Highlights from the EO print edition, No. 629, July 22, 2013

Taobao Transforms its Search Engine
News, Cover
~ The Chinese online retailer Taobao (淘寶) has decided to relax control over Internet traffic in order to keep its current vendors and also attract more sellers.
~ Previously, Taobao sellers needed to buy advertisements on the home page and pay for placement in search results in order to increase their visibility and compete for traffic. This resulted in less profitability and also hampered smaller shops and start-ups that couldn’t afford this advertising.
~ Taobao has responded by establishing new rules attempting to make an even playing field for all vendors. Online shops no longer pay for placement in search results, but rather, compete for better rankings through accurately labeling their products.
~ Taobao is also trying to help shops build customer loyalty. For example, a “New on the Shelves” function will recommend items to buyers from shops they’ve favorited on their “My Taobao” page.
~ Experts say these new measures will reduce Taobao’s income from advertisements, which is one of its major sources of revenue. However, they say it’s necessary in the long-term if Taobao is to keep its sellers and prosper in the future.
Original article: [Chinese]

New Curbs on SOE Executive Salaries
News, page 02
~ A plan for controlling the salaries of senior officials at state-owned enterprises (SOEs) will be submitted to the State Council within two to three months once opinions are solicited and the final revision is finished, according to the Ministry of Human Resources and Social Securities (MHRSS, 人力資源與社會(huì)保障部).
~ Characterized as "differentiated "(差異化), the plan groups SOEs as either competitive or monopolized and sorts their directors according to how they were hired - either through administrative appointment or public recruitment.
~ Salaries of administrative appointees and senior managers at some monopoly and high-income industries will be limited first. This is in order to first restrain abnormally large salaries and narrow the income gap within SOEs. Performance, as well as mid and long-term sustained development will also be taken into account.
~ Much controversy surrounded this issue when MHRSS recently met with many SOEs. Some believed the plan was reasonable, while others said there’s no point in emphasizing how executives were appointed and that performance should be the top priority.
~ There were also disputes as to whether deputy directors’ salaries should also be limited. Some enterprises insist that they shouldn’t, since the functions and responsibilities of these employees are very diverse.
~ A general consensus was reached that mid and long-term policies to motivate directors at non-listed SOEs should be enacted as soon as possible in order to create fairness and incentivize them to focus on the long-term development of their enterprises.
~ Annual salaries of officials in the fields of finance, communication, petroleum and tobacco are much higher than the limits stipulated, with some earning millions of yuan.
~ This April, the annual salaries of 192 SOE chairmen were disclosed. Mai Boliang (麥伯良), president of China International Marine Containers (Group) Co. limited (中集集團(tuán)), topped the list with an annual salary of 9.98 million yuan.
Original article: [Chinese]

Car Manufacturers Lobby Against New Purchasing Limits
News, page 3
~ According to a recent report jointly published by the Chinese Association of Automobile Manufacturers (中國(guó)汽車(chē)工業(yè)協(xié)會(huì)) and the Chinese branch of global marketing research firm ACNielsen, eight cities in China are expected to introduce limits on the number of new cars that can be registered each year. The cities that are considering introducing the limits include Shenzhen and Hangzhou. Beijing, Shanghai, Guiyang and Guangzhou already operate license plate quota systems that limit the number of new cars that can take to the street each month.
~ Dong Yang (董楊), the secretary-general of Chinese Association of Automobile Manufacturers (CAAM), told journalists that the association had delivered a report discussing the effects that such purchase limits has on a variety of aspects such as pollution, consumption and traffic congestion to the Ministry of Industry and Information Technology (MIIT).
~ Although CAAM denies that the report is related to the possible expansion of purchase limit and argues that the report takes a very objective perspective, a reliable source told the EO that the report emphasizes the undesirable influences of purchase limits. For instance, the report says that purchase limits contradict the general policy of increasing domestic demand and adversely impacts on the development of domestic car brands.
Original article: [Chinese]

