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Inflation Fears May Slow Malaysia Government Subsidy Cuts, Economists Say

May 9, 2010

By Barry Porter May 10 (Bloomberg) — Malaysia may cut subsidies slowly to prevent triggering record inflation as it prepares to revamp a system that’s hampered efforts to reduce the budget deficit, Standard Chartered Plc and Citigroup Inc. said. A taskforce is exploring ways to revamp the government’s entire portfolio of subsidies that keep the cost of essential items from flour to highway tolls low for consumers. An attempt to reduce the amount the state pays to cap fuel prices caused inflation to surge to a 26-year high in 2008 as gasoline became more expensive. The government will learn from past experience and ensure its subsidy cuts will be a “very tempered, gradual process,” Alvin Liew , an economist at Standard Chartered in Singapore, said May 7. “They still have time on their hands. It’s not a Greek situation where they need a bailout, not yet anyway.” Malaysia spends about 73 billion ringgit ($22 billion) a year on subsidies, Prime Minister Najib Razak said on April 6, calling the amount “not sustainable.” The government, which has said it is considering a global bond sale, aims to narrow its budget deficit to 5.6 percent of gross domestic product this year from a 22-year high of 7 percent in 2009. Concerns the European debt crisis will spread sparked a global stock rout last week even as Greece’s parliament approved austerity measures demanded by the European Union and International Monetary Fund as a condition of its 110 billion euro ($139 billion) bailout. Bond Sales In Asia, nations from Vietnam to the Philippines sold sovereign debt earlier this year as the region leads a global economic recovery. Malaysia may sell 10-year dollar denominated bonds in June, according to a finance ministry official with knowledge of the plan. Faster growth will help the government cut its budget shortfall as revenue rises, state news agency Bernama cited Deputy Finance Minister Awang Adek Hussin as saying last week. Malaysia pays suppliers to keep many consumer goods below their true market values. The decades-old system, aimed at helping the poor, has also benefited the rich and encouraged smuggling to neighboring countries where prices are higher. Sugar supplies ran short last year as profiteers took the sweetener across the border into Thailand, where it fetched double the price. The government taskforce led by Idris Jala , a former Malaysian Airline System Bhd. managing director, is seeking feedback on how to revamp subsidies so that only the poor get help. Jala is now a minister in Najib’s office. Greater Impact Malaysia’s consumer price index, which has averaged 2.8 percent over the past four years, jumped to 8.5 percent in July and August of 2008 after the government raised retail fuel prices by as much as 63 percent in a bid to trim its subsidy bill as global crude oil prices soared. “If just raising fuel prices affected inflation so much, can you imagine the impact this time?” Suhaimi Ilias , an economist at Maybank Investment Bank Bhd., said in a telephone interview. “I think the impact would be even greater. There must be an increase in income so people can cope.” The government will tread cautiously and stagger its subsidy reforms, said Kit Wei Zheng , an economist at Citigroup in Singapore. Bank Negara Malaysia, which was among the first central banks in Asia to raise interest rates this year, may not need to respond aggressively to any inflationary pressure as a result of the revamp, he said. “Their policy reaction is front-loaded, so they may not need to react so much” to inflation, Kit said in a telephone interview. Rate Decision The central bank next meets to discuss monetary policy this week, and will announce its decision on May 13. It increased its overnight policy rate to 2.25 percent from a record-low 2 percent in March after Southeast Asia’s third-largest economy emerged from a recession in the last quarter of 2009. The inflation rate rose to 1.3 percent in March. Food prices climbed 1.7 percent after the government scrapped its subsidy on white bread and raised its cap on sugar prices in January. The central bank raised the country’s 2010 growth forecast on March 24, predicting GDP will expand 4.5 percent to 5.5 percent. While faster growth should boost tax collection as company profits climb, the government has postponed a plan to introduce a goods and services levy. It also delayed a revamp of the fuel subsidy system from May to later this year. “I’m worried for the government,” said Standard Chartered’s Liew. “Having such a huge amount of subsidies takes such a toll on its fiscal position and will not be sustainable in the long run.” To contact the reporter on this story: Barry Porter in Kuala Lumpur at bporter10@bloomberg.net .

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Wen Conflicted as Yuan Advance Moving Chinese Teddy-Bear Jobs to Vietnam

May 5, 2010

By Bloomberg News May 6 (Bloomberg) — Lovely Creations Corp., the supplier of talking teddy bears to Wal-Mart Stores Inc. , may move some of its 800 Chinese assembly jobs to Vietnam because the currency is eroding profits. “The yuan’s appreciation would mean we lose our profit margin,” said Poh-Heng Toh, general manager at Lovely Creations, a Taipei-based manufacturer with factories in the coastal provinces of Guangdong and Zhejiang. “We also have higher labor costs in China because, as the economy develops, workers demand better lives while our end customers like Wal-Mart won’t raise what they pay us.” As the U.S., India and Brazil raise pressure on Premier Wen Jiabao to end the yuan’s almost two-year peg to the dollar, business leaders say they’re ready to relocate where costs are lower. Haier Group, the biggest Chinese appliance maker, built plants in India and Thailand. U.S. shoemaker New Balance shifted orders to Indonesia. Li & Fung Ltd. , a leading supplier to Bentonville, Arkansas-based Wal-Mart, bought 5 percent fewer consumer-goods in China in 2009 and 20 percent more in Bangladesh. The yuan’s relative weakness and minimum wages still at least 86 percent lower than in the U.S. underpinned exports that powered 10 percent annual growth in the past two decades and made China the world’s third-largest economy. Currency gains may hurt light-manufacturing, textile, electronics and machinery industries that account for 70 million jobs and 70 percent of industrial exports, Zhu Hongren , chief engineer of the Ministry of Industry and Information Technology, said April 22. ‘Lobbying Extensively’ Allowing the currency to appreciate would help reduce costs of the nation’s $1 trillion in imports and boost spending power for its 1.3 billion people. It also would add another challenge for Wen, who is attempting to quash property speculation at a time when investors are already skittish about prices of financial assets. The benchmark Shanghai Composite Index has fallen 14 percent this year, more than any market in Asia. Hedge fund manager Jim Chanos said in April China’s real-estate market is a bubble that may burst as early as this year Wen, 67, probably will avoid a “mega-revaluation” and cap yuan gains at between 3 percent and 5 percent in the coming year to balance these goals, said Edwin Gutierrez , who oversees $5 billion of emerging-market debt for Aberdeen Asset Management Plc. “Chinese policy-makers always move in gradual steps,” Gutierrez said in an April 29 interview from London. “Margins for many coastal manufacturers, especially in rust-belt industries like textiles, toys and shoes, are pretty thin already and they’ve been lobbying extensively not to revalue.” Yuan Forwards China halted the currency’s 21 percent, three-year advance against the dollar in July 2008 to help exporters weather recessions in the U.S., Europe and Japan. Twelve-month non- deliverable yuan forwards traded at 6.6649 per dollar as of 10:11 a.m. in Hong Kong, reflecting bets the currency will gain 2.4 percent from the spot rate of 6.8266 in the coming year. While Wen froze the exchange rate against the dollar, the yuan has continued to appreciate, rising 16 percent against the euro in six months as Greece’s debt crisis threatened to slow an economic recovery in the region that has become the biggest buyer of Chinese goods. The currency also strengthened 45 percent against the Vietnamese dong in the past five years. Gross domestic product per capita in China has risen to $6,600, compared with $4,000 in Indonesia and $2,900 in Vietnam, according to Central Intelligence Agency estimates. Guangzhou , the capital of China’s richest province Guangdong, raised its minimum wage 28 percent on May 1 to the equivalent of about $1 per hour, compared with $7.25 in the U.S. Seeking a Delay Sales at Lovely Creations, which has surveyed sites in Vietnam and Indonesia in case it is forced to move, dropped 16 percent in 2009, Toh said at last month’s Hong Kong Electronics Fair. Li & Fung, Hong Kong billionaire William Fung ’s trading company, said sales fell 6 percent last year, the first decline since the company went public in 1992. Runliu Willow Arts & Crafts Co., a fence maker in the eastern province of Shandong, said its revenue fell about 50 percent between 2007 and 2009. “We have to raise prices by 20 percent after raw-material costs quintupled and labor costs gained 5 percent this year,” Zhang Ranzhong, a manager at Runliu Willow, said last week at the Canton Fair in Guangzhou. “We hope yuan appreciation can be delayed until the autumn.” Global Expansion Runliu may join a tour for executives to seek investment opportunities in Southeast Asian nations organized by the government, which is encouraging global expansion, said Zhang. Haier’s decision to open factories around the world made it “less exposed to the negative impact of the yuan’s appreciation,” said Zhang Tieyan , director of global branding at the Shandong-based company. New Balance, the closely held Boston-based maker of athletic shoes, plans to find sub-contractors in Indonesia to augment four plants in China and one in Vietnam, Judith Mackay , Asia apparel and license compliance manager, said in a March interview. It’s among four global shoemakers close to reaching similar sourcing agreements, Eddy Widjanarko, head of the Indonesian Footwear Association, said in an April 30 interview. Treasury Secretary Timothy Geithner said April 23 in Washington that it is in China’s own interest to shift to a more flexible currency to help bolster domestic demand. Central bank governors in India and Brazil said on April 20 a stronger yuan is needed to rebalance the global economy. Benefits to China A stronger yuan benefits companies selling into China with costs in foreign currencies, Terry Ho , chief financial officer at Xtep International Holdings Ltd., a Hong Kong-listed sportswear maker part-owned by Washington-based Carlyle Group, said in an April 28 interview. Xtep sales may grow about 20 percent this year as it opens as many as 1,000 stores in China, he said. Manufacturers prefer to move factories inland because they can tap growing affluence in China, said Mark McCombe , chief executive officer for Hong Kong at HSBC Holdings Plc, Europe’s largest bank. Domestic consumption added 6.2 percentage points to China’s 11.9 percent growth in the first quarter from a year earlier, while net exports cut 1.2 points, according to the state statistics bureau. “Traditionally factory owners producing goods in China would look for the shortest, most-efficient supply route out of the country,” McCombe said in an April 27 interview. “Now they’re investing much more time and energy in researching internal supply chains.” Supply Chains The pace of the migration depends on the yuan’s appreciation, Danny Lau, chairman of the Hong Kong Small and Medium Enterprises Association, said in an April 30 interview. Hong Kong manufacturers in Guangdong’s Pearl River Delta fell to 50,000 from 70,000 in two years. About 20 percent of his group’s 800 members may move inland or abroad, he said. Lufeng Fu He Industrial Co., which makes wooden chairs and tables, will open a wood processing factory in Jiangxi province, west of its base in Guangdong, reducing costs by 10 percent, according to General Manager Xue Shuoxun. “I would jump off a building to kill myself if the yuan has a one-time revaluation,” he said at the Canton Fair. “It should be, as everyone has said, a 3 to 5 percent gradual appreciation by the end of this year.” — Bob Chen , Judy Chen , Lilian Karunungan , Patricia Lui , Frederik Balfour, Achmad Sukarsono . Editors: Sandy Hendry , James Regan To contact the Bloomberg news staff on this story: Bob Chen in Hong Kong at bchen45@bloomberg.net ; Judy Chen in Shanghai at Xchen45@bloomberg.net .

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Russia Cuts Refinancing Rate as Easing Cycle Draws to End, Inflation Looms

April 29, 2010

By Maria Levitov and Paul Abelsky April 29 (Bloomberg) — Russia’s central bank cut its main interest rates for the 13th time in a year to bolster economic growth and spur credit flows, nearing the end of an easing cycle on the prospect of accelerating inflation. Bank Rossii lowered the refinancing rate a quarter point to 8 percent, effective April 30, it said on its Web site today. It also cut the repurchase rate charged on one- and seven-day central bank loans by the same amount to 7 percent. The decision was expected by 20 of 27 economists in a Bloomberg survey. The bank last cut rates a quarter-point on March 26. It also cut the overnight deposit rate to 2.5 percent from 2.75 percent. The cuts are intended “primarily” to boost lending and make credit more “accessible,” the bank said in the statement. “The consumer price dynamics remain favorable” and the main indicators point to a “gradual trend towards the recovery of economic growth.” Still, the recovery is “unstable,” and “the necessity of supporting domestic demand remains.” Lending growth in March and April was “insignificant,” it said. The regulator has reduced rates a total of 5 percentage points in 13 months while the government last year raised spending by 27.3 percent to drag the world’s largest energy supplier out of its worst recession by unlocking credit flows and rekindling demand. Finance Minister Alexei Kudrin on April 6 warned the stimulus may trigger faster inflation and bring an end to the cuts. The refinancing rate has been higher than the inflation rate since the fourth quarter. Ruble The ruble gained 0.5 percent against the euro to trade at 38.6468 at 11:24 a.m. in Moscow. Against the dollar, the ruble was little changed at 29.2775. “When rates enter positive territory in real terms you do fewer stupid things, take fewer risks and this produces better- quality growth,” said Anton Stroutchenevski , an analyst with Troika Dialog in Moscow, before the announcement. Today’s cut “is an urgent necessity” to spur a recovery. Russia is the last so-called BRIC country cutting rates. Brazil’s central bank yesterday became the first in Latin America to increase borrowing costs in more than a year, raising the Selic rate to 9.5 percent from 8.75 percent. China and India have increased reserve requirements for banks to avoid stoking unsustainable lending growth. Australia, Norway, Israel and Vietnam have raised rates since the peak of the global crisis while the U.S. Federal Reserve has raised the rate charged to banks for direct loans, signaling an end to emergency measures to supply liquidity to financial institutions. Russian economic growth slowed to a seasonally adjusted 0.6 percent last quarter from 1.7 percent in the previous period and 2 percent in the third quarter, according to the Economy Ministry. Inflation, Banks Inflation , the slowest in 12 years last month at 6.5 percent, is set to accelerate and Bank Rossii has signaled it may start raising rates in the second half. An increase in bank lending to households and businesses may also prompt the regulator to start tightening policy, economists said. Bank Rossii has indicated it may withdraw liquidity by forcing lenders to raise reserve requirements to pre-crisis levels. Lending may grow 15 percent this year, bank Chairman Sergei Ignatiev said on April 9. The credit portfolio of Russian banks excluding the nation’s largest lender OAO Sberbank expanded about 1.5 percent in March, he said, adding the rise may be “a coincidence or a change of trend.” Corporate loans shrank 0.7 percent in February and retail lending contracted 0.6 percent in the month, central bank data show. ‘World’s Biggest Rebound’ That will help the economy grow 7 percent this year, compared with last year’s 7.9 percent contraction, marking the world’s biggest rebound, Bank of America Merrill Lynch said in an April 8 note. The bank has also signaled it may do less to cap ruble gains and Ignatiev on April 9 said the regulator “sharply reduced” the extent to which it steers the currency. A 76 percent surge in the past 12 months in Urals crude, Russia’s chief export blend, has supported a 14 percent appreciation in the ruble against the dollar. Policy makers may let the ruble strengthen more than the government wants, according to UBS AG and Commerzbank AG . Even after the currency’s gains, the ruble remains about 25 percent undervalued, Clemens Grafe , chief economist at UBS in Moscow, said in an April 20 interview. The central bank may allow the ruble to rise as it targets a free float regime and uses a stronger currency to cap inflation, Barbara Nestor , an emerging-markets strategist at Commerzbank in London, said in an April 12 note. To contact the reporter on this story: Maria Levitov in Moscow at mlevitov@bloomberg.net

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AES signs long term purchase commitments in Vietnam

April 24, 2010

AES signs long term purchase commitments in Vietnam

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MGM’s Nathan Hired as Vietnam Plans `Vegas-Style’ Casino to Rival Macau

April 21, 2010

By Frederik Balfour April 21 (Bloomberg) — Asian Coast Development Ltd. hired Lloyd Nathan , formerly president of MGM Mirage Global Gaming Development, to run the first Las Vegas-style casino in Vietnam, the company said in a statement today. Asian Coast, a Vancouver-based development group backed by Philip Falcone ’s Harbinger Capital Partners LLC of New York, has a 50-year license to build a $4.2 billion casino and resort 130 kilometers from Ho Chi Minh City. MGM Mirage will manage the first property, which will be called the MGM Grand Ho Tram, Asian coast said. When the first phase of the project opens in January 2013, Vietnam will be competing with world class casinos run by Las Vegas Sands and Wynn Resorts in neighboring Singapore and Macau, the world’s biggest gaming hub. “The 16 countries in close proximity to Vietnam comprise almost two-thirds of the world’s population, but only 5 percent of the world’s licensed gaming establishments,” Nathan said in an e-mail today. “The Ho Tram Strip will appeal to a wide variety of customers from families and other vacationers seeking an upscale experience, to business travelers wanting to mix work and play, to VIP customers.” The casino will be off-limits to most of Vietnam’s 86 million people. The first phase of the beachside resort will include 550 rooms, 90 gaming tables and 500 slot machines, Gavin Davidson , corporate communications manager for Asian Coast, said in a telephone interview. MGM-Grand has a management contract for the hotel and casino, a partnership which Nathan had spearheaded while at MGM. To contact the reporter on this story: Frederik Balfour in Hong Kong at fbalfour@bloomberg.net

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Singapore Economy Probably Grew Last Quarter, Adding Pressure on Currency

April 12, 2010

By Shamim Adam and Jay Wang April 13 (Bloomberg) — Singapore’s economy probably rebounded last quarter as manufacturing improved and the opening of the country’s first casino boosted services , adding pressure on the central bank to tighten monetary policy this week. Gross domestic product rose an annualized 17.2 percent in the first quarter from the previous three months, after shrinking 2.8 percent in the October-to-December period, according to the median estimate of 11 economists surveyed by Bloomberg news. The trade ministry will release the data at 8 a.m. tomorrow. Asian nations are withdrawing stimulus measures taken to counter the global recession as their economies lead the world out of the slump. Singapore property and car prices have climbed as the recovery takes hold, and some economists say the central bank, which uses the currency to conduct monetary policy, will favor a stronger exchange rate in tomorrow’s review. “Economic data increasingly suggest the economic recovery is becoming more entrenched,” said Philip McNicholas , an economist at Macquarie Group Ltd. in Singapore. “Rising global commodity prices and a turnaround in the consumer price index hint that imported inflation pressures will become more meaningful. It may prompt a move to normalize policy at the April review.” Economists surveyed by Bloomberg News are divided on when the Monetary Authority of Singapore , or MAS, will allow the currency to strengthen. The central bank said in October it will maintain a zero appreciation stance in the Singapore dollar, refraining from further monetary easing after opting for a de- facto devaluation of the exchange rate in April. The stance is assessed twice a year. Regional Moves Since the October review, policy makers in Australia, Malaysia, India and Vietnam have raised interest rates, while China has required banks to set aside more funds as reserves to drain excess money from the economy. There is also mounting speculation that China, which has pegged the yuan’s exchange rate at about 6.83 per dollar since July 2008, will let its currency, known as the renminbi, appreciate. “The policy tightening which is now spreading across Asia should encourage the MAS to move sooner rather than later,” said Kevin Grice , an economist at Capital Economics Ltd. in London. “It is also likely that China will soon allow the renminbi to resume its appreciation trend against the U.S. dollar. A firmer renminbi will make the rest of Asia much more tolerant of further currency appreciation as well.” Exceeded Expectations Singapore’s currency has gained 0.7 percent this year, the worst performer in Asia after Hong Kong and China. The island’s dollar traded at S$1.3917 per dollar as of 7 p.m. local time yesterday, according to data compiled by Bloomberg. Singapore’s first-quarter economic growth “exceeded” the government’s expectations, China’s Xinhua News cited the Southeast Asian nation’s Senior Minister Goh Chok Tong as saying last week. The trade ministry in February raised its 2010 economic growth forecast for the island to as much as 6.5 percent, from an earlier prediction of as much as 5 percent. Genting Singapore Plc opened its casino in February, attracting thousands of visitors to the country’s first gaming resort with a Universal Studios theme park and performances by Tom Jones and American Idol finalist Adam Lambert . Visitor arrivals rose 24 percent in February from a year ago. Asset prices are also climbing as the economy strengthens. Singapore’s private home prices increased 5.1 percent in the first quarter from the previous three months, while permits to buy some types of cars surged to the highest since 2002. Inflation Forecast Inflation will probably average between 2 percent and 3 percent this year, the government predicts. Consumer prices rose 1 percent in February from a year earlier, the fastest pace in almost a year. Still, benign inflation and uncertainties in the economic outlook for the second half will probably lead the central bank to maintain its neutral currency stance, said Irvin Seah , an economist at DBS Bank Ltd. in Singapore. The central bank guides the Singapore dollar against a basket of currencies within an undisclosed band. “With the expiry of the fiscal measures introduced last year and likely monetary tightening across Asia in the coming quarters, which would have some cooling effects on exports demand, it is perhaps best for policy makers to wait for more clarity before shifting to a gradual appreciation stance in October,” he said. To contact the reporters on this story: Shamim Adam in Singapore at sadam2@bloomberg.net

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Thai `Perfect Storm’ May Drive Investors to Bonds From Stocks

April 9, 2010

By Katrina Nicholas April 9 (Bloomberg) — A “perfect storm” is gathering in Thailand, as once surging stocks threaten to drop, boosting record corporate bond sales that are withstanding the political turmoil, according to Standard Chartered Plc. There have been 48 company debt sales in Thailand this year, more than double the same period last year and the most since Bloomberg began compiling data in 1999. Borrowers including Thai developer Sansiri Pcl and restaurant chain owner Central Plaza Hotel Pcl are tapping the market for the first time in almost 12 months as real estate tax breaks spur new developments and consumer spending increases. “There’s a perfect storm brewing right now with a stock market that’s been rising and people just waiting for a correction,” said Ratch Sodsatit, head of Standard Chartered’s Thai capital markets unit in Bangkok. Investors seeking to avoid volatility will “shift their focus” to bonds, which offer higher returns than cash, he said. Thailand’s stock market fell the most in almost six months yesterday after the government declared a state of emergency in Bangkok on April 7 because of political protests by the United Front for Democracy Against Dictatorship. The SET Index slid 3.5 percent to close at 783.93, erasing gains that have made it Asia’s best-performing benchmark since round-the-clock political rallies began on March 12. Sodsatit said he expects the index to fall back to 650 from 800 levels. Economic Growth Thai property and consumer companies have more than doubled bond sales to $796 million this year, according to Bloomberg data, capitalizing on an economy that is growing faster than expected, even with the protests. The Finance Ministry raised its economic growth forecast for 2010 to as much as 5 percent on March 29 after the $261 billion economy contracted 2.3 percent in 2009. The government agreed to extend tax incentives on home purchases for two months on March 23, boosting the business plans of companies such as luxury condominium specialist Sansiri, which said it will start 26 residential projects this year, up from an initial 20. Bangkok-based Sansiri , the country’s second-biggest housing developer by revenue, doubled its bonds outstanding when it sold 1 billion baht ($30.9 million) of 3.5-year notes in February. Domestic investors, jaded by bank deposit rates as low as 0.5 percent, are the most active buyers of corporate debt in Thailand and aren’t fazed by the political situation, Australia & New Zealand Banking Group Ltd. debt syndicate director Winston Herrera said. Numb to Turmoil “This political turmoil has been ongoing for a while and people are numb to it,” Herrera said in a phone interview from Hong Kong. “Compared to some of the political situations which have occurred in Indonesia and the Philippines, this looks pretty tame.” Central Plaza Hotel Pcl, whose portfolio includes Bangkok’s Central Grand Plaza Hotel and local rights to restaurant chains Baskin-Robbins and Kentucky Fried Chicken, expects revenue to grow 15 percent this year as the economy recovers, Senior Vice President Ronnachit Mahattanapreut said last month. It tapped the debt capital markets for the first time since July in February, selling 1 billion baht of 3.5-year bonds whose yield over similar-maturity Thai government debt has narrowed 3 basis points from a high of 64 basis points. Best Performers Thai dollar bonds are Southeast Asia’s best performers this year, returning 8.35 percent compared with nearest rival Vietnam at 4.98 percent, according to HSBC Holdings Plc indexes. The extra spread over Treasuries investors demand to own Thai bonds has fallen to the lowest since November 2007, JPMorgan Chase & Co. data show. “The spread rally has been significant and today we’re seeing spreads the lowest they’ve been in some time,” Sodsatit said. “We’ll see a period of consolidation at these levels.” PTT Pcl , Thailand’s biggest energy company and one of the country’s most prolific bond issuers, sold 6.6 billion baht of bonds this year in two tranches of 2.6 billion baht and 4 billion baht, Bloomberg data show. The yield on both fell to their lowest ever yesterday as the notes’ price rose to 100.494 cents on the dollar and 100.337 cents on the dollar respectively. To contact the reporter on this story: Katrina Nicholas in Singapore on knicholas2@bloomberg.net

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Vietnam Lures Intel, Samsung as Asean Group Woos Companies Away From China

