Investment still critical for China

THE Chinese government is encouraging investment in many areas to grow the economy, as investment still plays a critical role for the country, an investment official said yesterday.

Speaking at a news conference, Huang Min, head of fixed-asset investment department with the National Development and Reform Commission, said more non-public capital is welcome in areas that could stabilize the economy.

“To get things done, we still need investment in many areas,” Huang said, noting huge investment opportunities in the economy.

He said the current economic slowdown is still within expectations and government investment activities will continue for quite a long time.

The NDRC, China’s top economic planner, has invited social capital to invest in 80 projects in construction and operation of railways, roads, harbors, wind power stations and oil pipelines in order to draw private funds to infrastructure investment.

Most of the industries used to be dominated by state capital and were off-limits to private and foreign investors.

China is seeking a new growth model less reliant on exports and investment and more on domestic consumption. As a result, growth has slowed steadily over the past two years to 7.4 percent in the first quarter of this year.

The private sector accounted for 63 percent of fixed-asset investment last year, the National Bureau of Statistics said.

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Mini cars will soon lose their flavour

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  Changing tastes The Tata Nano, marketed as the ‘world’s cheapest car’, could not capture market share. S. MURALIDHAR
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  AMMAR MASTE
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Changing aspirations of customers in emerging markets will affect their sales

For several years now, automakers have focused on designing and developing low-cost cars (LCCs) to woo potential customers in emerging markets such as India. The target has been to build and sell products that meet the affordability levels that characterise these countries.

However, it is apparent that things have changed over the last few years and buyers no longer want to be seen in ultra-cheap cars. The experience of the Tata Nano, dubbed with enormous fanfare as the ‘world’s cheapest car’, has shown this. The company is now repackaging the Nano as a smart city car with more features and a higher price tag. The Tata product also prompted Renault-Nissan to think of something similar and enter into an alliance with Bajaj Auto for the ULC (ultra low-cost) car project. Like the Nano, this was tipped to be priced in the Rs. 1.5 lakh range but eventually never saw the light of day as Bajaj, instead decided to make the RE60 quadricycle which is scheduled to debut soon.

New targets

Buyer sentiments aside, another deterrent to the rapid growth of LCCs is the rising income levels in emerging markets. This, in turn, is giving birth to a new class of customers with much higher aspirations.

For instance, India’s real GDP per capita on a PPP (purchasing power parity) basis is expected to reach almost $5,000 by 2018 according to Oxford Economics, up from $4,000 this year. Similarly, the real GDP per capita on a PPP basis in Indonesia is estimated to rise from $5,000 in 2014 to $6,000 by 2018.

With this increasing affordability, we believe buyers are likely to shy away from LCCs and instead choose value-for-money products. Since LCCs are typically entry-level mini cars, we believe that growth of the mini car segment (which includes models such as the Nano, the Suzuki Alto and the Hyundai Eon) will be much lower than the overall passenger vehicle growth in India.

Changing forecasts

According to LMC Automotive data, the mini car segment in India is forecast to expand at a CAGR of four per cent over the next seven years. In comparison, the sub-compact car market is likely to grow much faster at a rate of 17 per cent through to 2021, taking away the volumes from mini cars as more buyers skip the entry-level segment.

As a result of this weak growth, the share of mini cars in India’s passenger vehicle market is expected to shrink from 33 per cent to 17 per cent by 2021 while that of sub-compact cars should improve from 40 per cent to around 50 per cent.

A similar situation is also likely to play out in Indonesia, where the government implemented its Low-Cost Green Car (LCGC) programme in 2013. With the first LCGC models coming out in September 2013, full-year volumes reached 51,000 units, or 24 per cent of all passenger cars sold in the market. Indonesia is a huge multi-purpose vehicle (MPV) market.

The LCGC volumes helped raise the share of mini cars from just one per cent of the total passenger vehicle market in 2012 to six per cent last year. Going forward though, we estimate the mini car share to remain stable at 16 per cent against nearly 60 per cent for the dominant MPV segment. Elsewhere in Southeast Asia too, mini cars play a smaller role in the overall passenger vehicle market. Over the long term, the segment’s share is projected at four per cent in Thailand, nine per cent in Malaysia and nearly 12 per cent in the Philippines.

