China Watch Blog

China Watch Blog has learnt that Oil painter Zhou Chunya tops the Hurun Art List with sales of his auctioned works hitting US$75 million in 2012, according to a report.
Zhou, 58, is the youngest artist ever to top the list compiled by Hurun Report Inc based in Shanghai.

Zhou Chunya, oil painter

The value of Zhou’s work has more than doubled from last year when he ranked eighth, according to the report, best known for its annual Hurun China Rich List.

As many as 222 of Zhou’s paintings were sold in 2012. The most expensive one was a 1994 piece with stones as its theme, which was auctioned for 29.9 million yuan, XInhua reported.

Oil Painter Zeng Fanzhi, 49, came in second with US$73 million in sales last year.
Renowned Chinese ink painter and calligrapher Fan Zeng, 75, took third place with US$69 million in sales at public auctions last year.

The total turnover of the top 100 list fell 21 percent from last year to US$1.2 billion. The threshold for artists making the top 100 fell 11 percent from last year to US$2.4 million.

The average age of the artists is 66, three years older than last year. The youngest is 37-year-old Chinese ink painter and calligrapher Ren Zhong, whose work ranked 51st with US$7 million in sales in 2012.

The list also includes six female artists, more than any previous year, including 91-year-old Chen Peiqiu who had an annual turnover of US$22.4 million last year and is ranked 11th.

China Watch Blog reports that Qantas and the NSW Government have announced a new $30 million partnership to promote Sydney and regional NSW to the world.

NSW Premier Barry O’Farrell and Qantas Group Chief Executive Officer Alan Joyce signed the three-year agreement at Qantas’ facilities at Sydney Airport, marking the largest tourism and major events marketing partnership in the State’s history.

Qantas

Premier O’Farrell said the deal involved Qantas matching the NSW Government dollar for dollar to attract more international visitors particularly from the United States, United Kingdom, Continental Europe, China, South-East Asia, Japan and New Zealand.

“Nothing says Australia more than the unmistakeable red tail with the flying kangaroo and the home of Qantas is right here in Sydney,” O’Farrell said.

“This partnership with Qantas is the cornerstone of our strategy to increase tourism to NSW, providing a boost to our economy and helping to create more jobs.

“We will be aggressively targeting big spending leisure and business travellers from overseas which will be a boon for our hotels, restaurants and retail sector.

“This will build on our standing as the nation’s leader for international visitation and expenditure and the preferred destination for key emerging markets.

“We understand the importance of tourism to the State’s economy – that’s why we’re building a new convention and entertainment precinct at Darling Harbour and investing in partnerships like this with iconic brands like Qantas.”

Joyce said the time was right to elevate the partnership between Qantas and Destination NSW to a higher level.

“Qantas is Australia’s national airline, flying from Sydney to every continent on earth and to every corner of Australia,” Joyce said.

“Sydney is the gateway to Australia with more than 50 per cent of all international visitors to Australia arriving at Sydney Airport so it’s fitting this is the largest partnership we have ever entered into with a State Government.

“We have seen a fantastic and tangible response to work we have done with Destination NSW in the past and we think working more closely will result in more people visiting NSW and flying Qantas.”

The partnership – which sees both the NSW Government and Qantas invest $15 million each over the three years – will include international advertising and marketing campaigns, marketing activities around major events and joint public relations activities. There will be a strong focus on digital
platforms including online and social media.

China Watch Blog reports that a woman flaunted a wad of renminbi notes to show her wealth, after her request to buy a grave for her dog was rejected by a cemetery.

“I have money!! If you think it is not enough, I can pay you more. It’s really simple, all I want to do is buy a grave in your cemetery for my dog,” a rich woman was quoted as saying to the principal of Ningbo’s Jiufeng Cemetery on March 18 by a Ningbo website.

According to reports, the lady, surnamed Li, went to the cemetery in her BMW. After her request to buy a grave in the cemetery for her pet dog was turned down by Mr. Wang, the principal of the Jiufeng Cemetery, she angrily threw a large sum of money on the desk.

“It is not just a matter of money. The cemetery was built to benefit people and your pet dog should be buried or cremated in strict accordance with the Animal Epidemic Prevention Law.” Mr. Wang explained patiently.

According to relevant departments, the Ministry of Civil Affairs has emphasized the strengthening of the public cemetery construction management to protect and improve the meeting of the basic requirements. Mr. Wang won the praise of his leaders rather than their criticism after the incident.

