Asia News Update

Asia: Central banks in talks over looser policy

Source: Financial Times, 15 January 2015

Burgeoning Automotive Industry Lends Momentum to the Engineering Plastics Market in Southeast Asia


Central banks in Asia have encountered the dilemma of maintaining rates at record low levels and driving a possibly hazardous credit boom, or increasing them and facing inflows of hot money and appreciation of currencies. As economic growth is slowing and sharp declines in oil prices are driving inflation lower, most central banks in Asia are leaning towards looser monetary policies. The Reserve Bank of India recently announced a surprising 25-basis-point cut to its repo rate, following the rapid decline in inflation and its high dependence on imported energy. Similarly, Bank of Korea recently decided to leave rates on hold, but decreased its 2015 projections for inflation and growth by 0.5%, as the country has been facing high household debt levels following lower interest rates.

China is anticipated to take further actions to loosen its monetary conditions amid signs of delaying growth and accelerating factory price deflation. China’s December 2014 loan data recorded a fall in new formal bank lending, as commercial banks’ concerns of default risks have increased. The slowing growth across the region have also been partly driven by weak key European export markets. Asia has been expected to benefit from the sharp decline in energy prices that would quickly feed through to lower inflation, which have so far not been realized. Since most Asian countries are net importers of energy, this makes them especially vulnerable to price changes. HSBC has been forced to downgrade growth estimates for Malaysia, Taiwan, India, China and Thailand. Additionally, HSBC projects Thailand, Korea and China to decrease interest rates for Q1/2015.

Automotive

China: Volvo to be the first direct exporter of Chinese cars to the US

Source: International Business Times, 16 January 2015

Volvo will be the first worldwide automaker to export cars from its Chengdu manufacturing base in China directly to the US. Around 1,500 of Volvo S60 Inscription are expected to be sold in the US. This version is expected to be successful as it possibly is an extended version of the luxury sedan of Volvo, with a stretched wheelbase and an additional 3.4 inches of rear legroom. Also, S60 Cross Country will be launched in the US market. Further, China has surpassed the US as the biggest car market, and it is where most carmakers produce and sell vehicles. However, Volvo is the first to move away from that strategy.

US consumers have spent USD 426 billion on exports from China in 2014, which is a 6% year-on-year increase. The Asian carmakers such as Toyota and Hyundai are currently holding 45% of the auto sales in the US. Over 70% of autos sold in the US by Asian automakers are manufactured at North American factories. IHS Automotive analyst Ian Fletcher claims that the current Asian automakers in the US require shorter supply chains and find shipping costs from Asia expensive. He expects that Volvo’s new strategy will not be followed by others directly, but will see inexpensive Chinese cars finding a place in the market with a certain brand presence.

 

Australia: Large automakers record sales drop amid an increasingly competitive environment

Source: Financial Times, 15 January 2015

Large automakers in Australia are cutting prices and introducing new models in an attempt to change an alarming decline in sales. General Motors’ Holden and Ford are relying on sturdy pipelines of novel products to staunch declining sales, which in 2014 reached record 20- and 48-year lows. Furthermore, Japanese automakers have slashed prices right before the phasing out of tariffs on most Japanese vehicle exports, under the new Australia-Japan trade agreement that came into effect on 15 January 2015. For instance, Toyota has cut prices on its Japan-produced cars by up to 5%; Subaru cut up to 25%; and Mazda with more humble cuts. Additionally, the weak Japanese yen against the Australian dollar further aided these cuts. The sharp price slashes highlights the competitive car market in Australia, where 350 models were sold by 67 automakers in 2014.

Toyota, Ford and Holden have announced that their car production in Australia will be ended by 2017. Holden’s director of sales Peter Keley believe that this will give the company more flexibility in product choice and help the brand to revive its leading market position by 2020. Moreover, the historically dominant industry players have lost market share to new Asian carmakers and luxury producers entering the Australian market. As a result, eight out of ten largest automakers recorded sales plunges in 2014. According to Richard Johns at Australian Automotive Intelligence, Holden and Ford will see big challenges ahead as they are phasing out their domestically produced and best-sellers, while Toyota will be in a better position as it will keep its top-selling product.

 

Asia: Ford records sales surges by 5% across ASEAN and 31% in Malaysia

Source: The Star, 12 January 2015

Ford has announced that it posted record sales in Malaysia with a 31% year-on-year increase to 13,938 units sold, with overall sales for ASEAN increasing over 5% to 100,824 units. Furthermore, an increased market share in Thailand and record performances in the Philippines, Malaysia, Vietnam, Myanmar and Cambodia, were also key drivers behind the overall surge. In addition, the Ford Ranger boosted the ASEAN sales as well, as it was the best-selling pickup truck in 2014 in the Philippines, Cambodia, Vietnam and Myanmar and second-best in Malaysia. The sales of the ranger gained 10% year-on-year to 50,190 units. Additionally, the launch of the new EcoSport compact urban SUV aided sales, as it was the second best-selling car in Thailand, Vietnam, the Philippines, Indonesia and Malaysia, with sold units of 18,149.

Thailand remained as the biggest market for Ford’s overall sales with 38,087 units, with a 0.5% increase in market share to 4.4% in 2014. Furthermore, the Philippines recorded a sales increase of 53% to 20,341 units. Vietnam saw a sales surge of 71% to 13,988 units, driving Ford’s full-year market share to 8.9%. In addition, the carmaker posted substantial rises in the emerging markets of Laos, Cambodia and Myanmar, with combined sales increasing 31% to 2,161 units. Lastly, Singapore sales increased 14%.

