EMIA Week in Review: China’s Debt Situation: Next Financial Crisis? India’s ‘Beef Ban’ & More

June 19, 2017

EMIA

Will China’s OBOR Hit A Silk Road Ceiling?

Silk Road Briefing

  • China’s OBOR projects, thus far well illustrated by the Official OBOR Portal, have been exclusively driven by Chinese State Owned Enterprises.

  • The OBOR initiative contains no framework to allow foreign participation, and in practice, even discourages private enterprise participation by discouraging funding or involvement with it.

  • However, Beijing may live to regret its stance. OBOR remains an amazing project and the infrastructure it builds are both much needed and will benefit the global economy in many ways.

  • But in committing China’s SOEs so deeply to it, and expressly avoiding relationships with the international private sector, Beijing is in danger of doing great harm to China’s industrial base and committing it for decades into a technically backwards orgy of build, build, build.

 

Under the Radar: How WannaCry boosts China’s social credit system

Global Risk Insights

  • The global WannaCry ransomware attack demonstrated the weaknesses in international computer networks.

  • China emerged as one of the main victims, with tens of thousands of institutions (and many more private citizens) affected.

  • Various government and business entities were laid low by the attack, including China National Petroleum Corporation – which cut service links to 20,000 petrol stations preventing electronic and online payment options like Alipay.

  • While stolen American code supports the WannaCry ransomware, the biggest security breach came from within, namely from the prevalent use of pirated software in China. Surveys have shown that 70% of software used on Chinese computers is either pirated or otherwise not properly licensed.

 

China Market Watch: US Beef Export Rules Finalized, Panama Establishes Diplomatic Ties with Beijing

China Briefing

  • China’s e-commerce giant Alibaba will launch a new brand, Tmall World, which will provide a platform for China-based exporters to direct their products to markets in Hong Kong, Taiwan, Singapore, and Malaysia, among others.

  • Export-based manufacturers have been calling for new channels through which to sell their products, as traditional trade has slowed. Chinese products that meet certain standards and certification will be able to use the platform to gain access to overseas markets.

  • The US Department of Agriculture has completed trade rules for US export of beef to China, meaning that trade is closer to resuming after a 14 year hiatus.

  • Panama has broken its diplomatic ties with Taiwan, recognizing ‘One China’ after signing a joint communique in Beijing. The Panamanian government has cited a bid to upgrade commercial relations between the two countries as a key motivator, as China is the second biggest user of the Panama shipping canal.

 

Colombia: ANLA Strengthens Water Monitoring

Hydrocarbons Colombia

  • Just in time to try and control the ‘domino effect’ that the boom of popular referendums is causing in Colombia, the National Environmental Licensing Authority (ANLA) announced actions to protect water in the country through instruments such as monitoring.

  • The entity participated in the first water monitoring workshop 2017-2018, organized by the Canadian Corporation and the Agri team Foundation. The goal is to increase sustainable economic benefits from the extractive sector.

  • Three topics were discussed in the workshop: Enhanced environmental sustainability and efficiency of the extractive sector; Improving the dissemination and transparency of sector information; Improving the participation of men and women in the industry.

  • ANLA emphasized that this strategy is based on the Integrated Water Resources Management Policy and the monitoring program will be implemented over the next five years throughout the country.

 

India’s ‘Beef Ban’: Repercussions for Meat, Leather, and Dairy Industries

India Briefing

  • The Indian federal government’s new ‘beef ban’ is producing anxiety in three large industries: meat, leather, and dairy.

  • The Prevention of Cruelty to Animals (Regulation of Livestock Markets) Rules, 2017 is not an outright ban on slaughterhouses. What the new Rules do, however, is make it next to impossible for slaughterhouses to operate by disrupting their supply chains.

  • This is a poignant example of how India’s political climate can affect the country’s economic development – hurting domestic and foreign businesses in the process.

  • The new Livestock rules ultimately underscore the importance of a robust understanding of India’s regulatory and political landscape. Foreign investors need to actively monitor reform agendas and their impact on business plans to remain profitable and compliant.

 

Russia Considers Bridge/Tunnel Connection To Sakhalin Island

Russia Briefing

  • Russian authorities are discussing the possibility of constructing a bridge to Sakhalin Island, with estimated costs amounting to about USD5 billion.

  • Russian President Vladimir Putin said during his annual “Direct Line” Q&A session yesterday that “Such ideas existed as long ago as in 1930s-1950s, and even respective plans were developed.”

  • “But those plans were never implemented. We are currently working on revival of those plans and considering the issue.”

