No. 381 Aug 18

By English edition staff
Published: 2008-08-18

Highlights from the EO print edition, issue no. 381, August 18, 2008

Economic Risk Looms High
News, page 3
Despite China's consumer price index (CPI) declining to a 10-month low, macro economic risk looms high. Market analysts and economists said prices in the country remain under the tight lid of government control, thus the ever-rising cost of production, evident in the 12-year high producer price index (PPI), was being barred from being transferred to prices of end-products, and keeping them artificially low. These experts cautioned that once the prices were liberated, pressure from the higher PPI would quickly channel to CPI. In addition, a declining CPI verses a rising PPI also signify a weakening market demand, and a slowing economy.
Original article: [Chinese]

Inter-agency Supervision for the Financial Sector
News, page 4
After a four-year gap, the Chinese government has re-launched the inter-agency supervision mechanism for its ever expanding financial sector. A government circular released on August 14 demanded the central bank to gather supervision agencies for banking, securities and insurance sectors under one roof to form a coordination committee for regular meetings, with financial risk prevention and solutions would be high on their agenda. The mechanism was deemed necessary as many groups and companies now had cross-discipline financial dealings and needed a holistic approach for effective monitoring.
Original article: [Chinese]

Slimming Program for China's Giant Committee
News, page 5
One of China's most powerful multi-tasking agencies, the National Development and Reform Committee, would streamline its bloated departments from 33 to 28, affecting some 1,000 staffers. This would be the first time in 10 years the committee underwent a downsizing, as it was passed by during the previous five rounds of governmental slimming programs.
Original article: [Chinese]

Resolving Debt from Compulsory Education
News, page 5
Eight months after the initiation of a pilot program in 14 regions to settle local government debt from providing free education, the Chinese central government had absorbed 14.6 billion yuan of arrears. Nine-year compulsory and free education in the countryside was introduced back in the 1990s. Its implementation was left to grassroots level leaders and school management, who incurred huge debts as provincial governments provided limited funding and the main source of income - school fees - was terminated. By 2005, the nationwide debts figure resulted from implementing rural free education had reached 50 billion yuan according to official statistics, but scholars believed the realistic amount would be higher than 100 billion yuan. In December last year, the Chinese State Council finally stepped in and committed to resolving the old debts in 14 pilot areas, but the program also aimed at preventing additional debts in the future.
Original article: [Chinese]

Fan Gang to Leave Central Bank Monetary Policy Committee
News, page 7
Fan Gang, the finance expert whose two-year term on board of the current People's Bank of China's monetary policy committee will come to the end this August. The committee formed in 1997 to provide consultancy and advice to the Chinese central bank; and in the past few years, there had been calls for the committee to be made independent, granted more autonomy and influence in drafting monetary policies. There was still no news of who would replace Fan to sit in the 12-man team. The candidate must have 10 years of financial experience, not be a civil servant, and not hold any post in a profit-oriented organization.
Original article: [Chinese]

The Zhejiang Model for Saving the Market
Nation, page 12
At an August 8 meeting, the Zhejiang banking commission and a coalition of small businesses agreed that local banks should extend a 70 million yuan credit line. Such meetings have been frequent in Zhejiang of late, where 20% of all businesses experienced losses in the first half of 2008. Last month, a high-level meeting of local party officials stressed that local government should work to support economic development in the region and help local businesses to pass the harsh times.
Local businesses have been pressed by tight credit, increasing costs, and unfavorable exchange rates.
Original article: [Chinese]


Grading the Bureaucracy in Anhui
Nation, page 15
A new task force in Dangshan county, Anhui province has been grading government organs there to a level of success that has, according to one local, "directly affected the people's livelihoods." The move seems to be part of a greater effort to clean-up local government--after a new party secretary for Dangshan took his seat in 2006, investigations led to the charging of city management, public health, and education officials for breaches of duty. Zhang Lihua, vice-director of the new task force charged with rating different agencies, told the EO that since his phone number along with other high-level county officials had been publicized, he has been forwarded or directly received daily text messages from whistle-blowers.
Original article: [Chinese]

Hot Money Retreating from China
Money & Investment, page 17
There are signs that hot money has started retreating from the Chinese market. Fuelled by a stronger dollar and weakening global crude oil prices, investors have regained confidence in the US financial markets. Chinese central bank statistics showed that its foreign reserve growth rate was slower in June and July compared to the first five months of this year. Its July growth rate was even lower than the FDI and trade surplus, indicating a capital retreat. In addition, the Chinese stock markets and the Chinese yuan have been declining.
Original article: [Chinese]

China to Test-run Technology Development Bank
Money and Investment, page 20
A proposal to have Beijing and Shanghai as the pilot grounds for China's first ever technology-focused development bank has been submitted to the Chinese government. The planned bank would focus on providing loans and venture capital to technology-based enterprises, thus promoting the exploration of new science and technology firms. The proposal was jointly drafted by National Federation of Chamber of Commerce and Industry, the Science and Technology Ministry and the Jiu San Society, one of the democratic parties in the patriotic united front led by the Chinese Communist party, and comprising of senior and mid-level intellectuals engaged in science and technology. It had yet to be decided if the bank would be policy-based or commercially driven.
Original article: [Chinese]


The Economics of Olympic Sponsorship  
Corporation Special, page 29 - 32
With the Beijing Olympic Games underway, sponsors are taking their final examination for whether or not they would reap the fruits of investments as desired? This EO special features both international and domestic sponsors, those in competitive and monopolized markets, and the branding strategies they deployed. Some companies entered the sponsorship as an act of social responsibility, like the Chinese state-owned enterprise China Grid; some view the Games as a continuation of a long-term marketing plan, like fast food giant McDonalds. The EO also checks out market research reports on the preliminary winners and losers of the marketing war, and two separate researches named Coca Cola as the top company to boost its brand through the Game; German-base sports apparel company Adidas was also named a winner. Domestic brands that outshined others included computer maker Lenovo and home appliances maker Haier.
Original article: [Chinese]

Olympic Boom for Silk Market
Lifestyle, page 42
Silk Street, one of Beijing's famous commercial streets once loaded with counterfeit apparel brands, has undergone a face-lift and now become a shopping paradise for foreign political leaders and tourists during the Olympic Games. Its entrance now displays a billboard calling itself the merchants' Bird's Nest, after the Beijing Olympic national stadium. Taxi drivers also coin the term "Olympic Sideline Stadium" to refer to the market, now flooded with foreigners wearing Olympic-related passes.