Highlights from the EO print edition, No. 591, Oct 22, 2012
Canton Fair Sees Quietest Year
News, cover
~ Last week marked the 112th biannual Canton Fair in Guangzhou where overseas buyers connect with Chinese manufacturers.
~ On the third day of the fair the owner of a Zhejiang Province lock company looked around the quiet exhibition hall and decided to leave a day early. "It doesn't make sense to stay here," he said.
~ On the first day of the fair, Liu Fengji (劉鳳翼), chairman of a Shenzhen enterprise, noticed that the subway heading toward the venue wasn't as busy as it should be. He didn't see many foreigners and there were plenty of seats available. In the past, during the Canton Fair period, the subway had to implement special traffic control measures to handle the large crowds.
~ The idleness of the Canton Fair was beyond the expectation of Wu Hao (吳昊), marketing manager at a household furnishings company in Guangdong. "I chatted with other exhibitors; none expected it would be like this," he said.
~ At last autumn's Canton Fair, Wu collected more than 200 business cards from foreign merchants. During the spring fair it dwindled to about 160-170 cards. He was unpleasantly surprised to receive fewer than 100 this time around.
~ According to Xinhua News Agency, the fair registered a total of 93,529 overseas buyers as of Thursday, a decline of 11.4 percent over the same period in the spring session.
Original article: [Chinese]
Plan to Invest Local Pension Funds in Stock Market Suspended
News, page 2
~ A pilot reform that would have allowed a portion of the pension funds collected in China's most heavily-populated province to be invested in the local stock market has been put on hold in a move that may have broader repercussions for reform of China's social security system.
~ Over recent years there has been constant talk about allowing local pension funds to invest in the stock market, but it was only after this year's meeting of the National People's Congress in March that any substantial progress was made.
~ On Mar 19, the National Council for Social Security Fund (NSSF) announced that the State Council had approved their application to invest 100 billion yuan of funds from Guangdong's urban pension funds. Many analysts interpreted this as a sign that more and more regional pension funds would soon begin to "open up" to the possibility of investing into the local stock market.
~ However, a spokesperson from the NSSF soon emerged and said that media reports about the fund's plans to invest in the market had misinterpreted the plan as a move to invest billions of yuan in the stock market. The spokesperson said investments would instead focus on fixed-income products such as government bonds, bank deposits, financial bonds and corporate bonds.
~ Up until now the NSSF has been unwilling to reveal what proportion of the Guangdong funds have been invested in the stock market. The EO repeatedly contacted the Guangdong Provincial Department of Human Resources and Social Security for details, but our request was repeatedly denied, with officials saying it was "too sensitive" to discuss the issue of local pension funds investing in the stock market.
~ China's NSSF has been investing in equity markets since 2003, though investments in the domestic and Hong Kong stock markets cannot exceed 40 percent of their total investments.
~ Assets under NSSF management had reached almost 870 billion yuan by the end of 2011. Just over 50 percent of assets had been invested in fixed-income products, 32 percent in stocks; 16 percent in industry and less than 1 percent in cash and equivalents.
~ Official data from NSSF revealed that from 2001 to 2010, China's national social security fund earned 284.7 billion yuan in returns, which equates to an annualized rate of return of 9.17 percent, 7 percentage points above the average rate of inflation over the same period.
~ In contrast, the majority of China's pension funds are still controlled by local governments, and according to current regulations, local levels of government can only deposit their funds in the bank or use them to purchase government bonds.
~ Currently, approximately 90 percent of all local pension funds are deposited with banks, earning slim or even negative returns. Over the past 10 years, the average rate of return on these funds has been less than 2 percent. Given that the average rate of inflation over the 2001 to 2010 period was 2.14 percent, local pension funds appear to be actually losing money.
~ In recent months, China's Ministry of Human Resources and Social Security (MOHRSS) and the Ministry of Finance (MOF) have failed to mention a previously announced plan to reform the system that governs how pension funds across the country can be invested. The NSFF is supposed to be working with MOHRSS and MOF on putting out a plan to reform the system before the end of the year..
~ According to what one source has told the Economic Observer, as the amount of opposition to the plan to allow local pension funds to invest in the stock market is still large, the plan to reform the way that pension funds around the country invest has been shelved. Similarly, steps to allow local pension funds to invest in the market have also been halted.
~ Zheng Bingwen (鄭秉文), the head of the Center for International Social Security Studies at China's Academy of Social Sciences, has long been an advocate for investing pension funds in the market. In response to arguments that China's stock market is not mature enough and that the risks are too high, Zheng says the solution to allaying these fears is to emphasize that pension funds will invest with a long-term outlook and by capping investment. Zheng noted that capping investment in the stock market at "30 percent is reasonable, we should not go over 40 percent."
Original article: [Chinese]
Keeping an Eye on the Size of China's National Treasury
News, page 4
~ In September, the amount of funds held in China's National Treasuary (中國國庫) fell by 20 percent when compared to last year.
~ According to Dr. Stephen Green, head of research at Standard Chartered's Greater China office, this is the result of a slowdown in the rate of economic growth, resulting in a slowdown in the rate of growth in government revenue.