Right price

Therefore, depending solely on low-cost mini cars to boost volume and market share in emerging markets may not necessarily be the best strategy. A low sticker price is no longer the only (or even the major) purchase driver. Buyers are giving more credence to brand perception, quality and safety. It is vehicles which meet these criteria that will be the volume boosters.

The writer is Senior Market Analyst, LMC Automotive

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Southeast Asia: Next boom market?

Auto industry's enthusiasm cools for Brazil, Russia, India

ElringKlinger makes thermal shielding in Indonesia. The supplier sees opportunity in Southeast Asia because of tightening emissions limits there.

MUNICH -- Auto industry executives are still upbeat about China, but their enthusiasm for the other BRIC countries has waned.

New markets are in demand -- and are being discovered -- such as Southeast Asia.

Stefan Wolf, CEO of German parts maker ElringKlinger, sums up the situation: "You can delete the letters B, R and I from the once highly praised BRIC nations. Only the C is left. By contrast, the ASEAN zone offers strong sales potential for the vehicle industry."

The B, R and I stand for Brazil, Russia and India. ASEAN is the Association of Southeast Asian Nations, a political and economic organization of 10 countries.

Raphael Berthoud, who is responsible for India and Thailand at Faurecia Interior Systems, stresses that "Southeast Asia, especially Thailand, is a major growth market for the automotive industry."

Japanese automakers have long had a presence in the region, which has about 600 million inhabitants, but Ford and General Motors have settled into Rayong, Thailand, as well, Berthoud said.

In addition, Volkswagen assembles vehicles from kits in Malaysia with partner DRB-Hicom.

Rudi von Meister, president for the Asia-Pacific region of ZF Friedrichshafen AG, emphasizes that "many of the next 15 countries with up-and-coming economies are located in Southeast Asia."

ZF has been active in a number of these "BRIC successor states," in some cases for years.

Ralf Dieter, CEO of Duerr AG, also has confidence in Southeast Asia.

"Experts expect vehicle production in Thailand, Indonesia and Malaysia to rise about 40 percent by 2018," he said. "In the course of this growth, international automakers will expand their production capacity in the region."

Production upswing

In 2012, the ASEAN nations manufactured more than 4.2 million vehicles, including nearly 2.5 million in Thailand. The highest sales were in Thailand (1.4 million), Indonesia (1.1 million), and Malaysia (627,000).

PwC's automotive analyst group, Autofacts, predicts a 2.2 million-unit increase in passenger car production in Southeast Asia by 2020.

The countries east of India and south of China also are attracting automakers because the wage levels are even lower than in China.

Aside from the growth in volumes, ElringKlinger, which makes cylinder head gaskets and other parts, sees great opportunities in Southeast Asia because of the increasingly tight emissions standards there. The supplier could benefit disproportionately from the new limits.

ElringKlinger is focusing on Indonesia, Thailand, Malaysia and Vietnam, where more than three-quarters of all ASEAN inhabitants live. And it is betting heavily on Indonesia, which has a population of about 250 million.

Vietnam and Thailand also appeal to ElringKlinger. Car production in Thailand, excluding microcars, nearly approximates the levels in India.

Suppliers are proceeding in various ways.

Duerr, for example, imports equipment for its customers in Southeast Asia, mainly from Chinese factories. ZF has been manufacturing in Rayong since 2002; 170 employees build axle systems for BMW, Ford, GM and Mercedes-Benz at the site.

In Kulim, Malaysia, ZF launched a factory in late 2013 in which 70 employees build car axles for a nearby BMW plant.

Faurecia has been in Thailand since 1996. Its three factories in that country employ about 1,000 people who work for the company's interior and emissions control divisions. Exhaust systems are also produced in Malaysia.

Turmoil in Thailand

So far, ElringKlinger has mainly produced thermal shielding parts in Indonesia for Japanese customers. In the future, the products will include cylinder-head seals, special seals and plastic housing modules.

Suppliers use their ASEAN work forces almost exclusively to supply customers within the region.

