the region rethinking the asian energy equation · 2015-06-02 · singapore– high oil prices,...

SINGAPORE – High oil prices, burgeon-ing energy demand and environmental fears aredriving alternative approaches to transport fuelsand power generation across Asia.

These pressures are forcing governmentsand companies to look at ways of reducing theregion’s very heavy reliance on the traditionalfossil fuels – oil, gas and coal – for conventionaltransport and power generation technologies.

The question is: Can these new approachesbe alternatives to mainstream fuels?

Renewables, such as solar power, are makingsome inroads. Transport R&D is promoting bio-fuels, such as ethanol and hydrogen fuel cells.

The really large impact may be from newways of using conventional fossil fuels. Forexample, conversion of natural gas and coal toliquid fuels for transport, and the advance ofclean coal technologies in power generation.

There is new enthusiasm for nuclear genera-tion. Nuclear power is being promoted by gov-ernment planners and industry as an answer tomeeting high-power demand growth, reducingreliance on imported fossil fuels and cutting car-bon dioxide “greenhouse gas” emissions,believed to be responsible for global warming.

Energy planners agree, though, that supply-side measures alone will not provide all theanswers. Demand-side initiatives are also need-ed to slow demand growth and conserve ener-gy. This is borne out, for example, by efforts ofgovernments around the region to reduce andremove poorly-designed oil subsidies.

Apart from heavily burdening governmentbudgets and siphoning off funds, fuel subsidiesfoster, as the Asian Development Bank under-lines, excessive demand, resulting in distortedfuel choices. From an equity point of view, sub-sidies do not assist the poor it is claimed theyhelp. More targetted aid is argued by econo-mists as a better policy.

Transport: can hydrogen save the day? Asfar as transport is concerned, oil has virtually amonopoly as a fuel – hence the profound impactof high oil prices. Sharply growing oil demand

in Asia is largely due to the exponential growthof motor vehicles.

On China’s roads, the number of motor vehi-cles has increased from just over six million in1990 to more than 30 million today. The growthof the region’s air transport industry is alsoanother important source of oil demand.

Should high oil prices be sustained over thelong term, though, alternative transport fuelsmay become more viable. In Asia, these substi-tute fuels range from compressed natural gas(CNG) and liquid petroleum gas (LPG), and syn-thetic liquid fuels made from natural gas andcoal, to biofuels, such as ethanol made fromsugar cane and a natural diesel made from palmoil and coconuts, and hydrogen fuel cells.

CNG and LPG are already used quite exten-sively, having the added attraction of resultingin less polluting emissions than conventionalpetrol. In Mumbai, for example, BG (British Gas)through its Mahanagar Gas subsidiary, is put-ting in place a comprehensive gas distributionnetwork for CNG supply.

However, natural gas and LPG prices are usu-ally indexed against oil price movements.Unless that nexus is broken, rising oil prices willalso be felt by gas consumers. This impact isespecially great for power generation.

Biofuels are more at a developmental stage,

although schemes to produce and apply biofu-els are serious. Japanese motor vehicle compa-nies are investing in research projects inThailand.

The Thai Government encourages ethanol asfuel produced from local sugar cane, cassavaand maize, which is then blended with petrol.

In response, Ford is introducing the FordFocus into Thailand. This new model, whichwas very successful in Europe and NorthAmerica, operates with blends of up to 20 percent ethanol.

In Malaysia, a pilot palm oil refinery run byPetronas, the State oil company, is due to beginoperation in 2006, providing a refined biofuelthat can be blended with conventional diesel fortransport and power generation.

Biofuels are attractive to governments, notonly as a response to high oil prices. They mayalso provide additional money for often low-income farming households. In Malaysia, thesmall holders that dominate the palm oil indus-try have suffered because of over-production.

Hydrogen is often predicted as becoming themajor fuel of the latter part of the 21st century inthe same way that oil was for the 20th century.The Japanese are at the forefront of its commer-cial development. By 2020, the JapaneseGovernment wants to see five million hydrogenfuel cell powered vehicles on the roads.

Elsewhere in Asia, Singapore is hostinghydrogen vehicle development projects run byBP and Daimler Benz, and Rolls-Royce is in part-nership with the Singapore Government’sEconomic Development Board and its invest-ment company, Temasek Holdings.

Many see hydrogen as a wonder fuel, produc-ing only water in combustion and therefore anideal fuel to meet the goal of the UN ClimateChange Convention and the Kyoto Accord ofreducing greenhouse gases emissions.

This image is misleading as hydrogen, notoccurring naturally, must be manufactured –and this generally results in carbon dioxideemissions. Although hydrogen can be made byelectrolysis of water with solar energy, withoutemitting carbon dioxide, the volume of hydro-gen produced is high cost and small relative toneeds. Currently, the most economical way ofproducing hydrogen is by processing the con-ventional fossil fuels.

High oil prices will make especially attractivelarge-scale production of middle distillate fuels,such as petrol and kerosene synthesised fromnatural gas and/or coal. An added attraction ofsynthetic fuel technology is that the fuels areenvironmentally clean, having much lower ornon-existent impurities, such as sulphur, com-pared with conventional oil refined products.

Gas/coal-to-liquids synthesis is a proventechnology, dating back to 1913 in Germany.The key obstacle to widespread commercial use

THE fate of the United Nations Kyoto Accord to limit greenhousegas emissions is likely to depend on whether Asian countries cur-rently not facing mandatory emission targets decide to commit tothe treaty. At discussions this month in Montreal on how Kyotomight be extended past its current expiration date of 2012, thefocus will be on the future role of Asia’s emerging energy-con-suming giants, China and India. In this special report, we exam-ine some of the energy alternatives being considered in Asia . . .

THE ENERGY DRAGON

ASIA TODAY INTERNATIONAL DECEMBER 2005 | 17

TTHHEE RREEGGIIOONN

} Oil prices, energydemand and environmen-tal fears are forcing governments and companies to look at ways of reducing Asia’svery heavy reliance on traditional fossil fuels ~

Rethinking the Asianenergy equation

Andrew SymonASIA TODAY INTERNATIONAL Correspondent

CONTINUED PAGE 19 Ô

WHAT THE IEA SAYS . . .

There will be a need for “much more ener-gy efficiency, much more renewable energyand much more coal, gas and oil”, accord-ing to Claude Mandil, Executive Director ofthe International Energy Agency (seeASIA2006). And higher LNG prices are onthe way, says IEA Chief Economist FatihBirol.

in the next two to three years. "India is one ofthe most important potential markets for us,and therefore we are focussing our resources onthis market to enhance our presence,"American Sheep Industry (ASI) InternationalMarketing Consultant, Barry Savage, toldreporters. Currently, US wool exporters areexploring markets in Punjab and other westernparts of India.

INDONESIA'S BANK MEGA OFFERS EQUITYJAKARTA – Para Global Investindo, the majorshareholder of publicly-listed Bank Mega, saidit will sell its stake if it receives a good offer fromstrategic investors, the Kompas daily reported.Para Global owns 60% of the bank while theremaining 40% is held by the public. Several for-eign investors from Asia, the US and Europehave submitted proposals to acquire the stakeand become a strategic partner in Bank Mega,the bank's chief commissioner, ChaerulTanjung, said. Bank Mega is the onlyIndonesian private bank with assets worthmore than Rp20 trillion (US$2 billion) not yetcontrolled by foreign investors.

LOGISTICS GIANTS ESTABLISH JV IN CHINA BEIJING – Dutch mail, express and logisticsgroup TNT and shipping and logistics giantChina Ocean Shipping (Group) Company(COSCO) have agreed to set up a joint venturein China. The initial business of the venture willinclude COSCO's home appliance logistics andTNT's materials handling business in Australia,company sources said. The new venture,expected to be operational in 2006, will see theopening of one million sq m of warehouse spacelocated in major ports including Qingdao, EastChina's Shandong Province and some in SouthChina's Guangdong Province.

