ENGLISH EDITION OF THE WEEKLY CHINESE NEWSPAPER, IN-DEPTH AND INDEPENDENT
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Issue 611 18-03-2013
Summary:Electric Cars in Beijing, New Fuel-Pricing System Ready to Roll and China to Strengthen Supervision of Overseas Projects of State-owned Giants.


Highlights from the EO print edition, No. 611, Mar 18, 2013

SASAC to Tighten Supervision of Overseas Projects of State-owned Giants
News, page 3
~ China will strengthen its supervision of the overseas assets of large state-owned enterprises (SOE) according to an internal report produced by the State-owned Assets Supervision and Administration Commission (SASAC).
~ Key aspects of a pilot project which has been monitoring the overseas investments of a handful of large SOE over the past three years, may soon be permanently adopted if SASAC accepts the advice presented in the report.
~ SASAC is especially concerned about monitoring investments in energy and mining, international construction projects and international shipping. According to statistics, more than half of the overseas subsidiary companies of the centrally-administered SOEs are involved in these three areas of business.
~ Official figures show that by the end of 2010 Chinese enterprises had established over 15,000 enterprises abroad. About half of these companies are state-owned enterprises. During the same time frame, non-financial outward direct investment surpassed $258.8 billion and the total value of overseas assets exceeded $1 trillion.
~ A supervisory board within SASAC set up three inspection teams in 2010 to supervise and examine the investments of six central SOEs in South Africa, Singapore and Hong Kong. Another two teams were set up in 2011. The results were described as "shocking," with all kinds of problems identified, ranging from accounting issues to concerns with how projects were being managed.
~ There have been several high profile cases of centrally-administered SOEs running into serious problems with overseas projects in recent years. In 2007, the China National Aviation Fuel suffered $550 million in lossed in Singapore, which resulted in the company's vice president Chen Jiulin (陈久霖) being sacked and sentenced to 51 months in prison. In 2011, China Railway Construction Corp Ltd won the contract to build a light rail link in Saudi Arabia but ended up racking up losses of over 4 billion yuan. In both cases, all the losses were shouldered by the state.
~ However, it seems that SASAC is no longer so willing to let the state pick up the bill. Shao Ning (邵宁), Deputy director of SASAC, was quoted as saying that "Losses on overseas investments are the same as domestic losses. In addition to making profits, enterprises should also remain answerable to their shareholders. Bad investments resulted in heavy losses of state-owned assets. There must be accountability."
Original Article: [Chinese]


New Fuel-Pricing System Waiting for Right Time to Begin
News, page 4
~ A new fuel-pricing system that will respond to oil price changes in the global market more quickly has been approved and will begin when conditions are right. "The government is waiting for the international oil price to fall so that the fuel price can start going in line with it," a source familiar with the new pricing system told the EO. "There is still a gap between the domestic fuel price and the international oil price. The new system won't be announced until the oil price falls and erases this gap."
~ The domestic fuel price is still a few dollars lower per barrel than prices in the global market. If the new system were launched now it would mean an abrupt price increase.
~ The current fuel-pricing system was introduced in 2009. The National Development and Reform Commission (NDRC) can adjust the fuel price only if the international oil price changes more than 4 percent over a period of 22 working days. The new system will shorten that period to 10 days and remove the 4 percent fluctuation threshold.
~ The NDRC considered inviting a third party to announce the fuel price change since every time the price goes up, NDRC gets blamed. "There is too much pressure," a source who participated in the discussion said. The proposal was ultimately vetoed.
~ Oil companies like China Petrochemical Corporation (Sinopec) and China National Petroleum Corporation (CNPC) will benefit most from the new system. "It's always easy to lower the price," an employee of Sinopec said. "However, if you try to raise it - especially on holidays - that's tough."
~ CNPC suffered a loss of over 30 billion yuan in the refining process in the first three quarters in 2012. Sinopec reportedly lost 16.4 billion yuan. The new pricing system aims to mitigate these losses.
Original Article: [Chinese]