April 7, 2010

By Daniel Ten Kate April 7 (Bloomberg) — Vietnam hosts Southeast Asian leaders this week as chair of their 10-nation bloc, shining a spotlight on the political and economic stability that prompted Intel Corp. and Toyota Motor Corp. to increase investments. The communist nation drew 13.5 percent of the Association of Southeast Asian Nations’ foreign direct investment pool in 2008, up from 4.4 percent two years earlier, according to the 10-member group. And its allure may be rising, judging from a December survey by the American Chamber of Commerce in Shanghai. Vietnam is a preferred destination for businesses looking to relocate from China, Asia’s biggest investment recipient, the report said. “A lot of companies from a strategic standpoint are looking at how to set up a production facility within Asean,” said James Lockett, a Hanoi-based lawyer with Baker & McKenzie LLP and a board member of the American Chamber of Commerce in Vietnam. “In a lot of product areas, Vietnam looks very, very attractive for people who are doing that.” Vietnam’s economy expanded 5.2 percent last year, the most in Asean, which has signed free-trade accords with China, Japan, South Korea, Australia and New Zealand. The deals give companies access to those countries and the Asean member states of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. Asean is home to about 600 million people and its populations are among Asia’s youngest. Asean leaders meeting April 8-9 in Hanoi will issue a statement on climate change and define a “road map” to form an economic community modeled on the European Union by 2015. In March, Asean trade ministers said they would travel to the U.S. to promote the group as an economic hub. Obama Visit The region’s growing economic importance was underscored when President Barack Obama became the first U.S. leader to meet formally with the bloc in November. Santa Clara, California-based Intel, the world’s biggest chipmaker, is scheduled to open a $1 billion testing facility in Ho Chi Minh City this year that will employ about 4,000 people. Intel chose Vietnam because of its proximity to customers, reliable power and water supply and skilled workers, said Nick Jacobs , Intel’s regional spokesman. “Vietnam is a country which is very committed to education, and that gives us confidence we will continue to attract the talent we need for long-term success,” he said. Toyota produced 28,000 vehicles in Vietnam last year, up from 18,000 in 2007, spokesman Paul Nolasco said. The Toyota City, Japan-based company had 1,300 employees in Vietnam, more than double the number in 2005, he said. ‘Potential Growth’ “Toyota recognizes not only the potential growth of that market but the potential role the Vietnamese economy can make in broader Southeast Asia,” Nolasco said. Toyota produced more than 6 million vehicles globally in 2009. Suwon, South Korea-based Samsung Electronics Co., the world’s second-biggest maker of mobile phones, opened a $1 billion factory in Vietnam six months ago. Redmond, Washington- based Microsoft Corp. outsources digital animation and modeling for its computer games to Vietnam. While Vietnam’s one-party state and its jailing of more than a dozen democracy activists since October have drawn criticism from groups like Human Rights Watch, some regard it as a model of stability. They contrast it with Thailand, where demonstrators have shut airports and blocked streets in sometimes violent political protests. ‘Political Stability’ “There is a measure of political stability” in Vietnam, Rodolfo Severino , Asean’s former secretary-general, said by phone from Singapore. “If I were an investor I would bet my money on it.” The number of foreign companies in China with plans to relocate plants inland or outside the country because of rising costs doubled last year, according to a survey of 202 foreign manufacturers by the American chamber. The poll found 8 percent of respondents reported plans to relocate or expand outside of China compared with 28 percent considering moves to lower-cost areas in southwest or central China. In the short term, Vietnam’s inflation rate, among the world’s highest, caused the country to fall last year in the World Economic Forum’s Global Competitiveness Report . Consumer prices rose 9.46 percent in March, the biggest gain in a year. Fitch Ratings placed Vietnam’s debt rating on a negative watch last month. Vietnam “has been making positive structural changes to increase its investment attractiveness,” Prakriti Sofat, a Singapore-based economist for Barclays Capital, wrote in a report last month. Rising Yuan Banks such as Goldman Sachs Group Inc. predict China will allow its currency to appreciate amid pressure from U.S. lawmakers, reducing its attractiveness to exporters. The yuan will rise to 6.66 per dollar by the end of September, New York- based Goldman said in an April 1 research note. While some CEOs in China have called for a stronger yuan, its rise would trim profit margins of exporters and push textile and furniture makers into bankruptcy, Zhang Wei , vice chairman of the China Council for the Promotion of International Trade based in Beijing, said March 18. Vietnam’s dong has fallen 7 percent against the dollar in the past year. To contact the reporters on this story: Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net

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Abhisit Declares Bangkok State of Emergency as Protesters Storm Parliament

April 7, 2010

By Daniel Ten Kate and Suttinee Yuvejwattana April 7 (Bloomberg) — Thai Prime Minister Abhisit Vejjajiva declared martial law in the capital after protesters stormed parliament, testing the army’s willingness to break up four weeks of mostly peaceful demonstrations. About 3,000 people entered the gates of Parliament for about two hours and thousands more occupied Bangkok’s commercial district for a fifth day. The emergency decree bans gatherings of more than five people, allows detention without charge and gives soldiers immunity from prosecution. “The law doesn’t mean we aim to crack down or hurt people, especially innocent people,” Abhisit said in a nationally televised address. “The nation has been severely affected by the protests and the government needs to rectify the situation.” The protesters, many loyal to exiled former premier Thaksin Shinawatra , grew in confidence after police and soldiers abandoned attempts to disperse them yesterday. Army Chief Anupong Paojinda enforced orders from Abhisit a year ago to break up rallies by the same group that turned violent, something he may be reluctant to do this time. “Declaring martial law may backfire on Abhisit,” said Michael Nelson, a lecturer at Bangkok’s Chulalongkorn University. “If Anupong sees this as a political problem, an emergency decree may not prompt the military into action.” Abhisit, who has been living in an army barracks, said protesters have breached the constitution and he declared the demonstration illegal. The law would also prevent misinformation and help stop sporadic grenade attacks that have hit the capital over the past month, he said. Election Call The protesters, who say they represent Thailand’s lower classes, want an immediate election. They rejected the premier’s offer to hold a ballot within nine months during televised talks last week, demanding he step down by April 13, the start of the Thai New Year holiday. Many from rural areas may head back to their homes during the three-day break. Anupong, who helped orchestrate the 2006 coup and is due to retire in September, refused to clear anti-Thaksin protesters who seized Bangkok’s international airport in November 2008. Anupong urged then Prime Minister Somchai Wongsawat to call early elections to end five months of protests. A week later, Somchai was forced out when Thailand’s Constitutional Court dissolved his party. ‘Selective Curfews’ Abhisit “gave few details on what restrictions would be levied or what actions would likely be taken,” PSA Asia, a Bangkok-based security and risk assessment consulting firm, said in a note to clients. “Selective imposition of curfews for specified areas, banning assemblies in specified areas and prompt deployment of security forces to clear demonstrators to prevent further disruptions are possible.” Before the premier’s announcement, Deputy House Speaker Apiwan Wiriyachai told crowds outside Parliament the military may withdraw support for the government, the Nation reported. The army denied the claim. “That’s not true,” Army spokesman Sansern Kaewkamnerd said by phone. “We are still working together in unity.” Protest leaders distanced themselves from today’s break-in at parliament. “Our aim is to calm down the situation,” Weng Tojirakarn , one of three leaders who met with Abhisit for televised talks last week, said by phone. “We are still committed to non- violent actions to force an election.” Abhisit was at parliament early today for a meeting of his Cabinet, which decided to extend implementation of the Internal Security Act until April 20. He left before the demonstrators stormed the gates. The act, in place since the rallies began, gives the military power to clear streets and make arrests. Ranks Wane About 8,000 protesters occupied one of Bangkok’s main intersections today, down from 40,000 yesterday, police spokesman Prawut Thavornsiri said. Their ranks wane in the afternoon heat and swell at night, he said. The political unrest is “a drag and if it was to become prolonged, it would begin to have a significant impact on the economy,” Finance Minister Korn Chatikavanij said in an interview today in Nha Trang, Vietnam, where he was attending a meeting of Southeast Asian finance ministers. “We are still not fully realizing our potential as a result of the political impasse that appears to exist.” Thai stocks trade at 12 times 2010 earnings, the third- cheapest multiple in Asia after Pakistan and South Korea, according to data compiled by Bloomberg. The SET Index advanced 1.3 percent today, building on gains that have made it Asia’s best-performing benchmark since the round-the-clock rallies began on March 12. The baht traded close to a 22-month high. Four Seasons The demonstrations have disrupted about seven downtown hotels, including brands such as the Four Seasons, Grand Hyatt and Intercontinental. Room occupancy has dropped to about 40 percent and events have been canceled, Prakit Chinamourphong, president of the Thai Hotels Association, said by phone. “We already talked to the government to control the situation and we also talked to protesters, but it’s useless,” he said. “If the protests go on, our situation will be worse.” Thaksin and his allies have won the past four elections on strong support in rural areas for his platform of cheap health care and village loans. The billionaire former prime minister has orchestrated protests from overseas since fleeing a Thai jail sentence in 2008. Abhisit, who must call elections by the end of 2011, has asserted his right to complete his term in office. His Democrat party may win as many as 240 seats, or half the total, in the next contest, he said in a March 22 interview. To contact the reporters on this story: Anuchit Nguyen in Bangkok at anguyen@bloomberg.net ; Suttinee Yuvejwattana in Bangkok at suttinee1@bloomberg.net ;

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Indonesia May Bet Slower Inflation Will Buy Time to Hold Off Rate Increase

April 4, 2010

By Aloysius Unditu April 5 (Bloomberg) — Indonesia’s central bank may refrain from raising interest rates from a record low this week, betting that inflation isn’t yet enough of a threat to require higher borrowing costs. Bank Indonesia will keep its reference rate unchanged at 6.5 percent for an eighth straight month tomorrow, according to 16 of 17 economists in a Bloomberg News survey. One expects an increase to 6.75 percent. The measure is at the lowest level since it was introduced in July 2005. Indonesia is benefiting from having one of the region’s best-performing currencies, which has reduced import costs and helped slow inflation to 3.43 percent last month. The country, which avoided a recession last year as neighboring economies including Malaysia, Thailand and Singapore contracted, also has one of Asia’s highest benchmark interest rates. “Bank Indonesia is expected to remain patient for at least a few more months,” said David Cohen , an economist at Action Economics in Singapore. “We still expect they will begin to hike the interest rates in September in order to contain inflation,” as an economic recovery prompts the region’s central banks to tighten policy, he said. There isn’t an “urgent” need to raise interest rates if price gains hover at about 5 percent to 6 percent, Bank Indonesia Deputy Governor Hartadi A. Sarwono said on March 22. The rupiah has climbed more than 3 percent this year, making it one of the top three performers among 10 Asian currencies outside Japan, along with the Malaysian ringgit and the Indian rupee. The currency strengthened to its highest level in more than 19 months on April 1 on speculation the central bank will refrain from raising borrowing costs to spur growth. Conducive Effect The rupiah’s gain has had a “conducive” impact on inflation, Rusman Heriawan , chairman of the statistics agency, said after releasing the inflation data last week. Indonesia slashed the benchmark rate by 3 percentage points from December 2008 to August last year, keeping it at 6.5 percent since then even as Australia, India, Vietnam and Malaysia increased borrowing costs to fight inflation and avert asset bubbles. That has helped Indonesian banks such as PT Bank Rakyat Indonesia and PT Bank Mandiri , the country’s largest lender by assets, to report higher profits last year. The Reserve Bank of India last month increased the benchmark reverse repurchase rate to 3.5 percent from a record- low 3.25 percent, and the repurchase rate to 5 percent from 4.75 percent, saying containing inflation has become “imperative.” Australia and Malaysia also raised borrowing costs in March. “As the current Bank Indonesia rate level is supportive of gross domestic product growth and the rupiah, we expect Bank Indonesia to keep the BI rate unchanged” this month, Eric Alexander Sugandi , an economist at Standard Chartered Bank in Jakarta, said in a note on April 1. He expects the central bank to raise interest rates by a quarter-point each in June, July, August and September to counter stronger inflationary pressures in the second half of the year as demand improves. To contact the reporter on this story: Aloysius Unditu in Jakarta at aunditu@bloomberg.net

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Tom Fox: The Federal Coach: What Steve Jobs Can Learn From Public Leaders

March 31, 2010

Fox’s Federal Coach column was originally published on The Washington Post On Leadership site. Say the phrase “business leader,” and images of industry giants like Steve Jobs spring to mind. Now say “government leader” – and you wouldn’t be alone if comic images from NBC’s Parks and Recreation came to mind. Why is it that we associate private-sector leaders with greatness – the man who brought you the iPhone – and associate public-sector leaders with bungling bureaucracy, the folks running around trying to turn a trash heap into a children’s park? It is time to set the record straight and write a different script. In fact, the life of a government leader is vastly more complex and high-impact than that of a private-sector counterpart. First, let’s compare the challenges, using Apple as the example. That company’s leaders must manage a network of millions of customers and investors, seven board members and tens of thousands of employees, all under the watchful eye of Wall Street and the press. Now let’s look at our government: · Government leaders must satisfy the competing expectations of more than 300 hundred million citizens – the American government’s investors and customers. · The government’s board of directors includes 435 Members of Congress and 100 Senators who always disagree and frequently enjoy micromanaging. · Many of the top leaders – that is, the government’s political appointees – average only 18 months. · The workforce includes approximately 2.1 million employees – everyone from astrophysicists to zoologists. · The government oversight community includes the same press examining the private sector, as well as the Government Accountability Office (GAO), agencies’ inspectors general, and a vibrant group of nonprofits keeping an eye out for waste, fraud, abuse and mismanagement. With all of his success, I wonder if Steve Jobs could handle a job like this. In fact, why would anyone but Sisyphus sign up to be a government leader? The answer: an opportunity to make a difference. While I don’t want to live in a world without all of the many wonderful folks at Google, Apple, Amazon and Verizon who make my life better in so many ways, the fact is that leading in government can be far more rewarding than in the private sector. Just look at some of the individuals our organization has honored over the years, such as Dr. Thomas Waldmann at the National Institutes of Health, who is leading efforts to treat previously fatal forms of leukemia and Hodgkin’s lymphoma. There’s also Anh Duong at the Department of Homeland Security who, after fleeing a war-torn Vietnam decades ago, became a United States citizen and now develops anti-terrorism technologies. Although it has typically taken years to develop such systems, she leads a team that develops them in months. As much as I love my iPod, I can hardly continue the comparisons. Each week in this space, I’ll be probing and celebrating the unique challenges and rewards of government leadership — you are a vital part of the conversation. Please share your ideas about topics we should discuss, questions we should answer or best practices we should highlight by sending an email to fedcoach@ourpublicservice.org. In a unique collaboration, The Washington Post and nonprofit Partnership for Public Service produce The Federal Coach , a leadership column and blog hosted by Fox. Visit The Federal Coach for more advice on how to break through the bureaucracy and overcome professional obstacles unique to the public sector.

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Vivendi’s Levy Looks to Emerging Markets for Next Lady Gaga, Guitar Hero

March 30, 2010

By Cécile Daurat and Matthew Campbell March 30 (Bloomberg) — Vivendi SA and its competitors must extend the reach of content such as video games and music into emerging markets to remain global media leaders, Chief Executive Officer Jean-Bernard Levy said. “We can’t stay in a situation where the content companies make almost all of their money out of 10 countries” in the developed world, Levy, 55, said yesterday in an interview at Bloomberg’s New York headquarters. “You cannot say you are a global content company if in some way or other you do not properly address a few billion out of these emerging countries’ populations.” Vivendi, owner of the world’s largest video-game and music companies, may use cash from the $5.8 billion sale of its stake in NBC Universal for emerging-market purchases , or to buy out minority investors in some of its units, Levy has said. He moved into Brazil in November with the purchase of fixed-line phone company GVT Holding SA, agreeing to pay $4.18 billion. Levy’s immediate goal is for GVT to offer more content for its broadband services and to expand into new Brazilian regions. Entering the mobile-phone market is “not a priority,” he said. Meanwhile, he aims to boost emerging-market revenue at the Activision Blizzard games unit, publisher of “Guitar Hero” and “World of Warcraft,” and Universal Music Group. Vivendi, based in Paris, closed unchanged at 19.85 euros yesterday in Paris trading . The stock has dropped 4.5 percent this year. Universal Music Last year, almost three-quarters of Vivendi’s total sales came from France, where it owns the second-largest mobile-phone operator, and the U.S., where Universal Music is based. About 8 percent came from Morocco, where Vivendi owns Maroc Telecom, the largest phone operator. The proportion of business from new markets should rise at Universal Music, Levy said. The unit’s artists include Lady Gaga and the Black Eyed Peas. “We will have missed a lot of opportunities if, 5 or 10 years down the road, we still do only a very tiny part of our revenues outside” developed nations such as Canada, the U.S. and Japan, he said. Vivendi may be able to squeeze more growth out of emerging markets through content businesses than through telecommunications, Claudio Aspesi , an analyst at Sanford C. Bernstein in London, said by phone. “They may very well have realized there are limits to their aspirations” as more companies seek acquisitions in emerging-market telecommunications, he said. Africa, Latin America To enter the Brazilian telecom industry through GVT, Vivendi first had to outbid Telefonica SA , whose Telesp unit has a 28 percent market share for fixed-line services. Vivendi raised its bid from about $3 billion to top the Spanish company. Last month, India’s Bharti Airtel Ltd. agreed to buy Zain’s African operations for about $9 billion. Vivendi had earlier been in talks to acquire the assets to expand telecom service from North Africa, the home of its Maroc Telecom unit, to elsewhere on the continent. France Telecom SA , whose Orange mobile-phone service is France’s most popular, has also targeted African expansion. So far, Vivendi’s ambitions to enter new markets have focused on Africa and Latin America. China and India present complex questions for the communications group, Levy said. “There are many industries where you can operate in China, and there are also many industries where you can’t operate,” he said. “You can’t get a telecom license, you can’t get a TV license, and you have to find the right local partners for anything that’s Internet-related. That’s the rule of the game today for us.” India Competition While the Indian mobile-phone market is “very exciting,” Levy said, “it seems that it’s very difficult to make money” as a phone company due to price competition and expensive wireless spectrum. India, one of the world’s fastest-growing mobile-phone markets, has 11 operators including Japan’s NTT DoCoMo Inc. and Norway’s Telenor ASA. Call rates have fallen to less than a penny a minute. Vivendi’s Canal Plus unit, France’s biggest pay-TV operator, has expanded to French-speaking emerging markets like West Africa and the Caribbean, and announced a partnership with VTV, Vietnam’s state television network, to deliver pay-TV in the Southeast Asian country. Content like that generated by Canal Plus “is a very scalable business,” Alexander Wisch , an analyst at Standard & Poor’s Equity Research in London, said by phone. Still, he said, Vivendi will have to be careful to avoid overpaying for assets if it seeks more acquisitions abroad. “Everywhere they go, people know they have the cash,” he said. To contact the reporters on this story: Cécile Daurat in Wilmington, Delaware, at cdaurat@bloomberg.net ; Matthew Campbell in London at mcampbell39@bloomberg.net

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Vietnam Fails to Replicate China as Overseas Investors Sour on Volatility

March 25, 2010

By Yoolim Lee and Beth Thomas March 25 (Bloomberg) — Nguyen Thanh Trung brings Vietnam’s only privately owned plane level at 24,000 feet (7,315 meters) over the Central Highlands towns of Pleiku and Dalat before swinging right and bringing the eight-seat Beechcraft King Air 350 in for a smooth landing at Ho Chi Minh City airport. Trung is familiar with the landscape: Thirty-five years ago he was a Viet Cong agent and fighter pilot who recalls dropping two bombs on the headquarters of the American-aligned southern regime in the city then known as Saigon, one of the last skirmishes before the end of his country’s civil war. Today, Trung, 62, is on a mission that symbolizes his country’s transformation: He’s the personal pilot for Doan Nguyen Duc , an entrepreneur who is one of Vietnam’s richest men, Bloomberg Markets reports in its May issue. Duc, 46, estimates that his empire, which includes Hoang Anh Gia Lai Joint-Stock Co., Vietnam’s biggest listed property company, gave him a personal wealth of 28.4 trillion dong ($1.48 billion) at the end of 2009. “Duc owning a private jet is very good for Vietnam’s economy; it shows that Vietnamese people can also be successful like businessmen in other countries,” Trung says. “This is a time for dynamic entrepreneurs.” Foreign investors in Vietnam — a land that beckoned outsiders with great fanfare in the 1990s — are having a bumpier ride than Duc and his pilot. Roller Coaster Indochina Capital Advisors Ltd. last year decided to liquidate a London-listed Vietnam equity fund that had lost 50 percent of its value. In November, San Francisco-based hedge fund company Passport Capital LLC demanded the return of uninvested cash from a fund that bought Vietnamese and Cambodian property. The Ho Chi Minh City Stock Exchange’s benchmark VN Index , Asia’s best performer in 2006, plunged 66 percent in 2008 as inflation followed by global recession destroyed confidence in Vietnamese investments. The index rose 57 percent in 2009. It’s up 3.5 percent this year to March 24. Investors who still have the stomach to stay in Vietnam are quietly bullish. It’s still possible to make money in this land of 86 million people provided you’re willing to do homework, find the right opportunities and ignore the market froth, says Mark Mobius , chairman of Templeton Asset Management Ltd., which had $24 million of investments in the country as of February. ‘Real Value’ “Investors should see the real value of specific investments without being driven by pure sentiment,” Mobius says. “The private sector continues to grow and has become more important to the development of the economy.” That new realism follows a decade of unbridled enthusiasm for Vietnam. After the shift to a more market-oriented economy in 1986, foreign direct investment commitments in Vietnam went from zero to a peak of $60.3 billion in 2008, almost three times Vietnam’s foreign exchange reserves at the end of 2008. Gross domestic product expanded at an average annual rate of 7.2 percent from 2000 to 2009, making Vietnam the fastest- growing economy in Asia after China and Cambodia, according to figures from the International Monetary Fund. The government forecasts GDP growth of 6.5 percent for 2010. “Vietnam was viewed as the final frontier of Asia,” says Son Nam Nguyen , managing partner of Vietnam Capital Partners, who advised global investors on more than $30 billion in financing as the former head of Citigroup Inc.’s investment bank in Vietnam. “No one wanted to miss out on the next China.” Inflation Peak Instead, investors bought into a bubble as higher prices for commodities drove up the cost of living. Inflation peaked at 28.3 percent in August 2008. The central bank raised interest rates three times in 2008 to 14 percent to slow inflation. Some investors grew tired of the roller coaster. Shareholders of the Indochina Capital Vietnam equity fund in September voted to shut it down after its net asset value had plunged to $243 million by June 30, 2009, from an original value of $500 million in March 2007. Passport Capital, which held a 13 percent stake in property fund JSM Indochina Capital Ltd., won shareholders’ backing to replace three of the London-listed fund’s directors and begin the return of uninvested cash. From its inception in June 2007, JSM Indochina, listed on London’s Alternative Investment Market, had fallen 70 percent on Nov. 18, 2008. It was down 29 percent at the end of October 2009, when Passport called for shareholder action. Bill Nolan, managing director of sales and marketing at Passport Capital, declined to comment through a spokeswoman. Lost Confidence “Historically, because of bad experiences with inflation and currency depreciation, people are very quick to lose confidence,” says Manu Bhaskaran , a Singapore-based partner and head of economic research at Centennial Group Holdings, which provides advice on emerging markets. “The global financial system still has a risk of new shocks, and in that kind of context, countries like Vietnam are vulnerable.” The volatility may slow Vietnam’s development as an equity market. Since Prime Minister Nguyen Tan Dung came to power in July 2006, the total number of companies listed on Vietnam’s two stock exchanges has increased more than 11-fold to 486 as of March 24 from 43. Privatization Stalled While Dung, 60, has said he welcomes more investment, he has yet to deliver on promises to privatize major state-owned companies, including Vietnam Airlines Corp. Foreign investors, which are limited to 30 percent holdings in local banks, have won some gains when setting up new businesses: In September 2008, HSBC Holdings Plc and Standard Chartered Plc won approval to operate wholly owned units in Vietnam, the first of five such licenses. Foreign investors can find themselves at sea in the local culture, says Don Lam , chief executive officer and a founding partner of VinaCapital Group. Lam, who was born in southern Vietnam but grew up in Canada, says his Vietnamese managers typically spend 18 months to build relationships with owners before striking any partnership. “About 80 percent of my deals, when they close, it’s over dinner,” he says. “That’s why it’s so important to have a senior Vietnamese team to negotiate without interpreters.” Lam — who purposely doesn’t use dye on his gray hair and sometimes wears rimless eyeglasses to appear older than his 42 years — says he shuns business lunches, since many Vietnamese nap in the afternoons. VinaCapital Fund VinaCapital’s $774 million Vietnam Opportunity Fund has invested in companies that focus on consumers, including Vietnam Dairy Products Joint-Stock Co., the country’s third-biggest stock by market value; Kinh Do Corp., the nation’s No. 1 candy maker; and Vietnam Export-Import Commercial Joint-Stock Bank. The firm had $1.7 billion invested in Vietnam as of mid-March compared with $10 million in 2003. Gerard Lee , CEO of Fullerton Fund Management Co., the Asian fund management unit of Singapore’s Temasek Holdings Pte, is one of several investors who say Vietnam, with its political stability, ready pool of cheap labor and years of economic growth, reminds them of the superpower to the north. “Vietnam has a lot of the characteristics of China,” Lee says. “So it’s good to do all the heavy lifting and homework in Vietnam, because we believe we will be richly rewarded in years to come.” Fullerton’s $30 million Vietnam Fund , which primarily invests in local equities, lost 30.4 percent from its inception in April 2007. In the 12 months to March 23, the fund is up 58 percent, according to data compiled by Bloomberg. Temasek in Vietnam Since opening its first representative office in Vietnam in 2005, Temasek — which doesn’t disclose the value of its Vietnam portfolio — has invested in the country through its holdings in Minh Phu Seafood Joint-Stock Co., transportation company Vietnam Sun Corp . and Kinh Do , according to stock exchange filings. “Vietnam fits well with our overall themes of investing in transforming economies and the growing middle income group,” Derek Lau , Temasek’s chief representative in Vietnam, says. “We actively look for opportunities along these general themes. Overall, our sentiment towards the investment environment in Vietnam remains positive.” That bullishness is partially in recognition of how far the country has moved away from its founding collectivist ideals. On April 30, 1975, a North Vietnamese tank rammed through the gates of the presidential palace in Saigon, an act symbolizing the control of the country by communist forces. Boat People In the chaotic years that followed, about one million Vietnamese abandoned the country by foot or took to the South China Sea for a precarious journey to freedom, according to the United Nations. During the next decade, the brain drain contributed to Vietnam’s economic isolation. In 1986, Pham Van Dong , the first prime minister of the Socialist Republic of Vietnam, introduced limited private ownership of companies. The Doi Moi (Vietnamese for renovation) program cut state subsidies, lifted price controls and eventually opened the door to foreign investment. Eight years later, U.S. President Bill Clinton lifted the U.S. trade embargo against Vietnam and in 2000 became the first American leader to visit Vietnam since the war ended. As Western investment came to Vietnam, per capita income almost tripled to $1,042 in 2008 from $375 in 1999, allowing millions of Vietnamese to afford some of the motorcycles, home appliances and clothing produced in local factories for global consumers. Viet Kieu Normal relations with the West and Vietnam’s entry into the World Trade Organization lured many Viet Kieu, or overseas Vietnamese, back to their homeland. Trung Dung , an Internet entrepreneur, returned to Ho Chi Minh City in 2006, 22 years after he abandoned the country in a boat. Dung, 43, says he was impressed by a bustling city in which countless scooters and motorcycles jostle for space alongside bicycles and rickshaws as eager young people work hard to realize their dreams. “It was chaotic,” Dung says. “It felt like the Silicon Valley of 1995.” Using some of the money he made from selling his San Ramon, California-based electronic commerce firm OnDisplay Inc. in 2000, Dung founded MobiVi Co., a similar venture. Today, MobiVi is helping transportation companies, merchants and banks settle payments electronically. Local Lessons Dung says there’s plenty of growth ahead in a country where fewer than 1 percent of the people hold credit cards and only 1 person in 10 has a bank account. “What I learned is that it doesn’t matter how smart you are,” Dung says. “It takes time to understand the local market.” On the ground floor of MobiVi’s office block, there’s a Highlands Coffee outlet. The cafe chain, often referred to as Vietnam’s Starbucks, was established in 2002 by David Thai , a former refugee who was raised in Seattle. Thai’s cafes cater to a high-end clientele that can afford Western prices: A small latte costs 44,000 dong, or about $2.25, the equivalent of a beef noodle soup dinner for two. The 80 Highlands outlets are equipped with air conditioners, flat- screen TVs and Wi-Fi connections. In January, Thai spent more than $2 million to open Vietnam’s first Hard Rock Cafe in Ho Chi Minh City. Growth Story “Vietnam is the most dynamic consumer growth story within the Asia region,” says Thai, who predicts that the country’s retail market will grow as much as 30 percent annually in the five years to 2015. “It doesn’t have the same population as China and India, but it’s not crowded in terms of competition.” Outside the country’s two main cities, though, Vietnam’s economy is slowly making a transition from rural subsistence. Agricultural and forestry work still accounts for about half of all jobs in Vietnam, employing 22 million people as of July 2008, according to figures from the General Statistics Office of Vietnam. From 2000 to 2008, manufacturing jobs doubled to 6.3 million, making up 14 percent of the workforce. Intel Corp . is scheduled to open a $1 billion factory in Ho Chi Minh City this year, while General Electric Co. has a $61 million power generation component plant under construction. Samsung Electronics Co., the world’s second-largest mobile- phone maker, opened a $670 million handset factory near Hanoi in October, 14 years after it started a television manufacturing plant in Ho Chi Minh City that helped establish the company as Vietnam’s No. 1 TV producer. Microsoft Corp. outsources digital animation and modeling for its computer games to Vietnam. License Threat In September, the government said it might revoke the license for a high-profile tungsten mining project owned by Dragon Capital Group in Ho Chi Minh City because the facility failed to start production on schedule. A Dragon Capital fund acquired a controlling stake in the mine owned by Toronto-based Tiberon Minerals Ltd. for C$251 million ($247 million) in 2006, with two state-controlled partners holding the remainder. “We are currently working with all stakeholders to ensure the project is swiftly put back on track and toward construction and operations,” says Dominic Scriven , CEO at Dragon Capital. Foreign companies also encounter institutional corruption in Vietnam, according to Berlin-based Transparency International , an advocacy group that monitors business conditions. Its Corruption Perceptions Index, which rates executives’ views on the integrity of global business environments, ranked Vietnam 120th out of 180 nations in 2009, behind China, Thailand and Indonesia. Bribery, Bureaucracy “Bribery is illegal but commonplace,” wrote Transparency International in its study of Vietnam in 2006, its most recent full report on the country. “Despite nearly two decades of reform, bureaucracy and red tape characterize large parts of social and business life, and having the right connections –and money — are crucial to getting things done.” Henry Nguyen , managing partner of IDG Ventures Vietnam in Ho Chi Minh City, is one of the entrepreneurs hoping to profit from Vietnam’s emerging middle class. His company’s $100 million fund is nurturing some 40 technology, media, telecommunications and gaming companies with a typical investment horizon of 10 years for each holding. A black-and-white photograph of Ho Chi Minh — the communist guerrilla leader referred to as “Uncle Ho” by the Vietnamese — playing pool overlooks IDG Ventures’ conference room, while another wall features the logos of the 39 companies that the fund supports. Vietnam’s Googles The names include those of VinaGame, Vietnam’s biggest online game company, and Vietnamese-language search engine company Socbay.com. “These companies will become the Googles of Vietnam in the next five years,” says Nguyen, 37, who is married to Nguyen Thanh Phuong , a daughter of Prime Minister Dung. She is currently chairwoman of Viet Capital Fund Management, a Ho Chi Minh City-based asset manager. Socbay.com owner Naiscorp Information Technology Service Joint-Stock Co. last year rejected Google’s offer to buy Socbay, according to Naiscorp CEO Nguyen Xuan Tai. “Google’s offers were attractive but didn’t reach our investment goals,” he says. “Besides, we really want Vietnam to have core technologies owned by Vietnamese people.” A Singapore-based Google spokesperson declined to comment. Duc, the tycoon with a private plane, started in business by making wooden school desks and selling them door-to-door in Ho Chi Minh City in 1993. Eventually, he began buying land in the capital and nearby Danang in anticipation of a construction boom. Diversification Since 2006, his flagship Hoang Anh Gia Lai — named after his daughter — has been diversifying into rubber plantations, hydropower and mining in neighboring Cambodia, Laos, Myanmar and Thailand. Duc also owns the 23-story HAGL Plaza Hotel in Danang, which offers a bird’s-eye view of the city. His property developments have attracted foreign investors such as Korea Investment Trust Management Co. “We thought Duc’s strategy to supply affordable high-end apartment buildings for Vietnam’s burgeoning middle class was pretty smart,” says Bae Seung Kwon , Ho Chi Minh City-based head of Vietnam equity at Korea Investment, which manages $800 million in Vietnamese stocks. Korea Investment is one of the biggest shareholders of Duc’s property company, with a 2.6 percent stake as of mid- March. Duc himself has become a symbol of Vietnam’s emerging class of Western-style entrepreneurs. When he bought the plane, there was no luxury-goods tax on such purchases. He has since ordered an $18 million Embraer Legacy 500 jet from Brazil’s Empresa Brasileira de Aeronautica SA that will be delivered in 2012. This time, Duc will have to pay a $5.4 million new levy on the deal. “They had to set the tax level for private jets after I bought the jet,” he says with a smile. With that, Duc departs for the war-era Rex Hotel in central Ho Chi Minh City, where Vietnam’s highest-profile capitalist keeps a suite in the building that was used as a U.S. military press center during the American fight against communism. To contact the reporter on this story: Yoolim Lee in Singapore at yoolim@bloomberg.net ; Beth Thomas in Hanoi at bthomas1@bloomberg.net

