Archive for ‘Economics’

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15/05/2013

* Chinese austerity hits Diageo’s sales

English: Songhe and Moutai - modern Baijiu bra...

English: Songhe and Moutai – modern Baijiu brands from China (Photo credit: Wikipedia)

Read “corruption” for “austerity” and that would explain why sales and profits have dropped like a stone.

FT: “Sales of Diageo’s baijiu, a clear grain spirit popular in China, slumped 40 per cent in the first quarter of this year as the world’s biggest distiller became the latest casualty of China’s crackdown on conspicuous consumption.

 

The rapid deterioration in fortunes at Shui Jing Fang, one of the first Chinese household names to be taken over by a foreign company, comes as other makers of high priced spirits have suffered falling sales amid the chill winds of austerity with socialist characteristics. It is a turnround for the drinks industry which, like other purveyors of status symbols, had become accustomed to runaway growth in China comfortably offsetting European weakness.

Pernod Ricard, the world’s second-biggest distiller after UK-listed Diageo, is set to report an annual decline in Scotch whisky sales in China, following years of surging growth. This came after flat sales over the Chinese New Year period, when it sold more Cognac but saw Scotch sales fall by double-digits in percentage terms year-on-year.

Diageo has so far shrugged off concerns about the crackdown saying it is having little effect on gifting, which makes up 10 to 15 per cent of Scotch and Cognac sales in the country.

Kweichow Moutai, China’s largest baijiu maker, reported a halving in year-on-year profit growth in the first quarter. Baijiu, like a host of other food and drinks in China, has also been caught up in food safety concerns.

Shui Jing Fang, which Diageo acquired last year after years of protracted and complex negotiations, saw both sales and earnings before interest and tax fall by 40 per cent in the first quarter of the calendar year, Diageo said on an investor call on Tuesday. That followed net sales growth of 10 per cent and operating profit growth of 12 per cent in the previous full year.

Although Shui Jing Fang is just a drop of Diageo’s sales at around 1 per cent, baijiu dwarfs sales of international spirits in China and is seen as an attractive sector for multinationals to increase their grip on.”

via Chinese austerity hits Diageo’s sales – FT.com.

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15/05/2013

* UK to try and simplify visas for Chinese tourists

Hard on the heels of special visas for Indian business applicants, Britain is trying to do something for Chinese visitors.

FT: “Home Office ministers are to start talks with Chinese tour operators in the hope of setting up an easier visa application system for groups of high-spending Asian shoppers who are discouraged by the UK’s border bureaucracy.

Chinese tourists at cake shop with windows decorated during Queen Elizabeth II Diamond Jubilee

The department has been under pressure from luxury retailers to streamline the process for Chinese tourists, who can enter most of continental Europe with just one Schengen visa and are therefore less likely to apply for a separate UK entry. As a result, France receives at least 25 per cent more Chinese tourists each year than Britain does.

Mark Harper, immigration minister, said on Tuesday that he hoped to begin discussions soon. “It’s just thinking about, practically, what can we do with the tour operators to enable them to make that process for getting both [UK and Schengen] visas as straightforward as possible,” he told the Financial Times. “We may not be able to get it to be perfect, but we can get it to be a lot better than it is now, which then makes us a lot more competitive.”

However, Mr Harper suggested that a previous idea of negotiating “parallel” processes – so that data for Schengen and UK visas could be submitted in one joint application – was looking less likely. This was because “you start running into issues about government IT projects and complex issues about data protection”, he said.

Mr Harper also indicated such a joint application would be difficult to achieve diplomatically because it was “not obvious” that it would be in the interests of Britain’s European partners.”

via UK to try and simplify visas for Chinese tourists – FT.com.

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15/05/2013

* Arctic Council to rule on observer status for China

FT: “The Arctic is at the centre of a global geopolitical battle as China, India and Japan attempt to join the main body involved in setting the rules for future development of the polar region.

Oil drilling in the Arctic seas has become a highly contentious issue.

