China Market Watch: Maritime Silk Road Plans Released, Audit Report Reveals SOE Profit Inflation
China unveils Maritime Silk Road plans
China’s National Development and Reform Commission, along with the State Oceanic Administration, has made public its vision for maritime cooperation as part of the One Belt, One Road (OBOR) Initiative.
Under the vision, plans for three maritime ‘blue economic passages’, connecting Asia with Oceana, Africa, and Europe have been unveiled.
A China-Oceania-South Pacific passage will link the South China Sea to the Pacific Ocean. A second will link to Europe through the Arctic Ocean. While the third, the China-Indian Ocean-Africa-Mediterranean Sea passage will link the South China Sea to the Indian Ocean, the Indochina Peninsula Economic Corridor, the China-Pakistan economic corridor, and the Bangladesh-China-India-Myanmar economic corridor.
India has expressed concern over how the plans might impact its territory in the Indian Ocean. While India generally supports the overall OBOR initiative, it has opposed plans to build the China-Pakistan Economic corridor.
The document calls for implicated countries along the proposed routes to cooperate in creating shared maritime space and developing the ‘blue’ economy. This will help to advance marine environmental protection, security and governance.
Official audit report reveals SOE profit inflation
China’s National Audit Office has released an official audit report which suggests that many large companies have inflated their revenues.
18 out of 20 state owned companies audited, including China National Petroleum Corporation, the Sinochem Group, China State Shipbuilding Corporation, and China National Building Material, have inflated their revenue by a cumulative RMB 200 billion (US$29 billion), and increased profit by RMB 20 billion (US$ 2.5 billion) by means of false business reporting and altered bookkeeping. The report also found that debts of local governments in some areas were increasing too rapidly.
The Central Government’s directives to cut overcapacity in heavy industries have also been overlooked, as shown by audit of China National Building Material, which failed to cut capacity by the specified six million tons, and had rented 1.39 million tons of capacity from other companies.
Moody’s decision to demote China’s credit rating because of the country’s inability to contain its debt risks earlier this May has been affirmed by the report, and reflects glaring weakness in the country’s economic reform drive.
Tesla Motors announces plans to open factory in China
Tesla Motors has entered discussions to establish a factory in Shanghai, after earning around US$1.1 billion revenue from China sales, 15 percent of its worldwide total.
Establishing a factory in China will provide Tesla with easier access to the Chinese market, and will help to reach the company’s aims to produce 500,000 electronic cars by 2018.
Like other foreign motor companies, Tesla will need to enter into a joint venture with a Chinese company in order to set up there, unless it chooses to do so in a free trade zone. However, it would still have to pay 25 percent import tax if operating in a free trade zone. Thus, a joint venture is a more viable option.
China is the world’s largest electronic vehicle market, with over 30 electric car models made domestically. The electronic vehicle market grew by 65.1 percent in 2016 to 409,000 units.
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