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Vietnam Fails to Replicate China as Overseas Investors Sour on Volatility

March 25, 2010

By Yoolim Lee and Beth Thomas March 25 (Bloomberg) — Nguyen Thanh Trung brings Vietnam’s only privately owned plane level at 24,000 feet (7,315 meters) over the Central Highlands towns of Pleiku and Dalat before swinging right and bringing the eight-seat Beechcraft King Air 350 in for a smooth landing at Ho Chi Minh City airport. Trung is familiar with the landscape: Thirty-five years ago he was a Viet Cong agent and fighter pilot who recalls dropping two bombs on the headquarters of the American-aligned southern regime in the city then known as Saigon, one of the last skirmishes before the end of his country’s civil war. Today, Trung, 62, is on a mission that symbolizes his country’s transformation: He’s the personal pilot for Doan Nguyen Duc , an entrepreneur who is one of Vietnam’s richest men, Bloomberg Markets reports in its May issue. Duc, 46, estimates that his empire, which includes Hoang Anh Gia Lai Joint-Stock Co., Vietnam’s biggest listed property company, gave him a personal wealth of 28.4 trillion dong ($1.48 billion) at the end of 2009. “Duc owning a private jet is very good for Vietnam’s economy; it shows that Vietnamese people can also be successful like businessmen in other countries,” Trung says. “This is a time for dynamic entrepreneurs.” Foreign investors in Vietnam — a land that beckoned outsiders with great fanfare in the 1990s — are having a bumpier ride than Duc and his pilot. Roller Coaster Indochina Capital Advisors Ltd. last year decided to liquidate a London-listed Vietnam equity fund that had lost 50 percent of its value. In November, San Francisco-based hedge fund company Passport Capital LLC demanded the return of uninvested cash from a fund that bought Vietnamese and Cambodian property. The Ho Chi Minh City Stock Exchange’s benchmark VN Index , Asia’s best performer in 2006, plunged 66 percent in 2008 as inflation followed by global recession destroyed confidence in Vietnamese investments. The index rose 57 percent in 2009. It’s up 3.5 percent this year to March 24. Investors who still have the stomach to stay in Vietnam are quietly bullish. It’s still possible to make money in this land of 86 million people provided you’re willing to do homework, find the right opportunities and ignore the market froth, says Mark Mobius , chairman of Templeton Asset Management Ltd., which had $24 million of investments in the country as of February. ‘Real Value’ “Investors should see the real value of specific investments without being driven by pure sentiment,” Mobius says. “The private sector continues to grow and has become more important to the development of the economy.” That new realism follows a decade of unbridled enthusiasm for Vietnam. After the shift to a more market-oriented economy in 1986, foreign direct investment commitments in Vietnam went from zero to a peak of $60.3 billion in 2008, almost three times Vietnam’s foreign exchange reserves at the end of 2008. Gross domestic product expanded at an average annual rate of 7.2 percent from 2000 to 2009, making Vietnam the fastest- growing economy in Asia after China and Cambodia, according to figures from the International Monetary Fund. The government forecasts GDP growth of 6.5 percent for 2010. “Vietnam was viewed as the final frontier of Asia,” says Son Nam Nguyen , managing partner of Vietnam Capital Partners, who advised global investors on more than $30 billion in financing as the former head of Citigroup Inc.’s investment bank in Vietnam. “No one wanted to miss out on the next China.” Inflation Peak Instead, investors bought into a bubble as higher prices for commodities drove up the cost of living. Inflation peaked at 28.3 percent in August 2008. The central bank raised interest rates three times in 2008 to 14 percent to slow inflation. Some investors grew tired of the roller coaster. Shareholders of the Indochina Capital Vietnam equity fund in September voted to shut it down after its net asset value had plunged to $243 million by June 30, 2009, from an original value of $500 million in March 2007. Passport Capital, which held a 13 percent stake in property fund JSM Indochina Capital Ltd., won shareholders’ backing to replace three of the London-listed fund’s directors and begin the return of uninvested cash. From its inception in June 2007, JSM Indochina, listed on London’s Alternative Investment Market, had fallen 70 percent on Nov. 18, 2008. It was down 29 percent at the end of October 2009, when Passport called for shareholder action. Bill Nolan, managing director of sales and marketing at Passport Capital, declined to comment through a spokeswoman. Lost Confidence “Historically, because of bad experiences with inflation and currency depreciation, people are very quick to lose confidence,” says Manu Bhaskaran , a Singapore-based partner and head of economic research at Centennial Group Holdings, which provides advice on emerging markets. “The global financial system still has a risk of new shocks, and in that kind of context, countries like Vietnam are vulnerable.” The volatility may slow Vietnam’s development as an equity market. Since Prime Minister Nguyen Tan Dung came to power in July 2006, the total number of companies listed on Vietnam’s two stock exchanges has increased more than 11-fold to 486 as of March 24 from 43. Privatization Stalled While Dung, 60, has said he welcomes more investment, he has yet to deliver on promises to privatize major state-owned companies, including Vietnam Airlines Corp. Foreign investors, which are limited to 30 percent holdings in local banks, have won some gains when setting up new businesses: In September 2008, HSBC Holdings Plc and Standard Chartered Plc won approval to operate wholly owned units in Vietnam, the first of five such licenses. Foreign investors can find themselves at sea in the local culture, says Don Lam , chief executive officer and a founding partner of VinaCapital Group. Lam, who was born in southern Vietnam but grew up in Canada, says his Vietnamese managers typically spend 18 months to build relationships with owners before striking any partnership. “About 80 percent of my deals, when they close, it’s over dinner,” he says. “That’s why it’s so important to have a senior Vietnamese team to negotiate without interpreters.” Lam — who purposely doesn’t use dye on his gray hair and sometimes wears rimless eyeglasses to appear older than his 42 years — says he shuns business lunches, since many Vietnamese nap in the afternoons. VinaCapital Fund VinaCapital’s $774 million Vietnam Opportunity Fund has invested in companies that focus on consumers, including Vietnam Dairy Products Joint-Stock Co., the country’s third-biggest stock by market value; Kinh Do Corp., the nation’s No. 1 candy maker; and Vietnam Export-Import Commercial Joint-Stock Bank. The firm had $1.7 billion invested in Vietnam as of mid-March compared with $10 million in 2003. Gerard Lee , CEO of Fullerton Fund Management Co., the Asian fund management unit of Singapore’s Temasek Holdings Pte, is one of several investors who say Vietnam, with its political stability, ready pool of cheap labor and years of economic growth, reminds them of the superpower to the north. “Vietnam has a lot of the characteristics of China,” Lee says. “So it’s good to do all the heavy lifting and homework in Vietnam, because we believe we will be richly rewarded in years to come.” Fullerton’s $30 million Vietnam Fund , which primarily invests in local equities, lost 30.4 percent from its inception in April 2007. In the 12 months to March 23, the fund is up 58 percent, according to data compiled by Bloomberg. Temasek in Vietnam Since opening its first representative office in Vietnam in 2005, Temasek — which doesn’t disclose the value of its Vietnam portfolio — has invested in the country through its holdings in Minh Phu Seafood Joint-Stock Co., transportation company Vietnam Sun Corp . and Kinh Do , according to stock exchange filings. “Vietnam fits well with our overall themes of investing in transforming economies and the growing middle income group,” Derek Lau , Temasek’s chief representative in Vietnam, says. “We actively look for opportunities along these general themes. Overall, our sentiment towards the investment environment in Vietnam remains positive.” That bullishness is partially in recognition of how far the country has moved away from its founding collectivist ideals. On April 30, 1975, a North Vietnamese tank rammed through the gates of the presidential palace in Saigon, an act symbolizing the control of the country by communist forces. Boat People In the chaotic years that followed, about one million Vietnamese abandoned the country by foot or took to the South China Sea for a precarious journey to freedom, according to the United Nations. During the next decade, the brain drain contributed to Vietnam’s economic isolation. In 1986, Pham Van Dong , the first prime minister of the Socialist Republic of Vietnam, introduced limited private ownership of companies. The Doi Moi (Vietnamese for renovation) program cut state subsidies, lifted price controls and eventually opened the door to foreign investment. Eight years later, U.S. President Bill Clinton lifted the U.S. trade embargo against Vietnam and in 2000 became the first American leader to visit Vietnam since the war ended. As Western investment came to Vietnam, per capita income almost tripled to $1,042 in 2008 from $375 in 1999, allowing millions of Vietnamese to afford some of the motorcycles, home appliances and clothing produced in local factories for global consumers. Viet Kieu Normal relations with the West and Vietnam’s entry into the World Trade Organization lured many Viet Kieu, or overseas Vietnamese, back to their homeland. Trung Dung , an Internet entrepreneur, returned to Ho Chi Minh City in 2006, 22 years after he abandoned the country in a boat. Dung, 43, says he was impressed by a bustling city in which countless scooters and motorcycles jostle for space alongside bicycles and rickshaws as eager young people work hard to realize their dreams. “It was chaotic,” Dung says. “It felt like the Silicon Valley of 1995.” Using some of the money he made from selling his San Ramon, California-based electronic commerce firm OnDisplay Inc. in 2000, Dung founded MobiVi Co., a similar venture. Today, MobiVi is helping transportation companies, merchants and banks settle payments electronically. Local Lessons Dung says there’s plenty of growth ahead in a country where fewer than 1 percent of the people hold credit cards and only 1 person in 10 has a bank account. “What I learned is that it doesn’t matter how smart you are,” Dung says. “It takes time to understand the local market.” On the ground floor of MobiVi’s office block, there’s a Highlands Coffee outlet. The cafe chain, often referred to as Vietnam’s Starbucks, was established in 2002 by David Thai , a former refugee who was raised in Seattle. Thai’s cafes cater to a high-end clientele that can afford Western prices: A small latte costs 44,000 dong, or about $2.25, the equivalent of a beef noodle soup dinner for two. The 80 Highlands outlets are equipped with air conditioners, flat- screen TVs and Wi-Fi connections. In January, Thai spent more than $2 million to open Vietnam’s first Hard Rock Cafe in Ho Chi Minh City. Growth Story “Vietnam is the most dynamic consumer growth story within the Asia region,” says Thai, who predicts that the country’s retail market will grow as much as 30 percent annually in the five years to 2015. “It doesn’t have the same population as China and India, but it’s not crowded in terms of competition.” Outside the country’s two main cities, though, Vietnam’s economy is slowly making a transition from rural subsistence. Agricultural and forestry work still accounts for about half of all jobs in Vietnam, employing 22 million people as of July 2008, according to figures from the General Statistics Office of Vietnam. From 2000 to 2008, manufacturing jobs doubled to 6.3 million, making up 14 percent of the workforce. Intel Corp . is scheduled to open a $1 billion factory in Ho Chi Minh City this year, while General Electric Co. has a $61 million power generation component plant under construction. Samsung Electronics Co., the world’s second-largest mobile- phone maker, opened a $670 million handset factory near Hanoi in October, 14 years after it started a television manufacturing plant in Ho Chi Minh City that helped establish the company as Vietnam’s No. 1 TV producer. Microsoft Corp. outsources digital animation and modeling for its computer games to Vietnam. License Threat In September, the government said it might revoke the license for a high-profile tungsten mining project owned by Dragon Capital Group in Ho Chi Minh City because the facility failed to start production on schedule. A Dragon Capital fund acquired a controlling stake in the mine owned by Toronto-based Tiberon Minerals Ltd. for C$251 million ($247 million) in 2006, with two state-controlled partners holding the remainder. “We are currently working with all stakeholders to ensure the project is swiftly put back on track and toward construction and operations,” says Dominic Scriven , CEO at Dragon Capital. Foreign companies also encounter institutional corruption in Vietnam, according to Berlin-based Transparency International , an advocacy group that monitors business conditions. Its Corruption Perceptions Index, which rates executives’ views on the integrity of global business environments, ranked Vietnam 120th out of 180 nations in 2009, behind China, Thailand and Indonesia. Bribery, Bureaucracy “Bribery is illegal but commonplace,” wrote Transparency International in its study of Vietnam in 2006, its most recent full report on the country. “Despite nearly two decades of reform, bureaucracy and red tape characterize large parts of social and business life, and having the right connections –and money — are crucial to getting things done.” Henry Nguyen , managing partner of IDG Ventures Vietnam in Ho Chi Minh City, is one of the entrepreneurs hoping to profit from Vietnam’s emerging middle class. His company’s $100 million fund is nurturing some 40 technology, media, telecommunications and gaming companies with a typical investment horizon of 10 years for each holding. A black-and-white photograph of Ho Chi Minh — the communist guerrilla leader referred to as “Uncle Ho” by the Vietnamese — playing pool overlooks IDG Ventures’ conference room, while another wall features the logos of the 39 companies that the fund supports. Vietnam’s Googles The names include those of VinaGame, Vietnam’s biggest online game company, and Vietnamese-language search engine company Socbay.com. “These companies will become the Googles of Vietnam in the next five years,” says Nguyen, 37, who is married to Nguyen Thanh Phuong , a daughter of Prime Minister Dung. She is currently chairwoman of Viet Capital Fund Management, a Ho Chi Minh City-based asset manager. Socbay.com owner Naiscorp Information Technology Service Joint-Stock Co. last year rejected Google’s offer to buy Socbay, according to Naiscorp CEO Nguyen Xuan Tai. “Google’s offers were attractive but didn’t reach our investment goals,” he says. “Besides, we really want Vietnam to have core technologies owned by Vietnamese people.” A Singapore-based Google spokesperson declined to comment. Duc, the tycoon with a private plane, started in business by making wooden school desks and selling them door-to-door in Ho Chi Minh City in 1993. Eventually, he began buying land in the capital and nearby Danang in anticipation of a construction boom. Diversification Since 2006, his flagship Hoang Anh Gia Lai — named after his daughter — has been diversifying into rubber plantations, hydropower and mining in neighboring Cambodia, Laos, Myanmar and Thailand. Duc also owns the 23-story HAGL Plaza Hotel in Danang, which offers a bird’s-eye view of the city. His property developments have attracted foreign investors such as Korea Investment Trust Management Co. “We thought Duc’s strategy to supply affordable high-end apartment buildings for Vietnam’s burgeoning middle class was pretty smart,” says Bae Seung Kwon , Ho Chi Minh City-based head of Vietnam equity at Korea Investment, which manages $800 million in Vietnamese stocks. Korea Investment is one of the biggest shareholders of Duc’s property company, with a 2.6 percent stake as of mid- March. Duc himself has become a symbol of Vietnam’s emerging class of Western-style entrepreneurs. When he bought the plane, there was no luxury-goods tax on such purchases. He has since ordered an $18 million Embraer Legacy 500 jet from Brazil’s Empresa Brasileira de Aeronautica SA that will be delivered in 2012. This time, Duc will have to pay a $5.4 million new levy on the deal. “They had to set the tax level for private jets after I bought the jet,” he says with a smile. With that, Duc departs for the war-era Rex Hotel in central Ho Chi Minh City, where Vietnam’s highest-profile capitalist keeps a suite in the building that was used as a U.S. military press center during the American fight against communism. To contact the reporter on this story: Yoolim Lee in Singapore at yoolim@bloomberg.net ; Beth Thomas in Hanoi at bthomas1@bloomberg.net

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Google’s Retreat Reminds Companies Asia Strategy Is More Than Just China

March 23, 2010

By Frederik Balfour March 23 (Bloomberg) — Google Inc. ’s retreat from China, where U.S. executives say the business climate is becoming less welcoming, may hasten moves by foreign companies to look beyond the world’s fastest-growing major economy for expansion in Asia. Google rerouted its Chinese Web site and today began directing traffic to Hong Kong, fulfilling a pledge to stop censoring searches as required by China. The move follows an American Chamber of Commerce report released in Beijing yesterday that said some U.S. businesses are losing Chinese sales because of rules to support home-grown technology. While China still “is the biggest game in town,” more recently “I see a lot of U.S. companies looking for alternatives,” Susan Schwab , U.S. Trade Representative between 2006 and 2009, said in an interview in Hong Kong last week. General Electric Co. , L’Oreal and New Balance are among companies with longstanding operations in China that are expanding in countries such as Vietnam and Indonesia. Asia’s emerging markets outside China are home to more than 2 billion people and have growth rates that are gaining on the world’s most populous country. Rising costs in China are increasing the need to diversify. VF Corp. , the owner of North Face outdoor apparel and Lee and Wrangler jeans, decided to “push our sourcing strategies and vendors outside China,” said Thomas Nelson, vice president of global product procurement. Indonesia now accounts for 8 percent of the Greensboro, North Carolina-based company’s $2 billion of global sourcing, double the amount three years ago, he said. ‘China-Plus-Two’ Cuts in tax rebates for exporters, accelerating inflation, stricter labor laws, a shortage of workers in coastal manufacturing hubs and assumptions that China’s currency will appreciate, making exports more expensive, are all adding incentives for companies to look elsewhere. “A China-plus-one, or China-plus-two strategy is definitely an essential component of any large brand-buying operation due to rising labor costs and shortages in China,” said Judith Mackay, Asia apparel and license compliance manager at New Balance. The closely held Boston, Massachusetts-based maker of athletic shoes, plans to find sub-contractors in Indonesia to augment four plants in China and one in Vietnam. Indonesia was Asia’s third-fastest growing economy after China and India last year, and with 248 million people, is the world’s fourth-largest population. Vietnam, with 90 million people, had the region’s fourth-fastest pace of growth. Ford, GE Ford Motor Co. Chief Executive Officer Alan Mulally said March 18 it’s “absolutely” important not to focus solely on China and to pursue growth in Asian countries. Ford has invested $1 billion in Thailand in a venture with Mazda Motor Corp. and on March 10 launched its first made-for-India model, the Figo, as part of an $840 million investment there. GE’s energy arm sees “huge” potential in selling equipment to producers of geothermal power in Indonesia, the company’s Kuala Lumpur-based Southeast Asian president Stuart Dean said in a phone interview. GE’s $61 million wind-turbine plant in Haiphong, Vietnam, is set to open this year as is Intel Corp.’s $1 billion chip test and assembly plant in Ho Chi Minh City. French cosmetics maker L’Oreal is spending $50 million to expand its Jakarta manufacturing facility to produce mass market cosmetics under its Garnier and L’Oreal Paris brands. Google, based in Mountain View, California, has less to lose in China than many multinational companies. Google derives about $600 million, or 2.5 percent of sales in China, compared with $10.7 billion , or 24 percent, for Melbourne-based Rio Tinto Group, the world’s third-largest mining company. Four Rio executives went on trial in Shanghai this week charged with accepting bribes. Cyber Attacks Google said Jan. 12 that it was the subject of a cyber attack originating in China. Hackers stole intellectual property from Google and targeted e-mail accounts of human-rights activists, it said. Facebook Inc., which last week overtook Google as the most visited Internet site in the U.S., has avoided a misstep in China, where its site is blocked. The social networking company last week said it would open its first Asian operations center in Hyderabad. Google also has a hub in the southern Indian city. The company controls 88 percent of the market for Web searches in India, a country of 1.2 billion people where the economy has expanded at an average pace of 8.5 percent in the past five years, compared with China’s 9.8 percent. Chinese Rules Chinese government rules to encourage home-grown technology are causing companies to cry foul, the American Chamber of Commerce said. Three ministries posted a notice in November requiring sellers of everything from computer software to office equipment to accredit their products for inclusion among companies offering equipment with “indigenous innovation” to the Chinese government. Twenty-eight percent of 203 members responding to the chamber’s survey said they are losing business because of the policy. Foreign companies are concerned the rules may extend beyond the 599 billion yuan ($87.8 billion) government- procurement market to orders from state-owned enterprises, which last year had combined revenue of 22.5 trillion yuan. “Many foreign companies are starting to believe that the future China business opportunity is shrinking,” said James McGregor , a senior counselor in Beijing at APCO Worldwide, a public affairs company. To contact the reporter on this story: Frederik Balfour in Hong Kong at fbalfour@bloomberg.net

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Aron Cramer: Google and China: When Should Business Leave on Human Rights Grounds?