China Watch Blog has learnt that under new taxation changes, foreigners in China will no longer enjoy exemptions from various investment taxes.

The State Council unveiled sweeping tax reform plans Tuesday to make the rich pay more and narrow the income gap between urban elites and the rural poor.

Included in the plans is a measure to cancel tax exemptions for foreign individuals who obtain dividends and bonuses from foreign-invested enterprises, according to a report in Caixin.

A tax rate of 20 percent currently applies to dividends and bonuses, according to China’s existing personal income tax law.

The Ministry of Finance and State Administration of Taxation will begin making changes and modifications to relevant tax laws and regulations.

Chinese tax lawyer Liu Tianyong told Caixin that the abolition of tax benefits would be beneficial for anti-avoidance investigations and the fight against international tax avoidance.

“It was an outdated policy conceived during the period of planned economy. It should have been abolished a long time ago,” Liu said. “Tax breaks are especially unwise given that many foreign investors in China shift profits overseas. The new plan is more fair, as it ensures equal treatment of national and foreign investors.”

During its early period of economic reform and liberalization, China adopted tax incentives and special treatment to foreign enterprises and individuals to attract overseas investment. Since 2003, the government began to standardize taxation laws, especially in regard to foreign investors.

China Watch Blog has learnt that at 10:26 a.m. on December 4, an office apartment put up for online auction by the Ningbo Beilun Court was successfully sold – the first real estate property to be sold in an online auction by the court in Ningbo.

The office apartment is located at the centre of Jiangdong district, and covers a total area of 82.3 square meters. The starting price for the apartments was 644,000 yuan, with potential buyers paying 80,000 yuan in advance.

In 2011 the original owner of the apartment, surnamed Zhu, signed an equity transfer agreement with another man, surnamed Fu. However, Fu was later taken to court as he failed to pay off the equity transfer money to Zhu. Zhu won the court appeal and Fu was ordered to pay 2.8 million yuan to Zhu. Due to financial difficulties, the office apartment under the name of Fu was confiscated by the court.

The Beilun Court published notices about the online auction on Taobao.com, a Chinese online market, and circulated it within the media on 12th November. Phone calls soon flooded in and some potential buyers even went to check out the apartment.

The online auction officially began at 10:00 a.m. on 3rd December, and soon attracted more than 60,000 netizens. After 16 bids a local buyer won the lot and bought the apartment for 690,000 yuan.

China Watch Blog picked up this interesting article from Star Online quoting an international financial expert, Satyajit Das, who contends that the debt- fueled boom and “botox economics” of the past have come to a halt to make way for what will be, at least until global debt levels come down, a bleak future.

Gold, not a solution during difficult economic times

“The most difficult period will be the time it takes to wipe out the debt,” he said last week at a talk organised by the Malaysian Investment Banking Association. Das has over 30 years experience in capital markets and risk management and is now a consultant to banks, corporations and regulators.

In a sobering assessment of the health of the world economy, he likened the various pump-priming actions by governments and central banks to driving with the handbrake on.

From the current malaise, he sees three possible outcomes: a 75% chance of stagnation, 20% of a collapse, and 5% of belle epoque.

For the man on the street, he has this advice: “First I would pray. People asked me what I would buy in 2008. I said foodstuff, energy, and a gun to protect you. The world is going to look a very ugly place.”

Das, a former banker who published a book in 2006 anticipating the credit crash, thinks that in the future the top 10% of the population will rule the world and hire 20%, leaving 70% with nothing.

“You already see this with security and gated communities becoming more prevalent. I’ll be dead, thank god,” he laughed.

On what the ordinary person should do to protect his wealth, he said: “You need a trading mentality and to look very carefully at what other people are doing.

“My investment strategy now is very simply summed up. I don’t bother asking questions about fundamentals. What are other people thinking and doing?”

Das also dismissed the long-held notion that gold was a refuge in times of trouble.

“I don’t understand gold, it is an irrational asset. My mother, who is Indian, would buy gold whether it is valued at US$20, US$200 or US$2,000. It doesn’t make any difference to her because people have an innate desire to own gold.

“In my mind there is no difference between gold and paper currency. You still rely on someone to give you something in return it is a different act of faith. Gold is not a good investment after adjusting for inflation, but it can be a short-term tactical asset.”

