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Issue 628 15-07-2013
Summary:Shanxi to Profit from Pollution, GSK in Hunan and Urban Grid Management

Highlights from the EO print edition, No. 628, July 15, 2013

Coal-fired Power Plants Go West
Nation, page 14
~ Over the past three years, not one of the applications to build a new coal-fired power plant project in the city of Datong (大同市) in Shanxi province has been approved. However, the situation might be about to change.
~ According to Li Junming (李俊明), the mayor of the city, the central government's decision to restrict the construction of new coal-fired power plants in the region around Beijing could provide an economic opportunity for Datong and even the broader western regions of the country.
~ The motivation to stop investing in new coal-fired power plants in the zone surrounding the capital was due to the severe air pollution that has affected Beijing, Tianjin and Hebei Province over the past year.
~ Though China's capital has had to deal with record levels of pollution, there is still huge demand for electricity in the capital.
~ The environmental burden of producing such a large amount of electricity through the burning of coal is more than the capital region can take. China is rich in coal but lacks sizable oil and gas reserves, therefore it's difficult to alter the current energy consumption structure which is heavily reliant on coal-fired power plants.
~ In order to reduce the harm of PM 2.5 in the capital region, there is a push to build power plants in the central west regions of the country, where much of China's coal is mined.
~ Li Xiaopeng (李小鹏), the newly appointed governor of Shanxi, is leading the push for the construction of more power plants. The provincial government thinks that by building the province into a major power provider they can help to develop the local economy.
~ As to sensitive issues of the environmental impact of such a policy, local officials say they are testing a system that will offer incentives to investors to reduce emissions and increase energy conservation. Officials are also said to be looking into setting up some kind of environmental exchange.
Original Article: [Chinese]

Concerns About Trial of High-tech Urban Grid Management System
Nation, page 9
~ Several cities in China have begun to trial the use of new high-tech methods of social administration, guided by the Political and Judiciary Commission under the Central Committee of CPC (中共中央政法委委员会).
~ The new method, which is sometimes referred to as "Urban Community Grids Management" (UCGM) (城市网格化管理), involves the use of digital tools and information technology to divide the various administrative tasks of a city area into various "grids" (网格). A small team is set-up to manage each individual grid, with detailed tasks spelled out for these volunteers who enter data into the system on a daily basis. The idea is that by strengthening the monitoring of each individual event that takes place in a grid, the supervision of each individual problem is separated out from the others.
~ Communities in cities like Fuzhou in Fujian province, the city of Zhoushan in Zhejiang province and Beijing have already begun to trial the new system.
~ Take the residential community of Qingcheng (庆城社区) in Fuzhou as an example. It is divided into seven grids, each holding 300 to 700 households. With the technical support from China Telecom (中国电信), the system can provide precise details about what's going on in the community, allowing the government to be informed about an act of vandalism or a broken street lamp for example.
~ "The government can actively discover and fix problems and in the future the causes of friction can be solved at a very early stage", said Huang Ningying (黄宁莺), an assistant professor at Fujian Normal University's College of Public Administration who has been conducting research on the grids.
Original article: [Chinese]

Shanghai Free Trade Zone Regulations to be Issued by the End of the Year
Nation, page 10
~ The State Council recently agreed to a proposal to upgrade Shanghai's Comprehensive Bonded Zone to a Free Trade Zone (FTZ).
~ Details of the final regulations that will apply to the FTZ will be issued by the Shanghai municipal government and its Commerce Commission (上海市商务委员会) at the end of this year. These detailed regulations will outline specific policies in relation to taxation policy, foreign exchange management and customs supervisions.
~ In the draft that was approved by the State Council in early July, the Shanghai government included some suggestions about the regulations, but the details still need to be agreed to by various ministries and agencies. Shanghai hopes to introduce an internationally competitive taxation policy in the FTZ and trial a mechanism to facilitate foreign investment.
~ The financial sector initiatives have drawn the most attention, including moves to liberalize interest rates, allow the free conversion of currency and open up the financial sector and offshore business.
~ Foreign banks will be permitted to set up subsidiaries or enter into a joint venture with China's commercial banks, though details about how the rules apply are yet to be released by the banking regulator.
~ Foreign commodity exchanges will also be allowed to set up their own futures delivery warehouses in the free-trade zone, which would benefit Hong Kong Exchanges and Clearing Limited (香港交易及结算有限公司) and similar companies.
~ Meanwhile, reforms of taxation policy and RMB foreign exchange management are still being debated. According to Shanghai government's suggestions, enterprises operating within the zone will shoulder a preferential corporate income tax rate of 15 percent. The Ministry of Finance and other cities that directly compete with Shanghai have opposed this measure. In addition, the regulators are still cautious about allowing the free conversion of RMB within the zone without supervision from the State Administration of Foreign Exchange (外管局).
~ It's just that the timing and circumstance are not right for the further freeing up of the RMB and its further opening of capital account, said Song Lijian (孙立坚), vice dean of Fudan University's school of Economics. This could be the biggest challenge of financial reform in China, for the opening of one area is the same as opening up the whole country and it could lead to the influx of external capital.
Original article: [Chinese]