The political and social crisis in Thailand is clouding prospects there. Some suppliers are showing declines in their Thai business while others have felt no effects from the problems. ZF and Duerr, at least, assume the country will stabilize in the medium term.

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Poor healthcare ups private spending

Morbidity due to non-communicable diseases accounts for a large share of disease burden in India

The ninth edition of the National Health Profile, 2013, released here on Thursday, reveals that per capita private expenditure on health is three to four times higher than per capita public expenditure in all major States — the exceptions being some Northeastern States and Jammu and Kashmir.

The report by the Central Bureau of Health Intelligence under the Ministry of Health and Family Welfare says the expenditure on health has gone down from 4.3 per cent of the gross domestic product (GDP) in 2000 to 3.7 per cent in 2010. The report highlights data on relevant health indicators and uses information from the 2011 census data and said fund flow to the health sector is maximum by private funds at 71. 62 per cent as per 2008-09 estimates. It said public funds had accounted only for 26.70 per cent.

During the 11th plan, 2007-12, Gujarat received the maximum budget allocation of Rs. 3,060 crore among all States.

Health status indicators reveal that the maximum number of malaria deaths has been reported from Maharashtra (70), while Odisha reported the largest number of cases — 2,16,568. The overall prevalence of the disease has diminished in the last three years, the report said.

However, there has been a considerable rise in the number of swine flu cases and deaths in 2012 and 2013 and a 72.6 per cent hike in the number of deaths in 2013.

Infanticide

Madhya Pradesh reported the maximum number of foeticide and infanticide cases, with Uttar Pradesh in the second position followed by Maharashtra.

Morbidity due to non-communicable diseases accounts for a large share of the disease burden in India. The number of cases of coronary heart disease was estimated to be nearly 3.6 crore for the year 2005, which is expected to reach 6.1 crore by 2015. The number of cases of diabetes was estimated to be 3.1 crore in 2005 and expected to reach 4.6 crore in 2015. In 2013, there were 3,94,982 accidental deaths and 1,35,445 suicides and the maximum number of suicide cases 46,635 was reported between the age group 15-29 years.

Medical education infrastructure has shown rapid growth in the last 20 years. There are 381 medical colleges and 19,817 hospitals with 6,28,708 beds in the country.

Union Health Minister Harsh Vardhan, who released the report, spoke about the critical importance of reliable State-wise data in all sectors of healthcare. Such data would enable policymakers in planning and effective implementation of various schemes, he said.

Minister says country-wise data in all sectors of healthcare will help policymakers in sound planning and effective implementation of various schemes

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Flagship Brands/Models Coming To India.

International brands easily outnumber domestic names in India today. Through local production the government offers special duty benefits by making the automotive industry benefit the country. Premium names from these international brands are a plenty, but very few of them have touched upon India. With the rising number of big pocket buyers, big names like Lexus, Infiniti and flagship models like the Mustang are coming to India over the next 3-4 years. Here’s a quick look at this list of big names that will change the game.

Ford Mustang:

 Three different engine configurations have been chosen for the iconic release

Easily one of the most iconic names in automotive history, the Mustang has been limited to celebrities like Saif Ali Khan who have imported it. The 2015 Mustang however, will enter more Asian markets including Sri Lanka and India. The 2015 Mustang is available in 3 engine options- a four cylinder EcoBoost, a V6 and a good old fashioned true muscle V8. The EcoBoost is a 2.3-litre mill that generates 305 hp of power and 406 Nm of torque. The V6 is a 3.7-litre mill that generates 300 hp of power and 365 Nm of torque. The big block V8 is a 5.0-litre mill that produces a maximum power output of 420 hp and a peak torque of 528 Nm. The transmissions available are a 6-speed manual or an automatic.

Lexus:

Lexus 2014 Line-up

We see a lot of opportunity in India now. Given that the three German brands are doing well, I feel we need Lexus here.” Words from Naomi Ishii, managing director of Toyota Kirloskar Motor (TKM). Lexus is Toyota’s luxury marquee and the brand is expected to arrive in India around 2016 and rival the German titan 3( Audi, BMW and Mercedes-Benz). Lexus’s Achilles heel though is a disinterest in diesel engines and a preference for hybrids. Whether or not the Indian market is ready for that, is anyone’s guess.

