Asia News Update
China: Jinping announces overseas investments of USD 1.25 trillion over the next 10 years
Source: Bloomberg, 10 November 2014
President Xi Jinping reported that Chinese investment overseas will total USD 1.25 trillion over the next decade, with 500 million tourists from China going abroad, and his administration allocating USD 40 billion to restore the Silk Road trade route between Asia and Europe. He added that China is capable and willing to offer more public goods for the Asia Pacific region and the rest of the world. The country has utilized the Asia-Pacific Economic Cooperation forum summit to introduce its own trade and economic projects to enhance its influence in Asia.
Jinping has presented counteroffers for each pledge made by US President Barack Obama – he is prompting the Free Trade Area of the Asia-Pacific in response to the US-supported Trans-Pacific Partnership, which excludes China. The Chinese president noted the country is ready to accept a lower growth rate as the government can safely direct the nation through a slowdown as GDP is expected to rise by 7.5% this year – the slowest level since 1990. China anticipates to import more than USD 10 trillion of good over the following five years.
India: Daihatsu to develop small vehicles for Toyota
Source: Reuters, 7 November 2014
As Toyota Motors Corp struggles to remain competitive in the Indian car market, the company has reached a collaboration agreement with Daihatsu. Earlier this year, Yasumori Ihara, VP at Toyota, requested Daihatsu executives to help develop affordable small vehicles suited for its Indian clients. Through Toyota’s sales channel in India, these no-frills cars will be sold. A similar cooperation agreement has been successful for many years in Indonesia. According to a senior Daihatsu executive, Toyota is struggling considerably in India mostly because it utilizes comparably high-quality and high-spec parts for its automobiles there and fails to use cheaper components available from domestic suppliers.
Another senior Daihatsu executives says, “We’re currently looking extensively into why a strategic no-frills car like (Toyota’s) Etios doesn’t sell well in India…. As part of an effort to ready ourselves in case we’re asked to develop low-cost cars formally by Toyota.” No more details were disclosed, however they mentioned Indonesia would probably serve as a model. Experts have stated India is a major car market for the next 10 years. Toyota’s total sales in India for the year to March dropped by 22% to 128,811 cars, surpassed by market leader Maruti Suzuki India Ltd that sold 1.05 million cars. HIS Automotive expects sales of light-cars (below 6 tonnes) will rise solely by 0.2% this year to 3.14 million in India.
Thailand: TAIA advises government to construct regional automotive testing center
Source: Bangkok Post, 6 November 2014
The Thai Automotive Industry Association (TAIA) has urged the government to establish a long-delayed automotive testing center to enhance the country as a regional automotive hub when the Asean Economic Community (AEC) is carried out in 2015. According to Thanawat Koomsin, president at the TAIA, the country is the de facto main car producer of Asean with a maximum annual production of 2.85 million units. As the AEC seeks to strengthen standards in 19 automotive categories, the existing center operated by the Thailand Automotive Institute (TAI) in Samut Prakan can serve only eight categories.
Since October 2012, the nation’s car sector has requested financial support from the Strategic Committee for Reconstruction and Future Development (SCRF) to construct a THB 8 billion facility. As currently domestic car manufacturers need to test their units in India, Taiwan, or Spain (when a new model is launched), automobiles tested at the center would not need further testing in other nations. The TAI proposed three locations in Eastern Thailand for the new facility: Gateway City, Amata City, or Hemaraj industrial estates. Last year, the SCRF noted car manufacturers should also contribute capital for the testing, research, and development center and asked the TAI to examine the feasibility of getting funding from automotive enterprises.
China: Lincoln opens 3 stores, plans to open 65 more by 2016
Source: Automotive News, 6 November 2014
Lincoln has opened stores in Shanghai, Beijing, and Hangzhou – its first three dealerships in China. The firm has also launched its initiative “The Lincoln Way” which is directed for younger and more discerning luxury clients who value individuality. The company has stated it expects to open five additional stores in China before the year-ends and 60 dealerships in 50 cities by 2016. These newly established stores will offer the MKC crossover and MKZ midsize premium sedan. By 2016, the Lincoln MKX, Navigator and a new full-size luxury sedan will be available.
Kumar Glahotra, president at Lincoln, says, “The launch of The Lincoln Way and out first Lincoln stores in China marks an important milestone for Lincoln’s reinvention as a global luxury automotive brand.” The initiative was developed after three years of examining the behavior of Chinese luxury clients and provides buyers with personalized technology, sales, and service. The facilities include a 46” interactive LCD touch screen that allows potential buyers to change the color and features in the selection of vehicles. Clients will also be allowed to schedule personal test drives. According to media reports, the company will invest up to USD 5 billion to strengthen its position within the next 10 years.
Japan: Teijin announces future plans to cut costs
Source: Chemicals-Technology, 7 November 2014
Teijin has reported it will implement several measures to reduce costs. The company plans to discontinue its in-house output of dimethyl terephthalate (DMT) by the end of next year as it’s failing to obtain cost competitiveness at several stages. Furthermore, the firm will close its polycarbonate resin subsidiary in Singapore by the end of 2015 because the plastics business has been affected from supply and demand balance. The company will manage its global polycarbonate output activities from it’s Chinese subsidiary and its Matsuyama facility in Japan.
