AP reports that Chinese planes and ships held war games in the Sea of Japan last week, the military said, during which Beijing displayed its latest-generation frigate at a time of bitter territorial disputes with Asian neighbors. The Defense Ministry said in a statement on its website late Saturday that the long-range exercises staged Friday pitted a red army against a blue one in a simulated bomber attack on a naval task force. It quoted the commander of an unidentified flight wing under the East Sea Fleet, Zhang Wenzhong, as saying the planes found, identified and struck their targets in a "radically short time." The statement made no mention of what sort of conflict the exercise was intended as a response to, prospective foes or why the Sea of Japan was chosen as the location of the drills. However, China has grown increasingly assertive over its claim to a chain of uninhabited islands controlled by Japan, recently dispatching more than a dozen coast guard vessels as Chinese fishing vessels swarmed the surrounding waters.

Bloomberg writes that Cracks are starting to show in China's labor market as struggling industrial firms leave millions of workers in flux. While official jobless numbers haven't budged, the underemployment rate has jumped to more than 5 percent from near zero in 2010, according to Bai Peiwei, an economics professor at Xiamen University. Bai estimates the rate may be 10 percent in industries with excess capacity, such as unprofitable steel mills and coal mines that have slashed pay, reduced shifts and required unpaid leave. Many state-owned firms battling overcapacity favor putting workers in a holding pattern to avoid mass layoffs that risk fueling social unrest. While that helps airbrush the appearance of duress, it also slows the shift of workers to services jobs, where labor demand remains more solid in China's shifting economy. "Underemployment in overcapacity industries is a drag on the potential improvement of productivity in China, which will lead to a softening wage trend," said Grace Ng, a senior China economist at JPMorgan Chase & Co. in Hong Kong. "It would exert pressure on private consumption demand and in turn affect the overall rebalancing of the economy."

Financial Times reports that China's tolerance for polluting vehicles — the market is dominated by cars powered by petrol engines — is now drawing to an end. A rollout of new legislation due to be completed by 2020 aims to tighten China's rules on cars' emissions and fuel economy, bringing them into line with western countries and thereby curbing the industry's contribution to global warming and air pollution. The legislation is expected by some analysts to hit the profits of companies operating in what is the world's largest automobile market, but VW and other overseas carmakers are better placed than their domestic rivals to cope with China's shift to stricter standards, says Jane Lewis, analyst at Macquarie. "The domestic brands are hit disproportionately as international brands face similar emission and fuel economy requirements in other markets," she adds. Some overseas carmakers, such as Jaguar Land Rover, may struggle to meet fuel economy targets set by the Chinese government for their fleets but most international brands will reach these goals, says Ms Lewis. The worst hit will be smaller domestic carmakers, she adds.