WRAPUP 4-China eases trade rules, allows U.S. fund sales

China on Tuesday pledged easier access for U.S. companies to key sectors of its economy by removing barriers to its huge market in government contracts and offering a foothold to U.S. mutual funds.
The pledges were made in two days of talks between the world's two biggest economies which ended with both sides hailing progress in their often tense relationship.
"We are seeing very promising shifts in the direction of Chinese economic policy," U.S. Treasury Secretary Timothy Geithner said.
The annual Strategic and Economic Dialogue yielded more results on economic issues than some analysts had expected, although many remained skeptical China's market-opening vows would translate into concrete benefits for U.S. business.
The talks between top U.S. and Chinese officials carried extra significance because domestic politics may hamper decision-making next year ahead of a U.S. presidential election and Chinese leadership succession.
While some advances were made on the economic track, there was scant movement on thorny diplomatic issues.
"The outcome of this round of meetings shows a clear understanding on both sides that the two countries have shared long-term economic interests and there is scope for a mutually beneficial bargain," said Eswar Prasad of the Brookings Institution in Washington.
"The real flashpoints are on political and security issues, including human rights," he added.
Both sides repeated their stances on North Korea, where China has resisted U.S. pressure to act more forcefully to persuade Pyongyang to back down from confrontation and resume nuclear disarmament talks.
The two sides did agree to step up coordination on Afghanistan, and discussed the political upheavals across the Middle East and North Africa, which U.S. officials say carry worrying resonance for China's leadership.
They reiterated their positions on Iran but made no new announcements. China has reluctantly backed U.N. sanctions aimed at curbing Tehran's nuclear ambitions, but U.S. officials say that some Chinese entities are not complying with them and have urged Beijing to tighten up.
Even so, a senior Chinese finance official said the talks were a "win-win" for both countries. China claimed Washington gave ground by easing restrictions on high-tech exports though U.S. officials said only they would weigh Beijing's concerns.
On the key issue of exchange rates, Geithner said China needed to allow a faster rise in the value of the yuan, a comment brushed back by China's Vice Finance Minister Zhu Guangyao, who said Beijing will move at its own speed.
The yuan CNY= has appreciated 5.14 percent since being loosened from a two-year peg to the dollar last June, well below what many U.S. lawmakers believe is needed to allow for a level playing field for U.S. producers in global markets.
China on Tuesday reported a hefty trade surplus and record exports in April, ammunition for its overseas critics.
Surprisingly, according to a U.S. official, China -- the United States' biggest creditor -- did not raise concerns about the staggering U.S. budget deficits, which could top out at $1.4 trillion this year.
MARKET OPENING IN WORDS
In a potentially big step forward for U.S. firms seeking more access to China's financial services market, China agreed to let U.S. and other foreign banks sell mutual funds in China and provide custodial services.
However, some U.S. commentators said China's past behavior suggested U.S. companies might see little benefit.
"They let you in the market under conditions where you cannot be a real competitor," Derek Scissors of the conservative Heritage Foundation said. "That's what they've done every single time, so that's what I expect will happen with mutual funds."
U.S. officials indicated Beijing would also consider letting foreign insurance companies sell auto insurance in China for the first time, which could be a boon for business in what is becoming the world's largest car market.
China also said it would take steps to try to ensure the software that government agencies used was not pirated.
Perhaps of most significance was a fresh pledge China made on government purchasing policies that U.S. and European firms had complained locked them out of a big market.
As part of its efforts to spur technological innovation by Chinese firms, Beijing had sought to ensure government purchases came from firms using Chinese-owned technology.
However, during presidential-level talks in January, China pledged that government purchases would be delinked from its "indigenous innovation" policies.
At these talks, it stated explicitly that the pledge extended to purchases by local governments -- not only the central government -- answering a big concern of U.S. businesses.
Susan Schwab, a former U.S. trade representative, voiced reservations about how real the access to the potentially lucrative Chinese government procurement market will be.
"As with all agreements with the Chinese on trade, we're not going to know how significant it is until we see it implemented," she said. "Some of the commitments are similar to previous commitments that didn't quite play out."

Google unveils online music service to battle iTunes, Amazon

Google has began letting people store music collections in virtual online libraries in a challenge to Apple's popular iTunes shop as well as a similar service from Amazon.

Google Music does not sell songs but allows users to store personal collections in the internet "cloud" for streaming to smartphones, tablet computers or other gadgets.
Google Music is being rolled out on an invitation-only basis in the United States to test the service, which the California internet giant envisions eventually making available worldwide. In a statement, Google Australia said it didn't "have a timeline to announce for an Australian release".

"When you add your music to the new service, you can listen to it on the web on any compatible device," said Google product manager Paul Joyce.

Google was getting around having to cut deals with music labels by letting people store digital versions of songs they already own in online "lockers" which they can access using gadgets linked to the internet.

As many as 20,000 songs could be stored at Google Music, Joyce said at the internet search giant's annual developers conference in San Francisco.

Invitations can be requested online at music.google.com.

The music service is a "compelling platform" for eventually selling digital music, according to Google director of digital Jamie Rosenberg. "It has been in our interest and has been in our plans to work with the music industry to sell music.

"Unfortunately, some of the major labels were only interested in doing so on terms that were unreasonable," he said. "That isn't going to stop us."

Rosenberg contended that Google Music is "a completely legal" service akin to a person storing music collections on home computer hard drives.

Stored music could be streamed to gadgets but digital files cannot be downloaded for sharing or copying.

Google Music takes aim at a similar service launched in March by internet retail powerhouse Amazon.com and is a long-coming step toward taking on Apple's iTunes digital content shop.