Teijin has also reported it will concentrate on value-added products that leverage its compounding and processing technologies. It will construct a tyre cord output and sales subsidiary in Thailand and will also bolster capacities at current facilities. To further cut costs, the firm will end operations at its Tokuyama facility and industrial fibre and processing plants in the Iwakuni and Mihara units by the end of 2017. Teijin will reevaluate each facility in Japan in addition to the development of innovative output processes, the possible consolidation of product families, and improvements of productivity of existing equipment. By FY2016, the company expects to achieve cost reductions totaling JPY 18 billion (USD 15.6 million).
Singapore: Evonik commissions EUR 500 million methionine output complex
Source: Chemicals-Technology, 5 November 2014
Evonik Industries has commissioned its methionine output facility in Singapore, which will surge the corporation’s global methionine capacity to 580,000t. The EUR 500 million complex, which will create 200 new jobs in the region, will have a MetAMINO capacity of 150,000t per annum, in addition to other precursors. The enterprise noted it selected Singapore as the location for this new project due to its domestic logistics, business-friendly and stable environment.
Klaus Engel, executive board chairman at Evonik Industries, says, “With this new facility, the most modern of kind and the first world-scale methionine plant in Asia, we are continuing to expand our market and technology lead in DL-methionine.” He added that methionine is one of the company’s main businesses and Asia is the fastest growing methionine market in the globe. Evonik Industries is also allocating capital in amino acid specialties with high growth rates.
Thailand: Corbion Purac to construct EUR 60 million poly lactic acid plant
Source: Chemicals-Technology, 4 November 2014
Corbion Purac will construct a EUR 60 million poly lactic acid (PLA) facility in Thailand. The company, which plans to offer new biodegradable solutions to the plastics market, seeks to surge its PLA output capacity by 75,000t per annum. Tjerk de Ruiter, CEO at Corbion Purac, says, “As part of our strategic review we confirm there is an attractive demand outlook for PLA, albeit at a lower growth pace than previously assumed. We will only commence with this investment if we can secure at least one-third of plant capacity in committed PLA volumes from customers.”
He added that the company projects to merge in the bio-plastics value chain, from being a lactide provider to a PLA manufacturer. The enterprise stated it will still offer lactides for PLA polymerisation clients, coatings and adhesives markets. Global PLA volumes are expected to rise to 600,000t per annum by 2025. The Dutch biotechnology firm operates in 20 countries and generates revenues of nearly EUR 744 million.
Construction & Property Development
Philippines: Manila’s land prices rise to the highest level since the Asian financial crisis
Source: Bloomberg, 6 November 2014
There’s increasing concern that a property bubble is forming in the Philippines as record bids for two plots of land in the capital’s business district have lifted prices to a 17-year high. According to a local associate of Savills Plc, the 1,6000 sq. m site in the former Bonifacio military camp was sold at PHP 732.8 million (USD 16.3 million) and PHP 800 million each at a government auction in September – that was a record PHP 500,000 per sq. m or nearly 80% higher than the previous government land sale in the area.
Land prices in Manila’s five main business districts have risen to the highest level since the financial crisis in Asia. The boom is also spreading outside the Philippine capital, urging the central bank to cap the value of property that can be utilized as loan collateral in part to slow real estate lending and investments that breached PHP 1 trillion as of 30 June. According to Colliers International UK Plc, residential condominium prices surged 5.7% y/y, while rents increased 5% y/y. For the same period, office rents jumped 7.1%, while capital values added about 7.4%. In the Q2/2014, banks’ exposure to real estate rose by 22% y/y.
Vietnam: Buyers interested in high-end properties
Source: AsiaOne, 6 November 2014
In the Vietnamese property market, there has been a return of high-end projects with high rates of sales from the Q3/2014. At the launch of Vinhomes, a high-end apartment project in Hanoi, over 250 units or 70% of the total number were successfully sold at prices ranging from VND 3 billion (USD 180,000) to VND 10 billion per unit. In September, Little Viet Nam units, a project duplicating the old architectural features of Ha Noi and Joi An in Quang Ninh Province’s Ha Long Marina Urban Area, were also sold out immediately after being offered.
During the three-month period ended in September 30, other property projects that had successful sales were Starcity, Diamond Flower Tower, and Dolphin Plaza. A market specialist noted it was a good time to sell property projects as a result that property was becoming an attractive investment channel amid the drop of global gold prices to a four-year low and the cut by the State Bank of Vietnam of deposit interest rates. Vu Cuong Quyet, general director at Greenland Service and Real Estate Joint Stock Co., said he expects a positive trend in the market for the Q4/2014. For the long-term outlook, he stated the property market recovery would rely upon the macro-economic improvements.
