SBC: April 2013

Apr 2, 2013

Vietnam - Exporting raw materials, Vietnam eats itself

VietNamNet Bridge – Natural resources and minerals exports bring tens of billions of dollars to Vietnam every year. However, the loss it suffers from mineral exports is much bigger than the sum of money.

Dreaming of enriching with mineral exports

Just over the last 7 years, Vietnam’s coffee exports increased by 2.5 times, natural rubber exports by two times. And during the same time, in the Central Highlands only, 206,000 hectares of forests has disappeared.

In 1980s, natural resource exports were the main source of income of Vietnam. Nowadays, though the turnover from natural exports just accounts for 1/10 of the total export turnover, Vietnam remains a natural resource based economy.

A report by the Vietnam Chamber of Commerce and Industry (VCCI) showed that mining industry makes up 10-11 percent of GDP. In 2012, Vietnam earned $9.6 billion from mineral exports, of which the crude oil alone brought $8.22 billion and coal $1.23 billion.

However, in order to obtain the turnover, Vietnam had to pay a heavy price with land and forests being devastated.

To date, geologists have discovered 60 kinds of minerals at 5,000 mining places. However, since Vietnam mostly exploits raw minerals, the mining has not made any contributions to the development of its industries.

A report of the General Department of Customs showed that in 2009-2011, Vietnam exported 2.1-2.6 million tons of minerals of different kinds, not including coal and crude oil, mostly to China, which brought $130-230 million only. In 2012, Vietnam exported 800,000 tons of minerals, not including the exports through unofficial channels.

According to Pham Quang Tu, Deputy Head of CODE, a research and consultancy institute, many localities have been living on mineral exploitation or strive to develop the local economies based on the mining industry.

Quang Ninh, for example, has its income depending on the mining industry. What will happen with Quang Ninh if the coal mining industry development slows down?

Dak Nong also put a high hope on the development of the bauxite industry, planning to develop Gia Nghia town into an industry – service city. However, with the current difficulties with bauxite projects, it’s obviously unfeasible to build a Gia Nghia industrial city with the focus on the bauxite – aluminum industry.

Vietnam needs to be wiser in using natural resources

Exploiting and exporting natural resources still can bring fat profits. However, the profits do not go to the state budget, but fall into the hands a small group of businesses. While miners pocket money from mineral resources, the country pays a heavy price for the money with environment pollution and land erosion.

Crude oil is the mineral that brings the highest export turnover. However, the turnover is just big enough to import petrol and finished products for domestic consumption.

According to Nguyen Thanh Son from the Vietnam Coal and Mineral Industries Group, in 2012, Vinacoal exported 13.5 million tons of coal. If it had sold the volume of coal domestically, the turnover would have been lower by VND9.6 trillion. However, since the State fails to control the coal smuggling, Vietnam lost 5-6 million tons of coal a year, of VND10 trillion. As such, the smuggled turnover was even higher than the additional value earned from exports.

Experts have said that Vietnam needs to be wiser in using its natural resources. Instead of letting enterprises export raw materials in big quantities, Vietnam should use the natural resources as the “bait” to lure foreign investments into the processing industries. If the raw export continues, Vietnam will lose the opportunity to develop important industries.

TBKTSG

Business & Investment Opportunities
Saigon Business Corporation Pte Ltd (SBC) is incorporated in Singapore since 1994. As Your Business Companion, we propose a range of services in Strategy, Investment and Management, focusing Health care and Life Science with expertise in ASEAN 's area. We are currently changing the platform of www.yourvietnamexpert.com, if any request, please, contact directly Dr Christian SIODMAK, business strategist, owner and CEO of SBC at christian.siodmak@gmail.com. Many thanks.

Vietnam - Vietnam to test disposable chopsticks

VietNamNet Bridge – The National Institute for Food Safety Test has collected samples of disposable bamboo chopsticks and toothpicks on the market to test for mold resistant chemicals, said Mr. Nguyen Thanh Phong, Deputy Director of the Food Safety Agency of the Ministry of Health.

The competent authorities will also examine the conditions, production procedure and raw materials of disposable bamboo chopsticks and toothpick producing enterprises in Vietnam.

The move is made after the Chinese media said that disposable bamboo chopsticks may be very harmful to the health of users.

Earlier, Chinese actor Huang Bo posted a message on his micro blog saying that when he tried to wash the disposable chopsticks provided to him in a restaurant, he was astonished to find that the chopsticks turned the water yellow and gave off a pungent smell.

"Stop using disposable chopsticks, it is not about saving the environment anymore, it is about saving your own life," Huang wrote on the micro blog. The message was forwarded 125,000 times.

Angry netizens asked Huang to reveal the name of the restaurant, Huang said the bad chopsticks are not only provided in that one restaurant, but are widely distributed.

Dong Jinshi, secretary-general of the International Food Packaging Association, said the color and smell of the chopsticks may indicate that they were exposed to sulphur and other chemical substances. "Sulphur, hydrogen peroxide, sodium sulfite and mold inhibitor, are chemical substances commonly used to make disposable chopsticks, even though they are not allowed," he said.

