Highlights from the EO print edition, No. 598, Dec 10, 2012
Macro Outlook: Reform or Growth as Focus for 2013?
News, cover
~ On Dec 4, the newly-formed Politburo of the Chinese Communist Party met in Beijing. Among other topics, the 25 members discussed the outlook for macroeconomic policy over 2013.
~ In a research note published by Goldman Sachs/Gaohua in reaction to the official announcement release after the meeting, economist Yu Song (宋宇) noted a subtle change in policy tone. The economist said that the absence of any mention of the need to "maintain (stable and reasonably rapid) economic growth" was an indication that there had been a shift and that policy makers were now emphasizing the quality of and returns from growth. Yu Song also said that this change in emphasis is likely to appear in statements that will be made during the Central Economic Work Conference which is set to take place later this month.
~ After 7 quarters of consecutive falls in the rate of GDP growth, signs are beginning to emerge that the economy might have already bottomed out. Most economists at banks and other financial institutions are predicting growth of over 7 or even 8 percent next year.
~ These signs of a pick-up in economic growth have added extra significance to the announcement of next year's economic growth target. If policy makers still choose to reduce the target to 7 percent, this will be a clear indication of a change in thinking.
~ Although a growth target will not be announced at the upcoming meeting, many analysts are saying that it will be an important sign of how much policy makers are concerned with the quality and efficacy of growth in 2013.
~ Liu Yuhui (刘煜辉), a senior economist at the Chinese Academy of Social Sciences (CASS) and also Chief Economist at Huatai Securities, argues that the government should set a lower growth target for 2013 since, to some extent, real reform requires a lower rate of growth.
~ Analysts say that it's too early to know whether efforts to dismantle some of the monopoly industries and push through an income distribution reform package will be successful. They say that we might have to wait until questions of medium to long-term economic growth are discussed at the third meeting of the 18th Party Congress that should take place in late 2013.
~ Zhu Baoliang (祝宝良), chief economist with the State Information Center's Economic Forecasting Department, also suggested that the Ministry of Finance should let China's budget deficit increase from 1.5 percent of GDP to 2 percent in 2013. Mr. Zhu said that "in 2013 spending on rural issues, education, technology, social security and unemployment benefits, health care, social housing, energy efficiency and issues related to retiring out-dated technology will all need to be increased. At the same time efforts to push ahead with shifting business tax to value-added tax will reduce fiscal revenue."
Original article: [Chinese]
Local Governments Required to Conduct Social Risk Assessments for Large Investment Projects
News, page 2
~ Local governments are facing stricter requirements when it comes to seeking permission to launch large investment projects. Unlike in the past when the process of starting work on big projects was simple and fast, new rules being introduced by the National Development and Reform Commission (NDRC) are setting more stringent requirements, including a provision that says if a large local project meets with "medium-level" opposition, it must be temporarily halted.
~ The new rules follow the halting of several large projects earlier this year after vocal opposition from residents, including the decision to shelve the planned construction of a 55.8 billion yuan Sinopec petrochemical plant in Ningbo in October.
~ An official from Ningbo's NDRC told the EO on Dec 6 that the decision to shelve the Zhenhai refinery was to some extent connected to the requirements set by the NDRC when considering whether or not to approve a large project. The official said the fact that the public opposed the project was a sign that the evaluation process is inadequate.
~ Due to the new regulations, a steel project in Anhui that had already passed the relevant environmental assessment process was required to conduct a risk assessment and a social risk report to the NDRC in October. The 20 billion yuan project to relocate the Magang Hefei Steel Plant began in 2006. On Dec 7, an official from the Anhui NDRC told the EO that all the procedures and reports had been approved by the NDRC.
~ The new rules have added a mechanism for assessing the risks to social stability of a project to the evaluation procedure. On Dec 6, an official from a bureau in the central NDRC told the EO that "from now on, all projects that require the approval of the NDRC or the State Council will be required to submit an assessment of the risks to social stability with their application. This isn't advice, but a strict requirement."
~ In the past local officials only had to submit an environmental and land assessment.
~ An NDRC official from Ningbo revealed that although the Ningbo refinery will never include a PX component, planners have gone back to the drawing board to consider what can be salvaged from the project, though it's still unclear when work will begin again.
~ The NDRC rules only apply to top-level investment projects, but there has been progress on the local level too. At the start of October, Chongqing's NDRC put out new regulations that but similar requirements on local development proposals. However, the Chongqing regulations only prevent those projects considered to have "high" social risks from going ahead, while the NDRC rules out approval for projects with both "high" and "medium" level risk. At the start of December, the coal-rich province of Shanxi also announced similar rules.
~ Qi Yuqing (祁玉清), a researcher with the NDRC's Investment Research Center, said that the new regulations are a big step forward but he also pointed out that some confusion still remains in relation to how these social risk assessments should be conducted and which government agency should be responsible for carrying them out.
Original article: [Chinese]
SOE Still Blocking Wage Reforms
News, page 3
~ An income reform package has been in China's legislative pipeline for years now and is one of the key planks of legislation that will define the long-promised income distribution policies that are expected to be announced before the end of the year. But analysts are split over whether the new rules about how Chinese workers are paid have been temporarily shelved or whether they've been permanently quashed.
~ Some sections of the reform bill have pretty much been settled and it's likely that a version of the new rules strengthening supervision of requirements covering holiday pay for all workers could be announced next year. Other reforms, like efforts to establish collective wage negotiations between unions and state-owned enterprises (SOE) operating in monopoly industries, have stalled and are likely to be left out for now.
