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Issue 595 19-11-2012
Summary:A closer look at China's new leader, Huijin's financial expansion and eliminating coal's dual-pricing system

Highlights from the EO print edition, No. 595, Nov 19, 2012

Special Feature: A Closer Look at China’s New Leader
Nation page 9-14
~ On Nov 15, after the conclusion of the first meeting of the 18th Party Congress in Beijing, it was announced that Xi Jinping had been elected as the new general secretary of the CCP and that he had also been appointed as Chairman of the Central Military Commission. This week’s Nation section takes a closer look at Xi Jinping’s road to the pinnacle of power within China’s Communist Party and includes interviews with Xi’s former colleagues, friends and subordinates.
~ One article looks at Xi Jinping’s time as a “sent-down-youth” when he worked the loess earth of Liangjiahe (梁家河) in Shaanxi Province during the cultural revolution.~ A separate article looks at Xi’s education at Tsinhua University, his early decision to seek a political career and his time as low-level official in Hebei
~ The special feature also looks at what Xi did during his 17 years in the coastal Fujian Province that faces Taiwan and then the 5 years that followed as the party head of neighboring Zhejiang Province.
Original article: [Chinese]

Eliminating Coal’s Dual-Pricing System
News, page 3
~As of Nov 14, the market trading benchmark price of 5,500 kcal thermal coal at the Qinhuangdao Port was 640 yuan per ton. This is compared to a highest price of 845 yuan per ton last year. Market coal prices recently hovered around 600 yuan per ton, making it very close to the government mandated key contract price of 590 yuan per ton. These two prices being so close has made it possible to eliminate the dual pricing system and make the coal price completely market-oriented.
~Currently, China’s coal market adopts a dual pricing system, which includes the contract price regulated by the government and the market price. Power plants use more than half the nation’s coal. They obtain a little more than half of that at market rates, and the rest at the contract rate set by the government. The government mandates the lower contract price for many purchases in an attempt to keep electricity prices down. The system has been in place for nearly 20 years and is often criticized for interfering with supply-and-demand.
~At present, the proposal to eliminate this dual pricing system is still in the process of asking for opinions, and the policy is expected to be launched at the end of this year.
~Not long ago, Yu Yanshan (俞燕山), the deputy secretary general of China Energy Research Society, told Economic Observer, “In the past years, the price difference between the key contract coal price and market coal price has been 150-200 yuan. Now the market coal price is slightly higher than the key contract coal price. The fall in coal prices has provided the best historical opportunity for eliminating the dual pricing system. If we don’t promote reform now, then it will be hard to have such opportunity again in future.”
Original article: [Chinese]

Debate Over Launch of Iron Ore Futures Market
News, Page 5
~In the two years since the price-setting mechanism for internationally-traded iron ore shifted from an annual contract system to a spot-price or short-contract system, China is pushing ahead at a quicker than expected pace with plans to allow for the trading of iron ore futures.
~ The EO has learned that recently the China Securities Regulatory Commission (CSRC), the country’s securities regulator, officially put forward a plan to allow the trading of iron ore futures, the National Development and Reform Commission (NDRC) has also published a document which agrees to starting in on the initial work needed to  set-up such a market.
~ On Nov 14, a person involved in researching the iron ore futures proposal told the EO that, “They’re going to push iron ore futures, and it’s better to do it earlier than later, the related government ministries have already reached agreement on this point.”
~ In October this year, the NDRC instructed the CSRC to produce a report looking at the potential impact of introducing an iron ore futures market on the domestic steel industry. After this report was published, the Dalian Commodities Market received permission from the CSRC to begin work on establishing the market.
~ At the beginning of November, Liu Xingqiang (刘兴强), the general manager of the Dalian Commodities Market, revealed that the market was in negotiations with industry players in regards to the establishment of the futures market. After the plan is drawn-up, it will be first submitted to the CSRC, then the NDRC and finally the State Council for final approval.
~ However, it seems that not everyone is on board with the project yet. The deputy commissioner of the China Steel Association told the EO that he wasn’t opposed to the introduction of the new futures market, but he did say there were some risks involved and that he hasn’t had a chance to investigate it fully. An official with a bureau of the Ministry of Industry and Information Technology (MIIT) also told a journalist from the EO that many disagreements about the introduction of the futures market still existed.
~ The research report found that an iron ore futures market would help to alleviate price risks associated with the current short-term pricing arrangements in a country that is reliant on imports to meet about 60 percent of its iron ore demand. Iron ore is one of the key ingredients in producing steel. China also wants to make sure that the large international mining companies do not have too much control over the pricing of the strategically important commodity.
~ There are currently two other iron ore futures markets in operation – an Indian market established in January last year and a Singapore market that started trading in August that year.
Original article: [Chinese]