Chemicals

China: Amec Foster Wheeler to build new coal-chemical facility

Source: Chemicals-technology.com, 14 January 2015

Amec Foster Wheeler has been chosen by China’s Shenhua Ningxia Coal for the construction of its new coal-chemical by-product deep processing complex utilization project located in Ningxia Hui, China. The contract is for three years and encompasses engineering, procurement, commercial, safety and health, quality and project control services for the facility. The project is scheduled to begin operations by the middle of 2017. The coal-chemical facility will produce many different coal-chemical products comprising of polypropylene, polyethylene, aromatic hydrocarbons and synthetic ammonia. Furthermore, the new complex will have a cracking facility with a capacity to produce 1.4 million tons annually.

Amec Foster Wheeler has been awarded three project management contracts and one basic engineering contract from Shenhua Ningxia Coal since 2006. The northeast Asia regional director of Amec Foster Wheeler Mike Collins believes that the new contract is significant for the two companies’ long-term relationship in the strategically important chemicals segment. He added that the company’s renowned project management capability will aid the providing of the project’s long-term objectives in a safely and sustainable manner. In addition, the contract’s financial terms were not disclosed.

 

India: Kribhco to construct a USD 160 million phosphoric and potassic fertilizer project

Source: Chemicals-technology.com, 12 January 2015

India’s Krishak Bharati Cooperative (Kribhco) has announced that it plans to invest USD 160 million into the construction of a phosphoric and potassic fertilizer project at Krisnapatnam in Andhra Pradesh, India. The new facility will be the first of its kind for Kribhco, according to the managing director Sambasiva Rao. The project is to be built on the Indian east coast, close to Krisnapatnam Port, where the government already has assigned land for the project. Furthermore, the facility is scheduled to begin commercial activity in about five years, and will process about 600,000 tons of fertilizers annually.

Kribhco claimed that with regards to the planned phosphoric and potassic fertilizer complex, a techno-economic feasibility study has been accomplished. Moreover, in the second stage of the project will its annual fertilizer manufacturing capacity increase to 1.2 million tons. In addition, Kribhco already runs an ammonia, urea and bio-fertilizers processing facility at Hazira in Gujarat, India, a facility in Shajhanpur in Uttar Pradesh, and a plant in Oman. The company unveiled neem-coated urea, which is according the Kribhco up to 15% more efficient than traditional urea.

 

Japan: TonenGeneral to construct a USD 42 million mixed xylene project

Source: Chemicals-technology.com, 12 January 2015

Japan-based refiner TonenGeneral is planning to invest USD 42 million into the construction of its new mixed xylene recovery plant. The xylene project will be constructed at the Chiba refinery in Tokyo. More specifically, this refinery is operated by Kyokuto Petroleum Industries, which is a joint venture of Mitsui oil and TonenGeneral and has a manufacturing capscity of 175,000 barrels per day. The new facility is scheduled to start operations in 2017, and is expected to manufacture about 200,000 tons of xylene annually. In addition, TonenGeneral president Jun Mutoh explained that the plant will extract the xylene from oil in order to utilize it as feedstock for petrochemical manufacturing.

Xylene is used for the production of products such as plastic bottles, polyester textiles, rubber component, ink, glue and as a solvent. Japan’s demand for oil products has recently been falling, with oil companies shifting to petrochemical manufacturing. For instance, Showa Shell announced in March 2014 that it will up its mixed xylene manufacturing capacity with a new toluene plant. Furthermore, TonenGeneral also runs Kawasaki Refinery, Sakai Refinery and Wakayama Refinery. These refineries make naphtha, gasoline, jet fuel, diesel fuel, kerosene, fuel oil, lubricants, liquefied petroleum gas and others.

Construction & Property Development

Singapore: Rental prices keep falling in December 2014, says SRX Property

Source: Channel NewsAsia, 14 January 2015

The rental prices in Singapore saw further declines in December 2014, with Housing and Development Board (HDB) apartments and private homes decreasing 0.4% and 0.8% respectively compared with the month before, according to SRX property. Private homes saw the 11th month in a row with falling prices. More specifically, the executive, five-room and four-room apartments dropped 0.3%, 0.6% and 0.7% respectively, compared to the three-room apartments that increased 0.4%. Furthermore, the HDB apartments’ rental prices for December 2014 decreased 2.1% year-on-year and fell 4.4% from the record high August 2013. Non-mature estates recorded larger falls in rental prices, down 6.2% from the October 2012 peak. Mature estates also plunged 3.3% from the February 2013 peak.

The rental volume also fell, with 1,619 rented units in December 2014, a 4% decline from the 1,687 apartments the month before. Nevertheless, the rental volume rose 2.3% year-on-year from the 1,582 units in December 2013. Furthermore, the non-landed private residential rental prices dropped 0.8% in December 2014 and fell 5.3% year-on-year. In terms of areas, the prices declined 1.2% in Core Central Region, 0.6% in Rest of Central Region and 0.3% in Central Region. The private homes rental volume dropped 2% from 3,026 units in November 2014 to 2,968 units in December 2014. Additionally, the rental volume increased 14.1% year-on-year from the 2,601 units in December 2013.


China: Canada Pension Plan Investment Board to invest USD 195.4 million into Chinese real estate

Source: Asia Asset Management, 14 January 2015

Canada Pension Plan Investment Board (CPPIB) has announced that it will allocate USD 195.4 million into the real estate market in China through a joint venture (JV) with the Hong Kong-listed Longfor Properties Company. More specifically, the two partners will develop a large mixed-use project called The Times Paradise Walk in Suzhou, China. The complex will include office, residential, hotel and retail space on an area that covers 735,000 sqm, and is scheduled to be completed in phases between 2016 and 2019. Jimmy Phua, managing director, head of real estate investments of CPPIB Asia, said that the Chinese market has a long-term growth potential with plans of further similar large-scale retail and mixed-use projects.

This is CPPID’s first direct investment into the commercial real estate in China through a JV. Nevertheless, the company has already achieved great exposure in the property market in China with its earlier announcements of USD 250 million investments into the mid market property via a JV with China Vanke, and another announcement in November 2014 of a USD 500 million investment into warehouse and logistics facilities. In addition, CPPIB’s latest investment into China’s property market comes in a time when the market is struggling, with Kaisa Group’s failure to make a payment on its offshore, dollar-denominated bond, and recent data revealing how the prices of new homes in 70 Chinese cities have dropped 3.7% in November 2014.


