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Growth rate 'good enough for China', says Aviva investment head
DateOctober 20, 2015 - 8:44AM

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Mark Mulligan
Senior markets and economy writer


China's transition away from large-scale manufacturing and heavy industry towards a more services and consumption-based growth model appears to be on track, according to the head of investment strategy at Britain's biggest insurer.
Aviva Investors' Ian Pizer says despite the sharp slowdown in headline growth rates, the world's second-biggest economy was managing its structural rebalancing without huge social cost.
"I think what's underplayed is the degree to which there really is a transition under way in China," he said.
"What's clear is that industrial China has slowed quicker than we and most of the investment community would have expected.
"However, when you look at the rebalancing within the economy – and I think one of the key metrics here is the jobs number – basically job creation seems to be holding up relatively well.
"We know the services sector is still growing fairly healthily, and we know that's more labour-intensive," he said.
"So it appears to be that at the moment they are managing that transition within the economy to keep their social contract."
September industrial production eased sharply
His comments – during a visit to Australia to see clients following the launch in July of an Australian feeder fund to Aviva's "multi-strategy target return fund" – also came ahead of Monday's release by the Chinese government of third-quarter gross domestic product growth rates.
Despite warnings that the number could come in well below average estimates around 6.8 per cent, the economy grew at 6.9 per cent year-on-year, according to official figures, after advancing 1.8 per cent in the three months to the end of September.
Industrial production eased sharply in September, but retail sales growth for the month was slightly better than expectations.
Like many Western commentators, Mr Pizer was sceptical of the official GDP figures.
However, he downplayed the importance of this.
"We don't know what the headline level of growth is. The transparency of the numbers doesn't really give us the ability to be exact on that – but it appears to be growing at a level at which they can create the level of employment needed," he said.
He conceded, however, that countries and companies that had imagined China's manufacturing-heavy double-digit growth rates could be maintained indefinitely would have been caught off guard by the slowdown.
Demand hasn't slumped as much
"China is growing at a rate that's good enough for China, but it's not okay for those parts of the world that perhaps leveraged into the idea that China wasn't going to slow more rapidly," he said.
He agreed that capacity build-up ahead of the global financial crisis – and, in countries such as Australia, well after it – had helped drive down commodity prices. Demand, however, hadn't slumped as much as many people believed, he said.
"On commodities, it's not that demand has really dropped, it's that demand has dropped relative to rates that people have got used to, and to which firms were building capacity to actually match and deliver," he said.
"The V-shaped recoveries and the big accelerations that we were getting used to just aren't around at the moment," he said.
As a result, he favoured companies and economies with "sustainable business models".
"You're looking for firms that aren't relying on some massive acceleration, and that's where the opportunities are," Mr Pizer said.
He said the US Federal Reserve's concern for China, and recent sharemarket volatility in the country, had been misplaced when the central bank's Open Market Committee met in September.
Expect conservatism from banks
"What you expect from central banks, is that you expect them to be very conservative in their language, very conservative in what they say," he said.
"So, the reality is that what a chairman of the central bank, particularly the Fed, isn't expected to do is to say, 'we're not moving, because we're worried about what's going on in the rest of the world'."
He said the US economy was already strong enough to benefit from an interest rate increase, and that any tightening cycle would be a slow process in any case.
The global sharemarket sell-off unleashed by China's wobbles and the Fed's vacillation had thrown up buying opportunities just when everything looked expensive, Mr Pizer said.
"Quantitative easing is designed to bring forward asset price returns, so I think you should expect to see things that are on the side of fully valued," he said.
"You want to avoid areas that you think are outright expensive, but if it's on the expensive side of fair, I think that's something that's okay within this sort of environment, because policy is going to be incredibly easy."

