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News from China
Indonesia rail line decision delayed
3rd September 2015

 INDONESIA has delayed naming the winner of a hotly contested race between China and Japan to build the first high-speed railway in Southeast Asia’s biggest economy, a senior government official said yesterday.

The two Asian giants have repeatedly sent high-level envoys to lobby the Indonesian government in what has been an unprecedented battle to build the 150-kilometer link between the capital, Jakarta, and the textiles hub of Bandung.
President Joko Widodo had been expected to announce a winner as early as this week. But Cabinet Secretary Pramono Anung said Widodo now planned to make a decision based on a review of the two proposals by an independent consultancy and a team of Cabinet ministers.
“The president has extended the time for the review until September 7, so that the process is fairer,” Anung told reporters, adding that the announcement of the winner could come any time after that.
Coordinating Minister for Economic Affairs Darmin Nasution said he and other senior officials assessing the bids would be making a recommendation to Widodo today.
“We want to meet the president together, and explain how we reached our decision, while giving our recommendation letter,” he told reporters.
Nasution said he did not know when Widodo would announce the winner.
Two government sources have said that Indonesia is leaning toward awarding the multi-billion dollar contract to China because its proposal is seen as “less financially burdensome.”
Indonesia’s state enterprises minister said that if China were to win the contract, state-owned companies PT Wijaya Karya, PT Jasa Marga, PT Kereta Api, and PT Perkebunan Nusantara VIII would be involved in the consortium with China.
“There is truly no burden on the government,” the minister, Rini Soemarno, told reporters yesterday.
Japan competes with Singapore as Indonesia’s top investor, while China is its biggest trading partner.
Source: Shanghai Daily, September 3, 2015
US factory activity slips to over 2-year low
2nd September 2015

 US factory activity hit a more than two-year low in August as manufacturers struggled with a strong dollar, weak global demand and the lingering effects of deep spending cuts in the energy sector.

Other data yesterday, however, suggested the economy appeared to be on solid footing, with construction spending rising in July to its highest level since 2008.

The Institute for Supply Management said its national factory activity index fell to 51.1 last month, the lowest reading since May 2013, from 52.7 in July. A reading above 50 indicates expansion in the manufacturing sector.

The index’s decline also likely reflected the recent global equities sell-off, which was triggered by concerns over China’s slowing economy. The ISM’s new orders subindex fell to 51.7, also the lowest level since May 2013, from 56.5 in July.

The employment index slipped to 51.2 last month from 52.7 in July.

Manufacturing, which accounts for 12 percent of the US economy, has been under pressure from the strength of the dollar, which has gained 16.8 percent against the currencies of the US’ main trading partners since June 2014.

A more than 60 percent plunge in crude oil prices since June last year has led to deep spending cuts in the energy sector.

The US dollar fell against a basket of currencies after the data, while US stocks traded sharply lower. Prices for shorter-maturity US government debt rose.

But apart from manufacturing, the economy is thriving. In a separate report, the Commerce Department said construction spending added 0.7 percent to US$1.08 trillion, the highest since May 2008, after a similar gain in June.

Construction spending has risen for eight straight months and was up 13.7 percent compared to July of last year.

The construction spending report rounded off a month of solid data that suggested the economy had retained much of its strength from the second quarter, when it grew 3.7 percent annually. July data for consumer spending, industrial production, business spending, housing and employment painted a fairly upbeat picture of the economy.

Construction spending in July was buoyed by a 1.3 percent jump in private construction spending to the highest level since April 2008. Spending on private non-residential construction projects surged 1.5 percent to the highest level since October 2008.

Spending on private residential construction rose 1.1 percent in July to a near 7-1/2-year high, reflecting gains in home building.

Public construction outlays fell 1 percent. Spending on state and local government projects, which is the largest portion of the public sector segment, fell 1.1 percent.

Source: Shanghai Daily, September 2, 2015
Goldman Sachs cuts China’s 2016 forecast
1st September 2015

 GOLDMAN Sachs slashed its 2016 forecast for China down to 6.4 percent from 6.7 percent while sticking to its 6.8 percent prediction for this year.

The reduction follows “a very weak” growth in the world’s second-largest economy in early 2015, wrote Andrew Tilton, an economist for Asia for the investment bank.

“It reflected a combination of slowing credit growth, reform-driven fiscal tightening, and an appreciating yuan, among other factors,” Tilton said in a report. “Meanwhile, policy uncertainty has increased.”

China’s gross domestic product expanded 7 percent from a year earlier in the first half, in line with the official full-year target of around 7 percent.

The results surprised the market because the 7-percent increase in the second quarter turned out to be higher than the previous market expectation of a 6.8-percent rise. But the data in June and July, including trade, industrial production, retail sales and fixed-asset investment, all showed moderated growth, indicating the long-awaited recovery may be very short-lived.