March 22, 2010

With Google’s decision today to shut down its Chinese-based search engine, google.cn, the company has won considerable praise from organizations concerned about its human rights record. This approval stands in stark contrast to the condemnation the company received when first entering the country in 2006. The Financial Times cartoonist Ingram Pinn captured these contrasting perspectives perfectly, depicting Google as the speech-suppressing “Great Firewall of China” in 2006, then casting the company as the lone protestor stopping the tanks in their tracks in 2010. Google’s decision again raises a question of serious interest to business, the public, and governments: When is it right to cut ties and leave a country on human rights grounds? Leaving often seems like the clear-cut ethical winner in this debate. There often is, however, a case for companies to stay, provided there is a commitment to making a positive impact on human rights. Leaving may look and feel great to those of us in the West, but exiting a market may not always have the desired impact. Consider the case of the consumer electronics companies. They are increasingly under fire about whether the metals they source from the Democratic Republic of Congo (DRC)–tin, tantalum, and tungsten–may be helping fund the purchase of weapons that fuel violence and human rights abuses in one of the world’s toughest conflict zones. There is a consensus that “conflict minerals” should be eliminated from the electronics industry, and the tempting next step is to cut out all minerals sourced from the DRC. But that decision isn’t as simple as it may seem: Because end buyers purchase from refiners that often combine ore from multiple sources, traceability remains a problem, and it might not even be practical to “leave” the country. By contrast, what if companies were to leverage their purchasing power to drive positive change in the DRC? Perhaps there is a role for business to bring “development-oriented metals” to market by identifying specific mines where the benefits of mining are shared locally and production upholds human rights. As an alternative to leaving, companies could also explore diplomatic channels to encourage a sustainable trade in minerals in the DRC and the surrounding region. GE is taking a related approach in China and Vietnam, where the issues are very different than those in the DRC. Among the company’s top corporate responsibility priorities is “rule of law.” GE’s leadership believes that effective government in emerging markets is critical for both business success and human rights, and the company therefore works with government and civil society to establish transparent legal systems, encourage open law-drafting processes, and develop well-trained judges and lawyers. For example, GE attorneys teach classes at law schools in both countries, and the company’s foundation also invests in rule-of-law initiatives by providing grants such as one in China to an organization focused on commercial law, intellectual property rights protection, and citizens’ rights, and another in Vietnam to a program that aims to strengthen courts and enhance legal transparency. One might conclude that the comparisons between countries don’t work, because all situations are different. In fact, that is exactly the point: When it comes to determining whether a company’s decision to enter or exit a market is good or bad for human rights, there’s no one-size-fits-all rule, and the ethics of the decision will vary considerably with the context. As such, “are you in or are you out” may be the wrong question. No company automatically advances human rights by leaving a country, and, likewise, no company automatically improves the situation by staying. In all but the worst cases, it’s how business participates in challenging markets that is the ultimate test. Does the company have a clear understanding of how its products, services, and market presence will impact human rights? Has the company identified its most significant human rights risks, and does it understand how to mitigate them? Is it working with sympathetic government partners to advance human rights? Let’s also remember the opinions of the people these decisions are designed to support: the local population. Many companies left South Africa and Burma because democratically legitimized local movements called for mass divestments, which is not the case in China today. We don’t know yet whether Google’s decision, which essentially takes them out of the search business in China, will increase freedom of expression, privacy, and security. Some argue that the company should distance itself from censorship by leaving; others argue that the company should stay with a search engine that filters less (and more transparently) than the local competition. Whatever one’s opinion, the fact that an increasing number of companies are weighing these decisions demonstrates that human rights considerations are reaching senior leaders in business like never before. The time has come for us to applaud those companies that seek to integrate human rights into their decision-making, to criticize those that don’t — and to be open to the fact that this could mean praising both companies that seek to make an impact by staying in difficult markets as well as those that decide to leave. Aron Cramer is President and CEO of BSR, a global business network and consultancy focused on sustainability, and the coauthor of the forthcoming book Sustainable Excellence (Rodale 2010). Dunstan Allison Hope is BSR’s Managing Director, ICT Practice, and the coauthor of the forthcoming book Big Business, Big Responsibilities (Palgrave Macmillan 2010).

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Shell, PetroChina Win Arrow With $3.2 Billion Offer, Adding Coal-Seam Gas

March 21, 2010

By Ben Sharples March 22 (Bloomberg) — Royal Dutch Shell Plc and PetroChina Co. agreed to acquire Arrow Energy Ltd. after raising their offer to A$3.5 billion ($3.2 billion), gaining access to the reserves of the Australian coal-seam gas producer. Shell and PetroChina will pay A$4.70 a share for Arrow’s Australian business, the Brisbane-based company said in a statement today. The bid is 5.6 percent more than a A$4.45 offer made March 8. Arrow investors will also get stock in Dart Energy Ltd., a new company housing its international assets, which may be worth as much as A$400 million, according to analysts. Shell and PetroChina join BG Plc and Malaysia’s Petroliam Nasional Bhd. in snapping up coal-seam gas assets in Queensland to feed planned liquefied natural gas projects. The deal is the biggest since ConocoPhillips paid $5 billion for a stake in Origin Energy Ltd’s gas assets in 2008. Still, Shell and PetroChina are paying less for Arrow’s gas reserves than similar deals in the past, according to John Young , an analyst at Wilson HTM Investment Group in Melbourne. “I’m a little disappointed,” Young said today by telephone. “I thought the assets were worth more than that. If one looks at it on a comparative reserves multiple basis it’s not a particularly full price.” Arrow shares slipped as much as 21 cents, or 4 percent, to A$5.08 in Sydney and were trading at $5.11 at 11:26 a.m. local time, having climbed 52 percent to a record A$5.29 since the takeover offer as investors bet PetroChina and Shell would sweeten their initial A$3.26 billion bid. PetroChina Loan PetroChina’s parent, China National Petroleum Corp, got a discounted $30 billion loan last year to fund overseas expansion as the country steps up its hunt for resources. The Arrow deal gives Shell reserves to feed its Curtis Island liquefied natural gas project, one of more than a dozen planned LNG ventures in Australia aimed at tapping rising Asian demand. “Australia is becoming more of a regional focus” for Shell, Nik Burns , a Melbourne-based analyst for RBS Morgans, said by phone March 19. “It’s going to be one of their key growth areas, and the company as a whole is looking to move more upstream and move away from their downstream side.” Coal-seam gas is mostly methane found on the surface of coal. The gas can be extracted when pressure on the seams is reduced, usually by removing water. LNG is natural gas chilled to liquid form for transport by ship to destinations not connected by pipeline. Higher Bid? Shell and PetroChina would have had to bid A$6.10 a share for Arrow if the gas reserves were valued at the same price as BG paid for Queensland Gas Co. in 2008, Young said. “Shell and PetroChina are gaining control of the company and there is no significant premium being paid to the value for the minority interests,” he said. Buying Arrow would give Shell gas to feed multiple LNG production units. Shell plans an LNG project on Curtis Island off the central Queensland coast that is expected to produce as much as 16 million metric tons of LNG a year and have four processing units, the company said in a document lodged with the state government last year. Arrow has said that its added reserves may help feed Shell’s LNG venture. Arrow has agreed to acquire 100 percent of the A$2.2 billion Fisherman’s Landing project in Queensland, one of more than a dozen proposed LNG ventures in Australia aiming to tap rising demand for the cleaner-burning fuel. Arrow said last month it’s considering selling a stake and taking on debt or offering shares to help finance the Fisherman’s Landing project. International Business The company’s international business is worth about A$400 million, or 55 Australian cents a share, RBS Morgans’ Burns said. That means the initial A$4.45-a-share offer for Arrow, excluding its international business, valued the entire company at A$5 a share, he said. The unit is drilling in India, China, Indonesia and Vietnam, and Arrow aims to boost gas production tenfold by 2015. As much as 20 percent of that division may be offered in a share sale in the second half of 2010, Arrow said Feb. 17. Arrow said Aug. 13 that talks with companies about its coal-seam gas assets included discussions of a possible takeover, but that it hadn’t received an offer. Speculation of an offer contributed to a 55 percent rise in Arrow’s shares last year. Shell, which has a 30 percent stake in Arrow’s coal-seam gas holdings in Queensland and a 10 percent interest in its international unit, made a A$3 billion offer for Arrow last year, with talks ending in stalemate, London’s Sunday Telegraph reported in August. Queensland’s government is expecting as much as A$50 billion of investment in the state’s coal-seam gas resources as companies including U.K.-based BG Group and ConocoPhillips vie to export the fuel to Asia. To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net

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Panasonic Profit May Be Boosted More Than $885 Million by Sanyo Purchase

March 17, 2010

By Mariko Yasu and Maki Shiraki March 17 (Bloomberg) — Panasonic Corp. , which acquired a controlling stake in battery maker Sanyo Electric Co. in December, may boost annual profit by more than 80 billion yen ($885 million) in three years by merging operations. “Toward the end of this month, we’ll gather the sort of benefits we’ll generate by the merger,” Hitoshi Otsuki , a senior managing director in charge of Panasonic’s overseas operations, said in an interview in Tokyo yesterday. For the year ending March 2013 “80 billion yen is our target officially and we will definitely achieve it,” he said, adding it’s “definitely possible” to aim for a higher amount. Sanyo’s solar batteries, strong presence in Vietnam and close relationship with Wal-Mart Stores Inc. , the world’s largest retailer, will likely help Panasonic beat its original target, Otsuki said. The world’s largest maker of plasma televisions made its biggest acquisition last December, paying 403.8 billion yen for 50.2 percent of Sanyo , the No. 1 manufacturer of lithium-ion rechargeable batteries. “Panasonic hasn’t disclosed details of the synergy plan,” Kazuharu Miura , an analyst at Daiwa Securities Capital Markets Co. in Tokyo, said by phone today. “I’m waiting to see how each of the company’s businesses will benefit from the acquisition and how much the overall profit will expand.” The purchase will likely boost Panasonic’s operating profit, or sales minus the cost of goods sold and administrative expenses, by 80 billion yen in the 12 months ending March 2013, the company said December 2008 when it first disclosed the purchase plan. May Sell Assets The two companies aren’t discussing additional job cuts and may sell some of their assets as they consolidate operations, Otsuki said. Panasonic has no plan to make Sanyo a wholly owned unit, he said. Panasonic rose 1.7 percent to close at 1,343 yen in Tokyo trading. Japan’s benchmark Nikkei 225 Stock Average gained 1.2 percent. Last month, Osaka-based Panasonic raised its operating profit forecast by 25 percent, as cuts in fixed and material costs lead to a recovery in earnings from consumer electronics and appliances. Operating profit will probably reach 150 billion yen in the year ending March 31, compared with an earlier forecast of 120 billion yen, Panasonic said Feb. 5. Sales may total 7.35 trillion yen, 5 percent more than previously projected. Analysts expect the company to post a net income of 115 billion yen in the year starting April 1, from a loss of 130 billion yen, according to the median of 19 estimates compiled by Bloomberg. To contact the reporter on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net .

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Philippines May Keep Benchmark Rate at 4%, Unwind More Stimulus Measures

March 9, 2010

By Karl Lester M. Yap and Michael Munoz March 10 (Bloomberg) — The Philippine central bank will probably keep borrowing costs at a record low to support the country’s recovery even as it prepares to drain excess cash from the economy. Bangko Sentral ng Pilipinas will keep its benchmark interest rate at 4 percent for a sixth straight meeting tomorrow, according to all 15 economists surveyed by Bloomberg News. Policy makers will consider measures including reducing the budget for the so-called rediscounting window, a facility that allows lenders to borrow from the central bank, Deputy Governor Diwa Guinigundo said this week. “The central bank cannot raise interest rates because recovery is still nascent and needs to be nurtured,” said Marcelo Ayes , a senior vice president at Rizal Commercial Banking Corp. in Manila. “But they have to show they are on top of inflation and may decide to cut the rediscounting budget.” Asian nations from China to Malaysia have started pulling back monetary stimulus as growth accelerates and inflation returns. Bangko Sentral raised the interest rate for the rediscounting facility earlier this year, and Guinigundo said March 8 there are reasons to review “crisis intervention measures” put in place during the global financial turmoil. Benchmark four-year bond yields dropped to a three-month low yesterday on optimism borrowing costs will remain low. The Philippine peso rose to its strongest level in more than a month as Asia’s rebound attracts funds to the region’s assets. Growth Recovers Philippine economic growth accelerated to a one-year high of 1.8 percent last quarter from a decade-low 0.4 percent in the previous three months, lifting prospects for the country’s property and food companies. Jollibee Foods Corp ., the fast-food chain that outsells McDonald’s Corp. in the Philippines, is looking forward “to a more robust growth in 2010,” the company said last month. The government forecasts the economy will expand 2.6 percent to 3.6 percent in 2010, as President Gloria Arroyo , whose term ends this June, increases outlays on airports, bridges and state programs to a record 1.54 trillion pesos ($34 billion) this year to bolster growth. Policy makers will review all measures put in place to counter the global crisis now that financial markets have improved, Guinigundo said this week. The rediscounting window allows lenders to borrow from the central bank using loans as collateral. Cheap Money “The rediscounting facility is unnecessary cheap money especially since financial markets have stabilized,” Ayes said. Low interest rates in the U.S. and Europe and faster growth in Asia are spurring capital flows into the region, prompting China to start draining excess cash from the economy to prevent asset bubbles. Australia and Vietnam have raised borrowing costs as inflation accelerates, and Malaysia last week increased its overnight policy rate, saying it wants to avoid “financial imbalances”. Bangko Sentral forecasts inflation may slow to a range of 3.4 percent to 3.5 percent in 2011 from an estimated 4 percent this year, Guinigundo said. Consumer-price gains in the Philippines eased for a second month in February to 4.2 percent. The Philippines’ benchmark interest rate is at the lowest level since central bank data started in 1990. Easing inflation last year allowed Bangko Sentral to slash the overnight borrowing rate by 2 percentage points from December 2008 to July 2009 to support economic growth as exports collapsed. Policy makers also reduced the proportion of cash banks need to set aside as reserves and raised the amount of money available for loans to local lenders in late 2008. To contact the reporter on this story: Karl Lester M. Yap in Manila at kyap5@bloomberg.net

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Toyota Stigma Prompts Hatoyama to Turn Technology Salesman to Revive Japan

March 9, 2010

By Sachiko Sakamaki and Takashi Hirokawa March 9 (Bloomberg) — French President Charles de Gaulle once labeled a Japanese premier a “transistor salesman.” Now Prime Minister Yukio Hatoyama is hawking bullet trains and nuclear plants after Toyota Motor Corp. ’s recalls hurt the country’s image as a top manufacturer. Hatoyama is promoting Japan’s expertise in nuclear power and high-speed railways overseas. He has some work to do: A group including Hitachi Ltd. in December lost a $20-billion bid to build nuclear plants in the United Arab Emirates to South Korea, after its president helped clinch the deal. The Hatoyama government is struggling to sustain an economic recovery hampered by a rising currency and falling prices, and has come under criticism from the corporate community for pushing labor-friendly policies. Toyota’s global recall of about 8 million vehicles over unintended acceleration threatens to curb exports. “It’s about time,” said Kazutaka Kirishima , an economics professor at Josai University near Tokyo. “Toyota’s problem made the government realize they must cooperate with the business sector, which considers Asia and other rising countries as the engines for growth more than domestic demand.” Increased exports, which account for about 14 percent of the economy, helped boost gross domestic product to an annualized 4.6 percent pace in the last quarter of 2009. Consumer prices fell for an 11th month in January, and wages rose 0.1 percent for the first time in 20 months. The yen is up almost 10 percent against the dollar in the past year. Vietnamese Power Hatoyama wrote a letter last week to Vietnamese Premier Nguyen Tan Dung to solicit an $11-billion nuclear power plant project and is supporting a Japanese group bidding to build an $18-billion high-speed rail line in Brazil. Tokyo-based Hitachi, Mitsubishi Heavy Industries, Ltd. , and Toshiba Corp ., which mounted a joint bid for the project, lost the Vietnam order to Russia’s state-run OAO Rosatom in Moscow, the Nikkei business daily reported on Feb. 9, without citing anyone. Spokesmen from the companies declined comment. Hatoyama told parliament he would strive to work harder in promoting Japan, the world’s third-biggest nuclear power generator, and said the Vietnamese bid wasn’t lost. “I think there’s still a good chance with the second phase” of the project, Hatoyama said in the Diet on March 3. “I regret the government’s sales efforts haven’t been good enough compared with other countries. I’ll work hard to be a top seller from now on.” U.A.E. Contract Seoul-based Korea Electric Power Corp. won the $20 billion U.A.E. contract a day after President Lee Myung Bak visited the Middle Eastern country. While Japanese Chief Cabinet Secretary Hirofumi Hirano last week denied Hatoyama’s decision to write an appeal to Vietnam was an effort to duplicate Lee’s personal touch, administration officials emphasized the need to step up their efforts. “There are several things we regret about the U.A.E. nuclear bid,” trade minister Masayuki Naoshima told parliament on March 3. “Japan is good at exporting plants, but in addition to facilities clients also want know-how on safety management and staff supply.” Hatoyama, 63, came into office pledging to raise the minimum wage and has proposed new restrictions on the hiring of temporary workers by manufacturers. The limits are opposed by the Tokyo-based Japan Business Federation, the country’s biggest business lobby. Polls show his administration is weighed down by scandals involving him and the party’s No. 2 official, Ichiro Ozawa . Poll Ratings The prime minister’s approval rating was at 41 percent, the Yomiuri newspaper said yesterday, compared with 75 percent right after taking office in September. The paper polled 1,088 voters from March 5-7 and provided no margin of error. Toyota has recalled more than 8 million vehicles worldwide for flaws linked to unintended acceleration. Hatoyama yesterday met with Toyota President Akio Toyoda , 53, saying afterward that he had told Toyoda “I hope you make every effort to regain the trust of your customers.” Hatoyama is also putting his weight behind a group seeking to win a 1.7 trillion yen ($19 billion) rapid train project in Brazil, competing against French, Chinese and South Korean companies. The government is considering providing financial assistance to the group, which may include Hitachi, Toshiba, Mitsubishi Heavy, and Tokyo-based Mitsui & Co. Ltd. , Nikkei reported on March 2. East Japan Railway Co. , the nation’s largest rail operator, may join in the bid, President Satoshi Seino said the same day. Tokyo-based JR East’s Shinkansen “bullet trains” can run at 300 kilometers (186 miles) per hour. Bullet Train Vietnam may choose a group of Sumitomo Corp. and Mitsubishi Heavy, or Itochu Corp. and Kawasaki Heavy Industries Ltd. for a $56-billion project to build Southeast Asia’s first bullet train, Nguyen Huu Bang , chairman and chief executive officer of Vietnam Railways Corp. , said in February. The prime minister also offered to assist Kenya’s nuclear power development in a meeting with Prime Minister Raila Odinga last month. “Japan has the world’s top nuclear power technology, and the world’s best bullet train,” said Kiyoshi Ishigane , a strategist in Tokyo at Mitsubishi UFJ Asset Management Co., which oversees about $65 billion. “The government is doing what it should for Japan’s national interest.” To contact the reporters on this story: Sachiko Sakamaki in Tokyo at Ssakamaki1@bloomberg.net ; Takashi Hirokawa in Tokyo at thirokawa@bloomberg.net

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Dairy Farm Will Increase Capital Spending on Hypermarkets, Beauty Chains

March 4, 2010

By Wing-Gar Cheng March 5 (Bloomberg) — Dairy Farm International Holdings Ltd. , Hong Kong’s second-biggest retailer, will increase spending on hypermarkets in Southeast Asia and its health and beauty chain in China. Capital spending may rise about 4 percent to at least $300 million as the company builds hypermarkets in Indonesia, Malaysia and possibly Vietnam, Howard Mowlem , Dairy Farm’s group financial director said late yesterday. In China, where “margins are pretty thin” for hypermarkets, the company will focus on smaller health and beauty stores, he said. “Health and beauty has proved to be one of the more resilient sectors, even in the downturn,” Mowlem said in an interview in Hong Kong. “There are some luxuries that ladies don’t want to compromise on, facial treatments and hair coloring are not something that people give up even in tough times.” Dairy Farm , part of the Jardine Matheson Group , yesterday reported profit rose 9 percent in 2009, the fourth year of growth, to $364 million. The Singapore-listed company aims to boost its share of the market for basic consumer goods that have been more resilient to the economic slowdown in Asia that followed the global financial crisis. Dairy Farm rose 1.15 percent to $6.17 in Singapore trading yesterday before the earnings announcement. That boosted its gain this year to 3 percent, compared with a 4.45 percent decline for the benchmark Straits Times Index . Wellcome, 7-Eleven Dairy Farm runs Wellcome, the biggest rival of Hutchison Whampoa Ltd. ’s Park’n Shop supermarket chain in Hong Kong. The retailer, which also operates stores under brands that include 7-Eleven and Cold Storage, opened a net 431 outlets last year taking its total to 5071, 9 percent more than in 2008. Sales including associates last year rose 4 percent to $8.05 billion, the company said in its earnings announcement yesterday. “Our strategy in China has always been the small stores,” Mowlem said. “The hypermarket segment, I will never rule it out, but it’s a very competitive and well-serviced segment.” The 7-Eleven chain in mainland China suffered a decline in comparable store sales last year as the slump in exports cut spending by migrant workers in the south and the government imposed restrictions on the sale of tobacco by foreign-invested companies, the statement said. “ 7-Eleven in China is a very small part of Dairy Farm’s business, we do want to get recovery in Hong Kong,” Mowlem said. Dairy Farm’s capital expenditure in 2009 was $289 million. Sales in North Asia rose 4.7 percent to $3.67 billion in 2009 from a year ago, East Asia sales gained 3.4 percent to $1.96 billion and sales in South Asia rose 4.6 percent to $1.46 billion, according to yesterday’s statement. The company proposed a final dividend of 11.5 U.S. cents a share compared with 10 cents last year. It had net cash of $34 million at the end of 2009. Dairy Farm’s 2009 underlying earnings per share rose 14 percent to 27.02 U.S. cents from 23.77 cents a year ago, the company said. Basic earnings per share increased 9 percent to 27.02 cents from 24.73 cents a year ago. To contact the reporter on this story: Wing-Gar Cheng in Hong Kong at wgcheng@bloomberg.net

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Hong Kong’s Exchange to Offer Yuan-Related Products in Bonds, Derivatives

March 4, 2010

By Hanny Wan March 5 (Bloomberg) — Hong Kong Exchanges & Clearing Ltd. will offer Chinese yuan-denominated products and plans to become a primary channel for investing by Chinese nationals overseas. Asia’s third-largest exchange is studying yuan products, particularly in fixed income, exchange-traded funds and derivatives, according to a strategy document issued with earnings yesterday. It is seeking to capture opportunities from the “increasing internationalization” of China’s currency while fending off competition from global exchanges, Chief Executive Officer Charles Li said at a press conference. “I particularly like the part about yuan products because for foreign investors, betting on yuan appreciation is a big theme,” said Jasmine Lai , an analyst at DBS Vickers Hong Kong Ltd. “This is Hong Kong Exchanges’ niche. There’s no harm to broaden the focus to the likes of Russia, but China unavoidably should be the focus with the biggest business potential.” Li declined to give details on what will be offered or when. He said the products must pose little risk to the nation’s foreign exchange policy, maximize the flow of yuan, and have genuine market demand. China’s economy, the world’s third biggest, is poised to replace Japan as No. 2 behind the U.S. this year, according to data compiled by Bloomberg. Inflows of overseas capital, which helped push foreign-exchange reserves to a record, are hurting efforts to prevent the fastest-growing major economy from overheating and have spurred concern about asset bubbles. China Fund Outflow Allowing fund outflows will increasingly become an issue that Chinese policy makers discuss, Li said. “When the Three Gorges Dam is full, you need to figure out how to let the water out,” Li said. “In the end, physics dictates, and the water is going to come down. That’s the trend. I don’t know when. I just know it’s going to come, and we need to be ready.” China’s reserves rose 23 percent to $2.4 trillion in 2009, the world’s largest, the central bank said Jan. 15. Banks extended an unprecedented 9.59 trillion yuan ($1.4 trillion) in loans last year. The Chinese government allows mainland institutions invest in overseas markets under the qualified domestic institutional investor, or QDII, program. A proposal to allow Chinese nationals buy Hong Kong stocks directly drove the city’s benchmark Hang Seng Index to a record in October 2007 before it was abandoned. Hong Kong Exchanges’ initiatives form part of a three-year plan to capitalize on the opening of the mainland Chinese market, and resist competition from global and regional exchanges, according to yesterday’s statement. ‘More Advantages’ The exchange aims to attract international listings from emerging markets, particularly companies in metals and mining, and traditional and alternative energy, the plan states. “In terms of IPOs, Hong Kong has way more advantages,” said Anthony Yau , a Hong Kong-based senior portfolio manager at State Street Global Advisors, which manages $1.9 trillion. “From the companies’ point of view, Hong Kong has better liquidity; from an investor’s point of view, if I see a company listing in Hong Kong, it gives me certain level of confidence in terms of the company’s corporate governance.” The bourse expects five to 10 Russian companies to seek listings in the city in the next couple of years, Hong Kong Exchanges Chairman Ronald Arculli said Feb. 18. The first, United Co. Rusal Ltd. , started trading in January. The shares have lost 21 percent. In addition to Russia, Hong Kong exchanges also had discussions with potential listing companies in Australia, Japan, Korea, Mongolia, Taiwan, the U.K. and Vietnam in 2009, it said. Forty IPO applications are being processed at the moment, Li said. The bourse posted an 8 percent drop in profit last year to HK$4.7 billion ($605 million) as trading and investment income decreased amid a global slump. That was in line with the HK$4.77 billion median estimate in a Bloomberg survey of five analysts, and was the bourse’s second-straight annual earnings decline. The company’s stock fell 2 percent to HK$130.10 at the close of trade in Hong Kong. To contact the reporter on this story: Hanny Wan in Hong Kong at hwan3@bloomberg.net .

