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China to Raise Export Tax Rebates for the Seventh Time Since August 2008

The Chinese Ministry of Finance and the State Administration of Taxation announced that, effective June 1, 2009 export tax rebates will be raised for processed farm products, machinery, shoes, glassware, iron and steel products, covering more than 2,600 items. It is the seventh time since August 2008 that China has raised export tax rebates to shore up its exports.

Source: The Central People’s Government of the People’s Republic of China, June 8, 2009
http://big5.gov.cn/gate/big5/www.gov.cn/jrzg/2009-06/08/content_1334929.htm

China Concludes $4.7 billion Oil Deal with Iran

The International Herald Leader under Xinhua reported an Iranian government release that China National Petroleum Corp. (CNPC) and Iran had signed a $4.7 billion dollar contract on June 3 for the upstream development of phase 11 of the South Pars natural gas field. “The aim in implementing the project will be to produce 50 million cubic meters a day of natural gas and other products.” The implementation will begin in three months. Xinhua states that the agreement with CNPC was in response to the French oil company Total’s delays in finalizing negotiations. “Deputy Oil Minister for Production Affairs Seyfollah Jashnsaz expressed that the concluding the agreement fully demonstrates that the sanctions the West has imposed on the Iranian oil and gas industry has failed and has no effect.”

Source: Xinhua, June 8, 2009
http://news.xinhuanet.com/herald/2009-06/08/content_11506744.htm;
See also Islamic Republic News Agency at
http://www.irna.ir/En/View/FullStory/?NewsId=527336&IdLanguage=3

Why Do So Many Wealthy Chinese Emigrate Overseas?

Three decades have passed since China implemented the Reform and Open-up policies. A large number of people have become millionaires. These many wealthy people have enjoyed the most luxurious food, drink, and fun, plus all of the benefits of abundant wealth. Yet, these men of wealth are successively emigrating overseas. What are the reasons? For the answer to this question, we need to analyze the following three aspects:

I. How Did These Millionaires Come into Being?

Mr. Yang Jisheng, once, described in detail in his speech on how these wealthy Chinese came into being. He explained, “China’s Reform policies made the national income gap between the rich and the poor widen significantly. There are normal and abnormal reasons for this disparity. The annual-high-income families in major cities and towns have a great deal of gray income, which is the main reason for the increase in their annual income. The sources of their gray income are listed below:

The Loss of Public Money, Including Government Funds, Social Security and State-Owned Assets:
 
In those instances where the Central Government invested in projects, the funds that were targeted for use in those projects were passed on to each level of the underlying contractors (the middlemen). When the funds actually got to  the projects themselves, what remained was less than 1/3 of the original appropriation.

Corruption exists at all levels of financial institutions. The loan recipients need not only to pay for the regular interest on the loan; but also for the extra fees that go to the pockets of the lending officials. The total amount of extra charges may be as high as 9 percent of the total loan amount. It was estimated in 2006 that the total of all kinds of loans from all the financial institutions in China amounted to 22 trillion yuan (US$3.2 trillion).

 The extra income, “the gray income,” was given to the officials of the national financial institutions. The administrative license to rent or sell land and issue approvals has resulted in a substantial loss of land revenue: In the year 2005, 40.3 acres of government-owned land was rented out, 1/3 of it were auctioned off and the price was much less than with other types of rent: A total value of 540 billion yuan (US$78.9 billion) was lost using this means. [ed: resulting in kickbacks to bank officials and huge windfalls to the “winning” bidder]

Those government officials who have amassed power and influence through nepotism or bribery have made enormous profits from monopolization. Business transactions have been ongoing between powerful government monopoly traders and the general traders who have less power. Those in power in the government control the prices of resources on market. For instance, with regard to land, the government uses administrative means to centralize, amassing land by buying it at a low price, and then selling the land to developers at a high price.

The income to monopolies: According to 2005 data, the mean wage and the extras from regular income of an industry worker in the electric power, telecommunications, petroleum, finance, water, electric power, tobacco and other monopoly industries is 5 to10 times more than the average income of a national everyday worker. Monopoly industries make use of the nation’s resources to further their business interests. The Chinese monopoly industries are basically administrative, or government monopolies.

 I used to call those who made a killing by using government power, “The Red-Cap Businessmen,” since they amassed their profits as a result of power gained from their association with the government. During the Reform and Open-up period, the Four Peak Times of wealth accumulation for “the Red-Cap Businessmen,” were as follows:

1. The First-Peak Time, the State Monopoly and the Initial-Open Period (mainly, the State-monopoly on the import of goods): Before 1994, under the official exchange rate, the currency value of the Renminbi (RMB) was overestimated. Therefore, one earned a great deal of money as he imported goods from overseas and sold them at home. People with a powerful background could get import permits for goods from overseas. The children of prominent officials filled their pockets with import permits. When the import permits changed hands, they became millionaires. They don’t just own villas on the hillside in Hong Kong; they keep race horses and yachts.