Singapore: Taxes depressed property prices and sales
Source: Bloomberg, 6 November 2014
As Singapore has increased a tax on foreign property buyers to up to 18%, sales have been dropped. According to Maybank Kim Eng Securities Pte, condominium prices in Sentosa are near their lowest levels since the end of 2006 based on 15 transactions. Urban Redevelopment Authority (URA) data also revealed several bungalows are being offered fore over 50% below the peak in 2012. The government has been trying to control the property market since 2009, with strict measures, such as tighter lending introduced in 2013.
Alan Cheong, director at Savills Plc, says, “The way prices have fallen is like during the crisis time (in 2008). The measures have impacted demand and we are seeing a diversion of interest by foreigners away from here.” He added that home prices in Sentosa have dropped nearly 40% since 2012, in comparison with a 28% fall in 2008. In 2013, additional taxes for foreigners purchasing residential property were increased to 15% from 10%. Furthermore, buyers have top pay the basic stamp duty rate of nearly 3%. The curbs were to assist the locals, but in the process they are also diminishing the prospects of the nation.
Consumer & Retail
China: Wal-Mart to focus on food safety, says Asia chief executive
Source: Reuters, 8 November 2014
Scott Price, chief executive at Wal-Mart Asia, announced the company is focusing on food safety as its seeks to increase profitability of its over 400 stores in China. Food safety is of high-concern in the country as there have been many scandals from pictures of food oil being scooped from drains to stories of phoney eggs and melamine-tainted milk powder. Price says, “We play an important role in China delivering food safety and quality product to our customers. It’s a differentiator.” Earlier this year, media reports showed donkey meat was found to have fox meat in Walmart. In addition, three years ago, the company was forced to close stores in Chongqing as it was labeling non-organic pork as an organic product.
Wal-Mart was also previously accused of offering expired duck meat. China was the only market of the company’s five largest ones that noticed a dropping same-store sales in the three-month period ended June 30, a decline of 1.6% y/y. According to the corporation’s filings, for the H1/2014 pre-tax income outside the US plunged 3% y/y to USD 11.83 billion. The world largest-retailer has lowered its earning forecast for this fiscal year – it now anticipates annual sales to rise by 2-3%. In June, Wal-Mart announced it would surge its spending on food safety in China to RMB 300 million (USD 49 million) from 2013 to 2015 – up from the previously-reported RMB 100 million. Between 2014 and 2016, the company plans to open up to 110 new stores in China.
South Korea: Domestic cosmetic companies doing good locally and abroad
Source: The Wall Street Journal, 9 November 2014
An increase of cosmetic and other consumer goods sales have send make-up companies stocks high. Chinese tourists spent nearly USD 7.5 billion in cosmetic products last year and HSBC Holdings PLC forecasts that the country’s export of these items are growing at an annual rate of nearly 60%. Market experts note this trend as a result of the growing popularity of the country’s pop culture or “Korea wave” that has Asians obsessed with different music videos and the cultural items related with them.
Buyers, for instance, have purchased facial creams, after being featured in a popular TV show. Nonetheless, specialist warned that international firms are competing to introduce items suited for Asian tastes. Amorepacific Corp’s stocks are already more expensive than Japanese cosmetic makers Shiseido Co. Ltd and Kao Corp., which holds a larger shares of Asian make-up sales. Amorepacific profits increased about 70% in the Q2/2014, driven by nearly threefold increase of cosmetic sales in China.
Indonesia: Soft-drink makers competing to have a larger market share
Source: The Financial Times, 5 November 2014
Indonesia has become a key emerging market for the world’s top soft drink makers as its has a fast-growing middle class and half its population of 250 million are under 30 years old. International companies such as AJE, Asahi, and Suntory, and domestic enterprises including Indofood, Wings, and Sosro are competing to have a greater market share. Nader Elkhweet, partner at Bain & Co in Jakarta, says, “There’s an increasing level of competitive intensity and with the soft drink production capacity doubling in the next five to eight years, this will be a tough place to be.” Euromonitors International expects the average annual sales growth for Indonesia’s USD 6.5 billion soft drink market will slow to nearly 6% in the following five years, compared to the 12% in the past five years. Muhtar Kent, chief executive at the Coca-Cola Co., has noted Indonesia as the main contributor for its Vision 2020 – a plan to double revenues.
The Peruvian corporation AJE, which offers its Big Cola for nearly 25% less than Coke, has captured over a third of the USD 1 billion carbonated drinks market solely four years since entering in Indonesia. Danone, which controls the Indonesian soft-drink market through its Danone Aqua water business, plans to construct new bottling facilities. The country is crucial for Danone as it contributed 6% of the EUR 21.3 billion global sales last year. Furthermore, Indofood has also partnered with Asahi and has purchased the second most popular water brand in Indonesia – Club. Elvira Tjandrawinata, research director at Normura Indonesia, expects revenue growth for consumer good firms, which averaged nearly 20% in the last several years, will slow to 10% over the following three years, with earning growth slowing from 20-30% to 10-15%.
Energy, Resources & Environment
Japan: Two nuclear reactors approved for restart early next year
Source: The Wall Street Journal, 7 November 2014
On 7 November, the Kagoshima prefecture approved two reactors operated by Kyushu Electric Power Co to restart early 2015 – giving the country its first electricity generated from nuclear power since September of last year when the last of 48 reactors were shut down. Authorities have regarded nuclear power as vital to the economic growth because the country is now depending largely on imported natural gas and coal for power. Yet, Prime Minister Abe has kept a low profile on this issue. Specialist note that this is as a result that surveys frequently have shown the public opposition to nuclear restarts by a 2 to 1 margin.
