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Issue Wrap, No. 535, Sep 5, 2011

Cash and Connections Open Doors To Beijing Schools

News, Cover

~The scarcity of high quality education in China has made competition for places particularly intense at the country’s most prestigious primary and secondary schools.

~Random selection by computer is fairest way to control admission from primary to secondary schools, but this method is rarely used by the best known schools.  The school affiliated to Renmin University, for example, doesn’t use such processes at all.

~In 2011, there were 102,000 children leaving Beijing primary schools, the “school selection” for 50,000 of these pupils stakes place though means such as well-known secondary schools (“占坑班”点招) limiting access to children who attend their training classes, electing top students (推优), selecting talented students (特长生) or picking students who participate in a “joint co-operation” program(共建生).

~“Joint cooperation” generally describes the way that major schools cooperate with public institutions and large enterprises to provide their employees with “quality education” for their offspring. These institutions provide extra investment for schools by either using company funds or collecting funds from their employees. The schools consider this model to be the most stable source of revenue.

~Whichever method schools use, parents pay additional “sponsorship fees,” and are often notified of these before the general admission. 

~“They will directly tell you how much to pay and where,” said one parent. Before taking the payment, parents are given a blank piece of paper and asked to copy out a template letter for “Voluntary Donation to Schools.”

~ These fees are initially deposited into bank accounts nominated by the District Education Commission, which channels 70% -80% of them back to schools.

~According to a report from the 21st Century Education Research Institution, Beijing’s primary and secondary schools generate 1.5 billion yuan every year from school selection fees.

~Beijing West City District prosecutor Wang Chunlin pointed out in the report that school principals’ power is too concentrated. Schools’ finance department control “small hidden reserves” that they distribute on orders from the school principal. Tens of millions yuan in illegal funds are handled casually, with some ending up in individuals’ pockets, said Wang.

 ~Currently, those funds described in corruption cases are only the tip of the iceberg, much larger funds are outside the overview of regulation and supervision.

 Original article: [Chinese]

Taizhou – the Only City Outside First Tier That Restricts Home Purchases

Nation, page 9

 ~Taizhou(台州), a third-tier city in Zhejiang province, introduced restrictions on property purchases on Sept 1, becoming the only city outside the first tier to implement such measures.

~Taizhou’s government has banned home owners from buying additional newly-built apartments in the city center (however, they are still able to buy older apartments).

~More than 20 other second- and third-tier cities are now planning to introduce restrictions on home purchases, and Taizhou’s “loose restrictions” are considered as an indicator of how these will be applied.

~The lenience of Taizhou’s restrictions is largely due to the local government’s wish to preserve the income stream from land transactions, through which it generated 25 billion yuan in 2010, representing four fifths of its total fiscal income.

~Taizhou concerns are widely held among local governments. “At present, some two thirds of second- and third-tier cities are resisting restrictions, because the local real estate industry is a source of local revenue,” said an official from a second-tier city in Jiangsu province.

~Home prices in Taizhou have almost doubled in the last two years, growing to 10,000 yuan per square meter from 6000 yuan per square meter.

~One motivation behind Taizhou’s restrictions was a desire to prevent hot money flowing into its real estate industry after the neighboring cities of Ningbo and Wenzhou imposed restrictions.

Original article: [Chinese]

 Foreign Investment Restricted In 60 Industries

News, page 2

 ~On Sept 1, the “Regulation on security review of domestic mergers and acquisitions by Foreign Investors” came into force after a six month pilot period.

 ~During that period the regulation was criticized for being vague and defining industries too broadly.

 ~The regulation outlaws foreign investments in institutions related to national security, major agricultural products, energy and resources, infrastructure, transportation, key technology and equipment manufacturing.

~The Ministry of Commerce and local Chambers of Commerce have a non-public list of 60 industries that are subject to “security review”. The list is available to officials through local commerce bureaus’ computer systems.

~“The application scope of the new regulation is obscure, I am afraid that it will be applied haphazardly,” said one executive at a foreign company.

Original article: [Chinese

 Listed Companies Making Lucrative Loans Using Banks As Intermediaries

 Market, Page 17

~So-called entrusted loans are used by companies without banking licences to  lend out their surplus cash at high interest rates.

~The companies specify the borrowers, amount, terms and interest rate for each loan and assist the banks in collecting the loans.
~According to this year’s report 64 companies lent out 17 billion yuan in this way, including nine listed companies based in Zhejiang Province.

~Some listed companies earned larger profits from entrusted loans than from their core businesses.

~For example, one company made such loans at an annual interest of 22%, almost quadruple the bank's rate of 6.3%.

Original article: [Chinese]

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