Chinese bond investors look offshore

• FIONA LAW, CAROL CHAN
  
• THE WALL STREET JOURNAL
  
• OCTOBER 22, 2015 12:00AM
  

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The offshore lure. Source: TheAustralian

[b]China’s booming domestic debt market is pushing investors to seek higher yields offshore, just as its banks start to expand yuan lending worldwide.[/b]
The shift comes as China’s central bank is selling its first yuan bond in London as part of its effort to bolster offshore yuan trading. Beijing’s campaign to boost growth by easing lending conditions has sent yields for the onshore bond market to their lowest levels in years.
At the same time, foreign investors jittery about China’s slowing growth are selling their offshore holdings at a record pace, pushing yields, which move inversely to prices, higher.
The difference in yields has lured Chinese investors to move more of their holdings to offshore debt, denominated both in yuan and US dollars. Until recently, bond yields in China typically have been higher than offshore rates.
“It’s not surprising the demand for these (offshore) bonds is skewed towards Chinese accounts,” said Tee Choon Hong, Standard Chartered’s head of capital markets in greater China and North East Asia.
Foreign funds taking stock of their riskier assets after a volatile summer “would like to see how (these bonds) perform before jumping in again.”
Earlier this week, China’s central bank issued its first yuan-­denominated bond in London, coinciding with President Xi Jinping’s first state visit to Britain. Because China’s uncertain growth outlook has kept foreign investors on the sidelines, most of the demand will probably come from Chinese lenders, fund managers say.
The People’s Bank of China is selling five billion yuan ($1.1bn) in debt, with a one-year tenor and yield likely to be about 3.3 per cent. The bond aims to spur the development of the offshore yuan market by increasing “the supply of high-quality bonds” and introducing “a better benchmark interest rate” for the market, according to the prospectus.
London is one of the top offshore yuan trading hubs in Europe, and Britain is wooing Chinese investors to finance projects in the country.
New issuances of offshore yuan-denominated bonds halved in the third quarter to $US4bn ($5.5bn) from the same time last year, according to data provider Dealogic. The market started to quieten at the beginning of the year amid China’s weakening economic outlook, which was magnified by its surprise move to devalue its currency in August.
That month, foreign investors pulled $US1.78bn from offshore yuan bond funds, the largest amount of such outflows on record, according to data compiled by fund-research firm Morningstar. Most so-called dim-sum bonds are issued in Hong Kong, the biggest yuan trading centre outside China. While those outflows tapered to $US317 million in September, the results compare with inflows of roughly $US67m in July. The heavy redemption in the northern summer was mainly driven by Europe-based funds, investors say.
Meanwhile, about $US28m worth of funds flowed into dim-sum bond funds in the first week of October, according to a local fund manager.
The Wall Street Journal

Is Beijing stealing the world’s corporate heart?

• THE AUSTRALIAN
  
• OCTOBER 22, 2015 12:00AM
  

Bernard Salt
[Image: bernard_salt.png]
Social Editor

Up Next

Manhattan no longer top corporate city

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Beijing Source: TheAustralian