EBAY TO SET UP IN SOUTH KOREA BUSAN – eBay Inc., the world's largest onlineauctioneer, will establish its Asia-Pacific head-quarters in South Korea in January, the compa-ny's chief executive said. "As one of eBay'smost successful markets with a technologically-sophisticated user base, Korea was a naturalhome for our new centre," said Meg Whitman,eBay's CEO, who was in Busan to attend abusiness gathering on the sidelines of the Asia-Pacific Economic Cooperation (APEC) forum.eBay late last year completed the purchase ofInternet Auction, then the biggest online auc-tion company in South Korea, where more than two-thirds of total homes have high-speedInternet connections, the world's highest rate.

CHINA TO LAUNCH DIGITAL TVBEIJING – China will launch its first digitalhigh-resolution television channel and startnationwide broadcasting from January 1. Chinawill start ground-based digital transmissionthroughout the country in 2008 and cease ana-logue broadcasting by 2015.

The information heartbeat of Asia

ASIA PULSE is a jointventure involving the resources of(AAP) – Australian AssociatedPress Pty Ltd (Australia);(ANTARA) – LKBN ANTARA(Indonesia); (CNA) – Central NewsAgency (Taiwan); (IRNA) – IslamicRepublic News Agency (Iran);(Nikkei) – Nihon Keizai ShimbunInc (Japan); (ONA) – Oman NewsAgency (Oman); (Pacnews) –Pacific Islands News Association;(Pajhwok) – Pajhwok AfghanNews (Afghanistan); (PNA) –Philippines News Agency(Philippines); (PPI) – PakistanPress International (Pakistan);(PTI) – The Press Trust of India Ltd(India); (TCA) – Times of CentralAsia (Central Asia); (UNB) – UnitedNews of Bangladesh (Bangladesh);(UzReport) – UzReport.com(Uzbekistan); (VNA) – VietnamNews Agency (Vietnam); (XIC) –Xinhua Information Centre(China); (Yonhap) – Yonhap NewsAgency (Korea); and sources inMalaysia and Singapore.

AVIAN FLU PANDEMIC COULDHALT ASIA'S GROWTH: ADBMANILA – An avian flu pandemic could haltAsia's economic growth rate to almost zero,according to a report by the Asian DevelopmentBank (ADB). Under the first scenario, a mild out-break with an infection rate of 20 per cent and apopulation mortality rate of 0.1 per cent, themost serious economic effects would be twoquarters in duration and Asia could be confront-ed with a demand shock of US$99 billion in its2006 GDP, equal to 2.3 per cent of GDP. Underthe second scenario, which models the samehealth effects but with the serious economicimpact lasting four quarters, and a psychologi-cal impact beyond the Asia region, the forecastloss to Asia might be US$283 billion, 6.5 percent of GDP, which would cut Asia's GDPgrowth to 0.1 per cent.

CHINA TO BE WORLD'S TOPTOURIST DESTINATION IN 2017?NINGBO – China is forecast to become theworld's No.1 tourist destination in 2017, threeyears earlier than forecast by the World TourismOrganisation, which predicts China would

receive 137 million overnight inbound touristsin 2020. "The goal may be achieved in advanceby three years, according to calculations by theNational Tourism Administration (NTA)," saidZhang Jilin, deputy director of NTA's Planning,Development and Financial Department. Chinareceived 41.76 million overseas tourists whospent at least one night on the Chinese main-land last year, ranking fourth in tourism num-bers in the world.

TWO KOREAS LAUNCH WEEKLYMEETING AT KAESONG OFFICESEOUL – South and North Korean officials haveheld their first weekly meeting at the inter-Korean economic office that opened in Octoberin the North's border town of Kaesong, withways to support ongoing economic projectsbetween the two Koreas topping the agenda.The office is tasked with supporting directinter-Korean trade and providing useful data oninvestment in the communist North. Fourteengovernment officials and civilian experts fromSouth Korea and 12 of their counterparts fromthe North are currently stationed at the office.

CHINA'S ECONOMIC GROWTH TOSLOW TO 8.7 PCT IN 2006BEIJING – China's economy is expected togrow by 9.3 per cent in 2005, and will slow to 8.7per cent next year, says the World Bank. China'sconsumer price index is projected to remain ata low level, according to the Bank. With domes-tic demand driving growth, a decline in the cur-rent account surplus is expected in 2006 after aprojected record surplus of over six per cent ofthe country's gross domestic product in 2005.

TAIWAN’S SERVICE-BASED ECONOMY GROWINGTAIPEI – The Taiwan service sector's outputfor the first six months of this year accounted for70.5% of the country's gross domestic product(GDP) for the period, breaking the 70% mark forthe first time ever, the Cabinet-level Council forEconomic Planning and Development (CEPD)reported. The figure is forecast to furtherincrease for the whole of 2005, marking anoticeable jump over the level of 68.72% for2004 and 60.15% for 1995, the report said,adding that the growth suggests the domesticeconomy is increasingly becoming a "lean andmean" and "environmentally friendly" service-based economy.

US WOOL EXPORTERS TARGET INDIA LUDHIANA – American wool growers arehoping to cash in on India's growing textilemarket, with plans to sell two million kg of wool

18 | ASIA TODAY INTERNATIONAL DECEMBER 2005

BUSINESS ACTIONTHE MONTH IN REVIEW

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THE ENERGY DRAGON


TTHHEE RREEGGIIOONN

Connecting poor villages and areas to powergrids may be difficult, because the level of thelocal village or area demand may not make iteconomic to build the transmission links, whilethe fuel cost of using local diesel or fuel oil-pow-ered generators may be too expensive.

Examples of how this is being overcomethrough use of renewable energy technologyare the programmes in Vietnam and Indonesiawhere BP, in conjunction with developmentassistance programmes, is providing solar en-ergy systems to main buildings – such as meet-ing halls, schools and medical centres – in iso-lated and poorer villages. While individualhouseholds could not afford to have solar powersystems, the communities can afford the sys-tems dedicated to their key centres.

China also has embraced solar energy for

rural electrification, with more than 25 MW ofphotovotalic (PV) capacity in total in rural com-munities. Further expansion is under waythrough a US$240 million Government pro-gramme drawing on locally-manufactured PVcells. For rural and urban areas combined,Beijing targets installation of 1,000 MW of PVcapacity by 2020.

In developed Asia, Japan leads in the devel-opment and application of solar energy forpower generation. Its PV-installed capacity of900 MW is the highest in the world, and contin-uing to grow in response to Tokyo’s efforts toreduce greenhouse gas emissions in line withJapan’s Kyoto Accord obligations.

Japan’s solar energy development is promot-ed through Government subsidies to users, andfor research and development for low-cost PVsystems. Japan is the world’s leading manufac-turer of PV cells.

Despite such advances, renewables still areonly likely to be able to meet a small proportionof total demand in Asia if large-scale hydro isexcluded. Although costs of renewable energy-fuelled power generation are dropping, the gen-eration capacity of individual units is usuallysmall. As a result, most in the energy industrybelieve that non-conventional renewable ener-gy will not be able to replace more than a rela-tively small part of what otherwise would beprovided by large-scale, conventional fossilfuelled generation.

of liquids synthesis has been low oil prices. InWorld War II, this process provided half the fuelsfor Hitler’s army and air force.

In South Africa, during the time of economicsanctions against the apartheid regime, syn-thetic fuel technology was further perfected bythe South African company, Sasoil.