  • “There were ideas, and we are currently considering them as well, to build a tunnel instead of a bridge, which is possible too.” Putin said, adding that the decision had not yet been made.

 

Vietnam: Foreign Retailers Face Tax Inspection

Vietnam Briefing

  • Vietnam’s General Department of Taxation has asked local tax authorities to inspect foreign-owned retailers for tax avoidance through transfer pricing or profit shifting.

  • The authorities will be auditing corporate tax, VAT, personal income tax, and foreign contractor tax for the period 2012-2016.

  • Along with the direct and indirect taxes, the department is also planning to monitor franchising or ownership transfer of foreign retailers for unpaid taxes.

  • To ensure tax compliance, the Vietnamese government released Decree 20 earlier this year, which has been in effect since May 1. It included changes in transfer pricing regulations, new documentation and declaration requirements, and guidance on the deductibility of related-party expenses and interest.

 

Import and Export Procedures in Malaysia – Best Practices

ASEAN Briefing

  • Malaysia is a historic trading center and strategic operating location – bordering Brunei, Indonesia, Singapore (via bridge), and Thailand by land and the Philippines and Vietnam by sea.

  • In 2015, Malaysia exported US$254 billion and imported US$175 billion worth of goods and services.

  • Malaysia continues to liberalize its import and export regulations; but, complex goods-specific rules still exist.

  • In this article, we explain best practices for importing into and exporting out of Malaysia.

 

Devaluation of USD Predicted as China & Russia Buy Up Gold Reserves

Silk Road Briefing

  • Philip Klinkmüller, a financial partner with German based Hopf-Klinkmüller Capital Management has stated there is a visible trend in China and Russia to buy more bullion to end their dependency on the US dollar.

  • He has suggested that over the next two decades global financial markets will see a significant devaluation of the US Dollar.

  • Klinkmuller said that both China and Russia continue to stockpile gold in a bid to cut their economies’ dependency on the US dollar, and said that if the dollar’s role as a global reserve currency is decreased the world will see radical political and economic transformation.

  • “According to our estimates, there will be a downward trend in the dollar exchange rate in the next 15 years. In the long-run, it cannot be guaranteed that the dollar will remain a global reserve currency.” Klinkmüller stated.

 

Macri Hosts Portuguese PM in BA to Boost Bilateral Ties

MercoPress

  • Antonio Costa arrived in the Argentine capital on Monday to launch a Federal Mining Plan and take part in a business forum at the Foreign Ministry, among other activities.

  • Argentine President Mauricio Macri on Tuesday had lunch with Portugal's Prime Minister Antonio Costa at the Pink House in Buenos Aires, after which both heads of state held a joint press conference.

  • Macri underlined “multiculturalism and cooperation” as the main tools to take on the new global challenges and to reduce world poverty.

  • Costa said his country was undertaking a series of measures towards strengthening its ties with Portuguese communities overseas of whom he was very proud for how they represented their native land.

 

Russia & China To Launch High Speed Freight Rail Service In 2019

Russia Briefing

  • The First Vice President of Russian Railways Alexander Misharin, has said that Russia and China plan to launch the first high-speed freight train in 2019.

  • Speaking at the Strategic Partnership 1520 Rail Forum in Sochi last week, Misharin stated “At the moment, the design of technical requirements for this special rolling stock is about to be completed, and together with our Chinese colleagues we plan to launch it in 2019.”

  • According to Misharin, the train will ensure optimal conditions for transportation of cargoes that are sensitive to speed and conditions of delivery, and will reach speeds of up to 400 km per hour.

  • He said that Sinara Group, Siemens and China’s CRRC are already working on the freight train project. They will launch the production of trains at the Ural Locomotives enterprise.

 

Mexico: Round 2.4 Will Include Unconventional Blocks

Hydrocarbons Mexico

  • At least 12 companies have shown interest in the three farm outs that Pemex is offering to develop onshore and offshore blocks, as a result of Energy Reform.

  • The National Hydrocarbons Commission (CNH) said that so far, Sierra O&G Exploration and Production and China Offshore Oil (SHA: 600583) have asked for access to the data room and have started the prequalification process.

  • Although the entity has not yet specified which are the 10 remaining companies that have shown interest in the Ayin, Batsil, Cárdenas Mora, and Ogarrio fields, the CNH is expected to announce the list of prequalified winning companies the next 23rd of August.

  • Between 2016 and 2018, Pemex plans to launch 10 projects to be developed in partnership with private companies to increase investments and oil production in the medium and long term.