[b]I think we are witnessing a weakening of corporate America.[/b]
Not because of the financial crisis or any lessening in military spending, but ­because of the rise of China. And nowhere is this profound shift in power from the West to East better illustrated than the ­location of corporate head offices.
The US publisher of Fortune magazine since 1995 has ranked the world’s 500 largest businesses by revenue. The city with the most Fortune Global 500 head offices is by definition the most powerful corporate city in the world. I have examined the number of Fortune Global 500 businesses headquartered in New York and Beijing over the past decade to track the tectonic shift in corporate power.
In 2005, New York and envi­rons (up to 85km radius) contained 36 Fortune 500 head offices ranked by revenue. They were mostly downtown, around Wall Street, or midtown. Some were in New Jersey, namely Prudential Financial and Merck (pharmaceutical), while others such as General Electric were based in Connecticut and others, such as IBM, were based in Westchester County. The leading Manhattan-based businesses at this time ­included bankers Citigroup and JPMorgan, insurer American International Group and the Telco Verizon Group (including Bell Atlantic).
Beijing and environs (up to 85km radius) at this time contained just 12 Fortune 500 businesses ranked by revenue inclu­ding petrochemical giant Sino­pec, State Grid of China (power), China National Petrol­eum, the Indus­trial & Commercial Bank of China and China Life Insurance. All of these businesses are state-owned enter­prises, which is why they are located in the political capital of Beijing as opposed to the commercial hub of Shanghai.
However, in terms of corporate power (as measured by Fortune Global 500) just a decade ago New York controlled three times the number of big business as did Beijing.
According to the 2015 Fortune Global 500 rankings, the number of big businesses headquartered in the Greater New York area has dropped to 25. Merck and Prudential Financial are still in New Jersey, GE is still in Connecticut, IBM is still in Westchester County and Manhattan still retains two corporate clusters, downtown and midtown. Gone from the New York list are groups that have ceased operations or are still trading but don’t make enough to get into the top 500.
The biggest by revenue headquartered on Manhattan Island today include Citi­group, Verizon, JPMorgan, MetLife and AIG. The number of Fortune Global 500 businesses ranked by revenue headquartered in Greater Beijing has increased fourfold. Over the decade to 2015, Greater New York head offices dropped from 36 to 25 while Greater Beijing head ­offices rose from 12 to 51.
It’s not that economic activity in corporate America or across Greater New York is diminishing. On the contrary, the US economy is far bigger today than in 2005; it’s that China has grown even faster.
The biggest businesses by revenue in Beijing today are Sinopec, China National Petroleum, State Grid, Industrial & Commercial Bank of China and the China Construction Bank. China State Grid now generates revenues of $US339 billion ($366bn). Verizon, Man­hattan’s big­gest busi­ness, generates revenues of $US127bn.
In 2005, the revenue of Beijing’s State Grid and New York’s Verizon were about the same ($US71bn). During the following decade, Verizon delivered creditable revenue growth of 80 per cent whereas State Grid revenue growth was 380 per cent.
The reason why State Grid could deliver growth at this scale is due to the emergence of a Chinese middle class that wants access to power. A simple yet compelling demographic logic has propelled State Grid into a leviathan operation within a decade.
China State Grid has 1.6 million employees. A business of this scale, let alone another 50 top 500 businesses in Greater Beijing, ­delivers extraordinary demand for management expertise as well as for accounting, legal, computing, engineering and HR skills as well as for corporate real estate, down to furniture and fit-out.
I might add Sydney has three businesses in the Fortune Global 500 by revenue (CBA, Woolworths and Westpac) while Melbourne has four (BHP Billiton, NAB, ANZ and Telstra) and Perth has one (Wesfarmers).
Greater Beijing is, by the blunt measure of the number of big businesses administered from within its territory, the most powerful corporate city on Earth, with twice as many head offices as New York and 17 times the number in Sydney.
The odd thing is that corporate powerhouse cities are usually also lifestyle cities, such as London, New York, Paris and Tokyo. They can be pleasant places in which to live if you are remunerated at a level commensurate with the ­responsibility that goes with delivering corporate returns.
But Beijing is not a lifestyle city. At least not yet. Talent will flow into and out of Beijing (and similar cities such as Shanghai, Guangzhou and Chengdu) in a fly-in fly-out manner for years to come. But, ­because of the lifestyle issue, ­Western or Western-educated tal­ent will be reluctant to stay.
This will be a major challenge for Beijing if it is to retain its position as the world’s most powerful corporate city by revenue.
It must be able to attract and retain global talent at least until it is able to generate its own corporate human capital reserves.
Bernard Salt is a KPMG Partner and an adjunct professor at Curtin University Business School; bsalt@kpmg.com.au. Map by Cody Phelan KPMG Demographics.

