Asia News Update
Asia: World Bank cuts Asia growth forecasts
Source: Financial Times, 13 April 2015
The gains achieved from cheaper oil and increased activity in the developing world has been offset by the cut in China’s projected growth from 7.2 to 7.1 percent this year. The growth rate is expected to drop to 7 percent in 2016 and 6.9 percent in 2017. The World Bank also cut its estimates for Indonesia, Malaysia, the Philippines, Cambodia and Mongolia, which resulted in a 0.2 percentage point reduction in its forecast for developing East Asia as a whole.
Regional growth is now expected to fall slightly from 6.9 percent in 2014 to 6.7 percent in 2015. Growth has slowed in emerging markets because of China’s shift away from investment and heavy industry, the rising dollar, lower commodity prices and countries working to curb their stockpiles of debt.
Asia: Asia-Pacific accounts for more than half of automotive production in 2014
Source: Automotive News, 7 April 2015
The increase in market share comes from China’s strong demand for light-vehicles. Meanwhile, the growth pace in North America has exceeded the expansion of growth in the global market and much of it can be attributed to the increase in light-vehicle output in Mexico. Globally, output of light and medium vehicles rose 4.5 percent to 85.6 million in 2014.
When compared to 2014 market share figures, by 2018 the market share of auto production in North America will decline from 21 percent to 19 percent, Asia-Pacific will increase from 51 percent to 52 percent and European production will decrease from 23.8 percent to 23.5, according to a report by the University of Windsor. Most of vehicle production growth in North America from 2015 to 2018 will come from Japanese, European and South Korean auto companies.
Vietnam: Country could see fastest auto production growth in Southeast Asia, but hurdles remain
Source: Vietnam Briefing, 8 April 2015
This growth will occur over the next 20 years and will see the country produce 220,000 units by 2020 and 1.5 million units by 2035, according to Vichai Jirathiyut, president of the Thailand Automotive Institute. Vietnam’s Automobile Manufacturers’ Association (VAMA) has also predicted this trend. In 2014 there was 157,810 vehicles, or a 43 percent y/y increase in the number of vehicles sold in the country. This increase reflected a 43 percent increase in the sales of personal cars, with 100,000 units sold, and a 42 percent increase in truck sales, with 57,371 vehicles sold. Growth came from increasing consumer demand, a young workforce and strong government backing.
According to Vietnam’s Ministry of Industry and Trade, a growth rate of 4.4 percent will be seen this year by the domestic auto industry, which will produce 200,000 vehicles. Challenges for growth include ASEAN Trade in Goods Agreement, which will begin in 2018 and allow cars to be imported duty-free from other ASEAN countries, and the auto industry’s current low localization rate, which is a vehicle dependent 10-30 percent and the underdevelopment of local supporting industries.
India: Car industry slump ends and market expands
Source: Financial Times, 10 April 2015
The car market expanded by 5 percent to 1.9 mn units over the last fiscal year, according to data from India’s Society of Indian Automobile Manufacturers. A new round of interest rate cuts and the continuing low oil prices has fueled the growth. The success of automakers in India varies. Ford, Volkswagen and Toyota have not seen their investments bear much fruit, whereas smaller auto companies like Maruti Suzuki, Hyundai Motor and Honda have seen good returns.
While the investment has contributed to the local presence of global automakers, problems of overcapacity have worsened and have made many manufacturers export increasing numbers of India-built models to other emerging markets in Asia and Africa.
China: Laxness starts production at new EPDM plant
Source: Chemicals Technology, 14 April 2015
As output increases, the company has further expanded its global ethylene propylene diene monomer (EPDM) asset base. The new plant will be capable of producing 160,000t per year and will make ten premium grades of EPDM to meet demand from customers in China and the rest of Asia. The facility will also have access to storage and ship uploading facilities.
The company currently operates 52 production facilities globally and its main business is the development, manufacturing and marketing of plastics, rubber, intermediates and specialty chemicals.
Malaysia: PHI Group partners with Fusion Crest to build oleochemical plant
Source: Chemicals Technology, 8 April 2015
PHI is investing about 15 mn USD and will have ownership of 70 percent in the joint venture with Malaysia-based Fusion Crest. The plant will be located in Johor, Malaysia, use equipment from Swiss company Sulzer Chemtech, and will process 120t of fatty acid distillates a day.
Those in the industry say oleochemicals are biodegradable, exhibit low-toxicity and uses renewable sources like feedstock. Products include base fatty acids and esters, fatty alcohols, detergent, metallic soap and other derivatives. Demand for oleochemicals has seen constant growth over the past several years, except in 2009 because of a downturn in demand. The new facility is expected to generate around 73.4 mn USD in revenue and 13.2 mn USD in profits from its second year of operation before taxation.
