Highlights from the EO print edition, No. 613, Apr 1, 2013

Hundreds of Counties Apply for Upgrade Amid Urbanization Reform
News, page 3
~ A plan for promoting healthy development of urbanization being compiled mostly by the National Development and Reform Commission (NDRC) will be released soon, which has led to many counties and towns to apply for a designation upgrade to cities and districts.
~ According to the plan, urbanization in Eastern China will focus on gradually building more internationally competitive mega-cities by optimizing urban agglomeration and focusing on development of service industries. Meanwhile, in the West, emphasis will be put on small and medium-sized cities, as well as industrial development.
~ A series of comprehensive reform measures concerning land, household registration, medical care and education will be successively published in the second half of this year.
~ During the "Two Sessions" this year, a government work report said that the development scale of mega-cities should be rationally controlled. In recent years some provinces and even some small and medium-size cities have blindly pursued the development of these megalopolises.
~ In 1997, the State Council decided to suspend approvals to upgrade counties to cities. The Ministry of Civil Affairs has since had strict management and control over it.
~ However, earlier this year, the Ministry of Civil Affairs approved the upgrade of two counties in Jilin and Yunnan Province, which was seen by many insiders as a lifting of this ban. Therefore, hundreds of counties and towns, especially in Western China, have scrambled to apply for their own upgrade.
~ Upgrading counties and towns to cities plays a major role in promoting the expansion of capacity, population agglomeration and local economic growth. But if a local government too hastily pursues urbanization, problems will emerge related to housing demolition and land expropriation.
Original article: [Chinese]

Village Banks Having Trouble Developing
Market, page 18
~ Village banks have received many preferential government policies since they were first allowed in 2007. However, they're now facing a development predicament due to a lack of sponsors and other problems. According to CBRC, there were only 123 new village banks established in 2012, a large decrease compared to 377 in 2011.  
~ Zhao Fang, director of the organizing committee office of China's Village Banks Development Forum, told the Economic Observer that sponsors of existing village banks are mainly city commercial banks, rural credit cooperatives and rural commercial banks. Since the second half of 2011, the city commercial banks have been prohibited from opening village banks in other provinces. And rural credit cooperatives aren't strong enough to set up village banks very quickly. What's more, private investment is retreating because of low returns.
~ Zhao said that village banks should shoulder responsibility for supporting agriculture because of lagging economic development in rural areas. However, they face regulations from the government that bring hurdles in operation and development.
~ These banks are also having trouble soliciting deposits. With a shorter history, less publicity, limits on business scope and no head office or higher bodies, the village banks lack the credibility of the more established banks that have been working in rural areas for decades. Fewer deposits means less liquidity and less profit. "Despite the policies allowing rural banks to lift their deposit rates to four times the level offered by city banks, attracting deposits is still very difficult," Zhao Fang said.
~ As a result of these issues, village banks also have trouble attracting talent. "Village banks have less brand influence and a lower degree of market acceptance, so it's difficult for them to hire excellent staff," Zhao said.
~ Du Xiaoshan, deputy director of the Rural Development Department of the Chinese Academy of Social Sciences, said, "Many large banks started their business in cities, so they're not familiar with operating in rural areas. Exploring the development of community banks may be one of the solutions to changing the current predicament of village banks."
~ Du continued, "There's a long way to go. There are about 2,000 counties and cities in China. If we set up two to three village banks, loan companies, credit union funds or other types of rural financial institutions in each county, the number should be 4,000 to 6,000 after two years. The current number is far from enough."
Original Article: [Chinese]

Banking Regulator Tightens Controls Over Wealth Management Products
Market, page 19
~ On Mar 25, the China Banking Regulatory Commission (CBRC) issued a notification aimed at regulating the indirect investments in non-standardized debt assets by domestic commercial banks.
~ The notification defines non-standardized debt assets as assets that are not traded in the inter-bank market or on the stock exchange. It includes, among other things, credit assets, trust loans, commission claims, acceptances, letters of credit, accounts receivable and equity financing with repurchase terms etc.  
~ Ma Junsheng(馬俊勝), deputy general manager of ICBC's Asset Management Department, told the EO "The notification shows that the CBRC would like to encourage the healthy development of the banks' wealth management industry. These restrictions on what assets the banks can invest in are aimed at forcing the transformation of these products rather than halting the development of the wealth management sector. The moves are likely to help the healthy development of the financial industry and at the same time better protect the interests of consumers.
~ The notification put forward three principles of asset management. They are separate management, separate accounts and separate accounting. It also made major modifications to the requirments for disclosure of information and strengthened risk control at commercial banks.
~ According to the requirements of the notification, balance of debt of financial capital investments in non-standardized debt assets shall not exceed 35 percent of the balance of wealth management products or 4 percent of a banks total assets as calculated at the end of 2012.
~ Tang Yiting (唐毅亭), Chairman of Le Rui Assets Company, told the Economic Observer that "non-standard" business accounts for a very large proportion of the total amount of financial and social financing. By limiting this "non-standard" business, there are likely to be broader ramifications. Firstly, it will restrict the growth of social financing, increasing risks to macroeconomic growth. Secondly, it can force banks to conduct a financial business transformation. Thirdly, it may bring benefits to debt assets and losses to the stock market in a short term.
Original Article: [Chinese]

Company Silent on "AIDS vaccine" as Majority Shareholder Dumps Shares
Corporation, page 26
~ Changchun High & New Technology Industries Group Inc. (長春高新) is the highest priced stock on the Shenzhen exchange and the third highest among all companies listed in China. Its stock price has surged almost 2,000 percent to 87.14 yuan over the last four years. The main driver behind this rise is the company's "AIDS vaccine" research.
~ In 2009, the company started recruiting volunteers to conduct phase II clinical trials of the "AIDS vaccine" at the Guangxi Center for Disease Prevention and Control, but no further information has been released since. The supposed research has been done in a black box with investors knowing nothing about its progress. They have noticed though, that the largest shareholders sold off shares worth 184 million yuan or 2 percent of the company's total share holdings in one day.
~ An EO reporter called the company and its principal shareholder, Chaoda Investment Corp., but no one answered the phone. Some minority shareholders have also questioned the company about why its principal shareholder has sold off shares, but the company refused to answer directly. Even the website of the company seems to have stopped updating.
~ A stock researcher for the pharmaceuticals industry told the EO that there was a similar story in the past associated with Chongqing Beer. The phase II clinical trials of the company's Hepatitis B vaccine didn't turn out well and it decided to delay announcement of the results. When the results were announced, the stock price plummeted from a historical high of 83 yuan to 12.58 yuan.
Original Article: [Chinese]
    
Alternative Destinations for Chinese People Emigrating Abroad
Lifestyle, page 53
~ North American is usually the first choice among Chinese people looking to start a new life abroad. This week's Lifestyle section looks at some of the alternate destinations that are attracting Chinese emigrants.
~ Some countries in an attempt to attract more foreign investment have introduced new immigration policies in recent years. For example, Portugal recently changed the rules so that an individual that spends 500,000 Euro on purchasing a property is now eligible to apply for permanent residency.
~ Cyprus is another alternate destination for Chinese people. Individuals only need to spend 300,000 Euro to be eligible to apply for permanent residenct in this EU country.
~ There are also Chinese people to choose to immigrate to Africa and South America. One of the reasons is that they don't need to invest as much money. For example, you only need to invest 150,000 yuan to be eligible for residency of Gambia or Guinea and permanent residency in Chile is said to only require a payment of $70,000 Original article: [Chinese]