking actions that do not help the expansion of trade," said a spokesman of the Ministry of Foreign Trade and Economic Cooperation. "These are two of the biggest markets in the world," he said. "They should be complementary." The United States said on Wednesday its trade deficit with China climbed to nearly $29 billion in the first nine months of the year, from $25 billion in the same period last year. The trade gap, already the second largest for the U.S. after its deficit with Japan, was seen reaching $40 billion by the end of the year, up from $34 billion in 1995. American economists said the mounting deficit was likely to create new frictions between the two countries. U.S. Commerce Secretary Mickey Kantor said the growth in the deficit with China had slowed, but he called on Beijing to live up to its international trade obligations. A group of influential U.S. senators, in a letter to President Bill Clinton, questioned Beijing's trade practices and said China should not be allowed to join the World Trade Organisation on special terms because it would harm American economic interests. Beijing has been seeking to join the global trade body on favourable terms given to developing nations, but Washington has insisted that China's economy was too big for this treatment. The Chinese Trade Ministry spokesman said Washington's policy curbs on U.S. exports were part of the bilateral trade problem. "There are policy rulings that are holding back U.S. exports," he said. "Where there are limits on technology exports, this is a lost export opportunity for the United States." The U.S. appeared to be moving to address this matter. On Wednesday, U.S. Secretary of State Warren Christopher said Washington was considering allowing technical cooperation in peaceful uses of nuclear technology despite concerns about safeguards over re-exports. Christopher, after meeting with Chinese leaders in Beijing, said the U.S. was looking at taking steps that eventually could allow American companies to sell their technology to China. A Chinese economist suggested some of the criticism over trade was unfairly directed at China as U.S. imports were mainly labour intensive products that were not manufactured in the United States. "If the U.S. does not buy these products from China it will buy them elsewhere," said Wang Jian, an economist with the State Planning Commission. "These are goods produced by developing countries." But the economist conceded that bilateral trade problems could spill over into broader trade issues. "The U.S. already is the main obstacle to China's plan to join the World Trade Organisation," he said, adding that renewed Sino-U.S. trade friction could further complicate the issue.

China International Trust and Investment Corp, one of China's major conglomerates, is focusing its domestic operations on the financial sector where it hopes to see 70 percent of its profits, a top executive said. "We are making money in the financial sector though manufacturing is having a hard time now," said Chang Zhenming, group executive director. "We see finance contributing about 70 percent of our domestic net profit in the near term," he said in a recent interview. Chang chose his words carefully, saying that the finance business would be used "to serve the conglomerate's commercial and industrial operations". But company officials said that CITIC had been disappointed, with some of its early industrial investments -- such as in the machinery and garment sectors -- and it would like to remould itself as a financial services company. CITIC reported profit of 2.05 billion yuan ($247 million) last year, up from 1.67 billion yuan in 1994. Most of CITIC's income is from its huge Hong Kong arm, which includes listed CITIC Pacific Ltd. But for the group's domestic operations, CITIC Industrial Bank is the main contributor, accounting for net profits of about 1.0 billion yuan last year, up 20 percent over 1994. Profits from the bank were likely to climb another 20 percent this year, despite the impact on interest income from two cuts in interest rates this year, Chang said. "We have a good base of corporate clients," said Chang. He added that this gave the bank a reliable source of low-cost call-money deposits from major companies. Chang said the bank had also been able to hold the line on bad debts -- a key problem for many of China's banks -- though no figure was given. "We are a bit more conservative than some of the other banks so we've had fewer bad loans," he said. The group expected to earn more than 100 million yuan this year from its securities operations, though commodities trading would be break-even at best, the executive said. CITIC still has diversified domestic interests ranging from power projects and telecommunications to automotive production and real estate. Finance probably acounts for more than 70 percent of domestic profits at the moment, largely because of poor results from several industrial investments while other more promising projects are still in their early stages. But Chang said reforms that had created so-called joint stock companies probably would spur the company's development in the financial sector, as more companies would seek loans on commercial terms rather than rely on state funding. Chang also said the company wanted to expand its financial operations to include property insurance. It was seeking to form a joint venture with other domestic partners though this project still required regulatory approval.

