Intellectual Property Rights
In early June, a Beijing court reversed the decision of the PRC State Intellectual Property Office (SIPO) to invalidate Pfizer Inc.'s patent for sildenafil citrate, the active ingredient in the impotence drug Viagra. In July 2004, SIPO overturned Pfizer's patent after several Chinese drugmakers filed a patent challenge.
China's software piracy rate dropped four percentage points to 86 percent in 2005, said the Business Software Alliance (BSA) in late May. Losses from software piracy in China amounted to $3.9 billion in 2005. Though the United States had the lowest piracy rate among the countries that BSA studied—at 21 percent—it incurred the highest losses—$6.9 billion.
To help counter the use of illegitimate software, three leading personal computer (PC) manufacturers in China agreed in April to pre-install Microsoft Corp. software in the PCs they produce. Lenovo Group said it intends to acquire licenses for Microsoft software worth $1.2 billion within the next 12 months, while Tsinghua Tongfang Co. Ltd. and TCL Corp. said they plan to purchase Microsoft licenses worth $120 million and $60 million, respectively, over the next three years.
Regional News
The PRC State Council approved Tianjin's plans to set up the Binhai New Area development zone. Covering roughly 2,300 km2, the zone is expected to help spur the development of not only Tianjin, but also nearby Beijing and Hebei. The State Council indicated that the zone will be a major hub for manufacturing, research and development, and shipping and logistics. It will also serve as the venue for pilot reforms on tax, foreign exchange, venture capital, and other policies.
The Beijing Municipal People's Congress in mid-June formally dismissed Liu Zhihua as vice mayor of Beijing citing "his corrupt and degenerate ways." Liu previously headed the Beijing municipal government's commission on Olympics-related construction.
US-China Relations
PRC President Hu Jintao made his much-anticipated visit to the United States in late April. Though his discussions with US President George W. Bush resulted in no immediate policy breakthroughs, both sides reaffirmed the importance of the bilateral relationship and renewed their commitment to further dialogues and exchanges.
The US-China Business Council (publisher of the CBR) co-hosted a dinner in Washington, DC, in honor of the PRC president (see USCBC Bulletin).
Following Hu's visit, the Bush administration released reports on worldwide intellectual property rights (IPR) protection and international exchange rates policies. For the second year in a row, China made it onto the Priority Watch List of countries whose IPR violations warrant close monitoring. Meanwhile, the US Department of the Treasury criticized China's exchange rate policy but refrained once again from citing China as a "currency manipulator."
The US Department of Defense issued its annual report on China's military in late May. The report notes that PRC leaders have not clearly explained the intentions behind their military modernization efforts and that this lack of transparency will inevitably lead other countries to hedge against China. Echoing a September 2005 speech by former US Deputy Secretary of State Robert Zoellick, the report urged China to participate in the global community as a "responsible international stakeholder."
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Environmental Protection
The PRC State Council in early June issued China's second white paper on environmental protection. Though the 45-page document argues that government efforts over the past decade have slowed the pace of environmental pollution, it also notes that the central leadership is "fully aware of the grave situation."
In late May, General Electric Co. (GE) signed a memorandum of understanding with the PRC National Development and Reform Commission (NDRC) under which GE will provide cleaner-coal and wind-energy-optimization technologies to China. GE also plans to invest up to $50 million in environment-related research and development over the next five years.
Legal Issues
The PRC State Administration of Industry and Commerce (SAIC) released in May an opinion confirming that it is no longer issuing new licenses or renewing current licenses for the liaison offices of foreign-invested enterprises. Although SAIC subsequently clarified that liaison offices may operate after they are deregistered as long as they do not engage in "business activities," it did not define "business activities."
As the CBR went to press, the PRC State Council approved a draft of the Antimonopoly Law, which has been in the works since 1994. Some observers have suggested that Beijing could use the law to curb the expansion of multinational companies in China.