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China to Raise Defense Spending by 7.5% in 2010, Slowest Pace in a Decade

March 4, 2010

By Bloomberg News March 4 (Bloomberg) — China plans to boost defense spending by 7.5 percent this year, the slowest pace of expansion in a decade, as the government seeks to allay concerns about the country’s growing military might. The increase to 532.1 billion yuan ($78 billion) compares with a 14.9 percent rise in 2009. China’s defense budget had been expanding by at least 10 percent a year for the past 10 years. “The Chinese government has always paid attention to controlling the size of our defense spending,” National People’s Congress spokesman Li Zhaoxing , a former foreign minister, told reporters in Beijing today. “China is committed to a policy of peaceful development.” China’s military spending is second only to the U.S., which aims to spend $636.3 billion this year, and is more than double India’s budget of $32.1 billion. “While this year’s increase is down a bit, we are still talking about an increase that is much bigger than Western nations and one that allows for a significant military build-up to continue,” Andrew Davies , director of Operation and Capability at Canberra-based Australian Strategic Policy Institute , said in a telephone interview. The country’s sustained military buildup comes as other governments in the region have either cut or held expenditure steady, raising concerns that a power imbalance was building. China has territorial disputes with neighbors including Japan, India and Vietnam, and regards Taiwan as a renegade province that will be reunited by force if necessary. Relative Growth “Their capability is increasing relative to others, and countries in the region are worried about that,” Phillip C. Saunders , a distinguished research fellow at the National Defense University’s Institute for National Strategic Studies in Washington, said by telephone. “A lot of people think China wants to be a dominant military power in the region.” China’s military is starting to have a presence far from its shores. Last year Chinese navy ships protected sea lanes from Somali pirates in the Middle East. “This was unprecedented strategically,” David Finkelstein , the director of China Studies at the Center for Naval Analyses in Alexandria, Virginia, said in a telephone interview. “This is the first time Chinese navy vessels operated outside of Asia.” The country is also considering sending combat troops abroad for United Nations peacekeeping efforts, retired Chinese Navy Rear Admiral Yin Zhuo told reporters on March 3. Taiwan Tension China’s defense budget comes amid tensions with the U.S. over its plans to sell $6.4 billion of missiles, helicopters and ships to Taiwan. After the sale was announced in January, China said it was suspending military-to-military contacts and would sanction U.S. companies whose weapons were sold to Taiwan. Saunders said this year’s actual spending could be as much as two and a half times the official budget, which does not include items including purchases of foreign weapon systems and pensions. The U.S. says that China’s actual military spending may be more than twice the published budgets because it omits many items. In 2008 actual spending may have exceeded $140 billion compared with the stated budget of $58.8 billion, according to the Pentagon’s annual report to Congress on China’s Military Power, published last March. “Although academic experts and outside analysts may disagree about the exact amount of military expenditure in China, almost all arrive at the same conclusion: Beijing significantly under-reports its military expenditures,” the Pentagon said in the report. Economic Expansion Chinese defense experts say the rise in spending is only natural given the country’s expanding economy and isn’t meant to threaten its neighbors. “China does not seek to be a military superpower,” Yin said. China only wants a military “commensurate with our national interests and strength.” That strength includes development of a new generation of long-range nuclear Intercontinental Ballistic Missiles capable of reaching the U.S., Saunders said. The next big development for military watchers is whether China will build its own aircraft carrier, he said. — Michael Forsythe . Frederik Balfour . With reporting by Chua Kong Ho in Beijing. Editors: Ben Richardson . To contact Bloomberg News staff on this story: Michael Forsythe in Beijing at +8610-6649-7580 at mforsythe@bloomberg.net ; To contact the reporter on this story: Frederik Balfour in Hong Kong at fbalfour@bloomberg.net

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Asia Risks Asset Bubbles Due to Low Rates, China `Locomotive,’ S&P Says

March 3, 2010

By Shamim Adam March 3 (Bloomberg) — Asian policy makers risk creating asset bubbles and fueling inflation by keeping interest rates “too low for too long” in their attempts to boost domestic demand, Standard & Poor’s said. Fiscal and monetary stimulus, along with an improvement in the U.S. and Europe, and China’s “locomotive” economy have helped strengthen the region’s recovery, economists led by Dharmakirti Joshi wrote in a report released today. Asia is leading a global recovery from the worst slowdown since World War II, prompting the region’s central banks to start removing some emergency steps taken to counter the slump. Policy makers in China, India and Vietnam have tightened monetary conditions amid signs that accelerating growth is fueling inflation and increasing the risk of asset bubbles. “Although Asia-Pacific economies will continue to face the challenge of offsetting slow external demand by creating enough domestic demand for local goods, keeping interest rates low for too long, or bringing in further fiscal stimulus, could create heightened inflationary risks, asset price bubbles, and fiscal worsening,” the S&P analysts said. Asset bubbles are starting to appear in Asia, where stock and property markets are looking “frothy,” David Wyss , an economist at Standard & Poor’s, said in a conference call today. Australia’s central bank yesterday resumed raising interest rates after a one-meeting pause amid a booming jobs market, rising home prices and a rebound in confidence. Monetary Tightening S&P said it expects monetary tightening this year in South Korea , Hong Kong and Singapore, where asset-price volatility is becoming a concern. India and China will also further tighten policy, according to the report. In Japan, where the recovery is lagging behind the rest of the region, such a move is less likely and further policy support will be needed to mitigate recessionary conditions, the analysts said. China, India, Vietnam, and Indonesia will continue to “lead the pack” in economic expansion in 2010, S&P predicts. It said China’s “robust” recovery and strong domestic demand have spurred imports from the rest of the region. “The overall improvement in the Asia-Pacific’s economic performance is coinciding with a gradual, albeit patchy, stabilization of the global financial and economic system,” the economists wrote. “In our view, this situation warrants careful policy configuration.” Growth Risks Risks to Asia’s growth include inflationary pressures and the sustainability of the recovery in the U.S. and Europe, according to the report. “Inflationary concerns remain, due to oil and commodity prices and higher asset prices,” the economists said. “Higher inflation may inspire faster rate hikes, which may in turn jeopardize the pace of the growth rebound. Inflation may also deter recovery in private investment.” Most Asian governments will probably shift from “crisis management to ongoing recovery management” this year and this will affect funding costs, S&P analyst Ian Thompson said in the report. “This shift will likely entail moderating expansionary programs, raising official interest rates, and gradually withdrawing fiscal stimuli to avoid asset-price inflation,” Thompson said. “This will necessarily have a negative effect on funding costs for the corporate, infrastructure, and financial institutions sectors, and runs the risk of stalling recovery if poorly executed.” To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net

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Thai Police Deployed as Courts Mull Seizing $2.3 Billion Thaksin Fortune

February 25, 2010

By Daniel Ten Kate Feb. 26 (Bloomberg) — Thai police manned checkpoints near strategic locations in Bangkok as a court prepares to rule later today whether the government can seize about $2.32 billion from fugitive Prime Minister Thaksin Shinawatra ’s family. The verdict from nine Supreme Court judges will conclude a case that began after the army ousted Thaksin in 2006, sparking a power struggle that may shape how the country is governed. Rival camps disagree on how much authority appointed soldiers, judges and royal advisers should wield over elected politicians. Police added reinforcements around the court, Parliament and Prime Minister Abhisit Vejjajiva ’s offices, the site of violent street protests from both sides in the past two years. The political turmoil has weighed on Thai stocks, which trade at 10.8 times 2010 earnings, the third-cheapest in Asia. “There are so many moving parts here that you’d have to be a very brave investor” to put money in Thailand at the moment, said Sriyan Pietersz , head of research for JPMorgan Chase & Co. in Bangkok. “Foreign investors will want to scope it out and see how the politics goes over the next couple of months.” So far this year, foreigners have been net sellers of $156 million of Thai stocks, the second-most in Asia after Taiwan, according to data compiled by Bloomberg. Thailand’s SET Index has lagged benchmarks in Indonesia, Malaysia, the Philippines and Vietnam in that time. Prosecutors are seeking to confiscate the 76.6 billion baht ($2.32 billion) that Thaksin’s children and relatives earned from the 2006 sale of holding company Shin Corp. to Temasek Holdings Pte, Singapore’s state-owned investment firm. Judges will start reading the verdict at 1:30 p.m. local time. More Protests Planned Since the coup, courts have disbanded parties linked to Thaksin that won the past two elections. The rulings have eroded confidence in the judicial system among Thaksin’s supporters, who say different standards are applied to opponents who seized the prime minister’s offices and the airports two years ago. Prosecutors have yet to bring those cases to trial. Anti-government protesters, who wear red shirts and support Thaksin, plan to rally in Bangkok starting from March 12 to push for a fresh election. Abhisit took power in December 2008 after a court dissolved the pro-Thaksin party that won a 2007 election, citing a clause in the constitution drafted after the coup. An election must be called by the end of next year. “Thaksin was very successful at reaching out to the poor in his first election,” Vikas Kawatra , head of institutional broking at Kim Eng Securities (Thailand) Pcl, the biggest brokerage by trading volume, wrote in a Feb. 24 report. “So this dispute is not likely to go away even if the red-shirts lose Thaksin because of an inability to fund supporters.” Advanced Info, Thaicom After Thaksin founded Shin Corp. in 1983, its units were awarded one of two mobile-phone concessions and an exclusive satellite franchise. The company controls Advanced Info Service Pcl , Thailand’s top mobile-phone operator, and satellite services monopoly Thaicom Pcl . Thaksin transferred his Shin stake to his children and relatives before taking office in 2001. Seven years earlier he disclosed that he was worth 60 billion baht — about $2.4 billion at the time. The Attorney-General says Thaksin concealed ownership of his stake in Shin during his five years as prime minister and used his position to increase the value of its holdings. He stands accused of changing Advanced Info’s royalty payments to the state-owned telecoms operator and approving a government loan to Myanmar, part of which was used to buy equipment from Thaicom. Thaksin denies all allegations, according to Noppadon Pattama , a former foreign minister who is part of his legal team. Thaksin plans to watch the verdict from Dubai, where he has lived most of the time since fleeing Thailand in 2008 to avoid a two-year jail sentence for corruption. Shin shares gained 121 percent from when Thaksin took office on Feb. 9, 2001, to when his family sold the company on Jan. 23, 2006, compared with a 128 percent gain in the benchmark SET index, according to data compiled by Bloomberg. Siam Cement Pcl , Thailand’s fourth-biggest company, which is controlled by the monarchy’s investment arm, gained 717 percent in that time. To contact the reporter on this story: Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net ; Shiyin Chen in Singapore at schen37@bloomberg.net

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Thai Court May Seize $2.3 Billion Thaksin Fortune, Risking Public Backlash

February 23, 2010

By Daniel Ten Kate and Shiyin Chen Feb. 24 (Bloomberg) — A Thai court will decide this week whether to seize about $2.32 billion from fugitive Prime Minister Thaksin Shinawatra ’s family, a verdict that may widen a societal divide that has deterred investors for four years. Nine Supreme Court judges will conclude Feb. 26 if Thaksin controlled the country’s top mobile-phone operator and other firms during his five-year tenure and used his position to boost their value. Since the army ousted Thaksin in 2006, courts have disbanded parties linked to him that won the past two elections. The power struggle has split Thailand into rival camps that disagree on how much authority appointed soldiers, judges and royal advisers should wield over elected politicians. Protests by the two sides, one wearing yellow and the other red, have led to airport blockades, rioting and bombings since the coup. “We’re avoiding Thailand,” said Burkhard P. Varnholt , who manages about $30 billion as chief investment officer of Switzerland-based Bank Sarasin & Co . “It’s a very attractive market that we would like to get back into, but we need to get more comfortable with the political situation.” Since the coup, Thailand’s SET index has trailed benchmarks in Singapore, Malaysia, Indonesia and the Philippines. Foreigners have been net sellers of $205 million of Thai stocks this year, the most in Southeast Asia after Vietnam, according to data compiled by Bloomberg. The baht has gained 2.7 percent against the dollar over the past six months, sixth-highest among Asia’s 10 most-actively traded currencies. Bonds have performed better, returning 2 percent so far this year, the second-best performance among 10 Asian local-currency debt indexes compiled by HSBC Holdings Plc. ‘Vastly Positive’ “If the political situation clears up it would be vastly positive for a number of Thai assets, including the currency and equities,” said Rajeev de Mello , Singapore-based head of Asian investment at Western Asset Management Co., which oversees $506 billion globally. “For government bonds, it’ll probably be a bit more negative.” The case to seize Thaksin’s assets was started after the coup. Prosecutors are seeking to confiscate the 76.6 billion baht ($2.31 billion) that Thaksin’s family received from its 2006 sale of Shin Corp. to Temasek Holdings Pte, Singapore’s state-owned investment firm. The court is “widely expected” to seize the money, Suwat Bumrungchatudom , an analyst with Bualuang Securities Pcl, which has a tie-up with Morgan Stanley for Thai research, said in Feb. 9 report. An acquittal “would not only be very embarrassing for the government, it would throw its legitimacy into question,” he wrote. Abuse of Power Prosecutors argued that Thaksin concealed ownership of his stake in Shin Corp., which controls companies including Advanced Info Service Pcl , Thailand’s biggest mobile-phone operator. They accused him of abusing his power to benefit the firm, including influencing changes to Advanced Info’s royalty payments to its concession holder. Thaksin refutes all the charges against him, and will “keep all options open” after the verdict, including filing an appeal if necessary, said Noppadon Pattama , a former foreign minister and a member of Thaksin’s legal team. During the verdict Thaksin will be in Dubai, his home for most of the time since he left Thailand in 2008 to avoid a two-year jail term, Noppadon said. “We hope that the court would be impartial and offer a fair judgment,” Noppadon said. “Thaksin has been known as a billionaire several years before becoming prime minister.” Billionaire Businessman Thaksin, 60, worked at a Kentucky Fried Chicken outlet in the 1970s while studying in the U.S. for a master’s degree. Two decades later in Thailand, he won one of two mobile-phone concessions and an exclusive satellite franchise. When appointed foreign minister in 1994, Thaksin disclosed that he and his wife were worth 60 billion baht — $2.4 billion at the time. The couple transferred their Shin Corp. stake to their children and relatives before he became prime minister. Shin shares gained 168 percent from when Thaksin was elected in January 2001 to when he was ousted in September 2006, compared with a 161 percent gain in the benchmark SET index, according to data compiled by Bloomberg. Siam Cement Pcl , Thailand’s fourth-biggest company that is controlled by the monarchy’s investment arm, gained 733 percent in that time. Thaksin’s red-shirted supporters have threatened large demonstrations after the verdict to repeat demands that Prime Minister Abhisit Vejjajiva call an election. The army has placed about 5,400 soldiers on standby and police have set up about 170 checkpoints in the capital to inspect vehicles for weapons. Abhisit took power in December 2008 after a court dissolved the pro-Thaksin ruling party for vote buying under a clause in the 2007 constitution drafted after the coup. An election must be called by the end of next year. “We cannot talk about the case in legal terms because it stems from the coup, which is wrong from the beginning,” said Kanin Boonsuwan , a law lecturer at Bangkok’s Chulalongkorn University. “The only way to make people trust again in the judicial process is to return the political process to the people and let them decide for themselves.” To contact the reporter on this story: Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net ; Shiyin Chen in Singapore at schen37@bloomberg.net

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Alexander Haig, Former Secretary of State, Four-Star General, Dies at 85

February 20, 2010

By Laurence Arnold Feb. 20 (Bloomberg) — Alexander Haig , the decorated four- star general and assertive aide to U.S. presidents who declared himself “in control” at the White House after Ronald Reagan was shot, has died, the Associated Press reported. He was 85. He died today at Johns Hopkins Hospital in Baltimore from complications associated with an infection, AP said, citing the Haig family. Haig straddled the worlds of politics and the military during almost two decades in posts that included supreme commander of the North Atlantic Treaty Organization . His 18- month tenure as Reagan’s first secretary of state, the pinnacle of his political career, was marred by turf battles and by the famous comment he could never live down. He uttered it on March 30, 1981, hours after John Hinckley Jr . shot and wounded Reagan outside a Washington hotel. As surgeons worked to save Reagan’s life at a nearby hospital, and with Vice President George H.W. Bush in flight to Washington from Texas, Haig huddled with other top officials at the White House, then went before reporters. “Constitutionally, gentlemen,” he told the press, “you have the president, the vice president and the secretary of state, in that order, and should the president decide he wants to transfer the helm, he will do so.” He went on, “as of now, I am in control here in the White House, pending the return of the vice president and in close touch with him.” Fourth in Line In fact, under the rules of presidential succession, Haig wasn’t in control. The secretary of state is fourth in line to the presidency, behind the vice president, speaker of the House and president pro tempore of the Senate. His off-the-cuff comment gave Haig a lasting image as a power-grabber. “It was reminiscent of Dr. Strangelove,” Richard Darman , Reagan’s deputy chief of staff, wrote in his memoir. “Haig intended to calm the nation. He unnerved the world.” Haig had “lost control” and “written his own political epitaph,” Larry Speakes, Reagan’s spokesman, recalled in his memoir. “From then on, other members of the Reagan team would be viewing him with suspicion, and within 15 months their hazing would drive him out of the White House.” For his part, Haig long defended his comment as merely “a statement of fact that I was the senior Cabinet officer present.” The ‘Vicar’ During his stormy term as secretary of state, Haig called himself the “vicar of American foreign policy” and reportedly chafed when others — even Reagan — took steps without his approval. In one instance, White House Chief of Staff James A. Baker III rebuked Haig for remarks on Central America that diverted attention from the administration’s planned message about the economy. “Indiscreet and volatile, knowledgeable and arrogant, Haig was ever ready to take offense at slights real and imagined,” Richard Reeves wrote in “ President Reagan: The Triumph of Imagination .” In April 1981, while convalescing from his gunshot wound, Reagan penned a heartfelt handwritten note to Soviet leader Leonid Brezhnev , extolling the importance of peace. Haig tried without success to persuade Reagan to sharpen the letter’s tone. Haig’s tenure was “doomed from that moment,” according to Reagan biographer Lou Cannon. Reagan’s Limits “Al really did not understand how much Reagan intended to be his own president,” Cannon said in a 2008 interview. “Reagan delegated a ton of stuff, arguably more than he should have, but he considered the U.S.-Soviet relationship the most important thing on his plate, and he was never about to delegate that.” Haig resigned in June 1982 and presented his side of the story in a 1984 book, “ Caveat: Realism, Reagan and Foreign Policy .” The Reagan White House was “an administration of chums,” he wrote, and his status as an outsider was a “handicap.” He said he was unjustly blamed for failing to forge a diplomatic solution to avert the Falklands War between Argentina and the U.K. He also denied longstanding allegations that he gave Israel a green light to invade Lebanon in 1982. Haig became a presidential candidate himself in 1987, joining a Republican field that included Bush, the sitting vice president. He dropped out on Feb. 12, 1988, four days before the New Hampshire primary, and endorsed Senator Robert Dole , who went on to lose the nomination to Bush. Attacking Bush Haig spent much of his brief candidacy attacking Bush, venting some leftover resentment toward the Reagan White House. Rejecting one of Reagan’s central arguments, candidate Haig said the ballooning budget deficit was a “Republican deficit” that couldn’t be blamed on congressional Democrats. He indicated that at least some of his anger toward Bush stemmed from his feelings toward Baker, a Bush friend and adviser. Alexander Meigs Haig Jr. was born on Dec. 2, 1924, the son of a lawyer. He was raised in the suburbs of Philadelphia. He graduated in 1947 from the U.S. Military Academy at West Point, New York, and obtained a master’s degree in international relations from Georgetown University in 1961. He served military assignments in Japan, Korea, Europe and Vietnam, working part of the time under General Douglas MacArthur . Among numerous commendations, Haig received a Distinguished Service Cross , the nation’s second-highest medal for heroism, for leading outnumbered U.S. troops in a 1967 battle with Viet Cong forces. Nixon White House He joined Richard Nixon ’s White House in 1969 as chief military assistant to National Security Adviser Henry Kissinger , became deputy assistant to the president for national security and was promoted to general in 1972. He worked on negotiations for a cease-fire in Vietnam as well as arrangements for Nixon’s historic visit to China in 1972. After a brief stint as Army vice chief of staff, Haig returned to the White House and succeeded H.R. Haldeman as chief of staff as Nixon’s team dealt with the fallout from the Watergate break-in. Haig played a central role in persuading Nixon to resign in August 1974. Nixon’s successor, Gerald Ford , named Haig commander-in- chief for U.S. forces in Europe. Haig then spent five years as supreme allied commander in Europe, responsible for the multi- nation forces of NATO. He survived an assassination attempt in June 1979 when a bomb exploded near his car as he was being driven to his NATO office in Belgium. That same year, he became president and chief operating officer of Hartford, Connecticut-based United Technologies Corp . Confronting Soviets Reagan, upon taking office in 1981, named him the 59th secretary of state. Haig endured contentious confirmation hearings in the Senate, then went to work building a foreign policy rooted in direct confrontation with the Soviet Union in Cuba, Central America and elsewhere. His resignation in June 1982 marked the end of his work in government. He returned to United Technologies as senior adviser and director while opening and serving as chairman of Worldwide Associates Inc. , which provides political and security consulting to international corporations. He served on the boards of several companies, including America Online Inc., MGM Grand Inc. and Metro-Goldwyn-Mayer Inc. He was popular on the paid lecture circuit and hosted an independently produced weekly television program, “World Business Review. ” In addition to his 1984 book on the Reagan White House, he wrote “Inner Circles: How America Changed the World,” published in 1992. Haig married the former Patricia Fox on May 24, 1950. They had two sons, Alexander and Brian, and a daughter, Barbara. To contact the reporter on this story: Laurence Arnold in Washington at larnold4@bloomberg.net .

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Crown to increase production capacity in Vietnam

February 17, 2010

Crown to increase production capacity in Vietnam

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Leo Hindery, Jr.: Our Great Recession is China and Southeast Asia’s Great Opportunity

February 16, 2010

I just finished a two-week trip that began in China, continued down throughout Vietnam, and ended in Thailand via Cambodia. It’s a trip that everyone concerned about the nearly unprecedented 19% ‘real’ unemployment rate in the United States — and the long-term welfare of our workers — should make soon. For in short, without some dramatic changes soon in our economic and trade practices, it is clear that America’s Great Recession of 2007 will continue, while in turn becoming much of Asia’s ‘Great Opportunity’. Inevitably, we are going to lose many more jobs to this region. But some of these losses, to countries like Vietnam and Thailand, will likely be ‘fair’ losses based solely on the trade maxim of comparative advantage, as these economies are now competing vigorously mostly on the basis of the capitalistic fervor in their economies, without manifest government intervention in trade. China, on the other hand, is a very different kettle of fish, as over the last two decades we have effectively let it discard, when trading with us, the overriding principles of ‘true comparative advantage’ and ‘fair trade’, in favor of ‘host-country-only advantage’ and ‘unbridled free trade’. The consequences of this failed policy on our part have been cumulative in the extreme, and thus the millions more jobs we’re inevitably going to lose to China are, consequently, going to be ‘anything-but-fair’ losses. **** As I said, my trip began in China, which I last visited in February 2008 just after the recession started. Now, exactly two years later, construction cranes that briefly fell silent are back erecting high-rise buildings, important infrastructure projects that were halted are back being built along with new ones, and ports that had container ships laying at anchor are now again loading ships through the night. Chinese consumers are back shopping — and eating out — with complete abandon, and workers from the far-western provinces and rural China have again left their villages to return to work in China’s major cities. China’s economy is visibly re-booming while much of the world, especially America, continues to face severe economic problems. The Great Recession has in fact quickly turned into China’s ‘great opportunity’, with American companies cutting both their payrolls and their capital spending, thereby driving business to China, at the same time that Chinese manufacturers are boosting their global competitiveness, directly on their own and indirectly through subsidies from their partner central government. In just the last year, China’s share of our nation’s trade deficit in manufactured goods jumped from 69% to an almost unbelievable 80% today, while its share of U.S. imports overall, non-resources and resources combined, increased 20%. In dollars, China right now is exporting about $330 billion annually to the United States, while purchasing less than $90 billion here. President Obama got it right on February 3, albeit in my opinion late by about a year, when he told the Senate Democratic Policy Committee that: “One of the challenges that we’ve got to address internationally is currency rates and how they match up to make sure that our goods are not artificially inflated in price and their goods are artificially deflated in price. That puts us at a huge competitive disadvantage.” Certainly no responsible American economist disagrees with the President’s assessment that China’s currency, the yuan or renminbi, is undervalued compared to the dollar (and the Euro) by at least 25% and up to 40%. According to economist Peter Morici, this artificial devaluation of China’s currency alone creates a staggering 25% illegal subsidy on its more than $300 billion of annual exports to the U.S. Yet currency manipulation is actually just the tip of the Chinese trade iceberg, albeit a very big ‘tip’ – at least as concerning are China’s overall unfair trade practices. And contrary to what American workers have been told repeatedly by America’s multinational corporations and by the U.S. Chamber of Commerce, the critical issue is not China’s relatively low labor costs. As Norbert Sporns, a Seattle-based CEO, recently said, “The major reason why we’re [now] sited [in China] is not because of cheaper labor, but because of government support, because of the infrastructure that is laid out properly”. And this same logic applies both to global computer and consumer electronics, where China’s role now extends far beyond assembly where it started, and to China’s increasingly dominant role in the ‘green economy’ that all developed nations, including our own, were counting on to jumpstart their economies. To this latter point, while our ongoing stimulus package devotes $80 billion to ‘things green’, China plans to spend, out of its enormous accumulation of foreign reserves, nearly three times as much, or $217 billion, over just the next five years on such efforts. And, as it has already done so successfully in other industries, China is making all of its domestic green economy expenditures in ways that are at the same time positioning it to become the largest global exporter of such components to the U.S. and other nations, while essentially ‘locking out’ any of them from importing products into its domestic initiatives. Something on the order of 90% of China’s domination in manufactured goods vis-à-vis the U.S. is due to its subsidies to domestic and foreign-owned manufacturers alike – subsidies based around plant sitings and financings, taxes and of course currency – and to its extremely low environmental standards. And the sad reality is that after years of accumulating market share and building the infrastructure it needed in order to dominate much of the global marketplace, all with the help of massive (often illegal) subsidies and a massively undervalued currency, China’s trade advantages in many vital industries are now so embedded that they will exist for years to come even if President Obama is successful in confronting China’s manipulated exchange rate, which of course is far from assured. So, where does all of this leave the U.S. otherwise? According to Richard Haass, the president of the Council on Foreign Relations, “We’ve [already] reached a point now where there’s an intimate link between our solvency and our national security.” And it is easy to see why Mr. Haass comes to this conclusion, since the U.S. government in 2010 will borrow one of every three dollars it spends, half or so of which will come from foreign countries. Not even accounting for the forecasted $1.6 trillion federal deficit this year, the $1.3 trillion deficit next year, and the $8.5 trillion combined deficit for the next 10 years, the U.S. already has about $7.5 trillion in accumulated debt held by the public, of which China, with more than $2.4 trillion in foreign exchange reserves, is the largest single holder. And of course all the while China is every day accumulating ever more American dollars as our nation’s largest non-resources importer – its foreign exchange reserves increased $453 billion (or 23%) just in 2009 alone. There is no reason to believe that China’s immediate threats in response to President Obama’s February 3rd speech, both its explicit ones and its implied ones, are false, despite Deputy Assistant Secretary of State for East Asian and Pacific Affairs David Shear’s testimony the very next day to this Commission that they probably are. Nor does it seem particularly informed to suggest, as Mr. Shear also did, that China does not have the “intention at this time to create a [political] hegemony in Southeast Asia or to displace American influence in the region” — of course it does. Just as it also intends to use its foreign reserves to acquire ‘blocking positions’ in resources and/or in agriculture in Australia, Africa and large parts of South America. And Shear is simply wrong as well in suggesting that China’s arms buildup is “consistent with modernizing military forces in general and [is] not in the fashion of an arms race” – it absolutely is an arms race for China, and a global one at that, as senior Chinese Admiral Wu Shengli confirmed on April 14, 2009 when he spoke about China’s “accelerated and soon [to be] completed deployment of a full-scale ‘blue water’ navy, including home-grown submarines with nuclear-armed ballistic missiles”. Thus it seems inevitable that some individual American companies, for example the Boeing Company and those involved in oil exploration off the Vietnam coast, will suffer from Chinese trade retaliation, as likely will parts of our foreign policy and defense agendas. But the Obama administration’s job is to look after our national interests first and foremost, and not after individual multinational corporate interests, which means above all else keeping the U.S. economy strong, which is about the only part of Mr. Shear’s testimony with which I agree. So, using whatever tools are available, the administration and Congress need to go after all of China’s illegal subsidies, not just its currency manipulation, just as they need to put a quick halt as well to China’s persistent theft of America’s hard-gained, valuable intellectual property or IP, which zaps our economy almost as much as China’s adverse currency moves. Regarding the latter, a quick and easy solution, courtesy of former Senator Slade Gorton (R-WA), would be to make a finding at the end of each year of the total value of the IP the Chinese have stolen, followed by a tariff during the next year on everything they sell us levied at a rate calculated to recover 150% to 200% of that stolen value. (Slade, an old friend, believes that since the great and constant threat from China is always around our intellectual property, my “going after China’s currency is the right church but the wrong pew” – the only difference between Slade and me is that I want to fill up both pews!) **** After China, my trip continued through Vietnam and Thailand, ongoing economic ‘miracles’ of a quite different sort than China’s. The two most fascinating aspects of life in the major cities of Vietnam are the burgeoning markets and the traffic. Both are masses of humanity and intent. For obvious economic reasons, the principal means of motorized transport in Vietnam today is not the automobile, rather it is the motor scooter – there are 2 million of them in Hanoi and 3 million in Saigon. The people, as individuals, are like any American, and like any European, Russian, Brazilian or South African – they want education, health, offspring and material improvement in their lives. And they are thriving on capitalism, even under their one-party, Communist government. Ho Chi Minh City (Saigon) and Hanoi are as different as Miami and Havana. Hanoi is the national capital, but it is a decade or even two behind Saigon in terms of its development and prosperity. There are now parts of Saigon, by contrast, that might easily be in Orange County, California from the standpoint of large-scale retail, office and residential development. The 86 million Vietnamese people are delightful, gentle and gracious. They are very young in average age, and very capitalistic. Seeing Hanoi and Saigon today, it is incomprehensible to me how much effort the United States put into trying to forcefully steer this country away from Communism, even if that only meant to a pro-U.S. dictatorship. In Thailand, everything is just more advanced than in Vietnam, most noticeably in the transportation infrastructure: an airport to rival Hong Kong’s, expressways, light rail, bus lines, and, relatively, far more automobiles and far fewer scooters. The skyline is much more robust in Bangkok than in Ho Chi Minh City, and certainly more robust than in Hanoi. Bangkok’s combined Siriraj Hospital and Medical School – presently undergoing extensive expansion – rivals any medical complex in Houston, Texas. Thailand’s 68 million people have the same basic aspirations that their Vietnamese neighbors have, indeed that all of us have. And given the pace of progress in Vietnam since the Vietnam War, it would be hard to argue that the democracy of Thailand is demonstrably better in helping the people succeed than is the one-party rule of Vietnam. It’s just that Thailand has had a much longer interval of peace than has Vietnam. **** As with most of Asia other than China and South Korea, which are a challenge for us unto themselves, the key to our trade and commercial relationships with Vietnam and Thailand is really quite simple. All we need to do is sensitively balance these countries’ comparative advantages — now their abundant labor and agricultural capabilities, and later their natural resources, especially oil & gas — with our own relative advantages, without falling into the unfair subsidy and environmental practices traps that we are letting China get away with. And then there is no reason at all that overall trade in any of these countries can’t be in productive and mutually beneficial economic balance, including their trade with the United States. I must say in closing that despite the obvious economic growth underway in the developing countries of Southeast Asia, we nevertheless still have an ethical and moral responsibility to at once be their significant foreign assistance and development partner, as they seek to advance the fringes of their societies out of poverty and provide them with good public health and nutrition. Unfortunately, however, the foreign assistance and development role which is so highly correlated with trade is a role which too often we fail to effectively play. And over and above this being a moral failure on our part, absent our playing a more responsible foreign assistance role, there is no counterbalance to China’s mercantilist practices in the region which are as relatively unfair and harmful to the economies of Vietnam, Cambodia, Laos and Thailand as they are currently unfair and harmful to our own American economy. Leo Hindery, Jr. chairs the US Economy/Smart Globalization Initiative at the New America Foundation and is a member of the Council on Foreign Relations. From 2005 through 2007, he was Vice Chairman of the Presidential and Congressional HELP Commission which in December 2007 made recommendations to Congress for the reform of U.S. Foreign Assistance. He is the former chief executive of AT&T Broadband and other major media and telecom companies .

