China’s largest oil fields are the stuff of Communist Party folklore, but today they’re potent symbols of the challenges facing China’s energy industry.
Significant falls in the first half of this year at China’s biggest-producing oil fields — Daqing, Shengli, and Changqing — have solidified a moment anticipated by the global energy industry: Oil production in China is in long-term decline.
The turnabout is jarring for an industry that has long held huge political sway in China. The “Daqing Spirit”– meaning hard work in the face of challenges — has long been celebrated by top leaders. The companies have been held up as critical to fueling China’s economic rise.
The London-based consultancy Energy Aspects compiled data from China’s oil fields. It shows just how great a toll the plunge in crude prices has taken on overall domestic production.
China’s three biggest oil fields experienced production declines of between 7-9% in the first half, according to Energy Aspects. That far outpaced China’s production decline as a whole. Small gains from output in the Xinjiang region and elsewhere haven’t been enough to compensate.
The declines are important, Energy Aspects said in a recent report, “because it symbolizes a significant shift in thinking” by Chinese officials. While the government has a long-held goal of limiting imports — and protecting jobs in places like Daqing — by keeping production high, leaders seem to have realized that track was both unsustainable and expensive.
With global crude prices under $50 per barrel, many aging wells at big oil fields in China lose money with each barrel they pump. Shutting off the taps at home helps to stem losses when cheaper oil can be purchased from overseas.
So what does it mean?In short, the assets that long served as the cornerstone for revenue for companies such as PetroChina are drying up. If China’s energy giants want to be more profitable–as outside investors and China’s government are pressuring them to do–they’re going to need to look to diversify revenue.
That’s likely to include a mix of initiatives, say Chinese executives and analysts. One part of the drive might be trying to secure new oil production overseas. That would mean a renewed push for outbound deals. Big discoveries in Brazil and elsewhere appear particularly attractive to China.
The other path to future growth is more complicated. For example, China’s oil companies are keen to learn how to boost sales and profits at the thousands of retail gas stations across China. Earning more money from sales of Snickers bars or cigarettes would make them somewhat less vulnerable to the vicissitudes of global oil prices.
The bottom line: China’s oil industry, like the economy as a whole, is destined for big changes. Many of those in the coming years will involve a greater global role for the oil giants — PetroChina, Sinopec, and Cnooc — than they currently have today.
The bigger global footprint is inevitable, says one person with ties to China’s top oil executives, as production at home begins to dwindle. The international revenues are needed to stave off a domestic slowdown.
About 7,700 kilometers away from Beijing, in Djibouti in the Horn of Africa, China’s first overseas installation for naval vessels is under construction.
Scheduled to be completed in 2017, the base is set to resupply Chinese warships, according to government statements.
But despite Beijing’s insistence that the facility will simply help with escort missions, peacekeeping and humanitarian rescues in the Gulf of Aden and the waters off Somalia, many have argued this move represents Chinese “military expansion” beyond the Asia-Pacific region.
“Through exaggerating or distorting, they attempt to hype the ‘threat of China’ and tarnish China’s image, so as to suppress China’s efforts to build maritime power,” Li Jie, a Beijing-based maritime expert, told the Global Times.
“The base is far less than a military base in its scale and function,” said Zhang Junshe, a researcher from PLA Naval Military Studies Research Institute. “The base will be a logistic hub for Chinese vessels to get replenishment and temporary rest. It differs from US-style military bases, which have become bridgeheads for the country to easily and quickly wield military deterrence or intervention to other territories,” Li noted. The Republic of Djibouti, located in a strategically important position between the Indian Ocean and the Red Sea, hosts the military facilities of several countries, including the US, Japan and France, the country’s former colonial ruler. Italy and Spain also have permanent military installations in the country, according to a recent report by Hong Kong-based Phoenix TV.
These countries have stationed a variety of assets in these bases, including personnel, ships, UAVs and surveillance aircraft which are used for anti-terror and anti-piracy operations in Africa and the Middle East.
The news that China will build a “military base” in Djibouti was first revealed in May last year, when Djiboutian President Ismail Omar Guelleh told AFP that “discussions are ongoing,” and China’s presence would be “welcome.
“Since then, it has aroused wide attention and concern. The US even reportedly protested against it. “Washington protested against the China-Djibouti pact and expressed concern over China’s plans to build a military base in the Obock region, but to no avail,” according to an article published in April on foreignaffairs.com, a US-based international affairs news portal.
