Highlights from this week’s newspaper:

No Second Stimulus

News, cover

~ Responding to fears of another global recession, an official close to the Ministry of Finance said that the Chinese government hasn't yet decided on a response, but that "there won't be a 4 trillion yuan stimulus policy [as there was in 2008]." He also said that "there is no need for temporary policy, the market will calm down." 

~ Aug 11, Zhang Xiaoqiang, Deputy Director of National Development and Reform Commission (NDRC) told the EO that the economic slowdown in developed economies will tend to reduce global commodity prices, which may ease short-term inflationary pressures in China, while in the medium term looser monetary policy abroad may bring increase inflationary pressure within China.  

~ Zhang Zhixiang, the Former Director of the International Division of the People's Bank of China said that management of its foreign exchange reserves should be the country’s main focus. 

Original article: [Chinese]

Controversy over Where the Chinese Government Should Deposit its Money

News, page 2

~ The EO has learned that in 2010 the Chinese central government deposited a total of 400 billion Yuan of treasury holdings with commercial banks, earning interest of 7.4 billion yuan. This 400 billion yuan represents 23.5% of total central treasury holdings of 1.5 trillion Yuan. If you take the 2 trillion yuan of local government funds into account, national treasuary holdings exceed 3 trillion yuan.

~ There is a disagreement between Ministry of Finance (MOF) and the People's Bank of China (PBC) in regard to whether these funds should be deposited with commercial banks. A central bank employee told the EO that these hundreds of billions of yuan in funds flowing into the commercial banks, has the same effect as issuing more currency. The way China's treasury manages its cash seems to conflict with monetary tightening policies and may indeed be increasing inflation.

~ The Ministry of Finance on the other hand believes that cash management is a common international practice and it is necessary in order to increase the yields on the more than 3 trillion yuan in fund being held by the government. 

~ The MOF also argues that the amount of money being deposited with the commercial banks is not enough to impact on monetary policy.

~ Treasury cash management operations began in 2006 and funds have been placed in term deposit accounts with commercial banks and used to purchase government bonds. Over the past two years, almost all of the central government funds were deposited with commercial banks.

~ According to the relevant regulations, fiscal revenue is deposited into treasury accounts which are held at the People's Bank of China.

~ It is understood that the yields that the government has been able to earn on their short-term deposits (usually 3 or 6-months), negotiated through a tender process, have climbed from 2.9% in the first half of 2010, to 5% at the end of last year and has hovered around 6% in the first half of this year.

~ The central bank only pays a fixed interest rate of 0.36% on treasury deposits. 

~ Many academics agree that it makes sense to increase the returns on government holdings, but they emphasise that investments must be conducted in accordance with a strict and prudent system that will reduce the risks of corruption.

Original article: [Chinese] 

Coal Prices Expected to Rise in September

News, page 6

~ When entering summer, due to abundance of coal store in power plants, the coal prices have been falling. This trend is set to change as coal prices are likely to rise in September.

~ Why will coal prices go up? First, the coal stocks held by the various power generation groups has dropped dramatically. According to the most recent data obtained by the EO, coal reserves at the six major power generators have fallen sharply. For example, the coal reserves at Guangdong Yudean Group, a power company operating in Southern China, decreased 23.44% in the week of Aug 5, and their stocks could run out in about 10 days. 

~ The second reason is the increase in ocean freight prices and the price of mining coal. According to the data released by OSC network, ocean freight prices rose 2 yuan per ton to 70 yuan per ton from the Qinhuangdao Port to Guangzhou Port in the week of Aug 10.

~ The price of extracting coal from mines in Shanxi and Inner Mongolia has also risen quickly.

~ In addition, currently many provinces have started to reintroduce coal price regulation funds, which also have the potential to affect coal prices.

~ Experts predict that at the beginning of September coal price will start rising after hitting bottom, continuing the sharp rises that took place in April. Prices could increase by over 30 yuan a ton.

