Asia News Update
China: Alipay’s online money market account platform, Yu’e Bao, growing fast
Source: Quartz, 03 July 2014
As part of Alipay, Yu’e Bao was initially designed to offer users of the online payment service a chance to see their unspent money grow between purchases. Soon users began transferring money from their savings account into the platform, as the average Yu’e Bao account now holds over RMB 5,000. This is clearly indicative of the fund’s higher rates: Yu’e Bao currently offers 4.22%, as compared to the government’s 3.35% rate for money-market accounts.
At only a year old, the platform’s fund – Zeng Libao – already possesses USD 92 billion in assets, which makes it the biggest single money-market fund in China and the fourth biggest in the world. Besides competing with banks for customers, Yu’e Bao also influences banks’ account rates by loaning money to them. Yu’e Bao makes its by loaning cash to banks low on deposits – at rates higher than the banks would offer their customers. This, in turn, forces banks to offer higher rates. As for the significance of this development, Nicholas Borst of the Peterson Institute for International Economics, said internet finance “has the potential to be a large catalyst for reform and efficiency gains in China’s state-dominated financial system.”
China: LG Chem to open electric-vehicle battery factory in Nanjing
Source: ZDNet, 03 July 2014
At an estimated cost of USD 500 million, the factory is a joint project between LG Chem and two state-run Chinese companies - Nanjing Zijin Technology Incubation Special Park Construction Development and Nanjing New Industrial Investment Group. LG Chem is reportedly covering half the price while the two Chinese firms split the remaining USD 250 million. Additionally, LG has said the factory would benefit from tax and administrative benefits from the Chinese government. The company added that they foresee USD 991.6 million in revenue by 2020.
With the plant producing batteries for electric vehicles, LG has opened the factory in an attempt to gain a foothold in China’s electric car manufacturing supply chain. The company plans on selling its vehicles to both Chinese and international car manufacturers alike, specifically choosing Nanjing for the location of the plant as the city is home to several Chinese carmakers. Moreover, it has been forecasted that China will become the largest electric car market in the world with 5 million vehicles by 2020.
India sees sales rise 36% in June, led by exports
Source: Automotive World, 01 July 2014
Ford India sustained its sales momentum with 11,935 vehicles in domestic wholesales and exports in the month of June, a 36% increase over 8,771 total vehicles sold over the corresponding period last year. While the domestic wholesales rose marginally at 7,258 vehicles in June, as compared to 7,145 vehicles in the same period last year, the exports rose to 4,677 units. Vinay Piparsania, executive director of Marketing, Sales and Service at Ford India, directed some praise towards government policies. He commented: “The Government’s decision to extend the excise duty concession is a welcome move and will certainly uplift consumer purchasing sentiments as we head into the festive season over the next few months.”
One of Ford India’s latest developments is the 2014 Ford Fiesta. Including a stunning new look, the Fiesta will offer SYNC with Ford AppLink – a smarter, hands-free in-car technology to keep drivers safely connected while on the road. The technology will also feature two India-specific apps – explore by MapMyIndia and ESPN Cricinfo. Ford India is also tailoring services toward domestic customers by organizing ‘Monsoon Ready Service Camps’ throughout the country. Designed to provide comfort driving through monsoons, the camps include a free car wash and vehicle report card, exceptional offers on new wipers, batteries, brake pads and suspension, and attractive gifts.
Singapore: Malaysian MPs unhappy over foreign vehicle permit fee hike
Source: Today Online, 07 July 2014
Singapore has decided to raise the permit fee for foreign-registered car and goods vehicles which enter the city. For cars, the Vehicle Entry Permit (VEP) will raise from SGD 20 to SGD 35 per day, whereas the Goods Vehicle Permit (GVP) affecting trucks will increase from SGD 10 to SGD 40 per month. Singapore’s Land Transport Authority (LTA), which made the changes, has stated that the modification seeks to ensure that the “the cost of owning and using a foreign-registered vehicle in Singapore is commensurate with that of owning and using a Singapore-registered vehicle.”
Malaysian MPs and drivers of the some 300,000 vehicles which enter into Singapore from Malaysia each day are naturally unhappy with the new policy. Kluang MP Liew Chin Tong said: “The increase in the charges will put additional stress on the livelihood of Malaysians in Singapore.” Anthony Tan, Pan-Malaysia Lorry Owners’ Association secretary also commented that, “The additional costs will have a trickle-down effect.” However, at least one dissenting opinion belonged to Tebrau MP Khoo Soo Seang, who said, “The Singapore Government might have increased the fees to reduce congestion and there’s nothing we can do as it is their policy.”
China: Partners SCAC and Huntsman to raise MDI splitting capacity with new plant
Source: Chemicals Technology, 03 July 2014
Huntsman and Shanghai Chlor-Alkali Chemical (SCAC) have announced plans for of a new diphenylmethane diisocyanate (MDI) splitting facility to serve their joint venture, Huntsman Polyurethanes Shanghai (HPS). The companies have said that the new facility, to be located at Shanghai Chemical Industrial Park, will double capacity to 480,000t per year for the company. Huntsman Polyurethanes division president Tony Hankins commented: "The planned doubling of the upstream and downstream capabilities of SLIC and HPS respectively demonstrates our long-term vision and commitment to support the success of our customers in the region.”
