Archive for ‘Economics’

22/03/2017

Chinese supermarkets pull Brazil meat from shelves as food safety fears grow | Reuters

Some of China’s largest food suppliers have pulled Brazilian beef and poultry from their shelves in the first concrete sign that a deepening scandal over Brazil’s meat processing industry is hitting business in its top export market.

The moves by Sun Art Retail Group (6808.HK), China’s biggest hypermarket chain, and the Chinese arms of global retail giants Wal-Mart Stores Inc (WMT.N) and Metro AG (MEOG.DE) come days after China temporarily suspended Brazilian meat imports.

Safety fears over Brazilian meat have grown since police accused inspectors in the world’s biggest exporter of beef and poultry of taking bribes to allow sales of rotten and salmonella-tainted meats.

A spokeswoman for Sun Art Retail, which operates 400 Chinese hypermarkets, said on Wednesday the chain had removed beef supplied by top Brazilian exporters BRF SA (BRFS3.SA) and JBS SA (JBSS3.SA) from its shelves from Monday. Brazilian beef accounts for less than 10 percent of Sun Art’s beef supply, she said.

Wal-Mart has also removed Brazilian meat products from its stores, said a person familiar with the matter. He declined to be quoted because of the sensitivity of the matter.

Germany’s Metro has withdrawn Brazilian chicken legs and wings from its Chinese stores, said a manager, who declined to be named as he was not allowed to speak to media. The retailer, with 84 stores in China, does not sell Brazilian beef.

While Brazilian officials sought late on Tuesday to reassure consumers that the investigation had revealed only isolated incidents of sanitary problems, the reaction by Chinese retailers suggests that the probe could have far-reaching repercussions for the world’s top meat exporter.

Hong Kong, the second-biggest buyer of Brazilian meat last year, has also issued a ban on imports, following similar steps by Japan, Canada, Mexico and Switzerland.

Source: Chinese supermarkets pull Brazil meat from shelves as food safety fears grow | Reuters

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17/03/2017

New rules, new dodges: Chinese football clubs are struggling with new curbs on foreign players | The Economist

MUCH grumbling accompanied the start on March 4th of this year’s season of the Chinese Super League (CSL), the uppermost tier of professional football in China. Managers of its 16 clubs have been gnashing their teeth at a change of rules which was suddenly announced just a few weeks before the first matches. Teams are now allowed to field a maximum of three foreigners.The clubs would have preferred more notice. Many of them have only just acquired even more foreign players. All now have at least four, the previous maximum per side in any CSL game. (One of them, a Brazilian called Oscar, is pictured in a CSL match—he was transferred to Shanghai SIPG from Chelsea, an English club, for £60m, or about $75m, in December.)

Last year China spent more than $450m on footballers, the fifth-largest such outlay by any country.

But all this money has not improved the dismal state of Chinese football. The men’s national team ranks 82nd in the world. In October an embarrassing 1-0 defeat to war-torn Syria triggered protests by hundreds of fans in the city of Xi’an where the match was played. Local media say the Chinese Football Association announced its new rules on orders “from above”. They impose a levy on big transfers and demand that one-sixth of clubs’ spending must be on youth training.

Officials have also been trying to curb the buying of stakes in foreign clubs—Chinese investors shelled out about $2bn on them last year. The government says this is part of an economy-wide clampdown on currency outflows. But it also wants to make the point that foreign talent won’t necessarily help China’s. The government has recently scuppered several investment deals. A Chinese consortium bought AC Milan, an Italian club, for $825m in August, but has been unable to move money out of China to complete the purchase.

Rather than simply moaning about the new rules, clubs have been devising ways of dodging them. Teams must now field at least one Chinese player under 23 each week. Some coaches simply replace them early in the game with older hands.

Source: New rules, new dodges: Chinese football clubs are struggling with new curbs on foreign players | The Economist

09/03/2017

Schumpeter: Mukesh Ambani has made the business world’s most aggressive bet | The Economist

SOME businesspeople are guided by experts, spreadsheets and crunchy questions. What is your three-year target for market share? Will a project deliver a reasonable return on the capital invested? A few hurl all the forecasts and reports into the bin and surrender to their own hunger to make a mark.

