Highlights from the EO print edition, No. 610, Mar 11, 2013

A History of Attempts to Break up China's Oil Monopoly
News, Cover
~ A total of 13 proposals over the past eight years have been put forward by NPC delegates seeking to open China's oil industry to greater competition and to end the special treatment given to the state-owned giants that dominate the sector.
~ Ma Li (马莉), the secretary-general of the China Chamber of Commerce for the Petroleum Industry (CCCPI), is one witness to this ongoing endeavour to persuade the government of the need to reform the industry.
~ Ma said that the business environment for private enterprises is getting more and more difficult. Ma noted that if she was to stop putting forward proposals and no solutions appeared, he didn't think private companies would be able to keep going for very long.
~ Wang Youde (王有德), an NPC delegate and chairman of Shandong Hengyuan Petrochemical Company Ltd, was also worried. "In the past few years, we haven't seen any positive changes," he said
~ At the National People's Congress this year, Wang put forward a proposal urging the government to pilot a relaxation of the restrictions on crude oil imports so that privately-owned refineries would be allowed to import crude directly. Similarly, one of the CCCPI's proposals to the CPPCC calls for the opening-up of non-state importing channels for both crude and refined oil.
~ Similar proposals have been put forward continuosly since 2006 but to little effect.
~ However, the attitude of the relevant departments has changed. The National Energy Administration (NEA), the Ministry of Commence (MOFCOM) and the National Development and Reform Commission (NDRC) used to give vague replies to the proposals. Now they have begun to take the iniative to deal with the CCCPI, providing them with explanations and analyis of specific proposals.
~ Ma said that these departments no longer simply offer pro-forma responses to proposals. If you are not satisfied with their intitial relpy, they will communicate with you and tell you what they are working on and why they need do this.
Original article: [Chinese]

Consenting to the Leaking of our Private Data
News, cover
~ When Chinese people install applications on to their smart phones, they often have to agree to various terms and conditions, including those that allow the application to have access to their contact lists, text messages and sometimes can even read phone status and location data. Individuals can either choose to accept the terms and conditions or not use the application.
~ When enjoying the benefits and convenience of using an application, many users are unaware that large amounts of detailed information about them are being uploaded to countless servers. Users have no idea what this information will be used for and they also don't know the level of security at the company that is receiving all this data. Is is a small outfit run by a few developers?
~ The Economic Observer looked into 40 of the most commonly used applications in China and founds that over 97 percent of software require users agree to allow the app to "read cell phone status and ID". Almost 70 percent of applications require users to allow the applications to access "approximate location (network-based), and precise (GPS) location".
~ A person working at Tencent Wireless pointed out, most of people are not aware that by agreeing to let an application "read cellphone status," means allowing the application access to the basic information of your cellphone, for example what software is installed on the phone.
~ Li Tao (李涛), vice president of Qihoo 360, said that phone numbers, contact lists, location, the content of text messages and software installation are the kinds of data that are most "at-risk" when it comes to the leaking of data stored on mobile phones.
~ Personal data can be worth a lot of money. A user's contact list can be sold or culled for targeted advertising.
~ Lu Zhaohua (陆兆华),an expert in mobile security working at Tencent, said that in 2012 the virus which steal privacy can grab all key privacy information such as users' photos, account numbers and so on. Individuals often don't realize that their phone has been hacked and their IMEI (International Mobile Equipment Identity) number, contact lists, text messages and locations have bee stolen.
~ Currently, China's regulatory authorities don't have many policies on this issue. Last December, the standing committee of China's NPC passed regulations aimed at enhancing the protection of personal information online. But Qi Aimin (齐爱民), an expert in the field of individual data privacy, said that this is not enough, he thinks this issue should be raised to the level of legislation.
Original article: [Chinese]

The "Constitutional Monarchy" of a Farming Empire
~ The Hebei Dawu Farming and Husbandry Group is a family business with a twist.
~ In 2004, after serving out a jail term for "illegal fund-raising," Sun Dawu set out to turn his agricultural company into a "constitutional monarchy."
~ Sun's brief stint in prison left his firm rudderless, with his son not doing so well at the helm while his father was behind bars. After being released from prison, the former peasant sought to model his firm's corporate governance in a such a way that it would guarantee smart leadership and stable growth well into the future.
~ Sun remained as the "sovereign head" of his farming empire but was no longer an absolute ruler- he was restrained by three branches of administrative powers: a board of directors, a managing committee, and a monitoring committee, each in-charge of decision making, operational matters, and ownership respectively.
~ All of the empire's subjects (employees) have voting rights to determine who sits on the board of directors.
Original article: [Chinese]

