Highlights from the EO print edition, No. 596, Nov 26, 2012

Guo vs. Pan: Story Behind the Dispute
Property, page 41
~ On Dec 29, 2011, SOHO China (SOHO中国) announced that it was going to buy half the Bund Financial Center (BFC) project for 4 billion yuan from the old shareholders Zendai Group (证大) and China Greentown (绿城). The move triggered strong opposition from Fosun (复星), which holds the other half of the shares.
~ Fosun says the three parties violated its preemptive right as the major shareholder to buy the shares before anyone else had the opportunity, so it sued SOHO. However, SOHO says it bypassed Fosun's preemptive right by acquiring the BFC project directly from the parent companies of the two shareholders.
~ On Nov 29, the case was heard before the Shanghai No. 1 Intermediate People's Court.
~ Pan Shiyi (潘石屹), the president of SOHO China, has posted long messages on his Weibo account which he says "tells the whole story" and he has also done interviews. However, the president of Foson, Guo Guangchang (郭广昌), has mostly stayed quiet about the case for the past year. In an Economic Observer exclusive, Guo Guangchang answers questions from EO reporters about the deal.
~ Fosun stated that it had signed a contract with Zendai and that it's non-negotiable for one party to transfer the stakes without the approval of the other party. SOHO says that the contract doesn't cover what happened in this case.
~ Before signing the contract, Zendai sent Fosun an enquiry about selling the stake for a price of 4.25 billion yuan. Fosun said that they'd like to negotiate that price, but through formal procedures. However, two days later, SOHO China got the shares for 4 billion yuan, which surprised Guo.
~ Guo said SOHO convinced the two shareholders to divest from their assets, which is illegal.
~ "We did so much and took so many mortgages on the project," Guo said. "Pan got involved quite late, claiming to be my friend but insisting on taking 50 percent instead of compromising to be a minority shareholder."
~ It was not out of the question to go 50-50, but the more Guo and Pan discussed the project, the more Guo realized how much their opinions differed. That's why he called on the preemptive right.
Original article: [Chinese]

A-Shareholders in Over 600 Companies Should Have Put Their Money in the Bank
News, cover
~ The Shanghai Composite Index once again fell below 2,000 points in the last week of November.  
~ In recent years more than 2,400 A-share listed companies have seen their average return on equity (ROE) decline rapidly.
~ In the last quarter, more than 1,000 listed companies' annualized ROE were lower than the one year bank lending rate over the same period. More than 640 listed companies' ROE were even lower than the one year bank deposit rate. In other words, shareholders in these companies would have made more by putting their money in the bank.
~ Data shows that among listed companies, two industries' ROE had the most obvious drop. They were the chemical engineering and the metal smelting industries, mainly because of major overcapacity in both industries.
~ Andy Xie (谢国忠), an independent economist, said that the economic development model of the past is now making us pay a big price in that many industries have seriously excessive capacities. "If this problem cannot be solved and listed companies cannot make profits, then how can the stock market become better?" he asked.
~ Li Huiyong (李慧勇), a macro researcher at Shenyin & Wanguo Securities Institute, says that the current Chinese economy is a lot like that of 1998. At that time the economy hit rock bottom and didn't rebound for five years.
~ Li also pointed out that it takes time to eliminate overcapacity, absorb financial risks and change the growth model.
Original article: [Chinese]

Tariff Adjustment on Fertilizer and Other Exports
News, page 2
~ The Economic Observer has learned that the export tariff on chemical fertilizer will be adjusted next year.
~ The Ministry of Finance has suggested that the tariff be lowered from 7 percent to 5 percent, but nothing has been confirmed yet.
~ The 2013 Tariff Implementation Plan, which will be launched this month, will not only include the tariff changes on chemical fertilizer, but also adjustments of import and export duties on steel, nonferrous metals and some agricultural products.
~ The adjustments mainly target domestic products with serious overcapacity. It aims to encourage exports and help enterprises compete better internationally.
~ Fu Peng (付鹏), the Chief macroeconomic adviser at Galaxy Futures, said this is the right idea. Domestic demand is expected to remain relatively stable for the next few years so there's a need to rely on overseas demand.
Original article: [Chinese]

Stubborn Amazon
Corporation, page 25
~ At the end of November, Wang Hanhua (王汉华) resigned from his position as president of the online retailer Amazon China after seven years on the job.
~ While staff at Amazon has been indifferent to Wang's resignation, many of the company's suppliers are relieved. Many felt that Amazon China had become too rigid and inflexible will operating within China's complex market conditions.
~ Stores on Amazon are shut down if they receive too many low ratings from customers. The average rating must stay above 99 percent to stay in business. "If you get one low rating out of a hundred, you're basically dead," said the CEO of a store that had been shut down.
~ Amazon also requires suppliers to deliver goods to customers within two days. "You get into a dead-end situation so easily because of little problems," said the CEO. "Every day, it feels like you're dealing with machines. You can never find a person to speak to. That's why we're not re-opening on Amazon."
~ Over the past seven years, Wang's philosophy has been to be the most customer-oriented company providing goods at the lowest prices. But China is different from the American market in many ways. "Strict procedures should coincide with the actual market conditions," said the CEO.
~ There are rumors that former Vice-President of Dell Rong Yongkang (容永康) will join Amazon China and operate Kindle and the cloud service. Amazon Kindle may enter China in the first half of next year
Original article: [Chinese]

Wahaha's New Energy Drink Fizzes
Corporation, page 27
~ Wahaha, one of the largest beverage producers in China, is having problems promoting a new energy drink called Qili (启力).
~ Since the new drink was released in April and despite prominent advertising for the new product online and even on the recently aired popular TV show China Voice, the energy drink only has a small foothold in the domestic market. The latest available sales figures, as revealed to the EO by a Wahaha employee, show that they've sold 140 million cans of Qili. According to the EO's estimates, this means that Qili only accounts for less than 10 percent of China's 10 trillion yuan energy drink market.
~ The company's main competitor in the energy drink sector - Red Bull - currently holds more than 30 percent of the market share.
~ According to a former executive at the company, "Wahaha's strength has always been its distribution network, but when it comes to energy drinks, the sale channels needed do not exactly overlap with that of other beverages."
~ This same person also told the EO that the company is not satisfied with current sales of Qili and that "it's not very clear what the selling points are when it comes to promoting Qili in the market."
Original article: [Chinese]