At a regular press briefing on November 26, 2015, China’s foreign ministry first confirmed that China was negotiating with Djibouti over the construction of a “logistics facility.” Spokesman Hong Lei citied the need to resolve resupply difficulties for Chinese escort vessels, adding “[The facility] will be significant for Chinese army to fulfill its international obligations and safeguard global and regional peace and stability.”
Three months later at a press briefing by Chinese defense ministry on February 25, spokesman Wu Qian told media that China had reached an agreement with Djibouti to build a facility and construction had already begun. According to official figures, China has deployed more than 30,000 personnel on peacekeeping missions, the most of any of the five permanent members of the UN Security Council.Since 2008, China has sent 22 escort fleets, a total of more than 60 vessels, to the Gulf of Aden and Somali waters, escorting more than 6,000 ships from home and abroad.
In March last year, hundreds of Chinese nationals threatened by escalating violence in Yemen were evacuated to Djibouti by their government.
But currently, these fleets need to dock in the ports of other countries to get rest and food supplies. “They need to organize people to purchase food locally. Besides, due to different types of fuels, refueling is also a problem,” Zhang said.
The new base will help China save money. Yang Huawen, a captain from China’s Northern Theater Command who joined a 10-month peacekeeping operation in Mali in 2014, is happy this facility is being built.
“In those tropical areas, the food goes bad quickly. The cost of mending equipment and maintenance is high,” Yang told the Global Times. “Building a logistic hub in the region can provide stable supplies efficiently and economically.”
Djibouti, with a landmass of 23,200 square kilometers of which 90 percent is volcanic desert, is poor in natural resources. Its ability to produce fruits, vegetables, and seafood is limited, according to a Chinese national who has spent time in the country. “Most of its vegetables are imported from its neighbor Ethiopia. Vegetables sell for there as much as five to 10 times what they do on the domestic market in China,” said the person.
Zhang also cited another advantage of the new facility – the Chinese government needn’t conduct diplomatic negotiations with the host country each time its vessels dock in their port.
Iran has expressed interest in joining forces with a Chinese company that plans to build a $50 billion canal across Nicaragua that links the Atlantic and Pacific and rivals the Panama Canal.Mohammed Javad Zarif, the Iranian foreign minister, said that business leaders who went with him to the Central American state this week had discussed teaming up with HKND, a private Hong Kong company that has broken ground on the project but made little progress in the past two years.
Iranian involvement in a Chinese-run strategic waterway may raise concerns in the United States, which was instrumental in building the Panama Canal a century ago.
Daniel Ortega, Nicaragua’s left-wing president, shares Iran’s antipathy towards the US and is favoured for re-election in polls this November.
The project to build the 172-mile waterway has caused controversy at home, where environmentalists say that the route would take supertankers across Lake Nicaragua, bulldoze fragile ecosystems and involve the biggest earth-moving operation in history.
With an estimated 30,000 people likely to be displaced by construction, there have been protests against the canal, although the government insists that more than 80 per cent of the population of the country backs it. Amnesty International has denounced what it called Nicaragua’s “reckless handling” of the project.
There have been doubts about the financial health of Wang Jing, the Hong Kong tycoon behind the canal, and whether he might be backed by the Chinese government, which has massively invested across Latin America and Africa in the past decade.
Mr Wang is understood to have lost more than 80 per cent of his $10 billion fortune as a result of the volatility in the Chinese stock market. The project managers say that it is an international initiative not dependent on the vagaries of the Chinese share prices. After the groundbreaking ceremony in December 2014, the project appeared to have been put on hold, prompting speculation that it had run out of steam.
However, Mr Wang’s HKND group said this year that work on the Pacific terminal and wharf would begin this month, with work on the canal scheduled to start at the end of the year.
Mr Zarif, whose country recently had years of crippling US sanctions lifted, is on a tour of Latin America that began on Monday in Cuba, which has renewed diplomatic ties with the US but has yet to have its own half-century of sanctions lifted.Nicaragua was Mr Zarif’s second stop with an entourage of 120 Iranian business leaders and state economists, and he was scheduled to head on to Ecuador, Venezuela, Bolivia and Chile.
It won’t be easy, but shifting to a productivity-led economy from one focused on investment could add trillions of dollars to the country’s growth by 2030.