In Vietnam, the majority of disposable chopsticks in restaurants are imported from China, through the land border, so they are not tested for quality and food safety. Bamboo chopsticks are prone to mold so it is possibly that they contain unsafe preservative against mold.

Compiled by Le Ha

Business & Investment Opportunities
Saigon Business Corporation Pte Ltd (SBC) is incorporated in Singapore since 1994. As Your Business Companion, we propose a range of services in Strategy, Investment and Management, focusing Health care and Life Science with expertise in ASEAN 's area. We are currently changing the platform of www.yourvietnamexpert.com, if any request, please, contact directly Dr Christian SIODMAK, business strategist, owner and CEO of SBC at christian.siodmak@gmail.com. Many thanks.

Vietnam - TPP: challenges and chances for Vietnam

While many experts believe that Vietnam will be the nation that will enjoy the most benefits compared to other countries that are negotiating for the Trans-Pacific Partnership (TPP) agreement, taking part in the TPP also poses a considerable number of challenges.

Vietnam, along with 10 other TPP nations, finished Round 16 of the TPP free trade discussions in Singapore in mid-March.

While the nations expected the negotiation to be finished by the end of this year, it may be prolonged into 2014 with the additional participation of Japan.

Vietnam has to take part in negotiations on thorny issues such as origin norms and social matters relating to labor and environment, but the agreement will open up a huge market for Vietnam to export more to TPP members, said Professor Peter A. Petri from the US-based Brandeis University.

The country, however, will enjoy the most benefits in terms of export-import performance, foreign direct investment flows and closer ties with international production chains, the professor added.

Vietnam’s gross domestic product is expected to increase by US$26.2 billion, or 7.7 percent, from now to 2015, in case the number of TPP nations remains at 11.

The figure will be $35.7 billion and 10.5 percent if Japan officially joins the TPP, he added.

“Vietnam is in the best position to take advantage of the TPP,” he added.

The current 11 TPP members include Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, the US, and Vietnam.

The benefits will come from the US, and Japan in the future, which are currently the country’s largest exporting markets, according to Professor A. Petri.

“Many industries are leaving China, and where would they switch to? India, or Southeast Asia, where Vietnam has emerged as an important destination?” he said.

Once the TPP negotiations are successfully concluded, the country’s garment and textile exports to the US are expected to increase 12 to 13 percent, raking in some $30 billion a year, according to the Vietnam Textile and Apparel Association (Vitas).

Then, the US market will account for 55 percent of Vietnam’s total exports of garment and textiles, the association said, adding that the current proportion is 49 percent.

Challenges

While local businesses agreed that the TPP will create new opportunities for their growth, they all admitted that it is not simple to make good use of these golden chances.

While the Vietnamese textile and garment sector can enjoy zero duties for their exports to the US instead of the current 17.2 percent following the TPP, it still depends greatly on the product origin requirements applied by the US, Vitas said.

Vietnam still imports most of its raw material for textiles and garments, and most of the imports are from China, the association admitted.

“It’s also comprehensible that the importing countries will set up new technical barriers once the exporting duties are lowered,” Vitas head of international relations Tran Viet told Tuoi Tre.

Diep Thanh Kiet, deputy chairman of the Vietnam Leather and Footwear Association (LEFASO), said the TPP can generate 1 million new jobs for the footwear industry, while also increasing export volumes to the US, which currently accounts for 47 percent of the sector’s total export turnovers.

However, reality shows that local footwear businesses cannot well take advantage of the chance.

“The handbag manufacturing sector has to import up to 90 percent of its raw materials from China, which will hinder Vietnam’s making use of the lowered taxes under the TPP,” he explained.

TUOITRENEWS

South Korea - US positions destroyer off S. Korea coast

SEOUL: The United States has positioned a destroyer off the coast of South Korea to defend against a possible missile strike, a US official said, as the South vowed a strong response to any provocation from the North.

The USS Fitzgerald was moved to the southwestern coast after taking part in military exercises, instead of returning to its home port in Japan, a US defence official told AFP Monday on condition of anonymity.

The deployment came as North Korea's rubber-stamp parliament formalised the country's status as a nuclear weapons state and appointed a sacked economic reformer for a fresh term as prime minister.

At a meeting with senior military officials on Monday, South Korea's President Park Geun-Hye said she took the near-daily stream of bellicose threats emanating from the North over the past month "very seriously".

"I believe that we should make a strong and immediate retaliation without any other political considerations if (the North) stages any provocation against our people," she said.

Defence Minister Kim Kwan-Jin made it clear that the South would carry out pre-emptive strikes against the North's nuclear and missile facilities in the event of hostilities breaking out.

"We will... establish a so-called 'active deterrence' aimed at neutralising the North's nuclear and missile threats quickly," Kim said.

The Korean peninsula has been caught in a cycle of escalating tensions since the North launched a long-range rocket in December, which critics condemned as a ballistic missile test.

United Nations sanctions were followed by a nuclear test in February, after which came more sanctions and apocalyptic threats from Pyongyang as South Korea and the United States conducted joint military drills.

Those threats have run the gamut from warnings of limited artillery bombardments to pre-emptive nuclear strikes, and have been met with counter-warnings from Seoul and Washington of severe repercussions.

