Highlights from the EO print edition, No. 587, Sep 17, 2012

China's Stock Market: Waiting for Certainty
News, cover
~ On Sept 14, the head of the U.S. Federal Reserve Ben Bernanke announced that America would engage in a third round of "quantitative easing." The American stock market reacted by rocketing to a five-year high. China's Shanghai index however continued to hover just above the 2,000 point mark.
~ On Sept 7, just as market analysts were betting whether the Shanghai index would drop below the crucial 2,000 point mark, A-shares suddenly rose, with the Shanghai index surging 3.7 percent and the Shenzhen index up by over 5 percent in that day's trading. However, in the week following this sudden rise, the index did not continue to climb as many expected.
~ Despite regulators announcing a series of policies aimed at stabilising growth, moves by the central bank to lower required reserve ratios, the NDRC's "1 trillion yuan stabilize growth package" and the announcement of QE3 in the U.S. the index didn't go higher.
~ We're used to saying that the Chinese stock market is overly reliant on government policy for pricing signals or reacting to changes in the capital markets triggered by central bank moves - but now neither of these descriptions seem to really describe what is going on.
~ Most market players are still unsure of where the market is headed and they're waiting to see an up-turn in macroeconomic data before they double down or reinvest in the market.
Original article: [Chinese]

90% of "Golden Sun" Power Projects Not Connected to Grid
News, page 2
~ After the energy company that Zhang Tao (张涛) - a psuedonym - works for decided to join the first group of companies taking part in China's "Golden Sun" project, a special government program aimed at encouraging investment in solar power generation, his company rushed to meet the various requirments needed to take part in the scheme. However, two years after construction was completed, due to the fact that it still hasn't met one last requirment, the project just sits there lying in the sun not producing any electricty. The last hurdle that the project needs to pass is to recieve official permission from State Grid (国家电网) to connect up to the power grid. This is not simply a problem facing one company.
~ According to an individual familiar with the Golden Sun scheme, less than 10 projects have received approval from the grid company and are actually producing energy while at least 90 percent of projects, like Zhang's, sit idle and are not connected to the grid.
~ The Golden Sun project was one of the policy initiatives launched by the central government in 2009 aimed at encouraging the development of the solar energy industry. The Ministry of Finance promised to provide direct subsidies to support the development of more than 500 megawatts of solar power generation over a two to three year period.
~ Zhang Tao explained how "we applied to join the scheme in mid-2009, in December we got apporval from the Ministry of Finance and 70 percent of the subsidies were transferred to our account and by the end of that year the project was basically complete. By the first quarter of 2011, after we had tested the operation of the project, we were ready to connect to the grid.
~ After that, work on the project slowed and because they lacked the last vital requirment, they never received the final payment of the remaining 30 percent of the subsidy from the Ministry of Finance.
~ Despite already having an inprinciple agreement with the grid company, the process of applying to get permission to link up to the grid has been very slow.
Original article: [Chinese]

Beef, Lamb and Animal Feed to Drive CPI Higher
News, page 2
~ It was increases in the price of pork, China's most popular meat, and corn that drove the country's consumer price index (CPI) up to a peak of 6.5 percent last July. That month the 56.7 percent year-on-year increase in the price of pork contributed 1.46 percentage points to overall growth in the indicator.
~ The inflation indicator appears to have bottomed out at 1.8 percent in July and now appears to be trending upward again. Experts are saying that it's beef, lamb and soybean meal (a byproduct of soybeans that is commonly used as animal feed) prices that will pull the indicator higher.
~ According to Li Guoxiang (李国祥), the deputy head of the Rural Development Institute at the Chinese Academy of Social Sciences (CASS), and other experts, beef, lamb and soybean meal prices could drive the CPI over coming months. These researchers are recommending that the government set up a mechanism to help the government control the prices of these three products.
~ The prices of fresh vegetables and fresh fruit both helped to drive the CPI higher in August, but experts are predicting that this trend won't continue and prices have already started to fall. Similarly, though the price of eggs and pork also helped push the CPI up in August, analysts don't expect that either egg or pork prices will take off this year.
~ At the start of this year, a ton of soybean meal sold for about 2,800 yuan. Now it's already climed to 4,850 yuan a ton and most analysts think the price will continue to increase.
Original article: [Chinese]

Amendments to Land Administration Law
News, page 4
~ China's Law of Land Administration (土地管理法) has been amended twice since it was first introduced in 1986, once in 1988 and then in 1998. A new round of amendments to the law have been under discussion for a number of years now, and at the start of this year in his report to the National People's Congress (NPC), the head of China's legislature Wu Bangguo included it on a list of legislation that the NPC Standing Committee planned to pass this year. It appears that in order to press ahead with the legislative agenda, many of the proposed amendments that were under discussion will be abandoned and the amendments will be focused on the controversial article 47 which defines the process by which the government can expropriate collectively-owned land.
~ At the same time, high-level officials are committed to releasing regulations that will spell out the process by which compensation is awarded when the government expropriates collectively-owned land before the term of the current government expires next March. Premier Wen Jiabao required the Ministry of Land and Resources to release new regulations that clarified the process of compensating farmers when collectively-owned rural land was expropriated by June this year. However, some of the new regulations appeared to be in conflict with the existing Law of Land Administration.
~ The proposed amendments will clarify what kind of compensation can be made and are expected to result in farmers being awarded a lot more than they have received in the past. The article will also be amended to widen the scope of projects that can be used as grounds for the government to expropriate land. In the past, collectively-owned land could only be requisitioned by the government if it was being used for a "public" project, but this might be widened to include other projects that contribute to urban and industrial development.
~ Some think that given the uptick in the number of conferences devoted to the topic of land reform, this round of amendments to the Law of Land Administration might be a precursor to broader land reform.
Original article: [Chinese]