After three decades of sizzling growth, China is now regarded by the World Bank as an upper-middle-income nation, and it’s on its way to being one of the world’s advanced economies. The investment-led growth model that underpinned this extraordinary progress has served China well. Yet some strains associated with that approach have become evident.In 2015, the country’s GDP growth dipped to a 25-year low, corporate debt soared, foreign reserves fell by $500 billion, and the stock market dropped by nearly 50 percent. A long tail of poorly performing companies pulls down the average, although top-performing Chinese companies often have returns comparable with those of top US companies in their industries. More than 80 percent of economic profit comes from financial services—a distorted economy. Speculation that China could be on track for a financial crisis has been on the rise.
The nation faces an important choice: whether to continue with its old model and raise the risk of a hard landing for the economy, or to shift gears. A new McKinsey Global Institute report, China’s choice: Capturing the $5 trillion productivity opportunity, finds that a new approach centered on productivity could generate 36 trillion renminbi ($5.6 trillion) of additional GDP by 2030, compared with continuing the investment-led path. Household income could rise by 33 trillion renminbi ($5.1 trillion), as the exhibit shows.
Pursuing a new economic model
China has the capacity to manage the decisive shift to a productivity-led model. Its government can pull fiscal and monetary levers, such as raising sovereign debt and securing additional financing on the basis of 123 trillion renminbi in state-owned assets. China has a vibrant private sector, earning three times the returns on assets of state-owned enterprises. There are now 116 million middle-class and affluent households (with annual disposable income of at least $21,000 per year), compared with just 2 million such households in 2000. And the country is ripe for a productivity revolution. Labor productivity is 15 to 30 percent of the average in countries that are part of the Organisation for Economic Co-operation and Development (OECD).
A new productivity-led model would enable China to create more sustainable jobs, reinforcing the rise of the consuming middle class and accelerating progress toward being a full-fledged advanced economy. Such a shift will require China to steer investment away from overbuilt industries to businesses that have the potential to raise productivity and create new jobs. Weak competitors would need to be allowed to fail rather than drag down profitability in major sectors. Consumers would have more access to services and opportunities to participate in the economy.
Making this transition is an urgent imperative. The longer China continues to accumulate debt to support near-term goals for GDP growth, the greater the risks of a hard landing. We estimate that the nonperforming-loan ratio in 2015 was already at about 7 percent, well above the reported 1.7 percent. If no visible progress is made to curb lending to poorly performing companies, and if the performance of Chinese companies overall continues to deteriorate, we estimate that the nonperforming-loan ratio could rise to 15 percent. This would trigger a substantial impairment of banks’ capital and require replenishing equity by as much as 8.2 trillion renminbi ($1.3 trillion) in 2019. In other words, every year of delay could raise the potential cost by more than 2 trillion renminbi ($310 billion). Although such an escalation would not lead to a systemic banking crisis, a liquidity crunch among corporate borrowers and waning confidence of investors and consumers during the recovery phase would have a significant negative impact on growth.
Our report identifies five major opportunities to raise productivity by 2030:
unleashing more than 39 trillion renminbi ($6 trillion) in consumption by serving middle-class consumers better
enabling new business processes through digitization
moving up the value chain through innovation, especially in R&D-intensive sectors, where profits are only about one-third of those of global leaders
improving business operations through lean techniques and higher energy efficiency, for instance, which could deliver a 15 to 30 percent productivity boost
strengthening competitiveness by deepening global connections, potentially raising productivity by 10 to 15 percent
Capturing these opportunities requires sweeping change to institutions. China needs to open up more sectors to competition, enable
corporate restructuring, and further develop its capital markets. It needs to raise the skills of the labor force to fill its talent gap and to sustain labor mobility. The government will need to manage conflicts among many stakeholders, as well as shift governance and incentives that rewarded a single-minded focus on rising GDP, even as it modernizes its own processes.
Exactly how can China’s economy become more productive? Go to Tableau Public to examine how six industry archetypes contribute to the country’s growth by province.
In a study the authors claims is the largest such experiment ever conducted, 378 Indian workers—with differing levels of productivity—were trained and hired into month-long seasonal contract jobs, working in factories that produced low-tech items such as ropes and brooms.
They were organized in teams of three workers. All 378 were paid either 240 rupees ($3.59) a day to turn up to work, or 5% more or 5% less than that amount.