Culture & Society
Huachen Auction Co. canceled in early June the planned auction of a historic portrait of Mao Zedong, which had served as a model for the large painting of Mao overlooking Tiananmen Square. The owner of the portrait, who is Chinese-American, reportedly withdrew it from the planned auction after the government intervened, ironically, because of concerns that the portrait might be bought by a foreigner.
Media, Publishing & Entertainment
In a surprising move, China Central Television (CCTV) in early June replaced the staid, middle-aged anchors that have long defined its 7 pm evening news. The new anchors' youthful smiles and trendy hairstyles and clothes contrasted sharply with the dull appearance and monotone delivery of the previous anchors. Observers note that CCTV likely switched the anchors to boost the popularity of its news broadcast but that other changes are also needed to lure viewers back to CCTV news over the long term. In a Sina.com.cn online poll, about 11,000 respondents said that they prefer the new anchors, while only about 550 favor the old ones.
The PRC government pulled the Hollywood movie "The Da Vinci Code" from theaters after a two-week run that earned ¥104 million ($13.0 million). Observers speculate that the religious controversy surrounding the movie and the government's desire to promote domestic films led to the decision. An official at the State Administration of Radio, Television, and Film declined to specify the reasons for the ban, however.
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Banking & Finance
In May, the China Securities Regulatory Commission (CSRC) lifted the ban on initial public offerings (IPOs). The ban was adopted in 2005 as listed companies were converting their nontradable state-owned shares. Under CSRC regulations, firms seeking to sell shares publicly must have earned net profits of at least ¥30 million ($3.8 million) on revenue of at least ¥300 million ($37.5 million) over a period of three consecutive years.
The Bank of China's (BOC) IPO, the world's largest IPO in six years, raised more than $9.7 billion, and BOC shares rose 15 percent on their first day of trading on the Hong Kong Stock Exchange in early June. As the CBR went to press, BOC, the second of China's Big Four state-owned banks to have gone public, had also won approval to list on the Shanghai Stock Exchange.
The four leading international accounting firms expect to expand their China staffs significantly in the near future. According to press reports, PricewaterhouseCoopers International Ltd. plans to add 2,050-2,250 employees to its current roster of 6,450 in Hong Kong and China by the middle of next year. Deloitte Touche Tohmatsu plans to hire 1,000 new staff this year, with the eventual goal of doubling its headcount by 2009 to 6,400. KPMG International and Ernst & Young International expect to add 1,300 and 800 new hires, respectively, to their China and Hong Kong operations this year.
Citing its survey of 10 large Chinese cities, the People's Bank of China warned in early June that Chinese homebuyers' debts are approaching dangerous levels. According to the survey, borrowers spend an average of 35 percent of their income on mortgage payments and 38 percent on all liabilities, including home mortgages, car loans, and other debts. On average, Shanghai and Beijing homebuyers spend 45 and 42 percent of their income, respectively, on their mortgages.
Energy
China completed the construction of the mains structure of the Three Gorges Dam in late May and demolished the last cofferdam used during the construction in early June with more than 191 tons of explosives. The dam is now serving flood control purposes two years ahead of schedule. Designed to produce an average of 85 billion kilowatt-hours of electricity annually, the dam is scheduled to begin generating power in 2008 and will be fully operational in 2009.
In early June, Beijing approved the construction of the Baihetan hydroelectric project on the Jinsha River in southwest China. The China Three Gorges Project Corp. will construct China's third-largest hydroelectric facility, which is expected to have an average annual output of 56 billion kilowatt-hours.
NDRC raised the prices of gasoline, diesel, and aviation fuel by ¥500 ($62.5) per ton in late May—the ninth and the steepest hikes since July 2003. Low retail prices for refined oil products, along with rising crude oil prices in the global market, have inflicted significant losses on Chinese refineries. Last summer, key coastal areas including Shanghai and Guangdong experienced oil shortages as refineries stopped production, reportedly to avoid further losses.
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