BRIEFS

GENERAL

New corporate tax law in the works

The Standing Committee of the National People's Congress will start deliberating legislation to unify tax rates for foreign and domestic companies, according to the 21st Century Business Herald. The law would raise the tax rate for foreign companies and reduce them for domestic ones. Foreign firms that set up in development zones currently pay corporate income taxes of about 15 percent and 24 percent if they set up in other areas. Domestic companies pay about 33 percent, although those with lower profits can have their rates reduced to 27 percent or even 18 percent.

So long, SOEs

A special asset management company will be set up to coordinate the sale and merger of around half of the national-level state-owned enterprises remaining in China. Li Rongrong, chairman of the State-owned Assets Supervision and Administration Commission (SASAC) said that the company would facilitate the dividend payments by these SOEs to the state. Li explained that market forces would be behind a wholesale reform of the SOEs under his control with the number of enterprises likely to fall from 161 to between 80 and 100 by 2010. "Our plan is to develop between 30 and 50 internationally competitive conglomerates with intellectual property and famous brand names," he said.

"Absolute control" in key sectors

China has said it would retain "absolute control" over seven sectors it considers critical to national security. Armaments, power generation and distribution, oil and petrochemicals, telecommunications, coal, aviation and shipping were listed by state media as "strategically important sectors". They have been vaguely defined since the 1990s. "State capital must play a leading role in these sectors, which are the vital arteries of the national economy and essential to national security," State Assets Supervision and Administration Commission (SASAC) Chairman Li Rongrong said in December last year. "In these key sectors, state-owned assets should expand in volume and optimise in structure, and some key enterprises should grow into leading world businesses." SASAC anticipates that between 30 and 50 large business groups capable of competing globally could emerge in these areas.

Watchdog urges public to help fight pollution

Pan Yue, deputy director of the State Environmental Protection Administration (SEPA), urged the public to get more involved in finding a solution to China's environmental woes. "In the face of the complicated and arduous environmental protection work, it is impossible to rely on environmental authorities alone," Pan said. "The only way to break the deadlock is to enlist the power of the public." A regulation aimed at giving the public a greater say in the approval process for industrial projects was introduced in March last year and 43 projects worth US$20 billion have been rejected since then due to a lack of public participation. Pan said SEPA has launched a series of regulatory actions since 2004, stopping dozens of industrial projects for failure to observe the environmental impact assessment law.

Official urges stronger exchange rate

A top banking official has called for more effective measures to be introduced in 2007 - including a stronger exchange rate - to address the surging balance-of-payments surplus. Jiang Dingzhi, vice chairman of the China Banking Regulatory Commission, said in an interview with state media that the country's trade surplus and foreign reserves are so high that they are playing havoc with financial policy. Jiang estimated China needs no more than US$700 billion in foreign currency reserves and proposed exploring alternative channels for investing its current US$1 trillion stockpile, the world's largest. "We must steadily strengthen elasticity of the exchange rate while also preventing and averting economic turbulence brought about by a major appreciation," Jiang said.

SAFE embarks on recruitment drive

The State Administration of Foreign Exchange (SAFE), which manages China's US$1 trillion-plus foreign currency holdings, has gone on a recruiting drive that will see it double its in-house trading departments. Advertisements placed at major Chinese universities at the end of November last year said SAFE was looking for 30 new staff, including 15 to specialise in trading and research. The move comes as China deals with pressure to maintain the value of its forex holdings, 70 percent of which are believed to be in US dollars. SAFE is expected to diversify into other currencies as well as start buying higher-return products than US Treasury bills. However, stability and liquidity are set to remain at the forefront of its thinking.

World Bank: China may slow for two years

China's economy may slow over the next two years but should remain strong, according to a World Bank report. The country is still expected to drive East Asia's growth with expectations of strong investment and robust consumer spending. Although a slowdown in the US could hurt economies in the region that are dependent on exports, healthy demand from within should offset the loss from without. The report, Global Economic Prospects 2007: Managing the Next Wave of Globalization, says China's economy is expected to grow 9.6 percent in 2007 and 8.7 percent in 2008, down from this year's 10.4 percent.

Programs for elderly may strain China's finances

China's cabinet warned in December last year that creating welfare programmes for its soaring numbers of elderly will be a daunting challenge in a rapidly greying society. The government has launched pension, health care and other programmes for the elderly, the Cabinet said in a report on aging, but cautioned that with the population of elderly people rising by 3 percent a year, paying for such programmes will strain government finances. China faces an acute demographic crunch; the number of elderly Chinese people is expected to top 200 million by 2015 and 280 million by 2025, according to the official Xinhua News Agency. Rural families are especially dependent on children to support them in old age. The report said 60 percent of China's elderly live in the countryside and the government "has begun to study the establishment of an old-age social security system in rural areas in order to guarantee the basic livelihood of the elderly people there".