One Year after Freak Rainstorm, Progress in Beijing’s Flood Control
Nation, Page 9
~ One year ago, torrential rains hammered Beijing and caused at least 78 deaths around the city. According to the Meteorological Bureau of Beijing, the hourly rainfall on that day hit 19.6 centimeters.
~ Waters at the Guangqumen Bridge (廣渠門(mén)橋), one of the most severely affected areas, reached 4 meters deep. The bridge was built in 1990 with a drainage system only designed to handle 3.6 to 4.5 centimeters of rainfall per hour. At a press conference later, an official from the Beijing Traffic Committee (北京交通委員會(huì)) explained that the Guangqumen Bridge was close to the city moat, which was also a reason for the severe flooding.
~ According to the official, there was a water pump station near the moat, which should automatically start working when the water level reaches a certain height. However, it failed to work on that day and caused a back flow of river water.
~ Two years ago, the Water Affairs Bureau of Beijing (北京水務(wù)局) planned to invest over 2 billion yuan on a comprehensive renovation of the drainage pipe system in the city. Before last July, the government was trying to improve the drainage standards of 71 water pump stations in the city.
~ Less than one month after the flooding, the bureau checked 110 water points in the city. 89 of them had pump stations nearby, most of which needed renovation. Since then, pumps at 20 stations have been improved and new reservoirs have been built.
~ The Beijing government has also increased flood control in suburban districts. During the rainy season last year, Fangshan District (房山區(qū)) suffered huge damages because of spillway blocks in the Juma River(拒馬河).
~ The beach along the Juma River was one of the most popular tourist destinations in the Beijing suburbs, but the government prohibited development of the area in the wake of the flooding. However, in order to attract tourists, some villagers continued to build hotels and entertainment venues near the river. The local government and villagers have frequently clashed over this issue, with construction never fully stopping.
Original article: [Chinese]

Guangdong Factories React to Stricter EU Toy Safety Rules
Nation, page 13
~ On July 20, new rules about the chemical content present in toys sold in the EU came into effect as part of a Toy Safety Directive that was first published in June 2009.
~ According to the new rules, the number of heavy metal tests have increased from 8 to 19, and 55 aromatic substances that could cause allergies have been banned.
~ The stricter regulations are being introduced in the world's second largest toy market just as China's toys manufacturing industry is experiencing tough times. In May 2013 the value of toys exported from Guangdong was less than the amount exported in the same month a year earlier. This is the first time that this has happened in thirteen years.
~ More than 80 percent of toys sold in Europe are imported from China. Zheng Guohui (鄭國(guó)輝), a veteran toy maker in the Pearl River Delta area, said the new rules will likely have a big impact on toy manufacturers in Guangdong.
~ Zheng said unlike the economic crisis in 2008, which impacted the size of the market, the new safety instructions were a "game changer" that altered the rules of the whole industry.  He said the effects will be seen in two or three years, when half of the toys companies operating in the region will not be able to survive.
~ From what we understand, according to what the Shanghai Entry-Exit Inspection and Quarantine Bureau (上海出入境檢驗(yàn)檢疫局) had previously said, many of the toys that met the earlier standard will not meet the new standards and this could have a serious negative impact on both China's toy manufacturing industry and the reputation of "Made-in-China" in general.
~ In 2012, China exported $139 billion worth of toys. Among them, $26 billion, or 18.7 percent, were sold to European countries.
~ In order to face the challenge from the EU, the central and local governments worked together and held a training program last month for toy manufacturers in Guangdong and several other provinces. Over 1,700 people participated in the free program, which focused on improving the quality of toys produced so that they will be in accordance with the EU's regulations.
Original article: [Chinese]

What Next for the Value of the RMB?
Market, page 19
~ The appreciation of the Renminbi (RMB) against the U.S. dollar appeared to slow down in July, following five months of rapid appreciation in the early part of 2013.
~ There are now signs that the RMB could actually depreciate against the dollar over coming weeks and months.
~ Nick Verdi, an economist with Barclays' Asian Currency Research Institution, is convinced that the RMB may become weaker against the dollar as some hot money retreats from China.
~ Sources close to State Administration of Foreign Exchange also told the EO that the Central Bank is now facing a dilemma over whether to allow the yuan to appreciate or depreciate against the dollar. 
~ Some experts still believe government has a stronger say. Liu Dongliang (劉東亮), senior analyst with China Merchants' Bank's Financial Market Department said that policy factors have a greater influence on the RMB's exchange rate than economic factors.
~ Against the background of the U.S. Federal Reserve announcing its intention to at some stage slow down its purchase of assets - which has helped push down the currencies of Brazil and India by over 10 percent - the RMB's real effective exchange rate actually strengthened by 5.6 percent over the first 5 months of this year.
Original article: [Chinese]