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China Interest Rate Hike and Investment Growth

March 23, 2007 - by Stan
I'm several days late on this story, but such is life. This is a complicated issue, so some background reading is a good idea. A good post on China Economics Blog is a start, and it contains excerpts of a Financial Times article on the subject as well.

My take on the subject follows along the lines of "The question is how many more rises will be needed and what will happen to growth?" In other words, the specific merits of this interest rate hike may be debated, but this is not so important. What prompted this action (excessive investment), and the fact that this is neither the first rate hike nor the first policy designed to slow things down, are serious issues.

I note the comments by Wen Jiabao referred to in the FT article, which stated that China's Premier has recently expressed concern that development in China was becoming unsustainable without significant change. The rate hike is another piece of evidence that existing levers (reserve requirement, restrictions on land transfer, new approval procedures for certain investments) are not working so well.

So the question this all leaves me with is the following: is the problem based on the policy, on implementation, on the inability of these economic tools to move things in the right direction, or on the need to develop new tools?

The longer this overheating is allowed to go on, the more dangerous the situation becomes. No one wants to wake up five years from now in a country filled with steel factories and shopping centers, but with no sustainable engine for long-term development.

China News 0 Comment March 23, 2007, 10:50 am

Lunar Real Estate

March 20, 2007 - by Ryan

A Chinese company has been prohibited from selling plots of land on the moon!

I can't imagine why. It certainly does not sound within the spirit of the recent advances made by the National People's Congress to China's property law.

Back in September 2005, a Beijing-based company, "Lunar Embassy to China", offered customers one acre plots of land on the moon for the very reasonable price of 298 yuan, and managed to offload 49 acres in only its first three days of business. On Friday March 16, after a relatively brief court battle, the Beijing First Intermediate People's Court ruled that no individual or state could claim ownership of the moon.

Follow this link for Sina's report on the amusing legal battle.

The CEO behind the "Lunar Embassy to Beijing" did not end his sales campaign there. Click here to see what else he has been trying to flog recently.

China News 0 Comment March 21, 2007, 2:42 pm

Winter Wonder

March 19, 2007 - by Diana

Beijing in March, no longer are we chilled to the bone nor is it mandatory to put on piles and piles of clothing. On a good day, it is even possible to ditch the long heavy coat and slip on a pair of sunglasses. Not to mention the fact that it is no longer dark as soon as 6pm rolls around continue to remind me that spring is just around the corner.

Having grown up in a place where although cold and wet, winter at its best was around 9 degree Celsius. I have never had to wear a duck down coat, nor have I ever seen snow. Some people ever went so far as to say I have never experienced the real beauty of winter. And I think I would have to agree. This is my second winter in Beijing and I still love it. Sure, there were times where I was disgruntled with the freezing weather and gusty winds, but there was also the Great Wall capped with snow that runs for miles and miles, frozen Houhai lake where the nimble (or the not so nimble) enjoyed ice-skating and the undaunted swam in its water. There were also the trips to Harbin in appreciation and awe of its famous snow sculptures and light show at night as well as the steaming hot pot dinners that were fattening, yet delicious.




I cannot wait for spring to come and at the same time I look forward to another great winter here in China.

China Blawg's thoughts 0 Comment March 19, 2007, 11:58 am

Two Landmark Laws Adopted on Last Day of NPC

March 16, 2007 - by Will

The NPC had on March 16, 2007 adopted two landmark laws -- the Property Rights Law and the Enterprise Income Tax Law, at the closing ceremony of its annual session in the Great Hall of the People in Beijing.

With the adoption of the said Enterprise Income Tax Law, it signifies a phase-in end of superior treatments to foreign investors that had been the situation for almost 30 years since the opening up of China's economic policy in 1978. It will come into effect on January 1, 2008.

Amongst the highlights:-

Enterprise Income Tax Law (coming into effect on January 1, 2008):

(i) sets unified income tax rate for domestic and foreign companies at 25%; (note: at present, domestic companies are subject to the average corporate income tax of 25%, and FIEs are favoured with 15% average).

(ii) removal of certain tax incentives for the FIEs, such as pre-tax reduction and tax rebate for re-investment.

Property Rights Law (coming into effect on October 1, 2007):

(i) stipulates that "the property of the state, the collective, the individual and other obligees is protected by law, and no units or individuals may infringe upon it".

(ii) offers (allegedly in theory) equal protection to state and private properties in order to boost social harmony and enhancement of further economic reforms.

We are in the midst of procuring a copy of the full laws, and will seek to translate the same into English text for readers reference soonest. Watch out this space.

Meanwhile, you may click here for the breaking news.