The assembly has petitioned additional assistance from the central government, after domestic legislators noted the evacuation plans in the event of an accident were inadequate. According to a survey conducted by Kyodo News last month, 60% of the respondents opposed the restarts, while 31% were in favor. In the same survey, however, 48% supported the Abe administration. Several other power firms seek to restart reactors next year. Yet, numerous of the country’s 48 reactors are old or placed in seismically sensitive zones, and it’s unknown when the country will once again get a considerable share of its power from nuclear facilities. Since 2011, domestic electricity prices have surged nearly 20% due to the increasing cost of imported fuel.
China: Russia to sell an additional 30 bcm of gas for 30 years
Source: Reuters, 9 November 2014
Russia has reached a major agreement with China to supply another 30 bcm of gas to China for three decades through deposits from West Siberia and delivered via the Altai pipeline. The MOU was signed between Gazprom and China National Petroleum Corporation (CNPC). This is in addition to the compromised reached In May for Gazprom to supply 38 bcm per year to China utilizing the east Siberian gas deposits. When the Altai route is finished, China will become Moscow’s biggest gas client, securing the world’s top energy user a key source of cleaner fuel and establishing a new market for Russia as it risks losing customers from Europe because of the Ukraine crisis.
President Putin is keen to secure additional Asian allies as Europe and the US seek to isolate Russia. According to Alexei Miller, chief executive at Gazprom, the western route is becoming crucial for its gas cooperation. He added that the key conditions, including the timeframe for constructing the pipeline and rate of rising supplies have already been established. Miller says, “The two sides agreed that we will strive to sign the document soon, and a timeframe is also given – up to the end of 2015. The volume of gas supplies in the medium term could be 60 bcm or 100 bcm of gas per year.” Under the framework agreement, CNPC will also acquire 10% stake in Vankorneft – a subsidiary of Rosneft.
India: Authorities to invest USD 100 billion in renewable energy
Source: Clean Technica, 9 November 2014
Piyush Goyal, minister for coal, power and renewable energy in India, reported the government will allocate USD 100 billion in the renewable energy sector within the next several years. Goyal said the government has surged the solar power capacity addition goal to 100 GW by 2019, compared to the prior 22 GW installed capacity goal by 2022. Prime Minister Modi has pledged to strengthen the solar energy target under the National Solar Mission during his election campaign, t it’s considered impossible to be reached.
Furthermore, under the National Wind Energy Mission, that is forecasted to start soon, the government also plans to double install wind power capacity to 40 GW by 2019. Authorities project to offer the offshore wind energy capacity to companies and boost states with comparatively lower wind energy resources as new markets. Local officials also seek to obtain considerable foreign investment into the renewable energy sector. In February 2015, the Ministry of New and Renewable Energy (MNRE) will hold the country’s first global renewable energy investors summit.
Japan: Citigroup receives final bids for its local retail banking business
Source: Bloomberg, 7 November 2014
Sumitomo Mitsui Financial Group Inc. is one of the Japanese banks that has prepared a final bid for Citigroup’s domestic retail banking operations. According to source familiar with the matter, Sumitomo Mitsui Trust Holding Inc., Resona Holdings Inc., and Shinsei Bank Ltd could also participate. In addition to provide a price, Citigroup has requested bidders to disclose their plans for branding, due diligence, and staff. The source has also stated bidders may offer nearly JPY 50 billion (USD 430 million) for the retail bank and credit card businesses. As of October, Citigroup had 32 Japanese retail branches.
The New-York based bank previously stated it was in active discussion with various possible buyers. Citigroup has announced it will focus on corporate and investment banking, market and transactions services in the country as deflation and monetary easing have yield lenders in Japan with the lowest net interest margins in Asia. In the year-ended March, Citibank Japan Ltd earned JPY 1.34 billion, compared to a net loss of JPY 1.98 billion a the previous year. As of June, it had deposits of JPY 3.9 trillion. Citigroup is also withdrawing from 11 personal banking markets with poor returns, such as Costa Rica and El Salvador.
Australia: APRA’s stress tests demonstrate mortgage exposure
Source: Reuters, 7 November 2014
According to bank stress tests conducted by the Australian Prudential Regulatory Authority (APRA), a harsh housing market collapse could disrupt Australian bank earnings and capital levels. As a result, regulators have been urged to carry out higher capital buffers. Wayne Byres, chairman at the APRA, says, “If the system doesn’t have sufficient resilience to quickly bounce back from shocks, it risks compounding the shocks being experienced.” He added that there’s an extent to further boost the resilience of the system. Byres noted domestic banks seem safer than what they really are given their focus on mortgage debt, which has a lower risk weights compared with other assets.
