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Issue 606 04-02-2013
Summary:Consolidating China's Steel Industry, Real Estate Bubble Expands to Third and Fourth Tier Cities and There's No Future for Hate: What China and Japan can Learn From Europe

Highlights from the EO print edition, No. 606, Feb 4, 2013

Real Estate Bubble Expands to Third and Fourth Tier Cities
News, cover
~ Yingkou (营口) is a third tier coastal city in Liaoning Province located between Shenyang and Dalian. The city's goal is to become a large tourist city with a population of one million, but at the moment, it's the new focus of China's real estate bubble.
~ A Yingkou real estate market research report obtained by the Economic Observer shows that in 2012, the potential future supply of properties from 42 major projects in the city reached 14 million square meters. If the properties are sold at the 2011 rate of 2 million square meters annually, it will take six to seven years to unload all of them. A developer said that the city has the most serious real estate bubble in Liaoning and that the six to seven year estimate is probably too conservative.
~ A worker at a real estate agency in Yingkou estimated that, even if the entire existing 500,000-person population in the downtown area all moved to the new developments, many homes in the area would still be unoccupied.
~ With favorable policies to stimulate the real estate industry, Yingkou's property development went into overdrive in 2009. The total floor space under construction for commercial properties in 2009 and 2010 reached 30 million square meters - an  80 percent increase over the previous year. In 2010, Yingkou's investment in real estate accounted for 18 percent of the local GDP.
~ Yingkou's real estate bubble is not an isolated case. A report by E-house China ranking the real estate market risk in Chinese cities shows that the severity of Yingkou's real estate bubble was ranked 26th among 287 cities. Among the top 50 cities at risk, 46 are located in inland areas. And 41 of the top 50 are fourth tier cities.
~ This report also shows that the market risk for fourth tier cities is the most severe. Fourth tier cities tend to have population outflows little ability to attract outside residents. This will aggravate concerns over real estate demand in the future.
~ Gu Yunchang (顾云昌), vice head of China Real Estate Association, said since 2010, because of housing purchase restrictions, some developers have moved from top tier cities to third and fourth tier cities to develop. There, they were welcomed by local governments with favorable policies and cheap land.
~ Last year Yu Ying (余英), deputy general manager of Poly Real Estate, said the real estate companies seeing declining sales are all encumbered with third and fourth tier city projects.
Original article: [Chinese]

Details of Plan to Further Consolidate Steel Industry Coming Soon
News, page 5
~ China plans to further consolidate its steel industry and has a goal of lifting the percentage of total steel production of the ten largest steel companies from the current 45 percent to 60 percent by the end of 2015. This is going to be a difficult task for government departments to handle.
~ The Ministry of Industry and Information Technology (MIIT) is working with other government departments on a plan of how to meet this 60 percent target and aims to release details of the plan in the first half of 2013.
~ The deputy head of the China Iron and Steel Assosciation (CISA) recently estimated that by the end of 2012 steel production in China exceeded 1 billion tons. This means that by 2015, 60 percent of production represent at least 600 million tons of steel. If ten companies are expected to produce that much steel each year, that's an average of 60 million tons for each company. Currently, China's largest steel maker, Hebei Steel Group, is only 45 million tons.
Original article: [Chinese]

China Southern's A380 Headache
Corporation, page 25
~ It's been more than a year since the first Airbus A380 was delivered to China Southern Airlines and began operating in Oct 2011. Currently, China Southern runs four A380 aircraft, mainly used for Beijing-Guangzhou and Guangzhou-Shanghai domestic air routes. There is only one international air route, Guangzhou-Los Angeles, which was opened at the end of last year.
~ A source revealed that China Southern Airlines Group Party Secretary Tan Wangeng (谭万庚) said in an internal meeting that the four A380s accounted for losses reaching 150 to 200 million yuan in 2012. But this figure has not been confirmed.
~ "The Airbus A380 is mainly designed for long-distance routes," said Cai Jianming (蔡建明), a transportation industry researcher with CI Consulting. "Its main battlefield is international air routes with a flight of 12 hours or more. The frequent taking off and landing of domestic flights is not the most economic for fuel consumption and engine maintenance."
~ The A380's advantage lies in long-distance international routes, but China Southern Airlines, with its headquarters located in Guangzhou, can't make much use of this advantage. It's not easy to get approval for popular international air routes that depart from Beijing.
~ Last August, China Southern Airlines announced that it will cooperate with Air China to run the Beijing-Paris route using the A380. But there's been no movement on the plan since the announcement.
~ The Economic Observer learned that the negotiation has run into difficulties and stopped. Both parties reportedly have different opinions in terms of the specific form of cooperation and the distribution of benefits.
~ At the end of February 2013, the fifth and final A380 of China Southern's order will be delivered. If the issue of international routes cannot be solved, China Southern may face further losses.
Original article: [Chinese]

There's No Future for Hate: What China and Japan can Learn From Europe
Observer, page 45
~ The author, Ma Licheng (马立诚), is the chief editor of the People's Daily Commentary Desk.
~ In this long piece he looks at how France and Germany were able to normalise relations after World War II. The headline "There's No Future for Hate" is taken from a speech given by former French president Chirac while marking the 60th anniversary of the D-Day landings in Normandy.
~ The author argues that the peace and prosperity that has accompanied the formation of an expanded European Union is a product of the original decision of France and Germany to work together.
~ The author also says that unless China and Japan can reach a similar agreement, there will be no peace in Asia. The key to this agreement is to stop the hostility between the two countries.
~ The author also draws on many of the cultural similarities between China and Japan, for instance the use of chopsticks and the continued use of over a 1,000 Chinese characters in Japanese.
Original article: [Chinese]

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