In most of the teams, the three workers were paid the same amount. But, crucially, in some, workers’ pay differed according to the workers’ individual levels of productivity (which had been determined earlier). This clever design meant the economists could compare the performance of workers who earned the same amount—either high, middle or low—but differed according to whether they were members of equally or unequally paid teams.
U.S. and UK tech startups welcome in China – with a little supervision Martin Anderson. Editor, The Stack, Friday 12th August
On August 1st Travis Kalanick, CEO and co-founder of Uber, finally admitted defeat regarding the company’s three-year crusade to gain a foothold in China, with the ‘merging’ (most consider it a ‘sale’) of Uber’s Chinese operations with local incumbent Didi Chuxing. Whatever Kalanick may have recovered from the concession, it seems unlikely that Uber will recoup the billions it has already poured into its most distant territory. But there was no alternative – by January of this year, the Uber board was urging that the ride-sharing giant – such an indefatigable combatant in so many contested territories – throw in the towel.
Ultimately Didi was going to win this battle; despite cash and equity of $28 billion vs Uber’s $68 billion, Didi had reserved $10 billion to strengthen its grip on this fundamental societal change in China – almost on a par with what the better-financed Uber was willing to invest.
A headline-grabbing contest of this nature gives the false impression of China as isolationist in terms of cooperating with global tech startups – it isn’t. The country runs a UK-China tech incubator in Shenzhen, backed by Tencent and providing crucial advice on the peculiarities of the Chinese market to Brit startups. The deal even offers free office space, business counsel and pitch opportunities. Whilst willing to repel boarders on the scale of Uber, China has no problem in contributing to a post-Brexit UK brain drain.
Likewise Alibaba runs a similar scheme to increase tech migration from the United States – almost impossibly tempting for new companies dazzled by the economy-of-scale that Chinese success promises, and struggling for attention in saturated home markets. Perhaps the most useful aspect of these international schemes is the business advice from native sources – western entrepreneurs see huge opportunities in Chinese numbers, yet fail to take account of national psychology; either on an individual level (the Chinese consumer), or at the level of a state which is well aware of its riches – and needs only as much western genius to exploit them as serves its future interests in the post-sharing economy.
The country could create sustainable economic conditions in five ways, such as promoting acceptable living standards, improving the urban infrastructure, and unlocking the potential of women.
Twenty-five years ago, India embarked on a journey of economic liberalization, opening its doors to globalization and market forces. We, and the rest of the world, have watched as the investment and trade regime introduced in 1991 raised economic growth, increased consumer choice, and reduced poverty significantly.
Now, as uncertainties cloud the global economic picture, the International Monetary Fund has projected that India’s GDP will grow by 7.4 percent for 2016–17, making it the world’s fastest-growing large economy. India also compares favorably with other emerging markets in growth potential. (Exhibit 1).
The country offers an attractive long-term future powered largely by a consuming class that’s expected to more than triple, to 89 million households, by 2025.Exhibit 1
Liberalization has created new opportunities. The challenge for policy makers is to manage growth so that it creates the basis for sustainable economic performance. Although much work has been done, India’s transformation into a global economic force has yet to fully benefit all its citizens. There’s a massive unmet need for basic services, such as water and sanitation, energy, and health care, for example, while red tape makes it hard to do business. The government has begun to address many of these challenges, and the pace of change could accelerate in coming years as some initiatives gain scale.
From our vantage point, India has an exciting future. In the new McKinsey Global Institute report India’s ascent: Five opportunities for growth and transformation, we look at game-changing opportunities for the country’s economy and the implications for domestic businesses, multinational companies, and the government. The five areas we focus on by no means provide a comprehensive assessment of India’s prospects, but we believe they are among the most significant trends. Foreign and Indian businesses would do well to recognize these opportunities and reflect on how to exploit them.
1. From poverty to empowerment:
Acceptable living standards for allThe trickle-down effect of economic liberalization has lifted millions of Indians from indigence in the past two decades. The official poverty rate declined from 45 percent of the population in 1994 to 22 percent in 2012, but this statistic defines only the most dismal situations. By our broader measure of minimum acceptable living standards—spanning nutrition, water, sanitation, energy, housing, education, and healthcare—we find that 56 percent of Indians lacked the basics in 2012.
The country will need to address these gaps to achieve its potential. The task is certainly within India’s capacity, but policy makers will have to promote an agenda emphasizing job creation, growth-oriented investment, farm-sector productivity, and innovative social programs that help the people who actually need them. The private sector has a substantial role to play both in creating and providing effective basic services.