Xi Jinping denies China is in for hard landing

• THE AUSTRALIAN
  
• OCTOBER 23, 2015 12:00AM
  

Scott Murdoch
[Image: scott_murdoch.png]
China Correspondent
Beijing

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Xi Jinping says China’s economic fundamentals remain strong. Source: AP
[b]Chinese President Xi Jinping has made an unusual move to calm global financial markets, saying the world’s second-largest economy was not heading for a “hard landing” and defending China against claims it was deliberately driving down global steel prices to benefit its own manufacturers.[/b]
In a speech in Britain, as part of his first tour of the country as one of the world’s most powerful leaders, Mr Xi said that while China faced significant “downward pressures”, he believed the economic fundamentals remained strong.
The speech was a major shift away in strategy for Mr Xi, with Chinese Premier Li Keqiang normally considered the nation’s chief economic architect.
The Chinese economy expanded by 6.9 per cent in the third quarter of 2015, the lowest rate in six years, narrowly missing the official 7 per cent growth target but marginally above ­financial markets’ consensus of 6.8 per cent.
An increasing number of forecasters believe China could miss its official 2015 target, which could prompt policymakers to again cut official interest rates and reduce bank capital levels in a bid to boost lending and economic activity.
“Downward pressure and structural problems do exist in the Chinese economy,” Mr Xi said in a speech attended by Chinese and British business executives. “It is a normal adjustment the economy has to go through when its growth reaches a certain phase and a certain level.”
Mr Xi said if Chinese economic growth remained at 7 per cent, its annual valuation would still grow by $US800 billion ($1.1 trillion).
“We have both the foundation and condition to maintain a medium to high speed in economic growth,” Mr Xi said.
“China’s economy still maintains a strong momentum and will release greater development potential.”
During a meeting with British Prime Minister David Cameron, Mr Xi was also forced to defend China against allegations it was deliberately driving down world commodity prices to help its local manufacturers, especially in the steel industry.
China has cut 700 million tonnes of “overcapacity” out of its steel production, with the cuts mainly focused on Hebei, near Beijing. The decision has meant thousands of job cuts.
China imported 86.12 million tonnes of iron ore, predominantly from Australia and Brazil, in the third quarter, up 1.69 per cent compared with the same time last year.
In the first nine months of 2015, it bought nearly 700 million tonnes of the commodity.
“The world is facing an overcapacity of iron and steel, not just the UK. This is because of the ­impact of the global financial crisis,” Mr Xi said. “China has taken a series of steps to reduce the capacity. We have reduced more than 700 million tonnes of production capacity.”
Foreign Ministry spokeswoman Hua Chunying downplayed claims China was breaching World Trade Organisation rules and dumping cheaper Chinese-made steel on the global markets, especially to Britain, which was worsening the oversupply.
“China and the UK are forging increasingly closer business ties,” Ms Hua said. “It is only natural to have some differences and frictions along the way.”
Additional reporting: agencies

China could fuel a tidal wave of disruption

• PETER CAI
  
• BUSINESS SPECTATOR
  
• OCTOBER 23, 2015 9:10AM
  

[b]For years, Chinese companies have been labelled as copycats and stealers of foreign intellectual property.[/b]
Many Americans, including leading venture capital investors like Peter Thiel, have dismissed China’s ability to deliver a “zero to one” type of groundbreaking innovation.
However, China is currently in the grips of an innovation frenzy. Thousands of start-ups have been formed and some have already made their international debut within a short space of time.
For example, DJI Innovation is the world’s largest drone-maker for private use and it has 70 per cent of the global market. Nomura values it at $10 billion and it is only a few years old.
Many people have started to re-examine old assumptions about China’s innovative ability. The emergence of China as the world’s factory has been hugely disruptive for the global manufacturing industry. But here is the trillion-dollar question: what if China manages to climb the technological ladder, just like Japan and South Korea? What implications could it have for the world?
The McKinsey Global Institute just released a detailed report in an attempt to address this question. In a nutshell, the report predicts the country has the potential to become a global innovation leader and it has already proven itself in some areas.
“A decade from now, the world may acknowledge a ‘China effect’ on innovation”, the McKinsey report says.
It breaks down innovation into four archetypes and shows where China is doing well and where it is still struggling. The four archetypes of innovation are: customer-focused, efficiency-driven, engineering-based and science-based.
McKinsey identifies that Chinese companies are doing well in customer-focused and efficiency-driven innovation areas. However, there has been mixed success in engineering-based innovation, and firms are struggling in science-based innovation.
China is home to 100 million middle-income households, and that number is expected to expand to 200 million by 2020. It is a fertile ground for the seeds of innovation to germinate, especially in customer-service-focused industries. For example, Chinese smartphone maker Xiaomi allows more than one million ‘fans’ to vote online for new features that then appear in weekly software updates.
Chinese internet giant Baidu, Alibaba and Tencent have built innovative models to serve the Chinese market. For example, Tencent, the inventor of WeChat, has based its business model on selling virtual goods to online gamers, payments and e-commerce instead of the traditional advertising model. It generates more revenue per user than Facebook.
McKinsey expects innovation in the services sector could add anywhere between $550 billion and $1.4 trillion in additional GDP per year by 2025. Chinese firms have also been doing well in the area of efficiency-driven innovation, thanks to the country’s vast manufacturing ecosystem. The country is home to 150 million factory workers, modern transport and logistics systems, as well as more than five times the supplier base of Japan.
This allows Chinese companies to be industry leaders in driving down costs, finding simpler and better way of making goods and designing more flexible systems of production. For example, Chinese companies based in Shenzhen can turn ideas into prototypes in as little as one fifth of the time and at half the cost of doing such work in-house.
Chinese solar makers are producing goods 15 to 20 per cent cheaper than its foreign peers due to its large scale and supply chain advantage. Everstar, a Chinese clothing maker, can process customised orders and turn out finished goods within 72 hours. The government has unveiled an ambitious ‘Made in China’ 2025 strategy to upgrade its manufacturing prowess.
However, when it comes to engineering-based innovation, the country’s record is mixed. China performs well in some sectors but struggles in others. For example, China is doing well in the areas of high-speed rail, wind turbines and telecommunications equipment, but struggles in cars and commercial jets.
The government’s industrial policy and large home markets are responsible for some of the engineering successes such as high speed rail, where Chinese companies can quickly digest foreign technology and build new technologies. Now, China has 41 per cent of the global high-speed rail market — a remarkable feat considering the industry is less than a decade old.
However, China struggles in the automotive sector despite the fact it is the home to the world’s largest passenger car market. State-owned companies are happy to make handsome profits on foreign production platforms without putting too much money into R&D. It highlights the curse of a semi-protected industry.
China’s innovation Achilles heel, the type Peter Thiel talks about, is science-based innovation. We are talking about successes in industries such as pharmaceuticals, biotechnology, semiconductor design and speciality chemicals. These industries take a lot of investment and a long lead time to turn ideas into products.
In these areas, China is still very much at the bottom of the food chain. McKinsey cites slow regulatory processes, weak intellectual property protection laws and inefficient government scientific funding as the reasons for its weak performance.
McKinsey believes given China’s recent performance, innovation from the services and manufacturing sectors alone could contribute $1 trillion to $2.2 trillion per year in additional GDP to the Chinese economy by 2025. If its prediction about China’s effect on global innovation proves correct, it could be hugely disruptive for industries around the world.
A cheap and massive China has been quite frightening — just imagine a more sophisticated and innovative China.

