Issue Wrap No. 504, January 24, 2011

Highlights from the EO print edition, No. 504, January 24, 2011

Dang Dang's Li Guoqing Microblog Outburst Reveals Frustrations of Chinese Companies
Cover
~ Only 4 days after Peggy Yu Yu, co-founder of E-Commerce China Dangdang Inc, extended an invitation to Morgan Stanley employees to attend a party with representatives of Dang Dang, the other co-founder and chairman of the company, Li Guoqing engaged in a very public spat with a so-called "female employee from Morgan Stanley" on Sina's twitter-like microblogging service.
~ For the past few days, Li Guoqing's mobile phone has rung unanswered and Dang Dang's public relations people will only repeat that they "won't accept any interviews".
~ Someone who works for Morgan Stanley told the EO, that if this so-called "female employee from Morgan Stanley" was actually found to work for the company, there is no doubt she will be fired.
~ The EO also understands that Morgan Stanley have filed a complaint with the police.
~ The article goes on to look at some of the legitimate concerns that Chinese companies looking to list on foreign bourses have when it comes to finding an underwriter.
Original article: [Chinese]

Restrictions on Property Purchases Introduced in Second- and Third-tier Cities
Cover
~ The EO has learned that towards the end of 2010, the Ministry of Housing and Urban-rural Development requested certain cities that had witnessed rapid increases in housing prices to introduce measures that limit purchases.
~ Furthermore, the EO has also learned that the central ministry will put pressure on officials who are unwilling to push ahead with such measures according to an unofficial policy of "If you don't introduce restrictions, we'll arrange a meeting."
~ Unlike the 16 cities that introduced purchase restricitions on property in 2010 - often in the form of lifting rates for second or additional home purchases or by stopping credit entirely for additional property transactions - the new wave of cities introducing these measures are by and large second- and third-tier cities.
~ In the past week or so, some of China's second- and third-tier cities have unveiled new purchasing restrictions on property - including Zhengzhou, Taiyuan and Kunming. Others such as Qingdao, Jinan and some cities in Guangxi have indicated that they'll soon introduce similar regulations.
Original article: [Chinese]
 
Strict Restrictions on Foreign Capital Flowing into Real Estate
News, page 3
~ While new policies to control housing prices continue to be unveiled, overseas interest in China's real estate industry has picked up again.
~ Foreign capital in real estate accounted for 22.7 percent of all foreign investment in China last year, according to the Ministry of Commerce.
~ But the Ministry of Commerce will further strengthen supervision over all foreign capital entering the property sector. This has been interpreted as a sign of a tightening of market policy.
~ "At present, supervision over foreign capital entering the real estate sector is quite strict, so the space for policy adjustment is small, but policies can always be further strengthened," an official with the Ministry of Commerce told the EO.
~ The implementation of supervision policies will be the focus of new reforms. The Ministry of Commerce and the State Administration of Foreign Exchange will give further consideration to the detail.
Original article: [Chinese]

New "Grain Law" Likely to be Introduced this Year as 3 Ministries Vie for Control of GM Related Policy
News, page 4
~ Grain might be the first front on which China's legislators move in relation to introducing laws that regulate China's genetically-modified food and crops.
~ Following the National Development and Reform Commission's (NDRC) lead, the State Administration of Grain has been asked to produce a draft "Grain Law" that according to the EO's sources has already undergone 5 or 6 drafts and is now being passed around other related central ministries and regional governments for feedback.
~ It's predicted that the draft law will be passed to the State Council for a first reading before the gathering of this year's full sitting of the National People's Congress in March.
~ Those familiar with the situation say, that if everything goes smoothly, the law could be implemented as early as this year.
~ One intresting aspect of the draft law is the fact that the NPC's Agriculture and Rural Affairs Committee suggested that the State Council take a closer look at sections of the draft law that touch on the management of genetically-modified grains.
~ The Ministry of Agriculture (MoA) and the Ministry of Environmental Protection (MEP) are either working on developing regulations or attempted to draw up laws that regulate the use of genetically-modified crops in China in the past.
~ According to an inside source, the reason why the Ministry of Environmental Protection's "Genetically Modified Organisms Safety Law" never got past the draft stage, was because of competing interests between the MoA, the MEP and the Minisrty of Science and Technology. Attempts to introduce the law floundered in 2006, but now it appears that there are new attempts to push the law through.
Original article: [Chinese]

