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Issue 544 14-11-2011

Highlight's from this week's issue of the newspaper:
Nov 14, 2011
Translated by Zhu Na and Song Chunling

Anti-Monopoly in China's Telecom Industry
News, Cover
~ China Telecom and China Unicom are worried. After news that the National Development and Reform Commission (NDRC) has launched an anti-monopoly investigation into the internet services provided by the two state-owned companies, their share price has been falling and they're also facing the prospect a fine of up to several billion yuan. On Nov. 11, two newspapers operating under the authority of the Ministry of Industry and Information Technology (MIIT) published articles rebutting the news of the investigations which was first reported by CCTV News.
~ This is the first time that state-owned enterprises have been placed under investigation for suspected breaches of the country's Anti-monopoly Law which was first introduced in 2008. It is also the first investigation launched by the NDRC's Price Supervision, Inspection & Anti-monopoly office, which was only established in July this year.
~ The EO learned that the investigation started in May after many enterprises complained to authorities about the "internet cut-off event" in 2010. The investigation will be mainly focused on the two companies broadband business and also the way in which they settle accounts between different networks. China Telecom offer different prices to two different types of clients. For China Unicom, China TieTong, China Mobile as well as Chinaedu Network, the price is more than one million yuan per gigabit per month, while for other customers, they only charge from between 250,000 to 420,000 yuan per month. As the retail price for broadband access offered by these second type of customers is often cheaper than what China Telecom charges, many broadband access operators trade with these companies instead of with China Telecom directly. When China Telecom tried to step in and stop this secondary market last year, this caused the large-scale internet cut-off.
~ Local companies complain that the whole "industry chain" is monopolized when broadband access is organized in this way. Huang Liang (黄亮), the manager of a local radio, television and internet company, says 80 percent of the income he earns from offering broadband access, goes directly to China Telecom, the remaining 20 percent goes on maintenance and thus many internet companies suffer losses.
~ According to statistics from the China Internet Network Information Center (CNNIC), although as many as 98% of China's internet users make use of broadband internet, the average speed is only 100.9 KB/s, which is much lower than the world average of 230.4KB/s.
~ "One of the solutions is to introduce operators outside the China Telecom system," says Wu Chunyong (吴纯勇), an expert in the telecommunications field. Huang also thinks that there should be government supervision and thus the two enterprises can be envouraged to avoid unnecessary duplication when it comes to constructing infrastructure.
~ Li Qing (李青), the deputy director of the NDRC office leading the investigation, told CCTV reporters that China Telecom and China Unicom charged their competitors higher prices than other customers, which constitutes price discrimination and monopoly behaviour. Two powerful central government ministries, the State-owned Assets Supervision and Administration Commission (SASAC) and the Ministry of Industry and Information Technology (MIIT), are yet to respond to the news. In 2008, SASAC defined the telecommunication companies as natural monopolies and argued that it would be more efficient to manage the sector if the companies were run as monopolies.
Original article: [Chinese]

Slow Progress in Hiving Off the Real Estate and Hotel Operations of Large SOE
News, page 5
~ The EO has learned that the process of separating off the real estate and hotel arms of centrally-administered state-owned enterprises (COE) has encountered many obstacles and that progress, so far, has been quite slow.
~ According to SASAC, hotel businesses that try to separate from COEs in the future will be treated more leniently. "That means the supervisiong agency won't be as strict as has been in the past when it took a "one size fits all" approach. The companies had been ordered to divest themselves of all hotels which are not connected with the main business of the various COEs or that of their various subsidaries. Howeverm according to one unannmed official from SASAC "that policy will be loosened."
~ For example, China National Petroleum Corporation (CNPC) is the first corporation in which its hotel business will not be separated from its main business. A plan of hotel assets integration has also been launched, the corporation is planning to develop a chain of motels, using the gas stations as an advantage. According to SASAC, CNPC will not be the only business allowed to do this.
~ According to the SASAC official, there are three reasons it has been difficult to force COE to divest their secondary businesses. The first reason is that under COEs, the relation between property rights and hotel assets is complex. The second is finding alternative positions for employees after the separation. Finally, some hotels under COEs are prospering, and COEs do not want them to separate.
~ According to the data, there are 2,000 hotel enterprises currently operating under the control of COE, with assets of approximately 100 billion yuan, with almost each COE having its own hotel business.
The policy for the secondary business of the real estate sector under COEs has also changed, so that rather than forcing a separation from the parent COE, SASAC is now allowing companies to simply restructure their real estate holdings.
Original article: [Chinese]