However, the extent of losses in housing will not be nowhere near of those seen in the US mortgage crisis. In recent years, the profits reported by the Australia’s big four banks – Commonwealth Bank of Australia, Westpac Banking Corp, Australia and New Zealand Banking Group, and the National Australia Bank – were largely driven by mortgages. At the end of this month, a government-backed request tasked with providing a plan for the country’s financial system over the next 10 years is due to release a final report. APRA, which supervises the banks, is also considering macro-prudential buffers, such as tightening lending standards for property investments.
South Korea: Traders speculate government will cut interest rates to a record low
Source: Bloomberg, 5 November 2014
Fixed-income traders expect South Korea will reduce interest rates to a record low to restrict gains in the won against the yen. According to Bloomberg data, the difference in yield between the South Korea’s three-month deposit certificates and where forward contracts indicated they will be in a six-months dropped to minus 15 basis points on 4 November, a threshold reached in the month leading up reductions in rates during August and October. After the Bank of Japan announced it will surge its annual target for enlarging the monetary base, the benchmark three-year bond yield held at a all-time low on 5 November. In the first week of this month, the won climbed to a six-year high versus the yen, threatening to affect international sales by companies such as Samsung Electronics Co that has Japanese competitors.
Kwon Young Sun, an economist at Nomura Holdings, says, “ We’re seeing a weak yen when South Korea’s export momentum isn’t strong, and the uncertainty in currency market may further deter local companies’ investments. We see increasing risks of BOK cutting rates to 1.75% in the next few months.” Choi Kyung Hwan, minister of finance in South Korea, cautioned the economy will face a deflation if repressed growth and consumer-price gains prevail. South Korean consumer prices increased 1.2% y/y in October, while exports increased 2.5% y/y last month, according to the statistics office. The central government has recently dropped its 2014 GDP forecast to 3.5% from 3.8%.
Logistics & Transportation
Malaysia: Vale opens USD 1.4 billion terminal slated to reduce the cost of selling iron ore to China
Source: Financial Times, 7 November 2014
Brazilian mine company Vale has launched a new USD 1.4 billion deepwater port terminal in Malaysia, designed to cut the cost of selling iron ore to the world’s biggest consumer of iron ore, China. Located at Teluk Rubiah, between Penang and Kuala Lumpur on the Strait of Malacca, Vale hopes to reduce its cost disadvantage against BHB Billiton and Rio Tinto due to higher transportation costs shipping iron ore from Brazil to markets in Asia. China is responsible for nearly 50% of Vale’s iron ore sales. In seeking to reduce transportation costs, Vale constructed its own fleet of ore carriers in 2011, only to be later prohibited from entering ports in China due to safety concerns and resistance from the China Shipowners’ Association. However, with its new port Vale now hopes to utilize its Valemax vessels, each with 400,000 tonne capacity. Following transport from Brazil to Malaysia, the ore will be distributed throughout the region with the use of smaller vessels.
Additionally, Vale hopes its new port will allow it to sell more profitably in Asia. Since 2010, iron ore prices have been listed at spot prices, allowing buyers in Asia to more easily reduce prices from suppliers, such as Vale, that had previously seen significant profits from its selling of higher-grade ore at premium prices. According to Ian Roper, a Singapore-based analyst broker at CLSA, “It’s essentially about giving them the option not to be forced to sell their higher-quality product into China at a discount. Having the option not to sell high-quality ore into Chinese mills who don’t value it, Vale clearly believes that the people who do value it – Japan and Korea – will go back to paying higher premiums.”
Indonesia: President aims for USD 6 billion port expansion
Source: Bloomberg, 6 November 2014
Newly elected Indonesian President Joko Widodo is pursuing nearly USD 6 billion in developments to expand ports where investors are currently discouraged by logistics costs that amount to 25% of Indonesia’s GDP. Five ports on Indonesia’s main islands are planned for expansion, reducing shipping delays and boosting trade in the country. The Indonesian government is also looking to reduce the government regulation the keeps yachts and cruise liners away. Developing maritime and transport infrastructure in Indonesia is one of Widodo’s main strategies to revive Southeast Asia’s largest economy. Indonesia will be required to invest USD 5.8 billion (IDR 70 trillion rupiah) for the project, adding improvements that will serve large vessels and construct feeder lines for smaller ports.
In a November 4 interview with Bloomberg TV Indonesia, Coordinating Minister for Maritime Affairs, Indroyono Soesilo commented, “We would like to provide good logistics access from Sabang to Merauke,” the country’s westernmost and easternmost cities. To fund the massive project, President Widodo plans to boost government revenue, through reducing the country’s fuel subsidy and improving tax collection. Further, Jokowi could fund his port projects in just one year by reducing its USD 23 billion 2015 fuel subsidy by 25%. Finance Minister Bambang Brodjonegoro said Indonesia’s USD 23 billion in fuel subsidies would in fact be reduced, though the amount of cutbacks is unknown. In anticipation of further infrastructure investment and reduction in regulation, foreign investors have invested nearly USD 4 billion in the Indonesian stock market in 2014.
