No. 418, May 11

By English Edition Staff
Published: 2009-05-12

Highlights from the Economic Observer print edition, May 11 2009

Beichuan One Year On
The EO commemorates the one year anniversary of the Sichuan Earthquake with a special feature that looks at how life is gradually starting to return to normal in what was formerly a remote and largely unknown Qiang minority autonomous county, but has since become the symbol of a national tragedy. The report includes details on the special relationship between the Shandong provincial government and Beichuan. It also provides profiles of Beichuan residents and looks at how they're starting to piece their lives together.
Original article: [Chinese]

Another Government Attempt to Regulate Slush Funds
Cover, News
According to a previous report by China's National Audit Office (NAO), it's estimated that every year government departments and state run institutions lock away 82.7 billion yuan in secret slush funds. Others suggest the number might be as high as 500 billion yuan each year. Central government authorities hope that a special 8-month project currently under way, the 12th such attempt to regulate these illegal hoardings since the 1980s, will allow them to crack down on the illegal appropriation of public funds. However, some doubt the efficacy of the project, as the central authorities lack the resources to do a full audit and administrative units will be asked to report on themselves.
Original article: [Chinese]

Central Government Considers Measures to Increase Revenue

News, page 3
China's Ministry of Finance is considering various measures to increase treasuary revenue. The EO learned that the Ministry was considering upping the sales tax on tobacco along with other products that either harm people's health or the environment. The Ministry is also said to be contemplating adjusting the resource tax system. In addition, the on-going project to crack down on slush funds (see cover story - Another Government Attempt to Regulate Slush Funds), is also likely to boost treasuary coffers. China's national fiscal revenues registered a year-on-year decline of 8.3% in the first quarter, down more than 133 billion yuan, according to the figures released by the Ministry.
Original article: [Chinese]

Mitsubishi's Acquisition of Lucite International Approved with Restrictions
News, page 6
China's Ministry of Commerce (MOC), the government agency in charge of China's antitrust review process, released a statement on April 24, announcing it had approved Japanese company Mitsubishi Rayon's acquisition of Lucite International, but did so with additional restrictive conditions. The conditions added to the deal include a requirement that within five years, Lucite International China strip off half of its production capacity to a third party and during the same period Mitsubishi Rayon are restricted from setting up any new plants or acquiring additional companies in China. Lucite is the world's largest acrylic-based product maker. The noted that without the restrictive measures, the two firms would control a 64% share of the domestic methyl methacrylate (MMA) market and thus could dominate the sector. However, experts questioned  whether control of 64% of the market was so detrimental to competition that the deal required additional restrictions and also complained that detailed information regarding the decision was not released.
Original article: [Chinese]

Draft Regulations of Future Growth Enterprise Board Released
Market, page 17
The latest in a series of regulations related to the establishement of China's Growth Enterprise Board (GEB) were announced by Song Liping, president of Shenzhen Stock Exchange (SZSE), at a joint press conference with China's Securities Regulatory Commission (CSRC) on May 8. The draft regulations outline the listing rules in relation to the Nasdaq-like future GEB. Stakeholders have paid particular attention to both the delisting mechanisms and controls related to an initial lock-down period outlined in the draft. According to sources within the SZSE, the GEB is unlikely to begin trading before August or September this year.
Original article: [Chinese]

RMB Policy: China to Loosen Currency Control?
Market, page 19
On May 5, the exchange rate of the Renminbi against the US dollar reached 6.8199, hitting a seven-month high. Scholars and analysts see the gain as policy driven, and have interpreted it as a sign that the Chinese government might consider loosening currency control policy, a step towards internationalizing its currency. Some scholars have projected that China would eventually make a shift from its current managed float of the Renminbi tied to the US dollar.
Original article: [Chinese]

China Continues to Promote Creation of Domestic Financial Derivatives
Market, page 20
Despite the fact that many state-owned firms suffered huge losses after betting on options, hedges and foreign currency derivative contracts, China continues to promote more financial derivative products. In early May, China's central bank issued a report promoting the development of more bonds and hedge products and the introduction more interest rate, currency exchange and credit derivatives.
Original article: [Chinese]