Interview With Former Australian PM Kevin Rudd
News, Page 8
~ Ahead of the East Asia Summit and Obama’s historic visit to Myanmar this week, the EO talked to former Australian Prime Minister Kevin Rudd  about America’s role in the region.
~ Many Chinese people got to know Kevin Rudd - or Lu Kewen (陆克文) as he is known in China – through his friendship with the CCTV reporter Rui Chenggang (芮成钢)
~ In response to a question about Australia’s recently released white paper about the country’s role in the region, Kevin Rudd said that Australia could “walk and chew gum at the same time” when it came to balancing the relationship between the two regional powers – the US and China. Rudd noted “This is something we’ve already been doing for 40 years.”
~ The EO also asked Rudd about a recent visit from the president of the Philippines to Australia and how Australia would respond to a request from that country to lift their relationship to the level of strategic partners. The EO also asked the former PM about his views regarding the Diaoyu islands and Scabrarough Shoal dispute.
Original article: [Chinese]

Huijin's Financial Expansion

Market, page 19
~ Central Huijin Investment Ltd. (Huijin), an investment company directly under the control of China's State Council, is continuing its expansion through capital injection and increasing its share holdings.
~ “As of June this year, Huijin held shares in 20 institutions,” a source close to Huijin said. This compares to just 11 in 2009.
~ These 20 institutions include six banks, three insurance companies, seven securities companies and four other institutions.
~ As of the end of June this year, Huijin had injected total assets worth 965 billion yuan into state-owned financial institutions.
~Huijin has increased its stake in the four large state-owned banks by 5.6 billion yuan.
Original article: [Chinese]

China Mobile Developing 4G
Corporation, page 25
~ China is beginning to develop its fourth generation (4G) mobile communication network, but it’s already fallen behind several other countries. 
~ During the 18th Party Congress, the director of the Ministry of Industry and Information Technology said that 4G licenses would be issued in one year.
~ It’s been three years since 3G licenses were distributed in China, and there are already nearly 100 service providers around the world offering 4G service.
~ On Nov 9, in response to China Mobile’s request, Swedish telecommunications company Ericsson gave a 4G field test in Huangdao, Qingdao.
~ During the field test, the download speed peaked at 80mbps in a car going 50km per hour, which is four times the speed of domestic fiber-optic cables. And there was hardly any buffering delay with online videos.
~ According to Ericsson, it only takes one hour to upgrade 2G antennas to 4G. But due to the channel format and bulk of 3G antennas, upgrading them could mean antenna rebuilding, cell reselection and even renegotiation with the community management departments. It takes a lot more effort than upgrading from 2G to 4G.
~ The field test in Qingdao once again proved the feasibility of the project, the core of which is to use existing facilities and antennas to deploy 4G networks with little time and low costs.
~ The president of China Unicom, Chang Xiaobing (常小兵) said that service providers are going to have their own schedules for deploying 4G networks according to their states of development. What he said seems to imply that the three providers won’t act simultaneously.
~ Now, China Mobile’s 175 million 3G users make up 38 percent of the market, whereas the market share was over 70 percent and even reached 90 percent in some regions during the 2G era.
Original article: [Chinese]

Chery and Fuji Heavy’s Subaru Project Awaits its Fate
Automobile, page 33
~ On Oct 29, the Wuhu Environmental Protection Agency posted an environmental impact assessment report about the joint manufacturing project by the automotive companies Chery and Fuji Heavy in Dalian.
~ According to the report, the project would occupy a 1.13-square-kilometer plot of land and have an annual output of 200,000 middle-to-high-end vehicles.
~ An insider from the environmental impact assessing agency said that there’s a complicated procedure to go through. So getting the environmental impact assessment is actually just the first step.
~ The possibility of being rejected by NDRC has discouraged the companies to a great extent. Since Toyota holds 16.5 percent of Fuji Heavy’s shares, the Subaru project could amount to its third joint venture in China. A company is only allowed to participate in two joint ventures with similar products.
~Even so, most in the industry are optimistic about the project. An insider from the environmental impact assessing agency anticipated that the result would be published in the first half of next year at the earliest.
~ Right now, the sudden change in China’s consumption environment isn’t very favorable for the project. And with over 100 Subaru stores throughout 20 provinces all over China, the NDRC is unlikely to approve the project in the foreseeable future.
Original article: [Chinese]

What the Collapse of the Soviet Union Means to Contemporary China
Observer, page 45-46
~ Lu Nanquan (陆南泉), a scholar with the Chinese Academy of Social Sciences (CASS) has written a long article about the food for thought that the collapse of the Soviet Union over 20 years ago provides to the China of today.
~ The author says that although Gorbachev’s mismanagement of some policies in relation to reform of the Soviet system during the final years of his term in office contributed to the fracturing of the Soviet Union in 1991, the fundamental cause of the disintegration were systemic problems inherent in the Stalinist-Soviet form of socialism.
~ The author identifies six major political weaknesses with the soviet form of socialism and a number of weaknesses with the soviet economic system.
~ The author also argues that given the soviet example, China should stick with deepening reforms, press ahead with reform of the political system, stick with the correct direction of reform, recognize that reform, development and stability need to be balanced and understand that the successful transformation of the model of economic development rests on reform of the economic system.
Original article: [Chinese]


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