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Issue 569 14-05-2012
Summary:Income Distribution Reforms to be Launched this Year, SOE to Pay Greater Share of Profits to Central Government and Banks' Shrinking Margins.


Highlights from the EO print edition, No. 569, May 14, 2012

Income Distribution Reforms to be Launched this Year
News, page 2
~ A scheme aimed at reforming income distribution will be launched in the second half of this year, the EO has learned
~ The plan gives a timetable and guidelines for income distribution reform.
~ A person who is familiar with the issue said that the reform plan will regulate the allowances and subsidy system for civil servants and will change the way that the salaries of those working in China's "public institutions" are paid as well as salary packages for people working for China's state-owned enterprises.
~ The overall plan of income distribution reform is led by National Development and Reform Commission, with the Ministry of Human Resources and Social Security, the Ministry of Finance and the State-owned Assets Supervision and Administration Commission also taking part in drafting the scheme.
~ The highest earning ten percent of households have an average income that is 65 times above the average of the lowest 10 percent, researcher Wang Xiaolu (王小鲁) estimated in 2010. According to Wang's research, the income of China's richest is often underestimated due to "gray income" that they earn.
Original article: [Chinese]

SOE to Pay Greater Share of Profits to Central Government
News, page 5
~ Starting from next year, many of China's state-owned enterprises will be required to pay about 5 percent more of their profits to the Ministry of Finance, according to an agreement reached during last week's U.S. - China Strategic and Economic Dialogue.
~ State-owned enterprises have long been criticized at home for not paying enough profits back to their owners - the Chinese public - via the central government, foreign firms have also complained of unfair competition from many of the large state-owned companies that are able to plough most of their profits back into expanding their business.
~ According to a source from the Ministry of Finance, the profits that state-owned enterprises pay to the ministry are currently used to raise capital to establish new state-owned companies, to cover the costs of managing the restructuring and merging of various state-owned enterprises and also on disaster aid.
~ Over the long term, the central government plans to transition the ownership structure of state-owned enterprises so that they become public companies (公众公司) - in which case, the central government, as a holder of stock in the company, would receive dividends from the company which would flow into general government revenue.
~ The State-owned Asset Supervision and Administration Commission (SASAC), the regulatory body that is responsible for supervising the operation of many of China's largest SOEs, aspires to gain authority over the payment of dividends from all the state-owned enterprises that are formally under its administration from the Ministry of Finance. SASAC also hopes to take on the duty of reporting the amounts transferred from SOE to government revenue to the National People's Congress. However, as the central government is still in favour of making sure that all government revenue flows are managed by the Ministry of Finance, it's unlikely that SASAC's role will be expanded.
~ Currently, China has 118 centrally-administered state-owned enterprises and around 6,000 SOEs that operate under the control of various ministerial-level bodies.
~ As of May 2012, most of the 118 centrally-administered companies and 1,931 of the other 6,000, have been paying a proportion of their profits to the central government.
~ Some of the provinicial level SOEs have also begun to pay dividends that flow into government revenue though none of the local SOEs that operate below the provincial level submit a portion of their profits to the central government. The Ministry of Finance says that it plans to start collecting revenue from all local SOE by the end of this year. However, analysts say that this will not be an easy task.
Original article: [Chinese]

 


Shenzhen NPC Overlooks Audit Reports Exposing Shortcomings
Nation, Page 15
~ A member of the Shenzhen People's Congress, the city-level representative body charged with supervising the operation of government in the southern manufacturing hub, has come out an attacked the city's NPC for not reacting to the improprities exposed in recent reports produced by the local audit office.
~ Wang Fuhai (王富海), who is a member of the standing committe of Shenzhen People's Congress, says that the Shenzhen People's Congress did not impose any serious punishment on any government employees for various irregularities revealed in the audit reports. The report found that some public servants had altered government-subsidized projects without approval from the local NPC, misallocatedgovernment capital and had unfairly distributed government subsidies.
~ For example, despite some of the projects managed by the Shenzhen Human Living Environment Commission (深圳市人居环境委部门) exceeding their alloted budgets, the local NPC decided not to discipline the commission after it had been told that it had organized training sessions to "educate" public servants about their behaviour. Additionally, though improper bids, poor quality and unreasonably high prices were discovered in relation to projects to clean and beautify the city before the 26th Universiade, the local people's congress didn't investigate the issue further after the government agencies involved assured the congress that the mistakes had already been corrected.
~ Wang also criticized the audit reports themselves, noting that no specific details were given about particular cases and that no suggestions were made as to systemic reforms that could be introduced to counter the problems exposed.
~ Other representatives from the Shenzhen NPC refused the EO's request for an interview on this issue.
Original article: [Chinese]