Hong Kong: Region ranks top in Asia for costs of construction and third globally

Source: Chinanews.com, 15 January 2015

In 2014, Hong Kong recorded the highest construction costs across Asia, according to the design and engineering consulting firm ARCADIS’ annual International Construction Costs Report. The main reason behind the top ranking was that price inflation continued to influence the market in Hong Kong for 2014. In global terms, Hong Kong ranked third right after Denmark and Switzerland. Furthermore, the Asian markets in 2014 recorded strong performances with Japan’s stimulus linked with one of Abenomics’ three “arrows”. Singapore also experienced increases during 2014, boosted by robust housing markets and high levels of spending on infrastructure. Moreover, India was the cheapest nation worldwide for construction costs, according to the report.

Hong Kong’s construction costs are expected by the report to increase 6-8% in 2015, which is lower than the 7-10% rise in 2014. On the contrary, Mainland China’s large surge in construction over the past 10 years is projected to cease as the country is changing into a consumption-based economy. However, the report predicts that the Chinese construction investments are probably going to keep diversifying across geographies and project variants, which will maintain a relatively strong growth throughout 2015, despite the country’s shifting economy.

Consumer & Retail


Vietnam: Vingroup to launch large mall expansion to capitalize on retail growth

Source: Reuters, 15 January 2015

Vietnam-based Vingroup is to introduce around 24 new shopping malls across the nation in 2015. The conglomerate currently operates six shopping centers and now aims to tap on the growing consumer spending power of the country’s middle class. However, the group chose to not disclose the size of the investment. Additionally, Vingroup’s Vincom Retail is to increase its presence from three cities to 19 provinces and cities, which cover nearly a third of Vietnam. Furthermore, official data showed that the retail and consumer services sector in the country increased 6.3% in 2014 to USD 138.2 million.

The expansion plans of Vingroup comes as more international companies are entering the Vietnamese market, comprising Thailand's Robinson Department Store Pcl, Japan's Aeon and South Korea's Lotte. Moreover, Vietnam’s population is 90 million with expectations of its middle class to double by 2020, following the country’s annual economic growth recording more than 5% since 2000. The country also inhabits the fastest-growing number of super-rich in the world, with combined assets of USD 30 million, anticipated to increase to USD 293 million from 110 million in a decade, according to the property consultancy Frank Knight’s latest report. In addition, Vingroup is among the fastest-growing companies in Vietnam, with a total of USD 3.2 billion market capitalization, and its retail segment recorded assets worth USD 1.7 billion in 2014.

Hong Kong: Burberry sales hit by protests

Source: Financial Times, 14 January 2015

Burberry sales have been struck by the Hong Kong protests. Nevertheless, its total retail sales have increased 15% to GBP 604 million over the last three months to 31 December 2014, partly due to the higher demand for its GBP 900 poncho in Europe and Americas. Its sales growth in Asia decelerated, blaming the Hong Kong protests that shut down the main shopping districts and affecting the influx of shopping tourists. Hong Kong sales from stores open at least a year dropped slightly, which represents 10% of Burberry’s sales and usually experiences high margins. In comparison, the demand in South Korea and Mainland China remained resilient, with sales growth recording mid-to-high single-digit percentages.

Luxury labels have been struggling with years of soaring profits and revenues, with decreased Chinese demand due to a sluggish domestic economy and a fierce anti-corruption campaign. The segment has also been affected by the Russian crisis and high-spending tourists possibly travelling less due to the Ebola outbreak. The slowing growth in the Asia-Pacific region will be especially alarming for Burberry as it aims to tap on emerging economies, says David Alexander, Conlumino consultant. Nonetheless, Burberry claims that it has countered the traffic plunge in Hong Kong to some extent, with efforts of boosting the probability of store visitors making purchases and increasing the average selling prices. Furthermore, finance director Carol Fairweather claims that Burberry would have experienced same underlying high-single digits sales in Asia if the Hong Kong disruptions had not occurred. However, the sales growth from Chinese shopping at home and abroad also decreased.

 

Singapore: November 2014 retail sales increase by 6.5% y/y, buoyed by strong vehicles

Source: Channel NewsAsia, 15 January 2014

In November 2014, retail sales in Singapore increased by 6.5% year-on-year to SGD 3.2 billion from SGD 3 billion, driven by the sales of strong vehicles, according to the Department of Statistics. The retail sales dropped marginally by 0.4% excluding the motor vehicles. Nevertheless, retail sales on a monthly basis dropped a seasonally adjusted 0.7% from October 2014. The retail sales fell 0.9% excluding motor vehicles. Moreover, motor vehicle sales rose steeply by 50.2% year-on-year. Likewise, the sales of medical goods, and toiletries, watches and jewelry, supermarkets, department stores, food and beverages, mini-marts and convenience store increased between 1.9% and 3.9%.

More specifically, food and beverage services sales in November 2014 rose 2% year-on-year, with the total sales value increasing from SGD 624 million in 2013 to SGD 636 million. The Retail Sales Index and the Food and Beverage Services Index shows the retail, food and beverage service industries short-term performance based on sales records. On the contrary, the retail sales of petrol service stations, telecommunications apparatus and computers, optical goods and books, apparel and footwear, recreational goods, and furniture and household equipment fell between 1.7% and 6.8%.

Energy, Resources & Environment

Japan: Government looks to invest USD 1.12 billion on renewable energy

Source: Eco-Business, 16 January 2015

The Japanese government’s budget is anticipated to comprise of almost USD 40 million for the reduction of costs of solar power generation. The administration of Prime Minister Shinzo Abe is looking to secure USD 1.12 billion for Japan’s fiscal budget for 2015 to fund several programs for renewable energy that promote renewable energy research and use, reported Japan Times. Moreover, the country’s feed-in tariff scheme has been thwarted by an oversupply of solar energy projects, which has resulted to some utilities refusing to purchase electricity because of grid constraints and potential blackouts.

