continuously updated blog about China & India
You will be living in their world, very soon
Beware the Waking Dragon
WSJ: “The Indian government sold 9.5% of power producer NTPC Ltd. on Thursday, which will raise around 114 billion rupees ($2.1 billion) as it seeks to plug its fiscal deficit by selling stakes in state companies.
The NTPC sale followed the successful auction Friday of a 10% stake in oil producer Oil India Ltd. The government raised more than 31 billion rupees in that sale, which attracted strong demand from foreign investors.”
First the talking – now the walking.
Reuters: “China unveiled sweeping tax reforms on Tuesday to make wealthy state-owned firms, property speculators and the rich pay more to narrow a yawning gap between an urban elite and hundreds of millions of rural poor.
The plans approved by the State Council – China’s cabinet – also included commitments to push forward market-oriented interest rate reforms to give savers a better return and more security.
Chief among the reforms is a requirement to raise the percentage of profits contributed by state-owned firms to the government by about 5 percentage points by 2015.
Together with measures to raise wages and improve households’ return on assets, the reforms signal an attempt to shift economic growth towards increased consumption and away from the current reliance on investment spending.
“The State Council is not just talking about the gap between rich and poor, they’re talking about the whole economy and how income is distributed among various actors – the households, the corporations and the government,” said Andrew Batson, research director of GK Dragonomics, an economic consultancy in Beijing.
“It’s about changing the entire flow of income around the national economy.””
via China OKs sweeping tax reforms to tackle inequality | Reuters.
See also: https://chindia-alert.org/2012/12/10/china-wealth-gap-continues-to-widen-survey-finds/
Another article about the ‘return’ of manufacturing from China; this time to Britain.
Sunday Times: “Janan Leo had waited what felt like for ever to find a British shoemaker to help bring production of her ballet pumps to Britain from China.
When Leo launched her company, Cocorose London, in 2007 the savings offered by cheap Chinese labour outweighed the benefits of British production. In recent months, however, her costs have gone up about 30% because of spiralling wages and raw materials prices in the Far East and rising shipping fees.
“In the early days we had the bags for our shoes made in London, but it was far too expensive so we sent everything offshore,” said Leo, 32, who had sales of £1m last year. “Now the cost advantages are less clear-cut.”
In 2011 she approached a family-owned factory in Northamptonshire, near the headquarters of the renowned Church’s and Loake shoe brands, to make a new range of pumps.
At first, the supplier was unsure. “They were worried about sourcing materials and the cost of the equipment needed just to make the samples. These aren’t problems I’ve ever had in China.”
The deal went ahead and Cocorose’s second luxury collection is now on sale. “British manufacturing is still not as cheap as in the Far East but the upsides more than offset the costs. Customers in Japan and South Korea are going mad for the British heritage [and] the quality is outstanding.”
It started as a trickle, but now a steady stream of small firms are bringing some or all of their manufacturing home as the gap between Chinese and domestic production costs narrows. Chinese pay has doubled over the past decade.
Small firms are also finding that supply chains stretching from Beijing to Britain are vulnerable to disruption. More than a fifth said cashflow complications from delayed orders had hurt their businesses, according to research by EEF, the manufacturers’ group.
“Companies in sectors as diverse as clothing, components and computer equipment are all weighing up whether to bring production back home,” said Simon Nicholson, an international trade adviser at Barclays. “It’s driven by cost and delivery, but firms are also catching on to the idea of Britain as a brand with real cachet in foreign markets.”
Yet factories here may be ill- equipped to meet this growing demand. “British firms have been quietly starting to bring contracts back home since about 2009, but it is taking time for them to find the right suppliers, and for producers to buy the plant and machinery needed,” said Lee Hopley, chief economist at the EEF.
Andy Loveland’s business, Earlyrider, has used a Chinese manufacturer to make its wooden Balance Bikes for small children since its launch in 2006. But Oxfordshire-based Loveland, 41, wanted a British company to make his latest product, a toddlers’ ride-on toy called the Spherovelo.
“We needed to work closely with an industrial designer and to control production because the Spherovelo is completely original — and, unlike our Balance Bikes, labour would be only 15% of overall production costs.”
Loveland’s experience with Inject Plastics, the Plymouth factory he commissioned to make the tools and produce the Spherovelo, was mixed. “The tooling was supposed to take three months, but in the end it was seven. It meant we had to let down a key customer, which was devastating.”
Inject went into administration but in December it was bought by Magmatic, the business behind the Trunki ride-on suitcase for children. Rob Law, Trunki’s founder, had moved production from China to the factory seven months earlier.
He said: “It was a long-held ambition to manufacture in Britain — for ourselves and other companies, such as Spherovelo — and shipping was going through the roof.” Magmatic’s door-to-door transport costs rose 58% in the first five months of 2012.