Today, Sasoil is in a joint venture with oilgiant Chevron to develop large-scale syntheticfuel plants. Other oil majors, Shell, ExxonMobil,and ConocoPhillips, are also investing in syn-thetic fuel development in the Middle East.Qatar, with vast reserves of natural gas that canbe supplied as feedstock at low cost, is a primesite with several large scale projects underdevelopment. Iran is another possible site, withShell considering building a plant there. Shellalready runs a 15,000 b/d GTL plant at Bintuluin Malaysia’s state of Sarawak, which opened in1993.

In China, Shell is building coal-based gasifi-cation plants in a joint venture with China’sState oil company, Sinopec. These plants areproducing liquid fuels, hydrogen and gas for fer-tiliser and methanol production. Gas and coalliquefaction may well be an answer should theoil supply tighten in the coming decades, asthere are abundant reserves of both in theMiddle East and the Asia Pacific.

Renewable energies: A power of differ-ence? Asia’s power supply sector is alsofocussing increasing attention on non-conven-tional fuels and technologies, including genera-tion from solar, wind and geothermal energy,small-scale hydro, and use of biomass, such asrice husks, wood chips, and sugar bargasse, leftover as waste from industrial and agriculturalprocessing.

Although the costs of these sorts of renew-able energy technologies are falling, they stillhave only a very small slice of total power gen-eration in the region. For China, for example,the Paris-based International Energy Agencyprojects that renewables, outside of hydro, willonly fuel 0.5 per cent of power output over thenext two to three decades. Nevertheless, as theTokyo-based Asia Pacific Energy ResearchCentre notes, renewables can play an importantrole in rural electrification and be a usefuladjunct to conventional power supply.

In Thailand, for example, about 600 MW ofpower capacity from more than 50 small bio-mass-fuelled generators provide both powerand heat for factory use, as well as selling intothe public grid. A Thai Government programmeencouraging connection to the public gridencourages this development.

China has the region’s most ambitious windenergy programme. With nearly 600 MW ofwind driven generation capacity, Beijing wantsthis to reach as much as 20,000 MW by 2020,supported by local turbine manufacturing.

Geothermal-based power generation isestablished and expanding in Japan, Indonesiaand the Philippines, harnessing energy from thevolcanic prone geology of the islands – part ofthe “Rim of Fire” running through the AsiaPacific.

Renewable energies can be a solution tosmall-scale electrification of isolated rural vil-lages. The numbers of villages and householdswithout access to electricity around Asia is stillhuge. In Indonesia, the World Bank estimatesthat more than 80 million people do not haveelectric power in their homes.

Ô FROM PAGE 17

CONTINUED PAGE 21 Ô

} The InternationalEnergy Agency predictsthat renewables, outsideof hydro, will only fuel 0.5per cent of power outputover the next two to threedecades ~

Jakarta bynight (above):Asia’s majorurban area’sare intensiveenergy con-sumers. Coalmining inIndonesia(right):Indonesia isone of thelargest coalexporters toAsia.

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ond-largest overseas destination for Taiwaneseinvestment. In 2004, trade between Taiwan andIndonesia, Malaysia and Thailand grew, respec-tively, by 34.7%, 21.6% and 21.3% (ATI – 14/11).

Leighton sees growthSYDNEY – The Asian operations of construc-tion and engineering major Leighton Holdingsreported a lower profit before tax of AUD58 mil-lion, down 33%, for 2004-05 on higher revenueof AUD1.1 billion. Overall group profit (after tax)was up 87% to AUD205 million on total operat-ing revenue (including joint ventures) ofAUD7.7 billion. Chairman Geoff Ashton said theAsian result was impacted by a profit reversalon the North Luzon Expressway in thePhilippines, and a poor result in finalising a con-tract in Sri Lanka. Work in hand was up 3% toAUD3.2 billion. There was increased activity inHong Kong and Macau on the back of majorprojects such as the Central Reclamation proj-ect, Eagles Nest Tunnel and Wynn’s Resort andCasino in Macau. Since June, Leighton hasbeen awarded an AUD200 million extension atthe casino, and a consortium includingLeighton Asia and subsidiary John Holland hasbeen awarded construction of the AUD340 mil-lion Kowloon Southern Link rail project.Leighton CEO Wal King said what he termed an‘extraordinary growth period’ was being drivenby the underlying strength of the Australianeconomy, strong investment in Australian infra-structure – following a long period of under-investment – and a resources boom fuelled bythe growth of China. Leighton’s first-quarter2005-06 (unaudited) profit was up 32% to $50.6million (ATI – 11/11).

Newcastle expands portSYDNEY – Australia’s largest coal export port,Newcastle, may get a third coal loader if a moot-ed AUD530 million investment is approved. TheNewcastle Coal Infrastructure Group (NCIG), aconsortium comprising Excel Coal, CentennialCoal, BHP Billiton, Donaldson Coal, AMCIMining, White Mining and Whitehaven CoalMining, will seek a 35-year lease on land atKooragang Island for a 30-million-tonne coalloading facility, involving two new coal loadingberths and a new rail line. Newcastle PortCorporation, meanwhile, has entered new dis-cussions to develop the former BHP Steelworkssite at Mayfield for general cargo and containertrade (ATI – 14/11).

English standards fallHONG KONG – The Australian Chamber ofCommerce in Hong Kong says a widespreaddecline in business English in the workplace isfast becoming a hurdle in attracting leadingcompanies to make Hong Kong their home.AustCham Chairman Alan Johnson has raisedthe issue during a meeting with Hong Kong’snew Chief Executive, Donald Tsang. Other

issues discussed included pollution and theneed to broaden Hong Kong’s tax base throughimplementation of a GST (ATI – 14/11).

Chemicals JVs mootedHONG KONG – One of China's leading chem-ical companies, The Huayi Group, plans toinvest some US$3.1 billion in China between2006 and 2010 to further push forwardShanghai's chemical industry. More joint ven-ture projects will be launched, according toHuayi Group Chairman, Zhang Peizhang. Huayihas already injected US$1.93 billion intoShanghai's chemical industry partk, with two-thirds coming from foreign investors. Zhang ispredicting that a large number of State-levelchemical industry parks will be set up alongChina's coastlines, riversides and places wherethere is an abundance of resources. ColinMcKendrick, manager of Shell Chemicals, saidChina expects increasing market demand forpetrochemicals (ATI – 10/11).

Bankers moving inHONG KONG – Opening of a Barclays CapitalAsia Pacific office in Taipei has given a boost toTaiwan's fledgling derivatives industry. Otherrecent arrivals include CSPB, which has set upan equity derivatives business in Taipei, andBank of America's receipt of an onshore creditderivatives licence. Barclays Capital will focuson risk management and financing, with 20staff servicing existing clients and expandingthe firm's presence. Barclays Capital AsiaPacific Chairman, Robert Morrice, said Taiwanhas been at the front of the curve in using deriv-atives to manage risk, and that the market willcontinue to grow (ATI – 1/11).

AppointmentsSYDNEY – Leighton Holdings has appointedBill Wild, currently Managing Director ofLeighton subsidiary John Holland, as ChiefOperating Officer, effective January 1, 2006.David Stewart, currently Managing Director ofJohn Holland’s (Australian) construction opera-tions, will become Group Managing Director ofJohn Holland, effective January 1 (ATI – 14/11).

ADELAIDE – Paul Henry will become GeneralManager-Market Development for theAustralian Wine and Brandy Corporation fromDecember 19. For the past three years he hasbeen UK and Ireland regional manager for theCorporation (ATI – 9/11).