At a meeting in Kiruna in northern Sweden on Wednesday and Thursday, ministers from the five Nordic countries, the US, Canada and Russia will decide whether to let 14 countries and organisations gain the status of “observer” to the Arctic Council.

China is the most controversial name on the list, but its candidacy has the support of all the Nordic countries.

Canada and Russia have expressed concerns about further opening up the council, which already has six European countries as observers as well as various intergovernmental and non-government organisations. The US has said it is undecided over the decision, which needs unanimity.

The Arctic is viewed as an increasingly strategic area due to the presence of many resources such as oil, as well as the possibility of quicker shipping routes between Europe and Asia as the ice in the polar region continues to melt.

China, Japan, South Korea, Singapore, India, the EU, Italy and Greenpeace are among the bodies applying at the twice yearly summit for observer status, which would allow them to attend all meetings but not participate in the ministerial conferences.

The council, which was launched in 1996 and serves as a body for international rulemaking on the Arctic.

In a sign of the importance the US is now according the Arctic, secretary of state John Kerry arrived on Tuesday in Sweden for talks first in Stockholm with the government and then in Kiruna.

China has heavily wooed Nordic countries such as Iceland, with which it signed the first free-trade agreement with a European country last month.

Oil exploration in the Arctic has proved to be incredibly difficult, but more than a fifth of the world’s undiscovered oil and gas reserves is thought to be in the region, and there is also great scope for mining of various minerals in places such as Greenland, northern Sweden and Finland.

A northern sea route through the Arctic to the north of Russia could cut several weeks off shipping times and thousands of kilometres off distances between Europe and Asia, especially in the summer, which experts think could soon be ice-free in parts of the region.”

via Arctic Council to rule on observer status for China – FT.com.

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15/05/2013

* Companies turn to India to boost their business

FT: “Oil company Shell’s technology centre in the Indian high-tech hub of Bangalore is actually a facility in two halves, with a couple of campuses in different locations around the city.

Originally unable to find one suitable site for its growing efforts, the Anglo-Dutch company decided to split the difference, setting up dual facilities, working on everything from next-generation chemicals to underwater modelling.

But now the company plans to bring everything back together, having announced plans late last year to build a giant new research and development campus on a patch of land close to Bangalore’s airport, with room for 1,500 staff, and even plans for a cricket pitch on the grounds.

Shell’s move is part of a pattern in which many of world’s largest companies are turning to India in their search for new ideas that will boost its business, and follows similar moves to open up innovation facilities around Bangalore by the likes of GE, Cisco and Siemens.”

via Companies turn to India to boost their business – FT.com.

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14/05/2013

* An addiction that could spell economic disaster

The Times: “Fund managers who between them control more than $1 trillion in assets were warned yesterday that China was in the grip of a debt addiction that could destabilise its financial system.

Traditional houses in the shadow of new high-rise apartment blocks in Shanghai

Speaking at the annual CLSA China Forum in Beijing, Francis Cheung, the brokerage’s China head, said that the country was hooked on an “unsustainable” pace of growth requiring ever-greater injections of debt to keep going.

Fifty per cent of the Chinese econ-omy is made up of investment, an unprecedented level for a country at its stage of development, sucking in increasing amounts of credit, effectively to buy growth.

Total debt in the world’s second-largest economy soared from 148 per cent of gross domestic product in 2008 to 205 per cent of GDP last year and is expected to hit 245 per cent by 2015, Mr Cheung said in a report.

But despite the rising tide of investment being poured in to build everything from houses and roads to railways and power plants, China’s credit habit is becoming less effective, with the same amount of debt generating lower returns every year.

China’s annual GDP growth has almost halved from 13 per cent in 2007 to an expected 7.5 per cent this year, while total debt has more than doubled in the same time, a development model that President Xi Jinping also has called “unsustainable”.

“China is running just to stand still … China is not a rich country; it is a lot of debt for a country at this GDP level. What I worry about is unregulated lending,” Mr Cheung told the forum.