The White House said on Monday that despite its threats, North Korea had yet to back up its words with mass troop mobilisations or troop movements.

"Despite the harsh rhetoric we're hearing from Pyongyang, we are not seeing changes to the North Korean military posture, such as large-scale mobilisations and positioning of forces," White House spokesman Jay Carney said.

In addition to the deployment of the USS Fitzgerald, the US military said Monday it had deployed F-22 Raptor stealth fighters to South Korea as part of the ongoing "Foal Eagle" military exercise.

"The F-22s are advanced fighter aircraft and they're an important display of our commitment to the South Korean alliance," Pentagon spokesman George Little told reporters in Washington.

"The North Koreans have a choice. They can continue to engage in provocations, with bellicose, overheated, irresponsible rhetoric, or they can choose the path of peace," he said.

North Korea has already threatened to strike the US mainland and US bases in the Pacific in response to the participation of nuclear-capable US B-52 and B-2 stealth bombers in the exercise.

Monday's gathering of the North's Supreme People's Assembly, or parliament, was notable for the promotion of a former premier who was sacked in a reported backlash against his pursuit of economic reforms.

Pak Pong-Ju, 74, was unanimously returned to the post of prime minister, which he had previously held from 2003 to 2007, when he spearheaded modest economic reforms of state enterprises.

An apparent backlash from the party and the military saw him suspended from duty in June 2006 and sacked the following year.

The parliament also adopted an ordinance on "consolidating the position of nuclear weapons state for self-defence", KCNA said, fulfilling the party leadership's call a day before for the country's possession of nuclear weapons to be "fixed by law".

Sunday's gathering of the central committee of the ruling Workers' Party, which was chaired by leader Kim Jong-Un, had also insisted that the nuclear arsenal be beefed up "qualitatively and quantitatively".

On Saturday, the North announced it had entered a "state of war" with South Korea and warned that any provocation would swiftly escalate into an all-out nuclear conflict.

It also threatened to shut down the joint-Korean Kaesong industrial complex, which is a crucial source of hard-currency revenue for Pyongyang and has been shielded from previous crises.

The border crossing to Kaesong, which lies 10 kilometres (six miles) inside the North, was functioning normally on Monday.

The operating stability of the complex is seen as a bellwether of inter-Korean relations, and its closure would mark a clear escalation of tensions beyond all the military rhetoric.

- AFP/fa

Japan - Bank of Japan chief vows "bold" monetary easing

TOKYO: The Bank of Japan's new chief said policymakers would live up to market expectations for "bold" monetary easing, ahead of his first policy meeting since taking up the post last month.

The two-day meeting, which starts Wednesday, comes as BoJ Governor Haruhiko Kuroda has repeatedly talked up his plans to stoke the economy and reverse years of deflation that has crimped private spending and corporate investment.

"It is not easy to break out of 15 years of deflation," he told a parliamentary committee on Tuesday.

But "it is important that we show a strong commitment to mobilising all the policy measures that the Bank of Japan has and doing everything possible, and that we explain this to markets appropriately" to stoke growth.

"I will adopt bold monetary easing policies that would meet (market) expectations," he added.

Kuroda's pledges to beat Japan's long-running deflation has stoked speculation that the BoJ will launch a new wave of aggressive policy measures that tend to weaken the yen, helping the country's exporters.

The finance veteran and former head of the Manila-based Asia Development Bank also laid out a plan to hit an ambitious two-percent inflation target adopted by the bank in January, seen as more explicit than a previous "goal".

Japan "must achieve" the target "as soon as possible", Kuroda said, adding that he was eyeing a two-year timeframe that some observers have said was unlikely given the country's long struggle with falling prices.

Prime Minister Shinzo Abe, who took office in December, has pushed for big government spending and called for aggressive monetary easing by the BoJ to breathe new life into the world's third-largest economy.

Markets have cheered so-called "Abenomics" in recent months, with Tokyo's benchmark Nikkei 225 index soaring while the yen weakened on forex markets.

- AFP/xq

Myanmar - Singapore to help Myanmar set up vocational training institute

NAYPYIDAW, MYANMAR: Singapore will help Myanmar set up a vocational training institute in Yangon.

This is part of Singapore's efforts to support Myanmar in its economic development.

President Tony Tan Keng Yam announced this on Monday.

Dr Tan, who is in Myanmar for a 5-day state visit, said a skilled workforce in Myanmar will serve as a growth engine for the country.

The new vocational training institute will help educate and equip the workforce in Myanmar will skills such as hospitality, engineering and facility management.

Also on Monday, Dr Tan met President Thein Sein for about an hour at a closed-door session. The two last met when President Thein Sein visited Singapore in January last year.

Dr Tan also met opposition leader Aung San Suu Kyi, the chairperson for the National League for Democracy.

Earlier Myanmar held a ceremonial welcome for Dr Tan at the presidential palace.

Dr Tan and his delegation will head to Mandalay and Yangon next.

- CNA/ir

Singapore - F&N receives notice to "make clear" intention on listing status

SINGAPORE: Fraser and Neave (F&N) is required to announce its intention with respect to its listing status by 18 April.

