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Issue 542 31-10-2011


Public Housing Delays Weaken Steel Market
News, cover
~ Most of Harbin’s 200 developers are small or medium-sized developers, and around two thirds of them have had to suspend or delay work.
~ These delays have also affected the steel industry - public housing projects were meant to be the engine driving consumption in the industry, but the suspension and delay of public housing projects has brought an early chill to the industry. Harbin had originally planned to build 44,981 units of public housing in 2011.
~ Yu Zhihua, an official from Harbin Housing and Social Security Bureau said that both small and large developers compete for public housing projects and need to do so in order to secure rights for many of their private projects.
~ However, due to meager profits that can be had from building public housing, as well as problems related to regulation and liquidity, Harbin’s developers prefer to invest in private residential properties.
~ Some developers have struggled to sell completed private homes, and so lack funds to invest in social housing; some small and medium developers have already suspended social housing projects or delayed the construction because of a lack of funds.
~ The suspension of such projects has dampened the steel market. For example, the price of hot-rolled steel has dropped from 5,000 yuan to 4,000 yuan per ton, and the price of silicon alloy has dropped from 8,000 yuan to 5,000 yuan per ton.
~ Both steel industry and steel traders rely on the real estate industry - construction steel accounts for half of China’s steel consumption, with 60% of that going into real estate.
Original article: [Chinese]

Local Financing Platforms Allowed To Issue Bonds Alongside Provinces
News, Page 2
~ Even after Shanghai, Zhejiang, Guangdong and Shenzhen, received permission to issue their own bonds, the Ministry of Finance hasn’t blocked affiliated local financing platforms from issuing bonds too.
~ An anonymous source from the National Development and Reform Commission said the platforms can continue to issue bonds as long as they meet the commission’s standards, have steady revenue and are independent from local fiscal subsidies.
Original article:

Water Price Reform to be Settled This Year

News, page 3

~ Ongoing attempts to reform the pricing of water in China may be settled this year. The EO has learned that the National Development and Reform Commission (NDRC) will submit the reform plan to the State Council by the end of this year.
~ The reform will be centered on raising the water resource fees to a reasonable level, developing the system for sewage treatment and establishing a more reasonable price for fresh water. The plan also includes provisions that will increase waste water charges, indicating that the current fee of 0.8 yuan per ton (which forms only one part of the current water price) which was set in 2006.
~ The current price of the water includes the water resource fees, water supply price and also the waste water charges, which will all be adjusted according to the new reform, according to an insider from the NDRC.
~ The 0.8 yuan per ton price introduced in 2006 is hardly sufficient for the current situation, as “the waste water charges cannot cover the expenditure of the sewage treatment and thus many local sewage treatment factories are not functioning well," one industry source told the EO. No new waste water fee has been floated yet, thoough one chemical factory told the EO that the fee should be raised to 1.6 yuan per ton.
Original article:

Local Governments Collect 5 Trillion Yuan in Excess Revenue Over 10 Years
News, page 4

~ When government revenue exceeds the amount originally budgeted for, it is usually put down to budgeting errors. However in China, these discrepancies between forecast revenue and actual revenue play a different and important role.
~ Every year since the major tax reforms of 1994 were introduced, government revenue has exceeded official forecasts, but after 2000, the scale of these discrepancies have increased year after year and over the past 10 years, around 5 trillion yuan in "excess revenue" has been collected.
~ The official explanation tend to attribute this excess to "one-off increases in income" such as the one-off tax and fee payments by large enterprises. 
~ Professor Ma Caishen (马蔡琛) from Nankai University found that over the past 10 years, the actual increase in revenue was on average 1.5 times that of the amount  estimated in the budget, he also noted that "the exceeded revenue is not due to the budget is not accurate."
~ Professor Ma Ling (马岭), from China Youth University for Political Sciences, also says that the disparity between forecasts and revenue actually collected is much larger in China than it is abroad and that this is causes by deficiencies with the country's budget system.
~ Professor Ma Caichen also explained that the extra revenue can be spent more flexibly by the local government and this flexibility appeals to them.
~ In recent years, many local governments have purposefully collected more revenue than they forecasy for in their budget. In some areas like Datong, Jiangsu and Beijing awards were even given to officials who were able to exceed the official quota.
~ According to an official in Qinghai province, the local financial situation would be extremely difficult if they didn't have access to this "excess revenue." Some places in western China also suggest that their officially submitted budget in is actually in deficit budget, despite official requirements that they submit a balanced budget. Only when they calculate for the additional revenue can they manage to make ends meet.
~ The large amount of excess revenue collected each year also indicates that a sizable chunk of spending is also taking place outside the official budget. The EO learned part of the excess revenue collected by the central government are passed over to the following year, however the excess collected by most of the local governments are spent in that same year.
~ Although amendments to China's Budget Law that were first proposed last year will require in principle local governments to delay the spending of any excess revenue until the following year, the amendment has still not been passed and it's unclear whether it could offer a lasting solution to the problem.
Original article: [Chinese]


