COVER STORY

　　Beijing Downpour Starts Outpouring on Flood Damage

　　 Beijing saw the biggest showers in decades on Friday, June 24, forcing many pedestrians to wade through floodwaters during rush hour and stranding others along their commute. Along with subway closures, the capital and its 20 million residents encountered gridlock traffic and many other inconveniences. Similar problems occurred in Wuhan and several other cities. Flood damage has also resulted in a public outcry over the city governments’ slow response to the emergency, despite hefty public spending on infrastructure.

　　Local Governments’ Possible Solvency Surprise

　　 Fears over the ability of local government financing platforms to pay back bank loans are starting to metastasize. Local governments have begun to shift the best assets of these platforms to new vehicles. Some government financing vehicles, including a few in Shanghai, have required banks to extend loans. The trend has sent institutional investors scrambling for cover. Banks are now appealing to national regulators to re-package loans under more lenient payment requirements to prevent widespread default.

　　By the end of 2010, the total number of platform loans tallied up to 10 trillion yuan. While loan vehicles have also allowed local governments develop badly-needed bond issuance schemes, regulatory loopholes have been the source of several scandals since the end of last year.

　　The Push for Methanol as an Oil Substitute

　　 With an overcapacity in methanol production from a large number of coal-to-methanol projects in the past five years, the Chinese government is rapidly promoting the use of methanol as fuel.

　　Despite relatively cheap prices compared to oil, the U.S. and Europe had given up efforts to experiment with methanol as a fuel for vehicles by the 1990s out of safety and health concerns. Methanol residue in the fuel tank has been shown to corrode auto engines while concentrated methanol fumes are also said to have the potential to damage respiratory systems and eyesight.

　　Advocates say purification technologies have advanced to address methanol emission problems.

　　The expansion of methanol use has received strong resistance from China’s major oil suppliers, fearing the threat of the cheap alternative to their oil interests.

　　Retirement Communities on the Rise

　　 Promising yet problematic, the development of “modern retirement communities” faces challenges from China’s current land allocation policies, which cast doubt over whether the occupants can legally retain their units for as long as they originally intend to.

　　Qinheyuan, a company established in 2005, has been at the forefront of China’s elderly care industry with a membership scheme for assisted living. Members provide a large one-off payment and select annual fees in exchange for the right to live in an assisted-living housing unit for up to 50 years without housing property rights.

　　But the lack of actual housing property rights and complications from government land purchases has left many questioning the viability of such a business model in the long-term.

　　Powering Up for a New Electricity Distribution System

　　 Analysts say natural gas-distributed electricity generation could grow into a booming industry with its allure of higher energy savings and cleaner fuel. Reports have circulated that the Ministry of Finance is in talks with the National Energy Administration to grant subsidies to such programs. Meanwhile, energy officials say they are preparing guidelines to promote the development of the emerging industry.

　　Natural gas-distributed generation is a process that begins with the burning of natural gas and allows for energy storage between generators and users, which could lead to huge improvements in energy efficiency. However, since natural gas is much pricier than coal, the new technology will have difficulty in becoming commercially viable without significant government subsidies in the early stages.

　　China’s major power generators, fuel companies and grid operators are making inroads into this new field. But state firms may have to look out for costs – slim profit margins could hinder sustained growth of the technology.