Issue Wrap No. 464, April 12

Highlights from the EO print edition, issue no. 464, April 12, 2010

Rotten Apples: Where iPads Really Come From
News, cover
~ The iPad is likely to be a big money spinner for Apple Inc; however, beneath the slick facade lies an industrial interest chain weaved by the sweat of workers from factories in China. Apple will be able to earn huge profits through squeezing the manufacturers it gets to assemble the appliances, who in turn exploit thousands of Chinese workers.
~ According to the regulations of Foxconn Technology Group, one of contract manufacturers for Apple Inc, workers in the company's Shenzhen factory should work six days a week and receive one day off; however, due to the strict supply schedule set by Apple, Foxconn usually only its its employees one day's rest after working for 13 straight days. People close to the matter revealed that Apple required its contract manufacturers to sign a letter of commitment to make clear such a rest arrangement is out of their own decision and has nothing to do with the Apple inc.
~ In late February, over 100 workers at the United Win Technology Company, established in Suzhou in 1999 and also a contract manufacturer for Apple inc, were sickened by hexyl hydride, a toxic and flammable liquid chemical. A former senior manager at the United Win Technology Company revealed it was Apple Inc that suggested the company let workers use the above chemical instead of spirits to cleanse the screens of iPhones that were being assembled at the factory.
~ A senior executive in a Taiwan-funded factory said that Apple is able to take advantage of its powerful position and indirectly restricts any increases in the pay of factory workers. "Apple usually calculates its labor spending for OMEs in accordance with the minimum wage standard stipulated by China's local governments," the above source added. As a result, in order to pursue profits, the contract manufacturers aren't likely to raise the pay of workers.
~ At present, the iPad sells for 499 US dollars; however, according to the former senior manager at the United Win Technology Company quoted above, the cost of components for one iPad is less than 100 US dollars. He also revealed that Apple took between 60 and 70 percent of the profits of iPhone sales, while Chinese manufacturers only received 2 percent.
~ At the time of going to press, Apple declined to comment on the questions raised by this report.
http://www.foxconn.com.cn/
Original article: [Chinese]

Shanghai, Chongqing to Pilot Property Tax
News, cover
~ To curb skyrocketing housing prices, China is planning to launch a pilot property tax in some cities; Shanghai and Chongqing are among the most likely cities to take part.
~ While Shanghai has planned to impose a "property-owner tax" (房产保有税）on both existing homes and newly-constructed homes, Huang Qifan, mayor of Chongqing Municipality, claimed during this year's CPPCC and NPC that Chongqing will require home-buyers to pay a "special real estate sales tax" (特别房产消费税）so as to slow the bubbling property market.
~ Property tax is believed to be the most effective way to reduce the vacancy rate of houses in Chinese cities. Statistics from State Grid show, the reading for 65.4 million houses in 660 cities has been 0 ammeters for over 6 months, indicating an unreasonably high vacancy rate of Chinese homes.
Original article: [Chinese]

Look to Pork Prices for Warnings of Inflation
News, page 2
~ Due to over supply, pork prices have continued to fall over the past few months, leading to financial losses for pig farmers.
~ Despite efforts by the National Development and Reform Commission (NDRC) in cooperation with the Ministry of Commerce and the Ministry of Finance to purchase pork in order to expand demand and lift prices, there has been no noticeable shift in the price trend.
~ Some economists predict that pork prices may surge in the second half of this year. As pork prices account for three percent of the consumer price index (CPI), it's feared that rising pork prices might lead to rocketing inflation as it did during the first half of 2007.
~ Beside pressure from fluctuations in the price of pork, other factors related to monetary policy and the price of commodities are likely to add inflationary pressure.
Original article: [Chinese]

Real Estate Business of 78 Central-owned Enterprises to be Transferred to Main State-owned Players
News, page 3
~ All of the 78 centrally-owned enterprises that were recently required by the State-owned Asset Administration and Supervision Commission (SASAC) to report their exit strategy from the property market, have submitted proposals to the central agency outlining how they plan to sell or transfer their real estate business.
~ Some of the 78 centrally-owned companies plan to sell their real estate interests in the open market or transfer their business to other centrally-owned enterprises who are authorized to focus on the property market. Another possible exit method is for the state-owned enterprises to sell their land management rights to outsiders while maintaining land ownership and still gaining yearly benefits.
~ Despite the variety of methods put forward, it's likely that the enterprises who will end up buying the real estate businesses of these 78 companies will also be state-owned, because if sold to privately-owned enterprises, the 78 companies would have to bear the huge cost of dismissing their employees.
~ Another reason for the centrally-owned enterprises to choose their state-owned counterparts is their shared concepts and working procedures.
Original article: [Chinese]