Taiwan: Shin-Etsu plans to build photoresist plants
Source: Chemicals Technology, 10 April 2015
The company will invest around 108 mn USD in its new plant, which will take a year to construct once the Taiwan authorities approve the construction permit application. Shin-Etsu Chemical said the demand for photoresists-related products is rising in Asia and the US with the increase in production volume of semiconductor devices and advances in microfabrication.
Because of this trend, the company sees photoresists as one of its more important areas of R&D. This will be the company’s second production base, adding capacity from its existing Naoetsu Plant, and spread its associated business risks and bolster its photoresists business.
Construction & Property Development
China: Authorities remove partial ban on Kaisa property sales
Source: The Wall Street Journal, 9 April 2015
Authorities in Shenzhen have partially removed a restriction on sales of its residential units, but they remain frozen by local court orders. AS of April 7th about 58 percent of Kaisa’s units in terms of floor area from seven projects have been released. They also released units in an eighth project held for rental. Property in four of the seven projects, 93,515 sq m in all, remained blocked. In addition, all eight of the projects were still subject to the court-ordered freeze, covering a total 145,232 sq m.
The developer, based in Shenzhen, has been pursuing accommodations from its creditors regarding its 2.8 bn USD in offshore debt, in addition to its onshore borrowings, to fast track a bailout bid by property developer Sunac China Holdings Ltd.
Australia: Property scheme claims ability to allow non-residents to invest in real-estate
Source: Financial Review, 13 April 2015
The Australian Investments and Migration Service, established in Singapore, was patented by lawyer Dominique Grubisa and claims to assist foreign buyers circumvent investment rules which prevent non-residents from acquiring existing Australian real estate. Ms Grubisa says her scheme is a legal structure that enables you to legally buy any property in Australia so as not to breach the Foreign Investments and Takeovers Act.
The structure involves creating a buying entity that complies with Australian law. That entity then buys a property with funds from the foreign investor, who becomes a secured creditor on the property title.
Singapore: HDB resale prices fall 0.8 percent on-month in March
Source: Channel News Asia, 09 April 2015
The downward trend of the resale prices of the Housing and Development Board (HDB) is a continuation of the dip that began in January, according to SRX property. Drops were seen in resale prices for three-room and four-room flats, which fell by 0.9 percent and 1.1 percent, respectively, as five-room flats dropped 0.5 percent. HDB executive flats were the only area to see increases, which were at the rate of 1 percent.
From the same period a year ago prices have declined 6.6 percent and 11.1 percent from peak the levels of 4/2013. In all, 1,349 HDB resale flats were sold last month, a 17.5 percent increase from 1,148 units sold in 2/2015. The resale volume saw a 5 percent fall, with 1,420 units resold in 3/2014.
Consumer & Retail
India: Slowing retail inflation increase chances of interest rate cut
Source: Bloomberg, 13 April 2015
According to a statement issued by the Statistics Ministry, the CPI rose 5.17 percent in March from a year earlier after experiencing a 5.37 percent increase in February. In a Bloomberg survey of 38 economists, a median rate of 5.41 percent gain was predicted. According to Madan Sabnavis, chief economist at CARE Ratings in Mumbai, there could be a rate cut before the next policy meeting scheduled for 6/2/2015.
Even though India’s inflation has slowed from an average of 6.7 percent last year, it is still the second-fastest in Asia to Indonesia. Deutsche Bank AG economists Kaushik Das and Taimur Baig have said that Rajan will lower rates both in 6/2015 and 8/2015 to address the bottoming out of company earnings, the fall in exports for 2/2015, which was the largest dip since 2009, and credit growth that is at its lowest levels in more than five years.
Hong Kong: Retail stocks see decline by policy changes set to reduce number of visitors from mainland China
Source: South China Morning Post, 13 April 2015
The policy plans to revoke Shenzhen residents of their entitlement to unlimited cross-border trips and limit them to one visit a week. This hurt stocks and retailers in the beauty products, fashion, jewelry and baby formula sectors particularly hard as they are in high demand by mainland Chinese customers. The high rents and the decreased sales are expected to add pressure to businesses in these sectors.
Other industries saw their stock price rise as mainland investors continued to invest in the market. This helped the benchmark Hang Seng Index gain 743.95 points or 2.73 percent to end at a new seven-year high of 28,016.34 on Monday. Louis Tse Ming-kwong, director of VC Brokerage, said this bull market and the increased wealth going to local Hong Kong investors will not offset the sales once driven by the mainland Chinese consumer.
Energy, Resources & Environment
Indonesia/Malaysia: World Bank recommends cutting fossil fuel subsidies
Source: Business Green, 13 April 2015
The World Bank is looking to help the two countries cut their national debts and take on climate change by cutting the subsidies while the price of oil is still low, as their fuel prices are unusually low because of them. Indonesia's government spending on fuel subsidies accounted for 20 percent of the government's budget in 2013, while Malaysia's fuel subsidies were 2.4 percent of GDP that year.