Big Picture Thinking Needed for Policy-based Housing
News, Page 5
~ Even though construction has started on 9.86 million policy-based homes - that is almost all of the 10 million planned for this year - China is still lacking a systematic national-level policy for subsidized housing, according to testimony given at a recent special hearing conducted by the Standing Committee of the National People’s Congress.
~ Policy-based housing is just one of many headaches. Another focus of the meeting was the duration of policies restricting home purchases. Though Wu Xiaoling, deputy director of the Standing Committee has said that this policy violates market principles, the date of its cancellation is still unclear.
Original article: [Chinese]


Lack of Funds Forces Suspension of Western Railway Project
Nation, page 9
~ Due to a lack of funds, 90% of the work on the Lanzhou-Chongqing railway line has been suspended, leaving tens of thousands of workers unpaid.
~ This line is the main artery connecting southwest and northwest China. Investment in the project was budgeted at 77 billion yuan and a completion date of 2014 was slated, however those plans are now in question.
~ This kind of indefinite suspension is an unprecedented event in the history of Chinese railway construction.  
~ By the end of Sept, the Guangyuan section of the line had unpaid debts of 600 million yuan, half of which were owed to migrant workers and local material suppliers, according to Zhao Hong, a departmental director in the Guangyuan government.
~ "These debts just accumulated over three or four months; due to the serious debt situation, several hundred migrant workers besieged the China railway's [local] headquarters at the end of August," said Zhao.
~ After a series of such protests, the leadership of Sichuan and Gansu provinces felt the situation was serious, and made an urgent 300 million yuan loan to the railway company.
~ Migrant workers have now been sent home, with only some key staff remaining
~ The suspension has not only angered migrant workers and local governments, but also construction companies and local materials suppliers.
~ Local material prices have increased dramatically, with banks now seeking an interest premium on all related loans.  
~ "This railway line is significant for Guangyuan," said Zhao explaining that the city is on the border of three provinces; Sichuan, Shaanxi and Gansu.
~ Guangyuan's government had hoped the line would boost tourism and the local economy. Instead, its suspension has created social problems.
~ Sichuan province needs to raise to 4.5 billion yuan for the line, with the provincial and city government sharing the burden.
~ "For Guangyuan, 2.25 billion yuan is not a small number, because in 2010 Guangyuan's total fiscal revenue was only 1.6 billion yuan." Zhao said.
~ The suspension of the large areas of railway construction projects is becoming common across the country, according to Wang Mengshu, a member of China Academy of Engineering and Vice chief-engineer from China Railway Tunnel Group.
Original article: [Chinese]

Ginger Price Rise Leaves Everyone Out of Pocket

Nation, page 14
~ Ginger farmers have seen wholesale prices slump to a 10-year low of 0.4 yuan a kilogram from 6 yuan per kilo last year, which was an all-time high. Meanwhile, supermarket prices for the spice have remained at around 14 yuan a kilo.
~ One ginger farmer said that if they sell ginger at this price, they will lose around 18,000 yuan an acre.
~ It's rare that prices changes harm both farmers and consumers, but in this case, not even the intermediate traders are profiting since they are having to shoulder higher labor and transportation costs.
Original article: [Chinese]

MasterCard and Visa’s Chinese Dilemma

Market, Page 20
~ MasterCard and Visa are working hard to introduce new payment technologies in China, but are still waiting for the government to open the yuan transfer business to foreign investors.
~ Instead of issuing bank cards, both Master and Visa describe themselves as "global payment technology companies" and are facing tough competition from China UnionPay.
Original article: [Chinese]

LDK Moves Westwards In China: Free Coal with Solar Investment
Corporation, page 27
~ The EO has learned that LDK Solar (赛维LDK) plans to go west and invest 10 billion yuan in Inner Mongolia. A source close to the project told the EO that "LDK Solar will first invest 10 billion yuan to establish a silicon material plant in Hohhot. In addition, LDK also plans to construct solar PV plants in Inner Mongolia."
~ The individual also told the EO that LKD Solar had originally only intended to build a solar power station and that they persuaded to also invest in other upstream facilities after the local government offered to provide free land and other resources. The local government offered these incentives in a bit to boost the local economy and offer job opportunities.
~ By the end of the 12th 5-year plan, Hohhot is forecast to be producing 20,000 tons of polysilicon a year and to have been transformed into an important new energy base in China.
~ The LDK investment in Inner Mongolia will also follow the " investment for coal" model developed by the coal-rich province.
~ The policy, which was first introduced in 2009, allows enterprises that invest more than 4 billion yuan in one go, to get 100 million tons of coals for every 2 billion yuan invested.
~ Inner Mongolia has the largest coal reserves in China with 732.3 billion tons.
Original article: [Chinese]


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