China's Central Bank to Establish "Regulations" for Financial Holding Companies
News, page 5
~ The number of financial holding companies and the extent of their activities have grown rapidly in the past 5 years, but many have complained about the lack of regulations and guidance from the government.
~ Now, the central bank is considering releasing a "rules of the game" for financial holding companies.
~ First, the central bank will clearly define what constitutes a "financial holding company" and the range of its activities. Second, the central bank will delineate management activities and guarantee effective management of holding companies.
~ The central bank hopes to undertake a specified supervision for holding companies by assessing capital and risks but without interfering with internal management.
~ New regulations will allow the State-owned Assests Supervision and Administration Commission (SASAC) to tighten supervision over level one financial institutions and strengthen "firewalls" between banks and subsidiaries.
~ Another aim of the regulations is to prevent risks from spreading from the industrial sector to the financial sector through the transfer of capital
~ The regulations will allow SASAC to divide financial institutions into holding and non-holding companies and undertake risk assessment and other regulatory measures for all financial institutions.
Original article: [Chinese]

Fight Against Corruption Continues in Shanxi's Coal Industry
News, page 6
~ Shanxi Province's anti-corruption measures aimed at the coal sector are taking effect at the municipal level.
~ Anti-corruption efforts will be further strengthened at every level. "As soon as we receive a tip off, we will launch investigations. If we are unable to complete an investigation, we will hand it over to the Commission for Disciplinary Inspection of the Central Committee," said the Shanxi anti-corruption group office director Liu.
~ According to a local official, "the coal industry comprises a chain of interests, if government officials are involved in profit distribution, it can be a hotbed for corruption."
~ In 2011 Shanxi will continue reforms for the coal industry. In the process, many believe more corruption cases will be uncovered.
Original article: [Chinese]

Special Feature: The Regional "Two Sessions"
Nation, page 9-15

Beijing
In the Capital, Twelfth Five-Year Plan Will Focus on Population Control
~ A main theme of the plenary sessions of the Beijing municipal NPC and CPPCC was population control and traffic conditions.
~ During the 11th Five year plan period, population control measures were controversial, and Beijing's population continued to balloon.
~ By the end of 2009, the population of Beijing had reached 19.72 million, including a registered population of about 12.46 million and a floating population of 7.26 million.
~ The Research Group of the Beijing Standing Committee recommended taking calculated structural measures such as reducing the demand for low-end labor, cutting back on low-end and labor-intensive industries, and attracting high-end talent to the city.
~ Many agree that poor urban planning which concentrates commercial and industry in the inner rings of the city is to blame for traffic and population problems.
~ The 12th Five-Year Plan will focus on "easing" the imbalances by extending the metro system, and attempting to correct the uneven distribution of residential areas and industry.
Original article: [Chinese]

Shenzhen
SAR Integration Begins in Shenzhen, Efforts Underway to Improve Urban Development
~ The mayor of Shenzhen has stated that the city will push for SAR (Special Administrative Region) integration of relevant local government departments and advancing quality urban development.
~ SAR Integration faces the challenges of the urban-rural system. Outside urban areas, the education and law enforcement facilities are inadequate.
~ According to a report by Shenzhen's Development and Research Institute, Suzhou's GDP surpassed that of Shenzhen in 2010, but Shenzhen's GDP potential exceeds both Suzhou and Tianjin.
~ Shenzhen members of the CPPCC believe that the government in Shenzhen is overstretched, and that the bureaucratic chain is too long to guarantee effective governance.
~ According to the municipal government, in 2011, Shenzhen will push forward SAR integration, allocating an 18.5 billion yuan budget for development of the Bao'an, Longgang, Guangming and Pingshan districts and extending railways, roads, and basic services to peripheral areas in an effort to promote balanced urban development.
Original article: [Chinese]