Axel van Trotsenburg, World Bank East Asia and Pacific regional vice president, said lower oil prices will boost domestic demand in most countries in the region and provide policy makers a unique opportunity to push fiscal reforms that will raise revenues and reorient public spending toward infrastructure and other productive uses.
Japan: Government targets reactors for closure in effort to increase cheap, clean and safe alternatives
Source: The Japan Times, 12 April 2015
The closure of at least five reactors will decrease energy output equating to about 65 percent power produced by all the solar panels currently installed in the country, which is now the second-largest solar market. The five outdated reactors accounted for about 13 terawatt-hours on average annually before the 2011 disaster.
The challenge now faced by the government is what mix of fuel sources it will use to account for the change in power generation. Adding to the pressures is what level of greenhouse gas cuts the country will agree to later this year in the United Nations global warming deal. So far, utilities have gotten the majority of the electricity from fossil fuels, despite government efforts to grow the renewables sector.
Australia: Employment in renewable energy sector fall 15 percent in two years
Source: South China Morning Post, 13 April 2015
The fall is from the 2011-12 peak of 15,000 jobs. According to a report by the Australian Bureau of Statistics (ABS), 12,590 employees worked at wind farms, solar panel manufacturers and hydropower plants in 2014. Renewable energy jobs have grown by 44 percent since 2009-10, however.
Political inaction over The Renewable Energy Target (RET), which mandates 20 percent of all Australia's energy come from clean sources by 2020, has created some uncertainty about the future of the industry. Though both parties agree rooftop solar, which ABS data shows half the sector's jobs were in, should not be weakened in any new target, the actual GWh to be generated from renewable sources is still being debated. The legislated target is 41,000 GWh, the government wants it cut to 32,000 and the labor backed industry position is 33,500.
China: Government reforms three major banks, refocus on supporting public policies
Source: The Australian, 13 April 2015
On April 12, the Chinese State Council announced reform plans for three of its major policy banks. The banks are to help finance infrastructure development for oversea trade and to support the government policies instead of pursuing commercially oriented deals. The policy banks should “provide low-cost loans to finance things that often prove unattractive to commercial lenders” said economist Zhu Chaoping. The Council also underlined the need for better risk management and internal control as well as stronger corporate governance.
The Agricultural Development Bank was required to focus on the finance of agricultural companies and to separate this activity from its profit oriented business. China Development Bank is to “play an active role” in stabilizing the growth and to help local government to settle their debts by buying the new longer-term bonds they are beginning to issue and keep down the interest rates. The Export-Import Bank is to focus on financing exports and encourage Chinese business expansion abroad.
Singapore: Manulife Financial Corp partners with DBS Group Holdings for 15-year, 1.2 bn USD Asia partnership
Source: Reuters, 08 April 2015
The deal will allow the Manulife to sell products through DBS’s branch network in Asia. Manulife expects the fiscal benefits from the deal to be recognized in core earnings per share in 2017. Manulife beat out Aviva Plc, AIA Group Ltd and Prudential Plc to secure the deal. The agreement between DBS and Manulife will become effective on 1/1/2016 and will cover the lender's 200 branches in Singapore, Hong Kong, China and Indonesia.
The deal is the last major agreement of its kind to be available for insurers looking to enter Asia's fast-growing insurance market until HSBC considers a new deal in 2022. The "bancassurance" model is profitable for commercial banks in Asia because global insurers are inclined to pay large fees in exchange for access to a lender’s branch networks.
India: Bond market cools as rate cut delayed
Source: Reuters, 08 April 2015
Traders say there could be an increase in the rate of bond sell-offs as the Reserve Bank of India held rates on Tuesday that was viewed as being cautious about inflation. Banks may also liquidate some of their bond holdings as the government once again starts selling debt as they begin to free up funds to meet an expected rise in demand for loans as lending rates decline.
It is expected that there will be two more rate cuts, each of 25 basis points, by the end of year 2015 and traders say that the bond price reflects the feeling the RBI will come in 6/2015 when the policy is scheduled to next be reviewed.
Logistics & Transportation
Singapore: Trading hubs of commodity companies under investigation for tax avoidance
Source: Reuters, 11 April 2015
Companies deny any improper transfer pricing and cite their reason for operating in Singapore is to be near Asian clients, local expertise and trade routes, as the region makes up an increasingly growing share of their business. The companies in question mainly participate in trading functions in Singapore, which is a high-volume, low-margin business where they buy commodities from their global operations and sell them to clients. Logistics and risk management are also taken care of by these companies.
Tax authorities in Australia and Indonesia say they are looking into whether these arrangements are just an effort to shift profits away from where the commodities are extracted.