One such figure is Mukesh Ambani, India’s richest man. In September 2016 he placed one of the biggest business bets in the world by launching Jio, a mobile-telecoms network that allows India’s masses to access data on an unprecedented scale. In the past six months it has won 100m customers. Only one other firm on the planet has such an acquisition rate—Facebook. From Kolkata’s slums to the banks of the Ganges, millions of Indians are using social media and streaming videos for the very first time.

To achieve this, Mr Ambani has spent an incredible $25bn on Jio, without making a rupee of profit, terrifying competitors and many investors. The motivation for his gamble probably lies with his turbulent family history. Reliance Industries Limited (RIL), Mr Ambani’s company, was set up by his father, Dhirubhai, in 1957. Born in humble circumstances, Dhirubhai was famous for three things: running rings around officials; creating a fortune for himself and RIL’s army of small shareholders; and his appetite for giant industrial projects. RIL jumped from textiles into oil refining and petrochemicals. Its refinery in Gujarat is one of the world’s largest. It opened in 2000, two years before Dhirubhai died.

Mukesh Ambani and his brother, Anil, took the reins in 2002 and split from each other in 2005, leaving Mukesh in full control of RIL. Since then his record has been patchy. RIL’s shares have lagged India’s stockmarket over the past decade and its return on capital has sagged, halving from 12% to 6%.

Emulating his father, Mr Ambani has rolled the dice on several huge projects. He has invested huge sums to modernise the petrochemicals and refining business. This decision has been a success—it is an excellent operation that makes a return of about 12%. But Mr Ambani’s other investment calls have flopped. In 2010-15 RIL spent $8bn on shale fields in America. Now that oil prices are lower they lose money. The group invested about $10bn in energy fields off India’s east coast; they have produced less gas than hoped for and are worth little. And RIL has spent around $2bn on a retail business that produces only small profits. All told, RIL’s refining and petrochemicals unit accounts for two-fifths of its capital employed but over 100% of operating profits. The other businesses, developed mainly after Mr Ambani took sole charge, swallow a majority of resources but don’t make money.

A lesser man might have lost his nerve, but Mr Ambani has pursued another colossal bet in the form of Jio. He knows telecoms: in 2002 he oversaw the family’s first attempt to build a big mobile-phone business (his brother now owns the struggling operation). The latest effort has been a decade in the making. Step by step, RIL acquired spectrum, worked with handset suppliers and built a “fourth-generation” network. Jio’s offer of free services caused a sensation. A savage price war has ensued. One rival executive reckons Jio is carrying more data than either China Mobile or AT&T, the world’s two most valuable operators.

That underlines the potential of India’s telecoms market. Data usage is low, there are few fixed lines and most people don’t have smartphones. The incumbent firms are heavily indebted, so have limited ability to respond to a price war.

Jio will start charging from April 1st. Yet even assuming it keeps cranking prices up and wins a third of the market, a discounted-cash-flow analysis suggests that it would be worth only two-thirds of the sum that Mr Ambani has spent. To justify that amount Jio would at some point need to earn the same amount of profit that India’s entire telecoms industry made in 2016. In other words, there is no escaping the punishing economics of pouring cash into networks and spectrum. For every customer that Jio might eventually win, it will have invested perhaps $100. Compare that with Facebook or Alibaba, both asset-light internet firms, which have invested about $10 per user.

Jio’s three main mobile competitors have scrambled to respond. Bharti Airtel is buying a smaller rival to try to lower its costs. Vodafone is in talks about merging with Idea Cellular, another operator. Half a dozen or so weaker companies (including the firm now run by Mr Ambani’s brother) will probably disappear. The best hope for Jio is that in the distant future it will be one of three firms left and that a cut-throat industry will evolve into a comfy oligopoly, which is possible.

RIL’s share price has gone nowhere for years but excitement about Jio’s 100m new customers has helped it bounce over the past month. Still, the scale of the investment illustrates the risks that shareholders face at a firm that is controlled by one man. Even if Jio eventually gushes cash it is not clear if RIL will pay bigger dividends, or if Mr Ambani will instead pursue another grand project. As investors wait, however, many more of India’s 1.3bn consumers will gain—not only from low prices, but a welcome splurge on the nation’s telecom infrastructure.