No Easing of Monetary Policy in 2013
News, Page 6
~ A government work report released on Mar 5 said that China’s Consumer Price Index (CPI) growth target for 2013 would be 3.5 percent. Meanwhile, M2, a measure of money supply that includes various kinds of bank deposits, is slated for 13 percent growth. These relatively low figures suggest that the government is trying to subdue lending and liquidity in the market.
~ According Nomura Securities, the Chinese government and the Central Bank probably won’t ease monetary policy this year. In fact, after the Two Sessions, there will probably be a tightening period.
~ Given a weak economy and relatively stable inflation, some have questioned whether tightening monetary policy in the short-run will be harmful to the overall economy.
~Wang Tao, chief economist of United Bank of Switzerland, says lowering expectations for M2 growth doesn’t necessarily signal a tightening of monetary policy. She says that the speed of credit expansion is moving too fast and won’t last. She estimates that the government will, at the earliest, lay out regulations to further rein in credit in April. Official statements during the Two Sessions seemed to confirm her opinions.
Original article: [Chinese]

Special Feature: Two Sessions - A New Force
Nation, page 9-15
~ This week's Nation section focuses on the ongoing "Two Sessions" with a focus on economic and political prospects for 13 cities across the country.
~ We interview the mayor of Chongqing along with the heads of government in 12 other cities.
Original article: [Chinese]

Suntech Founder Removed as Board Chairman
Corporation, page 25
~ On Mar 4, the board of the Wuxi-based Suntech Power Holdings Co., Ltd. announced that it would replace founder Shi Zhengrong (施正荣) with Susan Wang as its chairman. On March 5, Shi stated that his removal was “invalid” while Suntech replied saying it was “justified and valid.”
~ The company is facing bankruptcy as the Mar 15 deadline to pay $575 million in convertible debt looms. Shi resigned his post as CEO last August after the company disclosed it had likely been defrauded when its partner GSF Capital falsely claimed it held over $728 million in German bonds as collateral for solar plants built by its Global Solar Fund SCA, Sicar.
~ At issue is who will take responsibility for the company’s debt. Last September, the Wuxi government reportedly offered to lend money to the company if Shi Zhengrong was willing to guarantee it with his own assets. Alternatively, the company could delist from the New York Stock Exchange and become state-owned. Shi refused both offers and instead wanted to let the company’s subsidiary in Wuxi go bankrupt.
~ On Mar 7, Suntech announced its dispute with GSF Capital had been resolved after the latter agreed to give up its entire stake in the Global Solar Fund SCA, Sicar. Suntech will take an 88 percent stake in the fund with Shi Zhenrong controlling the remaining 12 percent.
~ It now appears Suntech will go into bankruptcy protection with the state-owned Wuxi Guolian Development (Group) Co., Ltd leading the reorganization.
Original article: [Chinese]

Robin Li Proposes Lifting Restrictions on VIEs
Corporation, page 29
~ CEO of Baidu, Inc. Robin Li - also known as Li Yanhong (李彦宏) - and Chairman of Suning Commerce Group Co. Ltd.
Zhang Jindong (张近东) have recently put forward two separate proposals in the CPPCC concerning Variable Interest Entities (VIE), referring to a corporate structure where an investor holds a controlling interest that is not based on the majority of voting rights. VIEs are often established in China to get around a prohibition on wholly foreign-owned enterprises working in the internet industry. The practice largely lies in a legal grey area.
~ Zhang suggested that the Ministry of Commerce and the China Securities Regulatory Commission publish VIE regulations in order to strengthen supervision over them. This has provoked some criticism from those who think the proposal is intended to hit rivals like Alibaba and 360Buy. However, Zhang says his proposal refers to unreasonable conditions that need to be fixed.
~ Meanwhile, Li Yanhong’s proposal is to encourage overseas listings of private enterprises and to lift restrictions on investment and acquisitions related to VIEs.
~ At present, there are few clear laws and regulations concerning VIEs in China, so departments in charge of regulating them will often err on the side of disapproving or delaying their applications.
~ Li says that the government should lift restrictions on issuing certification for investment and acquisition by VIEs and try to open up the de facto management and control they exercise. Since the VIE structure in IT companies is still unacknowledged (though it is legal) it presents an obstacle for acquisitions.
Original article: [Chinese]

SOHO China Faces Difficulties as it Transforms
Automobile, Page 37
~ On March 6, the Hong Kong-listed mainland real estate developer SOHO China released its annual company report for 2012. The results were far better than many analysts had expected. The report revealed that the company's performance and cash-flow is still largely dependent on property sales and that revenue and profits from the company's rental properties remains quite limited.
~ SOHO China plans to change strategic direction so that by 2015, most of the company's properties will be leased out rather than sold. At present only 25 percent of the company's properties are rented out.
~ On Mar 4, a journalist from the EO counted the number of vacant shop fronts on Beijing's Qianmen pedestrian mall, a street directly to the south of Tian'anmen Square in the lead up to the Beijing Olympics in 2008. Of the 147 store fronts on the street, our reporter counted more than 30 which were not trading and had their doors locked. Retailers that have gone by the wayside include sporting goods outlets like Li Ning and 361 and clothing retailer Meters Bonwe. SOHO China is one of two real estate companies that rent out retail space on the shopping steet.
~ The article also questions data about occupancy rates and rental charges of several projects that were included in the company's annual report.
Original article: [Chinese]