No. 419, May 18

By English Edition Staff
Published: 2009-05-18

Highlights from the Economic Observer print edition, May 18 2009

Price of Natural Gas to Rise
Cover News
* A member of the National Development and Reform Commission (NDRC) confirmed on Thursday that a plan to reform the price of natural gas has been passed to the State Council for consideration
*Although the State Council has not released any details of the plan, according to leaks, the plan is to progressively increase the price of natural gas in order to bring it closer to that of renewable energy.
* According to an earlier report produced by the NDRC in 2007, price rises will be limited to a maximum of 8% per year, but it's still unclear if the current report is in keeping with earlier ideas.
*A professor from the China University of Petroleum noted that price reform is also aimed at ironing out the differences between the price of imported natural gas and the cheaper domestically produced gas.
* The biggest area of concern is the natural gas used in the production of fertiliser. Uptil now, the gas used in the production of fertiliser has been heavily subsidised, but an official from the price control authority said that this will have to change.
Original article: [Chinese]

How to Calculate Resource Tax - by Amount or Value?
News, page 3
* Companies from the two most profitable industries in China's resource sector, oil and coal mining, are anxiously awaiting the Ministry of Finance's (MOF) final decision on whether the new resource tax regulations are set to tax resources based on weight or value.
* If the MOF chooses to tax according to value, the coal industry can expect their tax burden to increase 5 times. The oil industry's tax bill will be 10 times higher.
* As all of the tax from coal and oil goes to local governments, many have been lobbying the MOF to tax according to the value of resources.
*in 2008 Shenhua made a profit of 26.5 Billion yuan and were takes 850 million yuan. Sinopec and PetroChina made a total of 140 billion yuan and were taxed 4.6 billion yuan.
* In 2008 MOF collected 30.17 billion in resource tax revenue, if they start taxing according to price, it's estimated they'll recieve well over 100 billion yuan a year .
* Two years ago the same proposal was put to the National Development and Reform Commission but was rejected three times.
Original article: [Chinese]

Confusing Macroeconomic Numbers
News, page 6
* The release of a puzzling set of macoreconomic numbers for April has left companies and economists in disagreement
* Although most commentators were optimistic, many government officials were starting to question the likelihood of a V-shaped recovery and suggested that the economy may remain in the duldrums for an extended period
*There are also conflicts between local and central governments in terms of their interpretation of the numbers, especially in relation to the stimulus package.
Original article: [Chinese]

China Still Faces Milk Safety Challenges
Nation, page 12
*All dairy producers and retailers ought to stop producing and selling milk tagged with "antibiotic free", according to a circular released on the website of China's Ministry of Health in early May.
*The circular was introduced after it was discovered that some dairy farmers and raw milk collection stations had been using illegal additives like lactamase to dissolve antibiotics present in the raw milk.
*Wang Dingmian, of the Dairy Association of China, explained that the antibiotics present in the raw milk come from two sources. The first is associated with the use of antibiotics to treat mammary gland infections in cows. In the seven days following this treatment, the raw milk produced by these cows will contain traces of antibiotics. Aside from this, dairy farmers and raw milk collection station workers sometimes add antibiotics to reduce the amount of bacteria in the raw milk.
*Research showed that consuming milk with traces of antibiotics over an extended period would reduce people's immunity, cause skin disease and potentially cause severe allergic reactions among some consumers.
Original article: [Chinese]

Investigation of Domestic Airline Ticket Price Fixing
Corpration, page 25
* The National Development and Reform Commission (NDRC) has started to investigate the Civil Aviation Administration of China's (CAAC) ticketing website, TravelSky, regarding accusations that it engaged in the price fixing of airline tickets
* Many experts suspect that attempts by TravelSky to manipulate prices went against the new anti-monopoly law
* If the NDRC find that TravelSky illegally attempted to manipulate prices, CAAC may be laible for a huge fine in the order of 1.5 to 15 billion yuan.
* After receiving pressure from various airlines earlier this year, TravelSky informed their business agents that they would be changing the way that discounts were calculated on March 19. On April 20, TravelSky announced that the lowest discount available on an air ticket was being raised from 96% off the original price to 76% off.
*TravelSky is a virtual monopoly supplier of air tickets that control 97% of the airline ticket market. It's a state-owned business listed on the HK stock exchange and a large majority of its major share holders are state-owned airline companies.
Original article: [Chinese]

Sinotrans Quit Domestic Express Business
Corporation, page 27
*After competing in the domestic express delivery market for four years, Sinotrans Group, a state-owned logistics giant, has given up on its plan to operate an independent domestic delivery operation.
*On May 8, Sinotrans Air Transportation Development, the Sinotrans Group's listed subsidiary, began to sell all the shares of its wholly-owned subsidiary - Beijing Sinotrans Express Company (BSEC), a branch that specialized in domestic express delivery.
*The EO learned that the company would probably be taken over by DHL-Sinotrans, in a 50/50 joint venture between DHL and Sinotrans Group.
*The BSEC had been operating at a loss for the past four years. In 2008 its losses reached a record high 121 million yuan.
Original article: [Chinese]