Original article: [Chinese]

Eighty publishing houses currently affiliated with various ministries and commissions of the Chinese central government are slated to be corporatized by the end of 2009, according to China’s national media and publishing regulating body.

The move is part of a larger plan by the General Administration of Press and Publication (GAPP) to shed 148 of these Beijing-based publishing houses over the next two years.

It’s also part of a broader restructuring of cultural industries that is taking place in China, and it’s only because of the political sensitivity of meddling with these central-government-affiliated publishers, that they have been able to avoid the restructuring that has already taken place in the regional and university publishing industries.

The publishers approach the reform with different views, some, especially the more competitive and profitable presses, look forward to it, most don’t care, a small minority are?opposed to?reform.

The total assets locked-up in these official publishing houses amounts to approximately 100 billion yuan. However, it remains unclear who will be in control of these assets after the reforms are completed.

Resistance to the Shake Up
At present, the Publicity Department of the Communist Party of China Central Committee and GAPP are organizing training programs for the heads of the Beijing-based publishing houses involved in the plan.

During the reform, six or seven giant publishing groups devoted to broad areas such as education, science and technology, economics and health care will be established from the publishers.

The Economic Observer learned that two publishing houses attached to the Ministry of Human Resources and Social Security - China Labor and Social Security Publishing House and China Personnel Publishing House - and the China Financial Publishing House, which is subordinate to the People’s Bank of China, were included in the first batch of publishing house that will undergo restructuring.

The plan is, that in keeping with the principles of reform, publishing houses which are currently subordinate to government departments and which often serve as convenient repositories for semi-legal funds, would, through restructuring, mergers and other measures, gradually evolve into competitive participants in the market economy.

The EO learned that some ministries and commissions were in the habit of transferring any unspent funds that they had received to their subordinate publishing houses under the premise of publishing costs. Instead, the money became a slush fund of sorts for the ministries and commissions and they saved up huge amounts that were used to fund the social spending obligations of the unit.

“Some publishing houses have become “small gold storage ponds” to the ministry or commission above them, and are used to fund handouts and bonuses to the ministry’s workers,” said Liu Binjie, director of GAPP in an interview with state media CCTV.

He candidly went on to admit that “some ministerial chiefs asked me to first find a solution to this problem before cutting off the source of their company’s bonuses.”

Another barrier to reforming the system according to Zhu Shanbo, president of Tacter Consulting Company and long term observer of reform in the publishing industry, is that “these publishing houses have a strict system of administrative ranking. In order to promote some cadres, the ministries would often transfer them to a position of higher government ranking in these publishing houses.” His comments point to concerns among some ministries and commissions that the reforms would remove the additional space for promotion they currently have in?terms of being able to offer?staff positions in their subordinate publishing houses.

He went on to add that even if the reform would result in publishing houses being more vigorous and competitive, some officials, especially those occupying key positions, were not willing to support the changes.

Will the Reforms Go All the Way?
Given these barriers to reform, many commentators are concerned that the restructuring will not be completed.

Already, according to an EO source, the central government has been forced to compromise on the issue of institutional separation of the publishing houses from their controlling ministry or commission.

Despite the State Council requiring ministries and commissions to separate their main administrative functions, such as finance and personnel, from the publishing houses, some publishers are being allowed to “temporarily not separate.”

According to the same source, “the temporary relaxation of the separation rules is being adopted to quicken the pace of reform, otherwise it would be impossible to move forward.”

Other Problems Faced by the Reform
Among the problems associated with the restructuring, the problem in most urgent need of a solution is, who will be responsible for these state-owned publishing conglomerates and who will regulate their state-owned assets.

Analysts believed that given the small scale of the assets involved and also the high pressure on maintaining and increasing the asset-value of these publishing houses, it was unlikely that the State-owned Assets Supervision and Administration Commission (SASAC), the country’s state-owned assets watchdog, would take over.

The EO learned that policymakers were considering a proposal that would allow the Central Propaganda Department to take charge of the publishing groups on behalf of SASAC.

Wang Bo, president of China Logistics Publishing House, held that large publishing groups, state-owned companies and other market entities could also play a part in the restructuring process.

“Private capital is interested in publishing house reform,” said Zhu Shanbo. He believed that if private capital was allowed to enter into the publishing sector, the industry would boom.

To help ease the introduction of the reforms, various central government departments will enact favorable policy measures. For instance, corporatized publishing houses will be exempt from paying corporate income tax, housing tax, value-added tax and tax on imports and exports.

But these measures only cover the minimal associated costs of reform. It still remains unclear who will be burdened with the other more substantial costs of reform, including pension funds and other human resources costs associated with civil servants becoming regular employees.

The EO learned the cost of corporatizing publishing houses is likely to be quite expensive, as can be seen in the experience of restructuring the regional publishing houses, when costs sometimes climbed into the hundreds of millions of yuan.

China’s fiscal revenue has registered its first positive year-on-year growth for the first time this year.

The national fiscal revenues in May grew by 4.8% over last year’s figure, or over 30 billion yuan, to nearly 657 billion yuan, according to China’s Ministry of Finance (MOF).

