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Issue 550 26-12-2011
Summary:1. SASAC Orders SOE to Control Costs
2. Coal Companies Ignore NDRC Edicts
3. Caught Between Two Worlds: Young Migrant Workers

Highlight's from This Week's Issue of The Economic Observer:
Dec 26, 2011
Translated by Zhu Na and Song Chunling

SASAC Orders SOE to Control Costs
News, page 2
~ The profits of the 117 centrally-administered state-owned enterprises (COE) grew by only 3.6 percent over the first 11 months of 2011, more than 46 percentage points less than the 50.1 percent growth witnessed over the same period last year.
~ A source in the COE sector told the EO that given the declining profit growth trend, COE could even register negative profit growth for the whole year.
~The former director of SASAC, Li Rongrong (李荣融), pointed out in a recent interview that the main cause for the decline in the rate of COE profit growth, had nothing to do with the European debt crisis or other external factors, but was related to pressures from rising costs.
~ SASAC has begun to pay attention to this trend of rising costs slowing profit growth. In the middle of December, SASAC issued an urgent notice to all COE, the core content of which was an order to seek various measures to reduce costs.
~The EO learned that SASAC has also requested that COE strictly control the excessively rapid growth of labour costs, with particular reference to the need to strengthen control of labor costs within the various COE groups.
~ In addition, SASAC also required that COE should carry out work assessment programs and introduce a work-performance assessment system that covers all employees, and fully implement regulations that ensure that if “work performance improves then pay rises, if work performance declines then pay decreases”.
~ One industry source said that if the regulations are strictly implemented in accordance with the rules, and the rate of profit growth drops significantly compared to last year, then it means that the pay of employees and executives at the various COE will also decline.
~ In addition to labor costs, SASAC is also asking all COE to use various methods to reduce financial costs, these include proposals to put more effort into collecting accounts receivable (应收账款) and to quicken the process of recapitalization. According to official data, by the end of November, the total amount of accounts receivable that all COE had on their books had reached 1.6 trillion yuan.
~ Aside from emphasizing the needs to keep costs under control, the “urgent notice” also required COE to reduce their exposure to risk and also gave detailed instructions about investment in 2012.
~ For example, according to comments from SASAC director Wang Yong (王勇), companies have been told to increase the supply of funds and speed up work on any current projects that are capable of generating quick profits but to suspend or delay the transfer of funds to any current projects that won’t generate profits in the short-term. All proposed new projects will also be carefully examined.
Original article: [Chinese]

170 Billion Yuan Over 5 Years to Supply Drinking Water to Rural China
News, page 2
~ The EO learned that “The Twelfth Five-Year-Plan for Ensuring Safety of Drinking Water in Rural China” 《全国农村饮水安全工程“十二五”规划》was submitted to the State Council last week. Drafted by the National Development and Reform Commission (NDRC), the Ministry of Water Resources and the Ministry of Health, the plan will advocate an investment of about 160 to 170 billion yuan to guarantee the safety of drinking water for 310 million people living in rural China. The total investment increased by nearly 100 billion yuan, with a higher proportion of funds from the central government, who will be responsible for providing two thirds of all investment. Given the unbalanced economic development of the western regions, the plan also mentions that more will be allocated to these areas.
~ According to an official of the Ministry of Water Resources, a new investigation into the safety of drinking water in rural areas was conducted in the second half of 2009. As the standard for water resources has increased compared with those used during an investigation conducted in 2005, about 200 million more people were found to have difficulty in getting access to safe drinking water, taking the total to 310 million.
~ Two-thirds of the investment will be paid by the central government, and others will be shared by the local governments, especially the provincial ones.
~ The focus of the Ministry of Water Resources and the Ministry of Health will be on the central and western China.
Original article: [Chinese]


Coal Companies Ignore NDRC Edicts
News, page 5
~ Following the announcement of changes to the price of electricity and a cap on some thermal coal prices by the National Development and Reform Commission (NDRC) on Nov. 30, the commission issued another document on Dec 15, which clarified that for the cross-provincial coal production, transportation and supply in 2012, when coal suppliers and customers signed a contract, they were required to clarify product quality, price and responsibilities in the event of a breach of contract
~ However, on the afternoon that the document  was issued, during contract negotiations, Shanxi Coal Transportation and Sales Group made it clear that it would stick with the same practice used in previous years - that is, that the price won’t be stated in the contract, and to keep with the spirit of the NDRC’s notice, the two sides would sign a supplementary agreement every month.
~ A person working in a power company in Hubei said privately during the negotiations that all the documents issued by NDRC are useless and that coal companies are becoming increasingly dominant.
~ The EO learned that most power enterprises didn’t feel there was a significant difference in the supply and demand of coal for this year when compared to previous years.
~ According to NDRC data, this year coal prices have been rising quite fast.  The price of thermal coal at ports on the Bohai Sea, reached 850 yuan per ton on Nov 23, an increase of almost 10 percent over prices at the beginning of the year.
~ After the NDRC issued its notice about strengthening regulation of the price of thermal coal, price dropped significantly, falling to 821 yuan per ton on Dec 22.
~ A senior manager from one power group believes that the recent drop in the price of thermal coal had nothing to do with the NDRC’s regulations, but was instead related to coal imports by volume reaching a historic high in Nov., in addition, the real estate crisis in Ordos earlier this year led to Inner Mongolia releasing a large amount of coal on to the market.
Original article: [Chinese]

