NewsMarket: Business

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Monday, February 20, 2012

China cuts bank reserve ratio to boost lending

Asia's emerging currencies can remain resilient, despite the euro crisis, says Peter Redward from Redward Associates

China's central bank has cut the amount of money banks must keep in reserve, in an effort to boost lending and sustain economic growth.

The reserve requirements will fall half a percentage point from 24 February, the People's Bank of China (PBOC) said.

Analysts said this could add as much as 400 billion yuan ($63.5bn; £40bn) to the financial system.

The Chinese economy is showing signs of slowing as Europe's debt crisis hurts Chinese exports.

Slow and steady

China's ruling Communist Party is trying to sustain growth in the second-largest economy in the world, whilst continuing to rein in consumer prices.

Inflation hit a three-year high in July last year, but has since fallen to 4.5% in January.

The government warned that inflation still remained above target.

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Policy easing will be gradual given the central bank sounded cautious about inflation in its fourth-quarter monetary policy report”

Hua ZhongweiHuachuang Securities

"Economic downward pressures co-exist with price rise pressures," said Jin Qi, an assistant governor with PBOC, in comments published on Sunday.

Analysts said his words meant that further easing would come slowly.

"Policy easing will be gradual given the central bank sounded cautious about inflation in its fourth-quarter monetary policy report," said Hua Zhongwei from Huachuang Securities in Beijing.

The last reserve requirement cut in November was the first since 2008.

Property pressure

The need to tame prices comes after an earlier stimulus that increased inflationary pressures including on the housing market.

Chinese authorites are trying to balance downward economic pressures with high consumer prices

Data released on Saturday indicated that property prices were continuing to cool off.

Prices failed to rise in any of the 70 cities the National Bureau of Statistics monitors as part of its economic assessements. Chinese authorites do not provide a national average.

However according to calculations carried out by Reuters news agency, average home prices fell 0.2% in January from December, dropping for the fourth straight month.

Samsung Electronics board approves LCD unit spin-off

Electronics manufacturers have been hurt by falling demand and prices of LCDs

Samsung Electronics has moved a step closer to spinning off its Liquid Crystal Display (LCD) unit after its board of directors approved the plan.

The firm said it will launch the spun-off unit, Samsung Display Company Ltd, as a new corporation on 1 April.

The move, which still needs shareholder approval, comes amid slowing demand and falling profits for LCD products.

Samsung said it was planning to focus on new technologies to maintain its edge over the competition.

"The spin-off will allow us to make quicker business decisions and respond to our clients' needs more swiftly," said Donggun Park, executive vice president and head of Samsung's LCD business.

"Through enhancements in business competitiveness, we will continue to provide superior products and services for the market," he added.

'Commoditised business'

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It is unclear whether it's a good move or not - you never know until a few quarters have gone by”

Jasper KimAsia-Pacific Global Research Group

LCD manufacturers worldwide have been going through a tough time in recent years.

Not only has demand for the product been slowing, increased supply has also seen manufacturers slash their prices in a bid to attract consumers.

Analysts said that the sector had lost its niche factor and that had hurt electronics makers.

"LCD used to be one of the cutting edge technologies but it is now a commoditised business," Jasper Kim, chief executive and founder of Asia-Pacific Global Research Group told the BBC.

"It can be replicated and reproduced easily," he added.

Samsung is the world's biggest TV and flat screen maker and is likely to be affected the most by a slowdown in the sector.

Analysts said while the move was part of Samsung's efforts to ensure that it remained highly competitive, it was too early to say whether it was a step in the right direction.

"It is unclear whether it's a good move or not - you never know until a few quarters have gone by," Mr Kim said.

Japan's trade deficit hits record high on fuel imports

Japanese carmakers have been among the worst hit by a strengthening yen and natural disasters

Japan's trade deficit surged to a record high in January as a strong yen hurt exports and its nuclear crisis resulted in increased fuel imports.

The deficit stood at 1.5tn yen ($19bn; 12bn) as exports dipped 9.3% from a year earlier, while imports rose 9.8%.

Fuel imports went up because most of its 54 nuclear reactors were shut after the earthquake and tsunami last March.

Japan has also been hurt by a slowdown in its key export markets such as the US and the eurozone.

"Special factors such as the earthquake last year, the nuclear problem and a temporary slowdown in the global economy as well as Japan's new year holiday came together and pushed down the trade balance," said Takeshi Minami of Norinchukin Research Institute.