China Law 0 Comment March 16, 2007, 7:33 pm

IP Rights and Economic Development

March 16, 2007 - by Stan

OK, yeah, this general topic is not news. In fact, this is a very old topic amongst economists and policy analysts. The main question is the appropriate level of IP protection/enforcement in developing countries, and should they be treated differently from other countries.

Interesting post on IP Dragon about a recent interview with the deputy director of SIPO. Note that the State Intellectual Property Office (SIPO) is not, contrary to appearances, the national IP office. It is really the Patent Office. Trademarks and copyrights are dealt with by other agencies, not by SIPO.

Regardless, the interviewee, Zhang Qin, makes a distinction between trademarks and copyrights, on the one hand, and patents on the other. This distinction is based on the old argument that technology is crucial to development, and therefore a rigorous patent enforcement regime is harmful to economic development. Trademarks and copyrights should therefore be strongly enforced, but not necessarily patents. Funny how this gets the SIPO off the hook with regard to criticism of IP enforcement in China, but SAIC (trademarks) and the copyright office will take the blame. Nice politics, and not even a little subtle.

Anyway, there is no doubt that technology helps development. The trick is to figure out when to stop the lax patent regime and switch over to a more robust system once your economy is sufficiently developed. Some would say that the right time is when you start innovating. I think it needs to be done earlier, to spur that innovation domestically, and many policy wonks in Beijing agree with me on this. The laws have been changed to reflect this, most notably the Technology Transfer Law several years ago. I think China is well into that switchover period and has done so by design.

So really we are back to an enforcement issue, not a Patent Law reform issue (for the most part). Hard to say whether the old economic development arguments are just being used in a self-serving manner, or if there is a sincere feeling in certain policy circles here that this is a legitimate issue.

I am a cynic, and an IP lawyer, so my feelings on this are rather obvious.

China Blawg's thoughts 0 Comment March 16, 2007, 7:18 pm

Random Pondering on the NPC...

March 15, 2007 - by Juan

Stan's post on the comparison between Chinese and US-style politics is something that I would have thought perplexing 6 months ago when I first set foot in China.

Life in this country has, however, proven that the rapprochement of the two cultures is not only happening, but you can also publicly talk about it (special thanks to Yao Ming).

A couple of days ago, CCTV9 held a televised debate on the Rule of Law (YES, on THE RULE OF LAW) in China. Yang Rui, CCTV9's "Dialogue" (he often forgets that a dialogue needs to have more than one person, and it's not about preaching overcooked pseudo philosophical statements) presenter, decided to close his program with JFK's "It's not about what your country can do for you, but...blah blah blah".

Minutes before, an NPC deputy had contended that the roots of socialism are now suitably established in China. That probably explains why China's Communist Youth League, the "helping hand and reserve army" of the ruling party, is setting up a joint venture with foreign investors to offer online poker to the nation's young people. (Here's the FT Story)

The official language is in accordance with their international "intentions". An example of this is Bo Xilai's recent contention: "what China has done for Africa is out of a sincere feeling, out of friendship from the bottom of the heart forged in past decades".

What Stan has highlighted is that in China, at least, the official rhetoric is still well-intentioned, talking about issues such as education, health, helping rural residents, and improving the environment - all the elements of a "harmonious society".

Having said this, I'd only like to quote a great article on Thailand's recent military coup:

"When rising income inequality is unmatched by economic opportunity and rich-poor divides widen in cities, as well as between them and the countryside, resentment and envy can fester.

Those conditions are evident in many parts of Asia. They are fertile soil for demagogues who pose as champions of the poor, who skillfully manipulate mass opinion, and who claim that their popular mandate and political mission put them above the law

Feel free to make your own conclusions.

China Blawg's thoughts 0 Comment March 16, 2007, 9:51 am

Beijing's changing streetscape (up close)

March 13, 2007 - by Ryan

What's happened to the streets of Beijing? Last time I was here the rows of shop fronts and stalls were so continuous and repetitive that you were always only 20 steps from the closest xiaomaibu convenience stall or magazine stand. Now it seems one needs to get in a taxi just to buy a bottle of Wahaha water, and cross town to get a 25 kuai haircut.

Upon first arriving and noticing the distinct lack of convenience, I assumed that it must only be within the Chaoyang area, but I traveled back to my Haidian haunts and realized that it had also been affected. The only difference I could see was that instead of the Chaoyang apartment complexes and shopping malls, Haidian was full of new governmental buildings and impressively named research institutes.

I assume that the changing streetscape is a conscious effort to clean up the city for the 2008 Olympics as well as just generally resulting from the development occurring. Whatever the cause, I think that Beijing, certainly within the Chaoyang CBD district, needs a return to more frequently located convenience stores - even if we have to swap xiaomaibu for 7/11.