In a filing with the Singapore Exchange (SGX), the property and soft drinks conglomerate said it has received a letter from the SGX to "make clear" its intention on whether to maintain its listing status, or risk having its trading halt converted into a trading suspension with effect from April 19.

The company said it is considering its options with respect to its listing status and will make an appropriate announcement in due course.

The trading halt came soon after TCC Assets, which is controlled by Thai billionaire Charoen Sirivadhanabhakdi, took control of F&N in February.

Mr Charoen, who also controls Singapore-listed Thai Beverage, has yet to share his intentions on his plans for F&N.

- CNA/xq

Philippines - Petron hits oil smuggling

About one in every three liters of gasoline or diesel sold in the country is smuggled, resulting in 30 billion pesos to 40 billion pesos (US$733 million to $977 million) in yearly forgone revenue on the part of the government, according to the head of the country’s biggest oil refiner.

The forgone revenue estimate is bigger than what the government expects to generate this year from higher taxes on sin products.

Ramon S. Ang, Petron Corp. chairman and chief executive officer, said studies from 2007 to 2011 showed that smuggled oil products “now account for at least a third of the total volume sold in the market.”

“(Our) retail or service station volumes have remained flat despite the fact that registered vehicles increased from 5.5 million to 7.1 million over the period,” Ang said in a phone interview.

“On top of lost government revenue and an uncertain investment climate in the oil industry, smugglers are cheating consumers since these products are of uncertain quality,” he said.

Ang said the uncontrolled oil smuggling in the country “is tax evasion in another form.”

Based on official data, the Philippines consumed a total of 110 million barrels of oil in 2012, of which 50 per cent were imported as finished products.

The rest were refined in the country by Petron and Pilipinas Shell. Other companies import finished petroleum products like gasoline and diesel mostly from Singapore.

36m barrels smuggled

Besides the official fuel imports, an estimated 36 million barrels were smuggled into the country, Ang said.

Petron is majority-owned by San Miguel Corp., which is still licking its wounds from last year’s defeat in Congress where allies of President Aquino approved higher taxes on sin products for the first time in more than a decade.

Petron, which accounts for an industry-leading 34.9-per-cent share of the domestic market in the first half of 2012, saw its profit plunge 73 per cent to 2.3 billion pesos last year from 8.5 billion pesos in 2011.

The huge drop in Petron’s profit came despite a 55-per-cent jump in revenue to 424.8 billion pesos in 2012.

The company attributed the fall in margins to volatility in crude and product prices last year. Its expanded Bataan refinery, which cost $2 billion, is expected to start operations next year.

Watch special zones

For Ang, stopping oil smuggling is not “rocket science”.

“It doesn’t take much to stop these smuggling activities since you would only need to closely monitor special economic zones and other ports. I believe another way the government can monitor smuggling activities is to go after retail outlets that are selling fuel at extremely low prices,” he said.

Fernando Martinez, chairman of the Independent Philippine Petroleum Companies (IPPC), said his group shared Ang’s concerns on the rampant oil smuggling.

“We have made presentations to both the Department of Finance and the BOC (Bureau of Customs) about the problem. We have made proposals on how to check it especially in ecozones—charge all imports upon entry and just give rebates to those who use the fuel within the zone,” said Martinez in a phone interview.

Don’t generalise

But Martinez, president of Eastern Petroleum, said that Ang should not generalize that retailers selling fuel at way below market prices was an indication that they were selling smuggled fuel.

Martinez said there could be valid reasons for a retailer to sell at below-market prices.

“What if the retailer is deliberately selling at a loss just to buy market share or meet a sales quota?” Martinez asked.

“He (Ang) cannot generalise, we are law-abiding as anyone. If he has evidence, he can sue them. Also, even a big player like Shell is facing charges of smuggling,” Martinez said.

Since the industry deregulation 16 years ago, small oil companies belonging to the IPPC have boosted their market share to 25 per cent, he said.

Last year, the government imposed taxes on fuel products entering the country through free ports and economic zones to help curb oil smuggling.

VAT, excise tax

The Bureau of Internal Revenue (BIR) issued in February last year a regulation that said “the value-added and excise taxes which are due on all petroleum and petroleum products that are imported and/or brought directly from abroad to the Philippines, including the free port and economic zones, shall be paid by the importer thereof to the Bureau of Customs”.

An importer can claim credit or a refund from the customs bureau of the VAT paid on account of registered enterprises with tax privileges within a free port or economic zone. The importer can also get a refund of the excise tax paid on account of sales to international carriers of Philippine or foreign registry if the fuel was used outside the country under certain conditions, according to Revenue Regulation No. 2-2012.

The BIR issued the regulation because of findings that crude oil was being smuggled out of the free ports and economic zones.

Petroleum products imported through the free ports are exempt from the value-added tax and excise taxes provided that these are used inside the special economic zones. However, some of the fuel products found their way out of the zones and into the general market.

Finance Secretary Cesar Purisima told the Management Association of the Philippines in January last year that less than 10 per cent of the fuel brought into the Subic Freeport in Zambales was consumed on the premises.