The budget plan also indicated the Japanese government’s maintained support of nuclear power, says Japan Times. Almost USD 17 billion of the budget is intended for the costs of maintenance at the Monju prototype fast-breeder reactor located in the Fukui Prefecture. This reactor was aimed to be key in the nation’s nuclear fuel recycling policy, but has mostly been shut down because of safety issues. Furthermore, the government has reserved further subsidies worth USD 105 million for the improvement of safety measures of nuclear fuel.

 

South Korea: Reactor revival debate stirs after Fukushima meltdown

Source: Bloomberg, 15 January 2015

The nuclear regulator in South Korea has delayed the decision of the extension of the license for Wolsong No.1 nuclear reactor, which is the first to be considered since the Fukushima meltdown in 2011 in Japan, a domestic scandal over forged safety documents, and a hacking attack on the computer network of Korea Hydro. The South Korean reactor has been closed since its 30-year licensed ended in 2012. The state-run operator Korea Hydro & Nuclear Power Co. has since then invested USD 520 million for renovations. Parts of the reactor have been exchanged since 2009, which have previously forced the government to renew the license. However, the reactor is projected to run at a loss if its operating life is prolonged to 2022 with a potential loss of KRW 254.6 billion, and if it is shutdown now there is a potential loss of KRW 645.4 billion.

Spokeswoman Choi Eun Jung believes that the nuclear operator is not to blame for a system that needs upgrade work to occur ahead of receiving a license extension, and Korea Hydro anticipates a response in its favor from the regulator. In contrast, surveys have shown that an increasing number of South Koreans are opposing nuclear power with 64% opposing it in May 2014. Meanwhile, the government is planning on constructing more reactors to increase the nation’s nuclear power generation capacity to 29% by 2035. Moreover, with public opposition Korea Hydro will see more loss of trustworthiness if Wolsong No.1 has problems after reopening, which is anticipated since it has been offline for so long, said Suh.


India: SunEdison to build USD 4 billion solar facility, progressing the country’s solar plan

Source: Bloomberg, 12 January 2015

SunEdison Inc will construct a USD 4 billion solar panel plant in Mundra, Gujarat in India. This move will further Prime Minister Narendra Modi’s plans to restrict pollution by increasing renewable energy. The US-based company will create a joint venture (JV) with India’s Adani Enterprises Ltd to start constructing the photovoltaic project in 2015, which will take three years to complete. The plant will have a capacity to produce 7.5 GW of solar power per year and will encompass all phases of solar production, from polysilicon to cells and panels. Furthermore, India the world’s third-largest source of carbon emissions and is under pressure to participate in the worldwide battle against global warming. A meeting will soon take place between President Barack Obama and Modi in New Delhi to discuss the climate matters.

Modi has been increasing the country’s goals for renewable energy in an attempt to decrease the coal usage and provide electricity to the poor. In November 2014, the government set a goal for solar capacity of 100 GW by 2022, and earmarked at least USD 100 billion on climate-related projects in December 2014. Subsequently, India’s photovoltaics market has become fast growing, with solar demand expected by Bloomberg New Energy Finance to increase more than three times to over 3.2 GW. Furthermore, solar power only represents 1% of India’s power generation capacity for energy supply and even less for delivered electricity. Under current policies India’s carbon dioxide emission will increase 34% by 2020 and double by 2030, according to the International Energy Agency.

Financial Services

Indonesia: Bank Mandiri reconsidering Malaysia and Singapore expansion plans

Source: Jakarta Post, 12 January 2015

Indonesia state-owned lender Bank Mandiri has announced that it will reassess its expansion plans to Malaysia and Singapore, following the ASEAN Banking Integrating Framework that is to facilitate access for Indonesian banks to operate in member nations. In 2014, Malaysia’s central bank, Bank Negara Malaysia (BNM), entered into a bilateral agreement with the Indonesian financial regulators, the Financial Services Authority (OJK) and Bank Indonesia (BI), for alleviating constrictions on banks to operate in both countries. Currently, Bank Mandiri has restricted access to catering its Malaysian customers, as domestic incorporated foreign banks are obliged to have minimum capital funds of USD 85.6 million to establish a fully licensed branch or work through a local subsidiary.

Bank Mandiri’s business scope in Malaysia include many factors that need to be taken into consideration such as legal details and market potential before starting new business in Malaysia, said vice president director Riswinandi. He hopes that the new Indonesia-Malaysia bilateral agreement will be followed by other Southeast Asian countries, such as Singapore. The agreement permits banks with “Qualified ASEAN Bank” (QAB) status to get equal treatment as local banks, as well as allowing them to pay their minimum capital requirement in installments for five terms. Banks that likely will be the first Indonesian QABs include the big state-owned lenders Bank Mandiri, Bank Rakyat Indonesia (BRI) and Bank Negara Indonesia (BNI). Furthermore, Bank Mandiri also plans to increase its Singapore operations, where it currently runs a wholesale business via its Singapore Branch. Moreover, Singaporean and Malaysian lenders have entered the Indonesian market by purchasing local banks.


Malaysia: Discussions of forming the country’s biggest bank terminated

Source: Channel NewsAsia, 14 January 2015

Discussions of a potential merger to form the country’s largest bank and a big Islamic bank between the Malaysian banks CIMB and RHD and the property finance firm Malaysia Building Society (MBSB) have stopped following worries over the economy. Zafrul Tengku Abdul Aziz, Acting Group Chief Executive at CIMB Group, said that the even though the merger of the three entities follows sound strategic logic, they have arrived to a decision to end the talks after reviewing the current economic environment. The economic outlook incorporates falling oil prices that are expected to cut the petroleum exporting country’s trade revenue and its currency at five-year lows. Additionally, recent flooding has struck palm oil plantations, which has hurt the outlook for future manufacturing.