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CEPA III in placeHONG KONG – Hong Kong's FinancialSecretary, Henry Tang, and China's Vice-Minister of Commerce, Liao Xiaoqi, havesigned off on trade liberalisation measuresunder the third phase of the Mainland andHong Kong Closer Economic PartnershipArrangement (CEPA III). From January 1, 2006,the Mainland has agreed to give all products ofHong Kong origin tariff-free treatment uponapplication by local manufacturers and uponCEPA rules of origin being agreed and met. TheMainland also agreed to waive a 30 per centvalue-adding requirement for watches withHong Kong brand names. On trade in servicesunder CEPA III, there are 23 liberalisation meas-ures spreading across 10 areas - legal, account-ing, audiovisual, construction, distribution,banking, securities, tourism, transport and indi-vidually-owned stores (ATI – 1/11).

Biomed spurs S’poreSINGAPORE – Industrial production inSingapore has recovered on the back of a pick-up in biomedical sciences production, wherethe sector now accounts for 12.6% of totalindustrial activities, according to ABN AMRO.The bank says Singapore's manufacturing sec-tor grew 13.2% year-on-year, thanks to a 62%jump in the biomedical sciences cluster, but itwarns of historical volatility in growth of bio-medical sciences and says growth in US neworders for electronic and computer productsseems to be on a downtrend which will impactSingapore. The Singapore economy grew by 7%in the third quarter, led by manufacturing, busi-ness services and entrepot activities, but recov-ery in domestic demand remained modest.ABN AMRO is predicting GDP growth of 5.2%for 2005 and 3.9% for 2006 (ATI – 18/11).

Japan Post/TNT linkTOKYO – Japan Post and epress logisticsmajor TNT are to form a joint venture based onthe current international express activities ofTNT to and from Japan and Japan Post'sdomestic presence. TNT has also begun line-haul and delivery of some of Japan Post's EMSvolumes from Japan to European destinations.TNT CEO Peter Bakker said TNT was 'extreme-ly proud' to become Japan Post's internationalstrategic partner (ATI – 11/11).

Taiwan trade pushTAIPEI – The Government-supported TaiwanExternal Trade Development Council (TAITRA)is opening trade centres in Bangkok, Jakartaand Kuala Lumpur in an effort to helpTaiwanese enterprises expand their operationsand markets in Southeast Asia. TAITRA alreadyhas a branch office in Ho Chi Minh City. Annualfigures compiled by TAITRA show thatIndonesia, one of Taiwan’s ;leading suppliers ofoil, natural gas and coal, has become the sec-

Business initiatives – excerpts from the Bulletin Board

THE ENERGY DRAGON


TTHHEE RREEGGIIOONN

ural gas. This technology, developed by engi-neering companies such as Siemens ofGermany and Sweden’s ABB, has been avail-able for some time, but costs are higher thanconventional plants and plant capacity hasbeen relatively small.

China is also experimenting with commercialdevelopment of coal bed methane gas for powergeneration. Chevron is in several joint ventureprojects to harness the methane gas, oftenfound in huge quantities in coalfields.

But even with state-of-the-art-technology,coal combustion still produces carbon dioxideemissions, the main “greenhouse” gas. Naturalgas (mainly methane) and oil combustion alsoresult in carbon dioxide emissions, although ata lower level than coal. The only way of prevent-ing carbon dioxide from entering the atmos-phere is to “sequester” or bury the gas in geo-logical formations underground. BP is one com-pany working on how this might best be done.

Kyoto, greenhouse gases and nuclearhorizons. Nuclear power is being promoted byplanners and industry as an answer to thedilemma of meeting high demand and reducinggreenhouse gas emission growth.

But there still is often strong local oppositionbecause of concerns over disposal of nuclearwaste and nuclear accidents. There are alsoconcerns that nuclear power can be a backdoormeans for countries to develop nuclear weaponcapacity, as is the case with Iran’s presentpower programme.

China is in the forefront, planning an addi-tional 25,000 MW of nuclear power by 2020, inaddition to its current 8,700 MW. Currently,Japan has the largest nuclear power sector inAsia with 47,000 MW capacity, followed bySouth Korea with 17,000 MW and Taiwan with5,000 MW. Elsewhere, nuclear power is beingmooted in Vietnam, Indonesia and Malaysia.

Japanese government planners want toexpand nuclear power especially in order tohelp meet Kyoto Accord obligations. Japan isthe only country in Asia which must meetmandatory targets under Kyoto. Tokyo faces ahuge challenge to meet greenhouse targets,given its very efficient use of energy.

Japan’s power sector, Asia’s largest afterChina, is a critical area for the Government’sKyoto programme. Base-load power generationis concentrated on coal and nuclear with natu-ral gas for peaking and medium loads. The onlyoptions seem to be to increase reliance onnuclear and/or natural gas. But there is strongpublic opposition to nuclear power. Nuclearpower accidents in 2001 and revelations in 2002of falsified inspection reports by Tokyo ElectricPower have put a cloud over prospects fornuclear plant expansion in Japan.

The Kyoto Accord may also directly benefitdeveloping countries in Asia, through technol-ogy transfer and other energy assistance proj-ects consistent with reducing greenhouse gasemissions. Under Kyoto’s “clean developmentmechanism”, governments and companies incountries with mandatory emission reductiontargets, can gain credits by assisting green-house gas reduction in non-compliance coun-tries. The Japanese Government and a consor-tia of major companies are already putting inplace schemes in Asia in this regard. Outside ofJapan, attitudes to greenhouse gas reductionvary, though Governments generally affirm theimportance of greater energy efficiency andemission reductions.

Another initiative that may support develop-ing Asia is an agreement announced in Julybetween the US, Australia (neither of which aresignatories to Kyoto), China, India and SouthKorea to promote R&D of environmentally cleanenergy technology for the Asia region.

For example, Japan’s large solar energy seg-ment pales against the country’s total270,000MW of power generation capacity.

Large-scale hydro would seem, then, to beattractive, yet it, too, is often controversialbecause of possible environmental damage toriver systems and dislocation of surroundingcommunities. A case in point is China’s hydrodam programme on the upper reaches of theMekong River, and fears that this will reducethe flow and levels of the river downstream.

Coal still dominant The majority of powergeneration in Asia continues to be fuelled bycoal, followed by natural gas. Gas is piped fromlocal fields, imported via pipeline as inSoutheast Asia, or imported as LNG forNortheast Asia, and now also India.

Coal’s position reflects, in part, the dominantrole of coal in China and India, where coal-firedpower plants make up 65 per cent and 50 percent of capacity respectively. Coal also fuels alarge share of output in Japan, Taiwan andSouth Korea.

In Southeast Asia, coal-fired capacity is alsolarge in Indonesia, and to a lesser extent in thePhilippines. Malaysia, where natural gas hasthe largest share, is also expanding the propor-tion of coal-fired generation. In Vietnam, coal isthird to hydro and natural gas. Thailand is pre-dominantly gas-fuelled. Singapore is increas-ingly substituting natural gas for oil.

Coal is attractive because it is a cheap fuel inthe context of power plant economics, andthere are many sources of import supply frommines in Australia, Indonesia, South Africa andChina, if coal is unavailable locally. Contractterms are straightforward and coal can beobtained on a spot or term basis. The downsideis its adverse environmental impact. In com-bustion, coal produces polluting particulates,and emissions of sulphur and nitrous oxide andcarbon dioxide.

Aside from carbon dioxide, the impact ofother emissions can be reduced to acceptablelevels by proven “clean coal” combustion tech-nologies. New possibilities may also be offeredby further development of coal gasification,which, essentially, provides fuel for convention-al combined cycle power plants instead of nat-

52

53

10

28

25

Nuclear power generation expansion scenariosfor East Asia – GW (1,000MW) plant capacity

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113

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19

28

57

7

47

5

0

17

2000 2050

Source: Asia Pacific Energy Research Centre, Tokyo.

