NEWS BRIEFS

MIIT： China encourages private and foreign capital into Internet of Things

Chinas Ministry of Industry and Information Technologies （MIIT） published the 12th Five-Year Plan of Internet of Things at the beginning of July， stating that China needed to finish the initial construction of industrial frame for the Internet of Things in 2015.

The plan formed security measures for five aspects of the developing Internet of Things. Apart from spending more money on this project， the MIIT also encouraged foreign and private investors to get into this field， the first time ever.

The plan required building and improving the coordinated working system to enhance the cooperation among departments and exemplify the applications of Internet of Things in key fields. The key problems in technological development， standard formation， industrial progress and safety security in the development of Internet of Things should be solved.

The plan also requires increasing the funds for the development of Internet of Things， and encourages private and foreign investment into that field to supplement national force. The safe production， transportation， agriculture and forestry are established as the first sectors where Internet of Things is to be massively used， hoping to set up good examples for the other industrial sectors.

In addition， the plan also promises favorable tax policies for enterprises involved in Internet of Things. It will also boost Chinese companies to work with foreigners and encourages foreign enterprises and laboratories to set up R&D facilities in China.

EU banks become of age – a global pioneer model？

On 27 June 2013， EU finance ministers brought their late-night talks to a successful end. A whole new regulation was agreed upon， according to which taxpayers savings will be protected from liability in case of a banks failure.

When the financial crisis spread to the EU in 2008， the method， or unmethod， with which banks struggles were addressed caused public outrage. A number of states found themselves utterly clueless on how to protect both the stability of their financial communi- ty and their citizens financial property. Consequently， taxpayers were forced to shoulder their banks illiquidity and even smallest life savings were affected.

With the new legislation agreed upon as part of the EU summit in Brussels/Luxembourg， this is about to change. After its implementation， taxpayers will only be reverted to as a very last resort. Shareholders and certain bondholders will be ranked first in the pecking order of liability for the banks debts. Furthermore， the states will establish winding-up funds into which the banks will have to deposit assets to prepare for a possible failure scenario. The first item on the pecking-order list will have to cover 8% of the banks liability while the second item will cover another 5%. This is creating a buffer shield over savers property. The finance ministers explicitly stated that special protection will be given to assets smaller than 100，000 Euro.

Now what will this mean on a broader basis？ On the linguistic level，“bail-outs” （recovery missions through public funds， i.e. taxpayers） will be replaced with “bail-ins”， a term describing the fact that losses will be shouldered by the bank itself and its stakeholders. The responsibility is hence shifting from government and public to the finance sector. Indeed， the Dutch Finance Minister stated that from now on， the financial sector will be “dealing with its own problems”. The legislation will break the vicious link between troubled banks and indebted governments， and “father state” will no longer have to literally pay for its undue “children”， the banks.

However， while between 2008 and 2011， already an equivalent of one third of the EUs economic output was poured into save-the-banks-missions， it will be much more before the comingof-age of the finance sector. For some issues are still unresolved， such as who will decide when it is time for a bank to restructure or shut down； and said agreement will also have to be negotiated with the European Parliament， which could drag on until the end of 2013. Even so， the legislation will not come into effect until 2018， and as if this werent enough， the building-up of those bank-financed funds which are supposed to buffer a banks failure will take at least 10 years. So even though what the European Finance Ministers agreed upon is an important step towards more financial security， towards preventing another year like 2008， it looks like for now， European banks are still deeply stuck in puberty.

Foreign banks allowed to set up wholly-funded branches in the Shanghai Free Trade Zone

The Chinese government has already turned on the green light for foreign banks to set up wholly-funded branches in the new pilot free trade zone in Shanghai. The change is to further promote the opening-up of the financial service of China.

Apart from being allowed to set up wholly-funded branches in the free trade zone， foreign banks are also granted with the permission to set up jointinvested banks with Chinese local banks and own the majority of stakes.

A source close to the State Council of China said that Chinese Premier Li Keqiang is very active in promoting the opening-up of the financial industry. China has made up its mind to intensify the competition in the Chinese banking industry by opening more fields to foreign banks.

The source also said that the Chinese government is to encourage private companies and foreign enterprises to set up cooperative service companies in the free trade zone， such as accounting firms and rating agencies.

Whether Shanghai can become an international financial center is partially related with whether foreign banks can freely set up branches in this city and get into the market. They are allowed to provide the liquidation services of financial trade， which is good for the internationalization of RMB and might become another competitive advantage of Shanghai， especially when the central government still has doubts about Hong Kongs role as the RMB offshore center.

