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Issue 565 16-04-2012
Summary:Super Carriers Blocked from Chinese Ports, Labor Contract Law to be Revised and How Xi'an Won Over Samsung.

Highlights from the EO print edition, No. 565, Apr 16, 2012

Vale Super Carriers Blocked from Chinese Ports
News, cover
~ China Cosco Bulk Shipping (Group) Co., Ltd (中远散货运输集团有限公司) had only one concern when it learned that a huge ship called the "Berge Everest", the first in a fleet of very large ore carriers (VLOC) chartered by the Brazilian mining company Vale S.A., was headed towards China - it must not be allowed to reach a Chinese port. Although the centrally-controlled state-owned enterprise had already persuaded the directors of twelve of China's major ports to refuse entry to the ship, Cosco failed to stop the super carrier from berthing.
~ Unlike the "Vale Brazil", which was refused permission to berth and off load 390,000 tons of iron ore when it arrived in Chinese waters in June last year, the "Berge Everest" entered the port in Dalian and offloaded 350,000 tons of iron ore in 48 hours in late December.
~ As one of 35 "Valemax" iron ore carriers that have been ordered by the state-owned Brazilian miner to ship iron ore from Brazil to the world's main ports over the next 25 years, "Berge Everest" can transport up to 400,000 tons of iron ore, which is twice the current standard freight capacity.
~ Eight Chinese ports have upgraded or are in the process of upgrading their facilities in order to be able to receive the large ships. However, despite the fact that China was the only place in the world to complete the necessary port alterations before any of the new ships had hit the water, according to an unnamed source at Vale, "our ships have been prevented from docking at the ports for a variety of reasons, and it appears that these ports have been coming under some kind of pressure."
~ Zhang Shouguo (张守国), the vice-chairman of China Shipowners' Association (中国船东协会), couldn't hide his excitement when he recalled his role in helping to block the Vale ship in June 2011, "It was only after we repeatedly petitioned the relevant government departments that we were able to drive the ship away, it sailed off to Italy."
~ Vale has tried to negotiate with China Cosco Shipping (Group), the lead bulk shipping enterprise in China, and hopes they could buy the large ships and ship their iron ore with the them but didn't get a clear response. Vale revealed that China Cosco Bulk Shipping Group raised the possibility of transferring some expensive ship rental contracts to Vale during the second round of negotiations. A director from Cosco denied that this took place when the EO asked him about it.
~ China Cosco Shipping (Group) signed long-term contracts to rent many ships in 2008 when the shipping market was booming and prices were at a historic high, but ship rental costs have now fallen from the $200,000 a day that was being charged at the time to $5,000 a day at the beginning of this year.
~ In addition, to finding themselves locked into expensive ship-rental contracts, the arrival of these new super carriers means that Chinese ships can no longer compete for iron shipments from Brazil to China
~ Over the last four years, Vale has put much effort into making sure that their ships would be accepted at Chinese ports. They have talked with many Chinese steel companies, various industry associations and government departments. However the China Cosco Shipping (Group) and the China Shipowners' Association have interpreted the introduction of the new fleet as an attempt by Vale to gain control over the shipment of iron ore.
~ The steel enterprises put forward a proposal last month suggesting that the relevant government departments "research the feasibility of allowing large ships to arrive in Chinese ports." According to these "old friends" of Cosco, the large ships are more environmentally-friendly and help keep shipping costs down.
~ One person also told the EO on April 12 that some of the more influential members of China's ship-owners association have expressed "extremely strong interest" in purchasing the super carriers, but they are still worried about China Cosco Shipping (Group).
~ An unnamed source with China Cosco Shipping (Group) explained to the EO how the company thought it was bad timing for the large carriers to be introduced at this time and how they hoped that Vale would be willing to decrease the number of the ships it planned to produce.
~ A Vale employee said that the company understood Cosco's concerns and that they were ready to negotiate with Chinese authorities.
~ However, it seems that negotiations might play out for a while yet, a recent comment from Vale about the company eventually requiring 100 ships instead of 35 in order to transport the forecast 200 million tons of iron ore to Chinese ports led to angry reaction from both Cosco and China Shipowners' Association
Original article: [Chinese]