China has taken its cue from U.S. Federal Reserve chief Alan Greenspan and tried to talk its raging stock markets lower but some investors said Beijing regulators did not need to shout. China's official People's Daily ran a front-page commentary on Monday calling on investors to behave rationally in investing in the market, warning that what goes up must come down. The commentary, carried prominently in major financial newspapers as well, also reminded the investing public that the safest place to put its money was in the bank. Many Chinese officials and stock market brokers noted similarities to Federal Reserve Chairman Greenspan's now famous remarks this month about "irrational exuberance" of U.S. markets. Greenspan's remarks, which did not specifically mention stocks, were clear enough to send share markets around the globe into a steep, if brief, fall. Since then many investors have remained cautious. "There were definite similarities in approach," said a stock market policy official who declined to be identified. "They (regulators) are looking at the same objectives -- the stock markets were too high and they hoped the markets would move lower," he said. A spokeswoman for the China Securities Regulatory Commission chuckled over the suggestion that Greenspan might have inspired Beijing's action. "Our objective was to bring some stability to the market," she said without elaborating. Whatever the objective, many brokers and investors were not entirely sympathetic with the result. "The phrasing (of the commentary) was much too tough," said an angry broker in Shenzhen, home of one of the nation's two officially approved stock markets. "This was over the top," he said. The commentary called up images of Wall Street's 1929 crash while it lashed out at big investors for manipulating the market and blamed brokers for improperly extending overdrafts to finance stock purchases. The state media also came under criticism for helping to pump up the market by urging investors to buy shares. Last week, the bourses in Shanghai and Shenzhen in southern China slapped curbs on share movements, limiting them to a daily 10 percent in either direction. Shenzhen's A share market for domestic investors fell the 10 percent limit on Monday, sliding 46.34 points to 417.2 while Shanghai's A share market lost 9.92 percent, or 115.37 points, to 1,047.68. The B share indices, which track shares supposedly reserved for foreign investors, closely mirrored the A share falls. Both Shenzhen and Shanghai had seen huge run-ups in share prices this year, with most of the gains made in recent months. Shenzhen had surged 360 percent from a trough to the peak this month, while Shanghai had climbed about 150 percent. Some brokers were sympathetic to the plight of regulators. "The market was clearly very speculative," said a Beijing-based broker. "I disagree with some people over how far ahead of itself the market actually was but there was bound to be a considerable pyschological impact from any action by the regulators." Brokers said that part of the reason behind the steep rise was the lack of alternative investments. Two interest rate cuts this year had played a key role in luring money into the stock market.

China's Communist leaders may be fretting about the erosion of the ailing state sector at the expense of more nimble private firms. But for one of the nation's newest banks -- the China Minsheng Banking Corporation -- this is an opportunity. Formally inaugurated in January, the bank is aiming to lend the bulk of its funds to China's non-state sector, a rapidly expanding area of the economy. "We are focusing our business on the non-state sector," chairman Jing Shuping said in an interview. "Many banks are not looking at this area or are unwilling to lend to it." Much of China's creaking state industry is losing money and unable to compete in domestic or export markets. But for now, Communist leaders are unable to shed an ideological albatross, insisting the state retain the leading role in the economy. "The state sector will still play the dominant role but there will be a growing non-state sector," said Jing. "This will be good for the economy and good for us." China Minsheng is a non-state entity, founded with the backing of the All-China Federation of Industry and Commerce. It has 59 shareholders, most federation members. Two of the biggest stakes, worth 90 million yuan ($10.8 million) each, are held by diversified Guangzhou Yitong Group and Xiamen Fuxun Group that has interests from real estate to pharmaceuticals. The bank is relatively small by Chinese standards with total capital of 1.38 billion yuan and assets of 5 billion yuan. Jing says it may not be profitable in its first year due to start-up costs but it aims for a 50 percent return on shareholder capital by the third year of operation. By then, it hopes to have assets of over 10 billion yuan. It differs from many of China's state-run banks that are unable to recover their loans -- made as