Nuclear impact

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Imports are likely to remain high due to solid demand for imports of fuel for electricity and brisk imports of parts”

Yoshimasa MaruyamaItochu Economic Research Institute

The earthquake and tsunami on 11 March last year caused substantial damage to the Fukushima Daiichi nuclear plant, resulting in radiation leaks at the facility.

Some 80,000 people had to be evacuated from the surrounding areas. The leaks have raised concerns about the safety of nuclear energy in the country.

As a result the majority of Japan's nuclear plants have been shut and utility providers have had to turn to traditional thermal power stations to generate electricity.

These power plants need natural gas and coal to operate, resulting in a surge in imports of these commodities.

Imports of natural gas surged by 74% in January from a year earlier, while coal imports rose more the 26%, Japan's Ministry of Finance said.

Double whammy?

Japan's exports have been hurt by a strong yen, which has risen more than 7% against the US dollar since April last year.

A strong currency makes Japanese goods less attractive to foreign buyers as they have to pay more for them.

Analysts also say that a strong yen had resulted in Japanese firms sourcing more parts from outside Japan, which had resulted in increased imports and impacted the trade deficit.

They said this trend was likely to continue in the short term.

"Imports are likely to remain high due to solid demand for imports of fuel for electricity and brisk imports of parts," said Yoshimasa Maruyama of Itochu Economic Research Institute.

"Taking these factors together, a trade deficit will persist at least through the first half of this year, and how it narrows will largely depend on the recovery of overseas economies such as those in emerging markets in Asia."

Wednesday, February 15, 2012

New Zealand halts farm sale to China's Shanghai Pengxin

Farming and agriculture are crucial contributors to New Zealand's economic growth

A New Zealand court has blocked a move by the government to allow Chinese investors to buy farms in the country.

China's Shanghai Pengxin was looking to buy 16 farms spread across almost 8,000 hectares in the country's North Island.

Justice Forest Miller of High Court in Wellington has asked the government to reconsider its decision saying it had overstated the benefits.

A local farming consortium had appealed against the sale and offered to buy the land themselves.

"We're very pleased with the decision from Justice Miller,'' said Alan McDonald a spokesperson for the consortium.

"Our view is that Shanghai Pengxin never brought any real economic benefits to New Zealand."

'Still confident'

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We're still pressing ahead as fast as we can, and we're still confident we are going to get the final sign-off”

Since the sale involves more than 5 hectares of land and is valued at more than 100m New Zealand Dollars ($84m; £53m), it had to approved by the Overseas Investment Office (OIO).

While the OIO had sent its recommendation for the deal last month, the court said that not all the criteria had been met.

Justice Miller said none of the people involved with NZ Milk, the subsidiary of Shanghai Pengxin looking to buy the farms, had adequate knowledge about the dairy industry, which he said was a prerequisite to approving foreign investment in the sector.

He added that since the farms were not in the best of the condition, any potential buyer, foreign or domestic, was likely to bring the same benefits of capital investment and improved productivity.

Despite the ruling by the court, the Chinese firm said it was confident that the sale would go ahead.

"Personally, for me, the ruling is a big surprise, I hadn't read the Overseas Investment Act in that way,'' said Cedric Allan, a spokesman for Pengxin.

"We're still pressing ahead as fast as we can, and we're still confident we are going to get the final sign-off.''

Iran oil ministry denies ending exports to EU states

Oil exports are one of the biggest sources of revenue for Iran

Iran's oil ministry has denied state media reports saying it had stopped oil exports to six European countries in retaliation for the EU's oil embargo.

English-language Press TV had said the Netherlands, Greece, France, Portugal, Spain and Italy would be affected.

But an oil ministry spokesman told the Reuters news agency that any such decision would be announced by Iran's Supreme National Security Council.

EU member states have agreed to stop importing Iranian crude from 1 July.

The move is intended to pressure Tehran to stop enriching uranium, which can be used for civilian nuclear purposes but also to build warheads.

Iran insists its nuclear programme is peaceful, but the UN's International Atomic Energy Agency says it has information suggesting Iran has carried out tests "relevant to the development of a nuclear explosive device".

The EU oil embargo, which was agreed last month, was phased so member states that were relatively dependent on Iranian crude - notably Greece, Spain and Italy - had enough time to find alternative sources.

