Dispatch (Asia edition)
| by Peta Tomlinson, Nazatul Izma Abdullah, Sonia Kolesnikov-Jessop
22 Dec 2006 Topic: News |
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Despite some concerns, China is still seen as the promised land by most European and US companies operating there, two new surveys confirm. In its annual report on business conditions in China, the European Union Chamber of Commerce in China reports a high level of optimism. “European businesses are very bullish about the future. That means revenues as well as margins,” said Jeong Wutke, Vice President of the Chamber, which calls itself “the voice of European business in China”. Wutke said China’s accession to the World Trade Organisation (WTO) had paved the way for increased growth and stronger trade relations. He expects only a gradual slowdown from the 10.9% economic growth seen in the first half. Eighty-three percent of the Chamber’s members expect to be profitable in China in 2006, the report found. Most are focused on China’s domestic market rather than producing for export, Wutke said. The findings are contained in the European Business in China Position Paper 2006-2007, a communication tool the European Chamber utilises annually to convey its members’ operational business concerns to policymakers in the Chinese Government and Europe. Chamber President, Serge Janssens de Varebeke, said that despite China successfully implementing most of its WTO commitments either on or ahead of schedule, European companies still face some obstacles in China. “Transparency and intellectual property rights (IPR) remain the main concerns of doing business in China, and a large majority of the Chamber’s members would hope [for] better enforcement of IPR law and regulations.” A similar outlook was announced recently by the Washington-based US-China Business Council, which says its members have made “significant gains” in China. The Council’s latest report shows 81% of its member companies have profitable businesses in China, a significant increase from a US Government survey in 1999. Of these, 97% said they were optimistic or “somewhat optimistic” about prospects for their China business over the next five years. More than half of the US firms surveyed said that profitability rates for their China operations had met or exceeded their company’s global profit margins. Council President, John Frisbie, said China’s WTO entry and other market openings had been good for US companies, but hurdles old and new remained. “A shortage of skilled managers, problems with licensing and business approvals, inadequate intellectual property protection, and a general lack of transparency are among the hurdles US companies still face as they try to act on these market openings.” The Council’s report also revealed that most US investment in China is in 100% US-owned enterprises, not joint ventures with Chinese partners. These businesses, which primarily serve local Chinese consumers, said their key investment objective was “to access the China market”. Companies surveyed also cited inadequate regulatory transparency as one of the issues China needs to address. While protection of intellectual property rights remains a top issue, getting business licences and Government approval has emerged as a more immediate concern. “Companies run into licensing issues as they seek to act on WTO openings in sectors such as construction, financial services, distribution and product licences,” the Council found. doing business with a conscience Bursa Malaysia Berhad has unveiled a Corporate Social Responsibility (CSR) Framework for Plcs, urging public-listed companies to integrate CSR elements into their strategic business management practices. According to the exchange, the CSR framework is a set of “voluntary, flexible guidelines that outline key focal areas and CSR initiatives covering the environment, community, workplace and marketplace”. Currently, Malaysian Plcs are in various stages on the CSR continuum, said Bursa chief operating officer, Omar Merican, in Corporate Social Responsibility: Doing Business with a Conscience, an ACCA Malaysia publication in collaboration with The Edge. It makes sense that guidance and help from Bursa will be tailored to fit the different stages of Plcs’ CSR development. Pre-CSR companies are defined as those who eschew responsibility for their social and environmental impacts and see no obligations beyond making profits, while basic CSR companies subscribe to CSR as good business and practice regulatory compliance only. The Bursa CSR framework will guide these companies in formulating their CSR statements and agendas, noted Omar. Whereas for the more advanced pro-active CSR companies that perceive CSR as strategic business opportunities and integrated CSR companies that institutionalise CSR policies and use CSR practices as a strategic differentiator, Bursa will profile them on a Bursa SRI Index and moot them as investments for national pension funds and institutional investors. Finally, Bursa will assist mission