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Issue 638 09-23-2013
Summary:Compulsory Pollution Liability Insurance under Discussion, Baosteel Head Rejects Advice to Become “China’s Carnegie,” Milk Shortage May be Here to Stay.


Highlights from the EO print edition, No. 638, Sept 23, 2013

Compulsory Pollution Liability Insurance under Discussion
News, page 2
~ The Ministry of Environmental Protection has been discussing an amendment to the Environmental Protection law. The amendment would set a legal basis for compelling companies in certain high-pollution risk industries to buy into liability insurance. The insurance would cover them in the event that they must pay damages for environmental damage.
~ An EO reporter visiting areas where pollution liability insurance schemes have been piloted for five years found that they have not been carried out well. The biggest difficulty is that there’s been no concrete law to depend on.
Original article: [Chinese]

Baosteel Head Rejects Advice to Become “China’s Carnegie”
News, page 3
~ Minister of Industry and Information Technology (MIIT) Miao Wei (苗圩) recently wrote a letter to Baosteel Group Chairman Xu Lejiang (徐乐江) with some advice. Miao said Baosteel should be the main force behind the mergers and restructuring in China’s struggling steel industry, and that Xu should be the Chinese version of 19th century American steel magnate Andrew Carnegie.
~ At a Sept 14 steel industry forum, Xu replied to the letter saying, “I need Minister Miao Wei and the State Council to give me the environment to become Carnegie. Under the current environment, I’ll die before I reach that.”
~This is the embarrassing reality of mergers and restructuring in the industry experiencing severe overcapacity. Although the government has been encouraging these reforms, enterprises simply don’t have the motivation to undertake them.
~ Earlier this year, MIIT, the State Council and other ministries jointly issued guidance on accelerating mergers and reorganization of enterprises in key industries. Relevant departments and local governments are still drafting the detailed rules.
~ The EO learned that the detailed rules will begin with financing, taxation, bank loans, and employee relocation to provide full policy support for enterprises’ mergers and reorganization. Meanwhile, some policies detrimental to enterprises’ mergers and reorganization will be abolished.
~ However, this is not what enterprises are most concerned about. Xu Lejiang said the government just needs to create an environment conducive to mergers and restructuring, but it shouldn’t control too much. Xu believes that the state-owned enterprise system is the fundamental problem preventing vitality and competitiveness. Instead, a manager system (经理人制度) should be established and market mechanisms should be formed.
~ A high executive from China Steel Association told the Economic Observer that for mergers and restructuring, the policies being suggested now have all been tried before. However, enterprises still never want to change because the fundamental ownership system hasn’t changed.  
Original article: [Chinese]

Milk Shortage May be Here to Stay
Corporation, page 28
~ Song Liang (宋亮), a researcher from the Distribution Productivity Promotion Center of China Commerce (中商流通生产力促进中心), warns that a shortage of low-to-middle-end liquid milk has emerged in many supermarkets, with the situation this year more critical than in the past. “A conservative estimate is that there will be at least a 4 million ton milk shortage in 2013,” Song said.
~ Increasing demand, a large-scale withdraw of dairy farmers from the industry, inadequate milk production facilities, the hot weather in certain regions and import restrictions on New Zealand milk have all come together to result in this year’s shortage.
~ Large scale pastures for producing milk are being built, but their effect won’t be felt until at least next year. Chinese companies will feel a pinch in the latter half of this year as they scramble to come up with enough milk to sell.
~ It’s generally believed though that the milk shortages won’t be a short-term problem. According to Song Kungang (宋昆钢), honorary chairman of China Diary Industry Association (中国乳制品工业协会), the growth in milk production is diminishing. It’s averaged only about 2 percent annual growth since 2008.
~ Yuan Yunsheng (袁运生), secretary general of the Diary Association of Hebei (河北省奶业协会), says that to relieve the milk supply problem in the long-term, pricing and production mechanisms that work together will be needed.
Original article: [Chinese] 

Will PetroChina Break Up? 
Corporation, page 25
~ Since a series of corruption scandals at PetroChina has seen many high officials sacked, the National Development and Reform Commission (NDRC) has been discussing restructuring the entire company and making its gas pipeline business more independent.
~ PetroChina holds a virtual monopoly on the gas mining and transmission business through its ownership of 90 percent of China’s gas pipelines. An NDRC consultant said that this is the main impediment to gas price reform. A greater separation from the pipeline business could serve as a breakthrough in the overall reform of PetroChina. 
~ This pipeline monopoly has brought problems like redundant infrastructure construction and has raised strong objections from other state-owned energy companies like Sinopec, Shenhua (神华) and Datang (大唐). 
~ One possible plan under discussion is to establish a state-owned corporation specifically for the management and operation of pipelines. Another possible approach is separating the pipeline assets and listing them on the stock market. The successful case of splitting up the assets of China National Offshore Oil Corporation (CNOOC) and separating certain services could serve as a model.
~ However, reforming PetroChina is complicated. There are 14 subsidiary companies involved in the pipeline business, and property and stock issues are difficult to deal with.
~ The NDRC consultant said that the hidden interest chain is also obstructing reform. “One of the goals of a demerger is to reduce corruption, but the corruption is the biggest obstacle against it.” 
~ Additionally, there are concerns about how reform of PetroChina will affect the security of the state energy supply. 
Original article: [Chinese] 


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