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Obama Admires FedEx’s Smith Among CEOs Tapped by Administration for Advice

February 10, 2010

By Hans Nichols and Mary Jane Credeur Feb. 11 (Bloomberg) — President Barack Obama , when asked to name a chief executive he admires, chose one with an unusual pedigree: FedEx Corp.’s Frederick Smith , who raised more than $100,000 for 2008 Republican presidential nominee John McCain and was George W. Bush’s fraternity brother. “He’s an example of somebody who is thinking long term,” the president said in an interview with Bloomberg BusinessWeek, adding that he “really enjoyed talking” with Smith at a Feb. 4 White House luncheon. Smith, who has donated to Democrats, has mostly raised money for Republicans and was a co-chairman of McCain’s campaign finance committee in 2008. A former Marine and Vietnam veteran, he founded Memphis, Tennessee-based FedEx in 1971 and built it into the world’s biggest air-cargo company, with $35 billion in revenue in the fiscal year that ended in May. After the Feb. 9 interview, the White House provided the names of three additional executives whom Obama admires: David Cote of Honeywell International Inc. ; Verizon Communications Inc. ’s Ivan Seidenberg , and venture capitalist John Doerr . The White House also identified eight business leaders who regularly consult with the president and his senior advisers, including General Electric Co. Chief Executive Officer Jeffrey Immelt and John Chambers of Cisco Systems Inc . No Banker The list doesn’t include any representative of a Wall Street bank, though the White House did cite American Express Co. ’s Chief Executive Officer Kenneth I. Chenault . Obama, 48, said he has drawn on Smith’s views on trade and energy matters to “inform how we shape policy.” “His industry is deeply sensitive to energy prices, and he’s the first one to say that if we don’t start getting an energy policy that’s smart, we’re going to lose in our competition,” he said. The president also praised FedEx’s rival, United Parcel Service Inc., the world’s largest package-delivery firm and the biggest employer of Teamsters , calling the two companies “the best in the world.” FedEx and UPS are engaged in a lobbying battle in Congress over a provision that would make it easier for FedEx workers to unionize. Smith, 65, has said repeatedly that he would prefer FedEx workers to remain non-unionized, and the company has created Web sites aimed at convincing employees that it’s best to deal directly with management. Labor Dispute FedEx is fighting a class-action lawsuit in federal court in Indiana in which more than 25,000 current and former drivers in its ground unit said they were treated as full-time employees and should receive benefits. At stake is a business model that gives FedEx’s ground unit a 30 percent cost advantage over UPS, according to Marick Masters , a business professor at the University of Pittsburgh. Both FedEx and UPS are considered bellwethers of the economy because they deliver goods ranging from industrial parts to medicine, clothing and electronics. FedEx, which also runs the world’s largest cargo airline, said Dec. 17 that the economic recovery would be “modest.” Dan Ortwerth , an analyst at Edwards Jones & Co. in St. Louis, said Smith stands out as a business leader because he founded “this company and built it into what it is in the face of opposition, beginning with a university professor who told him it wouldn’t work or creditors who wouldn’t give him the time of day.” “Mr. Smith found the president to be very engaged and willing to listen to some suggestions on how to get the economy moving again,” said Maury Lane , a spokesman for FedEx. “They discussed the importance of free trade and creating new jobs by accelerating the expensing of capital purchases.” Jet-Fuel Costs FedEx spent $2.93 billion on jet fuel last year, or 8.3 percent of its entire revenue, so his opinions on energy policy should carry weight with anyone who shapes that policy, Ortwerth said. “When Fred Smith , the CEO of a company that consumes a heck of a lot of jet fuel, talks about energy policy, you listen,” Ortwerth said. In each of the last two presidential campaigns, Smith has raised more than $100,000 for the Republican candidate. He has also supported Democratic candidates and committees. From 1989 to 2009, he has given $250,358 to candidates and parties; $162,320 of that money went to Republicans, according to the Center for Responsive Politics , a Washington-based research group that tracks political giving. In 2007, Smith gave $25,000 to the National Republican Senatorial Committee and the same amount to the Democratic Congressional Campaign Committee, the center said. In 2004, he endorsed Bush over the Democratic candidate, Senator John Kerry of Massachusetts. Smith knew both men as undergraduates at Yale University in New Haven, Connecticut. Fighting Unemployment Obama’s White House has made a priority of reaching out to business leaders as the president tries to lower unemployment in an economy that has lost 8.4 million jobs since the recession began in December of 2007. Since last January, administration officials have met with 189 CEOs, according to the White House. These include prominent Wall Street executives such as New York-based JPMorgan Chase & Co .’s CEO Jamie Dimon , Goldman Sachs Group Inc. CEO Lloyd Blankfein , and Robert Wolf , chairman of UBS Americas . None of these are listed among the executives the White House said Obama calls upon, which includes Indra Nooyi of PepsiCo Inc. , Muhtar Kent of Coca-Cola Co. , Brenda Barnes of Sara Lee Corp. , Paul Otellini of Intel Corp. and Antonio Perez , chairman of Eastman Kodak Co . Political Giving Chenault, of New York-based AmEx, the biggest U.S. credit- card issuer by purchases, has given $55,950 to Democrats and $3,000 to Democrats between 1989 and 2009. Immelt, of Fairfield, Connecticut-based GE, the world’s biggest maker of jet engines, locomotives and medical-imaging machines, gave $71,903 to Democrats and $39,250 to Republicans from 1989 to 2009. Chambers, of San Jose, California-based Cisco, the biggest maker of networking equipment, raised at least $100,000 for McCain in 2008. From 1989 to 2009, he gave $771,478 to Democrats and $543,678 to Republicans. Perez, of Rochester, New York-based Kodak, gave $10,300 to Democrats, $2,000 to Republicans. Doerr, a partner at Menlo Park, California-based Kleiner Perkins Caufield & Byers , has given $544,988 $5,000 to Republicans. Cote, of Morris Township, New Jersey-based Honeywell, the maker of controls for planes and buildings, has given $9,600 to Republicans. Seidenberg, of New York-based Verizon, the second-largest U.S. phone company, raised at least $100,000 for Bush and the same amount for McCain. Overall, he gave $169,590 to Democrats and $79,800 to Republicans. Nooyi, Kent, Barnes and Otellini have no record of political fundraising or donations. Referring to his lunch with Smith this month, Obama said “sitting down and talking to him was incredibly productive.” As reporters left the Oval Office at the conclusion of the interview, the president said he hoped his lauding Smith wouldn’t get the FedEx CEO in trouble. “He should take no responsibility” for the presidential praise, Obama joked. To contact the reporter on this story: Hans Nichols in Washington at hnichols2@bloomberg.net ; Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net .

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U.S. Representative Murtha Dies at 77; Backer of Troops, Foe of Iraq War

February 9, 2010

By James Rowley and Laurence Arnold Feb. 9 (Bloomberg) — Representative John Murtha , a staunch supporter of the U.S. military who became an outspoken opponent of the Iraq war, died at age 77 yesterday, ending a 36-year career in Congress. Murtha, a Democrat who unapologetically wielded power as chairman of the House defense appropriations subcommittee to benefit his congressional district in western Pennsylvania, died at a hospital in Arlington, Virginia, of complications after gall bladder surgery. In recent years, Murtha fended off charges of impropriety for approving expenditures that benefited firms whose officers contributed to his campaigns. His death will give Republicans a chance to pick up a House seat in a district that Amy Walters, a Washington-based nonpartisan political analyst, called “very marginal” for Democrats. Representative Norm Dicks , a Washington state Democrat who has been a key ally of Chicago-based Boeing Co ., the second- largest U.S. defense contractor, is next in line to chair the defense appropriations panel. President Barack Obama in a statement lauded Murtha’s “tough-as-nails reputation” in Congress as a “respected voice” on national security. Murtha was a political ally of House Speaker Nancy Pelosi of California. In a statement, Pelosi called him “great patriot” and “champion of our national security” who in his actions was “always putting the troops and their families first.” Good Friend Murtha “understood the misery of war,” Appropriations Committee Chairman David Obey , a Wisconsin Democrat, said in a statement. “Every person who serves in the military has lost an advocate and a good friend today.” A former Marine drill instructor who was awarded two Purple Hearts and a Bronze Star during the Vietnam War, Murtha withdrew his support for the Iraq war in November 2005, expressing his concern about increased attacks on U.S. soldiers and criticizing what he termed “a flawed policy wrapped in an illusion.” In 2002, Murtha supported President George W. Bush ’s request for congressional authority to invade Iraq. Late last year, Murtha also voiced skepticism about Obama’s plan to increase troops in Afghanistan to help defeat Islamic extremists, saying he was “not sure that there’s a threat to our national security” posed by the turmoil in that country. Murtha argued that al-Qaeda operatives once protected by Afghanistan’s Taliban regime before the Sept. 11 terrorist attacks “can go any place, they don’t have to be in Afghanistan.” Special Election Under Pennsylvania law, Governor Edward Rendell , a Democrat, has 10 days to set a special election for a vacant House seat, a vote that must come at least 60 days after the announcement. Rendell could decide to schedule it for May 18, when the state holds a primary election. Rendell said he was consulting with Pelosi and House Majority Leader Steny Hoyer , a Maryland Democrat, on a special election’s timing. Rendell said he would determine “how important it is to have” Murtha’s replacement in Congress and weigh that against the expense of a separate election. Political analysts said Murtha’s death gives the Republicans a good chance of taking back a seat they lost in 1974, when Murtha won a special election. The nonpartisan Cook Political Report rated the seat as a “tossup.” The nonpartisan Rothenberg Political Report moved Murtha’s blue-collar district onto its list of competitive races in this year’s midterm elections. Republican Challenger Republican William Russell, an Iraq War veteran whose 2008 campaign to unseat Murtha forced Democrats to shift resources into the race at the last minute, is running for the seat again this year. Rendell, in a conference call with reporters, said Murtha was “our go-to guy, someone that whatever the issue, could weigh in” and “make things happen” for Pennsylvania. “Jack and his office were the first calls we would make” on legislation, Rendell said. Murtha’s seat on the Appropriations Committee enabled him to become one of Congress’s most adept users of the so-called earmark process to send federal money to specific projects back home. The John Murtha Johnston-Cambria County Airport was among the more visible results of his clout. Murtha steered an estimated $150 million in federal funds to the airport, the Washington Post reported in 2009. The earmarks for Murtha’s district, and the congressman’s ties to a lobbying business run by a former staffer, subjected him to allegations of ethical lapses. Campaign Donations Defense contractors received millions of dollars for projects that Murtha helped shepherd through Congress. Some of those firms donated to Murtha’s campaign and gave jobs to his allies, the Post reported, creating a web of connections that drew the attention of federal prosecutors. FBI searches were carried out in January and February of 2009 at the offices of a Virginia lobbying firm and a Pennsylvania-based defense contractor that had benefited from Murtha’s earmarks. Citizens for Responsibility and Ethics in Washington labeled him one of the “most corrupt” members of Congress. Murtha gave no ground. “If I’m corrupt, it’s because I take care of my district,” he told the Pittsburgh Post-Gazette in March 2009. “My job as a member of Congress is to make sure that we take care of what we see is necessary.” Majority Leader After Democrats won a House majority in November 2006 elections, Murtha ran for the chamber’s No. 2 leadership post, majority leader, with Pelosi’s support. Hoyer, though, won the vote among Democratic caucus members. Dicks, Murtha’s likely successor as chairman of the defense subcommittee, represents a district that is home to the U.S. Navy’s Puget Sound Naval Shipyard that maintains the military’s nuclear-powered aircraft carriers and submarine fleets. Dicks, 69, was first elected to his House seat in 1976. He has criticized White House and Pentagon officials about bids for a $35 billion U.S. Air Force refueling contract that he said are skewed in favor of Los Angeles-based Northrop Grumman Corp ., a Boeing competitor. Boeing’s commercial airplane manufacturing facilities in Everett, Washington, are adjacent to Dicks’ district. Korean War John Patrick Murtha was born on June 17, 1932, in New Martinsville, West Virginia. He was a college student in Washington, Pennsylvania, in 1952 when he left school to join the U.S. Marine Corps during the Korean War. He served until 1955, becoming a drill instructor at Parris Island. In his second tour of active duty, in 1966 and 1967, he served in Vietnam as a Marine intelligence officer. He was a reservist from 1952 to 1990, and retired from the Marine reserves as a colonel. He earned a degree in economics from the University of Pittsburgh in 1962. Murtha began his political career as a member of Pennsylvania’s legislature from 1969 to 1974. He won election to the House by a few hundred votes in a special election held to replace a deceased Republican lawmaker. House Speaker Thomas P. “Tip” O’Neill , a Massachusetts Democrat, named Murtha to the Appropriations Committee, and he became chairman of the defense subcommittee in 1989. In 1982, O’Neill sent Murtha to Beirut to review President Ronald Reagan’s decision to deploy U.S. Marines there as part of a multinational peacekeeping force. Murtha concluded the American troops were too vulnerable. “I’d like to get them out of here as soon as possible,” he told reporters. In 1992, he was a leading congressional critic of President George H.W. Bush’s decision to send U.S. troops to Somalia on a humanitarian mission. “The danger is we won’t be able to get them out,” Murtha said. Murtha’s congressional Web site said of his role in the Somalia debate: “Although his advice was not heeded, history would prove him right.” Murtha and his wife, Joyce, had three children. To contact the reporters on this story: James Rowley in Washington at jarowley@bloomberg.net ; Laurence Arnold in Washington at larnold4@bloomberg.net .

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Most Asian Stocks Drop on Growing Europe Deficit Concerns; Macquarie Falls

February 8, 2010

By Shani Raja and Anna Kitanaka Feb. 9 (Bloomberg) — Most Asian stocks fell, led by banks and material companies, amid mounting concern budget deficits in Europe will derail the global economic recovery. Macquarie Group Ltd. , Australia’s largest investment bank, slumped 6.2 percent after its second-half profit forecast disappointed some investors. Westpac Banking Corp. dropped 2.5 percent as the cost of protecting Australian government bonds from default jumped. Mitsubishi Materials Corp., Japan’s No. 3 copper producer, sank 2.6 percent as it swung to a nine-month net loss. Toshiba Corp. fell 2.6 percent after Nikkei English News reported the company and its partners lost a bid in Vietnam. About five stocks declined for every three that rose on the MSCI Asia Pacific Index , which fell 0.2 percent to 113.94 as of 11:16 a.m. in Tokyo. The gauge has fallen 10 percent from a 17- month high on Jan. 15 on speculation central banks will tighten monetary policy, and that Greece, Spain and Portugal will struggle curbing deficits. “Investors remain cautious as the correction continues,” said Tim Schroeders , who helps manage $1.1 billion at Pengana Capital Ltd. in Melbourne. “Markets are climbing the wall of worry and are yet to be fully convinced that a workable solution is in the offing regarding highly-indebted European countries such as Greece and Spain.” Japan’s Nikkei 225 Stock Average lost 0.4 percent, while South Korea’s Kospi index added 0.6 percent. Australia’s S&P/ASX 200 Index declined 0.8 percent. Hong Kong’s Hang Seng Index gained 0.4 percent. Government Bonds Futures on the U.S. Standard & Poor’s 500 Index added 0.1 percent. Europe concerns dragged the gauge down by 0.9 percent yesterday. Credit-default swaps, or the cost of insuring against losses on sovereign debt, on Spain and Portugal jumped to a record, according to CMA DataVision. Those for Greece also hovered near an all-time high. Macquarie slipped 6.2 percent to A$47.21. The company said net income in the six months to March 31 may climb 10 percent from the first half. That indicates second-half profit of A$526.9 million ($457 million), below the A$586 million average estimate of three analysts surveyed by Bloomberg. Today’s forecast is “slightly below the more bullish analysts,” said Angus Gluskie , who oversees $300 million at White Funds Management Pty in Sydney. “Some investors were looking for a greater upgrade, so on a short-term basis are happy to close out positions given the softness in the market.” Sales Slump Westpac Banking, Australia’s second-largest lender by market value, sank 2.5 percent to A$22.68. Commonwealth Bank of Australia , the largest, lost 1.7 percent to A$51.85. The cost of protecting Australian government bonds from default jumped to almost a nine-month high today, according to Deutsche Bank AG. Mitsubishi Materials slumped 2.6 percent to 223 yen. The company said it swung to a nine-month net loss of 31.7 billion yen from net income of 19.6 billion yen a year earlier, as sales dropped by a third. Toshiba fell 2.6 percent to 412 yen. Toshiba, Mitsubishi Heavy Industries Ltd., and Hitachi Ltd., which together bid for a nuclear plant project in Vietnam, lost the order to Russia’s state-run Rosatom, Nikkei English News reported, citing sources it didn’t identify. Hitachi and Mitsubishi Heavy Industries both dropped at least 1 percent. Koito Industries Ltd., which makes seats for trains and airplanes, plunged 34 percent to 159 yen. The company will fix about 150,000 passenger seats in some 1,000 commercial airliners after saying that it falsified test results and made unauthorized design changes. Among stocks that rose today, Sumitomo Mitsui Financial Group Inc. , Japan’s No. 2 bank by value, increased 1.8 percent to 2,825 yen after profit beat analyst estimates. NCSoft Corp., an on-line games developer, advanced 2.1 percent to 123,000 won in Seoul as it reported increased quarterly profit. In Sydney, David Jones Ltd. , Australia’s second-biggest department store chain, advanced 1.3 percent to A$4.67. David Jones raised its earnings forecast after posting 2.4 percent sales growth for the second-quarter. Cochlear Ltd. , maker of the world’s best-selling hearing implant, climbed 4.4 percent to A$64.08 after first-half profit rose 8 percent on new product sales. To contact the reporters for this story: Shani Raja in Sydney at sraja4@bloomberg.net ; Anna Kitanaka in Tokyo at akitanaka@bloomberg.net .

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House Democrat John Murtha Dies at Age 77 After Complications From Surgery

February 8, 2010

By Laurence Arnold Feb. 8 (Bloomberg) — John Murtha , a former Marine drill instructor turned congressman who unapologetically wielded his power to benefit his Pennsylvania district, died today. He was 77. Murtha, a Democrat, died of complications after undergoing gallbladder surgery in late January in a hospital in Arlington, Virginia. During 36 years in the House, the Vietnam veteran from Johnstown, Pennsylvania, rose to chairman of the subcommittee that approves defense spending. That perch gave him a platform to exert his knowledge and strong beliefs about the proper use of the U.S. military. In November 2005, citing increasing attacks on Americans, he called for an immediate withdrawal of U.S. troops from Iraq, a military engagement he had voted for in 2002. He was an ally of House Speaker Nancy Pelosi of California. “It’s the passing of a major political figure who was close to the speaker and always involved in Democratic legislation,” said Stuart Rothenberg , an independent political analyst based in Washington. Rothenberg called Murtha a major force in “forming American politics in jobs and spending.” Representative Norm Dicks , Democrat from Washington state, the senior most member of the Defense Appropriations subcommittee after Murtha, would be the “one most likely to succeed,” George Behan, a spokesman for Dicks, said in an interview. The House Appropriations committee headed by Representative Dave Obey , Democrat of Wisconsin, would make the final decision, Behan said. User of Earmarks Murtha’s seat on the Appropriations Committee enabled him to become one of Congress’s most adept users of the earmark process to send money to specific projects back home. The John Murtha Johnston-Cambria County Airport was among the more visible results of his taxpayer-funded largess. Murtha steered an estimated $150 million in federal funds to the airport, the Washington Post reported in 2009. Murtha’s town also became a popular place for defense contractors, which received millions in earmarks through the congressman. Some of those firms donated to Murtha’s campaign and gave jobs to his allies, the Post reported, creating a web of connections that drew the attention of federal prosecutors. Searches were carried out in January and February of 2009 at the offices of a Virginia lobbying firm and a Pennsylvania- based defense contractor that had benefited from Murtha’s earmarks. Abscam Investigation Earlier in his career, he was investigated — though not prosecuted — in the Abscam bribery scandal that led to the convictions of seven other lawmakers in the 1980s. Murtha’s use of earmarks and ties to lobbyists made him a top target of good-government groups. Citizens for Responsibility and Ethics in Washington labeled him one of the “most corrupt” members of Congress. Murtha gave no ground. “If I’m corrupt, it’s because I take care of my district,” he told the Pittsburgh Post-Gazette in March 2009. “My job as a member of Congress is to make sure that we take care of what we see is necessary.” As his congressional Web site put it, Murtha “has worked hard to bring tens of thousands of family-sustaining jobs to western Pennsylvania,” which had suffered “the widespread loss of coal and steel jobs that were the lifeblood of the area.” After Democrats won a majority of seats in the House in November 2006, Murtha ran for the No. 2 leadership post, majority leader, and was supported by Pelosi, the incoming House speaker. Murtha, who may have lost votes due to the allegations about his ethics, was defeated by Steny Hoyer of Maryland. ‘Racist Area’ Murtha won his 18th full term in 2008 even after seeming to insult his district by calling it “a racist area” where some voters might be reluctant to vote for Barack Obama . He later apologized. His committee was preparing to take up the latest war spending bill, which would fund the Obama administration’s troop buildup in Afghanistan. Murtha had expressed skepticism, saying in December he was “not sure that there’s a threat to our national security” in Afghanistan because al-Qaeda “can go any place — they don’t have to be in Afghanistan.” Murtha’s death likely creates another competitive race as Republicans try to retake the House in November. His district gave 49 percent of its vote to Obama in 2008 and 49 percent to Republican presidential nominee John McCain . John Patrick Murtha was born on June 17, 1932, in New Martinsville, West Virginia, and graduated from high school in Mount Pleasant, Pennsylvania. Drill Instructor He left Washington and Jefferson College in Washington, Pennsylvania, in 1952 to join the U.S. Marine Corps during the Korean War, serving until 1955 and becoming a drill instructor at Parris Island. In his second tour of active duty, in 1966 and 1967, he served in Vietnam as a Marine intelligence officer. His honors included a Bronze Star and two Purple Hearts. He was a reservist from 1952 to 1990 and retired from the Marine reserves as a colonel. He earned a degree in economics from the University of Pittsburgh in 1962. He began his political career as a member of Pennsylvania’s legislature from 1969 to 1974. The death of U.S. Representative John P. Saylor, a Republican, in 1973 forced a special election in February 1974 that was viewed as a referendum on the unpopular Republican president, Richard Nixon , then beset by problems including inflation and the emerging Watergate scandal. Backed by organized labor, Murtha won by just a few hundred votes. ‘Tip’ O’Neill House Speaker Thomas P. “Tip” O’Neill took a liking to Murtha and named him to the powerful Appropriations Committee. He became chairman of the defense subcommittee in 1989. Murtha was often called upon by congressional leaders and presidents to travel overseas to assess security challenges or monitor elections. In 1982, O’Neill sent Murtha to Beirut to review President Ronald Reagan’s decision to deploy U.S. Marines there as part of a multinational peacekeeping force. Murtha concluded the American troops were too vulnerable. “I’d like to get them out of here as soon as possible,” he told reporters. In 1992, he was a leading congressional critic of President George H.W. Bush’s decision to send U.S. troops to Somalia on a humanitarian mission. “The danger is we won’t be able to get them out,” Murtha warned. Murtha’s congressional Web site said of his role in the Somalia debate: “Although his advice was not heeded, history would prove him right.” Murtha and his wife, Joyce, had three children. To contact the reporter on this story: Laurence Arnold in Washington at larnold4@bloomberg.net