Graphic image showing Iran's top oil export destinations

The bloc currently buys about 20% of Iran's oil exports, which account for a majority of government revenue. However, Iran's Oil Minister Rostam Qasemi said that a cut in exports to Europe would not hurt Tehran.

Brent crude oil prices were up $1 a barrel after Press TV's announcement on Wednesday, but the European Commission said such a move would make little difference as member states were already switching suppliers.

"Oil is something you can get on the international markets, and Saudi Arabia said they would increase their production," a spokeswoman for EU Energy Commissioner Guenther Oettinger, told the AFP news agency.

The reports about the halt of Iranian oil exports to the six EU states came shortly before President Mahmoud Ahmadinejad was expected to unveil a new generation of domestically made uranium enrichment centrifuges.

State TV also said Mr Ahmadinejad would announce Iran had produced its own 20% uranium-enriched fuel rods for a research reactor in Tehran.

Samsung mulls LCD unit spin-off amid falling demand

Electronics manufacturers globally have seen sales and profits at their LCD businesses dip

South Korea's Samsung Electronics has said it is considering spinning-off its Liquid Crystal Display (LCD) unit in a bid to streamline its business.

The move comes as the unit saw its sales dip more than 10% last year amid slowing demand. Falling prices of LCD panels have also dented profits.

The firm said it was planning to focus on new technology such as the organic light-emitting diode (OLED) displays.

Samsung is the world's largest TV and flat-screen maker.

"The LCD business is not good enough now and I think that Samsung is looking to focus on new business," Annabelle Hsu of IDC told the BBC.

Chinese competition

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New LCD production lines established by Chinese vendors are a major reason why the industry remains in an oversupply situation”

Annabelle HsuIDC

Samsung is not the only electronics firm that has been struggling to keep its LCD unit profitable.

South Korean rival LG and Japan's Sony, the other two major players in the sector, have experienced similar problems.

Analysts said that while demand had been slow, the manufacturers had also hurt themselves by producing too many units.

"We believe that the LCD segment worldwide is in an over-supply situation," said IDC's Ms Hsu.

She explained that, since supply outstripped demand, the panel makers have had to cut costs in an attempt to attract customers and that has hurt profit margins.

At the same time, Chinese firms have also entered the industry, a move that analysts say has made global manufacturers worry that prices may fall even further given China's low-cost base.

"New LCD production lines established by Chinese vendors are a major reason why the industry remains in an over-supply situation," Ms Hsu added.

Displaying promise?

While growth in the LCD sector is slowing, the OLED segment is expected to boom in the coming years.

Analysts said while these displays were being mainly used in smartphones currently, they expect a much wider use across other products, including TVs, in the near future.

According to some estimates, Samsung's OLED revenues are expected to increase by almost 600% by 2014.

Samsung's subsidiary Samsung Mobile Display (SMD) enjoys a huge market share in the segment and there has been growing speculation that the firm may merge SMD with its LCD business.

Yahoo Japan dips on reports of asset swap talks failure

Alibaba's founder Jack Ma has been trying to buy back its stake from Yahoo for some time

Shares of Yahoo Japan fell 5% on the Tokyo Stock Exchange on reports that talks regarding the swap of Yahoo's Asian assets had hit a stalemate.

Yahoo owns a 43% stake in China's Alibaba group, which it acquired in 2005 for $1bn (£636m), and a part of Yahoo Japan.

It had been negotiating a complex swap-deal that was expected to save it billions of dollars in taxes.

However, various reports indicated that no agreement had been reached.

"I think the deal is either dead or it's going to take a lot longer to complete, which means we don't have a near-term catalyst; hence the selloff," said Brett Harris, an analyst with Gabelli & Co.

'Another year of turmoil'

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The honeymoon is already over. Yahoo is probably looking at another year of turmoil”

The stalemate in talks has come as a huge surprise.

Analysts and industry experts had expected the deal to be formalised, not least because trading in Alibaba's shares at the Hong Kong Stock Exchange has been suspended since 9 February.

The reported failure of the talks is a big blow for the Yahoo, which has been seeking to restructure its operations in a bid to boost its flagging fortunes.

The swap-deal, worth almost $17bn according to some estimates, was not only expected to save taxes, but also provide Yahoo with billions of dollars in cash.

Analysts said unless an agreement is reached soon, Yahoo may see its problems escalate further.

"The honeymoon is already over,'' said Colin Gillis an analyst with BGC Financial. "Yahoo is probably looking at another year of turmoil.''