Medium High

Ô FROM PAGE 19

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Email: [email protected] Web: www.cs-air.com/enEmail: [email protected] Web: www.cs-air.com/en

SYDNEY – Taiwan's banking sectorseems to be caught up in merger frenzy, withtwo large deals consummated in recent weeks.

Taiwan Co-operative Bank has agreed to buyits smaller rival, Farmers Bank of China, forabout NT$16 billion in stock to create Taiwan’slargest lender by assets.

NPL creation. Growth in NPLs has slowed, butthis could be misleading because they taketime to surface.

The IMF says Chinese banks are heavilyinvolved in lending to sectors facing futureover-capacity – such as automobiles, steel,cement and aluminium, – and that credit risk inthe banking sector is likely to remain high.

In the last six years, domestic bank financingof enterprise investment has averaged around15 per cent of GDP. Chinese firms have usedretained earnings to fund their expansion. Suchinvestment in the Chinese economy has grownsteadily from 45.3 per cent in 1999 to 51.3 percent in 2004.

The IMF paper shows that total internalfunds used annually for investment purposesamounted to an average of 15 per cent ofChinese GDP in 2004. One key reason for thislarge reliance on internal funds is that themajority of enterprises, which are fully or par-tially State-owned, do not distribute dividendsto the State. Instead, the State allows them touse the funds for reinvestment.

Foreign funding of enterprise investment hasbeen mostly limited to FDI, which has averagedaround four per cent of GDP in the last six years.The IMF notes that these inflows have mainlycome from other Asian economies(including Hong Kong, Taiwan, Japan,and Korea).

CURRENCY MOVEMENTS BBAANNKKIINNGG AANNDD FFIINNAANNCCEE


on growth and employment of an initial changein the exchange rate are likely to be moderate.The impact would vary across sectors of theeconomy and across regions, but the overallimpact of such a move would not be large – andcould be managed – especially in an economythat has considerable underlying strength.

On China's banking reforms, the IMF notesthat progress has been made, but "considerable

work" remains to be done toimprove efficiency. Foreignownership of banks hasincreased, and this has thepotential to improve gover-nance and accelerate thetransfer of technology andmanagement practices.

In 2004, the number ofChinese banks with foreignstrategic investors doubled to10. Entry of HSBC into Bank ofCommunications, China'sfifth-largest bank, was themost important transaction,and it may be viewed as a"pilot" for entry of strategyinvestors into the four State-owned banks.

Although progress has beenmade in reducing NPLs, the IMF says moreeffort is needed to accelerate resolution of dis-tressed assets and to restrain the rate of new

} Greater exchange flexi-bility would contribute torebalancing the composi-tion of economic growthby reducing distortionaryinfluence in investmentdecisions and potentiallyraising consumption byboosting households ‘realincome’ ~

Ô CONTINUED PAGE 23

Within days of the deal, Bank of Taiwan saidit would acquire Central Bank Trust of China tocreate Taiwan’s largest financial group. Themerger will form a banking group that controls11.6 per cent of the market.

Taiwanese press reports suggest Mega

WASHINGTON – While it stressesthat it is not working in concert with the UnitedStates on the question of China's exchangerate, the International Monetary Fund, never-theless, has strong views that China shouldadopt greater exchange rate flexibility.

China revalued its currency on July 21, butsince then, the renminbi has barely moved.The daily movement has been small, and thecombined movement against thedollar has been about 0.3 per cent,according to the IMF.

Speaking to journalists on therelease of the IMF staff report onChina, David Burton, Director of theIMF's Asia and Pacific Department,said China's current strong econom-ic position presents a favourableenvironment in which to allowgreater exchange rate flexibility.

"We continue to encourage theauthorities to fully utilise the flexibil-ity afforded by the new arrange-ment, and we continue to workclosely with them on further devel-oping the exchange market and theexchange rate system," said Burton.He added that it is understandablethat an initial period of relativeexchange rate stability after the July 21 movewas needed to allow the economy time toadjust and to provide assurance that thechange would not have significant adverseeffects.

In fact, the Chinese economy has continuedto grow strongly. By the end of June, foreignreserves had grown to a hefty US$719 billion.

Burton would not put a figure on the amountby which China should move on the renminbi,either in total or on a daily basis. "But we do seescope now for greater flexibility, utilising morefully the flexibility allowed with the existingsystem. (That) would allow the exchange rateto move quite significantly over a period ofweeks and months."

The IMF supports China's move to rebalancegrowth away from investment and towardsconsumption. Rebalancing growth requires acombination of policy measures and reforms –and more flexibility in the yuan would help,Burton says. Greater exchange rate flexibilitywould contribute to rebalancing the composi-tion of economic growth by reducing distor-tionary influence in investment decisions andpotentially raising consumption by boostinghouseholds' real income.

IMF staff have assured China that the effects

Now room for China to move on renminbi: IMF

THE IMF sees scope for China to allow its exchange rate tomove ‘quite significantly over a period of weeks or months’. Therenminbi has appreciated by just 0.3 per cent against the US dol-lar since the revaluation of July 21 . . .

David Burton: Afavourable environ-ment for flexibility.

Mergers, but Taiwan is still over-banked

MORE mergers are occuring in Taiwan’s banking industry, withGovernment support. President Chen Shui-bian had wanted tocreate three banks each controling 10 per cent of the market bythe end of this year . . .

"These are the top 50 banks in the world – theyhave the capital and the technology. We are along way from being able to compete with themon a global basis.”

Tsai is set for the challenge: "CEOs neverthink of challenges or competition restricting

future development. Sometimes I thinkfierce competition is a very important moti-vation for us," he told ATI. ICBC has beendeveloping its offshore business, and,today, around 23 per cent of its marketshare is offshore. "We have a larger offshorebusiness than other Taiwanese banks,"Tsai says. Another growth area is wealthmanagement. With a very high savingsratio, Taiwan is a ripe market for highreturns and low-risk instruments. Hwangsays: "We must look to produce new prod-ucts. We also want to go into securitisa-tion," he adds.

ICBC’s share in managing financialinstruments for corporations is growing.Last year, it raised NT$5.3 billion in whatare known as collateral loan obligations.Over the next two months, it will raise

NT$30 billion. "We have to run ahead of othersin our market," says Hwang, who is the bank'sGeneral Manager for investment banking.

Hwang's aspiration is to take a leaf from thebook of Australia’s highly-successful MacquarieBank. ICBC is now the largest project financierin Taiwan. "We have 85 per cent of the projectfinancing market," he says.

ICBC plans to expand into China, but hasbeen frustrated by Government policy forbid-ding direct investment in the Mainland. MegaHoldings is 20 per cent owned by theGovernment. However, ICBC has established acorrespondent relationship with a Chinese bankand entities in Hong Kong. Through thesearrangements, it has become involved infinancing two projects in China.

Its Sydney office, established 19 years ago,mostly to do business between Taiwanese com-panies and Australia, is increasingly lending tolocal blue chips. Hwang hopes to do more lend-ing to Australian resource companies and to beinvolved in more infrastructure projects.Currently, ICBC has a portfolio of projectstotalling around $100 million. One of its largestexposures is to Victoria’s Loy Yang power sta-tion. ICBC boasts of having better quality assetsthan the average held by Australia's big fourbanks. Its bread and butter business, however,comes from Taiwanese migrants in Australia.More than 50 Taiwanese in Brisbane each havemore than US$10 million invested, mostly in realestate in southeast Queensland, with another10 in Sydney and five in Melbourne. These indi-viduals alone account for US$650 millionin investment.