Aside from China's Provinces, Cities and Counties - Townships are in Debt Too
Nation, page 9
~ China's local government debt may be almost 3 trillion yuan higher than the figure given by the Natinal Audit Office (NAO), if loans taken out by township governments are included, according to Beijing Fost Economic Consulting Company (FOST 福盛德), an independent research firm.
~ Borrowing by townships, an administrative tier of government below provinces, cities and counties, wasn't included in a report by the National Audit Office in June that put debt from those three levels at 10.7 trillion yuan.
~ Local authorities in China, which up until recently has been barred from directly selling bonds or taking bank loans, set up at least 6,576 companies to raise money for roads, sewage plants and subways, according to the audit office's report.
~ The audit, called for by the State Council, or Cabinet, covered the investment vehicles of provincial, city, and county- level governments and didn't mention debt carried by township authorities.
~ Duyang, a township in Yunfu city in the southern province of Guangdong, has more than 200 million yuan worth of debt while its annual fiscal revenue is only 500,000 yuan, according to Wu Zhanjiang, a deputy head of the township government. Some townships in Yunfu can't even afford to pay their phone bills and others failed to pay some workers’ salaries.
Original article: [Chinese]

Solving Inner Mongolia's Coal Transport Gridlock
Nation, page 11
~ Since 2009, Inner Mongolia has replaced Shanxi to become China's premier coal mining region, in that year the autonomous region unearthed 640 million tons of coal.
~ With the increase in coal output, more pressure has been put on the regions transportation infrastructure. At present, the existing Datong-Qinhuangdao railway line, which is devoted to shunting coal, has already reached its capacity of transporting 400 million tons of coal a year.
~ The second devoted coal line is the Shenhua (神骅) railway which crosses from Shaanxi to Hebei, the second large channel for transfering coal from west to east. But this line belongs to the Shenhua Group, and thus only takes coal mined or owned by Shenhua.
~ Road transportation options have also been overwhelmed, as recent reports about the amount of traffic backed-up along the Inner Mongolia section of the Beijing-Tibet highway have shown, the situation is very serious.
~ The National Development and Reform Commission (NDRC) is keenly aware of the problems that exist in relation to transporting coal and launched a plan to build a third railway line for coal transportation. The plan was first flagged in 2004, and initially planned to be completed by 2009, but was delayed due to intense disagreements between interested parties. Some energy giants such as Datang (大唐) and Huaneng (华能) wanted to be involved in the construction of the new "third line," and proposed plans that would have benefited their own interests, but the Ministry of Railway didn't agree with their suggestions. Up until now, the time table for construction of the third line is still uncertain.
~ Despite delays in constructing a new line, the Huatong Xinghe (华通兴和) railway line was officially opened on Oct 28, the railway is to ensure the transportation for the logistics park in Xinghe county (兴和县) which is located at the junction of Shanxi, Hebei and Inner Mongolia, and it also lies in path of much of Inner Mongolia's coal traffic.
~ About 100 coal distribution companies have entered the logistics park. "In the future, Xinghe will be like a huge coal field. Those who come to Inner Mongolia to buy coal only need to come to Xinghe," said one of the men in charge of a coal distribution company located in the logistics park.
~ After the logistics park is completed, "Xinghe county will became the gate way for Inner Mongolia's coal transportation in the future," a local official from the area told the EO.
Original article: [Chinese]


Death After a Village Election
Nation, page 14
~ Liangjiawu Village (梁家务村) in Hebei Province is just across the river from Beijing. However on Oct. 29, a fight happened within half an hour of the election of the village's party secretary, and Liang Meng (梁猛), the cousin of Liang Chunlei (梁春雷), who lost the election, was killed in a fight with Cheng Wei (程伟), the current village director.
~ Over the past ten years, Liang Jianzhong (梁建中) has been the only party secretary in Liangjiawu Village. However, following disputes in relation to land transfers that took place in the village last year, the village committee was dismissed and Liang Jianzhong was suspended. In November 2010, more than 130 villagers were asked to sign the contract with the village committee to transfer the management rights to the land. Cheng Wei refused to sign because the compensation "was divided unequally." Cheng also participated in organizing a petition with other villagers after agricultural equipment was destroyed, which led to the dismissal of the village committee. 26-year-old Cheng was elected as the new director on his promise to "divide the land equally."
~ Liang Jianli (梁建立), the brother of Liang Jianzhong says that there are two groups in the village now: one is the old sectrary Liang Jianzhong and old director Zhao Guoqing, and the other is Cheng Wei and the new village committee. Conflict between the two groups started last year and intensified later at the party conference before the election held by Cheng. Liang Jianzhong and his two nieces Liang Chunlei and Liang Meng were not invited, and they were suspicious that Cheng was lobbying.
~ Three witness told the journalist of the EO that Liang Jianzhong or Liang Chunlei broke into the room after the election when the newly-elected secretary Tian Lizhong (田立中) was speaking and shouted "it's unfair." According to the accounts, Chen then replied "nothing is unfair, it's all been conducted according to the procedures." As Liang Jianzhong was leaving, he pushed Cheng's shoulder. Later the Cheng and Liang families became embroiled in a fight and Liang Meng was stabbed in the heart by Cheng.
~ However according to Liang Jianzhong's brother, the conflict started because Cheng shouted "you don't have the right to speak here now," after Liang Jianzhong had said "whoever becomes the secretary should do work for the villagers."
~ A villager Ding Ligui (丁立贵) insists that none of this would have happened if the land problems has been solved earlier.
Original article: [Chinese]

