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Print Edition> Business
UPDATED: October 19, 2012 NO. 43 OCTOBER 25, 2012
MARKET WATCH NO. 43, 2012
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OPINION

Less Intervention, More Productivity

On October 10, the State Council released a statement on its website announcing it would delete or modify 314 requirements in order to remove obstacles for the country's social and economic development and curb corruption.

This round of reductions was the sixth of its kind since reform of the administrative approval system kicked off in 2001.

Figures from the State Council show that a total of 2,374 administrative approval items have been rescinded or adjusted since 2002, marking significant progress in the reform effort.

According to the statement, the reductions mainly focus on three fields: first, cleaning up approval procedures for investment, especially investment in the real economy, small and micro-sized enterprises and private investment; second, intensifying efforts in reducing and modifying the approval procedures of social projects, such as education, medical care, culture events and public services; and third, canceling items that shouldn't have been included in the administrative examination and approval system.

The most appealing highlights in the statement are as follows: Governments should refrain from projects that citizens, corporations or other organizations can handle independently. It should also refrain from interfering in matters that market competition can effectively sort out or industrial groups and agencies can manage.

In the statement, the State Council hailed the administrative approval reform for forcefully pushing forward the transformation of government functions, strengthening the market allocation of resources and boosting lawful administration.

The reform is also seen as an effective measure for improving the government's efficiency and fighting corruption. It should be combined with other reforms concerning investment, financing, taxation and administrative management in order to better organize relations between the government, enterprises and individuals.

Without a doubt, the move, if successfully implemented, will be a huge benefit to the Chinese market because it shows the government is willing to step aside to let the market function freely. It's the right time for the State Council to clean up its administrative approval system.

Right now, China's economic development is at a crossroads. The demographic dividend, which led to fast development during the past decade, is coming to an end. Previous development models have proven to be unsustainable and a new growth momentum is badly needed. Since the beginning of 2012, a slowing economy has shown that the dilemma faced by Chinese companies is caused not just by changes in economic cycles, but also an insufficient market-based mechanism and excessive government intervention.

The over-regulated administrative approval system has taken the steam out of the market. In light of this, the Chinese Government made corresponding changes to better spur the economy. The move is bound to boost productivity in a slowing economy.

Whether the ambitious reform can come to fruition mainly depends on government's ability to hand over power. Implementing reforms in China is often like taking two steps forward and one step back.

However, judging from the current economic and social reality, this can't happen. Reforms are needed to keep up with economic and social demands. Reforms on state-owned enterprises and the government are the hardest. We should nonetheless push forward those reforms because we are at the point of no return.

This is an edited excerpt of a report by Anbound, a Beijing-based research company, published on the website of Caijing magazine 

THE MARKETS

Seeking Nasdaq Listing

YY Inc., which runs a Chinese online games portal, plans to launch a Nasdaq initial public offering (IPO) to raise up to $100 million, according to a filing it sent to the U.S. Securities and Exchange Commission on October 15.

The company is one of few that are trying to go public amid the weak global economic climate and shrinking interest among investors in Chinese stocks, which are suffering from a poor image due to recent fraud scandals.

YY Inc., which operates online games portal Duowan.com and audio chat software YY Client, said in the filing that its net revenue increased from 32.7 million yuan ($5.22 million) in 2009 to 319.7 million yuan ($51.06 million) in 2011.

It made profits in the three quarters ending on June 30, with its net profit going from 4 million yuan ($638,800) in the fourth quarter of last year to 17.3 million yuan ($2.76 million) in the second quarter of this year, it said.

Its YY software, which had 400 million registered users by September, had 84.2 percent of the online group audio chatting market, according to figures provided by the domestic research company iResearch.

Forging Partnership

A Hong Kong-listed subsidiary of China Petrochemical Corp., or Sinopec Group, agreed to buy a 50-percent stake in a European liquid bulk storage and terminal operator on October 15.

Sinopec's subsidiary will form a new international joint venture in liquid bulk storage with Vesta Terminals BV, a wholly owned asset of Mercuria Energy Group Ltd., according to a statement released by Mercuria.

Vesta Terminals is an independent liquid bulk storage operator with about 1.6 million cubic meters of petroleum products and biofuels capacity at three terminals in the Netherlands, Estonia and Belgium.

NUMBERS

$1.08 billion

The capital raised in the initial public offerings (IPOs) of 12 Chinese companies in September

5

The number of Chinese companies that completed their IPOs on ChiNext, the country's growth enterprise board at the Shenzhen Stock Exchange, in September. They raised $306.99 million from the capital market.

3

The number of IPOs in the machinery manufacturing sector in September, the most among all sectors

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