Hankins also said that the increased capacity mirrors expected demand for products which MDI contributes to. MDI is needed to make production polyurethanes, which are in turn used in applications such as construction, automotive, footwear and appliances. Hankins was quoted as saying: "We've seen an upsurge in demand from Asian customers for higher quality, differentiated products and the new splitter will help us to meet these needs, providing our customers with a full range of next-generation solutions for the insulation, automotive, bedding, furniture, adhesives, coatings, elastomers and footwear markets."
India: Minister of Chemicals and Fertilisers stresses importance of chemicals industry
Source: The Economic Times, 04 July 2014
Amidst bold statements calling India’s chemical industry to “rub shoulders with the likes of China, Japan, Germany and the US," Minister for Chemicals and Fertilisers, Ananth Kumar, said the government was developing a plan to bolster the sector. At the India Chem 2014 International Conference, the minister said of the plan: "The philosophy of the new government is that it should not function merely as a regulator but should act as a facilitator.” Specifically, India is looking to setup “reverse SEZs” in Iran and Myanmar, from which the chemical industry can source their materials cheaply. The minister also noted that the sector should concentrate more on exporting finished products and specialty chemicals, rather than commodity compositions and building blocks.
Generally speaking, the Indian government will not only seek to boost the chemical industry’s growth, but to make sure it grows in a way that is beneficial to the country. Setting a high bar, Kumar said that projects should add to the country’s economic growth, grow employment, and all the while mitigate pollution.
The Philippines: Marubeni selects Calata Corp to do testing for its agricultural chemical products
Source: Interaksyon, 30 June 2014
The Japanese company has chosen Calata to conduct market tests for its products in the Philippines. Marubeni is a large conglomerate that deals in food, chemicals, machinery, finance, logistics, real estate, metals, mineral resources and energy. Regarding the deal, Calata released a statement saying it hopes to “draw additional business opportunities that will further increase Calata's continuing business growth as well as its continuous drive to be the country's leader in agribusiness industry."
Calata already has ties to Marubeni as it is the distributor of a type of animal feed for New Hope Group, which Marubeni is a strategic partner of. Calata is also a distributor for companies such as San Miguel Corp, Syngenta, Bayer, Jardine, Dupont, Sinochem, East West Seeds, Monsanto, Planters Products and Swire.
Construction & Property Development
Indonesia: Foreign-ownership ban on apartments to be eased by Joko Widodo
Source: Bloomberg News, 04 July 2014
In a move that could spur demand for property in the country’s luxury market, Indonesian presidential hopeful Joko Widodo aims to allow foreign investment in apartments to boost tax revenue. Said investors would be able to procure apartments worth at least USD 210,000 in the country’s main cities. Currently foreigners cannot directly buy Indonesian property, culminating in illegal transactions via proxies, therefore permitting them will enable a luxury tax, imposed on sales. Survey company Roy Morgan is calling the election race “too close to call.” The head of research at the Indonesian unit of Jones Land LaSalle Inc. backs Jokowi, believing that the property market will become more attractive and the government will gain more revenue, furthermore foreigners could by many more properties in Indonesia than in rival countries such as Australia in terms of cheaper prices.
Currently foreigners use their Indonesian wives or husbands to buy property. The markets needs to be opened with controls to avoid “wild” price gains, nonetheless “this will benefit Indonesia as it will boost fund flows into the market and spending” according to associate Director at Knight Frank LLP, Jakarta. Furthermore, foreign ownership of residential property could more than double if this plan comes into force.
Hong Kong: Mainland development firms buying up property as local interest cools
Source: Reuters, 01 July 2014
Large Chinese companies have been making incursions into the Hong Kong property market recently, splashing out large sums of money. Moreover, the inflated bids – sometimes 20% higher than expected – are pushing up real estate prices. Though prices in the territory have more than doubled since 2008, a possible bubble has not been enough to stop the wave of investment. A senior executive at a Hong Kong property company commented: "Chinese developers are more optimistic, while locals remain pessimistic due to uncertainty in the market."
Hong Kong has attracted Chinese investment for several reasons. China’s own looming property bubble has led to a wave of regulations by the Chinese government aimed at restraining rampant investment and investors never know when more restrictions may be on the way. Chinese developers, in turn, have looked at envy at the huge earnings of Hong Kong developers and are seeking large margins – something they may not see as home transactions are experiencing a downward trajectory. Lastly, Mainland developers also see Hong Kong as a stepping-stone to further investments. Investment in the territory offers them experience abroad and an opportunity to build their brands.
Vietnam: Taiwan firm Formosa Plastics Group requests its own SEZ in wake of anti-China riots
Source: Thanh Nien News, 07 July 2014
The Taiwanese firm experienced large losses due to May’s anti-China riots in Vietnam. Formosa had been building what is to be the largest steel mill in Southeast Asia when riots halted construction. Lin Hsin-I, head of Formosa’s parent company, said the plant was losing USD 10m each day construction was delayed and also suffered USD 3m in damage. The request for the company’s “own SEZ,” to be controlled by the central Vietnamese government, is thus an attempt to attract more investors. In addition to the SEZ, Formosa also sought steel sector safeguard measures and waivers on import duties for their equipment.
