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Issue 548 12-12-2011
Summary:1. Policy Priorities in 2012
2. Getting More SOE to Pay Dividends
3. Inflation Pressure to Fall Next Year
4. Regional Broadcasters Suffer from SARFT's bans

Highlight's from This Week's Issue of The Economic Observer:
Dec 12, 2011
Translated by Zhu Na and Song Chunling

Stabilizing the Economy
News, cover
~ The Political Bureau of the Central Committee of the Communist Party of China said on Dec. 9 that China will continue to implement “proactive fiscal policy and prudent monetary policy” in 2011.
~The Chinese Academy of Social Sciences last week issued its 2012 Economic Blue Book, forecasting that economic growth will be around 9.2 percent in 2011, but will drop to 8.9 percent in 2012.
~Even though the general direction of the economy remains stable, the government may make policy changes.
~The EO was told that the National Development and Reform Commission (NDRC) will order social security measures to be linked to price increases.
~Prices will be monitored for provinces and cities, and, if they exceed targets for three consecutive months, local governments will need to issue subsidies to the poor; if they exceed targets for six consecutive months, local governments will need to raise minimum subsidized allowances for urban residents. If the local governments don’t take any measures, then they will be publicly rebuked by NDRC. 
~CPI in 2012 is still set forecast to grow 4%.
Original article: [Chinese]

NDRC's Anti-monopoly Investigation Not Yet Terminated

News, page 2
~ It appears that the National Development and Reform Commission (NDRC) has decided not to suspend its anti-monopoly investigation into China Telecom. On Dec. 2, under pressure from the announcement of an investigation into their broadband internet services announced by a bureau of the NDRC, China Telecom admitted that it had been taking advantage of its monopoly position and called on the commission to suspend the investigation, also promising to rectify its wayward behaviour. However, a week has already passed, and there has been no response from NDRC. An insider told the EO that NDRC is not satisfied with the voluntary measures that China Telecom has proposed making and they also said that the NDRC is hoping for a more detailed proposal, a point that they were likely to have made to China Telecom during a meeting that took place on Dec. 7. It's possible that China Telecom may propose the more detailed reformation measure this week.
~ According to the EO's source, the NDRC's price supervision and anti-monopoly bureau also asked China Telecom to make public their more-detailed plan to reform their practices, so that customers and other market players are able to monitor the companies behaviour. If China Telecom fails to follow the promise in the agreed time, the anti-monopoly investigation won't be terminated.
~ According to one anti-monopoly expert that the EO spoke to, it is obvious that the statement by China Telecom has problems, as the commitments they make a far too general.
~ The EO learned that before the joint-appeal from China Telecom and China Unicom, the anti-monopoly investigation by the NDRC had bee focused at the "group level" (集团层面), so it included everything from marketing policies to pricing. Investigations at the group level usually take around four or five years to confirm whether the company engaged in monopoly behaviour and the procedures are very complicated, one expert told the EO. Thus the proposal by the two enterprises is an attempt to seek reconciliation with NDRC and halt the investigations in its tracks.
~ If the reform measures proposed by the two telcoms are accepted by the NDRC and are implemented in accordance with an agreed timeline, the investigation may be suspeneded and the two enterprises won't be fined, says Liu Deliang (刘德良), law professor from Beijing Normal University. However according to another expert, consumers and other operators can still sue the two enterprises even the NDRC investigation is stopped.
~ The investigation into China Telecom and China Unicom has been regarded by many as a milestone in anti-monopoly efforts in China, a sign that anti-monopoly investigations are being strengthened. Aside from the investigation into China Telecom and China Unicom, the price supervision bureau is also investigating competition among travel agencies and fees charges by banks and hospitals. According to an insider, most of the case are revealed by signed complaints, and other large Chinese monopolies, including large oil companies, have had accusations made against them.
Original article: [Chinese]