 

Hong Kong Buys First Bank Under OBOR Initiative

Silk Road Briefing

  • Hong Kong’s CITIC Bank International has completed the purchase of 60% of equity in Kazakhstan’s Altyn Bank from its majority Kazak owner, the Halyk Bank for an undisclosed amount.

  • It marks the first time that China has invested in Kazakhstan’s banking sector.

  • CITIC Bank International is a Hong Kong based bank controlled by mainland CITIC Financial Holdings, and traces its history back to 1922 and the formation of the Ka Wa Savings Bank established in the territory by the former President of Hong Kong’s Baptist College.

  • Today, CITIC Bank International has total assets of USD50 billion and an annual turnover of USD10 billion. It is listed on the Hong Kong Stock Exchange.

 

ECOWAS gets $1 billion Israeli Solar Commitment

BizNis Africa

  • ECOWAS and Israel’s leading solar developer will invest $1 billion over the next four years to advance green energy power projects across the 15 member states of the West African economic community.

  • “Energiya Global and our international partners will finance and build a commercial-scale solar field at the Roberts International Airport, which will supply 25% of the country’s generation capacity,” says Yosef I. Abramowitz, CEO.

  • “We are prepared to finance and build the first National Demonstration Solar Projects in all ECOWAS-affiliated countries in order to promote political stability and social and economic development, as well as to advance knowledge transfer.”

  • Energiya Global and its associated companies developed the first commercial scale solar field in sub-Sahara Africa in Rwanda and the group also broke ground on a similar power plant in Burundi.

 

Luxury Stores in China Are Making Moves on WeChat

China Briefing

  • To increase outreach to their customers, many brands are investing heavily into e-commerce channels. About 92 percent of top luxury brands in China now have an account on the messaging app WeChat, compared to only about half that in 2014.

  • WeChat and the WeChat Store allow brands to stage creative and engaging marketing campaigns to reach customers in China.

  • Setting up shops and multimedia marketing on the app has become simpler, as Tencent – WeChat’s developer – courts luxury brands in its competition with Chinese e-commerce giant Alibaba.

  • For the most part, the move has been successful with more luxury brands experimenting with the app.

 

Russian Domestic Auto Sales Up 15%

Russia Briefing

  • Signs of a mini boom in Russia are growing as domestic auto sales increased for the third straight month.

  • Sales for May were up 14.7% compared to May 2016, reaching 124,900 vehicles, according to the Association of European Businesses.

  • May is the third consecutive month with rapid growth in auto sales, with 129,400 cars sold in April (up 6.9%) and 137,800 cars in March (up 9.4%).

  • According to AEB, almost all brands, with the exception of UAZ, Lexus, Audi and Datsun, enjoyed strong growth. AEB representatives told Russian media that the figures indicate an acceleration of the automotive market’s recovery.

 

IMF sees Brazil and Argentina helping to pull Latin American out of recession

MercoPress

  • The IMF offered an encouraging outlook for Brazil´s growth in 2018 since the intense political uncertainty is yielding, monetary policy easing and progress on the government’s economic reform agenda should help the country pull out of its worst recession in a century.

  • Brazil will grow 1.7% in 2018, compared with a January forecast of 1.5%, IMF said in its World Economic Outlook released on Tuesday.

  • This year the estimate is 0.2%.

  • President Michel Temer’s administration is working to pull Latin America’s largest economy from its worst recession in a century. Policy makers have increased the pace of interest rate cuts for the second time this year amid record-high unemployment and slowing inflation.

 

Xi Offers Free Trade to Shanghai Cooperation Organization Members

China Briefing

  • Chinese President Xi Jinping has taken the remarkable step of offering free trade with China to members of the Shanghai Cooperation Organization (SCO).

  • Speaking at the SCO meetings in Astana, Kazakhstan on Friday June 9, Xi said, “We could begin signing agreement on trade facilitation with SCO. We speak in favor of opening cross-border routes in time set by the governments of the SCO member states”.

  • The SCO is a political, economic, and security group comprising Russia, China, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan. India and Pakistan were formally admitted to the SCO earlier in the day.

  • The admission of India and Pakistan is notable: the two countries have recently been engaged in hostility along their disputed border, while India recently abstained from the Belt and Road Forum in Beijing due to concerns over Pakistan’s involvement, amongst many other issues.

 

Temer wins the day with a divided vote. “The system needs stability” was the decisive argument

MercoPress

  • Brazil's top electoral court gave embattled President Michel Temer a big victory late Friday, voting to reject allegations of campaign finance violations that could have removed him from office.