China slowdown casts shadow as Taiwanese firms look to diversify

• NEWS LIMITED
  
• OCTOBER 24, 2015 12:00AM
  

Damon Kitney
[Image: damon_kitney.png]
Victorian Business Editor
Melbourne

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Taiwan’s biggest air carrier China Airlines. Source: AP
[b]Just like James Packer, Huang-Hsiang Sun likes to dream about Chinese tourists.[/b]
For Packer, he hopes those from China’s rising middle class will fill his new multi-billion-dollar casinos in Sydney and Macau for decades to come. For Huang-Hsiang, the chairman of Taiwan’s biggest air carrier China Airlines, the mainland Chinese international tourist market has become the key to his global growth plans.
Later this month China Airlines will launch direct non-stop flights between the Taiwan capital of Taipei and Melbourne for the first time, complemented by new trans-Tasman flights between Melbourne and Christchurch. China Airlines already flies to Sydney and Brisbane from Taipei with stopovers across the Tasman.
“We are seeing that the time is right to open up this city (Melbourne). The reason we are developing the routes to Australia and New Zealand is the market demand,” chairman Sun told The Weekend Australian at his Taipei headquarters. “We do see that Australia and New Zealand are getting more popular for the ­Taiwanese visitors.”
But the bigger game for Sun is the Chinese mainland tourist market. The airline serves 32 destinations in mainland China. And he says he will add more flights to Sydney, Brisbane and Melbourne if he can secure a bigger slice of the mainland tourism market. “We are working quite hard to build up the network in mainland China and we do see a big opportunity for the mainlanders to come over to Taiwan and take our flight to Australia and New Zealand,” he says.
“If they want to come to ­Australia, they (currently) need to go to Shanghai or Guangzhou. Which means domestic to international, which is harder. Or via Hong Kong. Taiwan would be a good gateway for them to open up the flight.”
The problem for Huang-­Hisang is the aggressive growth of the powerhouse mainland carriers such as China Southern and China Eastern (who both have codeshare deals with Qantas), although he believes he can rival them with ­superior product and service.
But more importantly China Airlines is prohibited from taking transit passengers from mainland China through Taipei, a legacy of the troubled history of the Taiwan Strait. “But now we are hoping we are pretty close to changing the procedures. We are pretty close. It has been on the table for some time. We hope it will be opened up by the end of this year or early next year,” he says.
Huang Hisang’s dilemma is one shared by many Taiwanese businesses. China remains the ­elephant in the room, one prone to stamp its feet to Taiwan’s detriment when disturbed.
And the prospect of victory by the pro-independence Democratic Progressive Party in Taiwan’s upcoming presidential election in January has clearly put Beijing on alert.
Taiwan’s tech-focused economy is still heavily dependent on China, which consumes 40 per cent of its exports.
The Chinese economic slowdown has seen Taiwan’s exports fall for eight months in a row this year. September’s export value of $US22.54 billion was the lowest since October 2010. Economic growth this year is expected to fall below 1 per cent, compared to the lofty forecasts of more than 3 per cent at the start of 2015.
“In the future, if the economy keeps slowing, we are going to be facing more trouble. We don’t want to put all our eggs in the China basket,” says Mainland ­Affairs Council Deputy Minister Chu-Chia Lin. He and other officials in the regime say Taiwan is keen to be part of the much vaunted Trans-Pacific Trade Partnership, the world’s biggest trade deal.
But in the meantime Taiwan Bureau of Foreign Trade director Phillip Wen-Cheng Chen says Taiwanese firms are doing their best to diversify into other markets. “The overseas market is very important to Taiwan. Right now the mainland economy has slowed down but we are still focused on the global market,” he says.
“We focus not only in Asian countries. We also focus on the European, Latin American and African market. We set up a new office in Africa this year.”
President of the Taiwan Institute of Economic Research, David Hong, says there is no reason for the country to panic just yet, noting the nation’s currency reserves remain significant.
“The economy is slowing down but not yet in recession,” he says.