Since the move to Britain, Trunki’s lead times have shrunk from 120 days to 30. As a result, the firm holds less stock, and pressure on cashflow has been eased. “Best of all, we saved jobs and created new ones,” said Law.
Andrew Cock has also opted to take manufacturing into his own hands. In May his £30m-turnover company, Multipanel UK, will open a factory near Dover making panels for road signs and shop fascias. The £5m facility will use Taiwanese machinery and British recycled plastic to make about 60% of the firm’s output. The rest will continue to be made in China for sale to Asian customers.
“We took the decision a couple of years ago when Chinese costs started rising,” said Cock, 51, who reckons that labour has increased 30% over 18 months, while raw materials are up about 15% after currency movements are included.
“It’s not just a financial decision, it’s about quality too,” added Exeter-based Cock. “We want to win business by making the best product at the least cost. We also think that cutting our products’ carbon footprint will open the door to big corporate customers with a corporate social responsibility agenda.”
Multipanel’s investment has so far been funded from cashflow, but not all manufacturers in loan-starved Britain have access to expansion capital.
“We are working with lots of producers that have downsized during the recession but are now being asked to make small, high-quality batches,” said David Wright of Growth Accelerator, a government-backed advisory service. “They have the skills to adapt to new jobs but they lack the cash to scale up.””
via The slow boat back from China | The Sunday Times.
See also:
Reuters: “Venezuela‘s government and state oil company PDVSA are in urgent talks over a long-expected $6 billion in loans from China and U.S. energy giant Chevron that would help relieve the nation’s strained finances, sources close to the discussions said.
Oil Minister Rafael Ramirez said this week that PDVSA had no plans to issue any more dollar-denominated bonds, confounding widespread speculation that one was planned to address a chronic shortage of dollars for local businesses.
That has left the government in the OPEC member seeking other forms of financing, amid pressure to order a devaluation of its currency that would ease the pressure on its cash flow by providing more bolivars for every dollar of oil sales.
Its top priority is a deal agreed last year with China Development Bank for a $4 billion loan this year.
Venezuela has borrowed $36 billion from China in recent years – repaid with oil shipments – making Beijing the single biggest foreign source of funding for the country’s socialist government, according to finance ministry data.
But a source close to the talks told Reuters that the Chinese team wanted to toughen the terms of the deal.
“The Chinese have introduced a clause that the Venezuela team decided to reject,” the source said, without describing the proposed change. “That was holding things up until recently, but they are coming to an agreement on the amendment.””
via Exclusive: Venezuela seeks $4 billion China loan, $2 billion Chevron credit – sources | Reuters.
Sydney Morning Herald: “Thousands of Chinese communist officials have been panicked into a fire sale of their illicit properties and billions of pounds have been smuggled overseas as the country’s new leaders intensify a campaign to root out corruption.
Luxurious properties are being dumped on the market in Beijing, Shanghai and Guangzhou for anyone able to pay in cash as officials try to cover their tracks. A report by the party’s anti-corruption unit, the Central Commission for Discipline Inspection, said “a wave of luxury home sales began last November and has accelerated since December”.
It said the volume of deals had intensified by “a hundred times” after Xi Jinping, the incoming Chinese president, warned that corruption could kill the party and put one of the country’s most vigorous and resolute politicians, Wang Qishan, in charge of stamping out graft.
Fu Zongmo, an estate agent in Sanya, Hainan, said his colleagues had sold two houses recently for government officials. In recent years, the tropical beaches and golf courses of Sanya have attracted plenty of speculators but recently the market has stalled.”
via Panicked property fire sale in China amid corruption fight.
WSJ: “If you’ve just moved into a newly built apartment in central London, don’t be perplexed if your neighbors speak mostly Chinese.
Market-cooling measures in Asia have helped fuel interest in London’s real estate market—long a popular destination for property buyers on the prowl, says property consultancy Knight Frank. Last year, overseas buyers spent $3.5 billion on apartments undergoing construction in central London, up 22% from the year earlier.
Together, buyers from Singapore and Hong Kong snapped up nearly 40% of all such apartments in central London. Adding in buyers from Malaysia and mainland China, Asian buyers accounted for roughly half of all purchases. By comparison, U.K. buyers made up just 27% of all purchases of apartments under construction, according to Knight Frank’s latest figures. Such figures were generally consistent with those seen in 2011.
Among overseas buyers, more than two-thirds bought for investment purposes, says Knight Frank, while another third said they were motivated to buy for a child enrolled at a local university.”
via Asian Buyers Snap Up Half of New London Homes – China Real Time Report – WSJ.
Another step forward in liberalisation.
