Highlights from the EO print edition, Issue Wrap No. 501, Jan 03, 2011

China's Budget for 2011
News, cover
~ The Chinese central government plans to spend 9.79 trillion yuan in 2011, 1.3 trillion yuan more than in 2010. The central government also estimates that it will be able to collect 8.89 trillion yuan over the year, resulting in an annual deficit of 900 billion yuan.
~ Highlights of new governmental spending to be announced in 2011 include the lifting of a health subsidy paid to rural and urban residents from the current 120 yuan per capita to 200 yuan.
~ Additionally, the National Development and Reform Commission (NDRC) has called for the construction of ten million policy-based houses in 2011. It's predicted that this will cost governments over 100 billion yuan.
Original article:[Chinese]

EO's Predictions for the Chinese Economy in 2011
News, page 7
~ As another year begins, the Economic Observer has invited five leading financial analysts to make predictions about the Chinese economy in 2011.
~ These five economic forecasters are: Yu Lixin, researcher with the Institute of Finance and Trade Economics under the Chinese Academy of Social Sciences; Chen Xingdong, chief economist with BNP Paribas Asia; Zhu Jianfang, lending economist with CITIC Securities; Ding Zhijie, dean of the financial college of the University of International Business and Economics and Wang Bangqi, foreign investment manager of China International Fund Management Co., Ltd.
~ In short, they foresee the possibility of an overheated Chinese economy, a CPI below 4 percent, and an appreciation of the yuan of over 3 percent. Additionally, they all predict that the performance of China's stock market will be decided by the country's monetary policy.
Original article: [Chinese]

China's Hydropower Push
Nation, page 11
~ Chinese hydroelectric power generation is at a turning point, and its development has become a priority in the yet-to-be finalized 12th Five-year Plan.
~ Hydropower has developed more slowly than planned over the past five years due to pressure from environmental protection organizations and problems which arise with the displacement of residents. Over the last five years only one third of the hydropower programs set out in the 11th Five-year Plan have been completed.
~ The need to reduce energy consumption and emissions has provided hydropower with a new opportunity. The government and power companies will push for its development, and the unfinished hydroelectric programs will be reconsidered.
~ However, disputes among environmental protection bureaus and organizations over hydroelectric power are likely to continue.
Original Article: [Chinese]

Questions Surround UBS Downgrade of China Overseas Land & Investment
Market, Page 17
~ After a Goldman Sachs report was accused of triggering a sharp drop in the value of China's A-shares in November last year, some analysts are now questioning whether a recent report from UBS is aimed at driving down the share price of China Overseas Land & Investment Ltd.(HKG:0688).
~ Though the DBS Group and Deutsche Bank have been bullish on the future performance of China Overseas Land & Investment Ltd. (COLI), a Chinese property company listed on the Hong Kong stock market, on December 2, 2010, UBS published a report, listing it as one of the three worst property companies in 2011.
~ However, only one year ago, UBS was backing COLI as one of their two best picks for Chinese property companies. So, what's behind UBS dramatic change in attitude toward COLI?
~ Although UBS can point to the series of policies aimed at reining in property prices on the mainland as the main reason for their downgrading of the company, the fact that 6 months before the critical report was released, UBS issued a warrant on COLI which would only be profitable if COLI's share price declines, has raised suspicions among the market.
~ Interestingly, a number of other international investment banks are still considering purchasing COLI, with only UBS dissenting.
Original article: [Chinese]

The "Tudou Term": PE Concerned about CEO's Divorce  
Market, page 24
~ Tudou's IPO has been delayed because of a prolonged divorce case involving the company's CEO Wang Wei, which has become a bargaining chip between investors and start-up companies. Some venture capital firms even want to include special "marriage conditions" for CEOs, which Wang Wei has jokingly referred to as "Tudou Terms."
~ The reason for the proposal of "Tudou Terms" is for the protection of investors, in case the CEO's divorce settlement might influence investor benefits.
~ Most insiders think this term is impossible. Legally, it goes against provisions in the constitution and interferes with marital freedom.
~ "It's understandable, but not acceptable," according to Shanghai Storm Entertainment CEO Will Zhu.
Original Article: [Chinese]

360 Buy Blocks Competitors
Corporation, page 25
~ China's small and medium-sized online shopping companies will have to give up their plans to expand their business this year as e-commerce company 360buy.com, obtained an investment of 500 million US Dollars several days ago, putting the company far ahead of its competitors.
~ Website statistics show, though the number of China's B2C (business to consumer) websites has surged from 10,100 at the beginning of 2010 to 11,800 at year end, the ratio of large-scale B2C companies to ordinary B2C companies has decreased from 86 percent to 85.24 percent.
Original article: [Chinese]

My Bottom Line is Maintaining a Share of the Market—Interview with CEO of Li Ning, Zhang Zhiyong
Corporation, page 28
~ One of China's largest sportswear suppliers, Li Ning has problems: the number of new orders for the second quarter in 2011 has fallen, rumors about the closure of 500-600 shops have spread, and its share price has fallen 19 percent over the past half month.
~ Li Ning Company Ltd. CEO Zhang Zhiyong was interviewed by the EO and officially responded to the doubts and rumors. He said troubles were to be expected during their long term core strategy.
~ The rumor that Li Ning closed 500-600 shops is wrong according to Zhang; the "closures" were actually mergers aimed at low income shops. He confirmed that Li Ning had accomplished their target for opening new stores in 2010, but concrete figures will be revealed later.
~ Li Ning pays more attention to their market share and their brand value. While maintaining their market position, they launched the rebuilding of their brand in 2007.
~ Zhang said, "We have to rebuild the brand, which is harder than creating a new brand from scratch."
Original Article: [Chinese]

Auto JV Deal with Changes to Tax Regime for Foreign Invested Companies
Automobile, page 33
~ As foreign invested companies are now required to pay an education tax and an urban maintenance and development tax just like their domestic rivals, the Economic Observer examines how these new rules are effecting JV in the auto industry
~ The annual tax burden of auto joint ventures are likely to increase by between 4 and 10 percent, which is likely to result in a new round of cost-cutting.
It's estimated that all the top ten joint-venture car companies will now be paying tens of billions of yuan in tax every year.
Original article:[Chinese]