2. The Second-Peak Time, the Period of the Double-Track Price System: This occurred from 1984 to 1993. In 1987, the difference in the prices in the Double-Track Price System for goods, capital and foreign exchange reached up to 200 billion yuan (US$29.2 billion), and made up almost 20 percent of the national income for 1997. In 1988, the disparities between the prices in the Double-Track Price System for common goods, capital and foreign exchange reached 356.9 billion yuan (US$52.2 billion,). That income was almost 30 percent of the national income in 1998.
 
3. The Third-Peak Time, the Period of Financial Capital: In the stock market, the amount paid for an the Initial Public Offerings (IPO), the determination of the price for new stocks on the market, and the ability to manipulate the stock market provided those “Red-Cap Businessmen” with huge gains. The ability to lease land and the power to demolish the old, and build the new in the real-estate market, also provided them with abundant opportunities.

4. The Fourth-Peak Time, the Period of the Restructure of the State-owned Assets: After 1997, China began the large-scale restructuring of state-owned assets. In succession, many state-owned enterprises gradually pulled out from those competitive businesses. This provided an unprecedented golden opportunity for the dramatic development of the private economy. In some areas and in some of the enterprises, the restructuring of state-owned assets became a disguised form of carving up of the state-owned assets. Among them, the practice of the Management Buyout (MBO) made many managers of the state-owned enterprises billionaires overnight. “The Red-Cap Businessmen” amassed more wealth than during these Four-Peak Times (some of which often overlapped each other). They have become bolder and have employed brighter and cleverer ways to amass profits. We just don’t know how many billionaires were generated in China during these Four-Peak Times.

From all the above contents in Mr. Yang’s speech, we clearly understand how these wealthy Chinese came into being. They worry that they may not always be able safeguard their property in China, since most of their ill-gotten wealth was acquired from unknown origins. It goes without saying; they’d naturally desire to emigrate abroad.

II. The Changes in International and Domestic Circumstances Drive These Wealthy Chinese to Emigrate Overseas
 
Since the collapse of the former Soviet Union and the dramatic changes that took place in Eastern Europe, the International Communist Movement has been at an all time low. The United States of America led a group of supremacists (elitists), who actively implemented expansionist policies, and ceaselessly provoked armed conflicts around the world to create utter confusion, so the current international situation has been extremely unstable. At home, some groups of corrupt officials, acting in cahoots with the domestic and overseas capitalists, went along with their evil deeds, abusing their power and stealing the public wealth without restraint. They have wasted domestic natural resources, seized and occupied the common people’s properties, undermined the unity of members of the Party and the common people, undermined the unity of the key group and the common people and created dissension in the form of social conflicts and social crises.

Being the mainstream wealthy Chinese, the group of bureaucratic capitalists and the capitalist reps knew clearly that if the situation continued like this, they would get themselves into big trouble or stir up dramatic political changes. They knew clearly that, no matter how the social circumstance varied and no matter whether China would find its way to Capitalism or Socialism, their personal interests would be strongly impacted. Therefore, they refused to go down without a fight and thought of emigrating as soon as possible, rather than staying at home and doing nothing.

III. The Wealthy Chinese’ Own Political, Moral and Psychological Qualities Are the Determining Factor for Them to Emigrate Overseas

Most of the Chinese millionaires are the descendants of aristocratic families of high-ranking officials. Their ancestors, or their fathers, had high-ranking government posts with high political positions in Chinese society. Although during the10 years of the “Cultural Revolution,” their fathers lost out a little bit; yet, the implementation of Reform and Open-up brought them very advantageous political and economic positions. Deng Xiaoping said that the policies allowed some of people to have the priority to become rich. Then, 30 years later, the people who had the priority to become rich were those people who were in favorable positions and gained special advantages.

These kinds of people are actually the new-money in today’s Chinese society. Their political, moral and psychological qualities are quite inferior and low-grade. During the so-called “Unrest Time,” since they suffered from negative political impact, as a result, they were naturally and especially hostile to and avoided Mao Zi Dong’s revolutionary line. Since they worry very much that Chinese society will be in a turbulent situation as it was previously; therefore, they made use of the power in their hands and the mass media to slander and criticize Mao Zi Dong’s revolutionary line. They have also resisted and suppressed the currently existing model of socialism’s massive collectives. They attempted to change their country into a colony of Capitalism.

However, inside the Chinese Communist Party (CCP), leftists are still a strong force. They have never given up their battle for their viewpoints and principles. They keep waging a blow-for-blow fight against Rightists, and their existence threatens the political and the economic positions of the vested interests.

The force of the leftists and the high-ranking officials of the CCP members have tried their best to safeguard the political characteristics of Chinese Socialism, and to uncover the plot of peaceful evolution (from socialism back to capitalism) that the groups of Imperialists overseas and the Rightists at home have conspired to bring about. The rich Chinese believe that as long as China doesn’t change its socialist state-owned politics, their private property cannot be protected at home. To safeguard their vested interests and their aristocratic positions, they have to choose to emigrate overseas.