~ Dr. Green says that treasury holdings are a useful indicator when it comes to examining economic trends in China. Analysts can get a good idea of the fiscal rhythms that flow through China's macroeconomy, by looking at how money flows out after the "Two Sessions" is held in March and how spending spikes at the end of the year as ministries rush to spend their allocated budget.
~ Green also says that by examining treasury holdings, economists can get a better handle on what role government spending might be playing in stimulating the economy, in terms of both size, timing and efficiency of any stimulus measures. For instance, if at one time there is a notable drop in the amount of money held in the account, it's a good sign that the government is spending more than it is collecting and that fiscal policy is expansionary.
~ The holdings of the National Treasuary (國庫存款), which are also sometime referred to as Deposits of Government (政府存款) are the accounts of various levels of government that are deposited with the People's Bank of China. All government spending and revenue for these various levels of governments are administered via these accounts. Currently, China has one central national treasury, 30 separate local level treasuries, 49 "central" treasuries and 513 county treasuries. Transfers of capital between the central and local levels of government are transacted through these accounts.
~ In September, China's total government revenue totaled 826 billion yuan and spending came to almost 1.2 trillion. At the end of the month, there was more than 2.7 trillion yuan in funds deposited in the national treasury, down 20 percent on the almost 3.6 trillion stored in the account last September.
~ According to Dai Baihua (戴柏華), a spokesperson for the Ministry of Finance, currently all government revenue will eventually end up in the treasury accounts, including tax revenue, non-tax revenue, income from funds and the dividends from centrally-controlled state-owned enterprises.
~ China's treasury holdings are large when compared to other countries and until recently they've only been earning very low levels of interest from the central bank. In recent years, a proportion of the funds have been invested in commercial banks in an attempt to prevent a loss in the real value of the holdings. In 2011, 440 million yuan of funds were deposited as cash investments with commercial banks. As of Oct 18 this year, 540 million has been deposited with commercial banks.
Original article: [Chinese]
Personnel Shake-Up at China's Insurance Regulator
Market, page 17
~ This time last year, the powerful Organization Department of China's Communist Party Central Committee announced that it had replaced the heads of the country's banking, securities and insurance regulators. After a year at the helm of the China Insurance Regulatory Commission (中國保險監(jiān)督管理委員會) or CIRC, Xiang Junbo, a former board chairman of the Agricultural Bank of China, is now starting to make his presence felt.
~ Mr. Xiang has begun to implement a plan that will result in a big shake-up of key personnel at the insurance regulator. Xiang had already signaled his intentions at a central work meeting held at the start of this year when he said, "This year, we will select certain leadership positions in some bureaus and open them up to open and competitive hiring procedures."
~ On Oct 17, a source close to CIRC told a reporter from the Economic Observer that the regulator is considering opening up deputy director positions at local levels of CIRC to open and competitive hiring procedures. This followed the recent announcement that a new deputy president and two new assistants to the president had been appointed. This source told the EO that we can expect to hear news of more personnel shifts soon, with changes at the top of the Development and Reform Department (發(fā)改部), Property Insurance Regulatory Department (產(chǎn)險部), Life Insurance Department (壽險部), Finance and Accounting Department (財會部) and the Legal Affairs Department (法規(guī)部) also likely.
~ Since taking up the position of chief regulator of China's 7-trillion yuan insurance industry, Xiang has been frustrated in his attempts to deal with problems facing the sector due to a lack of professionally-trained staff. The challenges facing CIRC have included a rapid slowdown in life insurance premiums, lack luster rate of returns for investors and regulators lacking the strength to do their job properly.
~ Xiang has previously criticized some of those in his department for not being clear about the boundaries between regulator and industry player and of being too sympathetic to the industry when considering questions of policy.
Original article: [Chinese]
Foxconn Reassesses PV Investment
Corporation, page 25
~ On Oct 18, the Economic Observer learned that "Foxconn is reassessing its investment in the solar photovoltaic industry to see if it's still worth doing. It's expected that there will be a decision before the end of the year," according to a source familiar with the issue.
~ It was previously revealed by local governments that Foxconn's solar investment plan in Shanxi and Jiangsu Provinces is close to 100 billion yuan.
~ On Oct 11, Lu Zhigong (陸志功), director of the Investment Promotion Bureau of Funing (阜寧) County in Jiangsu Province, confirmed to the EO that Foxconn's PV project in Funing hasn't yet been put into production. The local government had previously announced that total investment in the project was $1.5 billion with the development taking up an area of 10 square kilometers.
~ "Foxconn hasn't confirmed yet when it will be put into production," Lu said. "Now it looks like the scale of output won't be 10 GW as initially announced but about 5 GW. Originally [Foxconn] said the project would be completed by the end of 2014. Now it will likely be postponed one year."
~ "The equipment used for the factory is imported from Germany and Japan," Lu explained. "Due to anti-dumping and anti-subsidy regulations in Germany and political complications with Japan, the tax reduction and exemption procedures for the imported equipment didn't go smoothly." Lu also explained that the poor market for photovoltaic cells was another reason why the production at the plant hadn't started yet.
Original article: [Chinese]