2. Sustainable urbanization:
Building India’s growth enginesBy 2025, MGI estimates, India will have 69 cities with a population of more than one million each. Economic growth will center on them, and the biggest infrastructure building will take place there. The output of Indian cities will come to resemble that of cities in middle-income nations (Exhibit 2).
In 2030, for example, Mumbai’s economy, a mammoth market of $245 billion in consumption, will be bigger than Malaysia’s today. The next four cities by market size will each have annual consumption of $80 billion to $175 billion by 2030.Exhibit 2To achieve sustainable growth, these cities will have to become more livable places, offering clean air and water, reliable utilities, and extensive green spaces. India’s urban transformation represents a huge opportunity for domestic and international businesses that can provide capital, technology, and planning know-how, as well as the goods and services urban consumers demand.
3. Manufacturing for India, in India
Although India’s manufacturing sector has lagged behind China’s, there will be substantial opportunities to invest in value-creating businesses and to create jobs. India’s appeal to potential investors will be more than just its low-cost labor: manufacturers there are building competitive businesses to tap into the large and growing local market. Further reforms and public infrastructure investments could make it easier for all types of manufacturing businesses—foreign and Indian alike—to achieve scale and efficiency.
4. Riding the digital wave:
Harnessing technology for India’s growthTwelve powerful technologies will benefit India, helping to raise productivity, improving efficiency across major sectors of the economy, and radically altering the provision of services such as education and healthcare. These technologies could add $550 billion to $1 trillion a year of economic value in 2025, according to our analysis, potentially creating millions of well-paying, productive jobs (including positions for people with moderate levels of formal education) and helping millions of Indians to enjoy a decent standard of living.
5. Unlocking the potential of Indian women: If not now, when?
Our research suggests that women now contribute only 17 percent of India’s GDP and make up just 24 percent of the workforce, compared with 40 percent globally. In the coming decade, they will represent one of the largest potential economic forces in the country. If it matched the progress toward gender parity of the region’s fastest-improving country, we estimate that it could add $700 billion to its GDP in 2025. Movement toward closing the gender gap in education and in financial and digital inclusion has begun, but there is scope for further progress.
Public-sector efforts to address the five areas are under way. The government is attempting to improve the investment climate and accelerate job creation—India’s ranking on the World Economic Forum’s Global Competitiveness Report climbed to 55 in 2015–16, from 71 a year earlier. Officials are moving to make the government more efficient, using technology that can leapfrog traditional bottlenecks of a weak infrastructure. One billion Indian citizens, for example, are now registered under Aadhaar, the world’s largest digital-identity program and a potent platform for delivering benefits directly to the poor.
Realizing India’s promise will require national, state, and local leaders to adopt new approaches to governance and the provision of services. To meet the people’s aspirations, these officials will also need new capabilities. The requirements include private sector–style procurement and supply-chain expertise, deep technical skills for planning portfolios of infrastructure investments, and strong project-management capabilities to ensure that large capital projects finish on time and on budget. Training will be needed to help staff members use digital technologies to automate and reengineer processes, manage big data and advanced analytics, and improve interactions among citizens through digitized touchpoints, online-access platforms, portals, and messaging and payment platforms. The government could acquire these capabilities by adopting quality-oriented procurement policies and taking advantage of secondments from the private sector. For businesses, India represents a sizable market but will require a granular strategy and a locally focused operating model.
No single report can capture all the changes taking place in the country, but we have tried here to identify the most significant trends. Foreign and Indian businesses should consider how their strategies will be influenced by them. Policy makers should focus on helping all stakeholders to capitalize on them. By any measure, the challenge is daunting, but success could give a historic boost to India’s economy.
For two days in row, Chinese swimmer Fu Yuanhui clambered out of the Olympic pool in Rio clueless about her breakthrough performances: breaking personal records and clinching a bronze medal.
Each time a poolside reporter had to break the news to the bubbly 20-year-old, whose vivacious epiphanies on live television have broken the Chinese internet.“I was so fast! I’m really pleased!” Ms. Fu exclaimed Monday after learning that she swam the 100-meter backstroke semifinal in 58.95 seconds, a new personal best. “I’ve already… expended my primordial powers!”
After Tuesday’s final, when told that she trailed the silver medalist by just 0.01 second, Ms. Fu replied, “Maybe it’s because my arms are too short.”