“A very small portion of the [imported] oil is consumed by legally exempt entities,” Purisima said. “In Subic, my understanding is it’s about 5 per cent. Definitely, less than 10 per cent is consumed within Subic.”

He said the rest was shipped out. “If it’s shipped out, then it’s subject to taxes.”

Rampant

Customs Commissioner Rufino Biazon acknowledged that oil smuggling had remained rampant in the first three years of the Aquino administration’s “daang matuwid” (straight path).

“This problem is one that has been going on way before I came to this office. The problem is that the system is one that’s been in place for so long and many benefit from the status quo. Resistance to reform is quite strong and anyone embarking on a reform program is sure to face difficulties,” Biazon said.

He said he and Purisima had agreed to tighten the monitoring of oil imports into the country, especially the ports under the BOC’s direct jurisdiction.

“We’re doing a tour of these ports to gather information and impress upon our personnel the importance of stopping the smuggling of petroleum. We’re setting up an information-gathering system for analyzing the movement of petroleum through those ports. Under consideration is the issuance of a rule limiting the entry of petroleum only in specific ports,” Biazon said.

He explained that economic zones were a different matter because the “BOC does not have principal authority” over them.

Fuel marking

“We see such ecozones as potential loopholes for smuggling. We endeavor to coordinate with the concerned authorities in economic zones to plug these loopholes. One method is the fuel-marking program, which has seen retailers caught selling marked fuel. It’s a private sector-public sector program,” Biazon said.

Despite the long odds of beating the oil smugglers, Biazon remained optimistic. “There is always hope. There is nothing I’d like more than to be the one to reform the BOC. It will surely be an achievement of a lifetime. But from what I’ve experienced, there’s nothing that those who benefit from the current ‘kalakaran’ (arrangement) would do to stop any change in the system,” he said.—With a report from Inquirer Research

Gil Cabacungan

Philippine Daily Inquirer

Singapore - Singapore Mercantile Exchange hunting agricultural commodities

Set up in 2010, the Singapore Mercantile Exchange (SMX), a pan-Asian commodity and currency derivatives exchange, is now hunting for more agricultural commodities from black pepper in Vietnam to rubber in Thailand, to become the regional centre for agriculture futures transactions.

SMX last month signed a memorandum of understanding with the Agricultural Futures Exchange of Thailand to include rubber futures in its trading platform, following similar deals with Vietnam and Indonesia, which are famous for their black pepper and palm oil.

"Under the MoU, we collaborate on the broad-based agreement to make contracts global," CEO V Hariharan said during an interview in Bangkok. "We hope to launch more such Asia-centric contracts adding to the list of products being offered by SMX that can be established as Asian benchmarks for prices of commodities being predominantly consumed and/or produced in Asia.

"You should be the price-setter, not let it be set by someone else. You should be the price-setter for the commodities."

While Argentina is the major global supplier of soybeans, the soybean price is set at the Chicago Mercantile Exchange, the world's largest. Likewise, while Thailand is the world's largest supplier of rubber, but the price is also set in Chicago.

New contracts will boost the range of products provided by SMX, and through SMX, which is one of the 58 members of the World Federation of Exchanges, farm products from those countries can be tradable to investors across the world from the United States to Japan. This would free the products from price cycles, when prices fall at the end of the harvest season and rise when there is no new output.

More agricultural commodities mean more farmers would be guaranteed of demand and know about the future prices of their crops. Corn, rice, wheat and cotton dominate the market.

Commodity futures are being used by traders as a hedging tool, with less than 5 per cent of commodities physically delivered.

Black pepper futures, with black pepper from Vietnam as the underlying asset, became tradable in Singapore in February 2012. It was dubbed as the world's first black pepper futures and is the first commodity futures on the Singapore-based exchange, which is keener on currency derivatives. Farm commodity trading is still sluggish due to the higher prices of other commodities like gold and oil. However, the volume will grow. Black pepper futures and E-gold futures based on Indian gold prices helped SMX achieve turnover of over US$71 billion in 2012.

With over four million contracts traded on the exchange since its launch in August 2010, the end of 2012 saw cumulative turnover of over $134 billion since SMX went live. During 2012, the average daily volume was over 8,200 contracts, with the peak at 30,075 contracts.

Despite the low volume of farm futures, "it's a good financing mechanism for farmers and it's good for the economy", Hariharan said.

More products will make SMX the true regional hub for derivatives, putting it on par with global exchanges that are competing for trade via niche products. Thailand Futures Exchange offers gold futures, but they are traded in Thai baht not in US dollars as at SMX. In Hong Kong, the exchange is famous for gold and yuan, but farm products are not Hong Kong's focus.

"We can work together to find the products that benefit both exchanges," he said, referring to the collaboration with Thailand's exchange.

Besides rubber, there's a possibility of including ethanol, sugar and tapioca from Thailand, he added. The products will then reach global investors, allowing the Asian exchange to set prices for commodities cultivated in the region.

Achara Deboonme

The Nation

China - US firms less focused on China

One in 10 US companies operating in China have removed the nation from their list of top-three priority destinations for global investment in 2013 due to rising labour costs and slower growth, a survey showed on Friday.