Asked about Malaysia, Das said that as the global economy waned, the question was not whether the country would be affected but rather to what degree.

“Malaysia has natural resources. You have things people need, at least in the near term.

“But a lot of the growth is dependent on government spending. There is a need to get away from investment-driven growth.”

On Asean, he remarked that the 10-nation region was to an extent “trapped in the China story” as its suppliers and exporters, especially in the case of Singapore and Hong Kong which are trade-dependent economies.

However, Das pointed out that the world was not at the end of growth per se, just the end of “financially-engineered” growth.

“Real growth stems from a few things: population growth, productivity and innovation, and new markets.

“But they are limited. Besides North Korea, I can’t see any other country that has not been integrated into the global economy, unless the Martians start to trade with us,” he joked.

“The point is all those things will not bring us back to the growth of the past. We are in for a very long period of adjustment. To some extent we are going backwards.

“We are going to see not a great deal of forward progress, but a return to a more sustainable economy. That will be a long process.”

China Watch Blog has learnt that Hong Kong experienced a 23% decrease in the number of financial services job opportunities in Q3 of 2012 compared to Q3 of 2011.

According to the latest quarterly Job Barometer from eFinancialCareers, a leading global career site network for professionals working in the investment banking, asset management and securities industries, the overall APAC region experienced a less dramatic decline (-16%) over the period with average job postings decreasing from 2,876 in Q3 of 2011 to 2,408 in Q3 of 2012. Singapore and Australia recorded decreases of -5% and -34% respectively.

Despite the slowdown, churn and a small amount of conservative expansion has kept the job market afloat in the last quarter. Comparing Q3 of 2012 with Q2 of 2012, APAC job opportunities fell only slightly (-2%). Singapore was the only market registering growth, with a modest 1% increase over the period. In comparison, job opportunities in Hong Kong and Australia decreased by 5% and 6% respectively.

“The last 12 months have taught us that even with the support of China as a major growth engine, Hong Kong is not immune to the redundancies that have swept through global financial services,” said George McFerran, Managing Director, Asia Pacific, eFinancialCareers. “With a slowdown in economic growth and a transition of political leadership expected for Mainland China, Hong Kong firms are taking a conservative approach to hiring with a focus on highly specialized positions in growth sectors such as capital markets, insurance and risk management.”

Asia Pacific Top Performing Sectors in Q3

Capital markets, insurance and risk management were the top performing sectors in the regions, with quarter-on-quarter growth of 30%, 23% and 19% respectively.

Capital markets – Capital markets saw quarter-on-quarter growth across APAC of 30%, with ongoing demand happening outside the front office – in risk, compliance, quantitative analytics and IT.

Insurance – The insurance sector remains a bright spot of hiring driven largely by growth recruitment, especially for labor-intensive agent, claims and underwriting positions. Recruitment plans for large insurance companies are ambitious in a region where growing prosperity is resulting in an expanding demand for insurance products. Recent natural disasters in the APAC region over the last two years have also reinforced the need for insurance professionals.

Risk management – As banks continue to come under scrutiny from shareholders and regulators, the operational risk job function is broadening in scope and job specifications are becoming more vigorous. Local talent shortages and internationally transferable skills mean overseas-based candidates are sometimes hired for these roles. Liquidity risk professionals are also in demand as banks strive to meet Basel III milestones and come under pressure from ratings agencies.

China Watch Blog has learnt that due diligence of Mergers & Acquisitions (M&As) do not focus enough on post deal integration to be able to fully tap full potential of such deals, according to a new worldwide study by global law firm Eversheds, whose deals are more than 75% involving cross border.

Little or no focus beyond the deal transaction to post-integration is compromising the benefits and value of cross-border M&A, and internal processes are as much to blame as external factors, the report says.

Global businesses are not realising the full potential of cross-border mergers and acquisitions (M&A) as a means of driving growth due to weaknesses in the deal process, the new global study, The M&A Blueprint: Inception to Integration , published by Eversheds, shows that deal teams need a more holistic approach and stronger connections between the planning, completion and post-deal integration phases.

The study involved more than 400 multi-national businesses who have worked on cross-border M&A deals in the past three years. It shows that nearly half (43%) of businesses believe that the most common cause for deals not successfully achieving their goals is due to a failure to address post deal integration from the early stages of deal due diligence.