Financial is bidding for a 44 per cent stake inTaiwan Business Bank, which has 125 branch-es nationwide. Mega Financial is alreadyTaiwan's second-largest financial company interms of assets – the combined group will havetotal paid-up capital of US$3.39 billion, andassets totalling US$6.53 billion.

Mega Financial will merge its two bankingunits – International Commercial Bank of China(ICBC) and Chiao Tung Bank – by March 27next year. The merged identity will be known asMega Commercial Bank. It will have 187 outlets,including 130 bank branches in Taiwan and 29offices abroad.

"The number of branches is not enough, Inmy opinion, the optimum size of our networkshould be about 200 branches," says McKinneyTsai, President of ICBC, suggesting a furtheracquisition is on the cards. Tsai told ATI: "Itseems we have no choice because we cannotdepend on organicgrowth in the future.We are looking atprospects every day.We will not give up(until we have foundsomething)."

Henry Hwang, theBank's Executive VicePresident, adds: "Weneed to find the righttarget. We have to focuson banks that wouldprovide complementar-ities to the nature of ourbusiness. Our focus ison corporate banking.Chiao Tung Bank is anindustrial bank, so, afterour merger, our strength in corporate bankingwill be further enhanced."

Tsai and Hwang say the missing link is con-sumer banking. Most of the new 15 banksestablished in Taiwan in 1991/92 are consumer-oriented. Hwang says consumer banking –mortgages and consumer loans – does notrequire the same depth of skills as does corpo-rate banking. "Consumer banking is easy fornew banks to develop from scratch."

Tsai says Taiwan has 41 local financial insti-tutions, and that most are themselves mergedentities as a result of consolidation in the bank-ing sector. Although the sector is healthy, thereis a need to rationalise further. Taiwan'sPresident, Chen Shui-bian, has said he wants tocreate three banks that each control 10 per centof the market by the end of 2005.

Taiwan remains over-banked when com-pared with Korea or Malaysia. Tsai says bothKorea and Malaysia were hit by the 1997 bank-ing crisis, which forced mergers. Taiwan banksdid not experience a crisis until 1999, whennon-performing loans started to emerge. Tsaisays the Government is providing incentives aswell as legislation to push banks to merge.

"The current environment presents bothchallenges and opportunity for us," saysHwang. "The challenge is to develop more qual-ity in customised services. We have to go glob-al to follow Taiwanese companies which haverelocated plants to China and Asia. Half ofTaiwanese manufacturers have now moved outof Taiwan." As well, Hwang says, Taiwanesebanks face growing competition from some 39foreign banks with 79 branches in Taiwan.

MERGER INCENTIVES


BBAANNKKIINNGG AANNDD FFIINNAANNCCEE

Ô FROM PAGE 21

} The challenge is todevelop more quality incustomised services. Wehave to go global to followTaiwanese companieswhich have relocatedplants to China and Asia ~

ICBC’s McKinneyTsai: Competition is a very importantmotivation.

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encing strong growth in both the residen-tial and commercial building sectors, withhigh demand for quality downstream prod-ucts, such as painted steel roof tiles andsteel framing. BlueScope is now one ofAustralia’s largest investors in Indonesia,having committed more than AUD280 mil-lion since it entered the market with abuilding solutions business near Jakarta.

BlueScope commissioned a secondmetal coating line in Thailand in August,and has new projects under construction inBa Ria, near Ho Chi Minh City, and Suzhou,80 km west of Shanghai, both to be com-missioned in 2006.

In India, BlueScope will go into joint ven-

MELBOURNE – BlueScope Steel hasapproved major new investments in Indonesiaand India worth a total of AUD410 million.

In Indonesia, BlueScope will construct a sec-ond metallic coating and painting line at itsCilegon operation, 100 km west of Jakarta, at acost of AUD145 million. The facility is expectedto be operational in early 2008.

The new facility will process thinner guagecoil to meet growing demand in Indonesia’s res-idential sector. Sales of BlueScope products inIndonesia are now split 50-50 between residen-tial and non-residential, compared to 30 percent and 70 per cent five years ago.

BlueScope Steel’s Managing Director andCEO, Kirby Adams, says Indonesia is experi-

MEETING STEEL DEMAND EENNTTEERRPPRRIISSEE


ture with Tata Steel to build a new businessacross India and South Asia that will manufac-ture zinc/aluminium metallic coated steel,painted steel and roll-formed steel products,and deliver pre-engineered buildings and otherbuilding solutions. The 50-50 joint venture willbe headquartered in Pune.

The venture has approval to build anAUD265 million (Rp9,000 million) state-of-the-art metallic coating and painting facility atJamshedpur, in the State of Jharkhand, easternIndia, adjacent to Tata’s existing steelworks.The new facility will have an annual metalliccoating capacity of 250,000 tonnes and paintline capacity of 150,000 tonnes, and is expect-ed to be operational by mid-2008.

The BlueScope/Tata venture will alsoassume ownership of three rollforming and PEBmanufacturing facilities that BlueScope hasunder construction at Pune, Chennai and NewDelhi. Development of the three plants, at acapital cost of AUD100 million, was announcedin December 2004.

In Sri Lanka, the venture will assume owner-ship of a BlueScope’s rollforming business,which has been in operation since 1994.

SMEC wins moreprojects in DohaDOHA – Australia’s SMEC (SnowyMountains Engineering Corporation) has wontwo building design and construction con-tracts worth AUD2.2 million for the Ministry ofInterior of Qatar in the Arabian Gulf. Both willbe built in the capital city of Doha. The projectsare a communications complex, with the con-tract valued at AUD700,000, and a policy train-ing institute, valued at AUD1.5 million.

SMEC is building a strong portfolio in Qatar.It previously built a series of coast guard sta-tions and the Criminal Evidence andInformation Building for the Ministry of Interior.In the private sector, recent projects include ashopping mall and a recreation andsports centre. www.smec.com.au

BlueScope expandingin India, Indonesia

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BLUESCOPE’S ASIAN COATING/PAINTING/ROLL-FORMING/PEB CAPACITY TO TRIPLE

SINGAPORE – Retail food sales in theAsia Pacific region, forecast at US$1.8 trillion in2005, are increasingly being made throughsupermarket chains.

In its Pacific Food System Outlook 2005-2006,the Pacific Economic Co-operation Council(PECC) estimates that 75 per cent of all retailfood is being sold through modern supermar-kets. Just 25 per cent (US$450 billion) continuesto be sold at traditional retail outlets. Not unex-pectedly, the US, China and Japan account forthree-quarters of total retail food sales – and aneven higher share of supermarket sales.

PECC says supermarket sales have grownmost in the region's developing economies. Themost rapid rate is in Southeast Asian (Indo-nesia, Malaysia, the Philippines, Thailand andVietnam), China and Mexico.

The first supermarkets opened in China in1990, and today, supermarkets account for 30

per cent of retail food sales in China's urbanareas. Supermarkets accounted for 11 per centof national retail food sales in 2002, comparedwith less than one per cent a decade ago.

Growth in sales in China in 2003-04 was 30-40 per cent – up from 20-30 per cent in 1998-2002. Supermarkets are expected to generate50 per cent of retail food sales in China by 2012.

More than 80 per cent of supermarket outletsare in China's East, primarily in large urbanareas. Carrefour plans to open one -third of itsnew stores in China in the central and westernareas of the country.