Who Loses from Environmental Checks into China’s Rare Earth Industry?
News, page 6
~ The Ministry of Environmental Protection (MEP) announced the first group of 15 companies which had passed environmental protection checks on Nov. 4. but absent from the list of approved companies was the world's largest rare earth producer - Inner Mongolia Baotou Steel Rare-Earth (Group) Hi-Tech Co. (包钢稀土), which accounts for half of China’s total rare earth production.
~ Baotou Steel Rare-Earth explained that they failed to make it on to the first list of qualified enterprises because they hadn’t submitted material for the review to MEP. They have been focusing on technological upgrading and regional industry integration, so delayed submission of the material.
~ However, there are still people in the industry that doubt the company’s ability to meet environmental requirements. “The mine has been treated for decades, but the problem still hasn’t been solved completely,” an unnamed senior expert who was unwilling to reveal his name told the EO. The biggest problem for the company is how to deal with the radioactive element thorium.
~ Since Oct 1, 2011, in order to complete any listing, financing, expansion or other business activities, all rare earth enterprises must first pass an environmental standards examination.
~ “This means if they don’t meet the standard, rare earth enterprises cannot be developed at all,” one executive in a metal smelting company from Jiangxi province told the EO. The consequence of not being able to develop means that many small enterprises will so find themselves on the national list of companies that will be order to be shut down or forced to exit the industry.
~ “Those which have passed the environmental protection check are all large enterprises,” said Meng Qingjiang (孟庆江), deputy secretary-general of the Jiangxi Provincial Society of Rare Earths. Meng was also concerned that the current push for more stringent environmental protection could become a tool for driving further consolidation of the industry.
~ Only large companies can bear the cost of environmental protection. According to MEP data, there are a total of 84 enterprises which passed the first round of environmental protection checks, and their planned long-term investment in environmental improvement was more than 4 billion yuan, of which 500 million yuan had already been invested.
Original article: [Chinese

Caught Between Two Worlds: Young Migrant Workers

Nation, page 9
~ 18-Year-Old Yang Dingyi (杨丁义) doesn’t want to spend money on a new mobile phone, while his “mates” in Xuwen (徐闻), a county in south west Guangdong, are all already using touch-screen phones. Since June, when Yang came back from the provincial capital of Guangzhou to his hometown, those “mates” have been inviting him to join their gang.
~ With the widespread bankruptcy of many factories in the Pearl River Delta (珠三角), many young people like Yang who were born in the 1990s, came back to their hometown. With their return, instances of robbery and violence have also increased. “Xuwen has never seen more rioting,” said local policeman Li Liang (李良).
~ According to a nationwide investigation conducted in 2009, young migrant workers (those under 32) accounted for 58.4 percent of all migrant workers. As export enterprises - under increasing pressure from the rising cost of labor, raw materials and the transfer of enterprises to the north of Guangdong - go bust, several million workers have returned to their homes in other provinces and more than one million have returned to various villages and towns in Guangdong. Many of these returnees are young people in their twenties, who dropped out of high school. These young people, who were rarely seen in the village two years ago, are now making trouble. “They even use guns to fight and rob,” according to officer Li.
~ It’s hard for these young people to find a satisfying job in Xuwen. Positions are limited and salaries are low. When they attempt to “save face” by consuming, they begin stealing and robbing, says Li.
~ While the county can hardly satisfy them, it’s also hard for these young people to return to their villages. Li Jiefei (林杰飞), thinking that he could at least be a farmer when he couldn't continue to be a worker, returned to his village. However, the lands of his family had already been rented out to others. In addition, most of the young are no longer interested in working in agriculture and some no longer know how. Although Lin has just came back, his parents have been trying to persuade him to return to the Pearl River Delta to work there.
~ For the young like Li and Lin, it’s hard to stay in either the Pearl River Delta or their hometown, and it feels as if there is no place to seek their fortunes in their youth.
Original article: [Chinese]

Free ID Confirmation Services For Microblog Operators
Corporation, page 26
~ China’s microblogs are likely to be directly connected to “the service center for citizens’ ID numbers” of the Ministry of Public Security (公安部的“全国公民身份证号码查询服务中心”) according to a source at one microblog operator. The identity of new users of these services will therefore be able to be confirmed for free.
~ In accordance with recently announced regulations, microblog services will soon require new and existing users to sign up with their real identities. In Guangdong, seven important microblogging platforms, including Tencent Weibo and Fanfou.com (饭否网), began to test a new system on Dec 22 that requires new users to register with their real identity. In Beijing, existing micro-blog users will also be required to provide proof of their real identity within three months. According to the new policy, microblog operators should compare and check the identities provided by the users through credible organizations.
~ Sina Weibo has 250 million users and Tencent Weibo also has more than 310 million users. If the comparison and checking is conducted through the organization at a cost of five yuan per person, it would cost several hundred million yuan for the two biggest micro-blogging companies in China to confirm the identity of all users.
~ The service center was an institution focusing on the construction and management of the information systems used by Chinese citizens. It was founded in March 2001 in order to provide service for governments and society. According to a micro-blog company, the direct connection to the service center is mainly because of the concern for safety and stability instead of the “potential cost” that microblogging companies might face
~ CNNIC data reveals that microblogging is one of the top three Internet applications that developed most rapidly in the first half of 2011. According to officials, the new regulations are aimed at combatting the spread of fake news.
~ A similar policy was also introduced for online games two years ago in a bid to address addiction to online games among adolescents, these regulations didn't impact on the online-game companies. Most of them, such as Tencent, continued to increase income and users after the introduction of the policy.
Original article: [Chinese]

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