Highlights from the EO print edition No. 473, June 14, 2010
Guosen Securities Involved in Corruption Scandal
Cover
~ Guosen Securities, one of China's most well-known stock broking firms, is deeply involved in an ongoing investment corruption scandal.
~ On May 26, Guosen Securities made an internal announcement to employees stating that Li Shaowu, head of the Fourth Investment Bank Department at Guosen Securities, had been dismissed from his position because he had violated China Securities Regulatory Commission regulations and other laws.
~ Two weeks after that, during an interview with the Securities Times, Guosen Securities made news of the dismissal public, adding that Li's wife held 50,000 shares of a listed company whose IPO has been sponsored by the Guosen Securities and that Li has now been removed from his position.
~ However, the EO has since learned that Li committed more serious breaches than those revealed to the public by Guosen.
~ Since Li began working for Guosen Securities in 2001, he spent some 1.43 million yuan buying the shares - either through his wife or via third party companies - in two companies that have already listed and he also had a stake in another company that was preparing to list.
~ Li was also worked as the financial sponsor during the IPOs of the three companies mentioned above. If calculated according to current market value, Li's returns have already reached 32 million yuan.
~ According to China Securities Regulatory Commission regulations, those acting as the financial sponsor, along with their spouse, are banned from buying shares in the companies that they help list.
Original article: [Chinese]
Focus of Income Distribution Reform Shifts to Reducing Flow of Wealth to Government
News, cover
~ Three institutions are leading three separate investigations into the issue of income distribution reform: the Financial and Economic Affairs Committee of the 11th National People's Congress, the China Democratic League and the National Development and Reform Commission have all put together teams to conduct investigations nationwide.
~ A common point of agreement among the three bodies is that the focus of the reform has shifted to reducing the flow of wealth to governments and state-owned enterprises, especially enterprises directly under the control of the central government.
~ National Development and Reform Commission statistics reveal that China's GDP has grown by an average annual rate of 9.9% over the past thirty years, but despite this growth, a greater proportion of this new wealth has flowed to the government and state-owned enterprises. The proportion of workers income as that of total national income has dropped by 13 percentage points since 1995.
~ According to the various recommendations being drawn up by each of the three institutions involved, local governments should have access to more tax revenue and a cap should be placed on the salaries of state-owned enterprise employees
~ It's hoped the reform plan will be drafted in July and completed at the end of this year, but one scholar interviewed for the article expressed concern about whether the reforms will go ahead as planed since the reform will are bound to impact on the interests of many groups.
Original article: [Chinese]
MOC Plans to Shift Processing Industry to More Green and Energy Efficient Footing
News, Page 3
~ China's Ministry of Commerce is drawing up a draft scheme on the transformation and upgrading of the country's processing trade (the trade in goods that are imported for assembly and subsequently exported), the EO learned.
~ A source said the scheme is a part of the country's policy package to conserve energy and reduce pollution and carbon emissions.
~ The EO also learned that the ministry plans to add some new items, such as crystalline silicon (used in the manufacturing of solar cells), to the catalog of goods that are barred from being manufactured as part of the processing trade.
Original article: [Chinese]
Local Government Bonds to be Issued in Second Half
News, page 4
~ As of June 11, the central government will issue the first bonds on behalf of local governments for 2010. At this stage last year, the central government has already issued 70% of the annual total.
~ In order to prevent overheating due to too much money flooding the provinces and also ensure that there would be enough capital for local governments to continue to finance projects for the second half of 2010, the Ministry of Finance has not issued any local bonds so far this year.
~ Another factor that influenced the central government to hold back on issuing local bonds in the first half of the year is the increased cost of issuing bonds in the tightened money market
~ Aside from delaying the issuance the local bonds, the central government has also tightened the approval process.
~ According to an official with the Henan Financial Bureau, all the funds raised by the issuing of these latest bonds can only be used to fund central-government-backed projects or projects that are already under way, no funds should be flowing to new projects.
Original article: [Chinese]
Subtle Changes to Labor Relations at Foreign-funded Factories After Foxconn Suicides
Nation, page 9-10
~ Since the end of last year, it's rumored that Hefei President Enterprises Food Company, which is funded by Taiwan's largest food production company - Uni-President Enterprises Corporation, would reduce its employees pay on the grounds of the impact of the financial crisis.
~ However, employees, who argued that the food products produced at the factory were mainly sold on the domestic market and therefore sales should not have suffered due to the crisis, opposed the company's proposed pay cut.
~ In April, the employees waged a one-day strike to appeal to the company's management not to cut their pay.
~ A manager at the company revealed to reporters that initially the company's boss was very angry about the strike as he believed that the company was already paying workers more than neighboring factories.
~ However, according to one manager at the factory, as the strike took place in the wake of six suicide jumps at Foxconn Technology's huge Shenzhen base, the boss was afraid that any rash moves could cause the strike to spiral out of control and finally gave in to workers' demands.
~ After the suicides at Foxconn and the strikes at multiple Honda factories gained widespread media coverage, the Hefei President Enterprises Food Company began to try and impose strict controls on workers. Recently, even if on-duty workers simply talk about the Foxconn incidents, a group leader will come over and tell them to stop talking about it.
Original article: [Chinese]
Conflicting Data Released by State Administration of Foreign Exchange and People's Bank of China Explained
Market, page 17
~ China's foreign exchange reserves increased by 96 billion US dollars in the first quarter, up 46% on the level of the same period of last year, according to the statistics released by the State Administration of Foreign Exchange (SAFE) on June 10.
~ However, data from the People's Bank of China (PBC), shows that foreign exchange reserves increased by only 47.9 billion US dollars in the first three months of 2010, growing by 25.25% compared with that of the same period last year.
~ How do each of these institutions explain the huge gap between the two numbers?
~ According to experts and officials interviewed by the EO, the answer is a combination of the effect of dramatic fluctuation in the changes in the relative exchange rates of foreign currencies and the inflow of hot money.
Original article: [Chinese]
China Securities Regulator Intensifies Efforts to Crack Down on Insider Trading
Market, page 21
~ China's securities regulator, China Securities Regulatory Commission (CSRC) is intensifying its efforts to crack down on insider trading.
~ People close to the matter told the EO that not only employees of funds and securities companies are banned from buying stock but CSRC will also begin to place their spouses under supervision.
~ The source also added that new rules requiring the relatives of senior managers working at funds or securities companies to make written declarations of their stock purchases to the CSRC will be added to the Code of Securities Industry Employees' Conduct, which is expected to be released in the latter half of the year.
Original article: [Chinese]
Oil Giants Maneuver Ahead of Reform to Pricing of Natural Gas
Corporation, page 29
~ The EO has learned that the way natural gas is priced will be reformed from 2011. Currently, the central government determines the price of natural gas and the resource is sold domestically at below the price set on international markets.
~ The current pricing mechanism is a source of great concern for three state-owned oil giants: Sinopec, PetroChina and the China National Offshore Oil Corporation (CNOOC), who collectively are expected to import over 15 billion cubic meters of natural gas this year.
~ Sinopec prefers to impose the increased price on gas that's sourced from new projects, while gas produced at existing projects are still priced in the same way, but PetroChina, with its abundant gas resources, thinks it's better to have a weighted average price of the gas from both old and new projects.
~ So far it is not clear which pricing method will be adopted. But the war between the oil giants to get their hands on as much gas as possible has already begun. PetroChina announced on June 10 that it would import ten billion cubic meters of natural gas annually from Uzbekistan, while Sinopec is also stepping up gas production too.
Original article:[Chinese]