The above speech stands only for the personal perspective of the author himself, and thus cannot stand for the perspective of the Global Times.

Endnote:
[1] Website of Global Times, February 17, 2009
http://bbs.huanqiu.com/shidaizhongguo/thread-161424-1-1.html

China Loosening Controls over Domestic Enterprises’ Overseas Purchases

Nanfang Daily reported that China has made policy changes to smooth the process for domestic enterprises to buy properties overseas. There are three check points for such purchases: National Development and Reform Commission (NDRC) – checks on whether the investment is in line with national interests; Ministry of Commerce – checks on trade balance, anti-trust, WTO suit, etc; and State Administration of Foreign Exchange – approves use of foreign currencies. The Ministry of Commerce has relaxed their control.

In 2009, the State Administration of Foreign Exchange published “Foreign Currency Management Regulations on Domestic Enterprises’ Overseas Investments (Draft of Soliciting Opinions),” which changed the funds source verification process from approving before the investment to recording after the investment.

The Ministry of Commerce published “Measures for Overseas Investment Management” in March. The regulations have the following changes: 1. Ministry of Commerce will only review and approve a limited number of large overseas investments. 2. The process is simplified so that most companies only need to submit a form and receive an investment certificate in three working days. 3. The financial viability and feasibility of the investment is left to the company to decide.

Source: Nanfang Daily, June 2, 2009
http://www.nanfangdaily.com.cn/epaper/nfrb/content/20090602/ArticelB03002FM.htm

Behind China’s Largest Overseas Investment

The International Herald Leader published an article on the collapse of Rio Tinto’s controversial deal with China’s state-owned aluminum company, Chinalco. The Chinalco’s deal, valued at $24.3 billion, would have been China’s largest investment in a foreign company. Rio recently announced to would combine its large iron ore operations with BHP Billiton instead. 

The International Herald Leader blamed the scrap of the Chinalco deal on political reasons, mainly western countries’ anti-China mentality. The article stated that many politicians in the Canberra Congress raised the issue as jeopardizing Australia’s national interests. “The loss of the Chinalco Rio deal is not a loss of market competition, but rather a sacrifice resulting from a new form of ‘Cold War’ thought.” 
[Editor’s Notes: After Rio’s deal with Chinalco was announced, Australian businessman Ian Melrose spent $200,000 on television advertising, using images from the 1989 Tiananmen Square Protest to warn that the Chinese government-owned Chinalco should not be allowed to raise its stake in Rio Tinto to 18 per cent thereby increasing its control of Australia’s resources.] 
Source: International Herald Leader, June 8, 2009

http://news.xinhuanet.com/herald/2009-06/08/content_11506794.htm

China May Discount J10 Fighter Plane

Eastday Website, the largest portal site in Shanghai, reported that China is likely to sell its J10 fighter plane on the international weaponry market at a discount. The Eastday report is based on a report from the S. Rajaratnam School of International Studies at Nanyang Technological University in Singapore. Eastday Website is partially owned by state-owned enterprises. The Rajaratnam School report stated that most of China’s weapon offerings lack technical competitiveness. Its buyers are limited to a few developing countries. To expand its weaponry sales, China may offer its J10 fighter jet at a discount. J10’s performance is similar to Israel’s Lavi fighter jet or the U.S. F-16C. Pakistan and Iran are likely to be the buyers of the J10.

Source, Eastday Website, June 5, 2009
http://mil.eastday.com/m/20090605/u1a4416686.html

Qiu Shi: Globalization, Financial Crisis and International Cooperation

Qiu Shi, a magazine by CCP Central Committee, published an article on global economies by Professor Zhang Boli, a member of the Administrative Council of the CCP Central Party School. The article suggested that the solution to the global financial crisis is international cooperation. Aspects of the suggested cooperation include: establishing a healthy global economic and financial system; restraining protectionism; enhancing financial supervision and control; reforming the international currency system; and strengthening regional economic cooperation.

Source: Qiu Shi, June 1, 2009.
http://www.qsjournal.com.cn/qs/20090601/GB/qs%5E504%5E0%5E26.htm

China News: Calling for Chinese Oil Futures for the Power of Setting International Oil Price

China News, a state owned and internationally oriented Chinese news agency, recently reported on the idea of having Chinese oil futures. The Chairman of the China Securities Regulatory Commission and the Deputy Mayor of Shanghai delivered speeches that indicated the State Council intended to introduce crude oil, gasoline, diesel and asphalt futures at the Shanghai Futures Exchange. The Exchange has been pushing the oil futures for quite some time and the system is ready. However, the Chinese oil industry is highly centralized and the related oil companies are not willing to give up the pricing monopoly. Another major barrier is foreign exchange control, which prevents international players from participating in the commodity trade.

Source: China News, June 2, 2009.
http://www.chinanews.com.cn/cj/cj-gncj/news/2009/06-04/1719401.shtml