Her gleeful candor made her an overnight online sensation. Fans feted her as “Primordial Girl” in online memes and viral videos spoofing her exuberant expressions. Her Weibo microblog following swelled more than sixfold to 3.8 million users.
China has a new sports star, and never mind that she didn’t finish first. In a country long obsessed with winning gold medals, Ms. Fu’s newfound fame seemed to signal shifting social perceptions about the meaning of sport.
“‘Primordial Girl’ and the netizens who appreciate her have taught all of us a lesson: sport is about the struggle and, especially, enjoyment, but most definitely not about spinning gold,” the Communist Party’s flagship newspaper, People’s Daily, said in a Tuesday commentary.
“The warm support from netizens,” according to the newspaper, “shows that public attitudes toward competitive sport and the Olympics have sublimated to a higher level.
”Ms. Fu’s fans, for their part, credited her “authentic” demeanor, which contrasted with the mild mien typical of Chinese Olympians. “We love your happy optimism and strong personality,” a Weibo user wrote on Ms. Fu’s microblog. “That’s what makes a true athlete.
”Winning used to be everything for China’s Olympians, virtually all of whom came through a grueling state-run sports regime that fetishized success. Athletes who strike gold can expect fame and fortune, while those who disappoint often suffer neglect or even ignominy.
Liu Xiang, a hurdler who became the first Chinese man to win an Olympic gold in athletics at the 2004 Athens Games, saw public adulation turn into anguish and anger at the Beijing Games four years later, when an injury forced him to withdraw just before running his first race.E
China nonetheless crowned a grandly staged Beijing Olympics by topping the gold-medal tally for the first time, with 51 in all. Their gold haul dropped to a second-place 38 at the 2012 Games in London, and some Chinese pundits expect a further slip in Rio, to between 30 and 36.
State media, for its part, has tried to manage public expectations about China’s ebbing gold rush.
“As we mature in mentality, learn how to appreciate competition, and become able to calmly applaud our rivals, we’d showcase the confidence and tolerance of a great country,” state broadcaster China Central Television said Sunday in a Weibo post after a goldless first day.
“We still need our first gold medal to boost morale, but what we really need is to challenge ourselves, surpass ourselves,” CCTV said. By Tuesday Chinese athletes had racked up eight golds, alongside three silvers and six bronzes.The message seems to be filtering through, with many Chinese fans appearing more tolerant of athletes who underperformed.
Among the beneficiaries was Ning Zetao, a swimmer who won widespread popularity at last year’s world championships with his boyish good looks—and a 100-meter freestyle gold.
After crashing out of the same event in Rio at the semifinal stage on Tuesday, the 23-year-old appeared philosophical about his failure.
“I’ve done my best,” he told a CCTV reporter.
His comments found a receptive audience among his Weibo fandom. “This is Ning Zetao’s first time participating in the Olympics,” one user wrote. “Don’t give him too much pressure!”
5 Sectors That Will Benefit From India’s Proposed Tax OverhaulIndia’s upper house of Parliament on Wednesday approved an overhaul of the country’s tax system that, if passed in the lower house, will lead to the implementation of a nationwide goods-and-services tax, or GST.
The GST will make cars more affordable in India as it will reduce the taxes levied on the vehicles.India currently has four factory-gate tax rates of 12%, 24%, 27% and 30%, depending on the vehicle’s specifications. On top of that, there are value-added taxes, which range from 12.5% to 14.5%.
The GST will subsume all theses levies into one and passenger vehicles will likely fall into one of two tax bands: 18% to 20% for regular cars, and up to 40% for luxury autos.
Haulage and logistics companies will be able to reduce transit hours because the simplified system will mean that their drivers won’t have to wait for so long at borders to pay levies.
Currently, some companies use smaller transporters that charge lower fees because they are able to avoid paying taxes due to the inefficient system. But a more transparent tax system will mean the smaller companies are more likely to pay, leveling the field for larger players.
India’s leading 10 listed logistics companies command less than 5% of the overall market, according to a KPMG report. Stocks of some companies such as AllCargo Logistics Ltd. and Transport Corp of India Ltd. have gained more than 15% in the past month in anticipation of the passage of the GST legislation.
3 Media and entertainment
Cinema multiplex operators now pay entertainment taxes as well as several other levies to federal and state governments. The entertainment tax can be as high as 27% and operators must pay that as well as a service tax of about 15% on advertising revenue.