With Amazon Cloud Drive and Cloud Player, users can upload digital music, photos, videos and documents to Amazon servers and access the files through web browsers or phones and tablet computers running Google's Android software.

Music bought from Amazon.com or Apple's iTunes or from a personal collection is held in a digital "music locker" on the internet and can be accessed from computers running Internet Explorer, Firefox, Safari or Chrome web browsers.

Cloud Drive gives five gigabytes of free online storage to Amazon account holders and a free upgrade to 20GB with the purchase of an MP3 album. Users can also purchase 20GB for $US20 a year.

Google Music is free for the time being.

Apple sells music at iTunes and is reportedly working on an internet "cloud" storage service for streaming digital music collections but has not announced any plans.

Apple purchased an online music site called Lala.com in December 2009 which hosted digital music collections on the web.

"Google is trying to differentiate its Android platform because they want Android to dominate," said Wedbush Morgan Securities managing director of research Michael Pachter.

Pachter said the move was a necessary tactic to keep Android devices popular in the fierce smartphone and tablet markets but shouldn't be a big deal for consumers who already have options for getting or storing music online.

"Another vendor of the same content at the same price isn't very exciting," Pachter said. "But, by integrating it into all Android devices Google can make a competitive advantage for Google."

Google also used the opening of its developers conference to announce it is adding movie rentals to its Android Market offering digital content for devices running Android software.

Movie rental prices start at $US1.99 and films could then be streamed to any Android-powered device. People have 30 days to view rented movies, and must finish watching them within 24 hours of starting.

More than 100 million Android devices have been activated worldwide and 400,000 new gadgets powered by the Google-backed software are activated daily, according to Google product manager Hugo Barra.

Microsoft snaps up Skype to keep rivals at bay

For Microsoft Corp. (MSFT-Q), the only thing better than acquiring Internet communication powerhouse Skype is ensuring that Google and Facebook didn't.
Under immense pressure to make up ground to its rivals in the smart phone and mobile communication market, the Redmond-based software giant has opted to spend $8.5-billion (U.S.) on Skype, a company it hopes will immediately vault it back to the top of the leaderboard, thanks to Skype's 107 million active users and presence on almost every type of personal computing device on the planet, from desktops to iPhones.
Skype offers users free or relatively cheap Web-based audio and video calls. The all-cash deal – the largest in Microsoft's 36-year history – ends months of negotiations that are believed to have involved heavyweight suitors such as Google and Facebook. Both rivals had entered the bidding war for Skype with the same strategy as Microsoft, hoping to integrate audio and video-calling services into their existing products.
However, Microsoft appears to have presented the richest offer, and is now left with the daunting but potentially lucrative task of building Skype's services into everything from instant messaging to e-mail to productivity software. Perhaps most importantly, Microsoft will also try to use Skype's technology to boost the appeal of Windows-powered smart phones, which currently lag behind devices from companies such as Apple Inc. and Research In Motion Ltd.
Like RIM, Microsoft also faces a second challenge: bridging the divide between its enterprise and consumer products at a time when many corporate employees don't want to use different software and hardware for their work and private lives. With Skype, Microsoft hopes to integrate a well known and popular communication product across software such as Microsoft Outlook, Office and the Xbox gaming platform, giving users a consistent access point to communicate with their friends or co-workers. On the enterprise side, Microsoft will try to use its newest acquisition to address the growing need for tools that allow employees to work together regardless of their location.
"E-mail is becoming about much more than just e-mail," said David MacDonald, chief executive officer of Softchoice, the biggest reseller of Microsoft products in Canada. "People are looking for full integration into collaboration tools and documents and voice over Internet protocol."
Microsoft had previously tried to address such requests with in-house software such as Lync, its communication service, but with limited success. Now, with companies such as Google threatening to take business away from Microsoft's profitable business software division, the company likely determined it didn't have time to build its own Skype-like service from scratch.
"This is a big day for Skype and this is a big day for Microsoft," an upbeat Steve Ballmer said during a press conference Tuesday. The Microsoft CEO added that the fusion of Skype's communication technology and Microsoft's myriad software products represents a union that is "core to our mission and core to our technology direction."
Most of Microsoft's competitors in the smart-phone market have built audio or video-calling software for some or all of their mobile devices. But with Skype, Microsoft gains an important advantage over its rivals' products, because Skype's software already works on multiple platforms, making it much more alluring to users whose friends don't use the same hardware they do. That's in large part why the company was so aggressive in pursuing Skype: To keep its competitors from getting their hands on a multi-platform communication service which would further widen the gap between Microsoft and the leaders in the mobile space.
But Microsoft's strategy won't be easy to implement. In 2005, Web retailer eBay purchased Skype for $2.6-billion with the intention of integrating the software with the company's existing products. However the vision of eBay buyers and sellers communicating with one another through Skype's technology never materialized, and eBay ended up taking a massive writeoff on the acquisition.
Given that Microsoft will pay more than triple what Skype was valued at less than three years ago, the company will be under intense pressure to make the acquisition work. It will also be hard-pressed to convince its carrier partners that a service offering free or very inexpensive phone calls is a good thing.
Besides an active user base of more than 107 million (and almost 700 registered accounts in total), the Skype deal also gives Microsoft a quick way to catch up with similar communication products from rivals in the mobile sector, such as Google Voice and Apple's FaceTime software.
"Microsoft undoubtedly has overpaid for Skype in the short term, but potentially not in the long term," Giles Cottle, senior analyst at Informa Telecoms & Media, said in a note. "Buying Skype gives Microsoft the ability to do whatever it wants with voice to an audience of 700 million users. This kind of scale does not come cheap."