Highlights from the Economic Observer, issue no. 362, April 7, 2008
To Save, or Not To Save
Cover Story
Dashed hopes of a government intervention to save the plummeting Chinese stock market further pushed the A-share market index down on March 31 and April 1, sliding a total 251 points in two days and at one point breaking the 3,300 level. The mounting anticipation of government policies to revive the market had in the previous week boosted the market temporarily. However, the Chinese government has refrained from making any statements or moves after rumors of intervention flared, contrary to practices in the past when the official news organ like the People's Daily and Xinhua agency would carry commentaries as hints. Market analysts have thus concluded that policymakers intended for market forces to take their own course this time around.
Original article: [Chinese]
The Role of Government in a Market Economy
Editorial
The declining Chinese stock markets have been waiting for government intervention for weeks. Our editorial argues that such anticipations are the result of the Chinese markets being long regarded as a policy-driven despite the introduction of a market economy. Though our editorial urges market players to rethink the role of government in a market economy, we also think that the government's decision to remain silent – neither to confirm nor to quash rumors of intervention – is unwise; as such attitude further fueled uncertainties and influenced market confidence.
Original article: [Chinese]
Consolidating Coordination Agencies
From News, page 3
Nearly half of the existing coordination agencies under the State Council will be abolished as part of an on-going reform to streamline Chinese government administration. The EO has learnt that these government organs, which are inter-ministries for the purpose of deliberation and coordination on specific tasks, will be consolidated into 29 agencies. Some of the old organs maintained after the shake up include offices dealing with the Three Gorges Damn and the North-South Water Transfer projects. The agency entrusted with poverty alleviation also remained, coordinating between the National Development and Reform Commission, Finance Ministry and Agriculture Ministry.
Original article: [Chinese]
Redistribution of Assets and Budgets
From News, page 3
The Ministry of Finance has announced a series of formulas for the re-evaluation of assets and budgets for various ministries and related agencies that come under Chinese government reform to streamline administrative functions. The latest directive requires ministries undergoing mergers or separation to submit details of asset transfers and redistribution for scrutiny and approval from the Ministry of Finance. The formulas have been issued to prevent the unnecessary losses of assets in the process of readjustments. Budget allocations will also be reviewed in accordance with the new functions of each ministry.
Original article: [Chinese]
Clauses to Clarify the Labor Contract Law Soon be Out
From News, page 4
The final draft of supplementary rulings on the implementation of the Labor Contract Law – which comes into effect this January – has entered its last stages and will be sent for final approval to the Chinese State Council by late April. The EO has learnt that the rulings may be issued around May, clarifying several contentious clauses that deal with indefinite term contracts and employment agencies, amongst others.
Original article: [Chinese]
CIC to Co-launch Investment with JC Flowers
From News, page 6
China Investment Corporation (CIC) has signed a deal with JC Flowers and Co. to set up a four billion dollar fund for overseas investment. The 200 billion dollar strong Chinese sovereign wealth fund will fork out 80% of the capital as a limited partner while the latter come up with 10% as general partner, and the remaining from other related funds and agencies. New York-based JC Flowers is run by former Goldman Sachs banker Christopher Flowers.
Original article: [Chinese]
Power Industry in Red
From News, page 7
Latest official statistics show that profits for the power generation industry has dropped by 61% for the first two months of this year, while an industry association reveals that over 40% of enterprises in the industry are suffering losses. The association maintains that the losses cut across the board, including those generating electricity using hydropower, new energy, nuclear and coal. Industry players blame rising costs, especially coal prices, and taxes for the decline.
Original article: [Chinese]
Breaking-Point: Seven
From Special Focus, page 9 – 16
The Chinese yuan has appreciated more than 15% over the last two years, and drawn much recent attention over whether it is going to break the psychologically crucial point of seven yuan to one dollar. This week's focus series explore the process of searching for a balancing point for the foreign exchange rate; the altering of investment trends in foreign currencies; the mounting pressure on Chinese industries from the rising yuan; and impacts on individuals.
Original article: [Chinese]
Investigating Hot Money
From Money & Investment, page 17 & 23
With the inflow of hot money, the Chinese foreign reserve is undergoing structural changes – trade and foreign direct investment risk having their dominant roles overshadowed by speculative capital. The pressure and risks from short term capital is on the rise, seeping into real estate, stock markets and the service industry. The inflow of hot money is partly motivated by the widening interest spread between the yuan and dollar.
Original article: [Chinese]
Reputed Chinese Web Video Hosting Sites Without a License
From Corporation, page 26
Popular web video sharing sites Tudou and Youcool have been left out in the latest round of licenses issuance by the Chinese government, which gave out 11 licenses to eight state-owned and three private web companies on April Fools' Day. The fate of the license less websites is still uncertain as the government has vowed to crack down on sites with pornography, violent and unsuitable political content. Prior to that, the government has published a list of 62 websites that were served warning notices or ordered to cease operations following unnanounced checks. The largest Chinese video sharing site, Tudou, which means "potato" in Chinese, has been warned and is making amends; meanwhile, its rival Youcool has set up a 24-hour content screening team and deployed technical tools to rate suitability of content. Despite those efforts, both were denied licenses.
Original article: [Chinese]
Green Credits to Push for Environmental Conservation
From Observer, page 45
Using the Industrial and Commercial Bank as a case study, the EO looks at the qualifying criteria and implementation of Green Credits to enterprises adhering to environment conservation guidelines.
Original article: [Chinese]