Vietnamese analysts have called Formosa’s requests “highly unusual.” Regarding, the SEZ, under Vietnamese law, Le Dang Doanh, an economist and former government advisor, said they are “beyond the scope of Vietnamese law. They are unprecedented in the history of foreign investment in Vietnam.” Vietnamese analysts are also surprised by these requests because the Vietnamese government has already made attempts to appease companies affected by the riots through clearing unpaid taxes, lowering local fees, granting tax extensions, and providing compensation. Suiwah Leung, associate professor of economics at Australian National University, stated: “If Formosa is requesting compensation for damages caused by the riots, then there should be legal avenues for this, and compensation is usually paid in financial terms, not in terms of public policy.”
Consumer & Retail
Japan: Japanese investment shifting from China toward Southeast Asia
Source: The Diplomat, 04 July 2014
Seeking inexpensive labor and a safer political climate, Japan has begun to invest more in Southeast Asia as opposed to China. A Japan External Trade Organization (JETRO) report noted that 2013 Japanese investment in Vietnam, the Philippines, Singapore, Thailand, Malaysia and Indonesia hit JPY 2.33 trillion in 2013, a 100% increase on the previous year. Meanwhile, 2013 Japanese investment in China reached JPY 887 billion – decreasing 13%. Investment in Vietnam has seen the largest increase as the figure rocketed from USD 169 million in 2010 to USD 4.45 billion in 2013.
Japan is also investing heavily in Southeast Asia with an eye to capture the countries’ consumers. Japan’s population is both aging and contracting, thus Japanese firms are looking toward the emerging economies and consumers of Southeast Asia, especially Indonesia, Cambodia, Laos, Myanmar and Vietnam, whose economies are expected to average at least 5.4 percent growth each of the next four years. Indonesia, which was only second to China in the amount of Japanese investment it attracted in 2013, is already a success story for Japanese market share. Vehicle sales there have risen 10.2 percent in 2013 and 95 percent of all vehicles sold were Japanese-made.
Thailand: Consumer confidence rising since May’s coup
Source: Gulf Times, 03 July 2014
According to an index measured by the University of the Thai Chamber of Commerce, consumer confidence has been rising in Thailand since the May military coup. Consumer confidence had fallen for the previous 13 months leading up to the coup due to protests and political tensions. After falling to a 67.8 figure on the index, confidence began to rise to 70.7 after the coup. The confidence figure for June then hit 75.1. Thanavath Phonvichai, an economics professor at the university, was quoted as saying “People are happy, so we believe spending on expensive goods such as cars and houses will return.” Looking to next year, he said, “if there is not any problem, consumer confidence is expected to rise.
Low consumer confidence has hurt the overall economy. Exports were down 2.14% for May as compared to a year ago. Meanwhile, tourism, which comprises 10% of the Thai economy, showed a 6% decline in the first half of this year. Though the Bank Of Thailand lowered its GDP growth estimate to 1.5% for this year on account of these figures, it actually raised next year’s forecast to 5.5% growth as the country now has a functional government.
India: Wal-Mart introduces online sales
Source: Market Watch, 01 July 2014
Wal-Mart has announced it will now offer online shopping to registered members of stores in Hyderabad and Lucknow. The move comes as India’s ecommerce market is forecasted to expand as much as 16-fold over the next 5 years to reach USD 38 billion.
It is Wal-Mart’s hope that its online shopping feature will help Indian consumers grow more acquainted with the brand as the company’s planned expansion has been stifled by government regulation. Though Wal-Mart runs 20 cash and carry stores across India, it cannot have ones that sell directly to customers, according to an Indian ban on foreign investment in multibrand retail. Further restrictions have hampered the company’s competitiveness.
Energy, Resources & Environment
Indonesia: Tin shipments at eight year low
Source: Business Week, 04 July 2014
Indonesian tin exports are likely to drop to an eight year low with the government preparing to introduce a rule to prevent inaccurate declaration of cargoes from the world’s top supplier. Sales could decline by 13 percent to 80,000 metric tons in 2014 from 91,612 last year. Tin climbed 15 percent in 2014, amid a global shortage, after Indonesia increased the minimum tin content for exports and ordered that ingots be traded via a local exchange. Indonesia hopes to challenge the London Metal Exchange as a global pricing benchmark.
Although exports doubled to 12,779 tons in May from 5,219 tons in April, they dropped 22 percent to 34,456 tons from January to May the previous year. Solder and other exports represented 21 percent of all exports through May. Standards for quality, packaging, shape and size of shipments are set by the new rule. Companies must have separate units to produce 99.9 percent tin ignots and to make solder, 99.9 percent pure tin. Specifications based on international standards for non-ingot products will be set under the rule. For a fifth year in 2014 global demand will outstrip supplies, pushing the LME price to USD 25 thousand by the third quarter and USD 27 thousand by mid-2015. There will be a global deficit of 13,000 tons this year, 10,000 by 2015.
