Regional News

All Eyes on China’s Economic Expansions

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While much of the world is still feeling the economic downturn, China stands strong with its confidence in its economic future. Last week, Chinese Premier Wen Jiabao said that he is confident in China’s economy.  He has openly welcomed foreign companies like ARC Investment Partners to share in the country’s growth.

As Wen said during his keynote speech at the opening of the World Economic Forum’s annual meeting in the northeastern city of Dalian, “We sincerely welcome foreign companies to actively involve themselves in China’s reform and opening up process and share the opportunities and benefits of China’s prosperity and progress.”

China is becoming more desirable for outside investors of all sorts. Recently, HSBC Holdings Plc. found that wealthy people in China are the youngest in Asia, outside of Japan.  In a recent HSBC report that covered Australia, China, India, Indonesia, Hong Kong, Malaysia, Singapore and Taiwan, they found that the average age of people in China who have liquid assets of at least 500,000 yuan was 36. This was in comparison to 48 in Hong Kong and 38 in Indonesia.

According to the report, more than 25% of wealthy Asians will be investing in greater China and Southeast Asian funds and equities in the next six months. Certainly, fund companies outside of China similarly have their eyes set on this region, and on the ever-increasing economic expansions happening in China.

The expansion into the Asian market is being seen in many sectors.  In the technology sector, companies are trying to get into the market and to target products to this new rising wealthy class.  Investment managers like Adam Roseman of ARC Investment Partners have also made China their main focus on interest.  Global banks like HSBC, Citigroup Inc. and Standard Chartered Plc are expanding into this area as well.

Japan’s Finance Minister Elected as Head of Democratic Party

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Japan’s finance minister Yoshihiko Noda has been elected as the head of the ruling Democratic party, and is likely to soon become the country’s next prime minister as well. Japan’s next prime minister will undoubtedly inherit the region’s financial situation as Europe’s crisis deepens and economies across the globe struggle to stabilize, as well as the resurgent yen, new energy policies, the nuclear crisis and the rebuilding of the devastated northeast coast.

A political analyst in Tokyo, Hiro Katsumata, said “Noda needs to call for a national election within the next two years no matter what. The main challenge for Mr. Noda will be the cohesion in the party and to win in the national election.”

The latest leader of the Democratic Party, who also served as prime minister, was Naoto Kan. He resigned last week as a result of heavy criticism following the earthquake and tsunami in March, as well as the economic status of the country.

Steve Chao reported that “the question is whether the next leader will overcome the hurdles Naoto Kan did not manage to overcome, and, he has to show the public he is able to make the tough decisions that will help the country overcome its economic hurdles.”

Asia’s Trade Increases, China Strengthens Relations with Canada

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Though the Global Financial Crisis has not been resolved, the increase in Asian trade has encouraged many investors and companies to resume business in Chinese operations.

APM Terminals, for example, the port operations division of AP-Moller Maersk Group, has recently announced it will be continuing its investments in the region following a short pause as a result of the crisis.

Martin Christiansen, the division’s chief operating officer and head of its Asian-Pacific operations said “We are actively looking for investment opportunities in emerging Asian markets such as China, Vietnam and Indonesia.”

He added that a slight reduction of exports from China was to be expected. “The growth rate of China’s container volumes in the future is expected to be lower than the past, particularly China’s export volumes to mature markets such as the United States and Europe.”

Other companies and regions have also taken interest in China’s potential. China’s ambassador to Canada, Zhang Junsai, has stated that the relations between the two countries have improved dramatically over recent months. He continued, saying he expected trade to continue to increase, as well as foreign investment.

“China is playing an increasingly peaceful and constructive role in the world. China has performed very well during the financial crisis and I think all this is seen by the Canadian people that China is making contributions to the world economy,” Mr. Zhang said. “More importantly, China has a huge market. There is a great potential for both countries to develop friendly relations.”

Japan Stalling as Yen Rises?

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Financiers across the globe were disappointed in Japan’s move to counter the rising strength of the yen.

Early this past Wednesday, the dollar relinquished gains in comparison to the yen in Asia, increasing concerns and prompting additional measures to stem the growth. Japanese Finance Minister Yoshihiko Noda then held a press conference to discuss such measures.

The conference ended with a statement pledging a $100 billion facility dedicated to limiting the yen’s rise by encouraging mergers and acquisitions, as well as providing aid to domestic corporations in securing energy resources. The ministry will also now require currency trading reports from leading financial groups until September.

Investors around the world were unimpressed with the results of the conference, explaining that the measures would have no real impact on the situation and would not be enough to contain the increase.

“They’re hoping to get as much as they can from talk, just ramping up the threat without taking any more steps,” said Sean Callow of Westpac.

Yuji Kameoka of Daiwa Securities added that “The FX market is a global market. It is hard to contain FX movement with only these measures.”

Morgan Stanley’s Growth Estimate for Asia Drops as Inflation Increases

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Like many other financial firms, Morgan Stanley has noted the withdrawal of international investors from stocks in Asia as the economies in the region begin to falter.

