The Root of the Problem is in the System 
Editorial, Cover 
The State Drug Administration should continue to investigate corrupt officials, but more must be done to treat the underlying systemic problems that allow bribery to flourish. Officials with too much power and who operate outside of public view will continue to fall victim to the same temptations that plagued Zheng Xiaoyu, the former head of China's State Food and Drug Administration. He was executed on July 10 after being found guilty for accepting bribes in exchange for pharmaceutical licenses. 

Full article: [Chinese] 

A Risk-taking China Tries Private Equity 
Cover 
Local PE firms are swooping in on deals as they forego the cautious deliberation observed by foreign firms when evaluating local investment targets. Though there are both big winners and losers in the lightning PE game, both Western and Eastern strategies have pros and cons in China: Successful Western firms are making reliable windfalls with their thorough, metered approach, while Chinese firms enjoy valuable cultural sensitivity and ground-level knowledge that open up exclusive, and lucrative, opportunities. 

Article: [Chinese]

Germany Fears “China-Threat” 
Cover 
A letter from Josef Ackermann, chairman of Deutsche Bank, has spurred discussion of the so-called “China Threat” among German lawmakers. The bank warns that the Chinese Foreign Exchange Investment Company, the new body for managing China’s foreign reserve surplus, will become the biggest state-owned equity company in 2015. The German government has begun debating with commercial associations on whether to prevent the investment body from investing in Germany’s lifeline industries. 

Full article: [Chinese]

Foreign Funds Focus on Inflation, FEIC
News, page 2 
The world’s top hedge funds are taking a hard look at both China’s inflation and its new Foreign Exchange Investment Company (see above). Regarding the latter, the funds are specifically interested in the tight-lipped new company's framework, capital, and investment goals.  

Full article: [Chinese]

Coal Mines on the Brink 
News, page 3 
On July 10, Li Yizhong, head of the State Administration of Work Safety, met with small-scale coal mine bosses for a frank discussion about the future of the industry and the wave of shutdowns they face on the horizon. Coal mine bosses, who have been vilified over highly public mining accidents during the past several years, complain of volatile policy that has left them scrambling to increase production output in order to stay above mandated shutdown thresholds. As a result, they have been unable to invest more in safety and environmental upgrades. 

Stats Discrepency in Energy Saving 
News, page 4 
On July 12, the National Bureau of Statistics published data on provincial energy consumption that contributed to GDP in 2006. According to the data, energy consumption that contributed to GDP decreased 1.33 percent when compared to 2005. Meanwhile, the provinces themselves reported their figures as much higher—closer to four percent. The discrepencies between the conclusions reflect different methodologies, and as a result, a new system under consideration will be implemented soon. 

Full article: [Chinese]

HSBC: An Innocent Trade Surplus  
News, Page 5 
An HSBC report points out that China’s short-term capital inflows exacerbate excess liquidity more than the trade surplus does. This is because the surplus stands at 40 percent of the foreign exchange reserve, while short-term capital inflows make up 50 percent. 

Full article: [Chinese]

A Still-Hot Economy: Forecasts are Adjusted, Interest Rates May Go Up 
News, page 6 
Ahead of the National Bureau of Statistics’ publication of macroeconomic data for the first half of 2007, financial institutions have already adjusted their forecasts to reflect an overheating economy. Experts base the adjustments on an investor rebound since February, industrial growth, the record trade surplus, and increases in credit-based investments. The failure of the recent policy measures to significantly affect the trade surplus and swelling forex reserves suggests that a wider array of policy options will be considered soon. And another interest rate hike (or two) isn’t out of the question. 

Full article: [Chinese]

A Case of the Beijing Rep Office Shakeup 
News, page 7 
Ten months after the State Council called for the cleaning up of provincial and large-scale industry representative offices in Beijing in order to reduce lobbying, corruption, and conflicts of interest, Chengde City of Hebei is complying.  

Full article: [Chinese]

Invincible Steel Mills Evade Regulation
Nation, page 9 
Despite operating without licenses and causing severe environmental damage to surrounding communities, 14 Zibo iron and steel mills are immune to fines and shutdowns in part due to an ironic loophole in the law. 

Full article: [Chinese] 

Wenzhou Takes Lead with Public Trust Evaluations 
Nation, page 11 
In order to reduce the influence of personal relationships and private interests in goverment, Wenzhou bas begun evaluating public trust of its various departments and agencies. This reform initiative is being interpreted as preparation for application to the State Council for an expansion of Wenzhou’s jurisdiction, which comes with greater legislative freedom.  

Full article: [Chinese]

Debate Over Share Options for State Owned Banks 
Money & Investment, page 19 
As the China Construction bank considers a plan to offer its 270,000 employees 800 million yuan worth of share options, principal investors express dissent. Among other reasons, they say that if put into effect, upper-level managers would be largely unaffected by stock price dips while employees would bear possibly significant losses. 

Full article: [Chinese]

Stock Transactions Slow 
Money & Investment, page 23 
In the first half of this year, securities brokers profited nicely from a high volume of transctions. But this profitability has taken a hit with the increase of the stamp tax, itself part of the multidimensional response by policymakers to a bubbling market. Nevertheless, analysts are optimistic about the securities market, as bond financing, futures, and covered warrants become increasingly popular. 

Full article: [Chinese]

Guan Jinpeng: The Producer’s Identity 
Lifestyle, page 53 
Rapid economic growth has given the film industry room to grow. But film financing and production in China still lacks a real system. Director Guan Jinpeng discusses this, cooperation with Hong Kong, creative currents, and more. 

Full article: [Chinese]