Highlights from the EO print edition, Issue Wrap No. 490, October 18

Google Accused of Plotting Against Advertising Resellers
Cover  
~ Google recently canceled contracts with seven advertising reseller agencies in eastern China.
~ After the agencies were notified by Google that their contracts would be cancelled, they tried to get in contact with Google, but were unable to do so.
~ On September 29, Aliza Knox, Head of Online Sales and Operations for Google Asia Pacific received a letter jointly signed by the seven agencies which was titled, "Google China is on the Verge of a Large Scandal." The letter accused Google's domestic staff of being involved in a plot which will result in them obtaining a 20 percent share in the project.
~ On October 12, a general manager from one of the seven agencies stated, "A head of one of the major departments of Google China actually holds a 55 percent stake in one of the Beijing-based ad agencies and has already obtained 3 million yuan of financing." Original article: [Chinese]

Ministry of Finance to Investigate Assets of Enterprises Under Control of Central Ministries
News, page 3 
~ After recently reasserting its responsibility for the managment of the more than 6,000 centrally-administered enterprises that operate under the auspices of various government departments and ministries, the Ministry of Finance (MOF) will now begin investigations into the assets of these companies.
~ According to an official from the MOF, the first step is collecting information about "the number of enterprises, their assets and liabilities, and their operating conditions."
~ Enterprises will then be required to register any property, assets, capital, etc. with the MOF.
~ Technically, branches of the central government are not permitted to form enterprises. Subordinate enterprises are formed by departments under central government jurisdiction, but the busniesses do not belong to the government itself.
~ Of the over 6,000 companies, many are small-scale and unlisted businesses. In the first eight months of this year, centrally-administered enterprises saw profits of 877.27 billion yuan, only 154.45 billion of which came from these so-called subordinate enterprises. The remaining 700 billion was earned by the 100 plus centrally-owned enterprises or COE administered by the State-owned Assets Supervision and Administration Commission (SASAC).
~ Wen Zongyu, Director of Economic Research at the Ministry of Finance Research Institute, says that most subordinate companies are not performing well, and will be required to undergo various reforms and mergers as well as restructuring and personnel replacement. 
Original article:[Chinese]

China's Foreign Exchange Reserves Increase by 194 Billion US Dollars in 3Q
News, page 3
~ Small, subtle fluctuations in exchange rates are capable of causing China's foreign exchange reserves to shrink or increase by billions of U.S. dollars.
~ The value of the yuan has increased by 2.6% since exchange rate reforms were brought in to effect in July.
~ On October 13, data released by the People's Bank of China showed that, by the end of September, China's foreign reserves had reached 2.6483 trillion U.S. dollars, up 194 billion U.S. dollars since the end of June.
~ Aside from exchange rate fluctuations, other reasons for the increase in foreign reserves include an increase in the trade surplus, an upsurge in the number of large Chinese enterprises listing on foreign stock exchanges and asset price fluctuations.
-Former member of the Central Bank's Monetary Policy Committee, Yu Yongding explained that the government is forced to intervene in the foreign exchange market in order to curb the appreciation of the RMB and that this action will inevitably increase the country's foreign exchange reserves.
Original article:[Chinese]

Real Estate Tightening Measures Yet to Achieve Results
News, page 4 
~ On October 15, Guangzhou began implementing new real estate policies which restrict the number of properties that people can buy depending on their age, residency status and whether any member of their family already owns a property.
~ According to the National Bureau of statistics, in September the total floor space of commercial apartments sold around the country totaled 104.46 million square meters, up 16.6 percent and the aggragate value of commerical residential apartment sales across the country were up 35.2% - these are statistics that no senior official trying to rein in a property bubble likes to see.
~ The new regulatory policies will inevitably bring about much market watching and may even create the illusion that the policy is effective. This was the trend in April.
~ The parts of the new policy that people are paying the most attention to are the raising of mandatory down payments for commercial residential housing to 30 percent, the expansion of pilot property tax iniatives nationwide and the reaffirmation of purchasing limits.
Original article:[Chinese]

Exporters Nervous as RMB Rises for 9 Consecutive Days
News, page 5
~ The central rate of the yuan against the US dollar was set at 6.6497 per dollar on Friday, October 15,the highest rate that it has reached since exchange rate reform was implemented.[See correction below]
~ Li Qiangyu of Hangzhou's Foreign Trade and Economic Cooperation Bureau says that appreciation of the RMB against the U.S. dollar will have a significant impact on general trade, with those cities with larger than average export industries facing greater pressure.
~ While conducting research with colleagues in Fuyang, Li Qiangyu observed that some firms have faired better than others. Many businesses are concerned that the RMB is rising too quickly, with some companies even fearing that the yuan will break the "6 yuan barrier" this year.
~ Some companies, on the other hand, are hoping that concerns about the effect on exports are a false alarm.
~ Another purpose of Li Qiangyu's research in Fuyang was to advise companies on avoiding exchange rate risk. Li Qiangyu emphasized pricing and contract negotiation tactics, such as speeding up remittances, taking advantage of banking tools, and requiring foreign companies to share any losses due to exchange rate fluctuations.
~ Li Qiangyu estimates that if the RMB were to rise another 5 points, companies would begin to have real difficulties. He also notes that many small manufacturers are already leaving the business due to smaller profit margins.
~ What remains to be seen is if the RMB will continue to rise even after U.S. pressure stemming from midterm elections eases.
Original article:[Chinese]