driven CSR companies, whose purpose is to improve social or environmental conditions, to gain entry into international indices like the Dow Jones Sustainability Index, thereby increasing visibility. Singapore and China start FTA talks While the World Trade Organisation’s Doha Round appears to have failed for now, Asian countries are continuing their ever-increasing network of bilateral and regional trade agreements. Singapore and China announced late August they would launch negotiations for a bilateral free trade agreement (FTA), while at the same time ASEAN (of which Singapore is member) agreed to create a common trading block by 2015, ahead of an earlier deadline of 2020, and inked a trade liberalisation pact with the US, opening the door to a possible free trade pact. Singapore already has a separate FTA with the US. The decision to proceed on a Singapore-China FTA was taken after the successful completion of a joint study group which highlighted the long-term economic benefits of such trade pact to both sides. Bilateral trade in 2005 reached a record of US$33.15bn, a 26% increase over 2004. China is now Singapore’s fourth largest trading partner while Singapore is China’s seventh largest trading partner. China is also Singapore’s top investment destination, Singapore is China’s sixth largest foreign investor and the largest from ASEAN. Building on existing frameworks of co-operation, the enhanced liberalisation in goods, services and investments provided by the planned new FTA is expected to benefit the people and economies of both countries, a joint-statement said. The FTA will also provide businesses and investors with improved policy regimes to enhance trade and investment, it added. Beyond direct economic benefits to both sides, the China-Singapore FTA is also expected to contribute to regional economic integration by “injecting additional momentum into the establishment of the China-ASEAN Free Trade Area”. Singaporean officials stressed the country does not see bilateral and regional trade liberalisation as an alternative to a multilateral process. Such bilateral arrangements can complement rather than replace or supersede the multilateral system. “They are building blocks in our efforts towards greater trade liberalisation,” an MTI spokesman said. Malaysia has released a highly expansionary Budget for 2007, with record development spending of RM44.5bn ringgits earmarked for next year, up 24.3% over 2006. Previously, development spending peaked at RM39.4bn in 2003. Despite higher expenditure, the Government is targeting a manageable budget deficit of 3.4% of gross domestic product (GDP). Analysts are mostly sanguine about the deficit, which is backed by tolerable external debt (approximately 36.8% of gross national product (GNP) in 2006) as well as robust foreign reserves (US$79.2bn as at mid-August 2006). Any shortfall in revenues will be exacerbated by the decision to cut the corporate tax rate by one percentage point to 27% for 2007 and by another percentage point to 26% for 2006. On the plus side, it is estimated that every one percent point cut in corporate tax will raise companies’ earnings by 1.2%-1.4%. Ostensibly, the lower corporate tax will enable companies to reinvest more of their income and boost private investment, which could spur economic activity. Lower taxes may also help cushion a decline in consumer spending due to fears of a decelerating economy, as well as mitigate higher raw materials and finance costs. The lower corporate tax rate is also supposed to make the country more competitive vis-à-vis other investment destinations in Asia, except when compared to Hong Kong (17%), Singapore (20%) and Taiwan (25%). Nevertheless, the decrease in corporate tax revenues should be compensated by higher oil-related revenues, namely taxes and dividends from national oil company Petronas, which make up about 40% of Federal Government revenue. Thanks mainly to a windfall from petrodollars, total revenues for 2007 are projected at RM134.82bn, up 11.8% from estimates for 2006. Oil-related revenue is expected to contribute RM53.7bn, accounting for 39.9% of total revenue in 2007, compared with RM45bn or 37.3% of total revenue in 2006. stellar growth for HK’s hedge funds Hong Kong has notched up another year of record growth for funds management business, strengthening its position as a key financial centre of Asia. The total asset size of the combined fund management business in Hong Kong grew 25% to HK$4,526bn at the end of 2005, an annual survey by the Securities and Futures Commission (SFC) has found. The figures mark the fourth consecutive year of growth, which has surged to 54% in the last two years alone. Assets under management in Hong Kong have now nearly tripled since 2001. Alexa Lam, SFC’s executive director of intermediaries and investment products, puts the results down to “the professionalism, enterprise and hard work” of Hong Kong fund managers and advisers. Of the total non-REITs assets managed in Hong Kong, almost one-third (28%) was