Special Feature: Li Keqiang - Are You Ready?
Nation, page 9-15
~ Li Keqiang was officially installed as China's new premier on Saturday. This week's paper features a profile of China's new premier, a 57-year-old law graduate with a PhD in economics. One article looks at his experience as a "sent down youth" in the seventies, in another we talk to classmates of the premier who attended Peking University with Premier Li. The article also includes an overview of Li's time as governor and then party head in Henan (1998-2004) and then party head of the north-eastern province of Liaoning (2004-2007). The feature also examines Li's achievements during his time as deputy premier (2008-2013).
Original article: [Chinese]

Special Feature: Expectation - 9 Things the New Leadership Should Do
Nation, page 9-15
~ This special feature is made up of nine letters addressed to various government departments. The letters are an appeal for that government department to address a pressing issue that is on the minds of many Chinese.
~ One letter is addressed to the NDRC and the newly formed Ministry of Health and Family Planning and it argues that these departments relax the current rules in relation to couples having a second child.
~ The second letter is addressed to the Ministry of Civil Affairs and it calls on the department to ensure the the elderly in China will be cared for.
~ The third letter is addressed to the Ministry of Education and the Ministry of Public Security and calls for a loosening of the various hukou restrictions especially in relation to access to quality education for the children of migrant workers who accompany their parents to the big cities.
~ Another letter calls on the Ministry of Industry and Information Technology to ensure the safety of personal information.
~ Another letter encourages the Ministry of Environmental Protection to work better at getting various cities and provinces to work together in order to solve common environmental challenges.
~ An author asks the Ministry of Finance to make the tax system fairer and more transparent.
~ The newly-formed State Food and Drug Administration is called on to ensure the safety of the food that we put in our mouth.
~ The State-owned Assets Supervision and Administration Commission (SASAC), the central government body charged with regulating China's largest state-owned enterprises, is told it should open up more of the economy to private capital.
~ Finally, China's central bank is warned about some of the dangers of internationalising China's currency.
Original article: [Chinese]


Avon China on its Last Leg
Corporation, page 25
~ In February, the credit-rating agency Fitch downgraded cosmetics distributer Avon's rating from BBB- to BB +, knocking it down to the "non-investment grade" category.
~ In 2012, Avon's revenue in China fell below 1 billion yuan – down from 2.4 billion yuan in 2003. Last year, Avon China's sales accounted for only 1 percent of Avon's global sales.
~ Avon China has experienced four major transformations while in China. The swinging marketing strategy has resulted in lost development opportunities.     
~ In 1990, Avon entered China as the largest direct selling company in the world. But in 1998, the Chinese government passed laws against direct selling in an attempt to curb a proliferation of pyramid schemes. In response, Avon turned to retail and set up thousands of franchise stores. "Avon China reached its peak at that moment," said former Avon China employee Li Ming (李明). However, fierce competition emerged and Avon's blind expansion led to poor quality retail shops.
~ In 2006, Avon was granted the first direct-selling license in China. Brick and mortar stores then co-existed with direct selling. However, the direct sales arm offered lower prices, which harmed Avon's brand and generated conflicts between direct sales staff and stores. In 2008, the company was further shaken by a bribery scandal.
~ In 2010, Rene Ordonez took over as head of Avon China and decided to turn exclusively back to direct sales. However, that didn't pull the company out of its rut. It went from a market share of 6.5 percent in 2007 to 2.9 percent in 2011.
~ John Lin (林展宏), who was appointed head of Avon China in 2012, has now decided to turn back to retail and may abandon direct sales altogether. But after years of transformations, many staff are leaving and the company is shrinking.  
~ Another problem facing Avon is its brand identity. "Avon has a variety of products, but it can't figure out its target market," said Wang Junjun (王君君), a former employee of the company.
Original article: [Chinese]