With Chinese industry suffering from overcapacity in every sector from steel to cement to solar panels, the country “cannot use any more stimulus policies to boost growth”.

The fastest-growing debt is that shouldered by local governments, with the undisclosed sum estimated to have hit 20 trillion yuan (£2 trillion) last year — a doubling in two years. Local governments are being forced to pay more to service their debts, while their ability to raise money through selling land is slowing.

The biggest risk, Mr Cheung said, came from the growing use of unregulated loans generated by “trust companies”, financial sector intermediaries that make money from offering risky loans known as “wealth management products” to private companies unable to get credit from state-run banks.

A report published by Moody’s yesterday found that China’s “shadow banking” sector had hit an estimated 29 trillion yuan (£3 trillion) last year, posing a “systemic risk” to the financial system, despite a partial clampdown in March. The credit ratings agency also warned of the threat of contagion, stemming from little-regulated shadow lending that has swollen by 67 per cent in the past two years.

Last month China sudffered its first sovereign credit rating downgrade in 14 years as Fitch lowered its appraisal amid fears that its debt problems would necessitate a government bailout.”

via An addiction that could spell economic disaster | The Times.

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14/05/2013

* Right thing to do comes with a price tag

Now we know why the Chinese government has been hesitant about correcting the rights of its vast migrant worker population. If the public expenditure required to turn a rural migrant worker into an urban citizen is estimated to be around 80,000 yuan ($12,664) in China, then the total for the estimated 230m migrant workers to be fully urbanised will cost some 3 trillion US dollars. A cost even China will find too large to handle in one go.

The Times: “100,000 … yuan is the estimated cost of turning a rural resident into a fully registered urbanite and providing them with all the healthcare, education and social security rights denied to China’s vast migrant worker population when they move to the cities.

Workers weld a standing on the roof of a building at the Guanyinqiao Pedestrian Street in Chongqing Municipality, China

Dangerously belated reform of China’s household registration — hukou — system may or may not be unveiled by Beijing this year. Clearly there is the political will, but officials mutter that the reform package is snagged on the details.

If that £10,600 estimate proves even close to reality (it’s a government estimate, so don’t expect too much from it) and if the reforms were tested initially on a limited basis to affect only 10 per cent of China’s overall migrant worker population, that would still cost about two trillion yuan (£211 billion). If the Government shouldered only a third of that (splitting the financial burden three ways with companies and employees), China would be paying more on this first blush of hukou reform than it is spending on its entire military budget.

But, according to the CLSA economist Andy Rothman, it would be money well spent. Grant migrant workers an urban household registration and all sorts of good things would happen. They would become consumers, they would become a more highly skilled and better-educated slab of workforce. They would be a less consistent source of social unrest.

For Beijing, it is painfully clear that foot-dragging on hukou reform is really not an option any more. If the Government flinches at the cost, the very considerable social implications or the politics of reform, China’s great urbanisation story could lurch from nice to nasty in short order. Miss the chance to reform and, at best, the whole programme of switching China’s growth model towards consumption stalls because tens of millions of migrant workers are forced to remain precautionary savers. They would remain unwilling to think of more than a small percentage of their income as disposable because, without an urban hukou, they are condemned to live without the protection of a welfare system.

At worst, the migrants create a permanent underclass in each of the 150 Chinese cities with populations of more one million. As the administration in Beijing knows well, this is not an underclass that could be relied on to behave itself: without reform, it will only grow angrier.

The problem, as usual, is one of scale. China’s 234 million migrant workers are unambiguously the backbone of the economy. Somebody has had to constitute an unlimited supply of labour and be prepared to work at a subsistence wage for the Chinese “miracle” to work at all. The migrants are those people. Migrant workers keep China’s factories humming, they cook, they clean, they funnel money from the cities to the countryside and, most symbolically, they built the place as 90 per cent of the construction industry workforce.

