Weekly highlights from the EO print, issue no. 406, Feb 16, 2009

Restless Chinese Stock Markets a Concern
Cover story
Chinese stock markets recorded sharp rebound after the Spring Festival holidays. Within the first two weeks of February, the Shanghai composite index jumped some 15%, while the Shenzhen index galloped by 20%. The transactions in both markets totalled 1,723 billion yuan as of Feb 12, this volume had surpassed all the monthly transactions since July 2008. Some market observers, however, cautioned against the sudden surges, saying some of the 1.62 trillion new loans extended by Chinese banks this year might have found their way into the stock markets, and that such short-term speculative funding could destabilize the markets.
Original article: [Chinese]

China to Invest 850 billion yuan in Medical Reform
Cover
The EO has learned that the Chinese government intended to invest 850 billion yuan in medical sector reform over the next three years. Of the amount, 330 billion yuan would come from the central government and the remainder from local governments. The investments would be channeled to improving medical insurance system, basic medicine delivery system, local health care facilities and services, and revamping public hospitals.
Original article: [Chinese]

China to Revamp Tax System to Narrow Income Gap
News, page 3
China's Ministry of Finance is mulling over a revamp of the individual income tax system to narrow the income gap among Chinese, the EO has learned. A proposal under study suggested that a person's taxable income should take into consideration the number of dependents he or she had, and that the high income groups should be taxed more. A treasury officer told the EO that the revamp formula might be implemented, at the earliest, in July of 2010.
Original article: [Chinese]

Job Hunt China
Nation, page 9
An EO special report looks at the gloomy employment situation in the Pearl River and Changjiang River Delta, China's export manufacturing cradle. Numerous migrant-workers returned to these areas after China's lunar new year to look for a new job. But countless export-oriented firms there have shut down or reduced production after a sharp decline in demands since the US financial crisis set in last Autumn. Millions of fresh 2009 graduates will increase the already enormous pressure in the employment market.
Original article: [Chinese]

Drought Still Lasts
Nation, page 14
The dry riverbed in Sunjia village, Henan province, has become a playground for local villagers. Despite that local government incited two artificial rainfalls on February 8 and 9, the drought here has not eased. The central government has appropriated some 400 million yuan in response to the drought, which has struck China's northern provinces since last November.
Original article: [Chinese]

Credit Blowout Sweeps China
Markets, page 17
A credit boom has swept China, with bank loan managers now being encouraged to find projects in supported industries. China's central bank announced on February 12 that the 1.6 trillion yuan in new credit released in the last few days of January amounted to one third of all loans released in 2008. One internal bank policy memo obtained by the EO laid out which industries the bank would given preferential access to the new loans, and included transportation, communications, and energy.
Original article: [Chinese]

Guangdong's Biggest Staffing Firm Sinks
Corporation, page 25
Guangdong's biggest staffing firm for overseas markets, Xinguang International, has recorded huge losses amounting to some 800 million yuan from speculative investment in copperfoil, the EO has learned. The state-owned firm, which had core businesses in overseas staffing services and diversified businesses in foreign construction projects, technical exports and exchange, and trade - had over 30 subsidiaries and employed some 3,000 staff. The EO learned that Xinguang International last year imported large amounts of copperfoil to stockpile, expecting to offload it when prices boom. The investment was funded by letter of credit from banks. Contrary to expectation, copper prices have fallen since late late year, and the company failed to recover the investment. The provincial government has launched an investigation into the matter after taking over its management.
Original article: [Chinese]

Hurdles for the Rio Tinto-Chinalco Deal
Corporation, page 25
Though global mining giant Rio Tinto has agreed to a 19.5 billion US dollars deal with China's largest aluminum producer Chinalco, the deal - which included strategic investments and convertible bonds - is far from secured. Market observers believed the world's largest miner BHP Billiton would likely mount an offence to crash the deal. The deal is still subject to approval by shareholders, which will be complicated by as criticism abroad is rife. Another decisive factor is approval from the Australian government, which has a final say on large foreign acquisition in strategic resources.
Original article: [Chinese]

China's Top Milk Producer Denies Use of Unsafe Additive
Corporation, page 26
Last week, China's top milk producer Mengniu was embroiled in a food safety controversy when it was accused of having added cancer-causing osteoblast milk protein (OMP) to its premium products. The OMP was not listed by Chinese authorities as an approved additive. Mengniu, however, stressed that the substance was safe to consume and an investigation was on-going as of last Friday.
Original article: [Chinese]

Wal-Mart's Price Wars in China
Corporation, page 31
US retail giant Wal-Mart has launched rounds of aggressive promotions through its 117 outlets across China since the beginning of this year. As consumptions in its home base slumped due to the financial crisis, the company has sought to expand its grip in emerging markets like China. The price war strategy was aimed at inducing spending, and was in line with China's latest efforts to boost domestic demand, the EO learned.
Original article: [Chinese]

Homebuyers Want Out
Industry, page 35
The housing price slump has lead to a surge of disputes with home-buyers demanding the ability to return their new homes. Under this backdrop, Shang Xingming, a lawyer in Beijing Haofang law firm, established a law team, comprising of eight lawyers in Beijing on Last October, to provide consulting service for such cases. He said that they had consulted for over 100 home buyers, and some 80% of them claimed to return their houses for various reasons--for example, because high voltage wires near their home led to radiation.
Original article: [Chinese]