Generally， a foreign bank should first set up a representative office in a city or area and run the office for two consecutive years without any malpractices. Then it can submit the applications of upgrading the office into a branch to the China Banking Regulatory Commission. However， if they want to set up wholly-funded branches， the application needs to be reviewed by the regulatory and taxation departments， which could cost a long time.

Starbucks China： reaching for the stars

The biggest and probably most favoured coffeehouse company in the world is aiming high for its Chinese branch. It is planning to almost double the number of stores by 2015 to a total of 1500 locations. This year alone， Starbucks is planning to open an additional 600 stores in the Asia/ Pacific region.

Starbucks is a success story， but not the most usual one： for ten years， it was sitting in Seattle （U.S.）， as a single specialised store， with next-tono publicity. Its beauty sleep was over when Howard Schultz， todays CEO， stepped over the threshold in the early 1980ties. Fascinated by the atmosphere in Italian coffeehouses， Schultz acquired Starbucks to turn it into an original coffeehouse； indeed， an allnew format for America. Since then， Starbucks stood out with a number of innovative approaches such as inventing the Frappuccino， their customer platform “My Starbucks Idea”， or joining the stock market. After 1996， when its first store outside North America opened， Starbucks started to grow exponentially， especially by gaining popularity amongst the younger generations. Nowadays， a major city without at least one Starbucks store is a rarity. Seeing Starbucks success spreading over five continents （although Africa is mainly on the production end）， its ambitious plans for 2013 do not come as a surprise.

Asia is certainly an important leg for the Starbucks brand. The aforementioned first store-opening outside America was in Japan； and it seems to be easy for the coffeehouse to adapt to Asian standards with drinks such as the Asian Dolce Latte or the Green Tea and Red Beans Frappuccino.

However， Starbucks story in China is not without setbacks. Recently， the brand was involved in a case of public outrage， when it was discovered that a Hong Kong store was using toilet water to brew their coffees. But apparently， Starbucks is big enough to“afford” such scandalous behaviour， seeing as it is， on average， opening two new stores per day. On the other hand， a recent discussion sparked by the shutting of Starbucks at Beijings China World Shopping Mall， the first store to open in China， awoke questions as to whether or not the brand can afford sky-rocketing rents in major cities. But after all， the very first Starbucks coffeehouse in Seattle also relocated after a few years， and its subsequent rise remains unquestioned.

China to restart sovereign debt futures trade with foreign banks

The latest round of China-US Strategic and Economical Summit released important news that China is going to allow qualified foreign banks to conduct the futures trade of sovereign debts.

The Chinese government used“encouragement” and “welcome” for foreign investors， stating that qualified foreign investment institutions can work for non-financial companies in China as the fundraising tool to release their debt stress.

Influenced by the bear market， the trade of sovereign debt futures was stopped 18 years ago. Presently， the Chinese company is planning to reinitiate the trade. The Chinese Securities Regulatory Commission has already published the guideline for securities companiesand funds participation into the trade of sovereign debt futures. There are no rules for banks to join in the trade of sovereign debt futures.

Ups and downs for SOEsprofits in H1

The Ministry of Finance （MOF） published the data on July 16， showing that the state-owned enterprises （SOEs） realized the total profits of RMB 1112.96 billion in the first six months of 2013， up 7% over the same period a year before.

MOF said that the increase mainly came from central SOEs while the profits earned by local SOEs actually continued to drop.

The growth rate of SOEs profits in the first six months is higher than the figure in the first five months， but it was still lower than the first three months. Wang Jun， Deputy Director of the Consultancy & Research Department at China International Economic Exchange Center， said that the slower growth compared with the beginning of this year was a result of the whole economic situation in the country. The slowdown in economic growth， the decreasing PPI and the increasing HR and material cost all took tolls on the profits of enterprises.

The data shows that the total revenue of SOEs in the first half of 2013 amounted to RMB 21950.49 billion， up 10.7%， but the cost had a 11.2% yearon-year growth.

As for the regional distribution of SOEs profits， central SOEs earned the profits of RMB 805.71 billion， up 15.6% while the local SOEs profits decreased by 10.6% to RMB 307.25 billion.

In Wang Juns opinion， the gap between profits of central SOEs and local SOEs reflected the problem in economic structure. When the economic development slowed down， it is hard for smaller enterprises to earn profits. Meanwhile， central SOEs， working as the pillar to Chinas economy， can get more capital and policy support than local SOEs.