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Sugar May Rally From Six-Week Low as World Deficit Persists, Kingsman Says

February 7, 2010

By Thomas Kutty Abraham Feb. 8 (Bloomberg) — Sugar prices may rebound from a six- week low as a global supply shortage will persist for at least nine months, broker Jonathan Kingsman said. “Sugar is being caught in the commodity liquidation,” said Kingsman , managing director of the Switzerland-based company Kingsman SA, in an interview before a conference in Dubai yesterday. “The fundamentals still look positive. Import demand will be greater than exports.” He didn’t predict prices. Futures for March delivery lost 5.3 percent to 26.17 cents a pound in New York on Feb. 5, the most since Oct. 9, as a rally in the dollar eroded the appeal of commodities and a slump in equities revived concern that the economic recovery may stall. The Reuters/Jefferies CRB Index of 19 raw materials slipped to the lowest level since October. India, China, Indonesia, Pakistan, Egypt and Russia are among nations planning to buy sugar to cool domestic prices, straining supplies forecast by broker Czarnikow Group Ltd. to trail demand by 13.5 million tons this year. The global deficit next season, which starts Oct. 1, may be 7 million tons, keeping prices at more than 30 cents a pound, Simbhaoli Sugars Ltd., one of India’s biggest millers, said Feb. 2. “A lot of buying is yet to come into the market,” said Kingsman. “India, Pakistan and Vietnam need large quantities.” India, the biggest consumer, may need to import an extra 2.5 million to 3 million tons this season to meet a shortfall of 7 million tons, Kingsman said. Purchases may total 3 million tons next year, he said. Pakistan, Asia’s third-largest consumer, will open bids to buy 500,000 tons this month and may import an additional 700,000 tons of the white variety, according to the state-owned Trading Corp. of Pakistan. ‘Buying Opportunity’ Indian importers bought 250,000 tons of raw stock on Feb. 5, Kingsman said, as futures touched 25.7 cents, the lowest level since Dec. 22. Prices declined 12 percent last week, the biggest weekly decline since October 2008. “The recent decline provides a good buying opportunity to importers and there has been buying,” he said. Millers have contracted to buy 4.5 million tons, including 400,000 tons of white sugar, since the start of the season on Oct. 1, according to the Indian Sugar Mills Association. Last year, the country bought 2.5 million tons. Not everyone is bullish. Raw-sugar prices may drop this year as output increases in Brazil, Christoph Berg , managing director of research company F.O. Licht, said at a conference in Manila last week. Prices will “stay above 20 cents this year because of a high deficit three years in a row, high production costs and a lack of subsidized sugar,” he said. Brazil Output Sugar output in Brazil, the top producer, may increase by as much as 4.4 million tons to 35.3 million tons in 2010-2011, as growers boost planting to take advantage of record prices, said Plinio Nastari , president of research company Datagro, in an interview yesterday in Dubai. The global sugar market may have a surplus of 1.5 million tons next year, he said. Sugar had its biggest annual advance since 1974 last year after heavy rains and drought pared harvests in Brazil and India, the largest growers. To contact the reporter on this story: Thomas Kutty Abraham in Dubai at tabraham4@bloomberg.net

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Video: Townsend Says Vietnam Land Prices May Keep Surging: Video

February 4, 2010

Feb. 5 (Bloomberg) — Marc Townsend, managing director of CB Richard Ellis Group Inc.’s Vietnam unit, talks with Bloomberg’s Haslinda Amin about the outlook for the nation’s property market. (Source: Bloomberg)

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Biggest Bubble in History Is Growing Every Day: William Pesek

February 4, 2010

Commentary by William Pesek Feb. 4 (Bloomberg) — Real estate, stocks , credit. China sure has its share of bubbles. Oddly, little attention is paid to the biggest one of all. China’s currency reserves grew by more than the gross domestic product of Norway in 2009. Its $2.4 trillion of reserves is a bubble all its own, one growing before our eyes with nary a peep out of those searching for the next big one. The reserve bubble is actually an Asia-wide phenomenon. And we should stop viewing this monetary arms race as a source of strength. Here are three reasons why it’s fast becoming a bigger liability than policy makers say publicly. One, it’s a massive and growing pyramid scheme. The issue has reached new levels of absurdity with traders buzzing about crisis-plagued Greece seeking a Chinese bailout. After all, if economies were for sale, China could use the $453 billion of reserves it amassed last year to buy Greece and Vietnam and have enough left over for Mongolia. Countries such as the U.S. used to woo the Bill Gross’s of the world to buy their debt. Now they are wooing governments. Gross, who runs the world’s biggest mutual fund at Pacific Investment Management Co., is still plenty important to officials in Washington. He’s just not as vital as the continued patronage of state asset managers in places like Beijing. Next Step You have to wonder what folks at the International Monetary Fund are thinking these days. Their aid packages tend to come with messy requirements, such as “get your economy in order.” China’s are merely about scoring resources or geopolitical points. We have already seen China throw lifelines to Wall Street giants, including Morgan Stanley . Entire countries seem like the natural next step. China’s huge arsenal of reserves is increasing its global influence. The trouble is, China is trapped in an arrangement of its own making. As China and other Asian nations buy more and more U.S. Treasuries, it becomes harder to unload them without causing huge capital losses. And so they keep adding to them. “This is a titanically large foreign-exchange trade,” says David Simmonds , London-based analyst at Royal Bank of Scotland Group Plc. “It’s the biggest one history has ever seen and there’s nowhere for these reserves to go.” China aims to diversify out of U.S. Treasuries into other assets and commodities. The question that governments are grappling with is which markets are deep enough to absorb China’s riches? Gold? Oil? Euro-area debt? The Madoff family’s next Ponzi scheme? Ending Badly The challenge for China alone is like trying to park an Airbus A-380 super-jumbo in a Volkswagen. Like all pyramid schemes, there’s no easy end in sight and things could end badly. If the dollar collapses, panicked selling by central banks looking to limit losses would shake global markets more than the U.S. credit crisis has. Two, reserves are dead money. The wisdom of currency stockpiling came from the chaos of 1997. Speculators sensed authorities in Thailand were sitting on few reserves, and they were right. Their attack on the Thai baht set the stage for an Asian meltdown. Governments spent the 2000s determined not to repeat the mistake. Asian economies have too much of a good thing on their hands. In July 2007, on the 10th anniversary of Thailand’s devaluation, Asian Development Bank President Haruhiko Kuroda said the accelerating accumulation of reserves was a major concern for the region. Too bad nobody listened to him. Vast Sums These huge sums of money could be used to improve infrastructure, education, health care and reducing carbon emissions. Never before have we seen such a misallocation of such vast resources. Asia can do better with its money. Three, reserves add to overheating risks. When policy makers buy dollars, they need to sell local currency, increasing its availability and boosting the money supply. Next they sell bonds to mop up excess money in economies. It’s an imprecise science that often leads to accelerating inflation. The strategy works out to be an expensive one. The stakes are rising fast. The risks in Asia are skewed firmly in the direction of inflation. The focus is now on central banks to see if they will pull liquidity out of economies with higher interest rates. More attention should be on how reserve management is working at odds with that goal. Central banks face a difficult task. They must withdraw excess liquidity without devastating their economies and running afoul of politicians. Only now is Asia finding out how some of its economic-protection tactics are amplifying the challenge. Asia has been holding down currencies to support exports for more than a decade. It’s silly to ignore the side effects of that strategy for the region’s economies. Think about how Dubai shook the global economy, or how the mere hint that Chinese growth may dip below 8 percent inspires panic. These disappointments pale in comparison with the turbulence that may come from Asia’s biggest bubble popping. ( William Pesek is a Bloomberg News columnist. The opinions expressed are his own.) Click on “Send Comment” in the sidebar display to send a letter to the editor. To contact the writer of this column: William Pesek in Singapore at wpesek@bloomberg.net

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Philippines May Hold Interest Rate as Central Bank Prepares Stimulus Exit

January 27, 2010

By Karl Lester M. Yap and Michael Munoz Jan. 28 (Bloomberg) — The Philippine central bank will probably keep borrowing costs at a record low to support the economy even as it prepares to unwind some stimulus measures amid signs growth may accelerate. Bangko Sentral ng Pilipinas will keep its benchmark interest rate unchanged at 4 percent for a fifth straight meeting today, according to all 15 economists surveyed by Bloomberg News. A report at 10 a.m. may show that economic growth accelerated last quarter, according to a separate survey. The rate decision is due about 4 p.m. in Manila. The central bank plans to raise interest rates as its final step in unwinding measures implemented to counter the global recession, Deputy Governor Diwa Guinigundo said this week. Asian economies need to time their exits from stimulus carefully as the region rebounds this year, the Asian Development Bank said this month. “It is still premature to raise interest rates considering growth is still fragile,” said Antonio Espedido , treasurer at China Banking Corp. in Manila. “Once they are convinced growth is sustainable, the central bank may pull out some stimulus measures to prevent inflation from creeping in.” Benchmark 10-year bond yields climbed to a seven-month high last week on speculation the central bank will raise borrowing costs this year as inflation accelerates. Seven-year bond yields rose 12 basis points yesterday on concern Governor Amando Tetangco will signal the start of monetary tightening today. Inflation Accelerates Inflation in the Philippines accelerated to an eight-month high of 4.4 percent in December, driven by rising oil and food costs. Tetangco said yesterday price gains may reach a 10-month high of as much as 5.4 percent in January. The Philippine economy grew 1.1 percent in the fourth quarter from a year earlier, the fastest pace since the final three months of 2008, according to the median forecast of 12 economists in a Bloomberg News survey. Growth in Asian economies from China to Vietnam is accelerating after policy makers boosted public spending and cut borrowing costs to fight the worst global slump since World War II. Philippine President Gloria Arroyo , whose term ends this June, is increasing outlays on roads, schools and state programs to a record 1.58 trillion pesos ($34 billion) this year to bolster the economy. Ayala Land Inc. , the Philippines’ largest builder, expects a “very strong” start in 2010 as low interest rates spur home purchases, Chairman Fernando Zobel de Ayala said this month. The company expects to sell 9,200 residential units this year, up from 2,500 units last year, Zobel said Jan. 19. Stimulus Measures The Philippines’ benchmark interest rate is at the lowest level since central bank data started in 1990. Easing inflation last year allowed Bangko Sentral to slash the overnight borrowing rate by 2 percentage points from December 2008 to July 2009 to support economic growth as exports collapsed. Policy makers also reduced the amount of cash banks need to set aside as reserves and raised the amount of money available for loans to local lenders in late 2008. “We have already an exit strategy put in place,” Guinigundo said in a Jan. 25 interview. “We will activate it as and when the signs are clearer. All the things we put in place are all subject to possible unwinding or reversal. Interest rates will be the last to change.” Bangko Sentral is planning its exit from the measures taken during the global recession because a “delayed response could stir up inflation and create destabilizing asset bubbles,” Governor Tetangco said this month. The authority may increase the rates it charges lenders for borrowing money from the central bank, he said. Regional Moves Central banks throughout the region are taking steps to restrain inflation as global growth recovers. Australia and Vietnam raised interest rates late last year, and the People’s Bank of China increased the proportion of deposits that banks must set aside as reserves this month. Malaysia’s central bank said this week that borrowing costs cannot be kept “too low” for too long even as it kept interest rates unchanged, prompting Citigroup Inc. and Maybank Investment Bank Bhd. to predict it may begin raising the benchmark rate from a record-low 2 percent as early as March. To contact the reporter on this story: Karl Lester M. Yap in Manila at kyap5@bloomberg.net

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Vietnam May Pay Full Point More Than Indonesia in International Debt Sale

January 19, 2010

By Lilian Karunungan and David Yong Jan. 20 (Bloomberg) — Vietnam may have to pay at least a percentage point more than the Philippines and Indonesia to sell international bonds as a weakening local currency and surge in developing-nation sales spur investors to seek a higher premium. The government aims to issue $1 billion of 10-year bonds as long as the interest rate doesn’t exceed 7 percent per year, the central bank said in a statement yesterday. The Philippines sold debt due 2020 at 5.67 percent on Jan. 7 and Indonesia offered similar notes at 6 percent last week. Both countries carry lower debt ratings than Vietnam from Standard & Poor’s. Vietnam is planning its second sale of dollar debt as the dong trades near a record low, inflation accelerates and the trade deficit widens. AllianceBernstein L.P. and Western Asset Management Co. say they are becoming more selective after developing nations sold more than $13 billion in overseas bonds this year, the busiest start for emerging-market foreign borrowing in at least a decade. Indonesia scaled back its offer to $2 billion and canceled a planned 30-year note sale. “The Vietnamese authorities have at present a difficult task in addressing mounting inflationary pressures and external balances,” said Dennis Shen , an analyst in New York at AllianceBernstein, which oversees $496 billion globally and is an affiliate of French insurer Axa SA. “With the risks inherent, we would likely consider participation only should yields come in around the 7 percent to 7.25 percent range.” Growth Policies Vietnam’s government is struggling to balance policies that spur growth with efforts to ensure its economy remains stable, Moody’s Investors Service said Jan. 15. The nation is rated Ba3 by Moody’s, three levels below investment grade, with a negative outlook. The ranking is on par with the Philippines and one grade weaker than Indonesia. S&P rates Vietnam BB, one level higher than the BB- ranking for Indonesia and the Philippines. Vietnam sold $750 million of 10-year bonds to yield 7.125 percent at its first global bond sale in October 2005, a premium of 2.56 percentage points over similar-maturity Treasuries. The January 2016 notes yielded 6.158 percent yesterday, for a spread of about 3.3 percentage points, according to data compiled by Bloomberg. With a 7 percent yield on the new 10-year debt, Vietnam would be offering about the same level of premium. Barclays Capital Plc, Citigroup Inc. and Deutsche Bank AG are managing the sale and have already held marketing lunches in Hong Kong and London. The central bank’s release on its Web site was later revised to remove references to the possible yield. The Finance Ministry plans meetings with fund managers in Boston on Jan. 20 and New York the following day. ‘Scarcity Value’ Sergey Dergachev , who helps oversee $250 billion including $6 billion in emerging-market debt, at Frankfurt-based Union Investments, said he will add more Vietnam bonds because the nation doesn’t borrow overseas often, limiting supply for investors in higher-yielding bonds. Investors added almost $3 billion into equity and bond funds in developing nations in the week to Jan. 13, following record inflows last year, Cambridge, Massachusetts-based fund tracker EPFR Global said Jan. 15. “It’s the scarcity value these upcoming Vietnamese bonds offer,” Dergachev said. “The new issue should have an absolute yield of around 6.85 percent to 7 percent.” Vietnam’s dollar debt is in limited supply and it’s difficult to buy local-currency bonds, Dergachev said. Because they may be difficult to sell quickly, the bonds need to offer a “liquidity premium,” he said. “In the case of Vietnam, many investors got burned in the past when they got into local-currency debt and couldn’t get out,” said Mark Dow , who helps manage $3 billion at Pharo Management LLC in New York. “That may be a factor.” Pharo Management will consider buying the debt if it prices attractively, he said. ‘More Careful’ A surge in debt sales by emerging-market nations and the shrinking yield advantage may add to Vietnam’s difficulty in attracting investors, according to Rajeev de Mello , Singapore- based head of Asian investment who helps manage $506 billion globally at Western Asset. Albania is planning to sell its first international bonds, after the Philippines, Mexico, Poland, Turkey, Indonesia and Slovenia issued debt this year. Investors demanded a 2.97 percentage point premium to own developing-nation debt on Jan. 19, according to the EMBI Global Composite Index , down from 4.14 percentage points six months ago. “Investors have a fairly large choice now of issues,” De Mello said. “They are bit concerned the spreads to Treasuries are too low and are going to be a bit more careful.” Currency Weakness Vietnam’s dollar-denominated bonds returned 25 percent in the past year, beating the 21 percent gain for the Philippines, according to indexes compiled by JPMorgan Chase & Co. They trailed the 56 percent rally in Indonesian notes and the 29 percent for the EMBI Global index, which tracks the debt of 37 developing nations. Credit default swaps for Vietnam cost 236 basis points, 40 percent more than for the Philippines and 24 percent more than for Indonesia. They are contracts used to protect against or speculate on default, paying the buyer face value if a borrower fails to adhere to debt agreements. The central bank devalued the dong by 5.4 percent last year as the trade balance recorded a $12.25 billion deficit for all of 2009 after a first-quarter surplus. The dong is trading at 18,474 per dollar, near a record low of 18,500 reached in November. Consumer-price gains quickened to 6.52 percent in December from a year earlier, compared with 4.35 percent in November. Without a successful bond sale, Vietnam will have to rely on international donors to fund energy and infrastructure projects, said John T. Sullivan , founder of Washington-based consultancy Kerry Emerging Global Opportunities LLC. That may hamper growth in exports, investment and the economy, he said. “Vietnam can be a dynamic economy if the proper infrastructure is put into place,” he said. To contact the reporters for this story: Lilian Karunungan in Singapore at at lkarunungan@bloomberg.net ; David Yong in Singapore at dyong@bloomberg.net .

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Posco Pursues $30 Billion in Overseas Expansion to Catch China’s Baosteel

January 10, 2010

By Sungwoo Park Jan. 11 (Bloomberg) — Posco , Asia’s most profitable steelmaker, is set to report the highest net income in six quarters as prices recover. Further growth depends on $30 billion in overseas expansion. Chief Executive Officer Chung Joon Yang last week added plans for a $7 billion plant in India’s Karnataka state to a $12 billion project in Orissa in the south Asian nation and a $6 billion Indonesian plant. Together with an investment in Vietnam, the South Korea-based company may leap from fifth-place to regain its spot as Asia’s largest steelmaker. Chung, 61, who took the helm in February, wants to regain ground lost to China’s Baosteel Group Corp. Three years of delay at the Orissa project and slowing domestic growth weighed on the stock, with Posco lagging behind ArcelorMittal, the world’s largest mill. “Posco has to show that it is a growing company,” said Kim Do Joon , a Seoul-based fund manager who helps manage $1.5 billion of assets including Posco shares at Hanwha Investment Trust Management Co. “They cannot expect a growth momentum from the local market.” Shares of Posco , which counts Warren Buffett ’s Berkshire Hathaway Inc. as a stakeholder, gained 63 percent in Seoul trading last year. ArcelorMittal jumped 89 percent. China’s Baoshan Iron & Steel Co. and local rival Hyundai Steel Co. doubled. Profit at the Pohang-based company may almost double to 1.37 trillion won ($1.2 billion) in the three months ended Dec. 31, according to the median estimate of 23 analysts compiled by Bloomberg. It may be the largest quarterly gain in three years. Chung will announce results at 4 p.m. Seoul time on Jan. 14. Fresher Look “I’ll try to boost the future competitiveness of the company through investments and M&As,” Chung, a 35-year Posco veteran, said in February when he took over the job. He declined to be interviewed for this story on his first full-year earnings result as CEO. In the past year, Chung has acquired Asia Stainless Corp. in Vietnam, TaihanST Corp. in Korea, and is in talks to buy Thailand’s Thainox Stainless Pcl . He’s approved U.S. and Chinese expansion and is studying a bid for Daewoo International Corp. , which has a Myanmar gas project worth at least $4 billion. “Scale is pivotal for competitiveness,” Choi Doo Jin , a Posco spokesman, said in an interview. “We’re going into India and Indonesia with a main focus on resources and into Vietnam on markets.” Three-Prong Expansions Those expansions will add 28 million metric tons of capacity, or 85 percent of Posco’s 33.1 million tons crude steel output in 2008. The Orissa and Indonesian projects alone may add 60,000 won to Posco’s stock price, said Kim Gyung Jung , an analyst with Samsung Securities Co. Chung, who studied at the nation’s top Seoul National University, was head of Posco Engineering & Construction Co. when he was picked to be CEO. The metal engineer, who snowboards and plays the saxophone, has spent most of his career in production after joining Posco in 1975. Like Buffett, Chung is seeking to take advantage of the crisis to expand. Posco is the only steelmaker among the 10 biggest that didn’t report a loss in any quarter in the 12 months ended Sept. 30, according to data compiled by Bloomberg. “You have to invest when others don’t,” Samsung’s Kim said. “You can avoid competition and pre-occupy markets, leaving little room for latecomers.” ‘Aggressive Investments’ Steel demand may grow 9.2 percent this year as the global economy rebounds from the recession, the World Steel Association forecast in October. Posco will be able to maintain its risk profile during the course of “aggressive investments,” Standard & Poor’s said Dec. 14. It has 8 trillion won ($7 billion) in cash, near-cash items, short-term investments and receivables as of Sept. 30. Posco is pressing ahead in Orissa after winning government approval to acquire 88 percent of the land needed, spokeswoman Choi Youn Joung said Jan. 4. The project has been delayed since 2007 when construction was to start. It still needs approval from remaining villagers and a permit to mine iron ore, required to feed its steel plant. The delays won’t affect plans for the 6-million-ton plant in Karnataka that were revealed last week. Chung also has to progress Posco’s $5 billion investment in Vietnam, where the government in 2008 told the company to seek a new location for its plant. Right Thing “Targeting India, Vietnam and Indonesia is the right thing to do to prepare for the future as demand outlook for the emerging markets is quite good,” said Im Jeong Jae , a Seoul- based fund manager at Shinhan BNP Paribas Asset Management Co., which manages about $26 billion in assets including Posco shares. Southeast Asia is the world’s biggest net importing steel market with demand expected to grow 9.2 percent a year, according to Posco’s Research Institute. Posco dropped to sixth in global steelmaking in 2008, overtaken by Baosteel and Hebei Iron & Steel Group. China plans to create one or two producers the size of ArcelorMittal. The world’s largest steelmaker had 101.6 million tons of output in 2008, three times Posco’s production. “Bigger Chinese rivals may eventually threaten Posco’s edge in high-end products such as automotive steel,” said Chung Ji Yun , an analyst with HI Investment & Securities Co. in Seoul. To contact the reporter on this story: Sungwoo Park in Seoul at spark47@bloomberg.net .

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Indonesia May Pay Premium on $4 Billion Bonds as Emerging Debt Rally Fades

January 10, 2010

By Lilian Karunungan and Aloysius Unditu Jan. 11 (Bloomberg) — Indonesia may have to reward investors with higher yields than the Philippines to borrow $4 billion as an emerging-markets bond rally fades. Southeast Asia’s largest economy may sell 10-year debt at a yield of about 6 percent, or 2.2 percentage points more than similar maturity U.S. Treasuries , according to Aberdeen Asset Management Plc and Vegagest SGR SpA. The Philippines, whose bonds carry the same BB- rating as Indonesia’s from Standard & Poor’s, priced 2020 securities last week to yield 5.67 percent. “If Indonesia does come to the market as planned with $4 billion of issuance, that will come with a premium,” said Edwin Gutierrez , who oversees $5 billion in emerging-market debt for Aberdeen in London. “There’s a big rush to get out the door before U.S. Treasury yields rise further.’” The Philippines and Turkey raised a combined $3.5 billion selling dollar bonds last week, while Vietnam, Russia and Poland are preparing sales to take advantage of record low U.S. borrowing costs. Pacific Investment Management Co., the world’s biggest bond fund, said last week it was “highly unlikely” developing nations’ dollar debt would perform as well as last year, when the gap between emerging-market and Treasury yields shrank 4.16 percentage points as interest rate cuts and stimulus spending revived the global economy from a recession. The spread has narrowed to 2.70 percentage points, close to a 19-month low, according to the JPMorgan Emerging-Market Bond Index Plus. Ratings Upgrade Indonesia fared better than its neighbors in the economic slump, as growth in the $514 billion economy accelerated last quarter for the first time in a year. President Susilo Bambang Yudhoyono , 60, who won re-election in 2009, aims to boost the country’s expansion to more than 7 percent from an average of 5.1 percent last decade. Indonesia’s dollar bonds are the second-best performing in the region, after Pakistan, giving investors a return of 46 percent in the past year, according to indexes compiled by HSBC Holdings Plc. Moody’s Investors Service on Sept. 16 raised the nation’s rating by one level to Ba2, two levels below investment grade, citing the economy’s resilience. “This environment increases investors’ confidence that the country will move closer toward an investment-grade rating,” said Branko Windoe , the head of treasury in Jakarta at PT Bank Central Asia. The government could attract investors with a spread of as much as 2.5 percentage points for the planned sale of 10-year and 30-year debt, Windoe said. Indonesia hired Barclays Capital Plc, Citigroup Inc. and Credit Suisse Group AG for the sale, a ministry official said last month. Sri Mulyani Indrawati Proceeds from the bond sale may help 47-year-old Sri Mulyani Indrawati reduce a budget deficit forecast to reach 98 trillion rupiah ($10.6 billion). That’s equal to 1.6 percent of gross domestic product. Yudhoyono lured Sri Mulyani from the International Monetary Fund to become planning minister in his first cabinet in October 2004, and she became finance minister the following year. She shook up the government with a new set of remuneration packages, restructured the tax office and cleaned up practices that encouraged graft. In 2006, Sri Mulyani was named Finance Minister of the Year by Euromoney magazine. “Indonesia has very sound economic fundamentals,” said Stefano Costagli , an investment consultant at Miniato, Italy- based Vegagest, which owns Indonesia’s 2018 and 2037 dollar bonds among $3 billion of assets. Still, “even if the appetite for emerging markets is very strong these days, Indonesia should offer some pick-up of at least 25 basis points,” Costagli said. A basis point equals 0.01 percentage point. Rupiah Debt Indonesia’s 11.625 percent dollar debt maturing March 2019 yielded 5.74 percent on Jan. 8, a premium of 1.9 percentage points over similar-dated U.S. Treasuries. They were sold on Feb. 27 to yield 11.75 percent, or 8.759 percentage points more than U.S. government debt. Similar-maturity rupiah debt yields 9.75 percent. Pimco favors debt denominated in Polish zloty, South Korean won and Mexican pesos, where returns are being increased by currency appreciation, said Michael Gomez , co-head of emerging markets at the Newport Beach, California-based fund manager. It’s unlikely the EMBI+ will repeat last year’s 26 percent return in 2010, he said. Aberdeen, Scotland’s largest money manager, has shunned sales of dollar-denominated bonds from the Philippines and Turkey, seeking higher returns in corporate debt. Aberdeen bought dollar bonds of Indonesia’s coal companies in the last quarter of 2009. PT Indika Energy Tbk’s 9.75 percent security due November 2016 yielded 9.16 percent on Jan. 8, a premium of 5.7 percentage points over seven-year U.S. debt. “We just don’t see much value at these levels” for sovereign dollar debt, Gutierrez said. To contact the reporters on this story: Lilian Karunungan in Singapore at at lkarunungan@bloomberg.net ; Aloysius Unditu in Jakarta at aunditu@bloomberg.net

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Qantas Chief Joyce Says No Signs of Illegal Activity by Staff in Vietnam

January 8, 2010

By Nichola Saminather Jan. 9 (Bloomberg) — Qantas Airways Ltd. , Australia’s largest airline, said there are no indications of illegal activity by employees of its Jetstar Pacific unit currently prevented from leaving Vietnam. “There’s absolutely no indication that there’s any illegal activity here,” Chief Executive Officer Alan Joyce told reporters in Sydney today. “Once the investigation is complete, I’m sure, with the fuel hedging issues, they will come to the conclusion that no illegal activity had taken place.” Joyce said that investigations into Jetstar Pacific won’t affect its other operations. Qantas owns 27 percent of Jetstar Pacific while the majority is controlled by the Vietnamese government. The Vietnamese carrier’s Chief Financial Officer Tristan Freeman and Chief Operating Officer Daniela Marsilli have been prevented from leaving the country while former CEO Luong Hoai Nam has been detained by Vietnamese authorities. Nam’s detention comes amid an investigation into a $31 million loss on fuel hedging, Tuoi Tre newspaper reported yesterday, citing a state audit. The Australian government is helping Freeman and Marsilli through the embassy in Hanoi, Deputy Prime Minister Julia Gillard said on Channel Nine’s Weekend Today program. Consular Assistance “We are providing consular assistance, doing everything we can trying to get to the bottom of the reason for their detention and resolve the issue,” she said. Qantas has the right to increase its stake in the airline to 30 percent this year after first acquiring an 18 percent holding in July 2007, the company said yesterday. The airline, which was formerly known as Pacific Airlines, became profitable in June 2009 and has six planes serving seven destinations within Vietnam. Luong Hoai Nam, who left the position of CEO in November, has a holding of less than 1 percent in Jetstar Pacific, according to Qantas spokeswoman Olivia Wirth . Vietnam’s State Capital Investment Corp. , the government’s investment arm, holds a majority stake in the carrier, which competes with state-owned Vietnam Airlines Corp. Melbourne-based Jetstar, which is wholly owned by Qantas, is the airline’s low-cost carrier. The company this week agreed with AirAsia Bhd. to cooperate on purchasing planes, parts and ground handling services to lower operating costs. To contact the reporter on this story: Nichola Saminather in Sydney at Nsaminather1@bloomberg.net .