WSJ: “India’s foreign investment promotion agency has cleared Swedish furniture giant IKEA Group’s proposal to invest nearly $2.0 billion for setting up wholly owned retail stores in the country, Economic Affairs Secretary Arvind Mayaram said Monday.
Mr. Mayaram is also the head of the Foreign investment Promotion Board, the agency which clears foreign direct investments in India.
A spokeswoman for IKEA didn’t immediately comment.
The board had cleared the retail giant’s proposal in November subject to certain conditions. However, IKEA wasn’t happy with the conditions, which prevented it from selling products that it doesn’t brand, including secondhand furniture, textile goods, toys, books and consumer electronics as well as food and beverage items in cafeterias within its stores.
It thereafter wrote to the Indian government, seeking the removal of these conditions.
“Now, the proposal has been cleared in its entirety,” said another official, who didn’t want to be named.
IKEA now needs the approval of the federal cabinet to set up its outlets in India.”
via India Agency Clears IKEA’s Investment Proposal – WSJ.com.
Well reasoned analysis that goes behind and beyond headline figures – as expected from the EIU.
EIU: “China’s working age population is set to peak in 2013, according to the Economist Intelligence Unit‘s latest demographic projections. However the impact of this milestone on the country’s economy will be different from the experience of other, predominantly rich countries that have already undergone the process. While ageing, the country’s urban workforce will continue to grow. It will also become much better educated.
In the developed world, ageing is most commonly associated with shrinking workforces relative to the rest of the population, giving rise to pension cuts, postponed retirement and higher taxes on the young. As an economy still in transition, China need not fret about such issues. For a start, China’s state pension system is far from generous and its coverage low. Rather, the country’s biggest fear is that of worsening labour shortages—a phenomenon that was first reported in the mid–2000s and was subsequently the subject of much attention in the national media. There are two good reasons why these fears are overblown.
Rural fuel
First, China is still in the midst of a massive urbanisation drive. When the working-age populations of Germany and Japan, the world’s largest ageing economies, began to shrink in 1999 and 1995 respectively, the process of massive rural-to-urban migration had already matured. The proportion of the population residing in urban areas, or the urbanisation rate, had more or less stabilised at 73% and 65% respectively.
In contrast, China’s urbanisation rate will only reach 55% this year and is likely to continue rising by around one percentage point (or 13m people) every year, according to our projections. China will only reach Japan’s level of urbanisation by 2022 and Germany’s by 2030. Thus, even though China’s working-age population will shrink overall, the urban working-age population will only peak in 2029 after reaching 695m—135m higher than it was in 2012.
The flip side of this trend is a shrinking rural population. However, China’s rural population has been diminishing for three decades without much adverse impact on agricultural output. That is because its countryside is overpopulated: there are too many farmers working too little land. Indeed, China has even managed to boost agricultural output over the years by investing in machinery and technology.
It is difficult to pinpoint exactly how many more workers the agricultural sector can afford to lose before a large impact on farm output is felt. However, most economists agree that another 100m or so is achievable. Coupled with the fact that the primary sector only accounts for 10% of GDP, it becomes clear that, when it comes to maintaining economic growth, the urban workforce is really the only one that matters.
From factories to classrooms
Second, China’s labour shortages have largely been misdiagnosed. Much ink has been spilt attributing the lack of young workers for unfilled factory vacancies to demographic factors. Yet the number of Chinese aged 16–24 increased from 196m to 210m between 2000 and 2010. The rise in urban areas is even greater. Where, then, did all the young workers go? The answer is simple: they went to school.
The proportion of junior secondary school graduates continuing on to senior secondary school surged from 51% to 88% between 2000 and 2010. At the same time, the proportion of Chinese aged 16–19 that were either employed or seeking employment (the labour participation rate) fell from 57% to 34%. The relationship is clear: rising enrolment rates at schools have played a major role in postponing entry to the workforce.
The surge in school enrolment implies that the supply of young workers entering the job market will not only remain stable as China passes its demographic turning point, but might even grow. Enrolment rates cannot rise forever, and all the would–be teenage workers that were absorbed by the schooling system over the past decade will enter the workforce sooner or later.
As China’s youth becomes better educated, the coming decade will witness the emergence of a two-tiered workforce. One tier will consist of graduates looking for office jobs. The other will remain the country’s “traditional” source of labour: relatively low–skilled rural migrants seeking work in factories and construction yards. The latter group will, however, have aged substantially, creating new challenges for managers and HR departments across the country.
China’s workforce challenge is thus twofold: policymakers need to ensure that there are enough white-collar jobs for graduates, while employers of low-skilled workers will need to come to grips with hiring and managing an older workforce. Failure to do so will have serious consequences. An educated class disillusioned by high unemployment is something China can ill afford at a time of rising social tensions. At the same time, an inability to replace young workers with older ones could spell the end of the golden age of China’s mighty manufacturing sector.
