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China Worries about the Outflow of Wealth

Regarding the recent 2011 China Private Wealth Report, which notes the trend of wealthy people’s investments emigrating overseas, follow-up debates have appeared in some local newspapers. An article in Jinan Times, which is based in Shangdong Province, expressed the deep concern that China is losing wealth as well as talent. The author suggested four solutions to the problem: 1) Improve the implementation of laws that will truly protect private property; 2) Improve the tax system to ensure fairness and justice; 3) Repair the relationship between the general public and the wealthy; 4) Break industrial monopolies and introduce more investment channels. In another article in Shenzhen Economic Daily based in Guangdong Province, the author expresses several concerns regarding the trend: 1) It will be a drain on national wealth; 2) An outflow of wealth will dampen the demand for the service industry; 3) The trend will result in less investment in real estate, a further blow to the already shaky sector; 4) There is no clear and convenient solution to this problem.

Source: China Review News, April 24, 2011
http://gb.chinareviewnews.com/doc/1016/7/0/5/101670526.html?coluid=49&kindid=974&docid=101670526&mdate=0424082041
http://gb.chinareviewnews.com/doc/1016/7/1/6/101671697.html?coluid=53&kindid=0&docid=101671697&mdate=0425004647

Increasing Wages Triggers Heated Debates

Guangzhou based Yangchen Evening News published an article on the recent heated debates about increasing wages. Over the past year, the authorities in the central government have expressed an urgent need to increase the minimum wage. For example, in April 2010, at the executive meeting of the state council, Premier Wen Jiabao named the reform of income distribution and the social security system as the top agenda items. In May 2010, the National Development and Reform Commission released its study on income distribution in several provinces. The State Council circulated NDRC’s “Opinion on Key Tasks to Strengthen Economic Reform in 2011,” and vowed to make reforming income distribution its top priority. 

A study shows that the minimum wage in many countries is between 40-60 percent of the national average income, while the figure is only 17 percent in Beijing and 23 percent in Guangzhou. Over the year, cities or provinces including Shanghai, Shanxi, Chongqing, and Zhejiang have developed plans to increase the minimum wage. Some even proposed to double wages within the next five years. 
However these calls have been met with serious doubts. Some scholars question the government’s capacity to redistribute income to individuals. Some online commentators believe that it’s not difficult to double government employees’ salaries, but that for private enterprises, whose labor costs fluctuate with the market situation, the government directive will not work. Some Chinese netizens have expressed doubts as to whether wage increases will ever catch up with inflation.

Source: Yangchen Evening News reprinted in Chinese Economy online, April 27, 2011 

http://www.ce.cn/xwzx/gnsz/gdxw/201104/27/t20110427_22389034.shtml

China’s Cities Must Still Deal with Sludge Disposal

A plan put forth by the Ministry of Environmental Protection suggests that the next 10 years will be the “golden period” for the development of sewage disposal in China. Thousands of sewage disposal factories will be developed. However, thousands of tons of sludge from each of these facilities will need to be disposed of, a big problem that must be handled urgently. Currently, a majority of the cities in China are equipped with sewage disposal facilities, but sludge disposal has still not been addressed. “Secondary pollution” is quite serious. On November 26, 2010, the Ministry of Environmental Protection issued a notice demanding the prompt development of methods for sludge disposal. The notice requires that sewage and sludge disposal units be planned, constructed, and put into use simultaneously in future development; existing sewage disposal factories must complete the sludge disposal requirement within two years.

Source: Economic Information, April 25, 2011
http://www.jjckb.cn/2011-04/25/content_303901.htm

VOA: High Cost Drives Chinese Exporters to Leave Coastal Provinces

Voice of America (VOA) recently reported that Chinese export businesses are planning to leave coastal provinces for inland locations or other countries. The report gave the example of the Apple iPhone OEM (Original Equipment Manufacturer) vendor FoxConn’s plan to invest US$12 billion to open new plants in Brazil. With salary increases, raw material price increases, and currency appreciation, the exporters’ production costs are growing steadily. A global supplier in Hong Kong estimates there will be a 15% increase in the price of Chinese exports. Although the government is encouraging the businesses to move their plants to inland provinces, the concern is that the increase in transportation costs to access sea ports will eat up the savings. Moving manufacturing lines to locations in nearby countries like Vietnam and Indonesia may become easier choices for their existing infrastructures.