policy decisions in support of struggling, government-run enterprises. "We have no policy loans," said Jing. China Minsheng has extended over 1.0 billion yuan in loans this year -- all on commercial terms. "Most loans are for working capital and not for more than one year," he said. "All have collateral or a guarantee." The bank's headquarters are a short walk from the Beijing city government, but Jing said officials do not stroll over to ask for special favours for hard-hit local companies. "They go to the other banks," he said. "The state banks are trying to become commercial banks but they still have to make some policy loans." Besides its headquarters and an office for international business, China Minsheng has three branches in Beijing. One is in the Haidian district where many high-technology, non-state companies have sprung up -- just the type of customer it wants. The bank cannot lure deposits with higher interest rates since all deposit rates are fixed by the central bank. Instead, it must compete in terms of service, staying open longer hours and pumping funds into improving technology by installing computer and automated teller equipment. It has some flexibility on the interest it charges borrowers, though, with a range of 10 percent above or below levels set by the central bank. In the future, China Minsheng will face more competition from foreign banks -- now barred from taking deposits or making loans in Chinese currency. "At the moment, they cannot do local currency business," said Jing. "But that will change." The bank is already looking at new areas of business, such as home mortgages, to meet expected demand as China develops a real estate market. It may also want to tap domestic or foreign capital markets to ensure it has the financial muscle to stay competitive. "There could be a movement in this direction in the future," Jing said. "But first we need a good performance over the next three years." ($1 = 8.3 yuan)

China is preparing a lobbying campaign to join the World Trade Organisation (WTO) at the ministerial meeting in Singapore this month, officials said. It will send a team led by Long Yongtu, assistant minister of Foreign Trade and Economic Cooperation and an experienced trade negotiator, to the meetings that begin next Monday, Chinese officials said. China, which will be an observer at the meetings, has waged a lengthy battle to join the General Agreement on Tariffs and Trade and its successor body governing global trade, the WTO. It has pushed to gain entry on the favourable terms of a developing nation but Western countries, particularly the United States, have insisted its economy was too big for such preferential treatment. "We will be there as an observer," said a Chinese trade official of the Singapore meeting. "That is all we will be doing." BEIJING TO PRESS CASE But foreign diplomats said China would continue to press its case, mainly outside the official meetings in bilateral talks with member countries. "The real work will be in the corridors around the meeting," said a diplomat who monitors international trade issues. "China wants support from as many countries as possible to put pressure on the United States," said another diplomat. China views gaining entry to the WTO as a symbol of its growing prestige but it also is eyeing the benefits of fixed mechanisms for settling trade disputes. Beijing has had numerous trade spats with its major trading partners -- from annual review by the United States of its Most Favoured Nation status to copyright protection for textiles and shoes. By joining the global trade body, China could ensure that any penalties imposed on it conformed with WTO dispute settlement procedures. Diplomats said that could be of considerable value to Beijing as mounting exports increase the prospect of trade disputes. Western diplomats familiar with the trade issue described China's current position on WTO as "woefully inadequate". MOVING TOWARD COMPROMISE But diplomats said Beijing was aware that it must put more on the table and there appeared to be some movement toward a compromise. China's Foreign Minister Qian Qichen said last month at the Asia-Pacific Economic Cooperation (APEC) forum in the Philippines that China expected to conclude talks with the United States on WTO in the first half of next year. Chinese President Jiang Zemin has also offered to aim for an average 15 percent import duty by the year 2000 compared with 23 percent now. More important to the United States is ensuring access to the big Chinese domestic market and the removal of a whole range of practices that are seen as discriminating against foreign firms. Washington would like to see an end to unpublished restrictions on purchases of foreign made goods, changes in agricultural import practices and more relaxed requirements on producing components in China. China says these restrictions are needed to protect infant domestic industries that are unable to compete with established foreign companies.

