Issue Wrap No. 515, Apr 18, 2011

Highlights from the EO print edition, Issue Wrap No. 515, Apr 18, 2011

Real Estate Bubble Expands to Second and Third-tier Cities
News, cover
~ Over recent years, many college graduates have decided to ditch thier jobs in the big metropolitan centers, choosing instead to seek work and settle down in second- and third-tier cities, where housing is cheaper and the pace of life is less hectic. However, many of these young people are beginning to discover that the housing bubble that encouraged them to leave the larger cities is now expanding to the interior cities.
~ In Hankou, one of the districts that make up the urban center of Wuhan, the price of much of the second-hand housing stock constructed over the past decade already exceeds 10,000 yuan per square meter.
~ The situation in Changsha, Hefei, Shenyang and Chongqing is very similar.
~ City governments in these second tier cities attracted large real estate companies from the mainland and also major Hong Kong developers such as Hutchison Whampoa and the Shui On Group to develop real estate projects by offering large tracts of prime land but also at the same time limiting land releases so that land prices continued to increase.
~ Investment from outside investors has also helped to push prices higher, despite the absence of a sizable white-collar workforce that would be able to afford such expensive housing.
~ The fact that these recent price hikes are unsustainable is shown by the number of empty apartments in some cities and that so many of the middle-income workers living in these areas are already priced out of the market.
Original article:[Chinese]

Central Government Embarks on Long Road of Public Institution Reform
News, page 3
~ Last month the central government published guidelines for dealing with China's 1.2 million "public institutions" or 事业单位 shiye danwei over the coming five years.
~ Generally speaking, public institutions will first be classified into three main types and then reformed according to their classification. Institutions that undertake government functions will gradually be intergrated into existing government institutions or closed down, those that are self-supporting like research institutes and publishing houses will be pushed to enter the market and those public institutions that provide public services and receive subsidies from the government will be reformed so that their regulatory roles will be separated off from their service roles - which will effect areas such as personel management, distribution of revenue, tax, insurance, institutional structure and other factors.
~ According to the Ministry of Human Resources and Social Security, there are over 1.2 million public institutions employing 30 million people in China.
~ The reforms will also address the pensions and wages of those employeed by these public institutions. The exact nature of these reforms to the pension plans and wage structure of employees will depend on the various institutions.
~ Changes to wages, namely altering the proportion of employee's pay that is not given as the base salary but awarded according to a work performance, and pension plans have long been a source of tension when it comes to reform of public institutions
~ An earlier plan involved altering the pensions of employees of public institutions, while mainitaining the often generous support given to those who are officially employeed as public servants. This caused much dissatisfaction among those employed in the sector and many predict that this tension could lead to delays in pushing ahead with reform of public institutions.
Original article: [Chinese]

Pricing Iron Ore - Which Index is the Fairest?
News, page 6
~ As Chinese steel makers negotiate with the three international mining companies that dominate the seaborne international iron ore market, a contest among three indices that track the price fluctuations of the raw ingredient for steel is heating up.
~ The three indices are the TSI index maintained by Steel Business Briefing (SBB), Metal Bulletin's MBIO index and Platts index by Platts Energy News.
~ Chinese steel makers prefer to the MBIO index. But since the iron ore market is dominated by the international mining giants, currently, iron ore trades are all based on the Platts index.
~ According to reports, the Platts index is usually two US dollars higher than that of the MBIO index, even though the equations used to calculate latter are widely acknowledged as being more fair and transparent.
~ Han Xun, manager of the TSI index's China branch, said Chinese steel companies should play a more active role in determining which index should be used to set prices.
Original article:[Chinese]

Regulators Divided Over Rules Governing Which Urban Commercial Banks Can Seek IPO
Market, page 17
~ As many urban commercial banks apply for permission to list on the stock markets, the China Securities Regulatory Commission (CSRC) and the China Banking Regulatory Commission (CBRC) are working on a set of rules outlining what's required in order for them to be given permission list.
~ The CSRC plans to require all urban commercial banks applying for an IPO to have more than 80 billion yuan in assets and net interest income exceeding two billion yuan. But the CBRC suggest, instead of setting a limit based on the amount of assets of the bank, the CSRC should pay more attention to banks exposure to agricultural development and whether it provides financial services to small and medium-sized enterprises.
~ A banking insider revealed to the EO that as urban commercial banks do not have any restrictions placed upon them in regards to the approval of large projects, they maybe facing even greater risks than the larger banks, which could rule them out of seeking an IPO
Original article:[Chinese]