One example of this is South Korea, as the won continues to decrease in value. Morgan Stanley’s growth estimate for the nation has been lowered from 4% to 3.6%, while Deutsche Bank AG has lowered its expectations for China’s expansion as well, claiming that the economic crisis throughout the rest of the world will lessen the demand for Asian exports.

“Reported downgrades of economic forecasts reduced appetite for regional assets,” explained Lee Jin III of Hana Bank. “Stock market declines affected Asian currencies including the won.”

Finance Minister Bahk Jae Wan has confirmed that inflation issues continue to plague South Korea and that the government plans to use “all possible” measures in an effort to stabilize prices. For example, the Bank of Korea left interest rates unchanged for a second month in a row, following three major increases this year.

China Pledges Millions to Horn of Africa and Sri Lankan Port

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Yesterday, China’s Premier Wen Jiabao promised to put $55.3 million towards food aid in African countries, as they suffer from one of their worst droughts in over a decade.

The offer was made during a meeting with Wen’s Ethiopian counterpart, Meles Zenawi, in Beijing, and the aid wilol be distributed throughout a number of countries in the Horn of Africa. The new donation comes in addition to the $14 million promised last month.

China has been keen on contributing to Africa recently, and China- Africa trade has climbed by 40% over one year, reaching $126.9 billion. Chinese companies have taken a particular interest in African mining, agriculture, construction and forestry.

China is also rapidly developing its trade ties with other countries as well, becoming more involved with India and South Asian countries such as Sri Lanka.

China Merchants Group LTD, one of the primary investment firms in the country, recently invested $500 million in a container port there.

“The Colombo South Container terminal is CMG’s largest investment project overseas,’ Fu Yuning of CMG said. He added that the port will have an annual throughput of 2.4 million 20-foot equivalent units once it is opened. An agreement states that China Merchants Holdings International will manage the facility for 35 years.

“We are aiming to expand business opportunities in South Asia and East Africa through the establishment of the new facility, which will anchor the port of Colombo’s position as a transshipment hub in South Asia,” said Hu Jianhua of CMHI. “We’re also targeting synergy between our home port and Sri Lanka and South Asia at large.”

Asian Shares Plunge on Downgrade

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Asian shares plunged today on the S&P downgrade of American debt. Chinese shares fell almost 4 percent, while the Nikkei and Heng Sang fell 2%. The Chinese hold a lot of American debt and now that it has been downgraded the borrowing will probably stop. Despite the obvious connection to the downgrade, the severe plunge in stock prices maybe also due to the weakening global economy,  most notably America’s.

When America weakens economically Asian exports tend to be hurt as one of the biggest consumers of Asian products is the USA.

 

China Worried about US Debt Downgrade and QE3

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With China holding 1.16 trillion dollars of US debt, the current crisis and what the Fed decides to do about will have implications to China. Many believe that the US will undertake QE3 (quantitative easing) which allows more cash in the system, but has the effect of devaluing the US dollar.  Countries like China and Russia have already warned the US about the effects of these policies, yet with a high unemployment rate trillions of dollars worth of debt coupled with growing entitlements, the US has little room to maneuver.

Asia Set to Follow the Middle East

As Middle Eastern markets tumbled on the news of the S&P downgrade of US sovereign debt all eyes are on Asia, most notably China and their markets’ reaction to the downgrade.  The assumption is that there will be a sell off roiling markets in Europe and then back on Wall Street.  With news that the S&P could in fact do another downgrade if the proposed cuts are not made has supercharged the potential catastrophe in the markets.

Pakistan to Maintain Close Chinese Relations

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It has been agreed that “cordial relations” will be maintained between China and Pakistan.  According to Inamul Haq (the country’s former state Minister for Foreign Affairs), everyone is in total agreement on this.  At a recent seminar, he said that Chinese investments and projects in Pakistan had reached $25bn and that this figure was increasing all the time.  He said, “I believe that the US will not leave Afghanistan which is a center from where they can watch China, Pakistan, Iran and other important regional players.  Afghanistan is home to billions of gold and copper reserves while same is the case with Pakistan which has untapped reserves of gold, copper, oil and gas worth billions of dollars.”

Efforts by Chinese Government

In addition, according to an article in Dawn Prof. Zhong Rong said the Chinese government had been making significant efforts to “ensure economic development in Xinjiang province.”  The country is about to invest substantial capital in Xinjiang to try and increase the GDP ratio “and per capita income of the people of Xinjiang Province.”

Asian Stocks Rallied, But Will it Last

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With news from President Obama that there has been a debt ceiling deal within a day Asian stocks rallied from their current slump, yet the rally as positive as it is could sputter if the US congress fails to pass the deal and doesn’t raise the debt ceiling by Tuesday.  Many Asian countries are particularly sensitive to the USA debt situation since many (most notably China and Japan) are holders of US debt.

Although a default may happen, many argue that an Asian fear of defaulting on their obligations is an over reacting since the the US Government would take care of that first. Even without that fact, Asia’s connection to the US consumer base is vital and with a default or just a downgrade, the USA economy would be imperiled even more hurting Asia’s economy as well.