Chongqing
Narrowing the Wealth Gap: Chongqing targets 0.35 Gini Coefficient
~ According to Chonqing Daily, the Chongqing government will promote residential development, implement a property tax, revamp the registration system and undertake other measures in order to reduce the gap between rich and poor.
~ Chongqing set a target Gini Coefficient of 0.35 - the Gini Coefficient, a number between 0 and 1 that measures wealth distribution, is usually somewhere between .24 and .36 in developed countries.
~ During the 12th Five Year Plan period, Chongqing plans to build 40 million square meters of public housing.
~ Chongqing will also introduce a high-end and commercial property tax and a "special" property tax.
~ Chongqing will further crackdown on corruption by improving transparency of public funds management and other activities. The government will closely investigate cases of suspected bribery and abuses of power by officials.
Original article: [Chinese]

Shanghai
Mayor Pledges to Make Shanghai One of the World's Safest Cities
~ In the 12th Five Year Plan, Shanghai lowered its target GDP growth rate in an effort to focus on the quality of development.
~ Mayor Han Zheng says that Shanghai will strengthen management, supervision and preparedness in the city to make Shanghai one of the world's safest cities.
~ Shanghai currently ranks behind Beijing, Taiwan and Hong Kong in terms of cultural output but plans over the next five years to encourage the development of creative talent and technological innovation.
~ Shanghai will build 1 million affordable housing units in the next five years, and has already had its property tax proposal approved.
~ Measures will also be undertaken to guarantee vegetable supplies and reasonable prices.
~ In the wake of the November fire, Shanghai will take measures to improve supervision over building contracts and ensure accountability in accidents. The government will also attempt to monitor illegal subcontracting.
Original article: [Chinese]

Central China
Central Plains Economic Planning Region: The Sprint Toward Economic Advancement
~ Development in the Central Plains Economic Planning Region will have four aims, the national "three" (industrialization, urbanization, and agricultural modernization), developing a template for economic growth, becoming a center for commercial and industrial transport activity and becoming a historic and cultural center.
~ In Henan, they are considering creating an expanded Zhengzhou urban zone which will integrate Zhengzhou and surrounding areas into a total of 2,127 square kilometers, 7 times the original size of Zhengzhou.
~ Zhengzhou will develop into a metropolitan center and the surrounding areas will benefit from its economic development.
~ Shi Pu, Henan Professor of Economics and Law believes that Zhengzhou will not have the industrial and commercial leverage to carry an entire area and that development of the central plains area depends on developing several gateway cities like Nanyang and Zhoukou.
~ Part of the proposal to develop the central plains region includes taking advantage of gateway cities to encourage economic cooperation between provinces and letting surrounding provinces benefit from Henan's development.
Original article: [Chinese]

CIC In Need of Capital
Market, page 17
~ Due to a lack of capital, the activities of the China Investment Corporation (CIC) decreased in 2010, only three years after its establishment. But 2011 will be a year for new investment opportunities.
~ CIC deputy general manager and chief risk officer Wang Jianxi recently stated that CIC had assigned all the capital they had and had asked for additional capital from the central government.
~ The first act of CIC in 2010 was establishing a representative office in Toronto, its first office abroad. An insider with the CIC said that Canada has a good investment climate and that CIC could take better care of its local investments.
~ Energy, resources, and finance are the three main sectors of CIC investment, and it is still seeking new projects in various fields.
~ At present, the CIC is waiting to see if its application for more capital will be approved.
Original article: [Chinese]