Yet, if the demographic transition is managed successfully, there will be just cause to celebrate. The Chinese economic miracle has pulled more than 200m people out of poverty over the past 30 years. In the last ten, it has allowed 60m children who would otherwise never have finished secondary school to do so. The next task will be to ensure that their studies have not been in vain.”
via Peak demographics.
WSJ: “China is losing its competitive edge as a low-cost manufacturing base, new data suggest, with makers of everything from handbags to shirts to basic electronic components relocating to cheaper locales like Southeast Asia.
The shift—illustrated in weakened foreign investment in China—has pluses and minuses for an economy key to global growth. Beijing wants to shift to higher-value production and to see incomes rise. But a de-emphasis on manufacturing puts pressure on leaders to make sure jobs are created in other sectors to keep the worlds No. 2 economy humming.
Total foreign direct investment flowing into China fell 3.7% in 2012 to $111.72 billion, the Ministry of Commerce said Wednesday, the first annual decline since the fallout from the global financial crisis in 2009.
Then, a 13% fall in foreign investment into China reflected dire conditions for business in the U.S. and Europe, and global risk aversion, which choked off capital flows. Economists say the drop in 2012 is partly cyclical, driven by slowing overall growth in China and Europe’s prolonged debt crisis.
But it also is the result of a long-term trend of rising wages and other costs that have made China less attractive, especially for basic manufacturing, economists say.
By contrast, foreign direct investment into Thailand grew by about 63% in 2012, and Indonesia investment was up 27% in the first nine months of last year.
Coronet SpA, an Italian maker of synthetic leather with production in the southern Chinese province of Guangdong, plans a new factory in Vietnam to take advantage of lower labor costs and to be closer to its customers in the shoe and handbag businesses, many of which have already moved there.
via China Loses Edge As Worlds Factory Floor – WSJ.com.
See also: https://chindia-alert.org/2012/12/07/apple-to-return-some-mac-production-to-u-s-in-2013/
Spiegel Online: “Star architect Zaha Hadid is currently building several projects across China. One of them, however, is being constructed twice. Pirates are the process of copying one of her provocative designs, and the race is on to see who can finish first.
London-based Zaha Hadid, widely regarded as one of the leading lights in the constellation of avant-garde architecture, has likewise become a superstar in China, where her latest designs radiate out through architecture schools and studios across the country. On a recent trip to Beijing, 15,000 artists, architects and other fans swarmed to a talk she gave for the opening of the futuristic Galaxy SOHO complex — just one of 11 projects she is designing across the country.
But the appeal of the Prtizker Prize winner’s experimental architecture, especially since the unveiling of her glowing, crystalline Guangzhou Opera House two years ago, has expanded so explosively that a contingent of pirate architects and construction teams in southern China is now building a carbon copy of one of Hadid’s Beijing projects.
What’s worse, Hadid said in an interview, she is now being forced to race these pirates to complete her original project first.
The project being pirated is the Wangjing SOHO, a complex of three towers that resemble curved sails, sculpted in stone and etched with wave-like aluminum bands, that appear to swim across the surface of the Earth when viewed from the air.
Zhang Xin, the billionaire property developer who heads SOHO China and commissioned Hadid to design the complex, lashed out against the pirates during the Galaxy opening: “Even as we build one of Zaha’s projects, it is being replicated in Chongqing,” a megacity near the eastern edge of the Tibetan plateau. At this point in time, she added, the pirates of Chongqing are building faster than SOHO. The original is set for completion in 2014.
‘China Can Copy Anything’
Zhang has issued an open appeal for help in combatting this massive, open counterfeiting operation, and lamented: “Everyone says that China is a great copycat country, and that it can copy anything.”
Piracy is pervasive in China, where counterfeit iPods, iPhones and iPads are sold openly, and even entire fake Apple stores have proliferated across upwardly mobile cities. Although China has, on paper at least, a series of laws to protect intellectual property, enforcement of these rules is wildly sporadic.
Yet You Yunting, a Shanghai-based lawyer who founded an online journal covering intellectual property issues, said China’s copyright law includes protection for works of architecture. You said he has studied the copying of the Hadid project, and added: “The two versions of the complex are quite similar.”
“SOHO could have a good chance of winning litigation in this case,” he predicted. “But even if the judge rules in favor of SOHO, the court will not force the defendant to pull the building down. But it could order the payment of compensation.””
via Pirated Copy of Design by Star Architect Hadid Being Built in China – SPIEGEL ONLINE.
continuously updated blog about China & India
continuously updated blog about China & India
continuously updated blog about China & India
CHINDIA ALERT: You'll be living in their world, very soon 