The decision to end the proposed SGD 26.9 billion union means that CIMB Group and RHB Capital have withdrawn applications to Bank Negara Malaysia, and the exclusivity agreement signed by the parties have been ceased. Furthermore, when the merger was announced in 2014, Fitch alerted that it was fraught with risks, especially issues with integration. To meet the growing demand the new bank would have been a large Islamic bank as well, which combines principles of Islamic sharia law and modern banking methods such as banning investments in tobacco, alcohol, gambling and interest on accounts as usury. Malaysia has been trying to shift to become a leader in Islamic finance and have fortified consolidation in Malaysia’s banking sector to enhance its regional profile and competitiveness.

 

India: Bombay Stock Exchange to set up the country’s first international exchange

Source: The Times of India, 17 January 2015

India’s Bombay Stock Exchange (BSE) is to set up an international exchange in GIFT SEZ-IFC, which is a multi-services special economic zone (SEZ) that is being developed by Gujarat International Finance Tec-City Company Ltd (GIFTCL) to become the country’s first international financial services center (IFSC). BSE aims to create an international exchange as an electronic platform to make it easier for trading, clearing and settlement of securities, interest rates, currencies, commodities, other assets and derivatives by global investors in GIFT SEZ-IFSC in GIFT City facing required approvals and operating guidelines for international financial center. Moreover, BSE is to invest up to IDR 150 crore for creating an up to IDR 3 lakh sq ft area to establish the international exchange.

Ramakant Jha, MD & Group CEO, GIFT Company Ltd believes that India’s first international exchange is an important step into becoming a worldwide financial hub at or above par with other international benchmarked financial centers. Furthermore, BSE Brokers’ Forum has signed an agreement with GIFT City for establishing their operations and changing their back-end operations in the domestic finance district. BSE Brokers' Forum is expected to invest around IDR 200 crore. Moreover, Ashish Chauhan, MD & CEO of BSE thinks that BSE is advancing to become a leader in taking international standards such as technology, corporate governance, promoting SMEs and compliance into the country, which will aid India to compete better globally.

Logistics & Transportation

Australia: Railway transports more than 1 billion tons of freight

Source: Logistics & Materials Handling, 15 January 2015

The transportation of goods and people on rail in Australia continues to increase with the sector’s performance meeting the growing demand from freight and passenger markets, according to a national report. In 2013, railways in Australia moved more than 1 billion tons of freight and carried more than 859 million passengers. CEO of ARA, Bryan Nye OAM said that the country’s freight task is projected to nearly triple by 2050, while the Australian population will be doubling in the same year. Furthermore, the report said that there has been a rapid growth of 57% over the last five years in the movement of freight on rail. The key driver behind the surge in freight tonnage has been the Western Australia’s boom in resources and the export task of transporting iron ore and coal to ports. Iron ore and coal stands for over 80% of the rail freight ton-kilometers.

The intermodal freight task of Australia is also increasing, with tonnages recording growth since 2009-10 of 65% to 27 million tons. Nevertheless, container freight along the east coast of Australia must move by rail with most of the freight currently moving by road between Brisbane and Melbourne, and an estimated 30% by rail. Furthermore, key infrastructure projects will counter the current discrepancy by the opening up the Melbourne to Brisbane network, reducing seven hours of travel time between the two cities; taking off thousands of trucks from bigger highways, facilitating the Sydney bottleneck; and improving regional development in the whole 1,700 km route. Nye concluded that the report shows that rail in Australia is strong, giving the country a thriving outlook.

 

China: Railway technology to launch overseas

Source: Channel NewsAsia, 16 January 2015

China’s Premier Li Keqiang recently announced a proposition of a high-speed line connecting China, Singapore and Thailand, as well as proposing business in UK, Russia, India and Africa. China has been interested in Mexico’s USD 4.4 billion high-speed rail project, but regulators in Mexico cancelled its win in 2014 after a heated discussion over the bidding round. However, China’s odds are looking better now, with the country’s two biggest rail companies, CNR Corp and China CSR, on the verge of merging. Victor Gao, director of the China National Association of International Studies, said that China already has advances in technical expertise that the division of two firms no longer serves any commercial purpose as they currently experience unhealthy competition both globally and domestically.

China’s somewhat inexpensive technology is competitive globally, providing more success in bidding for projects in developing countries with modest financing packages. China is also successful in developed countries, as it has won a multimillion-dollar deal to provide cars to Boston’s subway system. Furthermore, the high-speed rail is also a good opportunity for China to make linkages with other countries in terms of increased integration and cooperation abroad, said Gerald Ollivier, a senior infrastructure specialist at the World Bank. He added that it is an effective way for China to progress its highly advanced technology and deliver it to the rest of the world. While looking for overseas rail projects, China is also pushing its own domestic network. At the end of 2015 it is anticipated that China’s high-speed rail line will measure 18,000 km.


Thailand: New USD 12.2 billion rail project to commence in September 2015

Source: Reuters, 15 January 2015

Thailand and China will start constructing a USD 12.2 billion-railway project in September 2015, which is part of Thai government hopes of stimulating the waning economy. The rail will go from the Thai border with Laos to eastern Thailand’s ports and industrial zones. More specifically, there will be two rail lines, one with over 700 km of track that will link Nong Khai city on the border to Laos with Bangkok and eastern Thailand’s industrialized seaboard, and another line connecting Bangkok with the central province of the industrial hub Saraburi, around 108 km away.

