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Mainland markets rise on healthcare and publishing reforms

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Mainland China markets stocks rose, led by media and pharmaceuticals, after the country approved broad guidelines to deepen reform of the health-care system and announced to restructure its publishing industry.

The Shanghai Comprehensive Index advanced 0.8 percent to 2439.18. The SME Comprehensive Index rose 1.24 percent to 3825.66.  

The Hang Seng Index dropped 0.5 percent to 14,928.97. The Hang Seng Growth Enterprises Index declined 0.24 percent to 401.78.  

The Taiwan Weighted Stock Index lost 0.7 percent to 5971.

Steel Shares dropped 1 percent on average today. China's inventory of mainstream steel products jumped 63 percent to 11.5m tons in February, according to Steel Business Briefing. Wuhan Steel (SH:600005), China’s fifth-largest steelmaker, plunged 8.23 percent. Angang Steel (SZ:000898; HK:0347) lost 3.55 percent on Hong Kong trading.

China State Shipbuilding Corporation (SH:600150), the nation’s largest shipbuilder, added 1.53 percent at its possible merger with China Shipbuilding Industry Corporation. By 2011, the Yangtze River Delta, the Pearl River Delta and the Circum-Bohai Bay region are to be developed into three world-class shipbuilding bases in China, according to a government program for the country’s shipbuilding industry.  

Poly Real Estate, China’s second-largest developer by market value, fell 2.4 percent. Shanghai residential property sales fell 5 percent last week from the previous week, Shanghai Securities News reported, citing data from real estate agency E-House (China) Holdings Ltd. The average price of Shanghai homes declined 3.8 percent at the same time.

Pacific Century Premium Developments (HK:0432), the property company controlled by Richard Li, dropped 7.43 percent.

Increased healthcare spending boosts pharma but not confidence
 China’s health-care related stocks rose after the government approved broad guidelines to increase spending of the health-care system.  

China Renji Medical Group (HK:0648), a medical device lessor, surged 39.47 percent. Vital Pharmaceutical Holdings (HK:1164), a medicine developer and manufacturer, climbed 15.53 percent.

Renhe pharmacy Co. (SZ:000650), a traditional Chinese medicine manufacturer, surged 10 percent. Jilin Zixin Pharmaceutical Industrial Co.(SZ:002118) added 6.03 percent.  

The State Council, China’s cabinet, in January approved a plan to spend an extra RMB 850 billion ($124 billion) by 2011 to provide basic health-care services throughout the country, including expanding medical insurance coverage for rural and urban residents.

The reform aims to provide medical care for all citizens by 2020. However details have yet to be released and previous indications to introduce "gatekeeper" primary care systems and state supply of basic drugs were not expanded on today. This suggests the government is either shying away from deeper reform or is unable to reach an early agreement between different ministries.

China’s total spending on health care in 2008 was RMB 1.2218 trillion, according to estimates from the Ministry of Health. That includes government, insurance and private spending - and accounts for 4.06 percent of GDP. Government contribution made up RMB 282.6 billion, or 23.13 percent.

Governmental spending will increase 36.68 percent to RMB 341.6 billion in 2009. China’s pharmaceutical industry will benefit from the proposals since demand will increase as more people gain access to healthcare while no plans have yet been annouced to cap drug prices.

At present the proposals do not look convincing enough to make a large difference to the spending habits of China's rural citizens, who must currently save money in order to afford major operations and illnesses. But the news looks nice for pharma companies.

More details to be released at a future date may indicate further structural reforms to improve effiicency of total health spending and reduce medical professionals reliance on revenues from pharma companies.

China to reform publishing sector by 2010
 China has signalled it is to restructure the country's publishing industry, acknowledging for the first time the legal existence of private publishers and encouraging the partial privatization of its unwieldy state-run publishing houses.
 
Northern United Publishing and Media (SH:601999) rose 7.40 percent on the news. Guangdong China Sunshine Media Co. (SZ:002181) surged 8.78 percent.
 
In Hong Kong, Beijing Media Corporation (HK:1000) rose 6.61 percent in Hong Kong; Media Chinese International Limited (HK:0685) climbed 7.27 percent; Intelli-Media Group (HK:8173) rose 5.17 percent; Hong Kong Economic Times Holdings (HK:0423) surged 16.67 percent; Seec Media Group (HK: 0205) climbed 10 percent.

China's state-run publishers currently make an assured income by selling “shuhao” (ISBN numbers) and “kanhao” (ISSN numbers) to, until-now, unofficial private publishing houses, who take on the commercial risk. The state-run publisher is ahouldered with just the political risk of the content, and must censor material before it is published.
 
The policy announcement made by the General Administration of Press and Publication (GAPP) makes clear that censors will continue to control what appears in print.

In the current downturn both state-run and private companies have suffered considerably and Beijing wants state-run publishers to become more efficient and commercial.
 
It will encourage mergers between private and public sectors to produce synergies and, as the GAPP announcement says: "Encourage and support non-state-owned capital in various formed entering permitted areas."
 
The reforms are to be carried out by 2010 and are hoped to produce seven publishing giants with annual revenues of more than RMB10 billion within five years.
 
The announcement did not mention foreign players. Many multi-nationals, such as Pearson (LSE:PSON), have already established businesses in China – and will be waiting to see if detailed proposals will allow them to expand further in the highly sensitive sector.

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