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Emerging Funds Lured Record 2009 Inflows, Amid Global Recovery, EPFR Says

January 4, 2010

By Shiyin Chen and David Yong Jan. 5 (Bloomberg) — Emerging-market stocks and bond funds closed 2009 with record annual inflows as a recovery from the global financial crisis boosted demand for riskier assets, according to U.S.-based research company EPFR Global. Emerging-market equity funds received $64.5 billion, while those investing in developing-nation fixed-income securities drew more than $8 billion, EPFR in Cambridge, Massachussetts, said in an e-mailed statement, citing initial figures from funds reporting daily and weekly. Gains last year followed outflows of about $67 billion in 2008, when the failure of Lehman Brothers Holdings Inc. froze world credit markets. The MSCI Emerging-Markets Index of stocks rallied 75 percent in 2009, the most since the gauge was introduced in 1987. Emerging-market debt produced a 28 percent return, the best since 1996, according to JPMorgan Chase & Co.’s EMBI Global Index . “Liquidity will still be an important factor driving markets,” Vasu Menon , vice president of Oversea-Chinese Banking Corp.’s wealth-management unit, said in a Bloomberg Television interview. “But for 2010, fundamentals will play a bigger role.” Shares in developing nations may rally more than 20 percent this year as the U.S. economic recovery strengthens, Credit Suisse Group AG said yesterday. The brokerage joined JPMorgan and Morgan Stanley in predicting further gains in emerging markets. Stock Valuations Emerging markets are attracting more money to initial public offerings than developed nations for the first time, a warning sign that the record rally may turn into a 20 percent decline, according to Mark Mobius , who oversees $34 billion of developing-nation assets at Templeton Asset Management Ltd. Companies in the MSCI Emerging-Markets Index are trading at the highest levels relative to earnings since 2000. IPOs in developing economies raised $77 billion last year, exceeding industrialized nations by 160 percent, annual Bloomberg data starting in 2000 show. Stock funds investing in Asia excluding Japan, and diversified global emerging markets both attracted record inflows last year, along with those buying in Brazil, Russia, India and China, according to EPFR, which tracks funds with more than $12 trillion of assets. Final weekly and monthly data will be available from Jan. 16, it said. Dollar Bond Sales The 28 percent return in emerging-market debt in 2009 was the best in 14 years, according to JPMorgan’s EMBI Global Index. Indonesia’s sovereign bonds rallied 47 percent, the Philippines rose 24 percent and Vietnam’s gained 33 percent . “Investors are getting more comfortable with Asian growth stories,” said Irene Cheung , a Singapore-based director of Asian emerging-market trading at Royal Bank of Scotland Group Plc. “Credit qualities are good and not over-rated and that’s true for Indonesia and the Philippines.” Indonesia, the Philippines and Vietnam are lining up to sell foreign-currency bonds from this month, as a global economic recovery buoys investor appetite for higher-yielding assets in the region. Indonesia plans to sell as much as $4 billion of U.S. dollar debt with 10- and 30-year maturities, while the Philippines is offering as much as $1.5 billion of notes denominated in dollars or euros, according to people aware of the plans. Vietnam is seeking to raise as much as $1 billion. To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net ; To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net .

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Billionaire Li May Add to Fortune as Hutchison Plans to Buy Out Phone Unit

January 4, 2010

By Mark Lee Jan. 5 (Bloomberg) — Billionaire Li Ka-shing may gain from the plan by Hutchison Whampoa Ltd. to buy out minority investors at a phone unit, as Hong Kong’s richest man increases holdings in his companies that underperform rivals. A general offer for shares in Hutchison Telecommunications International Ltd. may be “imminent” from parent Hutchison Whampoa Ltd., the unit said in a statement yesterday. The phone carrier, with a market capitalization of about $1 billion, is undervalued after its assets were boosted by the $1.4 billion sale of a controlling stake in Israel’s No. 2 mobile-operator last year, said Marco Mak , an analyst at Tai Fook Securities in Hong Kong. “Li has been very accurate in the past in assessing market trends,” said Mak, who rates Hutchison Whampoa shares “buy.” “He only buys when he thinks an asset has been undervalued by the market.” The 81-year-old Li boosted his stakes in Cheung Kong (Holdings) Ltd. , his flagship property developer, and Hutchison Whampoa after shares of the companies both trailed the 52 percent return of Hong Kong’s benchmark Hang Seng Index last year. Li may have to offer a “good premium” to buy out Hutchison Telecom investors, said Johnny Wong , an analyst at Yuanta Securities in Hong Kong. ‘You Would Do Same’ “At the moment, Hutchison Telecom’s stock price has discounted its assets in other markets,” Wong said. In October, Hutchison Telecom sold its 51 percent stake in Partner Communications Ltd. to Israel’s Scailex Corp. for 5.29 billion shekels ($1.4 billion). That deal left the Hong Kong company with operations in Vietnam, Indonesia, Sri Lanka and Thailand after it sold a controlling stake in India’s Vodafone Essar Ltd. to Vodafone Group Plc for $10.7 billion in 2007. Hutchison Telecom shares were suspended from afternoon trading yesterday after rising 2.5 percent to HK$1.65, valuing the unit at HK$7.94 billion ($1 billion). Li took the company public more than five years ago. “Buying back shares like this is something which Hong Kong billionaires do quite often,” shareholder activist David Webb said. “If there’s a particular interest in one sector then they will sell a minority stake to the public in a company they control in an IPO. But if they later think the shares are undervalued they will try to buy them back again. ‘‘If you were a billionaire, you would do the same.’’ Increasing Stake Li was estimated to be worth $16.2 billion by a Forbes magazine survey in March 2009. He controls 67 percent of Hutchison Telecom’s shares through a 60.4 percent stake held by Hutchison Whampoa and his personal holdings. Li raised his investment in the company in December 2007 by buying out Egypt’s Orascom Telecom Holding SAE , its second- biggest investor at the time. He also controls 51.7 percent of Hutchison Whampoa after purchasing shares in the company 12 times last month, according to Bloomberg data. Hutchison Telecom shareholders received a total of HK$13.75 per share in special dividends in 2007 and 2008 from proceeds of the sale in India and a stake in Hutchison Telecommunications Hong Kong Holdings Ltd. through a spinoff in May. This compares with the stock’s price of HK$6.07 at its initial public offering in October 2004. Li is dubbed ‘‘Superman” by Hong Kong’s media because of his track record for investing. He correctly predicted in 2007 that China’s stock market was in a “bubble.” He was born in 1928 in Chaozhou in the southern Chinese province of Guangdong and expanded the Hong Kong plastics company he founded in 1950 through real-estate investments and acquisitions. His Cheung Kong group owns units in industries including ports, telecommunications, energy, property and retail in more than 50 countries. To contact the reporter on this story: Mark Lee in Hong Kong at wlee37@bloomberg.net

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Singapore’s GDP Shrinks for First Time in Three Quarters on Manufacturing

January 3, 2010

By Shamim Adam Jan. 4 (Bloomberg) — Singapore’s economy shrank for the first time in three quarters as weaker manufacturing output interrupted the island’s recovery from its deepest recession since independence in 1965. Gross domestic product contracted an annualized 6.8 percent from the previous three months last quarter after climbing a revised 14.9 percent from July to September, the trade ministry said in a statement today. That was worse than the median estimate for a 2.1 percent decline in a Bloomberg News survey of eight economists. The economy shrank 2.1 percent in 2009. The island’s outlook is closely linked to global conditions and a “sluggish recovery” in demand for exports by companies such as Stats Chippac Ltd . will moderate growth prospects, the government said in November. The opening of two casino-resorts in the coming months will help support the economy this year, according to Nomura Holdings Inc. “We see the GDP decline as temporary and the economy will pick up this year as the services industry gets a boost from the opening of the casinos and tourism-related sectors,” said Tetsuji Sano , a Singapore-based economist at Nomura Holdings. “The prospects for the rest of Asia are very good, too, as the global economy improves.” Singapore’s $182 billion economy grew 3.5 percent in the fourth quarter from a year earlier, compared with the median estimate for a 3.8 percent gain in a Bloomberg News survey of nine economists. Stocks Fall The benchmark stock index fell 0.2 percent to 2,892.17 as of 9:29 a.m. local time. The Singapore dollar was little changed at S$1.4045 versus the U.S. currency. Singapore is seeking ways to ensure its economy grows in a more sustained manner after three recessions in the past decade. The island’s dependence on electronics and pharmaceutical exports has made it vulnerable to fluctuations in global demand and business cycles, pushing it into a deeper slowdown than many neighbors last year. “In Asia, countries that are more reliant on export demand may be subjected to more swings than those that are led by domestic demand,” Alvin Liew , an economist at Standard Chartered Plc in Singapore, said before the report. “The prospects for 2010 will be better and we can expect a few more growth drivers for Singapore including financial services and the tourism industry.” Volatile Year The economy is improving after a “volatile” year that saw it shrink for the first time since 2001, Prime Minister Lee Hsien Loong said Dec. 31. Singapore employers are increasing payrolls and job openings as the economy improves, according to a Ministry of Manpower report last month. Job vacancies rose a seasonally adjusted 46 percent in the third quarter from the previous three months, according to the latest data. Singapore Press Holdings Ltd ., the city’s biggest newspaper publisher, said Dec. 1 that it will restore 50 percent of the pay cuts introduced in April and give special one-off payments to its workers. Asia has led the world’s recovery from its economic slump, and central banks from Australia to Vietnam have started to increase interest rates or indicate a readiness to exit monetary stimulus. Still, the region’s rebound could falter as the effect of stimulus measures fade, the Asian Development Bank’s Office for Regional Economic Integration said Dec. 15. Hong Kong Chief Executive Donald Tsang said Dec. 29 an economic “double dip” is possible in the middle of this year. Monetary Policy Australia and Vietnam raised interest rates last quarter to contain inflation. The Monetary Authority of Singapore said in October it will maintain a zero appreciation stance in its currency policy, refraining from further monetary easing after opting for a de-facto devaluation of the exchange rate in April to counter collapsing exports. The government, which lowered corporate taxes and tapped its reserves last year to fund record spending, said last week it will extend by a year measures to help companies get financing, after deciding in October to prolong a wage-subsidy program. “The government will likely be limited in its fiscal stimulus measures, instead focusing on pro-business and investment policies,” Philip McNicholas , an economist at IDEAglobal in Singapore, said before the report. The central bank may have “greater tolerance for a stronger Singapore dollar” amid rising food and energy commodity prices, he said. Manufacturing Wanes Manufacturing, which accounts for about a quarter of the economy, rose 1 percent from a year earlier last quarter, after gaining a revised 7.9 percent in the three months through September. It fell 38.4 percent from the previous quarter. “This decline was mainly due to a contraction in the output of the biomedical manufacturing and transport engineering clusters,” the trade ministry said. The island’s services industry grew 3.7 percent last quarter from a year earlier, after falling 2.2 percent in the previous three months. The construction industry gained 11.2 percent, compared with a 12.8 percent increase in the third quarter. Genting Singapore Plc unit Resorts World Sentosa plans to open its $4.5 billion project in early 2010, and Las Vegas Sands Corp. says it may open the Marina Bay Sands in April. The economy will grow 3 percent to 5 percent in 2010, Lee said Dec. 31, reiterating a previous forecast. The figures today were computed from data for October and November. Revised numbers are due to be released next month. To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net

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World Bank lends Vietnam $500m

December 24, 2009

World Bank lends Vietnam $500m

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Isuzu Motors Seeks Talks With GM to Review Engine-Making Venture in Ohio

December 21, 2009

By Yuki Hagiwara and Makiko Kitamura Dec. 22 (Bloomberg) — Isuzu Motors Ltd. , Japan’s largest maker of light trucks, is seeking talks with General Motors Co. to review a joint engine-making factory in the U.S. that may operate at 30 percent capacity next year. Ending joint production at the Ohio plant “may be an option,” Isuzu President Susumu Hosoi said in an interview at the company’s headquarters in Tokyo last week. The venture, DMAX Ltd., is 60 percent owned by GM and makes diesel engines for the Detroit-based automaker. Isuzu would be the latest of several automakers including Toyota Motor Corp. to abandon ventures with GM after the U.S. carmaker emerged from bankruptcy earlier this year. The Japanese truckmaker rose 6.2 percent, the biggest gain among companies in the Nikkei 225 Stock Average , to 171 yen as of 10:24 a.m. in Tokyo trading. “It would be best for Isuzu to end its partnership with GM,” said Koichi Ogawa , chief portfolio manager at Daiwa SB Investments Ltd. in Tokyo. “The U.S. market will likely recover next year, but I don’t think demand for large vehicles like SUVs will recover.” ‘No Plans to Change’ GM took over its Canadian carmaking venture with Suzuki Motor Corp. earlier this month after ending an equity alliance with the Japanese carmaker in November 2008. The U.S. carmaker also terminated a joint production arrangement with Toyota in June, abandoning the New United Motor Manufacturing Inc. factory in Fremont, California, as part of a bankruptcy reorganization. “There are no plans to change the relationship with Isuzu in regard to the DMAX plant,” Tom Read, a GM spokesman in Warren, Michigan, said in an e-mail. U.S. sales of GM’s Chevrolet Silverado full-size pickup, which uses DMAX’s engines, dropped 34 percent in the first 11 months of this year. “Our venture in North America serves large-size vehicles, and there is　definitely a question mark on that market,” Isuzu’s Hosoi said. “I want to ask GM what their thinking is.” Isuzu and GM also have a joint diesel-engine production venture in Poland that may need to be reviewed as well, Hosoi said. Separately, Isuzu is aiming to introduce a small truck developed for emerging markets next fiscal year, Hosoi said. The rollout will begin in Indonesia and Vietnam and may be followed by other Asian and Latin American markets, he said. The company’s truck sales in Southeast Asia may rise to as many as 50,000 vehicles a year, from about 30,000 now, after the new model is introduced, Hosoi said. Truck sales in China excluding pickups may rise to about 45,000 next year from about 35,000, he said. Isuzu also plans to introduce a small plug-in hybrid truck in a few years, spokesman Koichi Ito said. The Asahi Shimbun reported the news about the hybrid truck earlier today. To contact the reporter on this story: Makiko Kitamura in Tokyo at mkitamura1@bloomberg.net

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Bunge begins construction of Vietnam soybean processing plant

December 16, 2009

Bunge begins construction of Vietnam soybean processing plant

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Fastest Food Inflation Since ’08 Riots Means Milk Costs 39% More Next Year

December 14, 2009

By Alan Bjerga, Madelene Pearson and Yi Tian Dec. 14 (Bloomberg) — Falling production in commodities from rice to milk is bad news for just about everyone except investors. Rice may surge 63 percent to $1,038 a metric ton from $638 on Philippine imports and a shortage in India, a Bloomberg survey of importers, exporters and analysts showed. The U.S. government says nonfat dry milk may jump 39 percent next year, and JPMorgan Chase & Co. forecasts a 25 percent gain for sugar. Global food costs jumped 7 percent in November, the most since February 2008, four months before reaching a record, according to the United Nations Food and Agriculture Organization. Farm prices this year lagged behind copper futures that doubled and oil’s 57 percent increase. A recovery from the worst recession since World War II would spur food demand and boost costs for buyers of commodities including milk processor Dean Foods Co. while increasing the number of hungry people that the UN says now exceeds 1 billion. “Agricultural commodities will be a great investment in the next three to five years,” said Oliver Kratz , who manages $10 billion as head of Global Thematic Strategy investments at Deutsche Bank AG’s DB Advisors in New York, including $3 billion in agriculture. For those who can’t afford to pay more for food, there’s the “painful” risk of hunger, he said. Expanding populations and higher incomes are boosting consumption in China and India. China’s milk demand is recovering after domestic supplies were tainted with melamine, a chemical used in making plastics that killed at least six babies and sickened almost 300,000 children. Droughts in India and Argentina and typhoons in the Philippines have reduced output. Food-Price Risk “Inventories are extremely low in a number of grains markets,” Barclays Capital said Dec. 10. “The prospect of a further bout of food-price inflation in 2010 cannot be ruled out since many of the factors that contributed to higher prices in 2007 and 2008 are still a feature.” Stockpiles of corn and rice will drop before the 2010 harvest for the first time in three years, U.S. Department of Agriculture data show. The International Sugar Organization forecasts a second straight global supply deficit in the year through September 2010, and the USDA predicts stores of the sweetener will drop to the lowest level since 1995. Pork, Poultry Wholesale-pork prices in the U.S. are up 27 percent this year, heading for the first annual gain since 2004, as farmers hurt by two years of losses cut the domestic breeding herd to the smallest level since the USDA started collecting the data in 1964. Chicken output is sliding in the U.S., where the number of eggs placed into incubators each week is headed to the lowest quarterly average since 2002. “The tendency for food prices is up, it’s not down,” Unilever Chief Executive Officer Paul Polman said Dec. 11 in a Bloomberg Television interview in Copenhagen. Rotterdam- and London-based Unilever, the largest consumer-product company after Procter & Gamble Co. in Cincinnati, makes Lipton tea, Hellmann’s mayonnaise and Bertolli sauces. “We need to be sure that we have the food supply, that we don’t waste, and that we continue to get increasingly efficient means to get that food to the consumers,” Polman said. The risk of accelerating prices may be muted by “healthy” gains in inventories, including wheat , according to the FAO. Supplies in warehouses are enough to meet about 23 percent of global demand, compared with 19 percent two years ago, the FAO said last week. Inventories are “far more comfortable” than during last year’s crisis, the UN agency said. More Wheat Supply Global wheat stockpiles on May 31 are expected to jump 17 percent to an eight-year high of 190.9 million metric tons, after production last year reached a record 682 million tons, the USDA said Dec. 10. Food costs jumped to a record in June 2008 as wheat, corn, rice, oats, soybeans, animal feed and cooking oil reached the highest prices ever. Indonesia, Argentina and India restricted trade to protect supplies, according to the UN. Shortages sparked about 60 riots from Haiti to the Philippines before the global credit crisis and recession sent prices plunging. Economic growth may revive shortages, according to Josette Sheeran , the executive director of the UN’s World Food Program. “Volatility in price and supply are with us for the predictable future,” she said. “Risk is the new normal when it comes to food.” Economic Growth Seen The global economy will expand 3.1 percent in 2010 as more than $2 trillion in stimulus combined with demand in Asia pulls the world out the recession, the Washington-based International Monetary Fund said on Oct. 1. The U.S. will expand 2.6 percent next year, compared with a contraction of 2.5 percent in 2009, according to the median of estimates from 83 economists in a Bloomberg survey. China’s growth will accelerate to 9.4 percent next year from 8.5 percent in 2009, a Bloomberg survey of 31 economists showed. Some food supplies already are falling. Global production of rice, the staple for more than half the world, has lagged behind demand in four of the past eight years, USDA data show. Rising consumption is expected to erode stockpiles by 41 percent to 85.9 million tons in the 2009-2010 marketing year, down from a record 146.7 million in 2001-2002, the USDA forecasts. Rice may exceed $1,000 a ton as dry El Nino weather, caused by a warming of sea waters in the equatorial Pacific Ocean, shrinks output and the Philippines and India boost imports, according to Sarunyu Jeamsinkul, the deputy managing director at Asia Golden Rice Ltd. in Thailand, the largest exporting nation. Rice, Corn, Soybeans The Thai rice price may soar to last year’s record of $1,038 a ton, according to the highest estimate in a Bloomberg survey last month of 10 importers, exporters and analysts in Vietnam, Thailand, India, Singapore and Pakistan. Goldman Sachs Group Inc. said Dec. 3 that corn and soybeans will rally through 2011. Corn will reach $4.75 a bushel next year and $5 in 2011 on higher demand for fuels made from the grain, the bank said. Soybeans may reach $11 a bushel in the next 12 months and average $12 a bushel in 2011, Goldman said. Decatur, Illinois-based Archer Daniels Midland Co. , the second-largest U.S. producer of corn-based ethanol behind Poet LLC, reported a 53 percent drop in quarterly profit last month on tighter supplies of soybeans it processes into animal feed and cooking oil. In the sweeteners and starches business, Archer Daniels Midland’s profit more than tripled to $194 million, partly because of higher selling prices and reduced costs for corn, which fell from last year’s record. Archer Daniels gained 14 percent since the end of June to $30.49 in New York trading. Milk Supplies U.S. manufacturers’ stockpiles of nonfat dry milk fell to 90.1 million pounds on Oct. 31, 47 percent lower than a year earlier and less than half of what they were in June, the USDA said Dec. 4. Domestic production this year is down 8.2 percent, including a 27 percent drop in October, as farmers culled dairy herds to end a surplus, government data show. The price of nonfat dry milk, used in baking products and baby formula, will rise to an average of $1.275 a pound next year from 92 cents, and cheese will increase 28 percent, the USDA said on Dec. 10. Processed and fluid milk will jump 31 percent to $16.75 per 100 pounds, the USDA said. “We’ve been through the boom and then the bust, and it looks like we’re going to have another boom,” said Michael Harvey , an international analyst at Melbourne-based Dairy Australia, a trade group. Milk output will fall 4 percent in Australia in 2009-2010. New Zealand’s production slipped 2 percent in the first three months of its season, and Brazil’s supply dropped 4 percent to 5 percent through July, Dairy Australia said in a report. Westpac Forecast Milk-powder prices may gain more than 20 percent to exceed $4,000 a ton early next year, said Westpac Banking Corp., Australia’s second-largest bank. Whole milk powder for February delivery rose to a 16-month high of $3,523 a ton at auction, Fonterra, the world’s largest dairy exporter, said on Dec. 2. Dean Foods, the largest U.S. milk processor, said Nov. 2 that fourth-quarter profit may fall more than analysts expected, to at least 36 cents a share, because of rising raw-milk costs. Chief Executive Officer Gregg Engles told investors that prices, which will climb through next year, probably won’t surpass the records set in 2007 and 2008. Since Oct. 30, shares of Dallas- based Dean are down 5.4 percent at $17.25 in New York. Global sugar supplies will remain “tight” for the first half of 2010, JPMorgan Chase said. There’s a “material risk” that prices for March and May will jump 28 percent to 30 cents a pound, Tobin Gorey , the bank’s global commodity strategist, wrote in a report dated Dec. 10. Sugar for March delivery in New York increased 6.6 percent last week to close at 24 cents a pound on Dec. 11. Palm Oil, Food Output Palm oil, the world’s most-used cooking oil, may soar to 3,000 ringgit ($882) a ton by March as El Nino parches crops in Asia, said Dorab Mistry , director of Godrej International Ltd., one of India’s biggest edible-oil buyers, on Dec. 4. Palm-oil futures for February delivery closed at 2,530 ringgit on Dec. 11 in Kuala Lumpur. Production may drop next year, he said. Food output will need to rise 70 percent in the next four decades as the global population expands to 9.1 billion in 2050 from 6.8 billion, the FAO estimates. Seven nations in sub- Saharan Africa, the world’s most famine-prone region, will see per-capita income fall next year, according to the UN, fueling an increase in hunger, which the organization now estimates affects 1.02 billion people. “The politicians had best be able to at least feed their populations or they’re going to have uprisings,” said Jeffrey Saut , chief investment strategist at Raymond James & Associates in St. Petersburg, Florida, which manages $220 billion. “One of the first things, other than clean water and a toilet, that people want when their per capita income rises is food.” To contact the reporters on this story: Alan Bjerga in Washington at abjerga@bloomberg.net ; Madelene Pearson in Melbourne on mpearson1@bloomberg.net ; Yi Tian in New York at ytian8@bloomberg.net .

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Donors pledge $8b in aid to Vietnam’s economy

December 7, 2009

Donors pledge $8b in aid to Vietnam’s economy

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Philand Ranch to List Its Shares in the U.S.

December 3, 2009

FRANKFURT, Germany and LOS ANGELES, Dec. 3, 2009 (GLOBE NEWSWIRE) — PHI Group, Inc. (OTCBB:PHIE) (Frankfurt:PR7) (WKN A0RNQV), a company engaged in the development of real estate and mining, consulting and merger and acquisition advisory services, today announced that its majority-owned subsidiary Philand Ranch Limited, (Frankfurt:1P8), www.philandranch.com, a company engaged in the development of real estate and master-planned community properties in Vietnam and the growing economies of Southeast Asia, has begun the process in order to list its common shares in the U.S. stock market.

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