Defiance from Reliance
And what of Mr Ambani? Perhaps he hopes to get his money back by turning Jio into an internet firm that offers payment services and content, not just connectivity. China’s Tencent, which owns WeChat, a messaging service, has successfully diversified into games and banking. Still, no telecoms firm has managed this feat and it is hard to see how RIL’s clannish culture can become a hotbed of innovation. More likely, Mr Ambani, aged 59, just doesn’t care what all the spreadsheets point to. Sitting atop his skyscraper, overlooking teeming Mumbai, where some 5m new Jio customers are surfing the web at high speed for peanuts, he can at last say that he has changed India. When you are Dhirubhai’s son, that is probably enough.

Source: Schumpeter: Mukesh Ambani has made the business world’s most aggressive bet | The Economist

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28/02/2017

Are motorbikes a barometer of India’s economy? – BBC News

India’s latest economic growth numbers are expected to reflect the impact that the sudden withdrawal of currency notes in November had on the country.

So how has the economy been doing? Sales of two-wheelers are among the best indicators.

Source: Are motorbikes a barometer of India’s economy? – BBC News

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28/02/2017

India’s annual economic growth slows to 7 percent in December quarter | Reuters

India’s annual economic growth slowed to 7.0 percent in the three months through December from a revised 7.4 percent expansion in the previous quarter, government data showed on Tuesday.

Analysts polled by Reuters had forecast 6.4 percent growth for the October-December period.

The central statistics office also retained the growth forecast for the fiscal year ending in March 2017 at 7.1 percent.

Source: India’s annual economic growth slows to 7 percent in December quarter | Reuters

28/02/2017

China voices disquiet over new EU anti-dumping move on steel | Reuters

China expressed concerns on Tuesday over what it said was increasing protectionism after European Union regulators imposed new duties on steel imports from the world’s biggest producer.

The European Commission is seeking to protect EU steelmakers while avoiding tensions with Beijing, which it sees as a possible ally against protectionism and climate change.It imposed definitive anti-dumping duties of between 65.1 percent and 73.7 percent on imports of heavy plate non-alloy or other alloy steel from China on Tuesday, confirming provisional tariffs set in October.

This prompted a statement from China’s Commerce Ministry calling on Europe to treat Chinese companies “fairly and impartially”, adding it was ready to strengthen communication with the EU to tackle issues in the industry.

The companies named in the Commission’s ruling included Nanjing Iron & Steel Co Ltd, Minmetals Yingkou Medium Plate Co Ltd, Wuyang Iron and Steel Co Ltd [WYIAS.UL] and Wuyang New Heavy & Wide Steel Plate Co Ltd.

The EU executive said it acted after an investigation found Chinese companies to be heavily dumping their products on the EU market by selling them at well below half of the price on the producers’ home market.

“The Commission has responded forcefully and quickly to unfair competition, while at the same time ensuring that the rights of all interested parties have been protected,” the Commission said in a statement.

Eurofer, which represents the European steel sector, said the Commission had found clear evidence of dumping.”Tens of thousands of steel jobs have been lost in Europe over the past few years, and dumping, particularly demonstrably from China, has been one of the causes,” it said in a statement.

The EU has strengthened its policy against what it considers unfair competition for its steel industry, and said its new approach had allowed it to decide on trade sanctions more quickly than in the past.

It said on Tuesday it has 41 anti-dumping and anti-subsidy measures in place, 18 of which are on products from China.Also on Tuesday, Europe’s second highest court backed anti-dumping and anti-subsidy duties imposed by the EU nearly four years ago on imports of Chinese solar panels.

Source: China voices disquiet over new EU anti-dumping move on steel | Reuters

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28/02/2017

Building Binge: ADB Calls for More Infrastructure Across Asia – China Real Time Report – WSJ

BEIJING–Asia needs at least $1.5 trillion of roads, bridges and other infrastructure annually between now and 2030 to maintain its growth momentum, a doubling of earlier projections, according to the Asian Development Bank.

