Issue Wrap No. 491, October 25, 2010

By English Edition Staff
Published: 2010-10-25

Highlights from the EO print edition, Issue Wrap No. 491, October 25

Hot Money Returns to China
~ On October 21, Norman Chan, Chief Executive of the Hong Kong Monetary Authority (HKMA), publicly expressed his concern with the size of the continual inflow of hot money into Hong Kong. At the same time, the mainland's State Administration of Foreign Reserve (SAFE) is also worried whether Hong Kong will be able to impede such an inflow. The recent surge in China's A-share composite index has also added to these concerns.
~ The People's Bank of China lifted domestic interest rates by a quarter of a percentage point last Wednesday, which has touched off international specualtion as to whether China plans to more stictly regulate hot money inflows by adopting administrative measures.
Original article: [Chinese]

International Mining Giants Split on Iron Ore Pricing
News, page 4
~ In the past, China's steel companies usually began annual iron ore price negotiations with the three dominant international miners as early as September, but talks have yet to commence this year.
~ While Luo Bingsheng, vice president of the China Iron and Steel Association (CISA), has stated that the current quarterly index pricing system "is not reasonable and a new negotiation is needed," Liu Yonggang, China's leading negotiation representative for the past two years, said directly, "If we did have a say (on deciding the pricing system), it would have become index-oriented last year."
~ It appears that even the three international mining giants are split on which pricing mechanism is best for the iron ore trade. While BHP-Billiton wants to swap the current index pricing system to a price mechanism based on a spot market and then a futures market, the Brazilian company Vale hopes the current index pricing system will remain.
Original article:[Chinese]

Salt Industry Reform Delayed
News, page 3
~ The liberalization of the salt industry has been delayed. Originally, 100 salt manufacturers were to be allowed to enter the table salt market in 2011, but this plan has been delayed at least until 2012.
~ According to the China National Salt Industry Corporation (CNSIC) suggestions, the salt industry needs at least three more years before it can be liberalized, meaning the industry will remain closed until 2015.
~ The EO has learned that the CNSIC has issued a draft notice to a provincial salt administration bureau which clearly states the salt industry monopoly system will continue into 2011.
~ An insider from the CNSIC stated that this report does not mean that the reform will be stopped; it is only a call by the CNSIC to the NDRC to make a more suitable time period for the reform of the industry.
Original article: [Chinese]

Occupational Hazards: Growing Prevalence of "Mental Illness" Among China's Civil Servants
Nation,page 9
~ On October 16, Wu Xuexin, the former Party Chief of Wujiang district in Guangdong's Shaoguan, committed suicide by leaping from a building.
~ Officials in his department cited "depression" and "a falling out with friends" as reasons for Wu's sudden suicide. Wu is one of several government officials to die of "unusual causes" in the past two years.
~ According to an unpublished 2008 report on the "Mental Health of Civil Servants," over 34.5 percent of government workers experience varying degrees of "depression." 3.46 percent suffer from severe depression and 9.9 percent experience moderate depression while 21.3 percent experience mild depression.
~ Incidents of depression and mental illness are higher among political and legal officials than among other civil servants.
~ Dai Yong, a mid-ranking civil servant, leapt to his death from a ten-story building on August 27th. Dai also suffered from depression, brought on by the pressures of being a "mid-ranking" civil servant and having to balance complaints from below and demands from above.
~ Tong Zhaohong, vice-president of the Higher People's Court of Zhejiang province, committed suicide on September 21st of this year. There is ample evidence that Tong was suffering from depression, and many link his death to investigations into alleged involvement in corruption.
~ According to survey by the People's Forum, 80 percent of political officials feel they are under immense psychological pressure. 64.65% attribute the pressure to "unseen threats to their political futures."
~ Experts say that mental illness is often treated as a myth and not a serious condition. The CDC director of Association of Mental Health of Hangzhou City Zhejiang Province Zhao Guoqiu says that more should be done to monitor the mental health of civil servants.
Original article: [Chinese]

