Why So Many Collapsed School Buildings?

The widespread collapse of school buildings during the May 12 earthquake killed thousands of students. Education and Construction Ministries are split in views over whether the magnitude of earthquake or the poor quality of public buildings are to blame. Experts told Caijing that had the construction teams implemented the so called "89 standard" for earthquake prevention, the school buildings wouldn't have shattered to ashes. A review conducted by Sichuan Construction Bureau showed that the massive collapse was caused by the failure to meet the earthquake prevention standard, poor structural design and sub-standard construction. Questions have been raised about construction quality in the renovation projects. Experts have started investigating the destroyed buildings, and so far there is evidence of flawed construction. The public is now awaiting a fair explanation for why so many of buildings surrounding the toppled schools are still standing.

Share Segment Warrant System Bite the Dust

The last so-called "share segment warrant" will trade June 20, ending a failed phase of China's unique share segmentation reform. The warrant system was invented 10 years ago when 33 warrants were sold to retail investors. Traders acquired the future rights to buy shares in state-owned enterprises, after the government released its non-tradable shares on the open market. But warrants themselves were traded as well, rising and falling in reaction to extensive speculation by short-term investors. In the end, small investors were major losers while securities firms cashed in, grabbing some 20.4 billion yuan in profits. The warrant system, which has no equivalent on international markets but was touted as an innovative financial mechanism, ended in failure because its basic structure and regulations were inadequate.

Telecoms Undergo Restructuring -- Again

The long-expected, third round of restructuring for China's telecom industry finally arrived when the government May 24 announced a reshuffling. Altogether, the changes would create three major telecom operators from the current six. The government also made clear that the three 3G licenses would be issued once the restructuring is settled. Companies have started their mergers already. On June 2, China Unicom announced details of its CDMA sale and China Netcom acquisition. However, questions remain about how companies would price their assets, how to handle the massive number of employers, how China Mobile will cope with new competitors and whether the reshuffle will mark an improvement, or another futile effort, for the industry.

Chinese-Western Trust Ventures Blossom

Three new, joint trusts have been approved by Chinese regulators that will combine foreign investors with Chinese institutions. The British bank Barclays, National Australia Bank, and Britain's Ashmore Investment Management each acquired around 20 percent of Xinhua Trust, Lianhua Trust and Beijing Trust, respectively. Chinese regulations set 20 percent as the acquisition cap for foreign investors in a single Chinese financial institution. The rules also bar foreign investors from management control, and give them only a slight chance at operational control. Yet officials for the three new ventures said stake increases for foreign partners may be allowed if policies change in the future. Each foreign investor also gets a full license for asset management business at a low cost. Morgan Stanley and HSBC currently have acquisition proposals awaiting regulatory approval. 

China Merchants Pays Big for Hong Kong Expansion

China Merchants Bank hopes to fulfill its Hong Kong expansion plans by buying a 53.1 percent stake in Wing Lung Bank, which has been controlled by the Wu family for 75 years. But the deal is considered expensive for China Merchants, the mainland's fifth largest commercial bank, which agreed to pay 17.2 billion yuan in cash. The price-to-book ratio is 2.91. The transaction is also likely to lower the buyer's capital adequacy. The Hong Kong bank controls 1.4 percent of the local loan market and operates 35 branches. China Merchants will consider strengthening its capitalization by offering subordinated debt, which may lead to share dilution and higher financing costs. The bank said the acquisition, which is pending regulatory review, meets its needs for growth in Hong Kong.