Getting More SOE to Pay Dividends
News, page 2
~ The EO has learned that ongoing negotiations between the Ministry of Finance and a number of central government bodies that operate under the State Council related to the expansion of the number of state-owned companies required to submit dividends to the Ministry of Finance, will soon come to a conclusion and that the names of the companies that have been selected to take part will likely be released before Dec. 31. These companies will have their names added to the "state capital management budget" (国有资本经营预算), as the list of companies required to submit dividends to the Ministry of Finance is formally known, and will be required to submit dividends as of Jan. 1 2012.
~ The negotiations are part of broader reforms aimed at shifting industrial profits on to the government's books in order to help fund an expansion of China's social services.
~ The Ministry of Finance (MOF), the Civil Aviation Administration of China (CAAC), the Ministry of Water Resources (MWR), the Chinese Academy of Sciences (CAS) and the State-owned Assets Supervision and Administration Commission (SASAC) began negotiations in August aimed at adding companies that currently operate under their direct control to the list of companies required to submit dividends to the state.
~ One of the companies that might be required to submit dividends to central government coffers in the future is the highly profitable Capital International Airport Co., Ltd, which operates under the control of the Civil Aviation Administration of China (CAAC).
~ This is the second round of negotiations since the Ministry of Finance launched a program aimed at expanding the number of SOE included on the list. During the first round negotiations which were held last year, 1,631 enterprises under the control of 5 central government ministries were added to the list, and the central government began collecting dividends from them in June this year.
~ It's estimated that there are about 6,000 SOE that operate directly under the control of some 82 separate central government bodies that have been marked as targets for the policy.
~ According to a person familiar with the situation, progress has been interrupted by the impact of ongoing reform of "public institutions" (see this earlier EO article). These ongoing "public institution" reforms have made in difficult for the MOF investigators to determine the number of employees and assets under the control of certain companies.
for more info
Original article: [Chinese]

Inflation Pressure to Fall Next Year
News, page 6
~ In 2011, the priority for China's economic policy makers was to stabilize prices, despite the amount of attention devoted to the task, it appears that officials will not reach their original goal of limiting annual growth in the CPI to 4 percent.
~ According to National Bureau of Statistics data released on Dec 9, the national CPI rose 4.2 percent in November. Given data from previous months, the annual CPI figure will still come in at over 5 percent.
~ Many experts believe that China's inflation pressure will be reduced next year. Lu Feng (卢峰) from Peking University, said that next year the central government won't be as focused on regulating prices as they were this year, as price pressures have already started to decline. If monetary policy is not radically loosened, then things should stay the same. Of course, we can't rule out sudden shifts in the price of oil.
~ Li Guoxiang (李国祥), from the Rural Development Institute of the Chinese Academy of Social Sciences, predicted that the domestic price of agricultural produce will drop in general in 2012. Among them, in early next year pork, lamb, vegetables and seafood products will maintain high price mainly due to the demand during the Chinese new year period and winter weather effecting vegetables production. Li expects that the price of agricultural produce will gradually fall from March next year, but after June and July, the price of agricultural products such as pork and vegetables will witness substantial falls.
~ The price of rice, corn and wheat will be relatively stable and won't rise significantly next year due to an excellent harvest of the three major grains this past year, said Jiao Shanwei (焦善伟), the chief editor of a major state-backed grain-related website (grain.gov.cn).
~ Although price increases next year are likely to slow down compared to this year, there is still a lot of pressure on prices and many uncertain factors. Domestically, natural disaster and other seasonal factors might cause volatility in the price of agricultural produce, according to officials from the National Development and Reform Commission.
Original article: [Chinese]