India: Country to receive USD 775 million from World Bank for clean energy projects
Source: The Economic Times, 07 July 2014
The World Bank’s program manager for its climate investment fund, Gevorg Sargsyan, has said the bank has green-lighted two projects: A Himachal Pradesh development policy loan worth USD 100 million and an invest program for Rajasthan renewable energy transmission. The climate investment fund’s goal is to help countries increase the scale of their demonstration, deployment, and transfer of clean energy. Meanwhile, the news follows investment from other organizations in India’s clean energy sector, as General Electric, Asian Development Bank, and Goldman Sachs have recently provided capital for the Indian companies Welspun Energy and Renew Power.
India’s clean energy sector is also expected to receive a boost from the country’s new administration. Ashish Khanna, lead energy specialist at the World Bank, has said the government’s support will “unlock pending investments.” India’s Minister for Power, Coal and Renewable Energy, Piyush Goyal, commented that the government’s clean energy push is part of securing energy security. Finally, a representative from the BJP stated that his party “believes that renewable energy will play a pivotal role in bringing power to every household in the country".
Japan: Power companies announce rate cuts amid government’s power-saving campaign
Source: The Diplomat, 01 July 2014
As Japan faces another summer without nuclear power as an energy source, the government has launched yet another power-rationing campaign. Currently, utilities are producing surpluses of only 1.6 percent above the minimum required by law, which has prompted the savings push. Hurting this government effort is the fact that ten utility companies have lowered their rates, citing cheaper LNG and coal prices. It has also been speculated that the companies want to sell power at close to capacity in order to maximize profits.
Also affected by the cessation of nuclear power are companies who had stakes in the energy. Tokyo Electric Power Co. (TEPCO), the company which oversaw the Fukushima Daiachi nuclear plant disaster, is currently planning to move into the European market, starting with the UK. The company plans on constructing large-scale energy storage centers on the continent in two years in order to enter the wholesale electricity market. In the future, more Japanese power companies may also seek markets abroad to compensate for the country’s dwindling population and demand.
Vietnam: Financial Supervisory Commission warns of economic stagnation
Source: Thanh Nien News, 03 July 2014
Vietnam's Financial Supervisory Commission has warned of economic sluggishness with more people making bank deposits than business investments. A report by the Commission issued in June noted that Dong deposits expanded 7.1% during the first five months of 2014, despite cuts in deposit rate from 7.2 to 6.4% a year. Credit growth was at a mere 1.1%, dropping the loan-to-deposit ratio from 82.4% in late 2013 to 79% in May. Private investments in the first half of 2014 dropped to 10.3% of GDP, down from 11.1% y/y, while total investments rose from 29.6% to 30.2% of GDP. Foreign investors also slowed down investments in the country, partly due to anti-China riots that destroyed factories flying Chinese flags in southern and central Vietnam in May.
New investments registered as of July 2014 dropped 35.3% y/y. Disbursed funds rose slightly by 0.9% from January to June, compared to the 5.6% increase during the first half of 2013. The committee urges the government to adjust its macro-economic policies in the second half of 2014 to focus on stimulating consumption and investments, like cutting prices on necessities. The report forecasted a gloomy economy ahead, citing a 16.2% y/y increase in business shut-downs and suspensions in the first half of 2014, coupled with a 4.1% drop in the opening of new businesses. Despite the economy growing at a faster pace than during the first half of the two previous years, major industry grew slowly at 4.1% versus last year’s 4.6%.
China: Yuebao online banking platform, a real threat to China’s banking system
Source: Japan Times, 01 July 2014
Yuebao is an online banking platform that offers higher rates than traditional Chinese banks. In March it recorded 86 million customers and is still reported to be growing at 5% a month. Chinese officials and bankers alike are naturally unhappy about the upstart banking platform that is certainly stealing customers from state banks, which are already finding it difficult to secure deposits from ordinary citizens in the country. Exacerbating the problem, if traditional banks lack funds, they turn to Yuebao for cash, which lends at higher rates than the banks are used to.
While Yuebao’s deposits make up a paltry 1% of the total deposits at banks, the service, started by Alibaba’s Alipay, is still only a year old. Moreover, other giant Chinese companies, including Tencent QQ and Baidu, have begun to offer similar services. One Chinese financial expert even purported that 30 percent of personal deposits in traditional banks could migrate to Yuebao-like services. And yet, the most powerful force Yuebao may have on its side is public opinion. The Chinese government would undoubtedly take action against the upstart online fund but that would most likely result in a public uproar, as many Chinese see the service as a type of “revenge” against the low interest rates of major banks.
Japan: Banks weighing international expansion vs. increasing dividend payout
Source: South China Morning Post, 05 July 2014
Japanese banks pay relatively little to investors. On average, three of Japan’s largest financial groups paid out 22% of profits to shareholders. This is compared to a 48% average for the world’s 40 largest banks. For the last five years, the banks have had a highly conservative reaction to the world financial crisis, as they sold shares and hoarded profits to rebuild their balance sheets. Simultaneously, they have been expanding abroad in response to reduced lending in Japan during that period.