Workers at Cooper Chengshan Oppose Acquisition by Apollo Tyres
Corporation, page 25
~ Workers at Cooper Chengshan (固铂成山轮胎有限公司), a joint-venture between Cooper Tire & Rubber Company (USA) and Chengshan Group (China), are on a strike. They are protesting the proposed acquisition of the company by Apollo Tyres, a leading Indian tire manufacturer.
~ Cooper Tire declared on June 11 that it was going to sell eight factories worldwide to Apollo Tyres. While the largest transnational acquisition case in the history of the global tire industry appears profitable for both Cooper and Apollo, the deal has now run into problems as the trade union which represents workers at the largest, most profitable and fastest-growing factory of the eight, Cooper Chengshan, have expressed their opposition to the deal.
~ On June 27, six representatives of the trade union put their concerns to Hal Miller, the president of the Cooper's International Tire Division. The union representatives told Miller that the one and only condition under which they would return to work was if the acquisition was halted.
~ Ma Rufu (马汝福), one of the six representatives, said there were three main reasons for their opposition to the deal. Firstly, if the acquisition is accomplished, Apollo India would face the problem of excessive debt, which would make the factory financially vulnerable to any decline in market demand. Further, the factory will suffer due to the differences in Chinese and Indian business culture. The factory had already paid a huge price to adjust itself to an American style of management. Thirdly, Ma said that by ignoring the concerns of the union the parties were breaking Chinese law. On July 12, Cooper Tire publically announced that the acquisition was still going ahead.
Original article: [Chinese]

GlaxoSmithKline Investigation Could Lead to 3 Year Ban on Sales in Hunan
Corporation, page 29
~ On 28th of June, Changsha Police announced that several senior Chinese executives of GlaxoSmithKline (GSK), Britain's biggest drugmaker, are being detained on suspicion of serious economic crimes.
~ According to authorities, employees of GSK in China offered large bribes to government officials, various medial associations and foundations, hospitals and doctors in order to expand the company's market share and raise prices. Employees of the company are also said to have violated tax regulations.
~ The police said that the executives in question have already confessed to the offenses.
~ A Hunan government official told the reporter that if GSK is officially found guilty, the company's products will be forbidden from being sold in the province for a three-year period.
~ GSK is believed to have been especially aggressive in the Hunan market. Experts comment that Hunan's drug market is not only more open to imported medicine but also boasts very high growth rates.
Original article: [Chinese]

Censorship Concerns Cause Wechat to Pull Back from WeMedia
Corporation, page 28
~ WeChat or Weixin (微信) is a popular cross-platform smartphone application in China with over 400 million users. WeChat is most often used to send text and voice messages among friends. Users can also share articles, pictures and videos through the "friend circle." It also boasts a popular "shake" app, which lets users shake their phone and see the information of other nearby users doing the same thing.  
~ In August 2012, the app's developer, Tencent, introduced its "public platform" (公众账号) allowing users to follow media and brands just like they do on Sina Weibo. Media accounts can even send different contents to different users based on their age, gender and other traits. But because the barrier to have a "media" account is quite low, many individuals have started their own "WeMedia" (自媒体) accounts. (An intern with the EO's English Department wrote about it here).
~ However, it seems that concerns about the amount of resources that would be required to monitor and filter content published via these WeMedia accounts is pushing WeChat developers to pull back from their promotion.
~ Last week, the Wechat team released a private beta version of the 5.0 upgrade of the application. After users upgrade to the new version, they'll find that the "public platform" page has been moved from the main menu to an internal page named "subscribed account" (订阅号). The new 5.0 version will also limit the number of pushes for public accounts. Once per month for a business public account, and once per day for a WeMedia account. In the past, most WeMedia accounts were already limited to one post a day, put users could apply for an upgrade that would allow them to post three times a day.
~ The page views of content published via WeMedia accounts are likely to drop after the new version of the software is rolled out, as it the application will no longer "push" the unread messages from public accounts.
~ In Wechat, a little red dot for each unread message was considered as a way to attract readers' attention. However, since all public accounts will be removed from the home page, subscribers will no longer be alerted in this way to new messages.
~ WeMedia developers are likely to be hard hit by the changes, especially those that had dreamt about making money through including advertising in their published streams. Without a high click rate, not many advertisers are likely to buy a spot.
~ Some public account owners on Wechat were a little more optimistic than others. They believe that their readers were attracted by the content, not the reminders from the software itself.
~ "It's like the 'Social' and 'Moments' section (a space where people can post personal updates that can be read by their "followers) in Wechat. The software doesn't "push" this content onto users, but you still read it every day." Said Su Juan (苏娟), a WeMedia developer.
~ It's unclear why WeChat is pulling back from WeMedia accounts, one explanation is that the company is worried that it doesn't have the resources to monitor all the information that is being published on these accounts. In China, the government strictly censors the media and almost every major online media company employs a group of people whose jobs is to censor information that could be considered "sensitive".
~ As the Wechat became increasingly popular, it could have as many as half a billion 500 users by next year. Given that the size of the team that runs the application is much smaller than for Weibo, just the cost of monitoring and censoring information could easily increase to more than a billion yuan.
Original article: [Chinese]

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