The survey, conducted by the American Chamber of Commerce in China, said 68 per cent of companies rated China among their top three investment priorities in 2013, down 10 percentage points from last year.

"People are a little bit less focused on China," said Grey Gilligan, chairman of the chamber.

The economic slowdown in Europe means it is a good time to make acquisitions. "There is a substantial amount of Chinese foreign direct investment going into the European Union. American investors are also observing these opportunities," he said.

Many companies are also thinking about the US market amid the ongoing recovery there, and some manufacturing jobs in certain industries are returning to the US.

"Right now, energy prices in the US are quite low, particularly natural gas and unconventional oil, so for some parts of the petrochemical industry, the US is more competitive today than it was two or three years ago and it will be more competitive in the future," he said.

US companies still witnessed strong performance in China, with 71 per cent posting sales growth in 2012, while 44 per cent said the profit margins for their China operations are higher than their global average.

"The attraction of China is still quite high. Maybe in the past, they would say, China is clearly number one, but now they will say, we have a few options and China may be one of the top three," he said.

After seeing negative growth for eight consecutive months, China attracted US$8.21 billion in global foreign direct investment in February, up 6.32 per cent year-on-year.

Although 78 per cent of respondents were optimistic about business in China over the next two years, only 18 per cent said they planned to substantially expand their investments in the coming 12 months.

Lan Lan

China Daily

Vietnam - Vietnam industrial output plummets

Vietnam's Index of Industrial Production (IIP) increased 4.9 per cent over the first quarter last year, a record three-year low.

General Statistics Office (GSO) experts attributed the low increase to declined production in the processing and manufacturing industry, which accounts for nearly 71 per cent of the country's total industrial production.

The production of televisions decreased more than that of any other product, dropping 12.1 per cent to 504,000 units. Textile industry output reached only 190.1 million square metres, down 11.3 per cent, while seasoning powder decreased 6.5 per cent to 58,900 tonnes.

However, production enjoyed strong growth in several sectors: urea fertilizer, which grew 94.2 per cent, mobile phones, which went up by 20.6 per cent, and motorbikes, which rose 13.7 per cent.

The industrial sector's inventory index stood at 16.5 per cent, down 3.5 per cent from the previous month.

However, the GSO said that the slowdown was not because of increased consumption but rather because industrial producers turned to other sectors or sold off products to retrieve capital.

To overcome these difficulties, experts recommended industrial producers restructure production so they could churn out high-quality products and sell them to a wider market.

They also suggested the government provide firms with easier access to capital and improve tariffs and the business environment.

Viet Nam News

Laos - Laos aims to be middle-income country by 2020

The United Nations Development Programme (UNDP) is helping the government to turn Laos into a middle-income country by 2020.

According to the United Nations Department of Economics and Social Welfare, the 2012 Gross National Income (GNI) per capita in Laos was US$913.3, which puts Laos in the low-income country category.

Countries are classified by the World Bank as being low-, middle- or high-income based on their GNI per capita. Low-income countries have a GNI per capita of $1,025 or less; in lower-middle-income countries the figure is $1,026-$4,035; in upper-middle-income countries the figure is $4,036-$12,475; and in high-income countries it is $12,476 or more.

UNDP usually prefers the term “Least Developed Country” (LDC) to low-income, as UNDP is not measuring the capability of the country by just income but also the human development dimension of growth.

This means putting people in the centre of the development process and increases their choices for better access to food, shelter, education and health facilities rather than focusing on how much they earn as an income.

UNDP Communications Officer Eeva Nyyssonen told the Vientiane Times via e-mail on Tuesday that UNDP is helping Laos to become a middle-income country by 2020 by supporting the government to promote equitable and sustainable growth.

These include mainstreaming the Millennium Development Goals, environmental sustainability, and gender and pro-poor planning in the national development process, such as the five-year National Socio-Economic Development Plan and subsequent annual plans.

In addition, in light of the long term vision for graduation from LDC status by 2020, UNDP is assisting the Ministry of Planning and Investment, specifically the National Economic Research Institute, to create an informed path of policy decision-making and is helping staff to undertake analysis of LDC criteria.

In May 2012, the first national wor kshop on LDC graduation was held with support from UNDP. The aim was to enhance government understanding of the graduation criteria and the potential implications of graduation on the country's future sustainability.

As a result of the workshop, the government revised its 2020 vision to reflect the current circumstances and to prepare for necessary policy actions to ensure a smooth transition.

Vientiane Times

Philippines - Philippines gets first investment grade credit rating

“It’s an early Easter for the market,” said a fund manager after Fitch Ratings raised the Philippine credit rating to investment grade yesterday, a move expected to boost investments and lift the country’s long-term growth potential.

The upgrade is the first for the country, prompting a euphoric President Benigno Aquino III to highlight the dramatic shift of a largely impoverished nation from the “perennial laggard of Asia” to an economy finally “taking off”.

Amid the news, the Philippine peso edged higher versus the dollar and local stocks extended modest early gains to more than 3 per cent at one point, hitting a record high.

Fitch announced the upgrade, saying the Philippine economy is resilient and now experiencing a level of foreign currency inflows that is even more comfortable than those of many industrialised nations.