Guangdong to Simplify Registration Procedures for Social Organizations
Nation, page 12
~ Guangdong is giving power back to civil society. According to a provincial government document released at the end of November which outlines how the province plans to push ahead with reform of how social organizations are governed, Guangdong will lower the threshold required of organizations seeking to officially register with the government from July next year. Eight types of social organizations will also be allowed to apply to register directly with the Ministry of Civil Affairs, removing the current barrier that requires all social groups to first register with the government department which is in charge of their area of operations.
~ The current registration of social organization follows the "double approval and double administration" system - which requires that all NGOs register with both the Ministry of Civil Affairs and also the provincial government department that oversees the area in which they are engaged. Only when the social organization is approved by the relevant department can it register with the Ministry of Civil Affairs.
~ In addition, the document says that the Guangdong government will also step back and allow social organizations to assume responsibility for some areas of social service where the government has not performed well. The government will support these social organizations by purchasing their services. Government will take responsibility for government affairs and social organizations will be responsible for social affairs.
~ Due to the current complexities involved in registering an organization, many social organizations that are active in Guangdong are not officially registered. Liang Shuxin (梁树新), the founder of Micro-Foundation (微基金) didn't even try to register his group - "you know they [the government] won't do it for you." Liang tried a different approach and affiliated his group with an official welfare foundation, which is a popular way for social organizations to get around the current requirements.
~ The new policy enables social organizations in Guangdong to have easier access to their "identification card." The social service commission of Guangdong was founded in August this year with Liu Runhua (刘润华) as the deputy director. Liu was famous for inviting the One Foundation (壹基金) by Jet Li to Shenzhen when he worked there.
~ Although Liang worries about whether the notion will be an empty promise, Cai He (蔡禾), head of the sociology and anthropology in Sun Yatsen University, states that Gudongdong has shown its willingness for structural reformation. On the “social organization fair” in Guangzhou on Dec. 4, 80% of the 240 social organizations that are not registered are already regarded equally as the official organizations.
~ A source in the civil affair department in Guangdong also told the journalist that Guangdong is working on details now to carry out the policy.
Original article: [Chinese]

Ban on Advertising During Dramas Puts Pressure on Regional Broadcasters
Corporation, page 29
~“I don’t know what to do now,” says one provincial television executive, commenting on The State Administration of Radio Film and Television (SARFT)’s recent ban on advertisements during television dramas. The ban is a big blow to provincial television stations, which have only just finished selling advertising inventory for 2012.
~Every provincial channel except for Hunan T.V. has cancelled the previous sales agreement.  The provincial executive who asked not to be named said his television station had returned 600 million yuan to advertisers who had bought airtime during drama series before the ban was announced.
~In October, SARFT ordered broadcasters to limit the number of entertainment programs on air between 7.30 pm and 10 pm, prompting many of the companies to pin their hopes on drama instead. “Programs in Hunan TV were rearranged, and TV series were increased by 30 percent to 40 percent” said Yao Jia (姚嘉), director of the marketing center at Hunan TV.
~Some people suggested that broadcasters might get around the ban by splitting their dramas into shorter episodes, because the regulator has set a minumium length of 40 minutes each. “We have lost around 700 million yuan,” said the unnamed provincial executive, who says that advertising during drama account for 15% of his channel’s revenue and his company would be lucky to recover 70 million yuan.
~However Rong Li (荣丽) from Guyunfeng advertisement agency (国云风广告公司)  says that audiences for the dramas have increased since the ban.
Original article: [Chinese]

Century 21 Struggles to Replicate U.S. Success in China
Property, page 39
~Real estate services company E-House China at the end of November provisionally agreed to pay $25 million for a 37percent stake in U.S. agency Century 21’s Chinese business.
~Century 21’s Chinese unit posted a net loss of 93 million yuan in the third quarter.
~The company’s Chinese headquarters have failed to apply its successful American policies to the Chinese market, said Dong Qi (董琪), who worked as a training manager at Century 21 from 2000 to 2006.
~Dong said that many of the materials on real estate brokering prepared by the U.S. headquarters were scrapped by Chinese offices whose trainees were unable to understand them.
~ Hu Jinghui (胡景晖), the vice president of local real estate service company instead puts Century 21’s difficulties down to differences between the U.S. and the Chinese markets, as well as problems using franchising models in China.
Original article: [Chinese]





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