With the project China is intending to connect railway from Kunming via Laos to Thailand, while Thailand aims to upgrade its old rail network. Furthermore, the new railway could strengthen Thailand’s tourism and trade further as well as increase China’s strategic foothold in the country. Furthermore, the construction is scheduled to finish within two and half year and is estimated to cost around THB 400 billion, said deputy prime minister and transport minister Air Chief Marshal Prajin Junthong. He added that there are about 12-15 private firms that are interested in contributing to the project. Moreover, the construction on the first stage connecting Bangkok to Saraburi to Rayong port on the Gulf of Thailand is to commence on 1 September 2015, and work of the second stage to northeastern Thailand will start on 1 December 2015.

Manufacturing & Industrial

Southeast Asia: Reasons for manufacturing in the region are shifting, says recent survey

Source: The Wall Street Journal, 14 January 2015

Southeast Asia is gaining popularity for the manufacturing of products, with the main reason being the rising demand of the middles classes in the region, according to a recent survey by Economist Intelligence Unit. Cheap labor costs only ranked as the 10th reason for manufacturers to produce goods there. Other top reasons include saving money on transportation and competing with local firms. The survey’s finding marks an occurring shift in the mindsets of manufacturers the region, also driven by the slowing economic growths in the West. Justin Wood, director of Southeast Asia for the Economist Corporate Network says that Southeast Asia is experiencing a time with rising incomes and growing discretionary spending.

Furthermore, other reasons comprise of the ability to have duty-free access to the region’s markets and to develop an integrated supply chain, ahead of the upcoming integration of the economies in Southeast Asia, says Eugene Lim, head of Baker & McKenzie’s Asia-Pacific trade and commerce practice. Moreover, the survey found that multinational corporations within Southeast Asia are anticipating that over the coming few years the largest surges in manufacturing investment will be in Myanmar and Indonesia. Indeed, firms will still export loads of goods from the region for some time. Nevertheless, the Southeast Asian economies account for 3.2% of the worldwide economic output, and 4.3% of worldwide manufacturing. Yet, large companies are positioning themselves at the forefront to move manufacturing to Southeast Asia. Although the region face short-term disruptions from political turmoil and labor unrest, is it unclear if it will hurt the region’s long-term appeal.


Myanmar: Investment efforts fettered by lack of skilled labor

Source: The Wall Street Journal, 16 January 2015

The investment growth in Myanmar’s manufacturing sector is hindered by the lack of skilled labor and corruption. Still, the government tries to attract foreign direct investment to industries that are labor-intensive, according to Aung Naing Oo, chairman of Directorate of Investment and Company Administration. In the fiscal year ending April 2014, over 42% of foreign investment went to the manufacturing sector, while between 1990 and 2013 the figure was only 5%. The government will set up development funds for SMEs to avoid dominance of big players. OECD reported that firms in Myanmar are struggling to find skilled labor, which is to become more severe with the population starting to age after 2035. OCED further said that Myanmar’s education system needs to incorporate more vocational and skills training, which is more relevant to foreign manufacturing companies.

Corruption is also an issue with many companies being forced pay under-the-table-fees to receive licenses and permits. This has lead to companies reviewing their decisions to invest in the country, with many choosing to scrap the deal or make a smaller investment without a Myanmar partner after finding out corruption has been going on in their supply chains. On the other hand, the agricultural sector in Myanmar has a brighter outlook, according to OECD. The nation has the possibility to become a trade hub for agri-food in Southeast Asia, as it has plenty of crop and fish resources. OECD recommends that Myanmar should shift away from rice and into crops like pulses and rubber that fetch higher prices, as well as invest in agricultural R&D.


Japan: SMEs perceive Thailand as the hub to Asean markets

Source: The Nation, 16 January 2015

Japan’s small and medium-sized enterprises (SMEs) in manufacturing and service industries are eyeing Thailand as the springboard for Asean expansion, following the two nations’ close tie and as they see Thailand as the hub for Asean linkage. Industry Minister Chakramon Phasukavanich said that the ministry expects 500 Japanese SMEs to invest in Thailand in 2015. This will be facilitated by the ministry’s program to pair Thai and Japanese SMEs as allies for commencing operations in Thailand. Moreover, the government aims for a minimum of 10,000 SMEs to start businesses aboard between 2014 and 2018 in an attempt to offset the country’s slowing economic growth and its increasing number of elderly people. Furthermore, by investing abroad it allows SMEs to tap on a larger market. Meanwhile Asean, particularly Thailand, is a top destination for new investment following its growing economy, its support infrastructure, and its supply chains and facilities to back expansion.

The expansions would increase the supply-chain sectors and expand added value in a number of products and services, said Chakramon. However, Thai business should not feel threatened by an increased competition from Japanese SMEs, as they are interested in having Thai companies as partners. Also, the Japanese investment is to provide technology, wisdom and know-how to Thailand. Furthermore, over 10 Japanese SMEs in the food, cosmetics and pharmaceuticals sectors inaugurated in Thailand in 2014, according to the Industry Ministry. Japan and Thailand is to further its close relationship with upcoming discussions on investment and trade cooperation, as well as the planned high-speed railway of Thailand.

Pharmaceuticals & Healthcare


Australia: Domestic healthcare firms eyeing Indian linkages

Source: Business Standard, 12 January 2015

Healthcare companies from Australia are interesting in collaborations with Indian firms in the industry and offer expertise, and solutions to sector concerns in many areas, particularly in elderly care, said Patrick Kearins, Trade Commissioner and leader of the a 25-member Australian Health and Assisted Living delegation in India from 12-16 January 2015. Furthermore, Australia’s aged care sector is one of the world’s most advanced and commonly used as a model, as it has developed for over 50 years and provides several levels of care for elderly as well as their families and caretakers. Nicola Watkinson, Australian Trade Commission's Senior Trade and Investment Commissioner for South Asia, believes that the mission will strengthen and further the countries’ ties.