MOF Worries About Potential Skyrocketing Trade Surplus Despite Current Deficit
News, page 3
~ Though China has just registered its first trade deficit for the first time in 70 months, the country's Ministry of Commerce is worried about the potential of record trade surpluses in the middle of  the year.
~ China's imports from some key countries exploded in March, with imports from America rising by 65%. ~ Some analysts have claimed that it's the import of more components and parts to meet the demand for increasing foreign orders pouring in to the country's processing centers, which has led to the registering of the trade deficit.
~ Others point out that strengthening of commodity prices, especially for items such as metals, iron ore and oil has also contributed to a rise in the value of imports to the country in March
~ However, the trend is likely to be reversed in June and July when all the components and parts imported in March will be exported as completed products
Original article: [Chinese]

An Alternative End to the "Currency War": Open More Chinese Markets to US Investment
News, page 5
~ The debate over whether China should appreciate its currency against the US dollar is still going strong and the future path of the RMB remains undetermined.
~ The impact of any appreciation of the RMB on various industries will differ - industries reliant on the import of large commodities may benefit, yet many export industries may suffer.
~ Aside from letting their currency appreciate against the dollar, China has another option in terms of reducing the trade imbalance between it and the US - the country could open up agriculture, finance, and service markets to foreign investment.
~ But there is still controversy about whether China should open more of its markets. Unlike the case of Japan, there is room for China to negotiate with the U.S. on many aspects.
~ Even if China decides to further open its agricultural, financial and services markets, it will be very difficult to do so.
Original article: [Chinese]



The Big Dry: Effect of the Drought on Southwest China
Nation, page 12
~ The ongoing drought in Southwest China has caused serious problems for the local economy.
~ With the level of the upper reaches of the Mekong (known as Lancang Jiang in Chinese) at historic lows, shipping has completely stopped, which has brought a halt to associated catering, tourism, entertainment and other enterprises that depend on the river.
~ Lack of rain, has led to a shortage of water in local reservoirs causing power capacity at hydro-stations to fall to one fifth of the normal level, creating an increasingly serious shortage of thermal coal which in turn has pushed up electricity prices.
~ The drought has also made rubber tree plantations susceptible to disease and insect infestation, reducing output by somewhere between 30 and 40% compared with a year earlier.
Original article: [Chinese]

China's Top Securities Regulator Is Preparing to Establish An Association for Listed Companies
Market, page 17
~ China Securities Regulatory Commission (CSRC), China's top securities regulator, is preparing to establish an association of Chinese listed companies, sources from the CSRC, listed companies and stock brokers revealed to the EO.
~ The EO learned that in the future, the independent director of listed companies will be nominated or appointed by the association instead of by the companies listed in order to allow the independent director to exercise independent judgment.
~ Chen Qingtai, former director of the Development Research Center under the State Council, will be named the association's executive chairman and Chen Yaoxian, former chairman of the CSRC, will be named chairman the EO learned.
~ In addition, Fan Fuchun, who recently retired from the CRSC, and Yang Hua, head of the Division of Listing Company Supervision of the CRSC, will be named executive vice chairman and secretary-general of the association.
Original article: [Chinese]

Xie Ping to Join CIC
Market, page 17
~ Xie Ping, who recently resigned from his position as general manager of the Central Huijin Investment Company, the domestic investment arm of the country's sovereign wealth fund, China Investment Corporation (CIC), will assume the role of vice Chief Investment Officer (CIO) at CIC where he will assist Gao Xiqing, president and CIO of CIC, to manage overseas investment business.
~ Due to strict policies that restrict inappropriate contact between employees of CIC and its subsidiary Central Huijin, during his term at the Central Huijin, Xie Ping did not take any part in planning CIC's investment projects at home and abroad.
Original article: [Chinese]

Agricultural Bank of China to Go Public on the Shanghai and Hong Kong Stock Exchange
Market, page 19
~ After five years of preparation including receiving a 19 billion US dollar capital injection from the government and stripping off 800 billion yuan of its bad assets, the Agricultural Bank of China (ABC) recently began an open tender to choose its underwriters, a move that indicates that the bank's preparation for listing has entered its operational phase.
~ An authoritative source told the EO that the bank has not decided when it will list and what the scale of its initial public offering will be, but he knew for certain that the bank would list on both the Shanghai and Hong Kong stock exchanges either simultaneously or in succession.
~ The bank's IPO will raise funds worth between 22 billion US dollars and 30 billion US dollars, the above source added.
Original article: [Chinese]

Moutai as Collectors Item
Corporation, page 27
~ Collecting baijiu, a Chinese distilled alcoholic beverage, has become a new personal investment and wealth management option.
~ Due to its perceived good flavor, limited supply and the listed company's annual price hikes, Moutai has becomes the best brand of baijiu to invest in.
~ Since the idea of collecting baijiu occurred to him three years ago, Ma Fei, a 35-year-old businessman, has collected over 2,000 bottles of Moutai.
~ Lin Feng, partner of Beijing-based Hejun Consulting Company, said in 2009, some funds also bought a large quantity of Moutai from the retail market at 600 yuan per bottle and then cashed them in at a higher price.
Original article: [Chinese]