Now Japanese banks are choosing between improving their payouts or bolstering their capital through more expansion. What they will choose is still unclear. The three largest banks in Japan have set a target of 26% of profits for dividend payouts. The companies’ presidents have even spoke of raising that number to 30%, but as no share buy-back plans have been announced, there is by no means a guarantee that the payouts will rise. Equivocating on the subject, a spokesperson for Mizuho said: "We will continue to pursue the best balance between maintaining stable capital and providing steady returns to shareholders.” On the other hand, some banks do not see a choice between the two, maintaining that overseas expansion will improve profitability, and thereby make way for increasing shareholder returns.
Logistics & Transportation
Indonesia: Ministry sets no transaction target for upcoming trade expo
Source: The Jakarta Post, 04 July 2014
The Trade Ministry will not reveal its target for total transactions at the upcoming 29th Trade Expo Indonesia (TEI) to prevent distraction of focus from post-event follow ups. According to Trade Ministry data, total booked transactions of USD 1.82 billion during 2013 exhibition was much smaller than the transaction value achieved six to nine months after the exhibition. Of the transactions, 58.49% were investments, 37.91% were goods purchased, and 3.61% were services. Deputy Trade Minister Bayu Krisnamurthi expects 10,000 buyers to attend the expo. The Ministry is set to focus on loyal buyers who have become subscribers to the event and award frequent buyers of Indonesian products as well as the five best exporting companies.
This year’s exhibition will be held at the Jakarta International Expo (JIExpo) from October 8 to October 12. The expo is expected to give wider access and export opportunities to several non-traditional countries, such as Africa, the Middle East, Eastern Europe and Latin America. Indonesia’s Trade Ministry seeks to achieve an export growth target of 4.16% this year with the kickoff of TEI. Indonesia’s trade balance has been fluctuating in the last five months. It recorded a surplus of USD 69.9 million in May after a USD 1.96 billion deficit in April. Previous two months of February and March landed with surpluses of USD 785.3 million and USD 673.2 million respectively.
Malaysia: Malaysia Airlines may go private for restructuring
Source: Live Mint, 03 July 2014
Malaysian state investor Khazanah Nasional Bhd plans to take Malaysian Airline System Bhd (MAS) private in a major restructuring work. Khazanah’s board is expected to meet at the end of July to discuss the plan and deliver an announcement by the end of 2014. MAS Shares rose as much as 16.7% in Kuala Lumpur trading on Thursday, the biggest jump in over two weeks. The airline has been hit by three years of losses due to intense competition from local and long-haul flights. In the wake of the disappearance of MH370 on 8 March, the company recorded its worst quarterly performance in two years in Q1/2014. Shares have dropped 16% since the disappearance compared to a 2.8% gain in the benchmark stock exchange index.
Khazanah has injected more than USD 1.56 billion (MYR 5 billion) into Malaysia Airlines over the past decade. However, resistance to previous restructuring efforts by the labor union has hampered the airline’s efforts to improve competitiveness. Khazanah currently owns 69.4% of Malaysia Airlines, thanks to the airline’s 83% tumble in market value over the past five years. Potential restructuring measures include selling off the airline’s profitable MAS engineering, airport services or budget airline unit Firefly, trimming its payroll and installing a new management team. According to analysts, the airline is set to post another weak performance in Q2/2014 as it continues to struggle with flight cancellations, weak passenger yields and high overheads.
India: PPT tenders USD 72 million container terminal project
Source: Port Technology, 04 July 2014
Paradip Port Trust (PPT) has launched a tendering for its USD 72 million project to construct a container terminal at Paradip Port, India. Contractor is expected to be finalized before September 2014. The terminal has a designed capacity of 125,000 DWT sized vessels by 2017.
Paradip Port has recently switched its focus from iron ore and coal traffic to container cargo handling to capture revenue from the traffic of India’s largest container port, Jawaharlal Nehru Port. The Port has sought partners to participate in USD 2.68 billion expansion projects over the next decade
Manufacturing & Industrial
China: Manufacturing growth hits six-month high in June
Source: BBC, 30 June 2014
Manufacturing PMI in China rose to a six-month high of 51 in June from 50.8 in May, suggesting positive impact by recent stimulus moves. In May, China's central bank announced plans to cut the reserve requirement ratio for banks that lends to agriculture-related businesses and small firms. Banks are also encouraged to lend more to exporters.
In April, the Chinese government offered to cut taxes on small firms and speed up the construction of railway lines across the country. Infrastructure along the Yangtze River will be introduced to connect China’s less developed inland provinces to Shanghai. In Q1/2014, China’s economy grew 7.4% y/y, down from 7.7% sequentially.