The healthcare and aged care sectors in Australia are also recognized to incorporate market leading innovation, technology, advanced R&D as well as professional skills. Subsequently, Australian firms are well positioned to help other countries support their ageing population. Furthermore, Australia Minister for Trade and Investment is also visiting India to improve trade and investigate opportunities for investment and promote sectors such as education and tourism. In addition, India ranks as Australia’s 11th biggest trading partner with a two-way trade worth AUD 15.2 million and accounts for its fifth biggest export market with exports worth AUD 11.4 billion.


China: Drugmaker Baiyunshan to receive USD 1.6 billion for online expansion

Source: Reuters, 13 January 2015

Guangzhou Baiyunshan Pharmaceutical Holdings Co Ltd, a Chinese drugmaker, is to receive investments worth a total of RMD 10 billion (USD 1.6 billion) for its online expansion. The investors include Alibaba Group founder Jack Ma’s co-funded investment vehicle Yunfeng Capital, which will contribute RMB 500 million through a private placement. China Life Insurance Co Ltd will contribute of about RMB 2.5 billion. In addition, other investors comprise Guangzhou Pharmaceuticals Holdings Ltd and the Guangzhou state assets development body. According to Baiyunshan, the online drug market was valued at RMB 4.3 billion in 2013, but only represented a small fraction of the whole drug market. In contrast, the US online drug market accounted for about 30%, indicating that China’s market has plenty of room to grow.

China is to open up sales of prescription medicine online in January 2015, a large market for online pharmacy operators and retail chains. Moreover, the company announced that the investment will be used for R&D, to meet the increasingly strict regulations, to help the company to grow online and support refinance of its beverage unit. Furthermore, Alibaba, which holds 40% market share of online medicine, collaborated with Yunfeng in 2014 to purchase the online drug platform CITIC 21CN, which is now known as Alibaba Health Information Technology Ltd. Additionally, other interested players comprise Wal-Mart Stores Inc's online platform Yihaodian, JD.com Inc and online pharmacy 800pharm.com.


Japan: Roche secures licensing agreement for antibiotic-boosting drug to fight superbugs

Source: Reuters, 13 January 2015

The Japanese drugmaker Meiji Seika Pharma and the Canada-based Fedora have signed agreements with the Swiss-based Roche for a medicine that can reinstate the power of antibiotics to fight infections. The deal is valued at up to USD 750 million. Roche has decided to not follow Big Pharma’s migration away from antibiotic research in the last decade by reconstruction its activities in the segment with new licensing agreements as well as partnerships. The latest deal will enable Roche to advance and commercialize Fedora and Meiji’s beta-lactamase inhibitor OP0595 in all countries except for Japan. Beta-lactamase inhibitors rebuild or potentiate the activity of the antibiotic called beta-lactam, which encompasses cephalosporins, penicillins, carbapenems, and monobactams. These represent for around 65% of the worldwide sales of antibiotics.

Nevertheless, the rise of superbugs that are drug resistant are threatening modern medicine, triggering an immediate search for new efficient treatments. US Centers for Disease Control and Prevention reported that over 2 million of the US population is affected by antibiotic-resistant infections per year and around 23,000 people die from it. Fedora Chief Executive and founder Christopher G. Micetich said that OP0595 promise a substantial progress in the combat against the increasing multi-drug resistant bacteria. In addition, Meiji and Fedora will receive payments for upfront fee and for the development and commercial advancement valued up to USD 750 million. The firms will also have royalties from the sale of their products.



 

Private Equity


South Korea: More and more venture capitalists target start-ups

Source: Bloomberg, 12 January 2015

Venture capital is a fast-growing business in South Korea. As of 30 November 2014, a record KRW 13.2 trillion was committed to early stage funding, thus advancing President Park Geun Hye’s plans to promote small business and innovation while taking Korean commerce from the large Chaebol conglomerates. Chah Eun Young, economics professor at Ewha Womans University, believes that venture capital can be a stimulus for job creation, adding value in a country that has a decreasing potential for economic growth with low birthrate and an aging population. It also plays an important role in constructing infrastructure for new creative businesses. The government is trying to shift the economy to become creative by promoting startups in order to overcome a slowing economic growth and job shortages.

Korean Venture Capital Association reported that venture capital funds invested in Korea increased 14.6% year-on-year to KRW 1.4 trillion in the first 11 months of 2014. Park Jin Taek, a director-general of policy development at the Korean Venture Capital Association acknowledges that SMEs are the Korean economy’s growth engines. South Korea holds the financial and manufacturing infrastructure to back innovation, said Korea Investment Partners principal Park Young Ho. Recent successful start-ups in South Korea include Kakao Corp’s mobile messaging app, Naver Corp’s most-popular messaging service in Japan, and VCNC Inc. The ‘Between’ mobile app received KRW 1 billion funding from SoftBank Ventures Korea Corp before its launch. VCNC’s Park said that venture capital is vital for IT startups because they usually struggle while luring a certain number of users without revenue.


Asia: Region records the largest growth in private-equity deals

Source: Bloomberg, 15 January 2015

The buyout deals in Asia posted the strongest growth in the world for 2014, boosted by China’s restructuring of state-owned enterprises, making them more appealing for buyout deals. Preqin reported that in 2014, the total volume of private equity transactions to Asian companies increased 68% to USD 41.6 billion, compared with a 16% surge to USD 94 billion in Europe and a 8.6% fall to USD 160 billion in the US. One of 2014’s largest buyout deals was the USD 3.6 billion stake in the retail unit of the state-controlled Sinopec by several Chinese investment firms and HK-based RRJ Capital. Moreover, the state-owned enterprises in China are being restructured due to the government aim to promote private investments in these businesses, which account for about 30% of China’s GDP.

The bigger deals were also driven by international investors’ willingness to invest larger sums to Asia, following plans of diversification and participation of the rapid economic growth in the region, said Sebastien Lamy, private-equity specialist at Bain & Co. This interest is also known as dry powder, which is unused cash holdings of buyout funds targeting the Asia-Pacific, which rose to USD 125 billion in June 2014. In addition, the assets in Asia-Pacific increased to the corresponding of 12.4% the worldwide total in the same period. Further, Southeast Asia experienced resilient increase in deals in 2014, up 78% to USD 6.6 billion from 2013. Moreover, companies are looking to capitalize on the upcoming Asean integration, or to get protection against increased competition, says Nicholas Bloy, managing partner at Navis Capital Partners.


