No. 390, Oct 20

Highlights from the EO print, issue no. 390, Oct 20, 2008

Have Faith in the Market Economy
Cover, Editorial
The past weeks have seen unprecedented market intervention from governments in the US and Europe in the face of a financial meltdown. The market economy mechanism had come under fierce attack of late, but the EO editorial cautioned that the current crisis should not be used as an excuse for China to reverse its decades-long market reform process. We argue that China should learn from the lessons of other market economies to improve its own market mechanisms. Though imperfect, the market had always been an effective system to reward success, eliminate losers, and distribute resources. To advance China's market reform, the editorial stressed that it must improve legislation to clearly define the duties and jurisdictions of various economic actors and strengthen protections for property ownership.
Original article: [Chinese]

Salvaging the Chinese Real Estate Market?
Cover
Several local governments – including that in Hangzhou, Nanjing, and Xi'an – had in past weeks introduced policies to stimulate the sluggish real estate market. Such moves had encouraged market expectations for greater intervention from the central government, and rumors had it that previous state policy restricting purchases of a second or more homes would be ease. Sources close to housing policymakers told the EO that proposal for relaxing loan and taxation regulations for second home purchases had been raised but had yet to receive any directive from the top.
Original article: [Chinese]

Chinese Health Care Reform – A Return to Planned Mechanism?
News, page 5
After some two years of deliberation, the draft of China's health care reform plan was finally released on Oct 14 for public scrutiny. The reform aimed at providing universal health care for all rural and urban Chinese in the future, and to quell increased complaints over rising medical costs. Chinese pharmaceutical industry players expressed disappointment, some even calling the draft a return to the planned economy system. Some industry players said the language used in the draft was very technical and unclear in definition, making the draft incomprehensible even to the medical experts. Sources told the EO that the unclear definitions and blurry language used were the result of negotiations and compromises among various interest groups.
Original article: [Chinese]

China's Capacity in Withstanding the Current Financial Crisis
News, page 7
Massive foreign reserves and huge banking deposit reserves were the accumulated advantage of China in withstanding the current financial crisis sweeping across the world, said Chinese central bank researcher Zou Pingzuo. Zuo believed China's status and influence in the global financial arena had also improved in the aftermath of the US financial meltdown, as China's wealth was deemed an important force in helping the reform of banking sector and also the International Monetary Fund.
Original article: [Chinese]

Co-operative Farming and Land Capitalizing in Zhaozhuang
Nation, page 11
A group of farmers and grassroots leaders in Zhaozhuang township, Shandong province, have set up the first co-operative that officially registered with the Commerce Ministry to manage land transfer matters. The move had enabled farmers to mortgage their land-use rights for capital and re-invest in agricultural production. The once-dissected farm land was brought together under the cooperative for large-scale farming and made investment in large machinery possible.
Original article: [Chinese]

Mainland Policy Hurting Macau's Casinos
Nation, page 13
Casinos in Macau, East Asia's gambling capital, have seen less traffic since the Chinese government imposed restrictions on visiting permits for individual mainland travelers. In the past, mainland Chinese could apply for permits to go to Macau once a month, but local government in Guangdong province, which is next to Macau, had cut the frequency to once every two months. In addition, for mainland Chinese who received permission to visit neighboring Hong Kong, they could no longer get automatic permit waivers to visit Macau. Casino operators and tourism industry players complained that the Chinese regulations, coupled with the current financial crisis in the US, had harmed their businesses badly.
Original article: [Chinese]

China PE and VC go into Hibernation
Markets, page 20
Beside the global financial tsunami, a diving A-share market and a dearth of domestic market listings have begun to push Chinese private equity and venture capital investments into hibernation. The latter two factors have reduced liquidity and returns to an unprecedented degree, forcing such investors to be extremely cautious. Data from EZCapital showed that in September, capital raising in China dropped dramatically, down to the level of January 2008, the lowest in history. The EO heard anecdotal evidence of VC partners whose personal wealth had evaporated with a worsening sellers-market in real estate and a free-falling stock market, making their VC investments harder to guarantee. As companies are anticipating an economic winter, many are more interested in reducing output than receiving an injection of funds, a stark contrast with times past when firms were strong and clamoring for investors. In Shenzhen at a VC conference, VCs made open solicitations for partners to work with them on projects in order to spread risk.
Original article: [Chinese]

Conspiracy Theory Against China's Largest Aluminium Producer?
Corporation, page 25
Chinese mining industry players have accused their British competitors in using the media to highlight negative stories about China's largest aluminium producer, Chinalco, which reportedly had its shares in Rio Tinto stuck in a custodial account with failed Lehman Brothers in Hong Kong. Chinalco has wanted to increase stakes in Rio Tinto to have a say in the hostile bid for the latter by the world's largest listed mining company, BHP Billiton. If Rio Tinto and BHP Billiton merged, it would further disadvantage Chinese miners and producers, who had been weak in asserting their prices in mineral purchase negotiations. Chinalco also denied that its shares in Rio were stuck, insisting that it had initiated procedures to get them back and that it had withdrawn assets in Lehman before the latter filed for bankruptcy.
Original article: [Chinese]

Dairy Firms Appealing for State to Stock up Milk Powder
Corporation, page 28
Some Chinese dairy companies have appealed for the government to consider a proposal for the state to buy and stock up milk powder. The call came after sales of local dairy products became stagnant following the melamine-tainted milk scandal broke. Industry players from Shaanxi province claimed if the state failed to come to their aid, milk farmers and companies would be out of business. The proposal claimed if the state agreed to buy and store milk powder, producers could continue to acquire raw milk from farmers, factories could function and keep jobs. The products in stock would be kept for future sales when consumer confidence returned, the proposal said. The national dairy association spokesman, however, said the proposal would be difficult to materialize; instead, tax cuts and credit lines would be a more realistic form of aid.
Original article: [Chinese]