The report also shows that legal risk is an increasingly important consideration in the assessment of potential deals. General Counsel provide essential input at this stage and more than half (59%) of all respondents said they had spotted potentially damaging issues early enough to caution management about proceeding with the deal.

The research highlights that less experienced buyers are finding the process challenging but even those with a wealth of knowledge believe that there are improvements to be made.

Robin Johnson , M&A partner at Eversheds , said: “The current economic climate has made the business of doing deals much tougher, with the research highlighting an acute awareness of risk in the process. However, company boards are under pressure to secure growth and M&A is an essential business tool for achieving this, in particular for organisations thinking about tapping into or increasing their penetration in new international markets.
“Our research shows that the overriding factor contributing to the success of a cross-border deal , is the presence of a core team providing the ‘connective tissue’ to link all the phases together , taking the deal from the inception stage through to post-completion integration. Businesses need to start joining the dots between the different stages of the deal cycle to move the focus from just simply ‘doing the deal’ to thinking about life for the business beyond the deal.

China Watch Blog reports that Hutchison’s comments to the Commission’s Statement of Objections on Sept 21.

“Instead of opposing the merger of the two smallest operators in Austria, the Commission should allow it to proceed and facilitate the entry of new, competitive MVNO players in the Austrian market”. Canning Fok, Group Managing Director, Hutchison Whampoa Limited

As anticipated last week, the Commission has now issued a Statement of Objections with respect to H3G’s acquisition of Orange Austria. We are analysing the Statement and will be responding to the Commission’s objections.

In our view, the approach taken by the Commission in this case is wrong and fails to sufficiently reflect the market realities in Austria.

The Commission’s assumption that a reduction in the number of operators in Austria from 4 to 3 will materially reduce competition is ill-founded. H3G has every incentive to continue to compete aggressively as the unquestioned challenger in the market, as it has since launching its business in Austria and elsewhere in Europe.

While we understand that the Commission may have serious concerns about the reduction from 4 to 3 operators in much larger markets such as Germany, Spain or the UK, it is wrong to apply this logic in a much smaller market such as Austria. With a population of 8 million people, scale and satisfactory returns on network investments are difficult to achieve, particularly for a new entrant challenger such as H3G.

It is also unprecedented to engage in a Phase 2 extensive scrutiny of a merger involving the two smallest operators in a market with a combined market share of only 22%.

Post-merger, we are aiming to achieve a market share of 30% by 2015. The merger will give H3G the means and scale it needs to compete against the two dominant incumbent operators who hold a combined 78% of the market.

It has taken H3G more than 10 years to reach a market share of 10%. Absent the merger, our 30% market share target will be a distant goal. With the merger, we can accelerate our business plan with early LTE roll-out, the offer of new products and technology and aggressive pricing.

The merger will therefore benefit consumers with a combined entity better able to mount a more effective competitive challenge against the incumbents. It will also ensure the investment needed to guarantee early LTE roll-out, better network coverage, higher speeds and less network congestion.

The Commission’s preliminary conclusion that this merger will reduce competition ignores these obvious pro-competitive effects and is wrong. Rather, the merger will ensure sustainable competition in Austria for the longer term.

The Commission has recently said that consolidation in the telecoms field can be beneficial if it increases efficiency, emphasizing cross-border consolidation. It is wrong, however, to assume that only cross-border consolidation can achieve efficiencies.

It is widely recognised that the main source of efficiencies is the in-country consolidation of operations, including network, sales, marketing and administrative functions. The combination of H3G and Orange does exactly that.

H3G’s offer of remedies: In an effort to achieve a speedy approval of the merger (and despite our view that the merger results in compelling pro-competitive effects), we have engaged in detailed remedy discussions with the Commission. As previously indicated, we made a very favourable and comprehensive MVNO access offer to all comers that will introduce new and effective competition in the Austrian market. The terms we have offered are extremely attractive and unmatched in Europe and will ensure that Austrian consumers benefit from a choice of new and competitive mobile services in all segments of the market (voice, data, prepaid and postpaid).

Our offer has already been endorsed by two substantial market players, and we are in active discussions with a number of others.

Instead of opposing the merger of the two smallest operators in Austria on the basis of its 4 to 3 concerns, the Commission should allow it to proceed and facilitate the entry of new, competitive MVNO players in the Austrian market. Our MVNO offer creates the favourable conditions for that to happen. This, rather than a rejection of the merger, will ensure a pro-competitive outcome for Austria.