Original article: [Chinese]

CSRC: China to Announce List of Futures Brokers Licensed to Handle Overseas Trading

News, page 7

~ China plans to launch a pilot program that will allow three to four brokerages to handle trades on overseas exchanges on behalf of Chinese investors. The final list of which companies will be given permission to broker the trades could be announced as early as next month.

~ According to what one source told the EO, COFCO Futures Co., China International Futures Co and Nanhua Futures Co. could be some of the companies to be included in the trial.

~ The China Securities Regulatory Commission (CSRC) is likely impose strict rules governing what kind of investors wil lbe able to take part in the program and also place limits on the overseas trading volumes of individual investors.     

~ If launched, the program would be a big boost to local brokerages as they would then be able to serve the growing demands of local enterprises for overseas hedging.

The proposed program would also break the monopoly of foreign agencies by allowing domestic enterprises to hedge overseas through local brokerages.   

Original article: [Chinese] 

Investment in Railways to Slow Down

Corporation, Page 27

~ Despite an increase in revenue and net profits, Chinese train maker CSR also endured a surge in outstanding bills in the first half of 2011.

~ Sales income for the period rose, but many clients delayed payment, according to CSR.

~ The Ministry of Railways, local railways and companies under their investment and management are responsible for about 60% of CSR's debts receivable.

~ The Ministry of Railways slowed down repayment of loans and extended payment periods due to capital pressure and increasing financing costs.

~ After a meeting of China's State Council on Aug 10, it was decided that the central government would suspend consideration of all new railway projects. Therefore capital expenditure by the Ministry of Railways is set to decrease over 2011. Meanwhile, CHR difficulties will further damage profitability in the the railway equipment industry since CRH will have to sell its trains more cheaply.

Original article: [Chinese]

CNPC Enters Joint Venture with Shandong Local Refineries

Corporation, Page 29

~ China Chemical Industry Group and CNOOC have been buying refineries in Shandong Province since 2008.

~ Now China National Petroleum Corporation (CNPC) is entering the Shandong market, but its strategy is different from other two Central-administered state owned enterprises, they are forming joint ventures with local refineries, instead of taking outright ownership.

~ CNPC and local refineries will set up a new joint venture, Shandong Refinery Investment Co., Ltd, which will be supported by the local provincial government with registered capital of 1 billion yuan.

~ CNPC will help the company to apply for the right to import crude oil, and sell refined products.

~ Shandong province has 21 refineries and accounts for 60% of the total capacity of China's private refineries. They are struggling to survive because of difficulty obtaining crude oil. The central government allocates 1.7 million tons annually to Shandong's 21 refineries, but their refinery capacity has expanded from 26 million tons to 80 million tons, so they have replaced crude oil with fuel oil, which has led to low quality products and high costs.

Original article: [Chinese]

Selling Out the Bird's Nest - Making Money off Football in China 

Corporation, Page 31

~ This year's Italian Supercoppa, a regular pre-season match between the two teams that won Italian football's Serie A and Coppa Italia in the previous season, was held in Beijing on Aug 6. A.C. Milan defeated Inter Milan 2-1 in front of a crowd of roughly 80,000 spectators.

~ A person close to the matter estimated that revenue from ticket sales exceeded 100 million yuan. Once the appearance fee for the two clubs and other costs are accounted for, it's likely that United Vansen International Sports Corporation (北京合力萬(wàn)盛國(guó)際體育發(fā)展有限公司), the company behind this year's Supercoppa, will take home more than 10 million yuan in profit.

~ According to Guo Jie, Chairman of World Team Sports Management Group (中國(guó)沃天體育管理集團(tuán)), the company that backed the 2009 Supercoppa, which was also held in Beijing, the success of the 2009 and 2011 Super Cups in Beijing marks a new phase in the hosting of commercial football matches in China. 

~ "The time when clubs got ticket sales based upon their influences is over. What the market needs is real, professional, and top-notch games," says Guo.

Original article: [Chinese]