The director of the TIER’s Macroeconomic Forecasting Centre, Gordon Sun, agrees. “We have enough money to face the financial crisis. Whenever Taiwan faces a financial crisis, it has shown in can do better than other Southeast Asian countries,” he says.
The Taiwan Semiconductor Manufacturing Corporation chief executive Morris Chang said ­recently that revenue in electronics was expected to improve in the first quarter of next year.
And chairman Sun of China Airlines is also optimistic about the prospects for the Chinese economy, defying the doom­sayers.
“Basically I think they are OK. They will slow a little bit but should be OK. Compared with other economies, they are still pretty strong. What is the difference between 6.5 and 7 per cent?”
He even has confidence that despite the Taiwanese economy being what he calls “quite mature” and “too heavily dependent on ­exports”, Taiwan has lots of small-to-medium enterprises that are “very strong and very adaptive”.
Tourism has been a clear ­beneficiary of the thawing of relations between Taipei and Beijing under Taiwanese President Ma.
There are now 890 scheduled flights between China and Taiwan every week from 10 cities in ­Taiwan to 61 on the mainland, and 3.9 million Chinese tourists visited Taiwan last year, 10 times the number of eight years ago. None needed visas.
Chu-Chia Lin claims that when Chinese tourists come to Taiwan, they stay an average of seven days and spend an average of $US170 ($234) a day. But there remains a daily quota imposed by Beijing of 10,000 — 5000 in groups and 5000 individuals. “We could have more. The waiting list now is 6-8 weeks for groups, individuals 3-4 weeks. We just don’t want to open it too fast,” he says, noting there were questions whether Taiwan had the tourism infrastructure in place to cope.
Beijing has also just moved to turn off the tourism tap, albeit for a very sensitive period around the election. It was recently revealed that mainland tourism authorities had ordered a 95 per cent cut in the number of Taiwan-bound tourists from December 16 to election day on January 16.
The Chinese authorities have imposed similar restrictions on its citizens travelling to Taiwan in previous election years, but this year the percentage is higher than people expected.
It prompted one local travel agent who declined to be named to estimate that revenue during the period might fall by 50 per cent.
But Wen-Cheng Chen believes the change is temporary. “We are still open for mainlanders to visit Taiwan. There are no problems,” he says. “We will keep a good relationship with mainland China to prevent this happening (again). At least we won’t let relations downgrade. We will keep the status quo — that will be better for Taiwan.”
The situation is more problematic for Taiwan’s hi-tech sector, for so many years the engine room of its economy. Things might improve next year but it must change.
One of its most well known tech firms HTC recently reported that its net loss for the three months ended September 30 widened to $T4.48bn ($190m) compared with a net profit of $T600m a year earlier. Its revenue also dropped sharply to $T21.4bn from $T41.9bn in the same period.
In August HTC announced it would cut 15 per cent of its 15,700 staff. Other famous Taiwanese brands like Acer have been hit as basic contract supply work for global brands like Apple and Dell has moved to mainland China and Vietnam in recent years where ­labour costs are lower. Taiwanese electronics contract manufacturer Foxconn Technology, known as the major product assembler for Apple, last month revealed plans to invest about $US1bn in Indian start-ups during the next two years as it seeks growth beyond manufacturing.
TIER deputy director Charles Chou fears Taiwan is struggling to make a transition into designing and selling its own name-brand consumer electronics.
“We do have some innovative ideas and products and we try to sell them to our neighbours. But one of the issues is that we didn’t find a proper position for the product in the target market,” he says.
“When the consumer is thinking about price we are more expensive than the Chinese. When they think about the quality of the product, we are not as good as the ones from Japan.”
Connie Chang, director-general of the Department of Overall Planning — part of Taiwan’s National Development Council — put its more simply. She says Taiwanese tech firms must be more like Apple. She is formulating the NDC’s plan from 2017. “We need to look into how our customers want our appliances to be,’’ she says. “That is how we can put services into our technology manufacturing.’’
Damon Kitney travelled to Taipei with the Taiwan Ministry of Foreign Affairs.

