Highlight's from This Week's Issue of The Economic Observer:
Dec 19, 2011
Translated by Zhu Na and Song Chunling

Nationwide Audit of Subsidized Housing Funding Launched
News, page 2
~ The EO learned that the National Audit Office has recently launched a nationwide audit of spending on the construction of subsidized housing. The audit will cover all aspects related to the construction of subsidized housing, with a focus on how funds from central government coffers that are being used to support the ambitious project are being spent.
~ The central government has already spent 152 billion yuan on constructing subsidized housing in 2011, up from the roughly 79 billion yuan spent in 2010, according to China's Ministry of Finance.
~ Central government funds accounted for a large proportion of the money used to construct public housing, this is especially true in the western and central regions of China, where central government funds account for between 40 and 45 percent of the total amount being spent on the building spree.
~ The EO also learned that this year's audit will be much more extensive than those conducted in previous years. The investigations are likely to continue until next February.
~ The results of the audit might change the way that policy makers allocate funds for the construction of public housing in 2012.
~ Aside from a focus on central government funding, the audit will also look into issues such as land allocation and land use.
Original article: [Chinese]

Illegal Rare Earth Production Persists
News, page 5
~ Shao Weigen, the head of the Municipal Bureau of Land Resources in Heyuan, a city in China's southern Guangdong Province, was initially very confident that authorities would be able to stop the illegal mining and processing of rare earths. However, the results of an intense campaign have been disappointing, with Shao noting that although there are no longer any refineries buying illegally-mined rare earths, illegal mining is still taking place, which begs the question - where is all this illegally-mined industrial metal going?
~ A campaign aimed at putting a stop to companies exceeding their rare earth extraction quotas and also the illegal mining of rare earths, was initated in August at the behest of six central government ministries.
~ "All the buyers of illegally-mined ore have been dealt with says Shao. Many smelting factories in Ganzhou (贛州) have stop refining, according to an employee of one factory in the region. Ganzhou, which serves as the southern center for rare earth refining in China, consumes around 200,000 tons of rare earth ore, while the local limit for rare-earth extraction is only 8,000 tons.
~ However, illegal mining hasn't disappeared in Heyuan and other provinces. On Nov. 24, seven miners were buried alive after a deadly accident took place at an illegal mine in Guangxi province.
~ "There is only one possibility - smuggling." says Shao. According to export data provided by China's customs agency, the amount of rare earths imported from China as recorded by foreign customs agencies, far exceeds the amount that Chinese customs says is exported from the country."  
~ While the chain connecting illegal miners to refineries had been broken in China, it's very likely that a new connections are being established beyond China's borders.
~ Many specialists from Chinese refining companies have decided to leave China in search of positions in Myanmar and Vietnam. While some European and American companies are considering establishing large-scale rare-earth mines, many small-sized enterprises in Myanmar and Burma have once again started up production.
~ "Control over illegal mining there is not very strict yet," says Meng Jiangqing, deputy secretary-general of the Jiangxi Society of Rare Earths, and he urges that China seek "better cooperation with neighboring governments."
Original article: [Chinese]

How to Stabilize Food Prices - Vegetable Insurance
News, page 6
~ The EO has learned that central government ministries are considering introducing a plan to promote "vegetables insurance" across the country next year, in order to keep a lid on prices and make sure that inflation doesn't bounce back again in 2012.
~ The National Development and Reform Commission (NDRC) plans to offer insurance coverage to farmers that take part in the scheme so that they are awarded payments if the price of certain vegetables slips below a set level. The policy is aimed at reducing the losses caused by large price fluctuations.
~ However, due to the lack of fiscal support, progress has been slow.
~ The EO learned that the insurance plan will mainly target common vegetables such as radish, cabbage, potatoes and tomatoes.
~ To implement the plan, a pool of about 20 to 30 billion yuan in funds will be required. According to the original plan put forward by the NDRC and the Ministry of Agriculture, central government and local governments would invest 80 percent of the funds, while farmers would be responsible for the remaining 20 percent.
~ Over the past two years, fluctuations in vegetable and other agricultural prices have been the main driver of shifts in the official Consumer Price Index (CPI). After Feb 2011, the NDRC started to negotiate with Ministry of Agriculture, the Ministry of Finance and other central government departments in the hope of establishing a "vegetable insurance system" as soon as they could.
~ Due to the high risk associated with the plan, people who working in the government also believe that unless subsidies are provided, insurance companies will not want to take part in the scheme.
~ Currently, Shanghai and Hefei city of Anhui province have started to implement a pilot project of the scheme - the system is said to be progressing well in Shanghai.
Original article: [Chinese]

Shanghai and Shenzhen Stock Exchange Compete for IPOs
Market, page 17
~ The standards required of companies that want to list on the smaller boards of the two major Chinese stock exchanges have been rising. According to regulations released by four central government ministries in June 2011, companies wishing to list on Shenzhen's ChiNext board should have an annual income of more than 59 million yuan, and that companies wanting to list on the Small and Medium-sized Enterprise (SME) board must have quarterly revenue of more than 300 million yuan. ?~ However, according to international standards, the upper limit for small enterprises is usually a company with less than 50 million yuan in annual turnover. Thus, according to international criteria, most small enterprises in China are not qualified to list on the ChiNext and are also very unlikely to qualify for an IPO on the SME board.
~ Moreover, for the few companies who meet the revenue requirements, their chances of having their application to list approved are slim. According to data from WIND, all the 916 listed enterprises listed on China's ChiNext and and SME boards have an annual income exceeding the upper limit established by the four ministries.
~ The limited number of enterprises that are qualified to list has also intensified competition between the Shanghai and Shenzhen Stock Exchange. While the listing standard of the main board in Shanghai Stock Exchange is no different from that of the SME board in Shenzhen, most enterprises have chosen to list in Shenzhen instead of Shanghai.
~ The EO learned that Shanghai Stock Exchange has arranged a talk with many security brokers including CITIC Securities and China Capital Investing Group to discuss the listing standards of the two stock exchange.
~ One of the prime reasons for the popularity of Shenzhen Stock Exchange is because the P/E ratio in Shenzhen is higher and thus more funds can be raised.
~ The competition between Shenzhen and Shanghai Stock Exchange reflects the problems with China's capital markets. The dislocation of the main board, ChiNext and the SME boards needs to be changed soon. A source close to China Security Regulatory Commissions says that the commission is currently thinking about the orientation and positioning of the two exchanges. It's also suggested that the listing standards for ChiNext and SME boards should be lowered in keeping with international standards, so that quality small enterprises are qualified to list.
Original article: [Chinese]