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Issue 560 12-03-2012
Summary:Summary: Special Peak Season for Beijing's High-End Luxury Stores, Reforming China's Stock Exchanges and What Other Kinds of Pollution Should China be Measuring?

Highlights from the EO print edition, No. 560, Mar 12, 2012

Special Peak Season for Beijing's High-End Luxury Stores
News, cover
~ The boom season for most high-end stores in China runs from Christmas to the Spring Festival, but Beijing is special – luxury retailers there enjoy an extra boom month in March.
~ Several days ago, a friend of Ou Yangkun (欧阳坤), the head of the World Luxury Association in China, asked him to help order several Hermes belt buckles with embedded diamonds, each of which cost 280,000. The stores that Ou called all told him that the products were sold out and he had to wait for some time.
~ Some customers complained on their microblogs that all the stores in Wangfujing, Guomao and Shin Kong Place had run out of Prada bags.
~ "I was so confused when I first came to China. I always saw people come to the shop in pairs. One of them bought and bought, and the other one was only responsible for paying the bills," a salesperson from abroad said.
~ "Though sales spike in March during the national congresses, executives of luxury goods companies say that lavishing government officials with such products is a year-round practice that reflects China's culture of gift-giving and tradition of basing business decisions on personal relationships," David Barboza, the New York Times reporter wrote in an article about the subject three years ago.
~ A former China General Agent of an Italian brand told EO that their sales would double around this period of time every year.
~ A recent report from China Economic Weekly quoted a leader from Beijing Supervision Commission saying that "unless we had been told by a corrupt official, we wouldn't even know that a pair of glasses could cost several million yuan."
Original article: [Chinese]

Local Governments Continue to Fight Establishment of Home Ownership Database
News, page 2
~ An online database of property ownership across 40 cities that is being set-up by the Ministry of Housing and Urban-Rural Development is likely to be completed ahead of schedule, with the system set to be in place before the end of this year.
~ "There is no technical difficulties at all and it will be accomplished by June 30," one unnamed in the Ministry told the EO. The biggest obstacle in establishing the database is communication with local governments.
~ An insider revealed to the EO that many local governments are reluctant to cooperate with the plan, as they still have doubts about the security of the information stored on the system and also because they believe that the informaion contained in the database will be incomplete. However, some sources have told the EO that the real reason why local governments are not keen to promote the scheme is because some of the housing information is very "sensitive".
~ In addition, there are also concerns that the central government may impose more detailed regulations in relation to local property markets once it has access to the information.
~ In order to establish the database in time, the Ministry has decided to expand the list of cities that can take part in the pilot. A total of 80 cities are now flagged as  taking part in the pilot, though the original goal of setting up a system that covers 40 cities is still in place.
~ "Some cities may resist, but at least half of the 80 cities can finish it in time." said someone close to the ministry.
~ In total the ministry plans to establish three separate systems - one that centralises information about housing ownership and transactions,  one that monitors the use of housing funds and one that supervises the allocation of government-subsidised housing. Most cities have their own home database and the ministry simply plans to collate all this data and present it in a uniform format.
~ According to what the EO has learned, as part of broader plan two database centers will be established in Chengdu and Beijing, although the National Development and Reform Commission (NDRC) has yet to reply to the housing ministry's application for 300 million in funds to back the project.
~ Jiang Weixin, the Minister of Housing and Urban-Rural Development first announced plans to establish the database in October last year. Jiang's announcement caused a stir because he said that property purchase restrictions, such as those that outlaw the purchase of second homes, would be cancelled after the introduction of the home ownership database. You can read more about problems related to setting up the system here.
Original article: [Chinese]

Beyond PM 2.5 - What Other Kinds of Pollution Should China be Measuring?
News, page 4
~ Xu Guodong (许国栋), the Chairman of CSD (Beijing) Environmental Protection Development Co.,Ltd (中持北京环保发展有限公司) is both excited and a little worried about China's newly announced air quality standards. (http://www.eeo.com.cn/ens/2012/0301/221680.shtml) On the one hand, there is likely to be a huge spike in demand for the air testing equipment that his company specialises. According to the data revealed by Wu Xiaoqing (吴晓青), vice minister of the Ministry of Environmental Protection, just in terms of monitoring small particulate matter under 2.5 microns in diameter (commonly referred to as PM 2.5), by 2016 when the the new air standards are set to be formally implemented nationwide, it's estimated that 1,500 monitoring sites will be needed and that investment in excess of 2 billion yuan will be required.
~ But Xu is also very worried. He explained to the EO that PM 2.5 is only the tip of the iceberg in terms of the real state of environmental pollution, there are still many pollutants which have not received the public attention they deserve. These include both heavy metal pollution and groundwater pollution. Mr Xu argues that more harm is caused by these pollutants than by the small particulate matter in the air people breathe.
Original article: [Chinese]