Labor Contract Law to be Revised
News, page 3
~ China's Labor Contract Law is set to be amended this year, only four years after it first came into effect on Jan 1, 2008.
~ The EO has learned that draft amendments to the law have been circulated among experts and related government departments. Amendments and addition have been proposed to sections 66, 74, 77 and 92 of the law.
~ One of the proposed changes is that fines levied against intermediary hiring companies that break the law will be doubled.
~ The amendments will also attempt to close loop holes that have allowed for a large increase in the number workers that have signed labor contracts with intermediary employment agencies instead of directly with the enterprises for whom they actually work, which in many cases are state-owned enterprises.
~ This outsourcing of the hiring process has meant that many workers do not benefit from the stronger protections that were awarded to them when the Labor Contract Law came into effect in 2008.
~ According to the current Labor Contract Law, employment companies can only sign contracts for workers engaged in temporary work.
~ That means employers can avoid contributing to social security plans and can pay them less than workers who have signed contracts directly with their employers.
Original article: [Chinese]

Changes Ahead for Urban Maintenance and Construction Tax
News, page 3
~ Mr. Pan, the owner of a cafe in Beijing's Dongcheng District, was unaware that his monthly business tax payments include other taxes and fees.  
~ Among them is the urban maintenance and construction tax, which is currently set at 7 percent of his total business tax liability.
~ "I've always thought that the business tax rate was 5.5 percent but, it actually includes urban maintenance and construction tax and other charges," Pan said. "For example, if the monthly income for the store is 100,000 yuan, then the business tax I pay every month is 5,000 yuan, and the urban maintenance and construction tax is 350 yuan."
~ The urban maintenance and construction tax is a small tax and could soon become a separate tax according to the Ministry of Finance. The levy is considered crucial in "promoting urban construction tax reform," a key focus for the country in 2012.
~ "The reform of the urban maintenance and construction tax is aimed at standardizing the local tax system," said Ni Hongri (倪红日), a researcher from the State Council Development Research Center.
~ However, Guo Wei, a tax consultant thinks the reform could provide local governments with a stable source of revenue.
~ An unnamed scholar from the Chinese Academy of Social Sciences said that if the goal of reform is to standardize the local tax system, then the urban maintenance and construction tax should be abolished rather than separated from business tax.
Original article: [Chinese]

How Xi'an Won Over Samsung
Nation, Page 9
~ Xi'an's pledge of huge subsidies helped persuade Korean electronics giant Samsung to build a new chip manufacturing plant in the city. Beijing and Chongqing were among the other cities competing for the project, which will cover 1.3 million square meters.
~ It represents the biggest foreign investment in central and western China since the policies of "reform and opening up" were initiated by Deng Xiaoping about 30 years ago.
~ Xi'an High-tech Industries Development Zone, where the factory will be built, expects Samsung to invest up to $7 billion in the first stage and as much as $30 billion in total. The city says that the project may create 1,200 jobs instantly and hopes that it will be approved by the central government before June.
~ Xi'an officials said the city had been selected because of its research institutes and universities with electronics departments, but the EO was also told that the application benefited from the city's "more favorable financial and administrative support."
~ Xi'an will subsidize the factory's construction and provide the land for free. The city will provide Samsung with a 500 million yuan subsidy for water, electricity and logistics, and the firm will enjoy a 10-year income tax holiday and only pay half of the full rate for the following decade. Xi'an has also promised to build expressways and subway lines to support the project.
~ Xi'an estimates that Samsung's arrival will help to attract around 160 other businesses to the development zone, creating around 10,000 jobs.
~ However, some are worried that Xi'an's subsidies may cause international trade disputes. For example, American trade unions have already protested against Chinese subsidies to the automotive industry.
~ Xi'an High-tech Industries Development Zone didn't respond to a request for an interview. Samsung told the EO that their "investment deal with local government cannot be made public."
Original article: [Chinese]

Wenzhou Pilots Financial Reforms
Market, page 17
~ Wenzhou is pioneering reforms once again. The city began piloting a financial reform program on April 9.
~ The reforms focus on overseas direct investment and allowing rural and township banks to operate with private capital.
~ The reforms seek to accelerate the development of new types of financial organizations and encourage private funds in the sector. Critics of the proposals say think it is risky to further open up Wenzhou's financial system.
~ They also say that loan companies can be restructured into rural banks at village and township level.
Original article: [Chinese]


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