Highlights from the EO print edition, No. 576, Jul 02, 2012

Bad Loans Build Up in Zhejiang
News, Cover
~ A lending crisis involving four Zhejiang companies has snowballed into a provincial-level scandal involving 600 to 700 companies and tens of billion of yuan.
~ The heads of the four companies that triggered the bad loan blitz were either detained or fled the province. The director of Zhongjiang Holding Company (浙江中江控股有限公司) was arrested in June, the director of Zhongke Maigao Material Co. Ltd (浙江中科迈高材料有限公司) and president of Gaosheng Science and Technology Corporation (高盛科技有限公司) fled town and is currently under investigation and a subsidiary of the Tianyu Construction Group（天煜建设有限公司）is reported to have illegally collected money.
~ The fall out from the bad loans accumulated by these four companies spread quickly as they had entered into mutual loan guarantees with other companies. These mutual loan guarantees are a newly-created financial product that are said to reduce risks for banks. Although it has functioned well in ensuring the safety of banks' assets, it has also meant that many profitable businesses have been brought down.
Original article: [Chinese]

Poor Quality of Drinking Water
News, Page 4
~ Starting from July 1, all water companies in China will be required to meet a new drinking water standard. This new standard was issued in 2007, but water companies were given five years to upgrade their production and monitoring equipment so they could meet the new standards.
~ However, an investigation conducted by the National Development and Reform Commission (NDRC) shows that only 83 percent of the water samples collected at the water plants managed to reach the new standard. Only 79.6 percent of the water samples collected out of the taps of residents in cities and towns met the new standards.
~ Du Ying, deputy director of the NDRC, has attributed the poor water quality to the out-dated equipment used by the water companies, aging pipes and inadequate management of second water-supply equipment.
~ It's estimated that 250 billion yuan will need to be invested to solve the problem. However, as most water companies are suffering losses, they'll find it difficult to finance the investment need to install the equipment needed to reach the new standards.
Original article: [Chinese]

Tax Dilemma of Local Governments
News, Page 3
~ The Chinese government collected 4.6 trillion yuan in tax revenue over the first five months of this year. The government only needs to collect 260 billion yuan in June before it reaches its half of it's annual target of 9.7 trillion yuan.
~ Though local tax departments have no difficulty in reaching the half-year goal, they are not having an easy time of it. The EO has learned from some local tax officials, regardless of the national GDP growth rate, they are required to collect 20 percent more tax than last year. When the economy is good, they can rely on big companies to pay more taxes; however, when economic growth is slowing, they will really have to go to every tax payer, including small business owners and individuals, to collect more revenue.
Original article: [Chinese]

Special Feature: 15th Annivesary of Return of Hong Kong
Nation, page 9-13
~ This week's Nation section includes a special feature on the 15th anniversary of the return of Hong Kong to the People's Republic of China.
~ The feature includes interviews with both experts and ordinary people about how the territory has fared over the past 15 years.
Original article: [Chinese]

More Banks to Set up Fund Ventures
Market, page 19
~ After more than three years of inactivity, it is expected that more Chinese banks will move to set up funds over the coming months, including the city commercial banks.
~ The EO learned exclusively that Hua Xia Bank, Industrial Bank, Bank of Beijing, Bank of Shanghai, Bank of Ningbo and other joint-equity banks and city commercial banks might be among the banks looking to launch funds.
~ Currently, both Bank of Beijing and Industrial Bank are busy preparing the establishment of fund companies.
~ The final decisions on which banks will have their funds approved and also on how to manage and implement this batch of fund ventures is still being decided by the central bank, the China Banking Regulatory Commission (CBRC) and China Securities Regulatory Commission.
~ The regulations that allow commercial banks to set up funds were implemented in 2005, the above three bodies are responsible for coordinating the process.
~ The 2005 regulations encouraged banks to diversify the shareholding of any funds that they set up.  In the past, CBRC required banks setting up funds to recruit a foreign shareholder and another minor shareholder.
~ For example, the first such fund company was the ICBC Credit Suisse Asset Management Co., Ltd set up in June 2005. It was established jointly by Industrial and Commercial Bank of China (ICBC) and Credit Suisse Group. ICBC holds 80 percent of the shares.
~ However, with this third round of new fund establishment about to begin, such requirements are expected to be relaxed.
~ "The latest news we heard about this is that banks setting up a fund company, it can be joint venture and can also be sole ownership. If it is a joint venture, it doesn't necessarily have to be with a foreign firm," a person from the board of one of the above city commercial banks told the EO.
Original article: [Chinese]

Personnel Changes at Tsingtao Brewery
Corporation, page 25
~ The Chairman of Tsingtao Brewery Company Limited Jin Zhiguo  (金志国) resigned from his position as chairman of the well-known brewers board last week. Jin said he was resigning for health reasons.
~ Jin will continue to serve as honorary board chairman and chief adviser to the company.
~ Jin, who is 56-years-old, started out at the former Tsingtao Brewery factory in 1975, washing beer bottles.
~ An employee of a hedge fund told the EO that Jin's resignation was expected and that she didn't think the move would have a big impact on the company's operations.
~ Ahead of the announcement about Jin's resignation, the third largest shareholder in the company, Chen Fashu (陈发树), the chairman of Fujian New Hua Du Supercentre Co., Ltd, sold more than 1.5 billion HK dollars worth of Tsingtao shares on the Hong Kong stock exchange.
~ Jin and Chen were class mates at the Cheung Kong Graduate School of Business and also close friends, and they had met each other recently at a meeting in Shanghai. So there was suspicion that Chen may have been tipped off by Jin about the move.
~ Later both Tsingtao Brewery and Jin himself clarified that they were unaware of Chen's intention to reduce his stake in the company.
~ Jin, who owns 146,600 shares in the brewery, said he wouldn't reduce his holdings because he had confidence in the company's future development.
~ The company's former president Sun Mingbo (孙明波) has taken on the position of chairman and Huang Kexing (黄克兴) was appointed as president.
~ The new chairman said that Tsingtao Brewery's development strategy won't change.
~ Currently, Tsingtao Brewery leads China's brewing industry in terms of both sales revenue and profitability.
Original article: [Chinese]

An Interview with Justin Yifu Lin
Business Review, Page 53
~ In this week's paper we include an interview with the former World Bank economist Justin Yifu Lin who has just returned to China to take up a position at Peking University.
Original article: [Chinese]