GST is expected to cut that tax bill, lowering operational costs and boosting margins.
Motilal Oswal Securities says that a GST rate of 18% may improve operating profit of PVR, the largest listed multiplex operator, by as much as 26%.
Consumers’ disposable income is expected to rise in the medium term if the GST rate turns out to be lower than current levies, boosting demand.
A more efficient tax system will also mean that market-stall owners and roadside vendors are more likely to pay tax, analysts say. That will create a more level playing field for larger shops and retailers who already pay.
The retail sector will likely also benefit from lower logistics costs as well as a fall in rental costs. Retailers currently shell out about 10%-15% of their operating expenditure on rent and infrastructure services, on which service tax is levied. But that levy would be reduced post-GST, benefiting retail companies like Future Enterprises Ltd. and Shoppers Stop Ltd.
Overall tax for the cement sector will likely to come down if the GST rate is set at 18%, Kotak Securities says.
After the implementation of the uniform tax, cement companies would likely pay about 920 rupees ($13.78) in tax per ton, down from about 1,320 rupees currently, the broker says. It also expects cement firms to benefit from a more efficient logistics system. This will cut costs for consumers and also help the government achieve its aim to provide housing for all by 2022.
In mid-2013, the trio decided to devise solar air conditioners based on their previous experience in the market but, after some pilots, they discovered the idea was commercially unviable.
From the ashes of their second enterprise, they did manage one small gain — a connected controller that reduced energy use by 30% during the night. Using this, they pushed their entrepreneurial energy in a new direction — towards the rapidly emerging opportunity in the internet of things (IoT) , or devices and objects that send and receive data over the internet. Rather than build large systems for this, their new venture Oakter is thinking much smaller. It is building out a series of IoT-based devices to “smarten” homes across India.
In around two years of operation, Oakter’s controllers have smartened some 10,000 gadgets, claims Shishir Gupta, without disclosing the number of homes his controllers have been installed in currently. The startup’s full launch hasn’t even happened, he says, since it is still reaching out informally to consumers. Around Diwali this year, Oakter is expected to make a big-bang offline launch and expects to reach 10,000 homes in a year and revenues of Rs 100 crore by 2018-19.
“Within 10 years, IoT will transform the way we manage our lives,” says Shishir. There are plenty of data points to back his enthusiasm. In 2008 itself, there were more objects connected to the internet than people, and technology researcher Gartner forecasts that by 2020 there will be nearly 21 billion connected devices. If the ATM was perhaps the first popular connected device in the early 1970s, hundreds of companies have since shown an interest in getting wired up.
IoT’s the Thing
In the US, the largest technology market, there has been a mixed response to various kinds of IoT. According to CB Insights, a tracker of this kind of deal data, deal volume is on track to surpass 2015’s total by 30%. Fundingwise, 2016 should be a robust year for IoT in the West, and the second year in a row of $1.2 billion-plus in funding. Several startups in the field raised significant amount of funding, including IoT software and services company Greenwave Systems ($45 million Series C), commercial drone developer Airware ($30 million Series C), and connected HVAC and lighting company Enlighted ($25 million Series D financing).However, deal flow looked less upbeat on a quarterly basis, with both value and volume declining in the second quarter of 2016. After an increase in the first quarter with 54 transactions, deal-making fell 26% quarter-over-quarter. And funding fell from $328 million to $325 million — a 9% quarter-on-quarter decline. At a global level, there is massive potential.
According to a statement from Gartner’s research chief Peter Sondergaard, the incremental revenue generated by IoT suppliers is estimated to reach $309 billion per year by 2020. This growth opens up new business opportunities, as half will be attributed to new startups and 80% will be in services, not products. Manufacturing, healthcare and insurance are expected to lead the IoT race.
Some of this entrepreneurial interest is being generated in India, too. For example, in May this year, Entrepreneurship and Venture Capital (EVC), an early stage investor, launched a $50 million unit to focus on IT.
Qualcomm Ventures, the VC arm of the global chipmaker, recently unveiled its $150 million India fund and made its first investment of $10 million in healthcare IoT venture Attune Technologies. In early July, a centre of excellence for IoT was launched jointly by software industry lobby Nasscom, the department of electronics and information technology and the Education and Research Network. This centre can house up to 40 startups and the model is expected to be replicated nationwide.