Highlights from the EO print edition, No. 579, Jul 23, 2012

Lack of Land Sales Hit Hangzhou's Fiscal Revenue
News, cover
~ In the first half of this year, Hangzhou, the provincial capital of Zhejiang, saw fiscal revenue decline compared to the same period last year. Last year, the city led the province in terms of fiscal revenue.
~ In order to achieve the annual revenue target set at the start of this year and thus meet its fiscal expenditure needs for the year, Hangzhou's fiscal revenue will need to increase by 29 percent in the second half of the year.
~ However, with real estate purchase restrictions still firmly in place and the pace of economic growth slowing, this 29 percent growth target will not be easily met.
~ The major reasons for the fall in fiscal revenue is that the amount of revenue being collected from the leasing of government-owned land has dropped sharply due to the downturn in the real estate industry.
~ Now Hangzhou is seeking help from the provincial government and has applied for financial support.
~ "Hangzhou has always been able to raise funds on its own, the city rarely applies for subsidies," an official from the Zhejiang Provincial Government told the EO.
~ Over the past few years, most of the funds for urban construction in Hangzhou were raised from the income collected via land transfers.
~ It's understood that Hangzhou set a target for revenue raised from land transfers at 43 billion yuan for this year, but by the end of June, only 10.6 billion yuan had been collected.  
~ An official with Hangzhou's Development and Reform Commission told the EO that some planned construction projects, such as railway lines, had to be temporarily suspended due to limited funds.
~ Jiang Jinfa (蒋金法), vice president of Jiangxi University of Finance and Economics, said that the overreliance of some local governments on revenue from land sales had made it exceptionally difficult for China to push ahead with reforms to the structure of the economy.
Original article: [Chinese]

14 Billion Yuan in Government Funds to Support SMEs
News, page 3
~ Overall, the domestic employment situation was stable in the first half of the year. There were roughly six million new jobs created in urban areas, according to data from the National Bureau of Statistics.
~ The target of creating 9 million new urban jobs in 2012, which was set by the Ministry of Human Resources and Social Security (MOHRSS) at the beginning of the year, is now 67 percent complete after the first six months.
~ A person familiar with the issue revealed that, according to monitoring by MOHRSS and other departments, demand for new recruits has been falling since April, with demand for labor at wholly foreign-invested enterprises witnessing the most obvious reduction.
~ Enterprises with the largest domestic labor demand were privately-owned enterprises; especially small & medium enterprises (SMEs) and very small enterprises. They provided more than 75 percent of new urban employment opportunities.
~ The government plans to enact policies to further support SMEs and very small businesses through tax cuts and otherpolicies in the second half of the year.
~ According to a person familiar with the issue, more than 14 billion yuan has been put aside by the central government to support the development of SMEs and very small enterprises this year.
~ The government has also arranged for three billion yuan in SME development funds to be spent this year, the funds are aimed at getting local governments, venture capitalists and other investors to increase their support for small and very small enterprises.
Original article: [Chinese]

Factories Flee from Shenzhen
Nation, page 9
~ As the European and American economies remain sluggish, factories in the southern manufacturing and export city of Shenzhen are retreating from the city. Publicly available data shows that the overall vacancy rate of factory buildings has increased five percentage points compared to the end of last year.
~ One real estate agent reported that the number of properties his company rents out has dropped by 50 to 60 percent despite rents falling by between 1.5 and two yuan per square meter. Local observers said the situation is even more severe than during the financial crisis of 2008.
~ Zhang Zhouyuan (张周源), president of The Association of Taiwan Entrepreneurs in Shenzhen, attributed the closure of factories chiefly to the fluctuation of the RMB exchange rate, as well as increased material and labor costs. Shenzhen workers currently have the country's highest minimum wage at 1,500 yuan per month.
~ The pitfalls of specific industries have contributed to recent Shenzhen factory closures. For instance, LED lighting has been a core industry for Guangdong Province for the past three years. However, the industry is now suffering from intellectual property theft, severe pricing competition and a lack of after-sales service.
~ Local government policy has also played a role. Because of land shortages, Shenzhen has long focused on making more space available for businesses but has failed to improve infrastructure and supporting facilities at a similar pace.
Original article:[Chinese]

Another Beijing Migrant School Shut Down
Nation, page 12
~ Tongxin Experimental School (同心实验学校), hereinafter referred to as Tongxin, a school in a remote corner of Beijing's Chaoyang District that caters to the children of migrant workers, was recently shut down by officials from the local county government. The headmaster of the school, Shen Jinhua (沈金花), has been ordered not to appeal to higher authorities or talk to the media.
~ Tongxin isn't alone. Three other migrant schools were also recently shut down this year in Beijing in addition to the 24 closed last year. There are now only about 30 schools catering to the children of migrant workers left in the city, down from a peak of 150.
~ Chaoyang District plans to close all private schools not licensed through the local government by 2014.
~ Tongxin was opened in 2005 and had educated more than 6,300 students.
~ Whenever a school is closed, the local government promises that all students will be placed in other public or private schools. However, all those schools require their parents to submit documents like their ID card, temporary living certificate and employment certificate. Most migrants have difficulty providing these documents and are left with no choice but to send their children back to their home town.
~ Officially sanctioned schools also ask for much higher schooling fees. Normally it costs at least 800 yuan per year, while schools like Tongxin only charge 300 yuan.
Original article: [Chinese]

Beijing's Expanding Financial District
Market, page 17
~ Beijing plans to expand the area of its financial district, located just to the west of the city's center and which is known as Financial Street. The expansion project, which will see the area grow from 2.59 to 8 square kilometers, is expected to begin in the latter half of 2012.
~ This expansion will make Beijing home to China's largest financial districts, beating out Shanghai.
~ Apart from the banks, securities firms and insurance companies, it is hoped that the expanded street can attract some larger PE corporations, state-owned financial companies, five-stars hotels and shopping malls.
~ There are a few foreign-invested companies located in the financial street now. Therefore, the government officials from the Xicheng District hope that more headquarters of foreign banks can be located in Financial Street through this expansion plan.
~ However, The rent of the office space in this financial district is expensive. According to the figures from DTZ Debenham Tie Leung, the rent of a grade A office is 320.45 yuan per square meter. Despite the high prices, around 20-30 corporations have already booked the offices in the financial street.
Original article: [Chinese]

CEO Predictions for China's Economy
Corporation, page 30
~ Most Chinese CEOs believe the worst of the economic gloom is already over, according to a survey by the Economic Observer. More than half of the corporate leaders surveyed believe that China's general economic situation will become slightly better next quarter, while only 24% percent of the respondents said that the economy will get slightly worse.  
~ Also according to the survey, the economic situation at 70 percent of corporations was stagnant or deteriorating in the first half of this year. However, 65 percent of the corporations said that their number of employees actually increased compared to the same period last year. Only 10 percent reported a decline in the number of workers.
~ 38 percent of the leaders believe that exports will grow slightly in the next quarter. In addition, 44 percent think that the lending rate will decline and 41 percent predict profits in the next quarter will improve.
~ An Peng (安澎), chairman and CEO of DHL China, said that the economy in the second half of 2012 will be better than the first half in spite of a lot of pessimism in the market right now.
Original article: [Chinese]