Singapore: KKR in talks of reviving IPO of Singapore-listed MMI International

Source: The Wall Street Journal, 13 January 2015

KKR & Co, the US-based private equity firm, is looking to recuperate an initial public offering (IPO) for the Singapore precision engineering firm MMI International, which was bought for USD 700 million in 2007. In the past year, there have been a string of exits of private-equity firms in Southeast Asia. The company has not made any final decisions of the price and size of the stake, or time of the sale. KKR has previously withdrawn plans of an IPO for MMI in 2011 for USD 500 million and postponed another plan in 2012 due to weak market conditions. Additionally, KKR has plans of taking the Malaysia-based helicopter-transport company Weststar Aviation Sdn. Bhd. public in 2015, and has just hired JP Morgan Chase and Malayan Banking. KKR owns 49% stake in the company and invested USD 200 million in it in 2013.

In 2014, there have been a series of sales by private-equity firms in Southeast Asia, as they are tapping on the region’s buoyant market. The stock markets in Indonesia, the Philippines and Thailand have benefitted from extended easy monetary policies adopted by some of biggest banks in the world in 2014, thus encouraging an influx of investments. Indonesia and the Philippines saw increases in their main stock indices by 22% and 23% respectively. By the end of 2014, CVC Capital Partners raised USD 450 million from a sale of shares in PT Link Net, an Indonesian cable-TV operator. In addition, Affinity Equity Partners and TPG Capital are planning on a sale in 2015 of the US-listed Singapore chip firm UTAC Holdings Ltd.

Technology, Media & Telecommunications

India: Samsung introduces first Tizen smartphone to the country

Source: ZD Net, 14 January 2015

Samsung has announced that it will launch its first smartphone that will feature the Tizen operating system in India. The model with Tizen will be the Samsung Z1, although the smartphone maker announced the Samsung Z mid-2014, which was planned to be launched in Russia first. Further, Samsung originally said that the first Tizen smartphone would be released in 2013, but it was delayed due to unsuccessful support from carriers. The open-source operating system Tizen is based on Linux and was create after Intel and Linux Foundation decided to abandon the MeeGo platform. The latest India release is said to appeal the million of potential users in the country, with a fast-growing smartphone market.

The Indian users have smartphones as the screen of choice for content such as videos, TV programs, apps and video games, acknowledged Hyun Chil Hong, Samsung India Electronics president and CEO. He added that the smartphones have been adapted to meet the entertainment-focused needs of Indian consumers, with offers of free access to content on Club Samsung, and access to music and movie streaming and download from Hungama.com. Nevertheless, Samsung has been forced to shut down many of its other content service hubs comprising Movie Hub, Music Hub and Readers Hub.

 

China: Five LTE FDD vendors have been selected by China Telecom

Source: Light Reading, 16 January 2015

China Telecom has chosen five suppliers for the delivery of LTE FDD equipment through the second stage of its deployment of a hybrid FDD-TDD 4G network, including Alcatel-Lucent, Shanghai Bell, Ericsson, Nokia, Huawei and ZTE. The Chinese companies Huawei and ZTE have expectedly been awarded over half of the planned work. Nevertheless, China Telecom still has to issue a statement on the contract awards, signaling that there could small changes still could be made before the deals are finalized. The ordered equipment encompasses elements such as cellular base stations and an operations maintenance center. Further, China Telecom selected the vendors quickly after a bidding round in November 2014, indicating a fraught attempt to catch up with the leader in the 4G market, China Mobile.

China Telecom started to set up 4G services for trial in 16 cities in July 2014, with expansions to 41 cities in September 2014 and 15 cities in December 2014. However, the Chinese authorities have not given full approval of the LTE FDD license yet, hindering China Telecom’s full realization of its 4G network. Moreover, China Mobile has been depending on the standard to create its major lead in China’s 4G market. However, China Telecom and China Unicom have plans of hybrid 4G networks that use of both FDD and TDD, which is cheaper and allow them to offer a larger array of 4G devices to their users. The FDD has also been preferred abroad for 4G network, and gives more flexibility to manage network resources efficiently by avoiding network congestion, which maximizes the customers’ quality of experience.

 

South Korea: Daum Kakao set to roll-out Kakao Taxi, while Uber faces legal issues

Source: TechCrunch, 13 January 2015

South Korea’s Daum Kakao, the creator of the messaging app KakaoTalk, has entered the first phase in introducing the car-calling app Kakao Taxi by welcoming taxi drivers to apply. The app is to be launched to riders by the end of March 2015, and will be a direct competitor to Uber. The app will leverage KakaoTalk’s base of 50 million monthly active users. Moreover, South Korea is one of the countries where Uber are facing legal issues, as the CEO Travis Kalanick has been charged with breaking local transportation laws that might lead to a fine or prison sentence. The country has threatened to ban the company, although it is still operating in South Korea. Kakao Taxi is looking to lure Uber’s riders, and has signed deals with the subway card producer Korea Smart Card Corp. and the Seoul Taxi Organization, which has 225 companies.

The company said that the drivers that are interested to join have to submit an application for evaluation and will be only approved it they pass. Moreover, the government also has plans of launching a car-calling app, making approval from government particularly crucial for Kakao Taxi. The app is launched right after the KakaoPay’s introduction, which allows users to pay for e-commerce via the messaging app. Further, other similar messaging apps that are incorporating more services are WeChat and Line. This transformation gives the companies more opportunities to make more money from their large user bases. WeChat offers mobile payments and Line has turn itself into a one-stop shop for online services such as taxi services.