The inflow of foreign currency, underpinned by dollar remittances from expatriate Filipinos, has helped the country become a net external creditor, it said in a statement.

The country has also had stronger and less volatile growth than its peers over the last five years, and expects the value of its economy—as measured by the gross domestic product of GDP—to grow at an average of 5-5.5 per cent in the coming years, Fitch pointed out.

Credit to anticorruption

Fitch—one of three major international debt watchers that include Standard & Poor’s and Moody’s Investor Service—credited the Aquino administration’s anticorruption programme. which is believed to have improved sentiment of businesses in the country.

It also cited the previous administration’s role in improving the fiscal management, to wit: “Improvements in fiscal management begun under (former) President Arroyo have made general government debt dynamics more resilient to shocks.”

The credit rating firm’s move came as a surprise catalyst that revitalised the bulls into scaling unprecedented heights before the long Lenten break.

The Philippine Stock Exchange index rallied by 182.35 points or 2.74 per cent toward its best ever finish of 6,847.47 on Wednesday. A new intra-day peak was also hit at 6,873.89 close to the end of the session.

Floodgates of investment

This marked the 24th record finish for the index this year. The local stock market upswing, which is now on its fifth year, has added to the index a total of 1,034.74 or 17.8 per cent at the end of the first quarter.

Astro del Castillo, managing director at investment management firm First Grade Finance, said the upgrade would open the floodgates of investment, both foreign direct investment and the more volatile kind known as “hot money”.

“The most conservative funds are really just waiting for this feather in our cap before ploughing back money to our country,” he said.
The fund manager said “it seems that the Philippines is no longer carrying its cross”.

In a statement read by presidential spokesperson Edwin Lacierda, Mr. Aquino said:

“We are pleased to hear that this afternoon, the Fitch group announced that they upgraded the status of the Philippines from BB+ to BBB-.”

“It is one among many other positive developments that demonstrates the reclamation of our national pride: Truly, what was once known as the perennial laggard of Asia is taking off, and is accelerating towards its goal of an equitably progressive society,” said Aquino.

Benefits

The president lost no time in enumerating the benefits to the Philippines of having an investment grade status in a world dominated by ailing economies and soaring national debts.

“This means much more than lower interest rates on our debt and more investors buying our securities. Greater access to low-cost funds gives us more fiscal space to sustain and further improve on social protection, defence, and economic stimulus, among others.

“More companies in the real economy can now consider us an investment destination. Investment grade for sovereign debt should also lead to lower borrowing costs for Philippine companies in the international markets, consequently allowing for higher valuations for their securities,” Aquino said.

'Virtuous cycle of growth'

This, he said, would in turn enable industries to expand and generate more jobs for our countrymen.

All these would foster “a virtuous cycle of growth, empowerment and inclusiveness that will redound to the benefit of Filipinos across all sectors of society”.

“The upgrade represents the perception of lessening risk in our markets; it formalises the investment grade level at which the Philippines has already been securing credit,” he said.

“This is an institutional affirmation of our good governance agenda: Sound fiscal management and integrity-based leadership has led to a resurgent economy in the face of uncertainties in the global arena. It serves to encourage even greater interest and investments in our country,” he added.

Fitch also assigned a “stable” outlook on the rating, which indicates that it is unlikely to change over the short term.

Why Philippines deserving

It cited several economic indicators that, according to it, make the Philippines deserving of an investment status.

One of these was the country’s strong GDP growth rate achieved despite global economic problems. Last year, when developed countries like the United States and those from the euro zone struggled with serious debt and financial problems, the Philippines registered one of the fastest growth rates not only in Asia but in the world.

“The Philippine economy has been resilient, expanding 6.6 per cent in 2012 amid a weak global economic backdrop. Strong domestic demand drove this outturn,” Fitch said.

The credit-rating agency noted that the favourable growth performance of the Philippines happened while prices of basic goods and services, as measured by the inflation rate, were kept relatively stable.

Consumer prices increased by an annual rate of 3.2 per cent last year, well within the 3-to 5-per cent range that the government considers manageable.

While problems in developed countries weighed down on export revenues of many emerging market economies, the Philippines managed to offset the lower-than-target export earnings last year by registering a significant growth in household consumption and government spending, aided by private-sector investments.

Another encouraging indicator, according to Fitch, was the country’s ability to pay its debts to foreign creditors as determined by its level of US dollar reserves.

US$84B in reserves

Aided largely by remittances and foreign investments in the business process outsourcing sector, which includes the call-centre industry, the country’s dollar reserves held by the central bank have grown over the years and now stand at about US$84 billion — enough to pay for the country’s import requirements for one year.

According to international benchmarks, a comfortable level of reserves is one that is enough to cover at least four months’ worth of import requirements.

The $84 billion also exceeds the country’s total outstanding foreign currency-denominated debts, which stand at about $60 billion, placing the Philippines in a “net-creditor” position against the rest of the world.

Fitch likewise recognised the ability of the Philippine government to significantly improve its fiscal condition over the years. After almost falling into a fiscal crisis in early 2000s, the country managed to reverse the trend by implementing measures that improved the government’s revenue collection and brought down the country’ debt burden to manageable levels.