China Cosco Plans to Sell Logistics Subsidiary to Avoid Delisting
Corporation, page 26
~ On Mar 11, the Shanghai-listed China Cosco Holdings Co., Ltd (China Cosco) announced that it planned to sell all its holdings in its subsidiary China COSCO Logistics Co., Ltd (Cosco Logistics) to its parent China Ocean Shipping (Group) Co. (Cosco Group), in order to save the company from once again reporting annual losses.
~ Cosco Holdings is 52 percent owned by China Ocean Shipping (Group) Co. (Cosco Group), a state-owned shipping giant whose lines cover over more than 160 countries and regions.
~ In 2011, China Cosco reported a deficit of 10.45 billion yuan ($1.68 billion). The company is also expected to register losses of between 7 and 8 billion yuan in 2012. After two years of consecutive losses, according to Chinese stock regulations, the company has been labeled Special Treatment (ST) and is danger of being delisted if it continues to lose money in 2013.
~ China Cosco was expecting support from the government, but not long ago, Wang Yong (王勇), the outgoing head of the State-owned Assets Supervision and Administration Commission (SASAC), was quoted as saying that the regulator hadn't considered this possibility.
~ Container and dry-bulk shipping is the major cause Cosco's losses, but selling of these assets will do little to fill the hole. So China Cosco has decided to sell a profitable subsidiary instead.
~ If the transaction succeeds, it will improve the financials of China Cosco in 2013 and reduce the likelihood of the company being delisted.
~ Aside from a deteriorating global shipping environment, much of the blame for Cosco's poor performance is being pinned on poor strategy. What China Cosco really needs to do is improve its management.
Original article: [Chinese]

Tencent Won't Apply to be Mobile Virtual Network Operator
Corporation, page 30
~ On Jan 8, the Ministry of Industry and Information Technology (MIIT) published its Mobile Telecommunication Resale Business Pilot Program, saying that telecommunication operators such as China Mobile and Telecom should cooperate with at least two other enterprises and turn over some operations to them. There have been rumors that Tencent will take this opportunity and apply for a mobile virtual network operator license.
~ However, Zeng Ming (曾鸣), spokesman for Tencent's WeChat service said, "Instead of competing with other mobile virtual network operators, our goal is to cooperate with them to offer more value-added service to the customers."
~ Tencent has launched several services like the WeChat text and voice messaging service, a Vdisk and its Weiyun personal cloud storage. These services make up 30 to 40 percent of data traffic from virtual network operators in a given province. Now, telecommunication suppliers want to charge customers for these services.
~ Tencent is trying to solve this issue without becoming a mobile virtual network operator itself. During this month's "Two Sessions", Pony Ma (马化腾), the chairman of Tencent, made a proposal regarding problems existing in China's telecommunication infrastructure. "China’s internet infrastructure covers almost all cities and towns," he said. "However, there exist problems like slow internet speed, high charges, and a lack of stability and safety. Many rural areas also still have no internet access."
~ According to Ma, the outdated broadband infrastructure will have harmful effects on the basic electronics industry and the consumer electronics industry.  
~ In the short term, Tencent is expected to use the model it adopted with the telecommunications company Hong Kong Yingke. This means clients would pay about 8 yuan per month to the telecommunications company for unlimited use of services like WeChat. 
Original article: [Chinese]

New Policy Set to Boost Electric Car Sales in Capital
Automobile, page 33
~ In 2012, measures were drafted in Beijing that said individuals who want to buy an electric car could be exempted from the license-plate lottery and also get subsidies worth up to 120,000 yuan. On Mar 7, a government official told the EO that these policies will probably come into effect this year.
~ The Beijing Municipal Science and Technology Commission has said it will invite bidding to decide which electric cars can enjoy this policy.
~ Beijing is one of six cities to pilot the use of electric vehicles, but so far it's mostly been buses and sanitation trucks that have gone electric. In February of 2009, the government announced a policy to subsidise the purchase of new-energy vehicles. Since then, automobile companies have started to keep an eye on the pilot projects and train their Beijing staff about electric cars.
~ Those people who want to buy a car but are unable to get a license plate are seen as a big potential market for electric cars. But Xu Heyi (徐和谊), chairman of the Beijing Automotive Group Co., Ltd., says, "It's still hard to promote, partly because of battery technology, and partly because of charging problems."
~ The government is trying to build more charging stations, but it will take time for the vehicles to gain popularity among ordinary people. Therefore, the promotion of electric cars will still focus on public transportation.
Original article: [Chinese]

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