Infiniti:

Infiniti Motors Line-Up

Nissan’s luxury half too sees potential in India. The brand offers some radical designs with their luxury line up. Models like the G-sedan, Q50 and QX 50 could be the first to arrive in India. Infiniti too will look to bit into the luxury car market and will complete Nissan’s brand family in India. However, Nissan will not sell it through their dealerships as the brand has a level of exclusivity to project.

Abarth 500:

The 500 Abarth is expected to come to India in late 2014

Abarth is the most immediate expected arrival as Fiat Chrysler India has included it in its 4 model launch plan for 2014. The 500 Abarth is a brawnier version of the Fiat 500. It’s petrol-powered 1.4-litre 4-cylinder mill that is tuned to produce either 137PS or 163PS. The India-specific engine configurations have not been revealed yet but the basic 137PS engine is the likely tune India will see. The 163 PS or 193 PS Biposto may be skipped. Prices will be around Rs 24 Lakh before taxes.

Jeep:

The Jeep Grand Cherokee

Jeep is making many motorists scoff as their launch has been delayed repeatedly. The Wrangler Unlimited and Grand Cherokee have been spied in India since early 2013 and while Jeep is confirmed for a launch, there is no word on a fixed date. Jeep will open with the Wrangler in mid 2015 (Price around Rs 30 Lakh) and launch the Grand Cherokee later on (Price around Rs 45 Lakh)

VW Beetle:

2014 VW Beetle Dune Concept

The Volkswagen Beetle had one run in India, but Volkswagen pulled it back out after an average run. The iconic Volkswagen has been confirmed for a return in 2015 and will be priced around the same Rs 25-30 Lakh price bracket. Currently the Beetle range includes the Beetle, Beetle GSR, Beetle Cabriolet and Cabriolet Karman. India is only going to get the standard Beetle.

Nissan GT-R:

SpecV GT-R

The Nissan GT-R is a boy racer’s fantasy. The import tuner will be far from a volume sales model with 2-doors and a price tag of over Rs 70 Lakh. However, Nissan will use it as a halo product in order to improve its image as a car maker. The 370Z was recently pulled out of Nissan India’s line-up along with the X-Trail SUV. The GT-R will reflect well upon Nissan’s passenger car range which primarily focuses on economical vehicles. The expected arrival of the sports car is around mid 2015.

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Why Hong Kong remains vital to China’s economy

AS PROTESTS grip Hong Kong and worries mount about how China might respond, one of the most unsettling questions for the city’s residents is whether its fate matters much to the rest of the country. Hong Kong has long served as the bridge between China and the world, conveying trade and investment flows both ways. That role has diminished in recent years as China has opened its borders and plugged itself directly into the global economy. Hong Kong's leaders warn that the current unrest will only result in Chinese businesses bypassing it even more. Judging by size, they have a point: Hong Kong is clearly less important than in the past. Its GDP has shrunk from 16% of China’s in 1997, the year it was returned to Chinese control, to 3% today. That has led many inside China and abroad to conclude that Hong Kong is fading towards economic irrelevance. Is it?

Not so fast. The focus on size alone is too simplistic. With China’s development over the past two decades, growth has spread around the country—no one city can dominate GDP when there are now nearly 200 cities with populations of more than 1m people and rapidly rising incomes. But in the financial sphere Hong Kong has remained indispensable to China. And in several dimensions its position has actually been consolidated, not eroded, in recent years. Hong Kong has proved to be more reliable than the mainland as a source of equity financing. Since 2012, Chinese companies have raised $43 billion in initial public offerings in the Hong Kong market, versus just $25 billion on mainland exchanges, according to Dealogic. More than anywhere else in the world, Hong Kong has also provided Chinese companies with access to global capital markets for bond and loan financing. What’s more, Hong Kong is the key hub for investment in and out of China. It accounted for two-thirds of foreign direct investment into China last year, up from 30% in 2005.