In a report released Tuesday, the Manila-based development bank said the tab would run even higher if climate change is factored in: Upgrading power plants, transport systems and other facilities would boost regional investment by another $241 billion annually among some 45 Asia and Pacific countries.

Infrastructure has gained favor as a way to boost flagging growth following the 2009 global financial crisis. U.S. President Donald Trump has vowed to spend $1 trillion over a 10-year period rebuilding U.S. roads and bridges. China spent 15.2 trillion yuan [$2.2 trillion] in infrastructure fixed-asset investment in 2016 alone. The world’s second-biggest economy is promoting its infrastructure-led growth model, creating the Beijing-led Asian Infrastructure Investment Bank, which touts itself as a more efficient alternative to the likes of the World Bank and ADB.

Countries that fail to invest in infrastructure may see economic growth pinched by bottlenecks and lackluster job-creation. The ADB’s current projections represent a doubling of the $750 billion in annual infrastructure requirements the bank forecast in 2009 for the 2010-2020 period. The Asia-Pacific region currently invests around $880 billion annually in infrastructure, according to ADB.Governments currently pay around 92% of the cost of infrastructure in the region, the bank estimates in its report. Boosting spending levels, it said, is going to require tax, regulatory and institutional changes to draw in the private sector.

“Governments can get more bang out of their infrastructure investment,” said ADB economist Rana Hasan. Mr. Hasan acknowledged that the Asian region is unlikely to spend the full $1.7 trillion annually, but said the ADB hopes its recommendations can bring governments closer to those levels. “They need to make it more attractive for the private sector,” he said.

Of the estimated $26 trillion in projects required between 2016 and 2030 to bolster economic output, alleviate poverty and respond to climate change, $14.7 trillion is needed for the power sector, $8.4 trillion for transport, $2.3 trillion for telecommunications and $800 billion for water and sanitation projects, the report said.While acknowledging the need for better and more infrastructure, some economists caution that corruption and politics can significantly undercut the economic benefits of big building initiatives.

“Most developing countries could use more infrastructure. But the problem is not a lack of demand. It’s a lack of credibility,” said Guanghua School of Management professor Michael Pettis. “If your debt gets too high, you start running into debt-servicing problems, defaults and other problems.”China has relied on infrastructure investment as a form of economic stimulus since the global financial crisis in 2009. Since then, local government debt, much of it to fund infrastructure, has risen by two-thirds, according to Standard & Poor’s Financial Services LLC. That debt stood at more than 41% of economic output in 2015, according to Bank of America Merrill Lynch.Beijing has also struggled to attract private investors. Though it has strongly promoted public-private partnerships, some have stumbled during implementation, many due to mismatched expectations of private companies and the state sector.

More favorable reviews have been given to China’s ambitious plans to modernize the ancient Silk Road trade routes. Known as “One Belt, One Road,” the program envisions a network of ports, bridges, rail lines, industrial parks and telecommunication links linking China to the rest of Asia, Europe and points beyond.

The large sums have caught the attention of foreign engineering and equipment companies such as Caterpillar, ABB Group and Vermeer Corp., which are hoping for a slice of future projects.

Source: Building Binge: ADB Calls for More Infrastructure Across Asia – China Real Time Report – WSJ

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25/02/2017

Room to grow: India’s hostels for the upwardly mobile | The Economist

IF SEVERAL hundred million Indians do migrate from the countryside to cities between now and 2050, as the UN expects, it will be a fiendishly busy few decades for Vivek Aher, who runs a low-cost hostel, one of five, on the outskirts of Pune, a well-off city three hours’ drive from Mumbai.

A fair few of the new arrivals will have their first experience of urban living bunking in one of the hostels’ 1,350 beds. Should recent experience be anything to go by, most of the new arrivals will test Mr Aher’s patience by tacking posters on his hostel’s walls, or endlessly complaining about the Wi-Fi.