Uncovering the Secrets of University Representative Offices in Beijing
Nation，page 11
~ University Representative Offices in Beijing engage in corrupt and illegal lobbying activity. 
~ According to Xiao Wenkai, director of the East Regional University representative office, reports of the Nanjing and Wuhan scandals have only scratched the surface.
~ The representative offices function like alumni networks where illegal lobbying activities and connections in the Ministry of Education help universities obtain research funding, titles and awards.
~ Project 211 launched in 1995, ranked universities based on faculty, doctorates, and awards. The project gave 100 institutions over 100 million yuan in funding. Project 985 is a similar effort that funds top tier universities to keep them internationally competitive.
~ The Ministry of Finance and the Ministry of Education control funding for universities, but funding allocation depends largely on connections. For this reason, most school officials in top universities covered by either the 211 or 985 program are recruited from the Ministry of Education or else have close relationships with ministry officials.
~ Money comes to schools through complex research proposals sent to the representative offices, which are then pushed through by intense lobbying activities and alumni connections.
~ On average, research projects will only receive 10,000 to 20,000 yuan in funding; large projects from key universities can receive up to 30,000 yuan. Schools will sometimes set aside some of the funding received for other uses.
~ The office handing the National Social Sciences Fund received over 400 million yuan in funding last year.
Original article: [Chinese]

As Economic Outlook Improves, Demand for Credit Increases
Market, page 19
~ A person from the Shenzhen Bank of China informed the EO that as sections of the original equipment manufacturers and processing trade companies begin to recover, they are even discovering that they are unable to fill all of their orders. Many enterprises in Guangdong in July and August began actively recruiting, and these past few months there have also been many applications for short-term loans.
~ There was also a spurt in new mortgage loans leading up to the National Holiday. Real Estate loan agent Xiao Wang said it's almost the end of the year, a few real estate companies and real estate hoarders are getting nervous about the tightening of capital. They are quietly selling property on the second-hand market and paying back their loans.
~ Insufficient funds to lend are one of the main factors of concern to bankers. A business analyst thinks China Everbright Bank's slow loan growth rate has to do with its lack of deposits.
~ On October 13, statistics released by the central bank showed that in September loans increased by 595.5 billion yuan, exceeding market predictions and outpacing the lending target drawn up by the central bank at the beginning of the year. 
Original article: [Chinese]

Problems Beginning to Appear for Wind Energy Manufacturers
Corporation, page 28
~ The wind energy sector will see a 40% decrease in growth rate this year. Domestic market demand is expected to stabilize at 10 million kilowatts in the coming years. But domestic production capacity has already reached 25.8 million kilowatts, and new export channels will be needed to deal with the excess capacity.
~ Wind energy production capacity is expected to reach 150 gigawatts by 2020.
~ Close analysis shows that China's wind energy sector is already facing problems of overcapacity. The rapid growth may cause a bottleneck in the wind energy market before growth in the sector stabilizes.
~ Rapid growth has also raised concerns about the quality of the wind turbines produced. Although only a small percentage of buyers have reported poor quality and fan failures, the failures highlight serious problems in the domestic production process.
~ Some companies manufacture turbines using immature methods or incomplete forgeries of foreign technology. Other companies use legally imported technology, but alter original production methods in order to cut costs.
~ With increased production capacity, Chinese manufacturers are looking to tap into overseas markets. Goldwind, Sinovel, and Shanghai Electric have sold 20 turbines to 4 countries and installed a total production capacity of 28,750 kilowatts.
~ The industry faces heavy competition, but expects its overseas production capacity to reach 30 million kilowatts by 2020.
Original article: [Chinese]

Should we Restrict Car Sales in Order to Solve Traffic Congestion
Automobile, page 36
~ Editor of the Economic Observer's Automobile section, Zhang Yaodong was a guest on FM103.9's "Car World" radio program on Wednesday, October 13.
~ A recent report by the Chinese Academy of Sciences estimated that China's 15 large and medium cities incur nearly 10 billion yuan in losses a day due to traffic congestion. These losses include fuel costs, extra transportation costs, and time wasted in traffic that could be spent working.
~ Zhang Yaodong argues that the traffic problem relates to cars, people and roads. All three components need to be considered.
~ China's traffic problem is unique in that it is mostly due to more frequent use of cars, rather than higher rates of ownership. Zhang Yaodong cites public transportation inefficiencies as the main cause of frequent car use.
~ Zhang Yaodong doubts whether restricting the use of cars but not restricting the purchase of cars would be effective. However, he also believes that limiting car consumption would have huge economic and social disadvantages. Instead, the focus should be on improving the efficiency of road networks, reforming public transportation, and educating drivers on traffic rules.
Original article: [Chinese] 

Correction: The abstract of the Exporters Nervous as RMB Rises for 9 Consecutive Days article originally stated that "The RMB has risen to 6.497 yuan against the U.S. dollar" - the figure has now been corrected.