Freedom of information laws in the pipeline

The Chinese government is drafting freedom of information regulations that "will fully ensure citizens' right to know under the precondition of protecting state secrets", according to state media. The rules will green-light the release of currently confidential commercial information, according to officials helping prepare them. There is no indication when the rules will be issued. China's definition of state secrets is notoriously loose. Journalists have found themselves facing charges of leaking state secrets after reporting official misdemeanours or political speculation. Qin Hai, an official at the State Council's office for government information policy, said the rules would boost people's rights. "There must be institutional guarantees so a large amount of information changes from secret to open," Qin told state media.

Beijing tightens municipal controls

Beijing may be tightening controls over Communist Party anti-graft watchdogs as part of an effort to fight corruption and tighten central government control on municipal governments. The central government appointed two senior officials to head bodies in Beijing and Tianjin. Zang Xianpu, vice-secretary of the Work Commission for Central Government Organs, was named to head the Tianjin Commission for Discipline Inspection while Ma Zhipeng, a member of the Central Commission for Discipline Inspection, will head its Beijing counterpart. In total the government has moved officials to head discipline inspection commission in seven provinces. Appointing officials to three key municipalities - Beijing, Shanghai and Tianjin - could also be part of President Hu Jintao's efforts to consolidate power ahead of the 17th party congress this year.

Bribery by MNCs in China growing, report claims

China has no laws to effectively curb bribery cases involving multinationals, state media reported, and cases may be on the rise. More than 60 percent of 500,000 cases of commercial bribery investigated in the past decade involved international trade and foreign businessmen, according to a Democracy & Law Times report quoted in other state media. The number of commercial corruption cases is up. Xiong Xuanguo, vice-president of the Supreme People's Court, said courts at all levels dealt with 5,429 commercial bribery cases involving civil servants in the first three quarters of 2006, up 10.43 percent from 2005. Multinationals have been linked to the fall of Zhang Enzhao, the former president of China Construction Bank sentenced in November 2006 in Beijing to 15 years in prison for accepting more than US$506,000 in bribes.

Inflation up on higher food prices

Inflation in China rose in November last year as food prices increased. Consumer prices were up 1.9 percent from a year earlier, according to figures released by the National Bureau of Statistics. It was the biggest gain since March 2005. Inflation has not gone above 2 percent since March 2005 regardless of fast economic growth, which in 2006 was the highest in a decade. Food prices went up 3.7 percent, following a 2.2 percent increase in October. Non-food inflation remained unchanged at 1 percent. Consumer prices rose 1.3 percent for the first 11 months of the year from the same period in 2005.

BANKING

Postal savings bank approved

Regulators have approved the establishment of the China Postal Savings Bank to take over the post office's predominantly rural financial services system. The bank will be China's fifth-largest deposit-taking institution and manage 36,000 outlets nationwide - twice as many as Industrial and Commercial Bank of China, the country's largest lender. About 60 percent of its outlets are in rural areas. In a statement on its website, the China Banking Regulatory Commission said the new bank will be wholly owned by China Post Group, which was recently registered with capital of US$10.2 billion. Like many other big banks, the postal savings bank hopes eventually to make an initial public offering, which could raise at least US$2 billion.

Banks bid for US$2.5 billion in government deposits

The Chinese government said in early December last year that it had given the country's commercial banks the chance to bid for around US$2.5 billion in funds. A total of 51 banks took part in the auction for 90-day deposits that will pay 2.7 percent annual interest, although the government didn't reveal which lenders had been successful. This is a break with the standard policy under which official funds are held by the People's Bank of China. The auction may represent only a fraction of total government holdings but it is another step toward winding down the central bank's commercial activities. The move will also save the central bank money as it won't have to pay as much interest on government funds.

Dalian lender in talks with foreigners

Dalian City Commercial Bank (CCB), China's seventh-largest city bank, plans to sell a 25 percent stake to overseas investors by the end of the first quarter, according to a bank source. Canada's Bank of Nova Scotia, Italy's Banca Intesa and the International Finance Corp, the World Bank's investment arm, are in advanced talks with the bank, the source said. The bank was also seeking domestic investments to improve its capital adequacy ratio to 8 percent from 5 percent before the foreign investment and a possible listing. Dalian CCB is regarded as a pioneer in banking reform. It reported a bad-loan ratio of 6.24 percent at the end of 2005 compared with the average ratio of 7.73 percent for all CCBs. The 25 percent stake will be worth more than US$70.4 million, based on the bank's registered capital of more than US$280 million.