China: State to contribute USD 40 Billion to Silk Road Fund
Source: Wall Street Journal, 8 November 2014
Chinese President Xi Jinping announced 8 November 2014 China’s investment of USD 40 billion into its Silk Road Fund intended to increase trade and strengthen transport links in Asia. The announcement arrives following a USD 50 billion Asian Infrastructure Investment Bank that China created with 20 other countries in October. Mr. Xi said the bank and the new Silk Road Fund would help to finance China’s plans to develop a “Silk Road Economic Belt” and a “21st Century Maritime Silk Road.” The “Economic Belt” is a network of roads and other critical infrastructure linking China to Central Asia, South Asia, the Middle East and Europe. The maritime route includes the construction and expansion of ports and industrial parks in Asia, the Mideast, Africa and Europe.
Together the plans are intended to set China at the center of Asian transport and transport, and find additional opportunities for Chinese construction and engineering firms. Certain Western representatives have communicated concern that new financing entities for could undercut governance standards at existing institutions like the Asian Development Bank and the World Bank. In response, the U.S. was successful in lobbying a few countries away from the Asian Infrastructure Investment Bank. Seemingly in response, Mr. Xi said that the new bank and Silk Road Fund would “complement, not substitute” existing lending organizations.
Manufacturing & Industrial
Singapore: Purchasing Managers' Index expands by 1.4 points m/m due to an increase in orders and production levels
Source: Channel News Asia, 4 November 2014
The Singapore Institute of Purchasing & Materials Management (SIPMM) announced a 1.4 point increase m/m in the manufacturing sector’s Purchasing Managers' Index (PMI), growing to 51.9 for the month of October 2014. October PMI for the manufacturing sector grew at a faster pace in Singapore due to growth in new orders, production volume and stockholdings of finished goods. In comparison, manufacturing PMI levels for October in China reached a five-month low, despite government measures aimed at aiding growth; US manufacturing PMI levels dropped from 57.5 to 55.9 m/m.
Japan, however, witnessed PMI manufacturing growth to 52.4 in October from 51.7 in September. The increased PMI readings occurred in spite of concerns over vulnerability in some of the world’s greatest economies. A different PMI reading for the electronics sector rose to 52.5 in October 2014, which was an increase of .6 points m/m.
Indonesia: HSBC’s Purchasing Managers Index reveals industrial activity slowing
Source: Financial Times, 3 November 2014
HSBC’s Purchasing Managers Index reveals industrial activity slowing in all five subcomponents: output, new orders, employment, suppliers’ delivery times and stock purchases. All five segments registered below 50, indicating contraction. Further, October marks the third consecutive month of reductions in industrial employment. Indonesia’s economy is currently largely fueled by commodity exports to neighboring China, most prominently including coal and nickel. However, with the rupiah nearing a 5-year low against the dollar, a young workforce and cheap wages, many multinational manufacturers’ see future opportunity in Indonesia. Despite attractive long-term prospects, Indonesia has struggled since the 1990’s financial crisis, slowed down by a workforce lacking skills and poor infrastructure.
The World Bank’s Q3/14 report on Indonesia said, “If Indonesian manufacturing firms are to take greater advantage of the Rupiah depreciation since mid-2013, and from the anticipated continued pick-up in demand from high-income economies, long-standing bottlenecks, for example, relating to logistics costs and infrastructure quality, need to be addressed. Corruption and inequality can be blamed. Indonesia's roads are potholed because budgets disappear. Productivity is low as blue-collar workers see few prospects for advancement. The lack of a strong rule of law deters investment.”
India: Modi leads country as they seek to overtake China as the world’s premier manufacturer
Source: Bloomberg Businessweek, 6 November 2014
Before Narendra Modi became Prime Minister, he headed the state of Gujarat. During his tenure he made Gujarat an industrial leader, something he hopes to reproduce for India as a whole through his recent “Make in India” campaign, attracting foreign investment for the country’s industrial base. Changes have already begun by easing restrictions on foreign investment in property projects and overhauling India’s railroad system. In response, India recently received a combined USD 57 billion in investment from Japan and China to be used to build an industrial corridor between Mumbai and Delhi, containing high-speed rail and superhighways. Further, Ford announced the opening of a second USD 1 billion plant in Gujarat in 2015, Nidec revealed plans to invest JPY 10 billion, and Yamaha is slated to open a USD 244 million factory.
China has long been considered the world’s premier global manufacturing base due to its massive supply of low-wage workers. However, in response to double-digit increases in China’s minimum wage, firms are looking elsewhere for more affordable sources of labor. Indonesia and Vietnam have been tabbed as attractive markets, but they lack the labor depth of India. Hourly labor costs in India for manufacturing averages USD 0.92, compared with USD 3.52 in China. Despite this advantage, India’s comparative lack of infrastructure in roads, ports, and power networks keeps firms away. Additionally, firms cite bureaucracy, unions, and the inability to easily hire and fire as concerns in India. Another example is Micromax, India’s second most popular smartphone brand. To produce in India, Micromax would need to have its camera, screen, touch panel, and chip set suppliers nearby, a luxury that currently only exists in China.