China has tightened safety measures after a fatal rocket explosion early this year and has found the cause of another launch failure in August, Chinese space officials said on Wednesday. Further testing was needed for the Long March 3 rocket and that could delay China's launch schedule, they said. "Launch vehicles will now self-destruct if there is a failure," said Zhang Qingwei, vice president of the China Academy of Launch Vehicle Technology. "We will also ensure that people (living in the area of space centres) will be moved away when we conduct a launch," he told an international conference on space technology. A Long March 3B rocket exploded shortly after launch in February, killing six people and injuring 57, according to official reports. Unofficial sources have put the casualty toll much higher. China's commercial space drive suffered another setback in August when a communications satellite failed to reach proper orbit after launch aboard a Long March 3 rocket. "We have determined the cause of the August 18 failure and have taken corrective measures," said Zhang, adding that the problem stemmed from a faulty hydrogen valve on the third stage of the booster rocket. "We are still conducting ground testing," he said. "There will be delays (in the Long March 3) programme this year but this will not affect other Long March vehicles." An official of the China Aerospace Corporation, which oversees commercial satellite launches, said a Long March 3 rocket could be launched by the end of the year or early next year. Two other launches using the Long March 2D and Long March 3A rockets were also expected to be made by the end of the year. In January 1995, a Long March rocket blew up, killing six people and destroying the Apstar 2 satellite it was carrying. China once enjoyed a reputation of being a cheap and reliable provider of satellite launch services but the string of failures has shaken its hopes of playing a bigger role in the commercial space business.

Heavy losses in metals trading by a young employee at big Chinese conglomerate CITIC showed striking similarities to Nick Leeson's deals that humbled Barings Bank, a top CITIC official said. CITIC -- the China International Trust and Investment Corp -- had learned a bitter lesson from the 1994 losses and had stepped up its internal controls, group executive director Chang Zhenming said in an interview. "There were a lot of similarities," Chang said of the CITIC and Barings episodes. "We realised the seriousness of risk," he said. CITIC has gained a reputation of being one of China's best run companies, expanding its operations to power, telecommunications, banking and real estate. It is probably best known for its Hong Kong-listed unit, CITIC Pacific. Its big losses in 1994 were all the more surprising to many foreign businessmen. The key figure in CITIC's trading was Chen Tongsheng, in his early 30's, who worked at the CITIC Shanghai office. Like Leeson, who was 28 when his big losses on Singapore's SIMEX exchange emerged, Chen was not a university graduate. He had worked his way through to his trading position, taking a post as a bank clerk after finishing high school. Also like Leeson, he is now in jail -- along with his supervisor, the former president of the Shanghai operation. "Not only was the background of the trader similar (to Leeson) but so were the trading methods as well." Chang said that losses stemmed from unauthorised trades on the London Metals Exchange, and that broker credits compounded the problem. "He didn't have any money. He used LME broker credits," said Chang of the Shanghai trader. Asked if special accounts were used to hide losses -- as in the Barings case - Chang said: "You could say it was exactly the same." Auditors were also unable to make sense of the trading accounts, he added. But unlike Barings, CITIC managed to survive the losses, which were about $40 million compared to Leeson's, which neared $1.4 billion. Chang said the losses still nearly bankrupted the CITIC Shanghai operations. "We have stepped up our internal controls," he said, adding that other prominent cases - such as Sumitomo's copper trading losses -- had been instructive in reducing future risk. CITIC's subsidiaries are no longer allowed to conduct operations unrelated to their core activities. CITIC has also stopped all commodities trading on foreign markets, in line with a central government directive. Asked if the company might return to the market, Chang said this was unlikely in the near future.