GDB consortium loses a member

One member of the Citigroup-led consortium that in December last year received approval to take control of Guangdong Development Bank (GDB) has been dropped from the ticket at the last minute. The 8 percent stake in GDB, which was to go to Puhua Investment, will now be taken by Citic Trust. Neither Citigroup nor Citic Trust was willing to comment while Puhua could not be reached. The change bumps Citic Trust's holding to 20 percent, giving it parity with Citigroup, China Life and China's State Grid. IBM is taking 4.74 percent and Guangdong Finance Investment Co 0.85 percent. Citigroup is to have operational control of the troubled lender. The consortium's US$3.1 billion bid for 85.6 percent of GDB beat offers from Soci¨¦t¨¦ G¨¦n¨¦rale and Ping An Insurance.

AUTOMOTIVE

Stricter auto export rules planned

New auto export rules will take effect March 1 to ensure that only big and credible automakers play a role in China's push to become a major power in the global vehicle market. A statement posted on the website of the Ministry of Commerce announced the new moves but gave no further details. The licensing system will weed out auto makers that are too small to compete internationally, according to state media, which also quoted unsourced statistics showing that some 1,025 Chinese enterprises were involved in vehicle exports in 2005. More than 600 of these exported less than 10 vehicles in the course of the entire year, while another 160 exported just one automobile each. The announcement came as the government released trade data showing Chinese vehicle exports almost doubled last year to 340,000 vehicles.

Lead consumption to rise despite controls

China's lead consumption may rise by nearly 10 percent in 2007 on the back of soaring vehicle sales. This comes despite pollution-cutting restrictions on battery-powered bicycles and motorcycles. The price of lead rose 58 percent last year on the London Metal Exchange. Alongside fears of raw material shortages, an analyst at China's state-owned research group, Antaike, predicted that national lead consumption would rise by more than 200,000 tonnes in 2007. China produced more than 10 million electric bicycles in 2005, up 30 percent on 2004. Each bicycle uses about 7.5 kilograms of lead, compared with 9kg for a passenger car battery.

COMMODITIES

Curbs placed on corn for biofuel

The National Development and Reform Commission (NDRC) has placed a ban on expansion of ethanol production from corn amid concern that the industry's demand has contributed to record-high grain prices. China has set a goal of producing about 6 million tonnes of cleaner-burning fuels such as ethanol by 2010 and 15 million tonnes by 2020. China currently produces 1.02 million tonnes of ethanol annually, with 76 percent derived from corn. Instead of corn, the NDRC has encouraged increased use of non-grain vegetation to make biofuels, claiming that China could eventually produce up to 300 million tonnes of ethanol a year.

TELECOMS

Telecom troubles

Taiwan telecom officials said Asian internet services may not be fully restored until February due to newly discovered earthquake damage to undersea cables and bad weather hampering repair efforts. The undersea cables, which provide broadband links between a large part of Asia and Europe and the US, were damaged by a 7.1-magnitude earthquake off the coast of Taiwan on December 26. At time of writing, Taiwan's telecom capacity was said to be 95% restored while internet services in Hong Kong were running at 80%. Internet access in China was still sluggish.

Cisco to invest in Chinese telecoms group

Cisco will invest US$50 million in China Communications Services Corporation (CCS). CCS, which was taken public by a number of domestic telecoms operators last year including China Telecom, China Mobile and China Unicom, will partner with Cisco to provide business customers in China with services like digital video and 3G technology. The US technology group has already spent US$700 million on venture deals in China but the CCS move represents its largest direct investment in the country.

US Treasury report on China under fire

The US Treasury Department said Beijing is moving steadily but slowly towards a flexible foreign-exchange regime as it once again chose not to label China a currency manipulator. The verdict, detailed in the Treasury's half-yearly currency manipulation report to Congress, was widely expected but drew fierce protest from politicians and industry. Having failed to denounce China in previous reports, it was unlikely to start doing so now, given that the yuan has risen more rapidly - 0.5 percent against the dollar in the second half of 2005 and 1 percent in the first half of 2006 - in recent months. However, it did observe that the 6 percent rise in the yuan, following the abolishment of the dollar peg in July 2005, was far too slow. The report came out just after a top US delegation led by Treasury Secretary Henry Paulson returned from talks in Beijing in December. Max Baucus, the incoming Democratic chairman of the Senate's powerful finance committee, promised to find a new approach to Sino-US economic frictions, arguing the semi-annual Treasury reports had outlived their usefulness. Alan Tonelson, research fellow at the United States Business and Industry Council, said he was "thoroughly dismayed" at the Treasury finding.