And the problem is that they all have mobile phones and internet access. Much though China would like to test out a bit of hukou reform on a smallish initial batch of 20 million people (equivalent to the population of Romania), as soon as that process began the other 210 million migrant workers (equivalent to the population of Indonesia) would start asking why some were receiving the blessing of urban residency and not others.

It’s an all-or-nothing game, unfortunately for Beijing, and that calculation of 100,000 yuan per person suddenly implies a £1 trillion burden for the State.”

via China in numbers: right thing to do comes with a price tag | The Times.

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14/05/2013

* Britain launches ‘super priority’ same-day visa service for Indians

Times of India: “Britain on Tuesday rolled out the same-day visa for Indians, making it the first country to get a visa to visit UK within 24 hours.

Taj Mahal, Agra, India. Deutsch: Taj Mahal im ...

Taj Mahal, Agra, India. Deutsch: Taj Mahal im indischen Agra. Español: Vista del Taj Mahal, Agra, India. Français : Le Taj Mahal, à Âgrâ, en Inde. Русский: Мавзолей Тадж-Махал, Агра, Индия. (Photo credit: Wikipedia)

The same-day visa service was announced by British prime minister David Cameron during his recent visit to India.

However, it comes with a fat price – it will cost £600 (nearly Rs 50,000) in addition to the price of the visa.

Those in Delhi and Mumbai will be able to apply for this service.

The UK home ministry said the ‘super priority’ visa is the first-of-its-kind to be launched ever and there are plans to expand the scheme to Chennai in the next few weeks.

Immigration minister Mark Harper said “this government is committed to encouraging international business to invest in Britain. India and Britain have a long history of trade and we run our largest visa operation in the world there. We are delighted to be able to launch our first same-day visa service in Delhi and Mumbai, and make our world class visa service even better.”

UK home office added that the service will be available to those who are applying for a six-month or two-year multiple entry visitor visa (excluding student visit visas) and have travelled without difficulty in the last five years to one of the following countries – UK, US, Australia, New Zealand, Canada or a Schengen country. Those who are employees of companies that are members of the Business Express Programme (managed by UK Trade and Investment in India) and are travelling as an official business visitor will also be able to apply.

The Home office added “We strongly recommend that customers with any form of adverse immigration history do not use this service. Using the super priority visa service does not imply or guarantee in any way that your visa application will be successful. All applicants must meet the requirements of the UK’s immigration rules.””

via Britain launches ‘super priority’ same-day visa service for Indians – The Times of India.

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14/05/2013

* India and China; making up, but what about trade?

FT: “Salman Khurshid, India’s foreign minister, is back from a trip to China last week, happy to see the end of a tense stand-off over a long-running border dispute. Settling that issue will re-open the way for a planned visit by Chinese Premier Li Keqiang to India and allow the two countries to concentrate on the big topic on Khurshid’s agenda: trade.

But here, too, relations between the region’s big powers are not entirely friendly.

Back in November 2011, India and China set a target for bilateral trade of $100bn for 2015. That’s quite a leap from $2.3bn a decade ago and marks a concrete step in bringing the two nations closer together.

But the balance of trade is strongly in China’s favour. Now Kurshid has put the November 2011 agreement “on pause” until the imbalance is resolved.

According to India’s department of commerce, India’s exports to China in April to December 2012 were worth $9.7bn. In the same period, China’s exports to India were worth $41.2bn – a bilateral trade deficit for India of $31.5bn, nearly a quarter of India’s entire trade deficit in the period.

Khurshid claimed not to have minced his words:

We said that let the trade imbalance be addressed upfront as an urgent priority, and then of course we can move to the next stage which is the regional trading arrangement.

What does the minister want from China? One target is better market access, especially for India’s IT and pharmaceuticals companies. Indian business leaders complain that exports to China would be much greater if China’s big state owned enterprises could be persuaded to source from foreign suppliers.

But others say a lack of competitiveness among Indian manufacturers contributes to the problem.

“China has a very competitive manufacturing sector that is able to produce at a large scale pretty efficiently and for reasonable prices,” says Louis Kuijs, chief China economist at RBS.