More trouble

To make matters more complicated, Daniel Loeb, of hedge fund ThirdPoint, which owns more than 5% of Yahoo, launched a campaign to install his own directors on the firm's board.

"Installing the hand-picked choices of the current board does nothing to allay investor fears that Yahoo is poised to repeat the errors of its past,'' Mr Loeb wrote in a filing with the Securities and Exchange Commission.

Mr Loeb's move comes just days after Yahoo announced changes to the board after Chairman Roy Bostock and three board member's quit.

Their exit followed that of Jerry Yang, Yahoo's co-founder, who resigned from its board last month.

Yahoo said it had sought suggestions for new directors from several shareholders.

"We have received constructive suggestions from several of our major shareholders and, therefore, it is especially disappointing that Mr. Loeb has chosen a potentially disruptive path, just as the company is moving forward under new leadership to aggressively increase the value of Yahoo,'' the firm said in a statement.

US President asks China to follow 'same rules' in trade

US President Barack Obama (right) and Chinese Vice-President Xi Jinping in the Oval Office on 14 February 2012

Despite the smiles, Washington has been turning the heat up on Beijing over perceived unfair trade practices

US President Barack Obama has reiterated that China needs to follow fair trade practices as it plays an increasingly important global role.

Beijing has been accused of keeping the value of its currency artificially low in a bid to help its exporters.

US lawmakers have argued that such practices have hurt US growth and resulted in job losses.

Mr Obama raised the issue as he welcomed China's Vice-President Xi Jinping to the White House.

"We want to work with China to make sure that everybody is working by the same rules of the road when it comes to the world economic system," Mr Obama said .

"That includes ensuring that there is a balanced trading flow, not only between the United States and China, but around the world."

Broader issues

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If you have yuan appreciation that changes the prices of Chinese goods, but it doesn't matter if American goods can't get on the shelves in China”

Patrick ChovanecTsinghua University

China's currency policy has come under fire as its trade surplus with the US has been growing. Its trade surplus with the US rose to $295bn (£188bn) last year, up from $273bn in 2010, according to the US Census Bureau.

Beijing's exports to the US have far exceeded its imports from the world's biggest economy.

Policymakers and businesses in the US have alleged that an undervalued yuan gives an unfair advantage to Chinese manufacturers as it makes their goods relatively cheaper and helps boost foreign sales.

Analysts said that while the appreciation of the yuan will help allay some of those concerns, Beijing needed to work on other areas in order to rebalance its trade.

They said that China needed to open up its markets further for the US and other global manufacturers.

"Without market access the yuan appreciation cannot have the desired affect," Patrick Chovanec of the Tsinghua University in Beijing told the BBC.

"If you have yuan appreciation that changes the prices of Chinese goods, but it doesn't matter if American goods can't get on the shelves in China," he explained.

'Uneven playing field'

US manufacturers have been seeking greater access to China in a bid to tap into the fast-growing consumer market in the country.

China's currency policy has been at the heart of its differences with the US

However, Beijing's policies have so far limited such access.

"There is an uneven playing field for regulations in China. Foreign companies cannot participate in a whole range of industries," said Mr Chovanec.

"In some other areas they are forced to form joint ventures with Chinese companies and are forced to handover critical technology to Chinese partners."

Mr Chovanec said such policies were hindering manufacturers from entering the Chinese market and impacting bi-lateral trade.

'Work together'

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We are not always going to see things exactly the same, but we have very important economic and political concerns that warrant that we work together”

Joe BidenUS Vice President

Growth in the US economy has slowed in recent years plagued by a high rate of unemployment and a sluggish housing market among other factors.

On the other hand, China has seen robust expansion in recent years powered by the boom in its manufacturing and export sector.

Despite their contrasting fortunes, the two economies are heavily reliant on each other.

The US continues to be one of the biggest markets for Chinese goods. Slowing consumption there is bound to hurt China's economy.

Meanwhile, China has become a critical market for US manufacturers, led by the country's carmakers, looking to offset a slowing domestic demand.

At the same time, China continues to be the largest foreign holder of US government debt.

US Vice President Joe Biden said while the two nations had different opinions on various issues, they needed to work closely to address those concerns.

"We are not always going to see eye to eye," Mr Biden said.

"We are not always going to see things exactly the same, but we have very important economic and political concerns that warrant that we work together."