China needs $20 billion in foreign investment for its power expansion projects through 2000 and its investment climate is strong enough to attract this amount, Chinese power officials said on Monday. They also denied that there was a firm cap on investment returns in the power industry though they conceded that the best rate on key projects was slightly below 17 percent. "We will need about $100 billion in investment in power during the ninth five-year plan (1996-2000)," said Zhao Xizheng, vice minister of Electric Power. "About 20 percent of the total will be from foreign investment," he told reporters at an energy conference sponsored by China and the European Union, adding that the rest would be shared equally by the central and local governments. "We think we can reach this goal," he said. Some foreign businessmen have complained that China was setting a ceiling of 15 percent returns on investment and that this was too low. Asked whether there was a 15 percent ceiling on investment returns for foreigners, Zhao replied: "We have never said there was a 15 percent cap on investment." Foreign businessmen have said that India and Pakistan offered better returns in the power sector. "You must look at the level of risk," said another Chinese official. "China is more reliable." Other Chinese power officials said that the investment return was set on a case by case basis, taking into account financing costs, risk controls and budgetary considerations. "We don't cap investment returns," said Tan Aixing, director general of the Ministry of Electric Power's department of international cooperation. He told reporters that the highest return on a central government-approved project -- nearly 17 percent -- was for a power station in Zhuhai in south China. A Hong Kong consortium including Hutchison Whampoa Ltd and Cheung Kong (Holdings) Ltd, has a 45 percent stake in the plant. Foreign investors can obtain higher returns than this on smaller projects that do not have to be reviewed by central government authorities. Projects for less than $30 million can be approved by local governments and often offer more attractive terms, officials said.

China has tried to put new pressure on Taiwan to boost economic ties, courting the island's businessmen with an announcement of rules on direct shipping links, analysts said on Sunday. But they said Beijing remained far from its goal of securing direct shipping, banned by the rival Nationalist government of Taiwan. "From what we have seen, this already has put some pressure on the Taiwan authorities," said Fan Xizhou, head of the Taiwan Research Institute at Xiamen University. "This could help stabilise economic ties but more practical steps are needed," he said, speaking by telephone from the southeastern port city that would likely benefit from any direct shipping links. Beijing, which views the island as a renegade province, unilaterally announced last week a series of regulations on direct shipping links, giving its blue print for future trade. Taiwan's Nationalist government has banned direct air and shipping links with China since 1949 when Chiang Kai-shek's Nationalist troops lost the Chinese civil war to the communists and fled to the island. With tensions easing since the late 1980s, civilian aircraft and vessels have skirted the ban by stopping over in a third country or territory such as the British colony of Hong Kong or Portuguese-run Macau. Taiwanese businessmen, who have poured over $20 billion into China, are eager for direct transport links, but Taiwanese authorities have been reluctant to lift the ban. The latest news fuelled hopes among many of Taiwan's businessmen that some of the restrictions might be eased, and it briefly buoyed shipping stocks on the Taipei bourse. The Nationalists, who say they are committed to eventual reunification with China, see direct transport links as their last bargaining chip in talks with the communists. China said that direct shipping would be purely a domestic matter, specifying that only Taiwanese or Chinese companies -- or joint ventures including one side or the other -- would be allowed to conduct business on the routes. "The documents define clearly that direct cargo transport between harbours on the Chinese mainland and Taiwan is regarded as domestic transportation under special management," the official Xinhua news agency said. They also make no mention of the role that Taiwan authorities would play, saying only that all companies engaged in the trade would need Beijing's permission. Taiwan has set its own formula for future links but it wants to limit the trade to foreign registered companies through a so-called "offshore" southern port. Beijing's tactics echo those applied to the British colony of Hong Kong, where it has tried to lure companies with substantial business interests in China to do its bidding politically while it engages in political arm-wrestling with the British administration. In Hong Kong, at least, those tactics have been highly successful as many of the same tycoons who once courted the British administration have turned to Beijing to look for economic favours in return for their political support. Whether that works with Taiwan remains to be seen. "The new shipping rules were clearly designed to step up the pressure on Taiwan," said a Western diplomat. "But if Taiwan doesn't agree, it's all empty talk."

