In the news: CITIC sells assets, FDI reform planned, factory workers strike, Veolia accused of water pollution and China goes to Hollywood

CITIC Pacific buys from parent for US$36 billion

Hong Kong's steelmaker and property developer CITIC Pacific will pay Rmb226.9 billion (US$36 billion) to buy Chinese banking and brokerage assets from its state-owned parent. The deal is part of China's drive towards further freeing the economy. CITIC Pacific will pay Rmb49.9 billion in cash and issue nearly Rmb16.6 billion in shares, as well as raise funds from a separate share sale. CITIC Group will hold 75% to 85% of the combined business. The deal has occurred alongside continued economic reforms to liberalise Yuan trading and pour private investment into state businesses – all to improve corporate governance and operating efficiency as well as to free the market and economy from the state's grip.

Sources:
Bloomberg
The Wall Street Journal

This is the biggest asset injection into a Hong Kong-listed unit from China and may pave the way for similar moves by government-controlled enterprises. Moving the assets to Hong Kong may help improve the Beijing group's corporate governance, and it is not the only SOE preparing to sell assets to investors. Sinopec announced in February that it would sell 30% of its oil retail unit and PetroChina may invite private investment into its pipeline and gas exploration business. But how much has really been opened to 'private' investors? CITIC appears to be moving its assets down its own family tree, and Sinopec and PetroChina's motives of relinquishing power were also questioned. Are SOEs really ready for the government's take-private initiative?

More from CLP:
Opinions on Further Optimising the Market Environment for Enterprise Mergers and Restructurings
Circular on Matters Relevant to Renminbi Settlement in Connection with Investment in Financial Institutions in China by Overseas Investors
Measures for the Administration of Interbank Negotiable Certificates of Deposit
Rules for the Preparation and Submission of Information Disclosures by Companies That Offer Securities to the Public No. 26: Special Provisions for Information Disclosures by Commercial Banks (2014 Revision)


China to unite domestic and foreign investment laws

Government officials are soliciting ideas to level the playing field for domestic and foreign businesses. A MOFCOM think tank has declared China should combine foreign investment law with the PRC Company Law, which will give national treatment to overseas companies in the mainland and help improve corporate governance. The Standing Committee of the National People's Congress has proposed to speed up research on a new corporate legal framework and will propose a draft. Qiu Guangling, director of MOFCOM's Foreign Investment Administration, has said the revision “will focus on the equal treatment of foreign and domestic investments, strengthening security review and advancing the reforms of foreign investment regulation”.

Source:
China Daily

The US-China Business Council called for China's policymakers to consider eliminating terminology such as “foreign-invested enterprises” as they invite differential treatment for various types of enterprises based solely on ownership. It said: “Government regulators should act independently and transparently and ensure that all domestic enterprises – including foreign-invested enterprises – are treated equally and allowed to compete fairly.” Efforts to build so-called “national champions” in certain sectors should exclude measures that discriminate against other domestic legal entities, the Council added. The government had pledged last year to expand investment access and unify laws on domestic and foreign investments while keeping stable, transparent and predictable policies on foreign investment. The Shanghai Free Trade Zone has suspended the three foreign investment laws but it is still too early for results.

More from CLP:
Provisions for the Administration of the Registration of Foreign-invested Partnerships (Revised)
Measures for the Administration of the Check and Approval and the Record Filing of Foreign-invested Projects (Draft for Comments)
Shanghai greenlights foreign-owned hospitals
List of Investment Projects Subject to Government Check and Approval (2013)
Special Administrative Measures for Foreign Investment Access in the China (Shanghai) Pilot Free Trade Zone (Negative List)


Massive strike at China shoe factory

Thousands of workers at Chinese shoe factory Yue Yuen Industrial rejected an offer for improved social benefits, prolonging one of the largest strikes in the country. The unrest, which has stretched to over 10 days, was centred on unpaid social insurance, improper labour contracts and low wages, with workers claiming they have been tricked by the town's government, labour bureau, social security bureau and the company itself. Yue Yuen, which makes shoes for Nike, Adidas, Reebok, Asics and Converse, had agreed to an improved social benefit plan on Monday, effective May 1. Despite this, workers continued to stay away from the production lines. In over 400 factory probes conducted by the group over the past 10 years, none were found to have bought full social insurance for workers as mandated by law.

Source:
Reuters

The growing industrial activism that has emerged with the country's economic slowdown mixed with a labour shortage has shifted the balance of power in labour relations. Social media and smartphones have helped workers to organise and become aware of the changing employment landscape. In this case, a key issue was that the workers' perceived they were being scammed through inadequate contributions from the company into a social insurance scheme each month, and the difficulty of cashing in the money later. The social insurance problem in China is perennial and workers are no longer willing to tolerate unfair treatment in light of rising legal and rights awareness. A China Labor Watch expert has said: “This is a costly lesson to multinationals to not ever ignore the rights of workers.”

More from CLP:
Tentative Provisions on Temporary Placement
Bill for the Amendments to the PRC Work Safety Law (Draft)
China question: What are some of the key things I should look at when drafting employment contracts?
Regulations on the Collective Bargaining and Collective Contracts of Enterprises (Draft Amendments for Comments)
Labour Tribunal jurisdiction clarified
Opinion: Regulating labour dispatch
Interview: How to be local and follow global rules


China blames Veolia for tap water pollution

French utility group Veolia Environnement was attacked for problems in its water quality supervision standards, after authorities discovered a cancer-inducing chemical at 20 times above national safety levels in tap water supplied by the firm. The benzene reading of the tap water in the north-western city of Lanzhou forced the city to turn off supplies in one district and warn residents not to drink tap water for the next 24 hours. The heavily industrialised city has a population of 3.6 million and ranks among China's most polluted areas.

Source:
Reuters

The Lanzhou government's complaints are in line with the rising scrutiny of foreign companies by Chinese state media. The government and media have acted on a series of issues ranging from pricing to poor quality products and customer service. A crude oil leak from a pipeline owned by a unit of CNPC was also uncovered, with its parent PetroChina denying media reports that it was to blame for the leak while cooperating with the investigations. The environmental ministry's powers are increasing and quality/standard investigations will become more common. Veolia was exposed for two reasons – firstly as a foreign company and secondly for poisoning the state's land – and became part of the government's moves to improve its environmental protection.

More from CLP:
Measures for Assessment of the Environmental Credit of Enterprises (Trial Implementation)
Guidelines for the Disclosure of Government Information in Connection with the Environmental Impact Assessments of Construction Projects


China Film Co buys big in Hollywood

The state-owned film distributor has made its first investment in Hollywood movies by buying a stake in two Legendary Entertainment productions – Seventh Son and Warcraft – in the form of an “eight-figure equity investment”. If the two movies are approved to be released in China, China Film would distribute the movies in accordance with the current regulations for foreign films, which are currently limited to 34 per year.

Source:
The Vancouver Sun

China Film is planning to go public. It owns stakes in movie theatre chains that make up half of the country's box office receipts. Its parent China Film Group holds the keys to the movie market for foreign studios as it controls film imports and co-productions. These projects are the first since Legendary and China Film collaborated last year on producing global blockbusters, and as Hollywood sees its box-office revenue growth flatten it's increasingly keen on venturing into China – the world's second largest movie market. China's leaders are hoping that entertainment companies can benefit from global JVs and tie-ups in order to develop their own cultural industries and expand influence abroad. Will China need to reshape its media laws in response to the internationalisation of its film industry?