India: Major manufacturing hubs awaits new government budget
Source: ETAuto, 06 July 2014
The Narendra Modi government is set to revive India's long stagnated manufacturing sector. The sector contracted by 0.7% in 2013-14. Manufacturing stands at 15% of national GDP for almost three decades versus China’s 34%. India’s share of world manufacturing is less than 2% versus China’s 22.4% in 2012. Manufacturing in India is clustered in nature, with around 60-70% of manufacturing happening in 6-7 states like Surat (a hub for diamonds), Tirupur (textiles), Chakan (auto & auto ancillaries), Neemrana (Japanese manufacturing) and Baddi (pharmaceuticals). Across major manufacturing hubs, businesses urge for improved infrastructure, better governance, as well as financing and manpower-related issues for SMEs. The industrial town of Baddi houses leading pharmaceuticals, FMCG and textile companies and generates annual turnover of USD 10.02 billion (INR 600 billion). The town needs a new life as tax holidays, including 5 years of exemption of income-tax and 10 years of central excise, come to an end. Bhasker Iyer, divisional vice-president and head of Abbott's pharmaceuticals business in India argues for extension of excise duty exemption to promote the industrial ecosystem and employment generation. “A hybrid model incentivizing companies to develop export capabilities while continuing to support the domestic market could be an effective solution," Iyer adds. The auto hub of Chakan is home to over 4,000 SMEs who have been hit hard by the 10% slump in sales of India’s car market in 2013. SMEs are also hamstrung by poor power supply, lack of security in the industrial area and manpower issues.
Meanwhile, the Neemrana Japanese zone in Rajasthan is faced with the lack of basic infrastructure like housing and schools. RIICO has launched residential projects to cater to the demand and will be building eight large commercial projects in the Japanese zone and three in the general zone. The Delhi-Mumbai Freight Corridor too is being planned alongside a cargo airport, which will help companies move their goods to Mumbai in 24 hours. A project to extend the Metro from Delhi-Gurgaon to Alwar via Neemrana, Bhiwadi, Tapukara has been sanctioned. Meanwhile, Surat's diamond industry has been growing steadily in recent years; however, Surat anticipates the consignment import of rough diamonds be allowed to entice major diamond miners like De Beers, Al Rosa and Rio Tino to set foot in the city. The industry also seeks solutions to the 2011 RBI circular on suppliers’ credit cycle to alleviate strains on SMEs. The textiles hub of Tirupur is eagerly awaiting the Union Budget to facilitate development of its export potential. Facing stiff competition from Bangladesh, the hub is looking at ways to diversify into synthetic garments. Exporters have requested for introduction of goods and service tax to enhance competitiveness in the global market and signing the free trade agreement (FTA) with the EU. Bangladesh, which enjoys duty-free facility for exports to the EU, exports around USD 22 billion worth of garments annually, versus India’s USD 15 billion.
Indonesia: Manufacturing conditions improve on strong domestic demand
Source: Financial Times, 01 July 2014
Indonesia recorded a trade surplus of USD 70 million in May following a plunge in imports at the fastest pace since late 2009.The surplus is a huge turnaround from the USD 1.96 billion deficit in April. In line with the contraction in imports, exports fell 8.11% y/y, compared to the forecasted -5.9%. Imports shrank by 11.4% against a forecast of -5.3% from reduced consumption of machinery and capital goods. Separately, inflation grew at a healthy pace. Core prices rose at an annual rate of 4.81%, about the same as the prior month. Headline inflation moderated to 6.7 from 7.3%. HSBC’s PMI rose to 52.7 in June from 52.4 in May with support from strong domestic demand for new orders and employment. However, HSBC economist Su Sian Lim argues that the domestic pick-up “may not be the best-timed, considering the persistent and large import-driven pressures on Indonesia’s trade and current account deficits at the moment.” Indonesia remains exposed to structural vulnerabilities after the government cut its fuel subsidies. A new government to be installed may introduce new reforms.
Meanwhile, HSBC’s monthly survey of China’s manufacturing sector confirmed an improvement from 49.4 in May to 50.7 in June. State-sponsored survey suggested manufacturing conditions hit their best level of the year in June with a PMI of 51. The data suggest that economic conditions in China have stabilized after the introduction of government stimulus. Separately, South Korea suffered a dip in export due to the appreciation of won. Exports were up 2.5% y/y in June, versus forecasted 5.1%. Imports rose 4.5%, against forecasted 5.5%. HSBC’s monthly look at the manufacturing sector hit a 10-month low of 48.4 in June. A weak demand has weighed on Korea’s production. In the meantime, the Bank of Japan’s quarterly Tankan survey showed sentiment among large manufacturers in Japan moderated from a six-year high of 17 to just 12 in the last three months, missing forecasts at 15. The tankan capital expenditures survey rose from 0.1% to 7.4%. Overall company executives are still optimistic about the economy; however, the indices tracking smaller firms reflects less optimistic outlook.
Pharmaceuticals & Healthcare
Korea/China: SK Telecom announces opening of healthcare and medical centres
Source: Korea IT Times, 04 July 2014
SK Telecom has announced the opening of the ‘SK Telecom Healthcare R&D Centre’ and the ‘Shenzhen VISTA-SK Medical Center’ in Shenzhen, China. The Shenzhen VISTA-SK Medical Center, opened jointly by SK Telecom and VISTA, will have a general medical examination centre that will be able to examine 30,000 patients a year as well as four specialized clinics of family, medicine, pediatrics, dental care and gynecology. Meanwhile, the SK Telecom Healthcare R&D center will comprise of an IVD lab and an Open Collaboration Center for joint projects with partner companies.