invested in Hong Kong and China. This further illustrates Hong Kong’s position as the gateway to China, and the development of its expertise in managing investments in Asia, the SFC says. The take-off late last year of Hong Kong’s Real Estate Investment Trust (REIT) market will further fuel the industry’s growth spurt. Since November, four REITs managed by licensed corporations in Hong Kong have successfully launched and listed on the Hong Kong Stock Exchange, including the first product, Link REIT, the largest IPO of its kind in the world. By the end of June 2005, the total market capitalisation of the four REITs amounted to around HK$49bn (US$6.3m), with an average daily turnover of HK$373m (US$47.8m). A recent survey by Institutional Investor’s Alpha magazine noted that four of the five biggest hedge funds in Asia are based in Hong Kong. They are PMA Capital Management with US$2.07bn under management, Asia Debt Management with US$1.44bn, Ward Ferry Management with US$1.4bn, and Penta Investment Advisors with US$925m. Only Tokyo-based Sparx Asset Management with US$5.24bn is bigger among hedge funds in Asia, the magazine reported. Christopher Botsford, co-founder of Asia Debt Management, agreed that Hong Kong fund managers are “entrepreneurial and hard working”, adding that they also have strong support. “Hong Kong is a very accommodating place to set up a hedge fund,” he said. “The regulatory environment is encouraging, and the SFC does a good job in keeping up the integrity of the market. The support from lawyers, accountants, custodians and prime brokers is also strong.” Prospects for further growth look favourable, especially in light of the opening up of Mainland capital markets. Hong Kong is “a natural place to get involved” in those emerging opportunities, added Botsford. Steve Irwin was living proof that business acumen does not necessarily require a university degree, fancy clothes or even the right connections. Yet one man’s obsession turned into a thriving business empire. Irwin became an international icon, his persona spawning one of Australia’s most successful tourist attractions, the Australia Zoo in Queensland; a television series seen by more than 200m viewers globally; and a mountain of merchandise. Irwin, who died on 4 September, focused on his passion, and followed it through. It is an option available to all of us, says executive coach Andrew Elder, of Outsorceres Associates in Sydney. “If you have a vision of where you want to go, the key is to make it tangible – something you can really feel, get your hands on to, and see.” But simply visualising an outcome is not enough, Elder says. He advises working backwards, from where you want to be to where you are now, in order to identify the small steps required. “If you are focused on the negatives – like wanting to get away from where you are – you can find yourself standing still or even going backwards. It is much more useful to focus on the positives.” You will also need to be flexible, as visions may expand or contract over time. Self-directed people have the freedom to make mistakes, and the ability to develop themselves “in their own time, in their own place”, taking them wherever they want to be. Elder says that Irwin’s business model is just one of the many possibilities in a world where “a job for life” no longer applies. “More people are looking at portfolioing their careers, which may mean having several part-time jobs, or combining work with study or travel,” he said. “Increasingly, in our change management workshops, we’re seeing women starting their own business because they want more of a work/life balance. And executives for whom the expense account and company-provided vehicle no longer matter as much. Today, many people have values they consider more important than clawing their way to the top of the corporate ladder – and then working 70 hours a week to stay there.” Singapore keeps earning reports The Ministry of Finance decided to retain quarterly earnings reports for listed companies with a market capitalisation of over S$75m, following the recommendation of the Council on Corporate Disclosure and Governance. The issue of mandatory quarterly reporting, which was introduced in 2003 for listed companies, has generated fierce debate in the financial community. The Ministry said that while it was aware of costs associated with quarterly reporting, the system was beneficial to the city-state’s capital markets as it promoted transparency and a high standard of disclosure. It is estimated that about 35% of all listed firms on the Singapore Exchange (SGX) are required to report their results quarterly. Smaller companies will now be subject to a year-end review of their market caps and, if they pass the S$75m threshold, they will have a year to prepare for quarterly reporting. Bigger companies whose market cap dip below S$75m will still have to continue with quarterly reports unless they get an exemption from the SGX. in brief...
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