Pharmaceuticals & Healthcare
China: Roche to build USD 465 million plant, joining global pharma industry trend
Source: FiercePharma Manufacturing, 6 November 2014
Roche revealed it will spend roughly USD 465 million (CHF 450 million) to construct a manufacturing plant in Suzhou, China. Upon completion in 2018, Roche will have approximately 600 people working at the new facility. Though the plant is set to create immunochemistry and clinical chemistry tests, it will be utilized for packaging in the first phase. Roche already has a 20-year manufacturing partnership in China, with partner Sunve Pharmaceuticals in Shanghai, China; Roche currently produces roughly 15 products at its Shanghai plant.
China has further attracted great interest from other western pharmaceutical companies. Merck KGaA began work in September 2014 on a new USD 102 million (EUR 80 million) plant in Nantong, slated to be the company’s largest outside of Europe. Also, Bayer announced a USD 127 million (EUR 100 million) improvement to its Beijing facility to improve production of cardio and diabetes drugs. Further, Johnson & Johnson, AbbVie and Sanofi have ongoing projects in China.
South Korea: Samsung reportedly surveying prospective partners to move healthcare tech into wearables
Source: ZDNet, 4 November 2014
Samsung is reportedly surveying prospective partnerships with Microsoft and SAP to expand the implementation of healthcare technology into wearable devices. Samsung is targeting KRW 10 trillion won (USD 9.2 billion) in revenue from healthcare by 2020 and is concentrated on building an ecosystem in healthcare-related devices and services. In March, Samsung launched a Tizen Software Developer Kit for wearables, constructed to facilitate easier developing of apps for smartwatches.
According to a source close to deal, Samsung is highly interested in tapping SAP's HANA-powered big data analytics tool, Care Circles, for its wearable devices. SAP’s applications already enable doctors to remotely monitor and guide their patients. "For example, Samsung smartphones, tablets, and wearable devices could be used as the channel for high-school students and consumers to track health-related data, analyzing details using SAP's Care Circles platform," said the source. The source also stated that Samsung is also exploring a prospective alliance with Microsoft, although the U.S. vendor recently unveiled its own fitness band.
Philippines: LMS takes on radiologist shortage in developing world
Source: Forbes, 8 November 2014
Many developing countries lack the supply of doctors to reach the healthcare demands of their citizens. However, Lifetrack Medical Systems (LMS), a digital healthcare startup based in the Philippines, has a solution. One example of how LMS can impact a country is through the example of radiologists. Their work is vital for diagnosing and treating various diseases, yet there is a severe lack of radiologists in many emerging markets. Due to economic growth, and subsequent improved life expectancy, demand for radiologists will only increase as people live longer and acquire various conditions or diseases that require a radiologist. LMS answers this problem through tele-radiology, the utilization of high-speed Internet that enable remote reading of medical images to on call qualified radiologists anywhere in the world.
An additional issue that tele-radiology is trying to combat is the necessity for radiologists in training to experience hands-on apprentice work with an experienced practitioner. Lifetrack has responded to this complication with the use of web-based applications that pair the apprentice with experienced practitioners from around the globe. The system brings medical images to residents, who make readings with supplementary education material. Following, they submit their reports online to a senior radiologist who corrects and returns them to the apprentice. Southeast Asia in particular indicates an increasing demand for LMS with: underfunded healthcare systems, medical talent shortages, and rising incidence of non-communicable diseases that will increase demand for radiology services. A 2009 study by the University of Sydney, underscored the scale of Southeast Asia’s radiologist shortage, with Indonesia only reporting 650 registered radiologists for a population of 235 million.
India: Baring Asia in advanced negotiations to acquire controlling stake in CMS Info Systems
Source: Reuters, 5 November 2014
Baring Private Equity (Asia) is in advanced negotiations with Blackstone Group LP to purchase a majority stake in CMS Info Systems, an Indian cash management service firm. According to a source with direct knowledge of the private sale, the deal would reportedly value the private firm at approximately USD 400-500 million. Blackstone Group LP previously acquired their 57% stake in CMS Info Systems for USD 65 million in 2009. CMS Information Systems offers cash delivery and pick-ups, cash in-transport and ATM management services.
Blackstone Group LP has appointed Rothschild (India) to implement a formal auction process for CMS. Temasek Holdings and the Carlyle Group have similarly tendered bids for CMS Info Systems, however, Baring Private Equity remains the unofficial favorite. One source said, "Baring is clearly the front runner. We aim to close the deal before year-end.” The sources requested not to be named as negotiations are private and ongoing.
Asia: Private-equity firms in Southeast Asia are selling sooner
Source: Wall Street Journal, 5 November 2014
Private-equity companies in Southeast Asia are often selling their shares in acquired companies in three years or less, significantly quicker than in recent years. Some firms have noted they are liquidating their positions earlier due to concerns over a potential global economic slowdown that could initiate a selloff in the developing markets. Consequently, private-equity firms can be more restricted in their ability to make major structural changes to their acquired firms.