The People’s Bank of China cuts interest rates again

• THE AUSTRALIAN
  
• OCTOBER 23, 2015 10:43PM
  

Scott Murdoch
[Image: scott_murdoch.png]
China Correspondent
Beijing

[b]China has ordered a fresh interest rate cut and reduced bank capital requirements, in a bid to help lift the economy’s recent flatlining performance and meet its official 2015 growth target.[/b]
In an announcement, expected by some economist, the PBoC said the one-year lending rate would be reduced by 25 basis points, effective tomorrow, to help boost lending across the economy. The news helped the Australian dollar to rally by nearly 1 per cent late this evening to trade at US$72.78c.
The economy expanded by 6.9 per cent in the third quarter, which was marginally below the official 7 per cent target but slightly above the financial markets consensus of 6.8 per cent.
However, there have been growing concerns that recent sluggish export and import figures could mean the economy misses its 7 per cent official growth target for the year which would be the second consecutive time during Premier Li Keqiang’s two year reign. Inflation also expanded by a weak 1.6 per cent during the third quarter.
In a statement tonight, the PBOC said the one-year lending rate would be cut form 4.6 per cent to 4.35 per cent and the one-year deposit rate sliced from 1.75 per cent to 1.5 per cent.
The Reserve Requirement Ratio, the level of capital banks must hold, will be also reduced by 50 basis points. A ceiling on deposit rates, which had been in place for decades in China’s tightly controlled banking system was removed which meant banks could offer rates than set by the central bank.
The PBoC has developed a habit of cutting rates on a Friday night, once the Chinese and Hong Kong markets are closed and before the final session of the week on Wall Street and major European markets end.
In London, the FTSE was already trading solidly in positive territory but bounced on the back of the PBoC news. Late last night, it was 94.02 points (+1.47 per cent) to 6470.3, while the New York Stock Exchange was yet to open.
Capital Economics chief Asian economist Mark Williams said the rate cut was part of a sustained monetary policy easing cycle which could extend further in the next few months.
“This is a controlled easing cycle that underlines how Chinese policy makers unlike many of their peers elsewhere still have room to manoeuvre,” he said.
“Policy easing — both monetary and fiscal — does seem to be helping ... fears that the economy was rapidly decelerating seem to have receded.”

(As what Jim Chanos had said.......)

From The Economist


Debt in China

Deleveraging delayed

Credit growth is still outstripping economic growth

Oct 24th 2015 | SHANGHAI | From the print edition

IN MOST respects, double-digit growth is a relic of the past for China. In the third quarter the economy grew by just 6.9% year-on-year according to official data, and probably by a percentage point or two less in reality. Yet bank loans increased by 15.4% in the third quarter compared with the same period in 2014. Having released a torrent of credit to buoy the economy during the financial crisis, China was supposed to have started deleveraging by now. Instead, banks are continuing to pump debt into the economy, while the authorities, apparently worried about the damage a contraction in credit might do, coax them on.

