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.

Automotive

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.

Chemicals

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.

Financial Services

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.


India: Gilead’s generics a test for different drug prices in developed and developing countries

Source: The Financial Time, 12 April 2015

Sofosbuvir, the first Indian-made generics of Hepatitis C treatment Solvadi is getting on line. In the US, Solvadi is commercialized by Gilead for USD 1,000 per pill. The generic could save many lives, but Medecin Sans Frontieres (MSF) and drug-makers accuse Gilead of trying to collect patient data to prevent it from being distributed outside of India, especially to middle-income countries (like Brazil or Thailand) were the selling price of the medicine is yet to be fixed.  

The production of Sofosbuvir is closely observed as big pharma are introducing “tiered global pricing” to treat cancer, hepatitis or diabetes. The idea is to sell high-priced and very specialized drugs for cheap prices in developing countries while keeping large margins in rich countries. MSF thinks it will encourage people from developed countries to travel to cheaper places to purchase their drugs.

Private Equity

Asia: Asia Pacific private equity market to see continued restructuring

Source: The Sydney Morning Herald, 14 April 2015

According to a report by Bain & Company, the continued shakeout of underperforming private equity firms in the Asia Pacific region will build a stronger foundation for growth in the industry. The report also noted a record 132 bn USD in dry powder to disperse in the region by funds, and that the median holding period of portfolio companies stood at 4.7 years in 2014. Funds that were losing money made up a smaller proportion of their total fund value.

Bain & Company also expects an uptick in activity this year from macroeconomic conditions, a more favorable environment for exiting investments and a greater acceptance among sellers of private equity funds. They also note that stiffer competition between bidders for deals and higher multiples would make it increasingly difficult for firms to create market-beating returns in the coming years.


Vietnam: SOEs privatization fails to attract investors

Source: The Wall Street Journal, 9 April 2015

According to a report by the Ministry of finance, Vietnam partially privatized 27 State-Owned Enterprises (SOEs) in Q1/2015, that is to say 9.3% of its total objectives for 2015. Vietnam decreased the number of its SOEs from 1.350 in 2010 to 949 at the end of 2013. It is to privatize more in 2015, including power companies and MobiFone, one of its main mobile carrier. The reform has been launched as Vietnam is to enter several free-trade agreements (like the Trans-Pacific Partnership). The slowness of privatization can be explained by the weak interest foreign and domestic private investors express for SOEs: only 44% of the shares offered in Q1/2015 were sold.

Many PE funds find the current investment climate in India to be less than ideal. A notable factor for this is poor returns, as industry sources say PE funds have returned less than 30 cents on every dollar invested. Other factors include lack of exit opportunities, the depreciating rupee and disconcerting macroeconomic factors. Warburg Pincus’s successful track record has bucked this trend, as its limited partners value the company’s experience in India and their returns to investors of 3 bn USD so far. Other funds have difficulty convincing investors to invest in India. During the 2007-2013 period, Warburg Pincus invested in more publicly listed companies, a move away from traditional PE investing where the investment focus is more on unlisted and under-the-radar companies. Their three biggest investments in 2014 took the fund back to its roots, as they are all unlisted and entrepreneur led.


Australia: GE to sell GE capital


Source: The Sydney Morning Herald, 13 April 2015 

General Electric (GE) announced on April 11 it was to sell around USD 100 billion of its financial branch GE capital total assets on the block to USD 200 billion. The group has been selling GE capital assets since 2008 but plans to keep and operate USD 90 billion of assets. Around half of the offloaded assets are either listed, sold, or they already have buyers. 

According to GE global chief financial officer Jeff Bornstein, GE hopes to sell its commercial property business at a price equivalent to its book value. GE Capital global CEO Keith Sherin said the firm profits by selling it assets, as “owners place more value on our platforms than our own investors do as part of GE”. For 2013, the company reported revenue was of AUD 50.5 million, profit was of AUD 1.48 million and its total assets of AUD 560.9 million.



Technology, Media & Telecommunications

South Korea: Samsung and LG took up 43.4% of the global smart TV market in 2014

Source: Yonhap News Agency, 13 April 2015

According to data by DisplaySearch published on April 13, Samsung Electronics Co. held 28.2% of the global smart TV market and LG Electronics Inc. 15.2% in 2014. Both were far ahead of Sony Corp (7.6%), HiSense Electric Co. (6.7%) and Sky worth Group Co. (6.7%). Samsung also dominated the flat TV market (29.2%) and the ultra HD TV market (34.7%). LG held 16.7% of the flat TV market and 14.3% of the HD TV market (both second largest shares).

DisplaySearch also estimates that Samsung and LG’s combined smart TV’s shipment for 2015 will reach 97 million units a year, or 41.2% of the combined sales of flat TV. Both firms are betting on innovations, as LG has been promoting a faster Web OS platform on its flat TV and Samsung is to offer a quantum-dot technology TV that can reproduce 64 times more accurate colors than the currently used liquid crystal displays.


Australia: Macquarie telecom calls for government agencies to justify buying services from tax-avoiding tech companies

Source: The Sydney Morning Herald, 13 April 2015

Macquarie telecom, a service seller, sent a letter to the Senate Economics reference Committee and asked that government agencies purchasing services from global technology firms (like Google or Amazon) paying less taxes in the country justify themselves by a series of reports to the responsible minister.

Ovum government lead analyst Kevin Noonan, said that such measures could penalize government agencies, as global technology firm often are the only one to offer recent key technologies. He suggested that “fixing the tax problem” would limit Macquarie Telecom disadvantage’s without affecting the procurement decisions.


China: US and Japanese trade groups protesting against new bank-technology rules

Source: Wall Street Journal, 13 April 2015

On April 13, 30 US and Japanese trade groups (including the US Chamber of Commerce) sent a letter to the Chinese Communist Party Central Leading Group for Cyberspace Affairs, calling it to back away from new bank-technology rules. The rules require suppliers of bank-technology to turn over and submit to tests encryption keys and proprietary software source codes. Their application was recently delayed, but western groups asked for a public notice confirming their suspension. 

Trade groups say the guidelines are to hinder foreign companies from supplying technology to Chinese banks, as it would force Western companies to transfer critical technologies. They urged China to suspend their implementation and hold public consultations over them. The US government already discussed the matter with its Chinese counterpart and filled a “communication” to the World trade Organization.