China gave new hints on Monday that its three-year austerity programme was over, pronouncing its anti-inflation fight a success and saying the new task was ensuring stability as the nation prepared to recover Hong Kong. China's top leaders, after winding up four days of meetings on the economy, also said a key goal next year was to speed reform of ailing state enterprises. "After three years of strenuous efforts, our national economy has had sustained, rapid and healthy development. The main task of keeping inflation under control has been achieved," the official Economic Daily said in its report on the meeting. "Next year is an important one in our history as it marks the recovery of Hong Kong and the year of the 15th Communist Party congress," the official People's Daily said in a commentary that also called for economic progress in the midst of stability. China slapped tight controls on government spending in 1993 to keep mounting inflation in check. The credit curbs are likely to bring inflation below 6.5 percent this year, compared with 14.8 percent last year and a Communist-era high of 21.7 percent in 1994. The fall in inflation has allowed China to cut interest rates twice this year. Many economists have been expecting a further easing of monetary policies in the coming months as China is expecting a smooth handover of Hong Kong and social stability ahead of the key policy meeting of the Communist Party. The British colony reverts to Chinese rule on July 1, 1997 and political planners in Beijing have been eager to ensure that there are no social or economic dislocations in the territory or on the China mainland to mar the transfer of power. The party congress, scheduled for the second half of next year, is widely expected to result in an infusion of cash into the economy to bolster the standing of the current leadership as party personnel matters come up for discussion. Merchant bank Kleinwort Benson recently forecast credit expansion of 20 to 25 percent next year, compared with 17 percent this year. "Naturally there will be some easing (of monetary policy) next year," said Cheng Xiusheng, an economist with the Development Research Centre under the State Council, or cabinet. He added that the monetary easing would be limited, and would not trigger a new round of inflation. "The focus is relatively quick economic development under the premise of stability," he said. Other economists agreed there would not be a return to higher inflation. "If we have an adjustment, it will be a small one," said Zhang Zhuoyuan, director of the economics institute of the Chinese Academy of Social Sciences. He added that reform of state-owned enterprises was still the key problem facing China's economic planners. State-owned enterprises have been losing money and massive subsidies have been draining state resources. Political leaders fear that cutting off these subsidies would lead to layoffs and social unrest though economists have said the strength of the economy gives planners a chance to tackle this problem now.

China Tuesday announced a ban on poultry and poultry products from Missouri and Oklahoma, citing what it said was the outbreak of a deadly disease. The ban, which took effect Monday, was aimed at preventing damage from the "very destructive" Newcastle disease, an official of the Ministry of Agriculture told Reuters. Official news reports said the ban was slapped on poultry products from the two states because of five cases of the disease discovered between July and September. The disease, known as viscerotropic velogenic Newcastle disease, or VVND, is deadly. However, Phillip Holloway, representative in Hong Kong and China for the Oklahoma state agriculture department, said he had not heard of any recent cases of VVND in Oklahoma. "It's a very, very dangerous disease -- the most feared of poultry diseases," he said. "The symptoms are like influenza, and once one bird gets the disease, all the poultry will die." The poultry industries of Oklahoma and Missouri were far down on the list of top U.S. producers and exporters, Holloway said. "My estimate is that Oklahoma and Missouri account for less than 5 percent of U.S. poultry exports to China." Arkansas is the country's biggest poultry producer and home of industry giant Tyson Foods Inc. A source at Tyson's Hong Kong office said VVND was known to exist in China, but this could not be confirmed. Beijing has also banned all U.S. poultry brought into the country either by mail or hand-carried by travelers, according to the Ministry of Agriculture official. The last major outbreak of VVND in the United States occurred in California in the 1970s and led to the eradication of the state's entire poultry population, Holloway said. The United States exports around $500 million of poultry and poultry products a year to China, its biggest market after Russia. The Chinese quarantine official told Reuters that the action was unrelated to other trade disputes with the United States and there were no plans to delay implementation of the decision. Beijing and Washington are at odds over textile imports, and that dispute has threatened to spill over into the farm sector. China had threatened to ban some U.S. farm goods -- as well as textiles and alcoholic drinks -- in retaliation for U.S. penalties on textiles purchased from China. On Sunday, Beijing announced it was delaying for one month implementation of those curbs, which had been scheduled to take effect on Tuesday, because the two sides were planning to hold further talks on the issue. In October, China announced a ban on imports of poultry from 10 U.S. states because of fears it carried a virus called highly pathogenic avian influenza. China and the United States held talks on the issue and the ban did not go into effect.