Growth in credit has at least slowed in recent years. A broad measure is “total social financing” (TSF), which encompasses bank loans, corporate bonds and a range of shadowy loan-like products. TSF growth soared to 35% in 2009 when the government called on banks to open the taps and support the then-faltering economy. It has since decelerated: it rose by 13% in the third quarter from a year earlier. The problem, though, is that nominal GDP growth has fallen much lower, to 6.2%.

This means that China’s overall debt-to-GDP ratio is continuing its steady upward march (see chart). Debt was about 160% of annual output in 2007. Now, China’s debt ratio stands at more than 240%, or 161 trillion yuan ($25 trillion), according to calculations by The Economist. It has risen by nearly 50 percentage points over the past four years alone, with slowing growth only serving to magnify indebtedness.

A rapid increase in debt in a short space of time has historically been a good predictor of financial trouble, from Japan in the 1990s to southern Europe in the 2000s. But there is no level that automatically triggers crises. Since most of China’s debts are held within the government-controlled bits of its economy (state-owned firms are the biggest debtors and state-owned banks their biggest creditors), the country has the means to avoid an acute crisis. It can, in effect, roll over bad loans as they come due or abstain from calling them in. However, although that spares the economy short-term pain, it leaves it with a chronic ailment. Ever more credit is needed to sustain growth. Loans that should have gone to sprightly companies with promising new ideas go instead to corporate zombies.

There are worrying signs that China is heading in this direction. In the six years before the global financial crisis, each yuan of new credit brought about five yuan of national output. In the six years since the crisis, that has fallen to just over three yuan. It is not hard to find examples of companies on life support that in other countries might have perished by now. In September China National Erzhong Group, which makes smelting equipment, received a bail-out from its parent. Investors in Sinosteel, a metals conglomerate, are now hoping for the same after it delayed payment on a bond this week.

It is not too late for China to bring its debts under control. Regulators have taken steps in the right direction. They have obliged local governments to provide better data on their debts and have forced banks to bring more of their shadow loans onto their balance-sheets, providing a clearer picture of liabilities. One reason that banks have been issuing loans so quickly this year—faster than overall credit growth—is that they are replacing shadowier forms of financing. China has also used both monetary easing and a giant bond-swap programme for local governments to reduce the cost of servicing debts. The weighted interest rate on existing liabilities has fallen from roughly 6% to 4.5% this year.

But some worry that these measures are just pushing risks elsewhere. A bond-market boom is the newest concern. Net bond issuance in the first nine months of 2015 reached 8.7 trillion yuan, up 67% from the same period a year earlier. At the same time, the gap between funding costs for companies and the government has narrowed sharply. The one-year yield on government bonds has fallen by nearly a percentage point over the past year, whereas corporate yields have fallen by 1.5 percentage points. In other words, investors are lending to companies as if they were becoming safer borrowers, even as their liabilities increase. Yang Chen of Bank of America Merrill Lynch notes that some investors are buying bonds with borrowed cash, believing that the government will wade in to spare them from any big defaults—as it has done in the past. If that impression persists, China’s debt mountain could grow bigger still.

The long-waited SDR inclusion of yuan...

What will it mean for the yuan to get IMF reserve-currency nod?
24 Oct 2015 12:14
[WASHINGTON] International Monetary Fund (IMF) representatives have given China strong signals that the yuan is likely to soon join the fund's basket of reserve currencies, known as Special Drawing Rights, Chinese officials with knowledge of the matter told Bloomberg News this week.
...
BLOOMBERG

Source: Business Times Breaking News

(24-10-2015, 08:41 PM)CityFarmer Wrote: [ -> ]The long-waited SDR inclusion of yuan...

What will it mean for the yuan to get IMF reserve-currency nod?
24 Oct 2015 12:14
[WASHINGTON] International Monetary Fund (IMF) representatives have given China strong signals that the yuan is likely to soon join the fund's basket of reserve currencies, known as Special Drawing Rights, Chinese officials with knowledge of the matter told Bloomberg News this week.
...
BLOOMBERG

Source: Business Times Breaking News

This is part of the game... not IF but WHEN...