“These divestments [we are seeing now] by private-equity firms—I would categorize them as pre-IPO investments, which typically have a short gestation period,” said Nicholas Bloy, founder of Southeast Asian private-equity firm Navis Capital Partners. Unlike in China, where private-equity firms often only have a 20-30% share, limiting their say in management, the recent sell off in Southeast Asia was comprised of firms with a 49% or greater stake, revealing that moves to divest were not motivated by a lack management input. Despite recent apprehension, markets in the Philippines, Thailand and Indonesia are up at least 18% in 2014, sustained by confidence in the governments.
China: Oaktree spearheads new private-equity model with Cinda
Source: Wall Street Journal, 3 November 2014
Dissimilar to other private-equity firms in China with minority, growth-oriented investing, Oaktree Capital Group LLC is partnering with state-owned China Cinda Asset Management Co., a Chinese asset manager searching for distressed debt opportunities. Oaktree first entered China in 2013, acquiring a USD 53 million stake in Cinda, only to later announce an USD 1 billion investment and joint-venture with Cinda seeking to invest in Chinese distressed investments. In addition to Oaktree’s Cinda stake, its operations in Asia have also been concentrated on raising capital for its funds from sovereign wealth funds and other regional pools of capital.
Oaktree’s partnership is unique in that, through its Cinda partner, it is better able to seize assets from debtors who default. The inability of foreign firms to seize assets has long been a large concern for distressed debt investors considering expansion into China. Cinda’s public-arm still retains a controlling stake in the firm, allows it greater ability to seize assets from other Chinese companies following nonpayment. Mr. Marks, Chairman of Oaktree, stated, “The China Cinda investment was an unusual one for us because it included both the aspects of a normal investment on which we hope to make money, as well as the strategic aspects of building up relations with an important player in China and hopefully learning through our exposure.
Technology, Media & Telecommunications
China: Twitter to open office Hong Kong office in Q1/2015
Source: BBC, 7 November 2014
In seeking to increase advertising revenue and better serve firms in China, Twitter Inc. plans to open an office in Hong Kong in Q1/2015. The Hong Kong office will be led by Peter Greenberger, Twitter’s director of sales for emerging markets, and will primarily be utilized for housing sales staff. Chinese censors have blocked twitter since 2009. The opening of the office will mark Twitter's fifth office in the region, with operations already in Singapore, Tokyo, Seoul and Sydney. In August 2014, Twitter announced it was also opening an office in Jakarta, Indonesia, as it is one of their largest markets.
Despite the fact that Twitter may be unable to establish an official presence in China, the company has other various revenue streams it can pursue. One example is Twitter’s subsidiary MoPub, a technology that allocates ads within mobile apps, which already has many Chinese mobile device developers as customers. Lenovo Group, based in Beijing, is also an advertiser on Twitter. A spokesperson from Twitter said, "With half of all internet, mobile and social media users worldwide in Asia today, we see many opportunities across the region.”
Thailand: Alcatel-Lucent installs IP transport network for True
Source: Telecompaper, 4 November 2014
Alcatel-Lucent has agreed to a 4-year frame contract with True, a Thai communications group, to supply an IP transport network. The updated network will combine True’s mobile, internet and cable backhaul over one shared network. It will also simultaneously offer ultra-broadband speeds to True’s businesses, up to 100G, supporting a network enhancement from 3G to 4G LTE. The contract includes Bangkok, responsible for 65% of Thailand’s total telecommunications traffic, and a region including 1 million broadband households and 15 million mobile users.
The new system is aimed to meet the calls of application-driven on demand services. It is also anticipated to let True provide mobile, residential, business and cloud services through future proof architecture. The Alcatel-Lucent technology supplied to True for IP Routing includes: 7705 Service Aggregation Router (SAR), 7210 Service Access Switch (SAS), 7450 Ethernet Service Switch (ESS), 7750 Service Router (SR), and 5620 Service Aware Manager (SAM).
South Korea: Telecoms face penalty for excessive iPhone subsidies
Source: The Korea Herald/Asia News Network, 4 November 2014
SK Telecom, KT and LG Uplus, South Korea's three major telecommunications companies, are expected to face punitive actions from communications regulators for potentially providing excessive subsidies, surpassing the legal limit for Apple’s iPhone 6 and 6 Plus. South Korea’s Ministry of Science, ICT and Future Planning and the Korea Communications Commission immediately informed executives of the telecom companies of their finding. The violations were spurred by a strong desire by all three companies to attract new customers, following disappointment with the release of Samsung’s Galaxy 4 Note and Galaxy S5. An industry source commented, "The three companies, needed something new, especially KT and LG Uplus, to change the SKT-dominated market.” Consequently, the telecom firms returned to previous strategies of overusing hype, ignoring the law and giving unfair subsidies in the hopes of gaining market share.
The ICT ministry and the KCC announced in a joint statement, "Despite numerous warnings against illegal subsidy payments, they have done it again. We will take follow-up measures by either imposing fines against telecom retailers or file a complaint with the prosecution after a thorough investigation." The ICT and KCC also emphasized they would bolster their scrutiny of the industry to ensure fairness for customers. Within current law on mobile phone subsidies, customer cannot receive subsidies greater than KRW 340,000 (USD 405) for the 16-gigabyte iPhone 6. Retailers were found to have been giving KRW 500,000 subsidies through offline and online payment schemes.