All posts by TGS - 65. page

Time Weekly published an article on how residents can become creditors of local governments when city commercial banks act as the middleman.

In China, only the central government can issue bonds. Local governments do not have the authority to issue bonds. However, there is a proven and popular mechanism that local governments use the enable residents to become the creditors of local governments.

First, the local government establishes an investment company; this is the “Local Government Financing Platform.” Then the local government announces new infrastructure programs such as highways, airports, or office buildings. The financing platforms proceed to contact local city commercial banks for loans to fund these programs. Because the financing platforms are government backed and the loans fund government programs, the loans are issued smoothly. However, fully aware of the risks, the city commercial banks turn around and sell the debts to trust companies which re-package the loans into “financial products.” The trust companies ask the city commercial banks to promote these “financial products” to customers of the banks. The salespersons at the banks review resident’s bank accounts and then start making sales calls. Soon residents find that they themselves have become creditors of the local government.

[Editor’s note: The city commercial banks are a significant group in the Chinese banking market. Most of them used to be urban credit cooperatives. In 1998, the People’s Bank of China ordered that all urban cooperative banks change their name to city commercial banks. These banks have strong ties to their local government, are majority or wholly state owned, and are known for financing local infrastructure and other government projects.]

Source: Time Weekly, May 30, 2013
http://time-weekly.com/story/2013-05-30/129859.html

Yi Xianrong, a Research Fellow at the Institute of Finance and Banking under China’s Academy of Social Sciences (CASS), stated that once the control of real estate is relaxed, the Chinese economy will be dead. Yi made the remarks in response to reports that the central government may relax its control of the real state sector. “China’s housing market has been very high even under the tight controls. If the controls are relaxed, there is no doubt that the economy will be dead. Once the bubble bursts, the Chinese economy will not be salvageable whatsoever.”

Source: Sina.com, May 24, 2013

http://news.sina.com.hk/news/20130524/-9-2976740/1.html

Study Times published an article wiritten by Han Kang, Associate Dean of China’s National School of Administration, on the subject of the high risk involved in the urbanization process. Han stated in his article that one of the biggest risks in China’s urbanization is the conflict between the urban and rural regions.

During the seven years from 1996 to 2003, the land cultivated in China dropped from 1.95 billion mu to 1.85 billion mu, about a reduction of 5.124 percent. This was the sharpest drop since the open door reform. During the same period, the employment rate for the agricultural sector remained stable at 49 to 50 percent, with almost zero change.

According to Han, during the process of urbanization, many cities have been putting a lot of effort into developing high-end infrastructure, such as luxury high rises and high-end industrial sectors. The government’s encouragement has played a significant and effective role and has led to extreme high-end urban development without any necessary constraints. Han pointed out that a majority, not a minority, of governments are pursuing this end and are competing with each other in the pursuit of increased high-end urban development."

Source: Study Times reprinted by People’s Daily, May 21, 2013.
http://theory.people.com.cn/n/2013/0521/c49154-21554168-2.html

China’s Ministry of Environmental Protection (MEP) has given the go-ahead for the construction of what will become the country’s tallest hydroelectric dam despite acknowledging that it will have an impact on plants and rare fish. The move met with criticism from experts due to the potential damage to the environment.

The Shuangjiangkou hydro-power dam will be on the Dadu River in southwestern Sichuan Province. It will be 314 meters (1,030 feet) high. A subsidiary of the State power firm, China Guodian Corporation, will build it over a 10 year period. The cost has been estimated to be 24.68 billion yuan ($4.02 billion) in investment.

The MEP said an environmental impact assessment had acknowledged that the project would have a negative impact on rare fish and flora and affect protected local nature reserves. The project still requires the formal approval of the State Council.

Experts argued that the dam would alter the patterns of discharge and the degradation of pollutants and be followed by changes in water quality. The construction may generate geological instability, there may be a major safety threat during the construction, and it may bring disastrous consequences in the operation phase. Considering the ethnic composition of the local minority population, their cultural practices, and their living habits, their cultural heritage would be lost and resettlement would be very difficult. Further, due to the changes in the aquatic ecological environment, local rare fish would not survive.

Source: Polaris Hydroelectric, May 13, 2013
http://news.bjx.com.cn/html/20130513/433976.shtml

According to Shanghai Securities News, from 2008 to 2012, State-owned Enterprises (SOEs) that are directly under the central authorities paid the central government dividends totaling 358.9 billion yuan. Of the dividends paid, 330.9 billion yuan were remitted back to these SOEs. During the same period, those large SOEs that are publicly listed and under the control of State-owned Assets Supervision and Administration Commission of the State Council received government subsidies in the amount of 173.6 billion yuan. That amount was equal to more than double the total profits of those small to medium high tech companies listed in the second market.

For the past several years, the ratio of debt to total assets showed that creditors financed 80 percent of the assets of the top five power companies. In 2012, part of the dividends that the five companies paid was returned to the companies’ capital accounts.

Source: Shanghai Securities News reprinted by Xinhua, May 13, 2013
http://www.js.xinhuanet.com/2013-05/13/c_115739881.htm