India has two main drags on economic growth. One is the difficulty of finding a job, especially in the places people live. The other is a chronic shortage of cheap housing. Aarusha Homes, Mr Aher’s employer, started in 2007 to help people seize economic opportunities far from home. Its rooms are basic and cheap. They include up to six beds, a bathroom for every three or four residents, some common areas and little else. Rent ranges between 3,500 and 10,000 rupees ($52-$149) a month including food.

Most of Aarusha’s tenants are young, many of them taking first steps into the middle-class as IT or business-processing outsourcing professionals. Paying up to six months’ deposit for a city flat is beyond their means, as is the down payment for a motorbike that would allow them to live far from their employer. Aarusha’s successful pitch is that its hostels are safer than slums or informal “guest houses”, especially for women. It now has 4,300 beds in 1,300 rooms spread out over 20 hostels in four cities. The typical tenant stays for six months. Satyanarayana Vejella, the firm’s co-founder, plans to raise another $10m to increase capacity by 12,000 beds in nearly 70 new hostels, all in the next two years. Operating-profit margins are in the mid-teens.

The chain’s backers include investment funds who seek social as well as financial returns. The latter would be improved if the chain dodged taxes by operating in the informal economy, like much of its competition, but it sticks to the formal side. The problems it faces are those confronted by any Hilton or Hyatt: finding properties big enough to offer over 100 beds is hard. Tenants have to be chased for payments. An attempt to cater to blue-collar workers at an even lower price didn’t work out. So Aarusha is reliant on the IT and outsourcing sectors, which are hiring less eagerly than before.Aarusha can probably depend on continuing strong demand for a room from which to make sense of it all before people can get their own places. The hostels have something of a communal feel, and parents find them reassuring because residents put up with not being able to drink, smoke, or mingle with the opposite sex. Soon enough, they will have moved on, taking their aspirations and their posters with them.

Source: Room to grow: India’s hostels for the upwardly mobile | The Economist

24/02/2017

Shock and ore: Furious with North Korea, China stops buying its coal | The Economist

FEW television dramas boast a plot as far-fetched as the one that has unfolded in North-East Asian geopolitics over the past two weeks. Days after North Korea tested a ballistic missile on February 12th, two women assassinated the half-brother of Kim Jong Un, North Korea’s leader, by throwing chemicals in his face at a Malaysian airport. The alleged killers said they were duped into taking part, believing the attack was a prank for a TV comedy. Malaysian police suspect that a North Korean diplomat in Malaysia may have been among the organisers, several of whom are thought to have fled to Pyongyang.

Amid such skulduggery, China’s announcement on February 18th that it would suspend imports of coal from North Korea, from the next day to the end of this year, seemed a little mundane. But China’s state-controlled media played up the decision. Global Times, a newspaper in Beijing, said the move would make it harder for North Korea to exploit international differences over the imposition of UN sanctions aimed at curtailing its nuclear programme. China appeared to be signalling to the world that it was ratcheting up pressure on its troublesome friend, as the Americans have long insisted it should.

Or it may just be posturing. On February 21st China’s foreign ministry softened the message somewhat. It said imports were being suspended because China had already bought as much coal from North Korea this year as it was allowed to under the UN’s sanctions, to which China gave its approval last March. But North Korea-watchers doubt that China could have imported its yearly quota of 7.5m tonnes in a mere six weeks. It had not appeared likely to reach its annual limit until April or May. And exceeding that cap had not been expected to matter much to China. In 2016 it imported about three times the permitted amount, using a loophole that allows trade if it helps the “livelihood” of ordinary North Koreans.

Advancing the date of the suspension, if that is what happened, would certainly have sent a strong message to North Korea, which depends on coal exports for much of its foreign currency. Announcing the move so publicly, and unexpectedly, will have shown to North Korea that China is ready to take the initiative instead of waiting to be prodded by America, as it usually does when North Korea offends.

The test of an intermediate-range missile will have rattled China. It suggested that North Korea has learned how to fire such weapons at short notice, from hard-to-detect mobile launchers. The murder of Kim Jong Nam may have been an even bigger blow. Mr Kim had been living on Chinese soil in the gambling enclave of Macau, probably under Chinese government protection. Some Chinese officials may have hoped that Mr Kim, who favours economic opening, would one day replace his half-brother. With his death “you lose one option”, says Jia Qingguo of Peking University. It has reminded China that North Korea’s dictator is doggedly determined to rule in his own way, regardless of China’s or anyone else’s views.

