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Issue Wrap No. 471, May 31
Summary:

Highlights from the EO print edition, Issue no. 471, May 31, 2010


Agricultural Produce Speculation Leads to Market Volatility

Cover
~ China's National Development and Reform Commission (NDRC), Ministry of Commerce and State Administration for Industry & Commerce jointly released a notice, requiring related government bodies to crack down on speculation in agricultural produce.
~ At present, prices for many products including garlic, corn, mung beans and hot peppers are still rising.
~ An official from the NDRC told the EO that last month, the commission dispatched several investigative teams to major producing areas to find out if changes in supply or demand were leading to fluctuations in price.
~ The investigation found that the recent surge in the prices of some agricultural products were instead related to business people fabricating and spreading false information, hoarding, conspiring with each other and getting control of the market for a particular product.
~ However, the EO found that despite government warnings, speculators were not planning to exit the market. Instead, many are on their way to major agricultural producing areas to buy fresh garlic, mung bean and peppers.
Original article: [Chinese]

Property Sector Faces New Round of Intensified Tax Inspection
News, cover
~ China's State Administration of Taxation will strengthen its collection of property taxes from the real estate sector in a bid to increase central government tax revenue.
~ Property developers have long been viewed as some of the biggest tax evaders in the country and of using various methods to evade tax ranging from buying fake receipts to transferring revenue internationally. ~ However, with the announcement of this special tax inspection which is planned to last for five years, it's unclear whether developers will be able to continue to get around paying their fair share of tax.
~ The State Administration of Taxation has required this round of tax inspections to collect no less than 1.5% of the total industrial and commercial tax revenue in 2010, which works out at approximately 120 billion yuan.
Original article: [Chinese]

Ministry of Commerce Targets Overcapacity in Solar Cell Industry
News, Page 3
~ The Ministry of Commerce (MOC) is considering labeling the production of crystalline silicon as "energy intensive and high polluting," which, if true, will be a heavy blow to the development of China's solar cell industry, an anonymous source at the MOC told the EO.
~ In another move aimed to cut back on production of crystalline silicon (which is used to make solar cells), the MOC also plans to restrict the export of the solar cells.
~ Experts say the MOC's policy is unlikely to affect the industry in a short term. The problem is, when the production capacity of crystalline silicon soars over the coming two or three years, overcapacity will be inevitable as export trade will be restricted.
~ Currently, China produces about 40,000 tons of crystalline silicon each year, though this is estimated exceed 100,000 tons in 2014.
~ 47 billion yuan has been invested in the production of the crystalline silicon and total planned investment is predicted to amount to 134 billion yuan in 2014.
Original article: [Chinese]

Government Begins to Focus on County-level State Asset Supervision
News, page 6
~ The EO learned on May 27 that the State-owned Assets Supervision and Administration Commission (SASAC) held a national meeting in Zhejiang province which was aimed at discussing the strengthening of the commissions supervision of county-level state-owned assets.
~ An official from the SASAC told the EO that according to the SASAC's previous reform plans, due to their outdated production facilities and under-performance, county-owned enterprises were expected to retreat from the market gradually as they faced stiff competition from private competitors. It was because of this assumption that the government did not establish a county-level state-owned asset supervision body to supervise and administrate local state-owned assets.
~ However, SASAC is now encouraging county-level state-owned companies to maintain control of local resource, infrastructure and public utility industries.
~ In a move that is likely to be bad news for local private enterprises, the state-owned administration model is likely to be extended to the county-level.
Original article: [Chinese]

Kashi To be Home to Xinjiang's Special Economic Zone
Nation, page 9
~ As part of the central government's recently-announced plans to spur economic growth in the Xinjiang region, Kashi, a small city in the far west of the autonomous region, has been chosen as the home of a planned special economic zone (SEZ) modeled on the SEZ of Shenzhen.
~The proposed special economic zone of Kashi, is likely to take up an area of around 50 square kilometers and will connect China with six neighboring countries including Tajikistan, Afghanistan , Pakistan, Kyrgyzstan, Uzbekistan and India.
~ Now Kashi has planned to improve its infrastructure, support local small and medium-sized enterprises and lure outside investment. Besides, the central government also plans to invest 50 billion in over 13,000 projects.
Original article: [Chinese]