  • After four days of deliberations, judges voted 4-3 in a case that many viewed as a measure of whether Temer could remain in office amid a ballooning corruption scandal and single-digit popularity.

  • Last month, a recording emerged that apparently captured Temer endorsing hush money to ex-House Speaker Eduardo Cunha, a former Temer ally serving 15 years in prison for corruption and money laundering. Soon after that, details of another bombshell came out: that Temer was being investigated for allegedly receiving bribes.

  • But Temer has denied wrongdoing and vowed to stay in office.

 

China’s debt situation: The next possible financial crisis?

Global RIsk Insights

  • China’s debt situation is not only growing in size but also at a rate that economists and policy analysts feel is difficult to sustain.

  • Adding to the problem is that China’s public and private debt are intertwined and not helping the economic growth the nation needs to thrive.

  • Moody’s recent downgrade of China’s debt belies a substantial financial problem: Its huge dependence on debt to grow its economy. China uses debt as the key mechanism to build its infrastructure and expand businesses.

  • However, the problem is that private and public debt are not only linked, but that both are growing at unsustainable rates worrying economists and policy analysts. Compounding the problem is the role of shadow banking in China that, if the figures were available, would increase its debt tenfold.

 

Brazil tightens corruption controls on banks and listed companies

MercoPress

  • Brazilian presidential decree raising fines on banks and listed companies involved in illicit acts aims to empower the central bank and the country's securities industry watchdog in their efforts to bolster transparency, Finance Minister Henrique Meirelles said in Paris.

  • Meirelles said the decree, which aims to increase fines on banks to up to 2 billion reais (US$610 million) from 250,000 reais currently, had been under study for some time. His comments were released by the finance ministry's press office.

  • The decree announced this week would also allow the central bank to strike plea-bargain agreements with financial firms that admit breaching the law in exchange for softer fines or more lenient prison terms for their executives.

  • The central bank is Brazil's banking and financial industry watchdog; the CVM, as the securities industry watchdog is known, oversees the functioning of capital markets.

 

Why the Qatari-Arab tension may remain despite possible settlements

Global Risk Insights

  • On the 6th of June, Saudi Arabia, Egypt, Bahrain and the UAE announced in a coordinated move to cut diplomatic ties with Qatar.

  • The move, which was later followed by other nations, is amongst a series of steps taken against the tiny Gulf state including cutting land, air and sea travel to and from Qatar, as well as giving a two week ultimatum for Qatari citizens to leave the four nations.

  • These drastic steps against one of the Arab world’s smallest but richest nations can been attributed to four main factors:

  • Qatar’s controversial relationship with Iran, Qatar’s support for the Muslim Brotherhood, Qatar’s support for militant Islamist groups & Qatar’s “naughty” media.

 

Lower Taxes Proposed for Profitable SMEs in Vietnam

Vietnam Briefing

  • As per a new draft law on tax support for small and medium enterprises (SMEs), only profitable SMEs will be eligible for reduced taxes.

  • The draft law does not provide the details of reduced level with respect to the current corporate income tax, but industry experts believe the reduction to be 1% for medium enterprises, 2% for small enterprises, and 3% for micro enterprises compared to current taxes.

  • Although the tax cuts will reduce the State budget revenues, it will lead to the growth of new small businesses that will offset lower tax earnings.

  • The tax cuts will be applicable for profitable entities, which account for 49.4 percent of the operating enterprises, an estimated 301,300 units.

 

India Market Watch: UNCTAD 2017 Shows Rising Investment Prospects & More

India Briefing

  • The ‘World Investment Report 2017’ published by the United Nations Conference on Trade and Development (UNCTAD) predicts that India will continue to be an attractive investment destination despite stagnant trends.

  • Internet users in India will double to 829 million by 2021 from 373 million users in 2016. This will be driven by accelerating digital access as two billion devices will be connected to the internet, up from 1.4 billion networked devices in 2016.

  • Office space absorption by Indian Information Technology (IT) and IT-enabled services companies rose by 10 percent to 16.81 million square feet (sq ft) in 2016 over the previous year.

  • Much to the chagrin of the federal government, India was ranked 130 in the World Bank’s Doing Business Report 2017, up just one place from 2016.

Tags: argentina, beef ban, brazil, china, corruption, debt, devaluation, financial crisis, gold, india, macri, portugal, temer, usd, vietnam
Posted in Global, Macro Economics, Macro Economics