~ The EO learned from the Ministry of Human Resources and Social Security (MOHRSS) that five years ago, when the department was still known as the Ministry of Labor and Social Security, work on amendments to the income regulations had been completed and forwarded to other departments for consideration. However, due to irreconcilable differences between the State-Owned Assets Supervision and Administration Commission (SASAC), the All-China Federation of Industry and Commerce (ACFIC) and the All-China Federation of Trade Unions (ACFTU) in relation to changes to how the salaries of workers in the country's monopoly industries would be paid, the legislation was essentially shelved.
~ Currently, the MOHRSS's plan is to separate the bill into three separate sections, one that looks at strengthening oversight and legal protections for workers, another that makes changes to the process of collective wage bargaining and a third that reforms the total wage packages of employees working at SOEs.
~ As the first section that covers improving protections and oversight for workers is more detailed and complete, the most optimistic outcome is that the department will first release these amendments sometime next year. More controversial sections, like those related to collective wage bargaining and payments to workers at SOEs, may be addressed further down the road, but no timetable has been set.
~ The first section, where there is general agreement, covers oversight of things like holiday pay, overtime, minimum wages, leave and also addresses the legal responsibilities required to enforce these regulations. The amendments will focus on addressing problems like migrant workers not being paid the wages owed to them by beefing up both supervision and legal punishments. Regions which attract a lot of migrant workers like Guangdong, Beijing and Shenzhen have already introduced similar regulations at the local level, but no amendments have yet been made at the national level.
~ The EO has learned that moves to alter the way salaries at SOEs are paid, to encourage collective bargaining and to address the issue of the excessive use of contract workers has met with strong opposition from the SOE monopolies and the ministries that are responsible for them.
~ In 2009, the MOHRSS teamed up with the Communist Party's Central Organization Department, the Ministry of Supervision, the Ministry of Finance and the National Audit Office to release guidelines that would standardize the wages of top-level executives at centrally-controlled state-owned enterprises. As part of these guidelines, it was clearly stated that the wages of top officials at these companies must be monitored and tied to the rate of growth of ordinary workers' wages. Despite these efforts, it appears that over the past couple of years, the high wages paid to executives at the central SOEs have continued to push up average wages. Rules stating that the general managers of these companies should be paid no more than 12 times the average annual wage of general workers are being flouted. Executives at these companies are earning an average of more than 600,000 yuan a year.
Original article: [Chinese]
Chinese Cities Failing to Meet Air and Water Quality Standards
News, page 5
~ The EO has been handed a report from an environmental organization that says China is failing to properly protect the sources of its drinking water.
~ The situation in relation to air quality is also bleak with 15 percent of areas failing to meet existing national standards. If we use the newly revised atmospheric standards as our measuring stick, more than 80 percent of the country fails and if we take the World Health Organization standards used in Europe as a guide, the whole of China fails to pass the test.
~ On Jul 1 this year, China introduced a new drinking water standard, but the regulations give the industry a 5 year buffer to meet the new requirments. Now, new research shows that the outlook for the protection of the sources of drinking water is bleak.
Original article: [Chinese]
Li Zhuang: The Truth About Chongqing's Crackdown on Organized Crime
Nation, page 15
~ Li Zhuang (李庄), a high-profile lawyer based in Beijing who recently served 18 months in prison on charges of falsifying evidence and inciting others to bear false witness, has written a piece in this week's Economic Observer.
~ Li was initially sentenced to a 30 month prison term on Jan 8, 2010, a sentence which was later reduced by one year after a dramatic appeal hearing that February. Li's case attraced much attention from China's legal community as the fiery lawyer, who had a reputation for pushing the boundaries of what is considered acceptable practice in China's legal system, was accused of fabricating evidence only after his client alleged that he had been tortued while being interrogated during Chongqing's high-profile crackdown on criminal gangs. The case highlighted concerns among some lawyers that the Chongqing government was trampling legal procedure in its zeal for convictions and also appeared to involve high-level political figures including Wang Lijun, the now jailed former head of the the Chongqing Public Security Bureau (PSB), and Bo Xilai, the former party official in charge of the city.
~ In the article the lawyer makes accusations of torture against those working in the Chongqing PSB at the time. Li also says that many of the arrests were made in an attempt to extort money from innocent business people.
~ Li describes how after he had first been arrested by Chongqing police and secretly transfered from Beijing to Chongqing, the first sentence he heard while being questioned was "We've had a meeting and you're so going in jail".
~ Li also describes how during the height of the crackdown, Bo Xilai (薄熙来) and Wang Lijun invited many notable people to Chongqing. All those who were invited were to visit an achievement show where the first big portrait exhibited was Li Zhuang, "the most black-hearted lawyer."
~ Li's piece takes aim at Wang Lijun describing him as the "king of a lawless land" and someone who would "stab whoever he doesn't like in the back."
Original article: [Chinese]
Neighbouring Enemies: Sanyi and Zoomlion
Corporation, page 25
~ Zoomlion and Sanyi are China's two largest heavy machinery companies. They are both based in the city of Changsha, the capital of Hunan province. Zoomlion is a state-owned enterprise that operates under the authority of the local State-owned Assets Supervision and Administation Commission, Sanyi is a private company owned and run by one of China's richest men.
~ Over the past ten years the two companies have had a very rocky relationship, going through a series of scandals.
~ One recent anecdote provides an indication of how toxic the relationship between the two companies has become. An employee of Zoomlion explained to the EO how there are rules that prohibit them from talking to employees from the Sanyi office, noting that perhaps you could be fired for breaking this rule.
~ At the start of December, Sanyi Group announced plans to relocate its headquarters to Beijing. The EO has learned that the Hunan Provincial government is trying to persuade the company to reverse its decision.
~ This article takes a closer look at the history of this troubled relationship between neighbouring enemies Sanyi and Zoomlion and the difficult position that this has put the Hunan provincial government in.
Original article: [Chinese]