Indonesia: Efforts for improving ports are important piece of building up freight rail network
Source: Seatrade Global, 15 April 2015
Efforts are underway to respond to inefficient land transport, especially via truck, by linking the country’s ports with new rail infrastructure or reopening inactive railroads. One project has state port operator Pelindo III is combining efforts with train operator PT Kereta Api Indonesia's (KAI) to bring back a container train service at Surabaya's Tanjung Perak Port that will serve the busy Surabaya-Jakarta route with a twice daily service. Upon opening it will connect the port with the nearby Petikemas Surabaya train station and will operate with 15 to 30 cars and have an estimated annual capacity of 43,800 teu.
The northern sector is completed while the southern Java line is set to be fully operational in 2017. The 773 mn USD northern Java corridor line is projected to be able to run 200 trains a day and more than double freight capacity to 6,000 teu per week. Land acquisition remains a main challenge, along with the lines running too close to residential areas. Another challenge is to shift the thinking of shippers who use trucks because of their flexibility and lead time.
South Korea: CJ Korea seeks to expand into warehousing and distribution in Asia
Source: Bloomberg, 13 April 2015
CJ Korea Express is looking to expand via ventures and acquisitions in China and Southeast Asia. The company aims to grow sales to 22.96 bn USD by the end of the decade, and have 70 percent coming from outside South Korea. According to the average of 10 analysts’ estimates compiled by Bloomberg, Q1/2015 profit is expected to rise to 44.26 mn USD.
Future expansion discussed by Yang Seung Suk, vice chairman of CJ Korea Express, includes forming a venture with a partner in China, setting up warehouse hubs in China’s Shenyang, Shanghai and Guangzhou, a venture to ship cargo by river in Vietnam and on a trucking service to transport goods for Myanmar’s government.
Manufacturing & Industrial
Indonesia: Manufacturers battle to boost exports despite Rupiah’s fall
Source: The Jakarta Globe, 10 April 2015
The rupiah’s has declined 9.3 percent against the dollar since June but many factors are hindering export numbers. Factors include rising labor costs, infrastructure issues and bureaucracy. JP Morgan also cites Indonesia’s high inflation rate and the rupiah’s real trade-weighted exchange rate of 9.8 percent, which is stronger than in mid-2014.
Indonesia has dropped to from 11th to 14th place in the list of the world’s largest clothing exporters and its share of the 490 bn USD global trade has fallen as well by 0.8 percent or 7.7 bn USD.
Myanmar: Country looking to grow economy by expanding textile and garment industries
Source: Xinhua, 07 April 2015
The country’s five-year national export strategy looks to tackle the trade deficit and also focuses on rice, peas and pulses, fishery products, timber and forest products, rubber and tourism. According to official media reports, the sector's export earning is targeted at 2 bn USD for the 2015-16 fiscal year.
Regarding foreign investment, the manufacturing sector, which ranked third behind power and oil and gas, accounted for about 10 percent of the total 54.086 bn USD invested as of 2/2015.
South Korea: Manufacturing jobs reach 17-year high in February
Source: Yonhap, 13 April 2015
According to the latest figures by Statistics Korea, just over 4.43 million people were hired by manufacturing companies as of 2/20915, up 3.7 percent, or 159,000, from a year earlier. The growth in employment has been driven by industrial restructuring and job seeking by ambitious baby boomers.
Other possible contributing factors include the returning home of South Korean companies and the rise in the migrant working population in the manufacturing sector, which was up from 368,000 in 2012 to 418,000 in 2014.
Pharmaceuticals & Healthcare
Malaysia: Country targets medical tourists from Bangladesh
Source: The Rakyat Post, 07 April 2015
Malaysia is looking to convert 20,000 of the nearly 300,000 Bangladeshis who visit Malaysia a year to medical tourists, up 33 percent from last year. The country is looking to become the medical tourism destination of choice for that country’s nationals, said Malaysia Healthcare Travel Council (MHTC), an agency of the health ministry.
MHTC projected that more than one million people around the world, whose reason for travelling is medical tourism, will visit Malaysia this year. MHTC is aiding in the development by working with business to offer value-added services and entice people to travel to the country for medical purposes. They are working with Malaysia Airlines and the insurance provider GD Assist.
Singapore: Rate of doctors leaving public healthcare sector declines
Source: Channel News Asia, 13 April 2015
The rate of doctors leaving the public sector decreased from 6.5 percent in 2011 to 5.8 percent in 2014, according to Minister of State, Ministry of Health, Dr Lam Pin Min. During the same period, the number of doctors who work in the public healthcare sectors has also grown by 34 percent, to nearly to 6,500.
Factors for the decline include an improved work environment, the increase in opportunities for continuing training and development and a better pay framework.