The IVD lab will be conducting research and development for UVD devices and reagents of NanoEnTek and Tianlong, which are companies that SK Telecom has invested in. The Open Collaboration Centre will be facilitating cooperation between Korean and Chinese member companies of the Future Diagnosis Forum and other healthcare companies in China. For SK Telecom, the opening of the two centers means that the company has secured a foothold in China for its healthcare business. The company has chosen China as a key target market for its healthcare business and plans to build additional general medical centers in other major cities of the country.
India: Healthcare in dire state with many hoping for increased government spending
Source: One India, 05 July 2014
Currently, India has a multitude of healthcare problems and with the government’s first budget to be released, hopes are that attention will be paid to this sector. According to a report, the infant mortality rate is seven times that of the United States and three times that of China, with almost two-thirds of babies in rural areas born without the aid of skilled health personnel. Additionally, India has 64 million diabetics and 2.5 million cancer sufferers, the majority of which will not even be diagnosed.
With these shocking figures, it should be clear that a complete overhaul is necessary in the Indian health system and should be a high priority on the government’s list. According to the World Bank data, India spends approximately 4% on health, with 70% of that coming from people’s own pockets, meaning that government expenditure is even lower. There needs to be a firm provision for an increase in the healthcare budget, a review of existing health policies as well as the launch of new policies to improve things in the sector. Reducing the import duty on medical equipment bought by hospitals in smaller cities, for example, would encourage the delivery of high quality healthcare to rural areas.
Cambodia: Prime Minister launches five-year national disability strategic plan
Source: Shanghai Daily, 03 July 2014
The Prime Minister of Cambodia, Hun Sen, has recently launched a five-year national disability strategic plan (2014-2018) with the aim of improving the living standards and rights of persons with disabilities. According to the prime minister, “The strategic plan, consisting of ten goals, is the necessary foundation and backbone to uplift the situation of disabled persons in Cambodia. This plan outlines a vision to enhance the life quality of persons with disabilities and their families and enable them to participate on an equal footing in society. I am strongly convinced that this plan is a dynamic policy tool helping address disability issues.”
Approximately 3,000 persons with disabilities attended the launching ceremony in which the plan was announced. The ten goals include poverty reduction, equitable healthcare, judicial service, elimination of discrimination, education, freedom of expression, participation in politics, public transport and communication means, assurance of gender equity, and strengthening and expansion of international cooperation for disabled persons. Currently, the country has approximately 301,629 persons with disabilities, equating to 2.06% of the total population of 14.67 million.
China: Dairy industry draws milk from private equity
Source: The Wall Street Journal, 03 July 2014
China’s dairy industry has attracted waves of investment by private equity firms, with milk producer Huaxia Dairy receiving the latest equity pump this week. Investors including Olympus Capital Asia and sovereign wealth fund the Government of Singapore Investment Corp. pumped USD 106 million into Huaxia Dairy as part of a Series D round for the firm. The funds will enable the dairy to build more farms in China and buy more heifers.
Last month, Yunfeng Capital, a private equity firm co-founded by Alibaba Group Holding Executive Chairman Jack Ma, and Citic Private Equity, bought 60% stakes of a unit of dairy manufacturer Inner Mongolia Yili Industrial Group Co. for USD 320 million (CNY 2 billion). In February, Hong Kong-based private equity firm RRJ Capital announced plans to invest USD 243 million (CNY 1.5 billion) into Shanghai Bright Holstan, on rising demand for milk and other dairy products.
India: Private equity and VC inflow reaches USD 4.9 billion in H1/2014
Source: The Economic Times, 02 July 2014
India has attracted USD 4.93 billion in private equity and venture capital in the first half of 2014 on improved investor sentiment following general election results. PE/VC inflow into the country was USD 3.63 billion in the last six months of 2013. However, investments during January-June 2014 are lower than USD 5.48 billion recorded in the corresponding period in 2013. India has welcomed a single majority government under Prime Minister Narendra Modi. With improved investor sentiment and available capital, consulting firm Ernest & Young expects greater deal activity in the second half of 2014.
According to EY, fund raising seems to have improved with number of India-focused PE funds looking to raise money. Plans to raise about USD 2.3 billion were announced in the first half of 2014. During the same period, funds of USD 1.9 billion were raised. There has been a sustained increase in investments in technology sector with over 60 investments in the first half of 2014. Infrastructure and manufacturing segments, the new government focus, are expected to see greater PE activities. Buyout deals are also expected to increase in number.
Indonesia: New government to revive economy
Source: Institutional Investors, 07 July 2014
Indonesia’s election on July 9 is seen as a watershed for the country’s USD 900 billion economy. The political reforms following the Asian financial crisis in the late 1990s, combined with Indonesia’s emergence as a key supplier of raw materials to China, have spurred a long period of growth, attracting waves of FDI. The Indonesia Stock Exchange is Asia's best-performing market on a 5-, 10- and 15-year basis. However, growth of Southeast Asia’s largest economy has decelerated due to the unwinding of global commodities boom and slower growth in its main market, China. In the aftermath of the Fed’s tapering of asset purchases, Indonesia suffered as part of the Fragile Five emerging-markets countries. Falling commodity exports had widened the current-account deficits and tightened monetary policy has slowed down country's growth to 5.8% in 2013 from 6.3% in 2012. Growth rate is expected to decline further to 5.3% in 2014. Still a commodities-driven economy, Indonesia now faces the need to develop its manufacturing sand services sectors. However, inadequate infrastructure, labor market regulations and low productivity have held back the push into manufacturing. Indonesia’s peers, including the Philippines and Vietnam, are new darlings of foreign investors.