Growing frustration with North Korea is evident in China’s more relaxed attitude towards criticism of its neighbour. In 2013 an editor of a Communist Party-controlled publication was fired for arguing in an article that “China should abandon North Korea.” These days, academics often air that idea. Debate about North Korea now rages openly online, largely uncensored (except when people use it as a way of attacking their own regime, jokingly referred to as “West Korea”). The murder of Kim Jong Nam unleashed a torrent of ridicule towards his country by Chinese netizens. China still sees North Korea as a useful buffer against America’s army deployed in the South. But it increasingly regards the North as a liability as well, says Mr Jia.In America’s court?

China would clearly like its tough-sounding approach to encourage President Donald Trump to rethink his country’s strategy for dealing with North Korea. America has been reluctant to enter direct talks because the North has blatantly cheated on past deals—knowing that China would continue to prop it up. With China more clearly on America’s side, the Americans would have greater confidence, Chinese officials hope. Mr Trump has previously said he would be happy to have a hamburger with Mr Kim and try to persuade him to give up his nukes. The trouble is, Mr Kim sees those weapons as the one thing that guarantees the survival of his odious regime.

Source: Shock and ore: Furious with North Korea, China stops buying its coal | The Economist

17/02/2017

Soccer Dreams in China’s Rust Belt – China Real Time Report – WSJ

China’s smog-choked northern province of Hebei is no stranger to lofty goals. For one thing, it has to shut down two-thirds of its steel factories by 2020.

Here comes another: becoming a provincial powerhouse in soccer. Perhaps understandably, it has given itself a few decades to do it.

The “Hebei Province’s Soccer Medium-to-Long Term Development Plan (2016-2050)” unveiled Thursday sets out plans for 1,000 “soccer campuses,” 3,000 amateur leagues and at least one club in the Chinese Super League, the country’s highest tier of professional soccer.

Such plans to pursue the “beautiful game,” as soccer is often called, are quite the departure for China. The world’s second-largest economy used to nurture its sport stars the Soviet way, by picking and grooming its talent from an early age. It still harvests most of its medals using this model. But in soccer, Beijing is trying a looser model perfected in the West: shopping for world-class players world-wide and hoping to spot homegrown talent via a grassroots network of soccer programs in local schools.

“By 2050, we must contribute to China’s bid to host the World Cup,” the Hebei Provincial Sports Bureau said.

At media conferences, officials spoke wistfully of “a soccer tourism route” and “a garden of sports,” a somewhat jarring image of Hebei, which currently produces more than twice the annual steel volume of all U.S. mills combined and is home to China’s smoggiest cities.

In its quest to become a leading purveyor of football talent, Hebei already faces some domestic competition. Fujian province, in China’s south, last month said it also has such plans. Earlier this month, so did the aluminum-producing province of Gansu, known more for its deserts than its dazzling dribbles.

More provinces are likely to follow. The central government last year put out a blueprint detailing bigger, broader goals to mint “two to three first-class soccer teams in Asia, that are internationally known.”

President Xi Jinping has a soft spot for the sport, and in 2011 made known his desire for China to both qualify for and host a World Cup tournament and ultimately to win one.

This has proven difficult. Back-to-back losses last fall all but derailed China’s dream of qualifying for the 2018 World Cup. Profligate spending to attract foreign talent led the General Administration of Sport last month to criticize Chinese teams for “burning money” on astronomical recruitment fees and wages, while “neglecting the development of homegrown players.”

Still, Hebei might have an edge. The province, where Mr. Xi spent some time early in his career as a county-level Communist Party official, won government support in a successful bid to host the 2022 Winter Olympics, despite having only a set of somewhat stumpy mountains with sporadic snow.

Some of the province’s residents aren’t exactly hopeful. “The economy is finished,” one of them wrote on the popular microblogging platform Weibo. “And you still have time to focus on soccer?”

Source: Soccer Dreams in China’s Rust Belt – China Real Time Report – WSJ

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