Banks' Shrinking Margins
Market, page 19
~ Mr Huang, who works in the financial department of a state-owned transportation company, has seen the cost of borrowing fall this year - China Development Bank and China Merchants Bank have been offering credit lines at 5 percent.
~ One employee at Shanghai Pudong Development Bank said that different branches have different arrangements for interest rates, but that they all tend to be more flexible towards big firms in order to retain their custom.
~ According to banks' first-quarter results, net interest margins fell at several banks:  the Bank of China's margin contracted 2.11 percent, nine basis points less than in the fourth quarter of 2011; the Agricultural Bank of China's margin shrank by 5 basis points to 2.87 percent. Although interest margins remain high compared to their level twelve months ago, many analysts have predicted that margins may continue to fall.
~ Yang Rong (杨荣) from China Securities attributed the contraction to the time when businesses' demand for credit shrank and banks were more flexible in negotiating rates. One person from a city commercial bank said that the reason was stricter regulation from the China Banking Regulatory Commission, whereas China Construction Bank blamed its slimmer margins on changes to the deposit rates and market rates.
~ In response, many banks are focusing on loans to small- and medium-sized enterprises, which have less negotiating power than bigger clients.
Original article: [Chinese]

Blackstone's Lessons from the Foreign Partner Program
Market, page 23
~ The National Development and Reform Commission has shed new light on its Qualified Foreign Limited Partner (QFLP) program in a reply to a query concerning Blackstone Group from the NDRC in Shanghai. The group will be classified as a foreign-invested company and therefore will only be able to invest in projects listed in the Foreign Investment Catalogue.
~ The company will be forbidden from sensitive industries such as the internet and media, and its investments will have to go through more complicated approval procedures. Meanwhile, the management of foreign private equity funds will be made more bureaucratic by the Ministry of Commerce's reporting requirements.
~ The QFLP policy allows registered institutions to directly invest yuan that they converted from foreign currency, however the case of Blackstone Group has drawn attention to the policy's shortcomings.
~ It was introduced in Shanghai in 2011 and also piloted in Beijing, Tianjin and Chongqing. However, it has been applied differently in different places – for example, the same companies might be considered a domestic firm in Shanghai but a foreign company in Jiangsu.
~ The policy has been misinterpreted as a sign that foreign private equity would be exempt from the Foreign Investment Catalogue, and the complicated application and approval procedures have made some of them "disappointed."
~ Foreign private equity firms are now try to avoid the QFLP policy and invest through associated Chinese companies that are treated as Chinese investors.
Original article: [Chinese]

New Pricing Mechanism Would See More Frequent Changes to Fuel Prices
Corporation, page 27
~ Under the current pricing mechanism for petroleum products, a change in maximum prices is triggered when there is a change of more than 4 percent in the 22-day moving average of Brent, Dubai and Cinta crude.
~ Since it was introduced in 2009, the mechanism has made oil prices more transparent, but hasn't solved the problem of time lags and speculative trading.
~ "The mechanism will be based on a 10-day moving average and the 4 percent threshold will be reduced," said a person close to the National Development and Reform Commission.
~ The NDRC will also be able to raise and lower the cap on prices without formal State Council approval, said the person, adding that the new mechanism will probably be introduced next time prices fall.
~ Lin Baiqiang, director of the Research Center for Energy Economy at Xiamen University, argued that near-term instability in Iran could provoke a surge in crude prices and that it was therefore an inopportune time for the NDRC to make changes to the pricing mechanism. If a new mechanism were to trigger a rise in prices, consumers wouldn't welcome the changes.
~ Sinopec and PetroChina have been longing for a new mechanism that would reduce the losses of their refining business.
Original article: [Chinese]

Wind Turbine Maker Sinovel Cancels Contracts for Graduates
Corporation, page 27
~ After five years of high-speed growth, the wind power industry is now suffering from fierce competition, overcapacity, resistance from grid operators and policy changes.
~ Sinovel, the biggest wind power company in China, has canceled hundreds of contracts with college graduates that they promised to hire in 2012 and paid 2,000 yuan in compensation to each of them.
~ One student said that 2000 yuan wasn't enough to compensate his loss and complained that the students who signed contracts to work for Sinovel didn't arrange any other job interviews and, now that the recruitment season is over, won't be able to get other jobs.
~ Sinovel said it is writing recommendation letters for the students to help them find new jobs.
~ Encouraged by the government, many wind turbine makers were established five years ago, leading eventually to a fall in prices.
~ In the first half of 2011, accidents took wind power generators offline in Hebei and Gansu provinces, and in June 2011, the National Energy Administration declared that any unfinished wind turbines or wind farms wouldn't be connected to the grid.
Original article: [Chinese]

 

 

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