Highlights from the EO print edition, Issue No. 475, June 28, 2010

The Beneficiary ... AliPay
Cover
~ Jack Ma, the founder and chairman of Alibaba Group, can feel relieved to continue to own and run AliPay, China's largest third-party electronic payment service provider, in terms of both number of users and total transaction volume.
~ On June 22, China's central bank, The People's Bank of China (PBOC), issued a circular announcing its intention to regulate the rapidly expanding on-line payment service offered by non-financial institutions.
~The circular stipulated that without the PBOC's approval, non-financial institutions and individuals are not permitted to engage in online payment services. Electronic payment service providers are not allowed to offer their services unless they apply for a license to do so before September 1, 2011.
~ The EO has found that the new regulation will not impact AliPay and instead will likely help it to edge out some of their market rivals.
~ An anonymous industry player told the EO that prior to the implementation of the regulation, "AliPay has been communicating with the relevant departments over the past few years."
~ A source from AliPay told the EO, "AliPay has a special department called the Compliance Department or Hegui Bu (合规部) which took part in discussions with the central bank about the new regulation."
~ The circular prescribes that companies that provide online payment services nationwide should have a registered capital of no less than 100 million yuan; for those whose business is limited to within one province, their registered capital should be no less than 30 million yuan.
Original article: [Chinese]

China to Have World's Second Largest Fiscal Revenue
News, Page 4
~ China is expected to collect government revenue of eight trillion yuan this year, giving it the second largest fiscal revenue in the world. America has the largest.
~ While the growth rates of fiscal revenues of developed countries have been around one percent or even negative in the first five months of this year, China's grew by over 30%.
~ "China shouldn't have a problem in achieving revenue growth of 10% in the second half of this year," an official with the State Administration of Taxation said.
~ However, with a growing fiscal revenue, it is increasingly urgent for China to reform income distribution and invest more in its social security system. Yang Liangchu, director of the a Ministry of Finance research department, suggested that China should transfer more of its revenue into its social security fund.
Original article: [Chinese]

China Launches Nationwide Investigation into Corruption in Medical Industry
News, Page 5
~ The EO learned that the Central Commission for Discipline Inspection of the Communist Party of China (CPC) and the Ministry of Supervision and Ministry of Health are launching a nationwide campaign against corruption in the country's medical industry.
~ Sources said that pharmaceuticals companies and sales agents are the focus of the investigation.
~ A source from the State Food and Drug Administration (SFDA) revealed to the EO that local procuratorial organs will also participate in the investigation. At present, four sale representatives working in Beijing have already been detained by investigators for questioning.
~ In recent months, many scandals surrounding the medical industry such as the exposure of problems with the storage of vaccines in Shanxi and investigations into many of the high-level officials working at the SFDA including vice director Zhang Jingli and an investigator at the SFDA's Drug Registration Department Wei Liang, have been reported.
Original article:[Chinese]

Manufacturers Seek Cheap Labor in China's Interior Provinces
News, page 6
~ Though enterprises at home and abroad have gained huge profits during the past three decades, after adjustment for inflation the wages of ordinary Chinese workers have remained the same level as 30 years ago.
~ However, workers in the coastal provinces have begun to express dissatisfaction with their low wages. In light of a large number of employee suicides, Guo Taiming, chairman of the Foxconn Technology Group, decided to raise the basic salary of a proportion of the company's workers from 1,200 yuan per month to 2,000 yuan per month as of October 1, an increase of over 66% which has forced other manufacturers to follow suit.
~ Now, to avoid profit loss, many manufacturing enterprises have decided to move their factories to the interior of China where the labor is abundant and cheaper.
Original article: [Chinese]