Silvercorp Scandal
Market, page 17
~ In recent two months, the stock of U.S. listed company Silvercorp Metals Inc. (希尔威金属矿业有限公司) has been on a rollercoaster ride, at one point, the company lost $230 million in value in one day, but up until now, Feng Rui (冯锐), the head of the company, still isn't sure who is orchestrating what he considers to be a coordinated attack on the reputation of the company.
~ Silvercorp is a Canadian-registered mining company listed on both the Toronto Stock Exchange and the NYSE. Like many other Chinese companies over recent months, Silvercorp has weathered a series of attacks on its reputation in the U.S..
~ Silvercorp's stock first dropped from $8.5 to $7 in early morning trading on the NYSE on Sept 2 after anonymous accusations about the companies financials. After replying to the accusations and claryfying the situation to the media and investors, the company's stock climbed back up to $9. However, just when Feng thought the crisis was over, a second, even more violent, round of attack started.
~ A report signed with the name of Alfred Little caused a huge fall in the company's stock price on Sept 13, the price of Silvercorp's shares dropped from $7.25 to $5.86, a fall of 19 percent, and in one day, $230 million was wiped off the stock market value of the company
~ The first round of attack questioned the companies financial indicators and the second round focused on technical indicators such as Silvercorp's mineral resource reserves, ore grade and so on.
~ It was hard for Feng to believe that they would encounter this kind of high-tech monitoring which is usually only seen in Hollywood movies. The people who were questioning the companies claims, had actually sneaked into some of the mines owned by Silvercorp and installed hidden cameras, secretly monitoring the site for 20 days.
~ On Sept 22, Silvercorp sued Alfredlittle.com and Alfred Little for $100 million.
Original article: [Chinese]


Behind the Tingyi and PepsiCo Deal
Corporation, page 31
~ The first Pepsi made by Tingyi is waiting for the nod from China's Ministry of Commerce.
~ When Wei Yingzhou (魏应洲), chairman of Tingyi first told reporters that the company was going to become the biggest beverage manufactuer two years ago, many people thought Tingyi was planning to start its own carbonated drinks business, but that was before the news of the Tingyi-PepsiCo deal annonced on Nov 4.
~ Learning from Coca Cola's failed attempt to purchase Huiyuan Juice, Tingyi and PepsiCo are instead trying a unique cooperation model. The 24 bottling plants operating in China that are under PepsiCo China's control will be transferred to Tingyi in exchange for a stake in Tingyi Holding Corp.'s beverage business - an existing joint venture with Japan's Asahi Group Holdings Ltd. called Tingyi-Asahi Beverages Holding Co. (TAB). PepsiCo will transfer equity interests in bottling operations in China to this company and in exchange, PepsiCo will receive a 5 percent indirect stake in TAB, with an option to increase the stake to 20 percent by October 2015. (full details here)
~ Tingyi started by Wei brothers (魏氏兄弟) in Taiwan and expanded to the mainland in 1988 with instant noodles. In 2010 Tianyi ranked the 2nd with its 11 percent share in China's beverage market, following the 16 percent share held be Coca Cola. Tingyi chooses alliance to start the carbonated drinks instead of their own brand because few would "be willing to drink coke made by an instant noodle company." Although PepsiCo China bottling plants suffer from the serious loss, the brand operation of Pepsi is outstanding. According to the current scheme, Tingyi will cooperate with the bottling plants for the production and sales, while PepsiCo still owns the brand and will be in charge of marketing. PepsiCo will also sell its concentrate to Tingyi.
Original article: [Chinese]


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