From more than 70 per cent of the country’s GDP in 2004, the government’s outstanding debt to local and foreign creditors is now equivalent to just about 50 per cent of GDP.

Fitch also cited “prudent” debt-management strategies of the government that further improved its ability to pay obligations as they come due.

These include debt refinancing programmes , under which the government exchanges maturing bonds for those with longer maturities. Another strategy is replacing dollar-denominated debt with those in pesos which reduces the risk associated with sudden foreign exchange fluctuations.

Concerns

Fitch pointed out, however, that the Philippines should address several concerns about its economy to ensure it retains its investment grade.
Fitch said the country, which has a population of more than 90 million, had an average individual annual income of $2,600 in 2012, way below the average of $10,300 in countries that have comparable credit ratings.

The international credit-rating firm likewise cited the need for the Philippines to cut bureaucratic red tape that discourages investments.

While trading was mostly upbeat since the start of the shortened trading week due to quarter-end window-dressing, Fitch’s rating upgrade allowed the local financial markets to end with a big bang.

At 2:33pm on Wednesday, Fitch announced the upgrade, triggering a new wave of buying at the stock market during the last hour of trade.

‘Best news’

“This is the best news for us Filipinos and we are all part of this,” said Ismael Cruz, president of stock brokerage IGC Securities.

Jose Mari Lacson, head of research at local stock brokerage Campos Lanuza & Co. said the market’s performance on Wednesday turned very exciting with some fast buying of large-caps on the back of the investment upgrade news.

Local markets are closed in the next two days and will resume on Monday.

“Barring any major upheaval in the global markets or political scene over the long weekend, we expect Monday to be equally exciting or even be a bigger blast,” he said.

Doris C. Dumlao, Michael Lim Ubac and Michelle V. Remo

Philippine Daily Inquirer

Indonesia - Indonesia to offer shale gas blocks to contractors

Indonesia, currently a net importer of both crude oil and its refined products, will start offering shale gas blocks this year in a bid to unearth the potential of unconventional gas in Southeast Asia’s largest economy.

The Energy and Mineral Resources Ministry’s director general for oil and gas affairs, Edy Hermantoro, told The Jakarta Post on Tuesday that the government would start offering around four working contracts to develop shale gas this year.

State-owned oil and gas firm PT Pertamina, he said, would become the first firm to start the project in its working area in North Sumatra. Pertamina’s contract will be signed in May this year.

Indonesia was also expecting foreign firms from countries such as Australia and Canada to obtain around four contracts this year, he said.

Potential investors are currently conducting joint studies before they tap into the tender process to win contracts on working areas around the northern and central parts of Sumatra.

Shale gas is a natural gas produced from shale rocks and other geological formations by injecting water and chemicals into the rocks through a technique known as hydraulic fracturing.

Last year, the Energy and Mineral Resources Ministry announced that Indonesia had estimated shale gas resources of around 574 trillion cubic feet (tcf) throughout Sumatra, Kalimantan, Papua and Java

Sumatra supposedly had the largest shale gas reserves of around 233 tcf, particularly in the central region, where approximately 86.9 tcf of shale gas resources could be found, according to the ministry’s geological bureau.

Kalimantan had an estimated 194 tcf of shale gas reserves, the ministry said, followed by Papua Island (90 tcf) and Java Island (48 tcf), while the remaining 9 tcf was spread across other parts of the archipelago.

Shale gas is becoming an important source of natural gas, particularly in the United States and Australia, where stories on the shale gas boom dominated news headlines last year.

The shale gas boom in the US is expected to make the country one of the world’s largest gas exporters, although the country currently restricts shale gas exports due to domestic needs.

Indonesia, the third-largest exporter of conventional liquefied natural gas (LNG) behind Qatar and Malaysia, is keeping an eye on unconventional gas such as shale gas and coal bed methane (CBM).

Most of the LNG produced in Indonesia has been exported mainly to countries such as Japan in long-term contracts despite the needs of the nation’s industry sector as well as state utility firm PT PLN.

Recently, Rudi Rubiandini, head of the country’s upstream oil and gas regulatory special task force, SKKMigas, said Indonesia would likely start importing LNG in 2018 to meet the swelling domestic demand.

Rudi, who is also a former deputy energy minister, said that Indonesia’s natural gas production was also unlikely to increase in the near future amid aging hydrocarbon fields.

Deputy Energy and Mineral Resources Minister Susilo Siswoutomo said the government would likely use shale gas to fulfill domestic needs with Sumatra as the pilot project before expanding to other parts of the country.

US-based giant Chevron, which is currently eyeing shale gas potential in Australia and US-based ConocoPhillips, according to Susilo, have expressed its interest to develop shale gas potential in Indonesia.

ChevroFn Pacific Indonesia’s vice president for government policy and public affairs Yanto Sianipar, said the company was open to the possibility of developing shale gas in the country.

“The era of easy oil has passed and the future of energy will look very different. Chevron believes that expanded investment and production is needed across all energy resources to support Indonesia’s economic growth,” he said.

Amahl S Azwar

The Jakarta Post