Fiscal revenues at the central and local levels rose by 5.7% and 3.3%, to a total of 406.3 billion yuan and 250.6 billion yuan respectively.

The growth contrasts with a 13.6% decline in fiscal revenue in April.
However, the fiscal situation remains tight. The first five months of 2009, saw a 195.5 billion yuan dip, a decline of 6.7% on last years numbers, in the national fiscal revenue.

According to the MOF, fiscal revenues in the first five months of this year reached over 2.7 trillion yuan, 40.9% of the estimated figure for total annual fiscal revenue as set out in the 2009 budget.

The ministry attributed the decline over the first five months of the year to three mains factors: the slide in business profits as economic growth slowed, tax cut schemes launched earlier in the year to spur the country’s economy and the effect of the downward trend in both the consumer price index (CPI) and the producer price index (PPI).

While fiscal revenue has begun to rally, the country’s fiscal expenditure continues to soar, registering a year-on-year increase of 14.5% to 460.8 billion yuan in May, according to the MOF.

Total expenditure in the five months was 27.8% higher than the same period last year, reaching a total of 2.24 trillion yuan.

China still registered a fiscal surplus of 461.1 billion yuan in May, but the ministry indicated that the outlook for the rest of the year was grim, with an annual budget deficit of 950 billion yuan projected for this year.

Click here to read the original statement (in Chinese) from China’s Ministry of Finance.

Original article: [Chinese]

In the past week，we’ve seen the release of a growing number of policies related to the establishment of China’s new Nasdaq-style Growth Enterprise Board (GEB).

From the announcement of new regulations covering IPOs on June 5, to the June 8 call for input from investors, plus all the other measures that have been announced in the preceding weeks, we can see the structure of the new board is begininig to take shape.

The institutional design of the GEB is more detailed than those of previous markets, and, in terms of the qualifications for entry for both enterprises and investors, it is more specifically targeted.

The new board will have a positive effect on the development of small and medium sized enterprises, the transfer of industrial policy, advancing regional economies, optimizing structures and, most importantly, guiding the rational flow and distribution of social capital.

Everyone is united in their hope for a healthy, commercial and properly functioning board.

But of course, although our aims are clear, there is still a lot of work that needs to be done. The quality of the companies that list, and the regulation of the board, are two important questions that need to be addressed.

According to the draft rules of the GEB, the standard for a company to list on the board is that it has:

“Two consecutive years of profit, with net profit no less than 10 million yuan, and continuous growth; or one year of profit, and net profit of no less than 5 million yuan and operating revenue of no less than 50 million yuan over the past year with operating revenue growing at no less than 30% on average over the past two years;”

“The total capitalization of shares listed must not be less than 300 million yuan, and the issuer must also only deal in this one kind of business operation.”

When compared to the requirements for listing on the stock market, these standards might seem low, but when looked at in relation to other Growth Enterprise Markets, the criterion are quite high.

Similarly, in regard to raising capital on the GEB, the qualifications required of underwriters are also quite strict.

These measures constitute a new approach, and to some extent, guarantee the quality of the companies that will list on the board.

But the market is still apprehensive, and with good reason too, about how these policies will be implemented.

In reality, the quality of companies listing on the main boards is also a big problem. In particular, a lot of improvement still needs to be made in the areas of public disclosure of information and the regulation of insider trading.

In addition to this, the high risk associated with investing in GEBs provides regulators with many additional challenges.

In other words, small and risky enterprises need tighter supervision and more market-oriented regulation. Therefore, regulatory bodies need to pay close attention and consider innovative policy to monitor these kinds of businesses.

However, a larger cause for concern is how to stop the GEB turning into a speculative tool.

By the end of 2008, in various cities around the world, 12 growth enterprise markets had closed down. Aside from the exceptions of Japan and America, all other markets had met with serious difficulties.

In reality, the history of Hong Kong’s Growth Enterprise Market (GEM) can serve as a reference point for us.

In the past two years, there have only been four companies that have listed on the GEM. Daily business transactions don’t even amount to one percent of the trade on the main stock exchange.

However, the biggest problem is that the listing regulations of the GEM are too loose, the senior management of listed companies frequently cash in their stocks.

Also, because the circulation on the GEM is low, venture capital, private equity and other major shareholders are better able to manipulate share prices.

We can forsee such boards enduring erratic rises and falls in share prices that would go well beyond anything that takes place on the main boards. This would have a negative effect on the stability and health of any growth enterprise board.

Until recently, the A-share market has carried the burden of having a reputation for its “speculative cycle”, but now investors are also starting to worry that this phenomena might also emerge on the GEB.

Dealing with this problem will require a lot of ingenuity from the market and regulating bodies.

We think that the most important task for regulators is to devise methods to ensure the quality of companies listing on the GEB and to strengthen regulations managing the delisting process.

Among the regulations that have already been announced, we can already see that policymakers have drawn on the experience of other boards, however we still think they have some way to go in achieving this main task.

When we consider that this GEB, which has been mulled over for ten years, is about to come into existence, all the market players and government departments have plenty of ideas and expectations of how it will look.

How we can turn these hopes and dreams into reality will require more than good intentions, we need wisdom and to an even greater extent, we need courage.