 

Although much of this money is simply passing through Hong Kong, foreign companies also use the city as their staging post for investing in China as it offers them something that no mainland city does: a stable investment environment, protected by fair, transparent courts that enforce long-established rule of law. And it is not just foreign companies and investors that turn to Hong Kong. Over the past five years, the Chinese government has made the city a testing ground for a range of financial reforms: the yuan’s path towards acceptance as a global currency began in Hong Kong in 2009 with an experiment in trade settlement; Hong Kong is also home to the biggest “dim sum” bond market—yuan-denominated debt that is issued overseas; and a soon-to-be-launched programme that will for the first time allow any foreign investor to buy China-listed shares will be conducted via the Hong Kong stock exchange. Hong Kong has been only too willing to host these experiments believing, rightly, that they are crucial to its survival as a thriving financial centre.

In short, China has benefited greatly from Hong Kong’s unique status. It is a city that is sealed off from the mainland but closely connected to it; a territory that is fully integrated into the global economy but ultimately controlled by the Communist Party in Beijing. Even with its unique status, however, there is no question where the balance of power lies in Hong Kong’s relationship with China: about half of Hong Kong’s exports end up in China; one-fifth of its bank assets are loans to Chinese customers; and tourism and retail spending, mostly from China, account for 10% of Hong Kong's GDP. In the opposite direction, the Chinese economy’s direct exposure to Hong Kong is vanishingly small. But it would be a grave mistake to conclude that Hong Kong therefore does not matter to China. If China were to do anything that jeopardised their special relationship, Hong Kong would suffer most; but China would also pay a heavy price.

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PH ‘hot’ mart for online commerce

MANILA, Philippines–The Philippines is quickly becoming one of the four “hottest e-commerce markets” in the Association of Southeast Asian Nations, as the local economy presents a lucrative market for online sales, according to the Hong Kong-headquartered Dezan Shira and Associates.

In the May edition of the Asia Briefing Magazine entitled, E-Commerce across Asia: Trends and Developments 2014, Matthew Zito of Dezan Shira and Associates pointed out that the regulatory environments, cultural and linguistic make-ups, and states of infrastructure development in Singapore, Malaysia, Indonesia and the Philippines were seen leading to “important differences.”

As it is, online shopping in these four countries is already experiencing a meteoric rise.

According to Zito, the Philippines stood out in Asean because of its large number Internet users, thus making it the largest English-language online market in Southeast Asia.

Zito said that this meant that foreign online retailers had less work to do in adapting their websites to the local market.

He cited the case of Amazon, which ranked as one of the top 20 most visited sites among Filipinos despite having no local presence.

Filipinos are also among the “biggest users of social media worldwide and the penetration of Facebook in particular is second to none,” he added.

Based on data from the International Telecommunications Union as presented by Asia Briefing, Internet penetration in the Philippines remained small at only 36 percent, but the country’s online population stood at a huge 35 million.

In contrast, Singapore had a better Internet penetration at 74 percent but the online population was only 3.9 million.

In Malaysia, penetration was 65.8 percent while the population stood at 19 million.

Zito also noted that the characteristics of the Filipino economy presented an especially lucrative market for online sales.

“In contrast with the export-driven economies of much of Asia, over 70 percent of the Philippines’ GDP comes from consumption. The Philippines performs considerably well in terms of logistics, where foreign companies such as FedEx and DHL have brought down prices and streamlined the delivery of consumer goods,” Zito explained.

“Considerations such as these should play a central role in foreign investors’ strategic planning for entry into the country’s e-commerce market,” he added.

Zito cited some of the more notable online retailers in the country which included Sulit.com.ph, rebranded as OLX.ph (a classifieds site where payment is arranged directly between the buyer and seller); AyosDito (a competing classifieds site); Lazada (consumer electronics, home and living, clothing and accessories); Cebu Pacific (low-cost airline tickets); and Hallo Hallo Mall (a classifieds-style site with its own online payment system).

“As evidenced by this list, payment systems remain a problem in the Philippines. This is gradually improving, however, with the spread of ATM machines, direct debit, prepaid cards, and even cash-on-delivery options,” he said.

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