Indonesia is enjoying rapid growth, with theretail food share in supermarkets jumping from22 per cent in 2000 to 30 per cent in 2004. Thesupermarket share of packaged and processedfoods, including dairy products, has risen muchhigher – dairy products, 45 per cent; cannedfood, 64 per cent; frozen food, 72 per cent; and

pasta, 88 per cent. Despite adverse economicconditions, the modern retail food sectorexpanded at double-digit rates in Indonesiaduring the financial crisis (1997-99), while thetraditional sector declined sharply. The majorchains, Hero, Carrefour and Makro, continue toroll out new stores.

The report says a key challenge for supermar-kets is to raise their share of fresh produce sales,which can account for higher-than-averageprofits. In China, supermarket share of freshfruit and vegetables, meat and fish is only 10-20per cent in the major cities. As per capitaincomes approach US$10,000, supermarketpenetration reaches about 50 per cent. Atincome levels above US$20,000, the supermar-ket share tends to level off at 70 to 90 per cent.

Income in the region's developing economiesis growing at almost twice the pace of thedeveloped economies, lifting more people into

the middle class.China has 200-300million middle-classconsumers – aboutequal to the size ofthe US population.

Foreign invest-ment has played animportant role inthe region's retailrevolution, provid-ing capital, technol-ogy transfer andorganisational inno-vation. Leadingglobal retailers –Wal-Mart from theUS, Carrefour fromFrance and Tesco

from Britain – are now well entrenched.However, PECC notes that the concentration

of the top 30 global food retailers is still quitelow in Asia, compared with Europe.

With restrictions on foreign retailers disap-pearing in China, growth of the foreign pres-ence is expected to accelerate. Wal-Mart, forexample, plans to have 90 outlets by the begin-ning of 2007 – up from 47 as of July 2005.Carrefour expects to open 15 hypermarketsannually over the next several years.

Emergence of supermarket retailing has rev-olutionised distribution. Most have centralisedtheir purchasing. The larger chains have theirown distribution centres, while the smaller onesrely on specialised wholesalers for their sup-plies. Wal-Mart, for example, is sourcing avoca-dos through its distribution centre in Mexico tosupply stores in countries including China.Carrefour has a trade division that sources

Indonesian products for export to it's outletselsewhere. It also imports products from aroundthe world for its Indonesian outlets.

Countries like Australia and New Zealand,says PECC, are well-placed to supply fresh fruitand vegetables, highly-processed productswith an exotic appeal, like wines or cheeses,and livestock products. However, the reportfinds that China is less likely to import fresh pro-duce. Imported products account for less thanfive per cent of supermarket sales, with a rela-tively higher share in the large coastal cities."Despite the strength of the expatriate commu-nity in Beijing, the share of imported food inhypermarket sales rarely exceeds two to threeper cent. Domestically-owned chains in theShanghai area are even less likely to seeimported foods," the PECC report says.

FRESH FOOD CHALLENGE


MMAARRKKEETTIINNGG

Supermarkets edge outthe traditional retailer

MODERN supermarkets now account for an estimated 75 percent of all retail food sold in the Asia Pacific region, with signifi-cant growth in developing markets such as China and Indonesia.The challenge is to increase their share of fresh food sales . . .

Source: Euromonitor

Regions Retail Food Sales Concentrated in Three Countries, 2003

From the pages of ASIA TODAY INTERNATIONAL

DECEMBER 1985: Malaysia to begin operating what isbelieved to be the first commercial plant producing diesel fuelfrom palm oil; First Chinese-Indonesian trade talks since 1967produce letters of intent for contracts said to amount toUS$350 million; Pent-up demand sees unprecedented rush forconsumer goods as India’s import liberalisation creates newmarkets.

DECEMBER 1990: South Korea encouraging its majorprivate firms to seek out offshore investments in naturalresources; Australia makes major policy statement on govern-ment policy towards Taiwan, involving ‘active support’ for com-merce; Gulf crisis prompts China to speed up plans to increasedomestic oil production; China’s notorious room shortagereplaced by massive over-supply of four- and five-star propertieswith western management.

DECEMBER 1995: Taiwan expecting investment of near-ly US$80 billion in chemicals, advanced materials, electronics,high-quality textiles and transportation equipment; China toexpand its nuclear power capacity – and acquire western tech-nology to do so; Inflation in Pakistan likely to top 20% followingdevaluation and new revenue-raising measures.

PE

CC

PE

CC

changed since Crow’s time. Neither has theeducation system. The “stuffed-duck” style ofeducation is China’s greatest strength as wellas its greatest weakness. China has brilliantmathematicians, engineers and people who candeal with detail, but they spend so much timememorising and following proscribed solutionsthat they have the power of analysis and cre-ativity squeezed out of them.

It’s always been like that. It’s a nation cram-ming for final exams. To sit back and think ofthe big picture and creatively run an organisa-tion where people co-operate – they’re a longway from achieving that. Things are changing,though. If you look at the MBA programmeshere, you have professors struggling to bring inHarvard case studies and using them to teachbusiness and then adapting them to theChinese way of doing things. They are trying tofind a hybrid middle ground. There is probablymore creativity about how to run things nowthan there ever has been in Chinese history.

Q. HHooww sshhoouulldd ffoorreeiiggnneerrss aapppprrooaacchh tthheeccoonncceepptt ooff ““ssaavviinngg ffaaccee”” wwhheenn ddooiinngg bbuussii--nneessss iinn CChhiinnaa??

A. You should always respect the people, andculture, but don’t let them bamboozle you withmystery. The Chinese are wonderful marketersand put businesspeople on their heels rightaway. They say: “We’re Chinese, we’re differ-ent, if you do due diligence, it offends us.” It’s allbaloney. You can’t do too much due diligence inChina. There is also the CEO syndrome. If youwant to see a senior Chinese leader, you spendmonths sending faxes and emails and calling uptheir minions. When you’re in China, they don’tacknowledge the meeting, but say it may hap-pen on a particular afternoon. You travel to othermeetings, and then the call comes from on high:“Be at Chongnanhai [where the central govern-ment is located] at 4.pm.” By the time he getsthere, the CEO’s so happy. His shoulders slumpin awe as he walks through the ornate hall. Bythe time he meets the official, he is sayingChina is a great country. They make it a privi-lege to invest in China. It’s brilliant.

Q. TThheerree hhaass bbeeeenn ssuubbssttaannttiiaall nneeggaattiivveemmeeddiiaa ccoovveerraaggee ooff ffoorreeiiggnn ffiirrmmss,, ssuucchh aassNNeessttllee aanndd KKFFCC,, oovveerr tthhee ppaasstt yyeeaarr.. WWhhaatt ccaannffoorreeiiggnn ffiirrmmss ddoo ttoo pprrootteecctt tthheemmsseellvveess??

A. Foreign firms should realise the Chinesemedia for what it is. Chinese reporters are, byand large, not trained, not objective and not pro-fessional. Foreign companies are in a free-firemedia zone. Journalists can’t attack theGovernment or companies attached to theGovernment, and the smaller companies pay

the media. So, foreign firms are in the gunsights. Negative coverage has increasedbecause the media is so competitive, with toomany papers and magazines chasing advertis-ing money. They’re all looking for scandals andheadlines. Companies should take a leaf out ofthe Communist party handbook and do proac-tive propaganda. They should always have alow-level information campaign, keeping intouch with reporters at important publications,having meals with them or taking them on jun-kets to headquarters. It’s harder for reporters toattack someone they know than some facelessforeign company.

Q. WWhheenn yyoouu wweerree wwiitthh DDooww JJoonneess,, tthheeSSttaattee nneewwss aaggeennccyy,, XXiinnhhuuaa,, wwaass sseeeekkiinnggccoonnttrrooll oovveerr ffiinnaanncciiaall rreeppoorrttiinngg.. HHooww ddiidd tthheeccoommppaannyy rreeaacctt??