Both presidential candidates Jakarta governor Joko Widodo and former army general Prabowo Subianto have articulated growth programs through massive building of infrastructure. Similarly, both have been quoted on imposing restrictions on foreign investment, However, Sandiaga Uno, co-founder of Indonesia's largest private equity group, Saratoga Investama, and one of many business tycoons backing Prabowo, says the former general has been misunderstood and misquoted. According to Uno, the Prabowo government will seek to bring in more foreign investments to build up the country’s infrastructure. Meanwhile, Jokowi is seen as a better economic manager following his stints as mayor and governor. Jokowi is backed by former president Megawati Sukarnoputri and her Indonesian Democratic Party-Struggle (PDI-P). He also has the support of a number of smaller parties that together with the PDI-P have 38% of the seats in the parliament. Prabowo has an impressive coalition of parties with 62% of the seats. The election comes at a time when Southeast Asia has been grappling with slower economic growth and a rise in tensions with China. The growing geopolitical tensions in Southeast Asia may demand some muscular approach to foreign policies.
Telecommunication, Technology & Media
Indonesia: Adoption of LTE needed as mobile data traffic grows
Source: The Jakarta Post, 04 July 2014
According to an Ericsson Indonesia executive, mobile data traffic in the country is expected to grow by more than 10 times, indicating that there will need to be an adoption of long-term evolution (LTE) technology. Hardyana Syintawati, Vice President of Marketing and Communications at Ericsson Indonesia stated that, “it is projected that mobile data traffic will surge by more than 10 times between 2013 and 2019, with smartphone users expecting better and faster Internet speed to support their activities.” In a recent study by the company, it was shown that mobile data traffic in Southeast Asia and the Pacific is predicted to reach more than 2 exabytes per month in 2019, from less than 0.2 exabyte per month last year.
Meanwhile, voice traffic is estimated to grow by only 20% during the same period. In addition, it is forecasted that Indonesia will have the third-highest number of new mobile subscriptions in the region during 2019, with as many as 7 million new mobile subscriptions. Ahead of Indonesia comes India and China, with 28 million and 19 million new mobile subscriptions, respectively. Last year, it was found that Indonesia had the most mobile subscriptions out of any country in Southeast Asia with 330 million subscriptions. The Ericsson Mobility Study also estimated that LTE technology would cover up to 60% of Southeast Asia and the Pacific’s total population in 2019, surging from only 15% last year.
Vietnam: Population of 3G subscribers surges by 3 million in H1/2014
Source: Thanh Nien News, 05 July 2014
Despite two price hikes last year, the population of 3G subscribers in Vietnam has increased by three million in the first half of the year to more than 24 million. Meanwhile, the number of 2G subscribers has fallen to approximately five million. Out of the current 121.1 million mobile phone subscribers, about 20% use 3G. According to a ministry report, total revenues from postal and telecommunications services in the past six months was USD 5.73 billion, about 44% of the government’s target.
Starting in October 2009, Vietnam began offering 3G services and the number of subscribers has surged ever since, with the three leading telecommunication firms, VinaPhone, MobiFone and Viettel, holding more than 95% of the market share. All of the telecom giants have raised their 3G rates twice last year, raising average monthly fees from VND 50,000 to VND 70,000. In 2013, Vietnam had around 20 million 3G subscribers and if half of them continue to use their services by paying an additional VND 20,000 a month, the three firms would earn a combined USD 9.47 million every month. Despite the price hikes, 3G developments in Vietnam have been unaffected.
Singapore: Country’s first nano-satellite launched
Source: Channel News Asia, 03 July 2014
Singapore’s first nano-satellite, VELOX-I, was launched on 30 June as a step forward for the country’s aerospace industry. The satellite was launched from the Satish Dhawan Space Centre at Sriharikota in Andhra Pradesh and was designed and built by students and researchers from Nanyang Technological University’s Satellite Research Centre. Weighing just 4.28 kg, VELOX-I has lightweight features that can help companies save money on launch costs. In addition, the satellite has customized equipment such as a camera sensor that is radiation-resistant, extendable lenses to take higher-resolution photographs from space and solar panels that feed into an efficient power management system.
However, the main special feature of VELOX-I is that it is carrying a smaller satellite, named VELOC-PIII, which will separate from it in the next three months. The separation of the satellites would put the total number of satellites that the university has launched to four. Students will be able to monitor the movement of the satellites using advanced communications and computer systems in a state-of-the-art control centre that was completed earlier this year. Most recently, the university is building Singapore’s first weather satellite funded by the Economic Development Board for tropical climate studies. The VEOX-CI, weighing 130 kg, would be completed by September 2015.