Hangzhou's Disease: Relying on Land Sales for Development
Nation, page 10
~ One of the main drivers of recent soaring property prices is that local governments are able to earn revenue by leasing land to developers.
~ Last year Hangzhou City ranked first in terms of domestic real estate prices.
~ Hangzhou's careful management of its land contributes greatly to local development, but also causes housing prices to soar; while land development may be positive for the appearance of a city, it increases the cost of living, rent and industry, eroding the health of the local economy.
~ Last year the Hangzhou city government had a financial revenue of 52 billion yuan and expenses of 49 billion yuan; the same income expenditure ratio as most other city governments. However, Hangzhou's income from land management is much more than other governments can obtain. According to materials leaked from an internal meeting, of the 52 billion yuan of revenue, 96.8 percent came from land sales.
~ In the past three years, Hangzhou has increasingly depended on land sales to improve its city's appearance.
Original article: [Chinese]

RMB Appreciation Dampens Spirits at Guangzhou Trade Fair
Nation, Page 13
~ The first phase of the Guangzhou Trade Fair ended on October 19. The fair attracted 98,000  foreign purchasers, down 5.5 percent on last year's figure. Many are attributing the drop in the number of attendees to the recent appreciation of China's currency.
~ "If the exchange rate [RMB against the US Dollar] continues to rise by another 2 percent, Chinese companies will suffer losses," said one representative attending the fair.
~ However, such a currency appreciation may also be advantageous. Experts have recommended that Chinese companies grab this chance to purchase high-end equipment from foreign companies.
Original article: [Chinese]

New Regulations Likely to Lead to Boom in China's Derivatives Market
Market, page 19
~ The China Banking Regulatory Commission (CBRC) will soon issue the new "Administrative Rules Governing Derivatives Trading among Banks and Financial Institutions." The regulations will be an upate on the existing rules that were introduced in 2004.
~ The new plan will split derivatives into two classes (base and non-base) (基础类与非基础类). The base class will include gold, silver, the interest rate and the exchange rate. The non-base class will include energy, commodities, credit, and others.
~Under the 2004 "Administrative Rules Governing Derivatives Activities of Financial Institutions," financial institutions were limited to trading derivatives for risk-management purposes. Now, banks will be permitted to trade credit and commodity derivatives in an effort to develop the domestic derivative market.
~ According to the CBRC, China's derivatives market is still small. In 2009, the total trading volume of the global derivatives market was 600 trillion US dollars, China's derivative market accounted for only 1 trillion.
~ Under the new measures, financial organizations can apply for three different kinds of licenses: A (base), B (ordinary) or C (advanced).
~ The different licenses can be used to engage in four different types of derivatives trading, which have been categorised according to trading purpose: risk-management (风险管理类), customer service (客户类), market-maker (做市类) and "self-trading" (自营类).
~ For instance, institutions that engage in risk-management trading will only be permitted to trade base-class derivatives, where as "Self-trading" institutions will be able to trade on all derivatives.
~ Banks are expected to compete for the new licenses. Foreign financial institutions will also be permitted to apply for licenses. China's derivatives market is expected to experience rapid growth as a result.  
Original article: [Chinese]

Midea Plays Tough for Top Spot in China's Home Appliance Market
Corporation, page 25
~ To win more of the market share from its competitors, Midea Group, China's leading home appliance manufacturer, has set clear and strict sales targets for its salesmen, forcing them to take extreme measures when competing against other home appliance manufacturers.
~ The conflict between Midea and Jiuyang, China's biggest soymilk machine maker, is only one example of the fierce competition taking place in the home appliance market.
~ Despite Midea's position as a home appliance empire which boasts a sales volume of hundreds of billions of yuan, it still ranks second in production of air conditioners, refrigerators, microwave ovens and soymilk machines.
Original article: [Chinese]