Highlights from the EO print edition: Issue no. 469, May 17, 2010

Sudden Liquidity Tightening: Where Did the Money Go?
News, cover
~ According to aggregated data from several stock brokers, there were 417.5 billion yuan of funds in total that flowed out of the stock market from the beginning of the year until May 6th.
~ However, there have been no signs that these funds entered the banks or even the actual economy. The EO has found that the owners of these funds are waiting for investment opportunities.
~ The country is carrying out a series of strict policies to curb the surge in housing prices. As a result of these policies, the trade volume of second-homes in China's five big cities of Beijing, Shanghai, Guangzhou, Shenzhen and Tianjin has declined, and hundreds of billions worth of capital that was originally planned to be invested in real estate has been scared away.
~ In addition, banks can not find safe investment projects to loan their money to, a source from a large shareholding bank told the EO.
~ In contrast with the feeling of uncertainty mentioned above, people from Wenzhou have a strong investment sense and have begun to search for new investment opportunities. At present, some people from Wenzhou are interested in buying gold products and others are eyeing entering private equity and micro-credit lending firms.
Original article: [Chinese]

Five Provinces to Promote Merger Spree in Coal Industry
News, page 6
~ As China is accelerating its nationalization of coal companies, about 2,000 medium-sized and small coal mines in Shanxi, Henan, Hunan, Guizhou and Hebei are to be either closed or merged into their bigger counterparts this year. Shanxi Province has already reduced its number of coal companies from 2,200 to 130. 
~ Though being labeled an indicator of "the advance of the state and the retreat of private capital", the merger spree in the Shanxi coal industry is not as state-dominant as commonly perceived. Among the remaining 130 coal enterprises, 80% are owned by either private investors or multiple shareholders.
~ The Chinese government intends to safeguard the health and safety of coal workers and promote the restructuring of the whole industry by concentrating ownership of the industry. A more obvious effect has been the promotion of the local economy; energy and resources are being used more effectively. The GDP of Shanxi Province has reached 180.77 billion yuan in the first quarter of this year, up 19.4% on the level of the same period last year.
Original article: [Chinese]

Ministry of Environmental Protection Takes Tougher Position in Emission Reduction
News, Page 4
~  The Ministry of Environmental Protection has held a national video conference announcing their decision to punish 13 local governments and enterprises who have done an unsatisfactory job at protecting the environment and reducing their emission of carbon and sulfides.
~ The ministry also warned local governors to reach the reduced carbon emission targets outlined in the 11th five-year plan on time or they will be punished. 2010 is the final year of China's 11th five-year plan.
~ With economic recovery, the output of resource-oriented industries such as power, steel, non-ferrous metal, and petro-chemical have been growing rapidly, pushing the amount of sulfide emissions up 1.2% on the level of the same period last year. This is the first time sulfide emissions have increased in China since 2007.
Original article:[Chinese]

China Imports its Largest Amount of Corn in Ten Years
News, Page 3
~ There are some invisible barriers to importing genetically modified corn in China, such as the difficulty of obtaining a safety certificate. However, a recent report released by the U.S. Department of Agriculture suggests that China has imported a substantial amount of genetically modified corn from the U.S.
~ This high import volume of corn is mainly due to a favorable price difference between that of China's domestic market and the U.S. corn market. The cost of importing genetically modified corn from the U.S. is equivalent to 1570 yuan per ton, which is less than China's domestic market price of 1936 yuan per ton.
~ The recent high price of corn has caused the government to sell some of its corn reserves to stabilize prices. Although there is a sufficient amount of corn reserve for the government to manage the price fluctuation of corn, the recent increase in the price of corn has been mainly due to price speculation from investors.
Original article:[Chinese]

Real Estate Market Slowdown Will Not Last Long
News, Page 2
~ It is commonly believed that there are several reasons behind the rapid increase in housing prices: First, the demand for housing far exceeds its supply; second, people have accumulated an abundance of wealth, but are lacking investment channels and deposit interest rates are low; third, since local governments can raise funds by selling land, they are compelled to raise housing prices.
~ The affordability measure of a home is defined as the ratio of the average housing price to the average amount of household disposable income, aka the price to income ratio. The ratio is high in China; the ratio of some Chinese big cities is from 14 to 17, China's national average ratio is 9, and the international ratio is from 4 to 6. China's high ratio indicates that the income gap is large in China, and the commercial housing market mainly targets families with median and high level income.
~ The policies implemented to slow the property market aim to prevent an increase of housing prices in select cities instead of nationwide; interior provinces are currently in the process of urbanization. The policies implemented thus far focus on increasing supply and controlling demand. It is still predicted that the overall investment in housing this year will increase by 10-15%.
Original article:[Chinese]

Shaolin Temple Enterprise
Nation, page 9-10
~ Since the world-famous movie Shaolin Temple was produced in 1982, Shaolin Temple, a temple with a history of around 1,400 years located in Songshan Mountain in Kaifeng City, Henan Province, has been working hard to turn itself from a cultural attraction into a modern enterprise with multiple businesses.
~ Currently, Shaolin Temple is planning to establish a hospital to sell medicines and provide free health care for patients. The temple already has several Kungfu training schools. The income brought in by tourists from all over the world visiting the temple has not only contributed to 30% of its financial revenue, but has also helped promote the economy of Kaifeng City and even Henan Province.
~ Though it is doubtless that the development of Shaolin Temple should be greatly attributed to the support of the local government, the relationship between the two has become increasingly complicated, which can be greatly attributed to the failure of Shaolin Temple's effort to make itself a listed company.
Original article: [Chinese]

China's Securities Regulator to Address Problem of Cutthroat Competition Among Stock Brokers
Market, page 17
~ People familiar with the matter revealed to the EO that in early May, Shanghai Securities Regulatory Bureau (SSRB) summoned seven Shanghai-based securities companies to hold a meeting, stating that it will crackdown on cutthroat competition in the stock brokerage business among securities firms and  hinted that a brokerage commission below 0.05%, charged by stock brokers to attract more retail investors into creating securities accounts, may no longer be allowed by the regulator.
~ Many securities traders interviewed by the EO held that the SSRB's move represented the attitude of higher-level regulators toward the business competition environment among stock brokers and predicted that the SSRB's move would likely be implemented nation-wide.
Original article: [Chinese]

Sinopec Defends its Monopoly on China's Crude Oil Import
Corporation, page 25
~ Recently, Sinopec, China's second-largest oil company, submitted written proposals on continuing its existing crude oil import monopoly to related government departments.
~ The move is reckoned to be a response to the call from some firms and industry associations like the National Industry & Commerce Federation (NICF) to revise Sinopec's existing crude oil import monopoly.
~ The NICF proposed that the state allow local refineries that are in line with the country's industrial policy to import crude oil and to allow licensed non state-owned firms to sell imported crude oil to local refinery firms.
~ According to the existing monopoly, China's crude oil import is classified into two categories: state-run and non state-run. The former doesn't have any import restrictions while an import quota is imposed on the latter.
~ Sinopec, PetroChina and three other state-owned firms have the license to engage in state-run crude oil import.
~ The EO learned that China National Chemical Corporation (ChemChina) and China North Industries Group Corporation (NORINCO), who are newcomers in the country's oil refinery sector, are the real pushers for reforming the existing status quo.
~ In 2008, ChemChina acquired seven local refinery firms in Shangdong province. NORINCO also merged with a local refinery firm and its refining capacity has reached 5 million tons a year. After entering the oil refinery sector, the two firms have been plagued by problems with crude oil supply.
Original article: [Chinese]