“Sometimes we would be inclined to think there is a lot of [Chinese] government policy behind this. People point to the subsidies that China’s government has given to industries in the past and companies having preferential access to loans. But in the bigger scheme of things, those subsidies aren’t the driving force. China is a bit ahead in industrialisation and has becomes very competitive globally.”

Kuijs doesn’t think this is about to change. Chinese manufacturers do good business in India in both consumer goods and capital goods. And he takes the view that, despite the current cyclical slowdown, both consumption and infrastructure investment will remain robust in India, so demand for Chinese products will continue to grow.

A little tinkering on a calculator provides a bit of good news for Indian trade, however. According to data from the World Trade Organization, India’s global merchandise exports grew faster than China’s between 2005 and 2012. Over the seven-year period, India’s exports grew at an average 18.3 per cent a year, against a figure of 16.3 per cent for China and 9.4 per cent for the world as a whole.

So, Indian exports are growing relatively quickly. But China’s lower growth comes from a far higher base. In 2012, China exported goods worth more than $2tn while India’s exports were worth $293bn. Even with their faster rate of growth, it will take a long time for India’s exporters to catch up on China’s lead.”

via India and China; making up, but what about trade? | beyondbrics.

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13/05/2013

* Alibaba’s Jack Ma and actor Jet Li open tai chi school in China

SCMP: “Movie star Jet Li has joined up with renowned Chinese internet entrepreneur Jack Ma to open a tai chi school in a bid to promote the traditional exercise.

Ma is founder of the world’s biggest online retailer, Alibaba, where he stepped down as chief executive last week saying he wanted to do more in education and the environment.

Former Alibaba CEO Jack Ma performs tai chi at the opening ceremony. Photo: Reuters

He is a keen devotee of tai chi, and has made references to Chinese martial arts in both business strategy and corporate culture.

Jet Li speaks at the unveiling of the school in Hangzhou. Photo: AFP

Li rose to fame for his kung fu skills and has starred in such films such as the Chinese historical epic Hero and the Hollywood blockbuster The Mummy: Tomb of the Dragon Emperor.

The school in Hangzhou will teach tai chi and martial arts under a disciple of a well-known master, said a statement from Ma’s company provided on Monday.

It is part of a larger development in a wetlands park which includes commercial services, according to the statement.

The film star and the entrepreneur already have a jointly-owned cultural company which provides tai chi training to company employees.”

via Alibaba’s Jack Ma and actor Jet Li open tai chi school in China | South China Morning Post.

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13/05/2013

* Myanmar Pipeline Puts China Ahead in Energy Shipping Dilemma

WSJ: “A new crude oil pipeline through Myanmar due to begin operations in September will put China in a favorable position compared to other Asian economic powerhouses challenged by energy security issues.

China’s Myanmar pipeline, which in the photo is under the red dirt trail, means it will be less dependent on the Strait of Malacca for its imported oil needs.

At a capacity of 440,000 barrels a day, the pipeline—running from Myanmar’s coast at the Bay of Bengal to China’s southern Yunnan region—will allow China to send less crude through the Strait of Malacca. The narrow waterway by Singapore, where the U.S. Navy has a strong presence, is considered a major threat to secure energy supplies by major Asian economies dependent on crude shipments from the Middle East and Africa.

China—helped by its own domestic oil production of just over 4 million barrels a day—last year relied on the narrow waters for around 37% of its total demand. That share will drop to about 30% once the Myanmar pipeline comes on stream.

In comparison, Japan, South Korea and Taiwan all rely on the Strait of Malacca for around 75% of their total oil consumption, in part due to their small domestic production.

The Myanmar pipeline, which will run parallel to a major natural gas pipeline, comes on top of a string of oil and gas import pipelines already completed or planned to supply China’s less-developed inland regions.”

via Myanmar Pipeline Puts China Ahead in Energy Shipping Dilemma – China Real Time Report – WSJ.

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