Fiscal Revenue On Target
News, page 5
~ Combined local and central government fiscal revenue has grown by 10.8 percent year-on-year in the first eight months of this year to 8.23 trillion yuan. This is the closest that the actual rate of fiscal revenue growth has been to the official growth target for many years. This year officials have set a target of 9.5 percent for revenue growth.
~ In recent years real revenue growth has greatly exceeded government forecasts.
~ Many local governments are beginning to complain that they don't have enough revenue to cover their outlays as their income from land leases also falls.
~ Recently, the Ministry of Finance has told local government to prepare for the likelihood of having to cut spending if revenues prove to be lower than expected.
~ In August, central goverment revenues actually declined by 6.5 percent when compared to the amount collected last August.
~ The central government might decide to reduce the amount of funds it transfers to the regions or alternatively, it might be prepared to allow the budget deficit to widen.
Original article: [Chinese]

Private-Owned Universities In China Face Extinction
Nation, page 9
~ Qingdao Fei Yang Vocational and Technical College (青岛飞洋职业技术学院) planned to recruit 3,000 students this year, but only ended up with 300.
~ The school once had the highest enrollment among privately-owned colleges in Shandong province. But this year, it faced a student shortage.
~ The president of the college, Zhang Bingeng (张秉庚), admitted that not only has the school suffered losses, but the daily teaching for many majors might also be unable to continue.
~ This is not an isolated case. Many other private colleges in China face the same problem.
~ Education professor Cheng Fangping (程方平) from Renmin University said it's different from public universities, which rely on government funding. Private colleges rely almost entirely on student’s tuition fees.
~ Part of the reason for the decreasing numbers is simply a smaller pool of students this year. The number of people taking the Gaokao college entrance exam dropped from 10.5 million people in 2008 to 9.15 million in 2012.
~ Zhang Rushan (张汝山), a person in charge of enrollment and employment at the privately-owned Dongying (东营) Vocational College said more students are also going abroad for study or just skipping college altogether in order to work.
~ Professor Cheng also pointed out that one of the important reasons for private schools’ struggle is unfairness in education policy. He said state education funds, resources and related policies are all tilted toward public universities.
~ "Most private colleges have a short history, poor facilities, less choice of majors and a poor reputation," said Xia Jiting (夏季亭), president of the privately-owned Shandong Yingcai College. "They also charge more tuition fees, so of course students will choose public universities first. Moreover, now many public universities even can't recruit enough students."
Original article: [Chinese]

The Big Four Accounting Firms Localize in China
Market, page 21
~ Mark Weinberger, the global chairman & CEO-elect of Ernst & Young, said that this year 80 percent of his company’s partners in China will be Chinese.
~ The inauguration of Ernst & Young Hua Ming LLP took place on Sept 11. From that date, "special general partnership" will be added to the end of its name.
~ In May, the Ministry of Finance, the State Administration for Industry & Commerce, the Ministry of Commerce, the State Administration of Foreign Exchange and China Securities Regulatory Commission jointly issued a plan that required the “Big Four” accounting firms - Ernst & Young Hua Ming, KPMG Hua Zhen, Deloitte Hua Yong and PricewaterhouseCoopers (PwC) Zhong Tian to transform from Sino-foreign cooperatives into local firms.
~ On Jul 31, KPMG Hua Zhen (special general partnership) unveiled its new nameplate. It was the first among the Big Four to complete its localization process.
~ "The localization restructuring is the best plan for us," said KPMG Chairman Michael Andrew.
~ Currently, the Big Four are at different levels of localization. At Deloitte, 90 of its 144 partners have a Chinese practice certificate from the Chinese Institution of Certified Public Accountants (CICPA). 15 of KPMG's 25 partners have the certificate, while 59 of the 88 partners at Ernst & Young have obtained it.
Original article: [Chinese]

Hon Hai to Set up Shop in Shanghai
Corporation, page 25
~ Hon Hai Precision Industry Co. , the world's largest contract electronics maker by revenue, announced in May that it will build its new China headquarters in Shanghai's Liujiazui financial district.
~ The Economic Observer has learned that the new headquarters marks a change in strategy for the Taiwanese firm, that is better known by its trading name of Foxconn. The company is one of the largest employers in China, hiring more than 1 million people and is well-known for its role in assmebling iPhones, iPads and other Apple products.
~ The company plans to shift from its current focus on assembling products to also offering a retail platform to sell products and services to customers directly.
Original article: [Chinese]