Reforming China's Stock Exchanges

Market, page 14
~ China's stock markets are on the verge of unprecedented regulatory reforms.
~ The EO has learned that although many market analysts are predicting a big sudden shake-up of the way IPOs are handled, the reform of IPOs may instead be carried out gradually rather than in one swoop. Guo Shuqing (郭树清), the chairman of the China Securities Regulatory Commission (CSRC), was quoted saying as much on the sidelines of the NPC on March 5.
~ However, despite differences of opinion regarding the pace of reform, there is no doubt that the way new shares are launched on domestic boards will change from the current "authorization system" - which requires company receive approval from the securities regulator before being allowed to list - to a "registration system" - which will mean that companies are simply required to register their intention to list with an exchange.
~ In addition, once the IPO reforms have been unveiled, the regulator is also likely to rely on reforming the "listing committees" (上市委员会) that serve under the stock exchange as a means of pushing ahead with the changes.  
~ According to two people from the Shanghai and Shenzhen stock exchanges, the Shanghai stock exchange is in discussions about redefining the role of these listing committees. One of the people told the EO that "The Shanghai exchange is planning to strengthen the supervisory role played by the listing committee in relation to the issuing of securities by adjusting the relevant rules."
~ These listing committees are not new. The Shenzhen stock exchange established this kind of body back in 2002 and gradually it was given the power to supervise new IPOs in 2006. "The system should have been established at the same time that the stock exchanges were set-up rather than 15 years later," said someone close to the Shanghai stock exchange, "and even now it's not functioning as it should."
~ The reason is that the the new listing process is largelly controlled by CSRC and the stock exchanges are only responsible for trading and information disclosure. "The organization of the listing committee is almost the same as the one established by the CSRC," a person close to the Shanghai Securities Regulatory Commission told the EO. "This shows that the listing committees that operate under the authority of the stock exchanges are capable of supervising IPOs."
~ However, as the reforms will be carried out gradually, it may still take a long time before the stock exchanges can really fulfill their role.
Original article: [Chinese]

Accounting Firms Targeted as Recently Listed Firms Fail
Market, page 14
~ The financial results of some companies listed on China's stock markets are very erratic. Among the 282 companies that went public for the first time in 2011, only 227 have released their financial statements before the March 8 deadline and 30 of these reported falls of more than 30 percent in net profits.
~ Accounting firms are responsible for the weak performance as they play a crucial role in IPOs, mergers and acquisitions and restructuring ventures for their clients. Currently, the shady practices among accounting firms have been questioned particularly because of their close relationship with the securities companies and investment banks.
~ The 30 companies that reported a loss involved 18 auditing firms including Da Hua Certified Public Accounts, Shu Lun Pan Certified Public Accountants, Pan-China Certified Public Accountants and PKF Daxin Certified Public Accountants. The net profits of BYD Co Ltd, a Shenzhen based battery and car manufacturer audited by Ernst & Young, one of the big four global accounting firms, saw profits slide by 44.59 percent.
~ The net profits of 35 companies that went public in 2010 reported losses of more than 20 percent that year. According to the two-year financial reports, companies that were audited by Da Hua Certified Public Accounts and PKF Daxin Certified Public Accountants had a higher rate of erratic performance. Many companies audited by Shu Lun Pan Certified Public Accountants and Pan-China Certified Public Accountants have also done poorly this past year.
~ "Representatives from Da Hua and Pan-China declined to comment on the current state of auditing in relation to newly-listed companies stating, "we are too busy during this annual financial statement season."
~ Ma Jinghao (马靖昊), a renowned finance and tax expert, called for reform the current system, "due to flaws with the existing system, enterprises should contact the auditing firms directly. The companies are like the parents of the auditing firms and have a strong relationship with them. Generally, the accounting firms will show the annual financial statement to the board of directors. They won't release the report until the board of directors are satisfied."
Original article: (Chinese)

Sinopec to Invest At least 200 Billion Yuan in Coal-Chemical Industry  
Corporation, page 17
~ Early in 2012, Sinopec decided that it would push ahead with a plan to develop its coal-chemical industry.
~ Over the next four years, Sinopec hopes to establish five large coal-chemical industry bases in Inner Mongolia, Xinjiang, Guizhou, Henan and Anhui and will mainly develop coal to olefins (煤制烯烃), coal gas (煤制气) and coal-to-ethylene glycol (煤制乙二醇).
~ Based on a conservative estimate from a Sinopec employee, the investment in the coal-chemical industry is projected to be over 200 billion yuan.
~ The coal-chemical industrial strategy has become an important part of Sinopec's resources strategy.
~ A source within Sinopec told the EO that "Sinopec hopes to narrow the gap with China National Petroleum Corporation (CNPC) in resources through the development of the coal-chemical industry in the natural gas sector."
~ Because the majority of domestic oil and gas resources in China are owned by CNPC, Sinopec is lagging far behind in terms of output as well as reserves in oil and gas.
~ However, Sinopec has taken the lead in the coal-chemical industry and CNPC is moving away from such ventures.
Original article: [Chinese]

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