There are also fears that China’s manufacturing sector may deliver its worst performance in more than six years. The Caixin Flash China General Manufacturing Purchasing Managers’ Index, the earliest available indicator of China’s industrial sector, fell to a 77-month low of 47.1 in August from the final reading of 47.8 in July.

“The growth has slowed in recent months,” Tilton said. “It prompted market and policy concerns of a further spate of easing measures.”

Last week, China’s central bank announced cuts in both interest rates and reserve requirements for lenders in a bid to stabilize the stock market and shore up the economic performance. It was China’s fifth interest rate cut since last November, along with other measures like quicker implementation of investment projects such as railway and subway in many areas.

But the outlook remained uncertain.

Tilton said China may see weakening performance in the second half because the financial services industry had lost the growth impetus due to sharp corrections in the stock market, which helped the financial industry contribute 0.5 percentage points to the 7-percent GDP growth in the first six months.

“The wobbly stock market and the sudden move in the yuan fixing have also amplified uncertainties in the policy-making, suggesting downside risks to the August and probably September activity data,” Tilton said. The Tianjin port blast also had negative effects on the economy, especially on foreign trade.

Source: Shanghai Daily, September 1, 2015
Yuan devaluation, slowing GDP no barrier to Chinese travelers
31st August 2015

 CHINA’S currency devaluation and slowing economy have caused enormous turmoil in world financial markets, but they have not really bothered tourists like Henry Lee.

Not yet, at least.
“I don’t even know what the exchange rate is,” the 36-year-old technology entrepreneur from Beijing admitted.
“We’re just here to relax with our kids. We’re not making any big purchases. I bought a Tumi bag, and I got a Tiffany bracelet for my wife,” said the father-of-two during a visit to Singapore’s Merlion Park, which faces the massive Marina Bay Sands casino complex, a favorite destination for Chinese visitors.
Lee is among tens of millions from China’s growing middle class who travel across the globe every year for leisure.
A record 117 million Chinese traveled overseas in 2014, according to the Sydney-based Centre for Asia-Pacific Aviation — more than double the 57 million in 2010 — and experts expect that trend to continue.
“The short-term outlook for Chinese outbound visitors remains strong and the long-term is bright,” CAPA said in a recent report.
Beijing’s surprise devaluation of the yuan on August 11, which is now trading at a four-year low against the dollar, has sparked fears China’s big-spending tourists will start staying at home.
Shares in tourism-linked businesses such as hotels across Asia have tanked, while Cathay Pacific’s chief executive has been forced to reassure investors the airline’s future was secure.
Businesses on the ground, however, say more relaxed visa policies and the strength of the yuan against Asian currencies mean Chinese tourists will remain not only the most numerous, but also some of the biggest spenders.
“It’s not uncommon for a Chinese VIP player to gamble well over a million US dollars per trip,” said Aaron Fischer, regional head of consumer and gaming research at brokerage and investment group CLSA. “There’s probably 5,000 of them.”
The financial clout of China’s travelers can be eye-popping.
According to Xinhua news agency, Chinese tourists spent US$164.8 billion in 2014, a four-fold jump from 2008. A whopping 88 percent of that was on shopping, it said, citing the China Tourism Academy, a government agency.
Japan alone saw more than 550,000 visitors from China in July, a figure more than double the same period a year ago, and the average Chinese tourist spends around US$1,100 — about twice as much as the next-highest spending cohort — according to Japan Tourism Marketing.
Fischer predicted that the yuan’s depreciation would not hinder Chinese from travelling but some may become more cost-conscious, particularly when it comes to luxury items.
It is precisely that concern that is worrying organizations like the Indonesian Association of Travel Agencies.
Its chairman, Asnawi Bahar, said the industry’s fear was that Chinese visitors, who number roughly 1 million visitors to the archipelago annually, would “hold back on shopping and shorten their stay in Indonesia”.
Trade bodies in other Asian countries from the Philippines to South Korea have expressed similar concerns.
Lower visa barriers
Many of them, however, are helped by the fact that their own currencies have fallen sharply.
The yuan is still at, or close to, two-year or longer highs against the currencies of popular tourist destinations like Japan, South Korea, Australia and the eurozone, CAPA said.
“I think that in the bigger picture scheme of things, Chinese tourism to Australia will continue to rise,” said Craig James, chief economist at Australian stockbroking firm CommSec.
Other countries — in Europe and in the Asia-Pacific region — have sought to lower visa barriers for Chinese travellers to attract what the tourism academy says is the world’s largest pool of tourists.
More and more places are becoming friendlier to Chinese tourists, starting from the immigration counter: Chinese passport holders now get visa-free access to at least 74 countries, compared to 18 two years ago.
That is also happening in shops and, CAPA noted, Australian airports now have Chinese-language signs as well as guides and duty-free sales staff who speak Mandarin.
What is clear, analysts say, is that not only are hotels, retailers and travel firms increasingly catering to the Chinese, but the Chinese are enthusiastic customers.
Source: Shanghai Daily, August 31, 2015

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