The Commission should also take into account, and be concerned with, H3G’s own ability to compete post-merger. The intensity and effectiveness of our continuing competitive challenge will depend largely on the means at H3G’s disposal to continue to drive the market with a better network and attractive pricing. Additional structural remedies or economic commitments imposed on H3G by the Commission mean adding adverse economic burdens on H3G, the smallest player in the market. That will only undermine H3G’s ability to be an effective competitor, to the detriment of Austrian consumers and the Austrian economy.

We will detail these and other points in our response to the Commission’s Statement of Objections and are hopeful that we can convince the Commission of the pro-competitive benefits of the proposed merger. We will continue to work with the Commission in order to achieve a positive outcome, Hutchison Whampoa’s statement said.

China Watch Blog reports that evidence shows that the current model effectively promotes Internet growth and access in developing countries, and argues that any fundamental regulatory overhaul could halt such growth and find users cut off.

A new report released by Analysys Mason, global telecoms, media and technology (TMT) specialists, finds that recent proposals to regulate the global Internet will harm growth and innovation worldwide.

After assessing the current state of the Internet in under-served and developing regions worldwide, the report provides recommendations for governments on developing a robust Internet ecosystem without imposing any form of rate regimes on the modern Internet.

The report, ‘Internet global growth: lessons for the future’, authored by Michael Kende, co-head of Regulation at Analysys Mason, examines the impact of proposals that seek to apply the antiquated settlement system for terminating international voice calls over the legacy telecommunications network to Internet traffic.

The proposals addressed in the paper are to the International Telecommunications Regulations (ITRs), which are being readied for the World Conference on International Telecommunications (WCIT) to be held in Dubai this December by the United Nations’ International Telecommunication Union (ITU).

In the report, Kende assesses the proposals by focusing on the following areas:
• the success and growth of the Internet under the current model
• the negative impact of applying rate models developed for an obsolete telecoms system to the modern Internet

Kende concludes with recommendations for governments in developing countries on fostering a robust Internet while avoiding rate regulations.

The report highlights the Internet as a driver for growth and opportunity, noting its increasingly central role to consumers, businesses and governments alike.

Kende argues that the Internet has successfully evolved based on commercial considerations as opposed to regulatory dictates, noting that: “Content has transformed from largely text-based to multimedia delivery, global demand and usage has exploded, and access has moved toward wireless over wired.

“Significant investments must continue to occur in response to these patterns, as current projections show that the number of Internet users worldwide will increase from 2.2 billion today to 3.5 billion in 2020”.

The report confirms the continuing increase in Internet deployment using mobile broadband throughout the entire world, especially in Africa, Asia and Latin America, and that such investments are best achieved without internationally sanctioned regulatory intervention.

Multimedia content requires high bandwidth and can be expensive to deliver, but it is estimated that up to 98% of Internet traffic now consists of content that can be stored on servers, such as streaming video or web pages. These servers can be located in multiple locations around the world, and then delivered to users faster and at lower cost.

The result is a shift in usage patterns and global Internet traffic flows. For example, 70% of international Internet bandwidth originating in Africa went to the USA in 1999, but by 2011 this figure had plunged to less than 5% as bandwidth shifted to Europe. Now, content is increasingly being stored on servers in Africa, where it can be accessed domestically or regionally.

These changes in content flows highlight significant differences between the Internet and traditional telecoms as it existed when the ITR treaty was last updated in 1988. Applying unwarranted static voice regulations to the dynamic Internet would negatively impact users across the globe and slow or reverse current growth trends.

Furthermore, the rate regime system would be difficult to design and expensive to implement, and even then would increase the cost of content delivery and hinder network investment at the expense of end users.

Lastly, the report offers recommendations for governments in developing countries on cultivating a robust Internet ecosystem without imposing any form of accounting rates on the Internet. Specific suggestions include removing roadblocks to investment while stimulating demand, as well as full liberalisation of the sector while removing barriers to foreign investment and ownership.
“Spurring access and adoption of the Internet has the ability to transform and improve entire economies, and no one stands to gain more than those in developing nations,” added Kende. “Applying a settlement regime as some countries are proposing is a solution in search of a problem, which would ultimately slow Internet penetration and the availability of content.”