Source: Voice of America, April 20, 2011
http://www.voanews.com/chinese/news/20110420-China-Manufacturing-by-Heda-Bayron-120312824.html

China to Strictly Control Water Consumption

The Chinese Minister of Water Resources, Chen Lei, recently spoke at a forum, stressing a strict control of the nation’s annual water consumption. The goal set for the year 2015 is 635 billion cubic meters; it is 670 billion for the year 2020. The Ministry is speeding up the process of defining national water consumption standards for high-water-consumption industries and for the service industry. Chen also emphasized that it is very important to protect drinking water sources and underground water. He said China has the most difficult water management situation in the world. The next step is to hold heads of local governments responsible for enhancing water management supervision and for implementing the administrative system.

Source: China News Service, April 15, 2011
http://www.chinanews.com/gn/2011/04-15/2976679.shtml

Study Times: Strategic Thinking on RMB Internationalization

Study Times, a newspaper of the CCP Central Party School, recently published an article on the importance of the internationalization of Chinese currency (the RMB). The article indicated that China is the only one of the world’s large economies that exclusively uses foreign currencies for international trade settlements. it is mainly China’s surrounding countries that use the RMB. The author expressed the belief that RMB internationalization has a certain level of urgency and that the ultimate goal is to make the RMB a reserve currency. Five action items were suggested: (1) Speed up the “Go Out” strategy and enlarge the scale of China’s investments in foreign countries; (2) Sign more currency exchange agreements; (3) Encourage more international trade settlements in RMB; (4) Issue RMB based bonds; (5) Improve the use of international finance centers such as Hong Kong.

Source: Study Times, April 11, 2011
http://www.studytimes.com.cn:9999/epaper/xxsb/html/2011/04/11/04/04_47.htm

‘China Rich List’ 2011 Released

On April 12, 2011, Hurun, known for its annual ‘China Rich List,’ released a Hurun Wealth Report 2011 in association with GroupM Knowledge, a media communication group. The report details the number of millionaires broken down by region across China. 
China has 960,000 ‘millionaires’ with personal wealth of 10 million yuan or more (US$ 1.5 million), up 85,000 individuals or 9.7% from 2009. Among them, 55% derived their wealth from their private business. 20% are property speculators, who have ridden the fast upsurge in home prices. 15% are stock market gurus, who are also the youngest with an average age of 38. The remaining 10% are high earning, salaried executives. China has 60,000 ‘super rich’ worth 100 million yuan or more (US$ 15 million), up 9.0% from last year. Beijing leads the way with 10,000 individuals followed by Guangdong with 9,000 and Shanghai with 7,800.

Source: Hurun Report, April 12, 2011
http://www.hurun.net

Banks’ Hidden Practice of High Quarter-end Rates to Lure Deposits

In March, the China Banking Regulatory Commission (CBRC) launched spot checks on banks’ illegal practice of attracting deposits as the quarter-end review of banks’ financial status approached.
Many banks are known for the hidden practice of offering significantly high returns on financial products with an issuance period that spans end-of-quarter dates such as March 31. Increasing deposits in this way can reduce the loan-to-deposit ratio below the 75% industrial red line. For example, on March 31, some banks have offered 80,000 yuan in daily interest for a 10 million yuan deposit (the equivalent of a 300% annual interest rate). In March last year, some banks even put up an announcement that, depending on the amount of the deposit, the depositors might receive returns in kind, such as eggs and cooking oil. In September last year, CBRC criticized a list of banks for such illegalities, including the Agricultural Bank of China.

Source: Beijing Morning Post, April 11, 2011
http://www.morningpost.com.cn/xwzx/jjxw/2011-04-11/179314.shtml