China's leaders have agreed on a need to stimulate the economy but the central bank is trying to keep the policy low-key, a senior Chinese economist said on Thursday. "There is a broad consensus on a need to stimulate the economy," said Fan Gang, an economist and director of the China Reform Foundation, an authoritative think-tank. "But the central bank wants to keep this low-key," he told reporters in a broad-ranging discussion of China's economic policy. China has largely relaxed its three-year programme of economic austerity aimed at wringing inflation out of the economy. Retail price inflation had reached a worrisome 21.7 percent in 1994 but was brought down to 14.8 percent last year. In September this year it fell to 5.0 percent, well within the government target of 10 percent for the full year. At the same time, economic growth has managed to reach about 9.0 percent, though Fan said that a build-up of inventories -- some of that unsaleable -- probably accounted for about 1.5 percentage points of economic growth. The central bank, the People's Bank of China, has cut interest rates twice this year, partly as a response to the marked gains in bringing inflation under control. The People's Bank was also trying to lend a helping hand to ailing state industry, which has been saddled with heavy interest payments on its huge debts. Central bank officials have said that the interest rate cuts did not mean a loosening of monetary policy, and that they would keep policy "appropriately tight". "Central bank officials want to keep the word 'tight' in the policy," said Fan, adding that they did not want to see a renewed surge of government spending that would once again pump up inflation. He said, however, that there still were controls on fixed investment that could be eased somewhat. "The central government needs to accelerate growth without overheating," he said. "We need the highest growth possible." The economist said there was still plenty of idle capacity in the state sector with many of the employees of state industry on leave from their jobs on partial pay because of a lack of orders. Much of that was concentrated in the nation's "rust bowl" in the northeast, a bastion of heavy industry that has relied on central planning and been unable to upgrade its antiquated equipment and shed its huge payrolls of excess workers. "From the point of view of reform, higher growth makes (reform of state industry) easier," he said Much of China's creaking state industry needed to cut surplus labour to become more efficient, Fan said, although he conceded that this was still a politically sensitive issue. "Social stability is still a big factor," he said.

European Commission Vice President Sir Leon Brittan suggested on Thursday that China might soon see progress on its plan to join the World Trade Organisation but Beijing played down chances of a breakthrough. Brittan said he might press the United States to move forward on China's drive to join the WTO if Beijing would give an assurance that it supported the European position. "I will certainly take up the matter with the Americans with extreme urgency ... urging them that the time has come to adopt the approach that Europe has pioneered," he told a business conference in the Chinese capital. "I hope even before the end of this visit to be able to announce some specific action" in advancing the process, he said. Europe has maintained that it would be flexible on requirements for China's full implementation of WTO rules. But Beijing had to make clear its commitment to full compliance and show progress on granting access to its domestic markets. China's Minister of Foreign Trade and Economic Cooperation Wu Yi on Thursday appeared to be unconvinced that the United States, which has been a key hurdle to Beijing's drive to join the global trade organisation, was ready to change its stance. "Their intentions are kind-hearted," said Wu in a reference to the European effort. "But the question of China's accession to the World Trade Organisation is not entirely decided by the European Union," she told reporters at the same business conference. Beijing has been pushing to join the WTO under the more lenient terms of developing nation status but Washington has insisted that China's economy is too big for such treatment. Brittan, who is leading a delegation of 30 European business leaders hoping to tap into the Chinese market, said he would meet senior Chinese officials, including Vice Premier Zhu Rongji and foreign trade minister Wu. Brittan made it clear that a reaffirmation of Chinese acceptance of the European position would be enough for him to try to take his case to the United States. "The U.S. was erecting very high hurdles to be surmounted," he said of the American position. But he said the end of the U.S. presidential election campaign could be an opportunity for making progress in the negotiations. "Recent stirrings in the media...suggest that the U.S. is perhaps readier now than over the past two years to heed European calls for decisive engagement on this negotiation," Brittan said. Brittan praised China for making strides in strengthening intellectual property rights though he said more market access was needed. He also warned that Europe would not be discriminated against in the Chinese market, and he singled out bilateral shipping agreements as an area of concern. "Europe cannot accept unequal treatment and will not be discriminated against," he said. On Wednesday, Chinese leaders denounced Beijing's exclusion from the WTO as unjust, saying the world's largest developing nation had made great strides in opening its markets to trade and investment. Beijing also lashed out on Thursday at European Union investigations into Chinese textile exports, hinting at retaliatory measures if the probes led to anti-dumping measures.