I posted a link last week to a CCTV article regarding the Chaoyang CBD. In that article, a senior urban planner from Chicago, Mr Benet Haller, said the following about the current state of the CBD:

"To me it's not what a central business is all about. It is about density, it's about having a ground level that's very active".

I couldn't agree more. Although he is perhaps more specifically referring to upscale entertainment and dining venues within the CBD, his comments could equally apply to other areas of Beijing and to the nature of development being undertaken here.

Here again is the link to that article:

A good article written back in 2002 takes a few guesses at what would happen to Beijing's xiaomaibu in the future (which is obviously now the present), and you may find it interesting to compare with your own view of Beijing's current streetscape. You can find it at the following link:

China Blawg's thoughts 0 Comment March 13, 2007, 12:36 pm

Beijing's changing skyline (from a distance)

March 9, 2007 - by Ryan

Having just returned to Beijing after a two and a half year absence, I was keen to see how the city had changed. I recall in the past leaving for periods barely exceeding three months, then returning to find that my favorite restaurant, hairdresser, convenience store, and watering hole (which were probably all adjoining each other) had been torn down to make way for a new government building or six lane highway. When I left, the Chaoyang "CBD" area was the sum of about four buildings, and I thought the title was a touch over-ambitious.

The changes struck me as soon as I hit the Beijing airport tarmac. I recalled the current airport terminal just being finished, but outside the airplane window I could see an almost-finished and absolutely gigantic new terminal with what looked like a high speed rail system shooting out the end. It looked fantastic, and rammed home to me the city's speed of change, as well as my length of absence.

Once into the city perimeter, although there was a lot of development and new buildings, nothing really had seemed to change - until I got a glimpse of the new CBD skyline. It is a genuinely cool skyline, and I hope the area does transform into what some have dubbed the "Oriental Manhattan".

In the CBD, even at this early stage, there is a fusion of differing styles and eras, and it keeps reminding me of Hong Kong. Of course the two cannot be compared, but if in 2004 someone told me that Beijing would possess even a mere hint of Hong Kong's perfect eclecticism, I would have considered them ignorant dreamers.

Anyway, to put in bluntly, when I see Beijing's CBD I'm often reminded of Hong Kong. If you disagree, feel free to let me know.

Although a bit out of date, I liked the following article from CCTV on the topic: http://www.cctv.com.cn/lm/133/42/54696.html

I agree with some of the concerns raised in the above article, and will provide my views on it next week.

China Blawg's thoughts 0 Comment March 9, 2007, 1:50 pm

Commercial Franchise Administration Regulation

March 1, 2007 - by Lily

The long-awaited Commercial Franchise Administration Regulation ("Regulation" ) was issued by the State Council on February 6, 2007 and will come into force as of May 1, 2007. The Regulation applies equally to foreign-invested franchisors and domestic Chinese franchisors. That is to say all commercial franchise activities within the territory of the People's Republic of China will be subject to the Regulation.

1. What is 'commercial franchise'?

The term 'commercial franchise' ("Franchise" ) as mentioned in the Regulation means that a franchisor, who owns business resources, such as registered trademark, enterprise logo, patent, know-how, etc., licenses or empowers a franchisee to use such business resources by signing a contract, and the franchisee should conduct the business in the uniform commercial mode as agreed in the contract and pay franchise fee to the franchisor.

2. The requirements of the qualification of a franchisor:

(i) The franchisor shall be an enterprise rather than a natural person.
(ii) The franchisor is capable to provide long-term business guidance, technology support and training services to the franchisee.
(iii) The franchisor shall have at least two direct-operation stores and its operation term should exceed one year when it conducts Franchise.

3. Information disclosure:

A franchisor shall provide authentic and accurate basic information and other materials concerning the franchised business operations and the text of franchise contract in written form 30 days before signing a formal Franchise contract. The basic information shall be disclosed by the franchisor include name, domicile, registered capital, business scope, IP rights, the involvement in lawsuits, etc.

4. Put on records:

The franchisor shall file the Franchise for records at the competent commercial authority of the PRC in 15 days since signing a formal Franchise contract for the first time.

5. The obligations the franchisee:

(i) The franchisee shall not license the Franchise to any third party without the consent of the franchisor.
(ii) The franchisee shall not disclose, use or allow others to use the franchisor's business secrets without the consent of the franchisor.

6. The Franchise contract:

(i) A Franchise contract shall be signed in written form, and shall include the necessary content.
(ii) The franchisee may terminate the Franchise contract unilaterally within certain period upon execution of such contract.
(iii) The Franchise term should not be less than three years unless the franchisee agrees otherwise.

China Law 0 Comment March 1, 2007, 9:59 am