Chinese Banks Recapitalize
Market, page 19
~ As the China Banking Regulatory Commission (CBRC) requires Chinese banks to hold their capital adequacy ratio at no less than 11.5 percent and with the A-share market hopefully bottoming-out, many Chinese banks, including the Bank of China (BoC), China Industrial Bank and Agricultural Bank of China (ABC), all having announced plans to raise capital on the both the domestic and Hong Kong stock markets.
~  Though the banks should face little trouble in raising funds on domestic exchanges, they still face an uncertain growth outlook with an unpredictable macroeconomic environment and the likelihood of diminished demand for loans over the coming year.
~ The average capital adequacy ratio of Chinese banks was 11.27 at the end of last year and it fell even lower in the first quarter of this year.
~ "The prime time for Chinese banks is gone; but compared with our foreign counterparts, we can still maintain a relatively fast pace of development," Li Renjie, president of China Industrial Bank said.
Original article: [Chinese]

Banking Regulators Disagree on Whether to Introduce Credit Default Swaps
Market, page 21
~ The National Association of Financial Market Institutional Investors, a body under the control of China's central bank, is preparing to launch a new financial product, which is similar to the infamous financial derivative known as the credit default swap (CDS).
~ However, the country's bank regulator - China Banking Regulatory Commission is wary of the new financial product, saying the time is not ripe for China to launch Chinese version of CDS.
~ Time offered this succinct description of CDS in 2008: "Credit default swaps are insurance-like contracts that promise to cover losses on certain securities in the event of a default. They typically apply to municipal bonds, corporate debt and mortgage securities and are sold by banks, hedge funds and others. The buyer of the credit default insurance pays premiums over a period of time in return for peace of mind, knowing that losses will be covered if a default happens. It's supposed to work similarly to someone taking out home insurance to protect against losses from fire and theft."
Original article: [Chinese]

China's Refined Oil Exports Surge
Corporation, page 26
~ Attracted by the large profits they can earn by exporting refined oil, Sinopec and PetroChina are expanding their refined oil exporting capacity as quickly as they can.
~ Up until the end of April, the two oil giants had already exported 9.5 million tons of refined oil, up 52 percent on last year's figure.
~ The EO has learned that the two oil giants have applied to export twice as much refined oil as they did last year.
~ The two companies process imported crude oil and then sell it to foreign countries and profits are sizable as they're exempted from paying a 17 percent value-added tax and also because they are the only two Chinese companies with permission to refine oil
~ Now, ChemChina and China National Offshore Oil Corporation (CNOOC) have applied to be given permission to refine oil for export.
Original article: [Chinese]

Workers Strike at Honda Factory in Guangdong
Corporation, page 30
~ According to a worker at Honda's auto parts factory located in Guangdong province's Foshan, due to a disagreement over wages, workers there began to strike on May 17, 2010.
~ Many workers, who requested to be anonymous, told the EO that the basic salary for a regular employee at the factory stand at 720 yuan per month while that for less experienced staff still undergoing training is 520 yuan per month.
~ The EO learned that the factory has some 1,600 workers, of which over a half are trainees.
~ By comparison, the Japanese workers, who are dispatched by Honda headquarter and do the same job as their Chinese counterparts, enjoy a monthly salary worth 100,000 yuan.
~ The factory supplies auto parts, including engine and gear-box spares, to other Honda joint venture factories on the mainland.
~ The strike led to a production halt at Honda's joint venture - Guangqi Honda Automobile Company - on May 25.
Original article: [Chinese]

The EO's Monthly Observer Forum: Where Does Soft Power Originate?
Observer, page 41
~ On May 23rd, the EO's Observer Forum held a monthly discussion on the topic of where China's soft power originates from.
~ The EO invited four scholars including Cui Weiping, a professor at the Beijing Film Academy, He Guanghu, a professor at the Religious Studies Department of Renmin University, Zhang Hong, director of the Cultural Criticism Research Institute at Tongji University and Geng Zhanchun, professor from Henan University, to discuss on this topic.
~ The edited texts of their presentations are featured in this week's paper from page 33 to page 34.
Original article: [Chinese]

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