Communist Party chief Jiang Zemin has put his personal stamp on the legacy of China's paramount leader Deng Xiaoping with a television paean aimed at portraying him as the 92-year-old patriarch's rightful heir, analysts said. The primetime television series was also carefully crafted to limit the role of those who might challenge Jiang's claim to the Deng mantle or who might disagree with his version of the patriarch's role, they said on Monday. "This was building up Deng to build up Jiang," said a Western diplomat who has long experience with China. That view was widely shared by China analysts. "Jiang wants to use the Deng legacy to build up his own public image," said another diplomat. China Central Television spent four years on the series that traced Deng's personal long march from his birthplace in southwestern Sichuan province to the pinnacle of power. In a breathless tone, it heaped praise on the veteran leader for his pragmatic policies that made his countrymen both proud and prosperous. State television estimated 224 million people -- 28 percent of the 800 million people who have access to television -- watched the programme broadcast over 12 successive evenings. Jiang, who is officially referred to as the "core" of the third generation of China's leadership, introduced the series and entered the final judgment on Deng's contribution to building a modern Chinese state. "He is a worthy outstanding Marxist and a stalwart communist," Jiang said of the man whose reforms turned a backward Stalinist state into an economic powerhouse. Deng has not been seen in public in nearly three years and his last appearance showed him looking frail and faltering. The final episode of the television series showed Deng announcing his retirement from his last official post in 1989 when he stepped down from the party's powerful central military commission. Seen strolling with Jiang at his side, Deng called on the party to rally round his anointed successor. Analysts said much of the drama from an otherwise predictable series stemmed from what was omitted. The series made no mention of Deng's previous anointed successor Zhao Ziyang, the man most closely linked with guiding China's reforms until he was dismissed in the power struggle that accompanied the crackdown on the pro-democracy movement in Beijing in 1989. Viewers received only a brief glimpse of Zhao, who has been under house arrest since 1989, as he was shown signing the historic Sino-British accord of 1984 that returns Hong Kong to China this year. The late Hu Yaobang, Deng's other heir apparent who fell from grace, was given a perfunctory mention while former President Yang Shangkun, who was dropped in 1993 amid fears he was building up his own faction to mount a leadership challenge, made only a brief appearance. Deng's children were shown alongside the elderly leader, holding him steady as he walked on uncertain feet, speaking into his one good ear or buttoning his tunic. They had no opportunity to give their own assessment of the man who is patriarch of their family as well as the Communist Party. While the series paid homage to Deng's 1992 tour of southern China's special economic zones, which he used to kick-start stalled reforms, viewers saw a sanitised version. "A key part of the southern tour was Deng's anti-leftist theme," said a Chinese academic. "This made no mention of that." Analysts said Jiang was placating the Communist Party's left wing as he prepares for the party congress scheduled for later this year, a pivotal meeting that will set the nation's political and economic course for the next five years. "By holding tightly to the Deng legacy he is trying to demonstrate that he is the one to interpret Deng," said a China analyst. "And he is the one who will set the tone for the congress."