China to Push Forward With Reform of the RMB Exchange Rate
News, page 7
~ On June 19, The People's Bank of China, China's central bank, announced it would push forward with reform of the RMB exchange rate formation mechanism and increase its flexibility.
~ Zhao Qingming, deputy senior manager of the president's office of China Construction Bank, noted that the statement recently issued on RMB exchange rate reform by the central bank is almost identical as the statement it issued in July 2005, and he believes this time around the reform will not be different from the previous reform. He also believes that the RMB will not unilaterally appreciate.
~ Long Guoqiang, Senior Fellow and Director of the Department of Foreign Economic Policy under the Development Research Center of the State Council, said, "reforming the RMB exchange rate is not equal to appreciation."
~ Wang Tao, chief China economist at UBS thinks the RMB's exchange rate against the US dollar will appreciate between 3 and 4 percent in the following weeks.
Original article: [Chinese]

Investor in Chongqing's Hilton Hotel Tied to Criminal Gangs
Nation, page 9
~ The Diamond Dynasty (钻石王朝) nightclub located within Chongqing's Hilton Hotel was raided by police last week and management of the hotel have been accused of allowing prostitution and drug abuse to take place within the club and of being connected with criminal gangs. The five-star hotel has now been forced to halt business and undergo judicial review.
~ Peng Zhimin, one of the main investors in the hotel, has been arrested. He is accused of corrupting Peng Changjian, the former deputy director of the Chongqing Bureau of Public Security, with 300,000 yuan in bribes and of also being involved in gang-related crime.
~ Aside from his stake in the Hilton Hotel, Peng Zhimin also owns a business complex in Qinglong, the Hai Ke Yingzhou residential buildings and the Qinglong Nanshan Golf Club. Peng is also the only Hilton Hotel International Group partner in Chongqing.
Original article: [Chinese]

Strike Occurs at Denso's Guangzhou Plant
Nation, page 10
~ The EO learned that 1,100 employees who work at the Guangzhou factory of Japan-based Denso, the world's leading supplier of advanced auto components, staged a strike for higher wages which lasted 3 days from June 21 to June 24.
~ Workers asked the factory for a pay raise of 800 yuan per month. After the strike, local government leaders rushed to the factory to negotiate with the workers and asked them to restore work as soon as possible.
~The workers went back to work at 1am on June 24.
~ A source from the factory revealed to the EO that the workers' request for a pay raise was approved on June 25, but as of press time, the company had yet to release a formal announcement.
Original article: [Chinese]

China Trains County-level Officials to Use Internet to Tackle Corruption
Nation, page 14
~ Last year, 780 county-level secretaries of the Central Commission for Discipline Inspection underwent training focusing on how to maintain stability in counties and villages. This year, 400 county-level secretaries undertook training in Beijing from June 18 to 26; their training concentrated on learning from experience of the Hong Kong Independent Commission Against Corruption (ICAC) and learning how to use the Internet to tackle corruption.
~ The Internet played an important role in discovering the illegal actions of Zhou Jiugeng and Han Feng, two officials in Nanjing city in Jiangsu Province and Laibin city in Guangxi Zhuang Autonomous Region respectively. This case launched a trend among the Chinese government of using the Internet as a tool to tackle corruption.
~ In regards to learning from the experience of Hong Kong's ICAC, Wang Yukai, a professor at the China National School of Administration, said, though Hong Kong might help mainland government officials by broadening their horizons and helping them to standardize their working procedures, it is impossible for the government of mainland China to copy Hong Kong because the two are working under completely different political systems.
Original article: [Chinese]

Citic Securities Manager Flees Overseas After Being Suspected of Insider Trading
Market, page 17
~ Two months ago, Xie Fenghua, executive general manager of the Investment Banking Department at Citic Securities, went to Hong Kong for a holiday and disappeared.
~ The EO learned that during that time he was engaged in the restructuring of the listed Shanghai Xingye Real Estate Company, which is currently marked for 'special treatment' on the stock exchange, Xie is suspected of be involved in insider trading.
~ The EO learned Xie leaked the company's restructuring news to his relatives and even used his computer to trade the company's stock through use of his cousin's securities account.
~ In early March, an inspection group from the China Securities Regulatory Commission, went to the investment banking branch of Citic Securities to fetch Xie's phone records and information from his computer.
Original article: [Chinese]