OPINION

Free Pass, a Weal or a Woe?

Nationwide gridlock caused by the country's toll-free policy during the recent eight-day National Day holiday (September 30-October 7) aroused heated debate over highway fees. Should we continue a no-toll policy on holidays and charge tolls the rest of the year? Or, should we allow a free pass on regular days and charge fees on holidays to avert congestion?

Ever since the policy was released, I have been emphasizing that this shouldn't have been taken as a gesture to benefit the general public, but as a critical decision concerning nearly 100 million private cars and many highway companies. Such a vital decision should be made with more prudence. Otherwise, it cannot withstand scrutiny.

The gargantuan traffic congestion across the country on September 30 was partly caused by a higher-than-usual vehicle volume, as well as by the unreasonable practices of highway companies. For instance, cars that qualified for free passage had to first stop at a tollgate entrance to get an exemption card and then return the card at a tollgate when exiting. This practice slowed traffic flow and led to gridlock and didn't officially end until October 4. Worse still, local governments were ill prepared to deal with the congestion.

The toll-free policy during holidays also triggered public debate about China's highway companies. Some think that companies should raise toll fees during holiday periods to avoid congestion. However, highways are for many Chinese the only choice of travel because many local governments have largely ignored local roads in favor of more profitable highways.

The current road situation is the fault of a loan-dependent mindset. Cash-strained local governments adopted the practice of "using bank loans to construct roads and paying off debt with toll fees" when it first started large-scale infrastructure construction.

This practice made sense at first, but it turned roads—which should be used for the greater public good—into private property. Local governments and highway companies are eager to construct and expand highway projects because of massive profits, funneling money earmarked for local road construction toward highway construction.

Over 70 percent of highway construction investment comes from bank loans, and the total debt of highway companies is estimated at 3 trillion yuan ($476.4 billion). On the one hand, China's highways are the most expensive in the world to construct and highway companies reap a high profit margin. On the other hand, many highway companies have enormous debt due to their ongoing expansion plans. China's highway sector is mired in a dilemma where toll charges and troubling debt levels co-exist. This predicament is related to too little investment from public funds in road construction.

From my point of view, scrapping tolls nationwide is not a realistic solution because many highway operators are listed companies. A more feasible solution for now is to reduce toll fees on highways, extend the time period for toll charges and set a more reasonable profit margin for highway companies.

In the meantime, local governments should not only focus on profitable highways but also give ordinary roads their due. Only when toll fees are set at a more reasonable level and ordinary roads are in better shape can this issue over the nation's highways be resolved.

This is an edited excerpt of an article by Ma Guangyuan, a business commentator, published in the Economic Information Daily

THE MARKETS

Still Optimistic

U.S. companies continued to see strong growth and bulging profits in China in 2011, the U.S.-China Business Council, a leading bilateral business organization, said on October 10. The council is a private, nonpartisan and nonprofit organization of roughly 240 U.S. companies that do business in China.

"Two thirds of companies surveyed said revenue from their businesses in China grew by 10 percent or more in 2011. Seventy-five percent said profit margins from their China operations were the same as or better than their company's global margins," said John Frisbie, president of the council at the release of the 2012 China Business Environment Survey.

Nearly three quarters of respondents in the survey indicated that they expected their revenues in 2012 to increase.

"Despite market growth, company optimism is tempered by rising costs, domestic competition, and continuing regulatory and market access barriers," Frisbie added.

The council estimated China is a $250 billion market for American companies.

Designers' Night

Di Lusso Gaopin Impero (DGI), a leading force in China's high-end home furnishings sector, held a Designer's Night on September 28 at the 2012 Beijing Design Week. A dozen of world leading designers, political figures and business people showed up at the event to discuss the latest trends in home furnishing designs.

In a bid to introduce leading-edge styles in home furnishing in China, DGI has inked agreements with Italian brands, such as Poltrona Frau, Fendi Casa, ColomboStile and Capplinni, Cassina and the prestigious Italian designer Marco Piva, who designed the Porto Dubai.

The activity also marked the launching ceremony for a new 4,000-square-meter DGI exhibition hall, located nearby the CCTV building in Beijing.

NUMBERS

$6.56 billion

The transaction value of mergers and acquisitions (M&As) in the third quarter of 2012.

$1.44 billion

The transaction value of M&As in the real estate sector in the third quarter of 2012.

233

The number of M&A cases in the third quarter of 2012. Of the total, 22 Chinese companies completed overseas M&As, with a transaction value of $1.86 billion.