A. We fought them for two years and won byshowing what we were doing was good forChina and that Xinhua was engaged in a pick-pocket move. We fought strongly in the US,Europe and China using lobbying and educa-tion to get people on our side. We were like anintravenous drip into China’s financial markets.If people want to trade bonds, commodities orcurrency, we provide the information. Chinaneeded that to compete with traders from othercountries. In the end, people saw that whatwe’re doing is better for China and we wereable to prevail.

BEIJING – There seem to be almost asmany books on doing business in China asthere are people in that most populated ofnations. The newest on issue is One BillionCustomers: Lessons from the Front Lines ofChina Business.

Author Jim McGregor eschews thosepolarised camps that view China as eitherapproaching collapse or dominating the globe,and, instead, looks at the country “as it is” forthose doing business here.

McGregor draws on two decades of experi-ence, including stints as a Wall Street JournalChina Bureau Chief, Chief Executive of DowJones China’s business operations, a venturecapital investor during China’s dotcom boom,and former Chairman of the American Chamberof Commerce in China. Now a partner atBlackInc China and senior China advisor toOgilvy Public Relations Worldwide, he talked toATI about the cultural component of doing busi-ness in China, how the market is shifting, andhow US-China tensions are playing out…

Q. WWhhyy ddiidd yyoouu cchhoooossee aa ttiittllee tthhaatt ppllaayyss ooffffCCaarrll CCrrooww’’ss 11993377 bbooookk,, FFoouurr HHuunnddrreedd MMiilllliioonnCCuussttoommeerrss??

A. Crow was another journalist turned busi-nessman who lived in Shanghai for 26 years. Alot of what he wrote about doing business inChina and how foreigners and Chinese interactholds true today. My book also looks at humanbehaviour, motivation, and why people dothings, and does it in a way that will make it rel-evant 10 or 20 years from now.

Q. WWhhaatt kkiinndd ooff ““ttiimmeelleessss”” bbeehhaavviioouurr ddooyyoouu ccoovveerr??

A. Just look at the way China governs itself.So many people look at it through the lens of“stir-fry Kremlinology”, of China being based ona model of the Cold War Soviet Union. China isreally going back to the Han Dynasty, whenthere was an inner court and outer court.

Then, the inner court was the family and itsretainers. Today, it’s the Communist aristocra-cy, the 300 to 400 to 500 families that emergedfrom the revolution as the elite. They’re runningthe country and leading the economic race.While they have advantages, they are not sup-posed to be picking the country’s pockets – butbuilding up its wealth.

Another example is that China is a very self-centred society. China is often seen by out-siders as a collective, but it’s actually a veryconforming society, and people have troublesplitting their personal and professional lives.That’s why it’s so political in Chinese compa-nies: everything is personal. That hasn’t

SAVING FACE IN CHINA PPUUBBLLIICCAATTIIOONNSS


Assessing the market‘as it is’ for business

YOU can’t do too much due diligence in China, says JimMcGregor, drawing on two decades of business experience there.He sees China as a self-centred society, but says there is probablymore creativity about how to run things now than ever before . . .

Ô CONTINUED PAGE 28

Author Jim McGregor (below): Foreigncompanies are a free-fire media zone.


XXX

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detailed assessment of thetrade outlook for Asia in2006-07 supported by aneconomic overview of theregion, identifying those

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ASIA IS OUR BUSINESS

INTERNATIONAL

ASIA’S FIRST SUMMIT PPUUBBLLIICCAATTIIOONNSS


Q. TThhee UUSS aanndd CChhiinnaa aarree aatt ooddddss oonn iissssuueessssuucchh aass tteexxttiillee qquuoottaass,, rreevvaalluuaattiioonn ooff tthheeYYuuaann,, IIPPRR pprrootteeccttiioonn,, aanndd tthhee ttrraaddee ddeeffiicciitt..AArree tthheessee tthhee rriigghhtt pprriioorriittiieess ffoorr tthhee UUSS??

A. The real issue is a country on the rise anda country in decline. It’s sad to say that Americais on the decline and doesn’t know it, and thatChina is on the rise and doesn’t know where it’sgoing. This means an inevitable clash. In reali-ty, Hu Jintao is now Geoge Bush’s banker[because China holds so much US foreign debt].The US just had Hurricane Katrina and thereconstruction is going to come right out of bor-rowing from China.

Q. SSoo hhooww sshhoouulldd tthhee UUSS rreessppoonndd??A. The strength of the US is its intellectual

property. This is where the US is being robbedterribly, and should be the focus. It’s not a tradeissue, it’s a crime. The US should go full out on

IPR. China is now a world economic power andit can’t maintain IPR policies more suitable for abanana republic. You have to make China careenough about it.

The tipping point of China gaining from IPRtheft versus gaining from IPR protection is wayon the theft side. They copy products and cre-ate jobs, and leaders here have major multina-tionals raising hell with them about very seriousIPR issues. Those same multinationals arepumping billions of dollars in investment intoChina, so people will ask, “Where’s the prob-lem?” There have to be real consequences toIPR violations [such as trade sanctions].

Q. TTwweennttyy yyeeaarrss aaggoo,, JJaappaann wwaass sseeeenn aammaajjoorr eeccoonnoommiicc tthhrreeaatt ttoo tthhee UUSS,, bbuutt ddiissaass--tteerr ddiidd nnoott ccoommee?? NNooww,, iitt’’ss CChhiinnaa.. WWhhaatt’’ss tthheeddiiffffeerreennccee??

A. The Chinese are hungry and are going to

be hungry for another couple of decades. Chinais full of talented people that were held back bythe [past] and now they want to be someone.Japan was rich and unable to change its cultureenough to be a global player.

[But] as Japan ran into cultural barriers,China will run into own problems, in terms ofethical barriers. The way business is done hereis so raw and there is so much corruption. Theycan’t play that way outside of China – they’ll gettheir hands slapped, whether its export technol-ogy with stolen IPR or violating export quotas.

In terms of the rule of law, they want rule bylaw, not rule of law. The party always standsatop the system and is immune to the law. Butit wants to have laws to regulate the countryand the way people transact business. There isno blind goddess of law [justice] here; it’s a setof handcuffs the rulers use on the ruled.

Ô FROM PAGE 26

SINGAPORE – International andregional government summits, meetings andconferences seem to be dime a dozen thesedays. So it is perhaps hard to imagine howmuch controversy greeted the first great meet-ing of newly independent Asian and Africanstates in 1955 in Bandung, Indonesia, withWestern powers absent.

“This is the first intercontinental conferenceof coloured peoples in the history of mankind,”declared Indonesia’s then-President Sukarno.

The meeting also took place in unsettledtimes: the height of Cold War tensions, therecent end of the French War in Vietnam, andongoing nationalist struggles against remain-ing colonial rule in Asia and Africa.

As a result, Bandung was viewed withapprehension by the US Eisenhower Admin-istration, and especially, Secretary of StateJohn Foster Dulles. While Washington had sup-ported anti-colonialism since the days ofPresident Roosevelt at the end of World War II,by the mid 1950s it was fearful of Communismbeing spread into the third world by Moscowand Beijing.

The US was thus wary and critical of thosenewly-independent countries which wished totake a non-aligned position between the powerblocs – a course championed by both India’sNehru and Indonesia’s Sukarno at Bandung.Neutrality for Dulles was unacceptable, and theUS in this period put pressure on governmentsin Asia to join its collective security alliancesunder the Southeast Asian Treaty Organisationand the Central Asian Treaty Organisation.These were to be the counterparts to the NorthAtlantic Treaty Organisation in Europe, whichhas survived, unlike the others, to this day.

Looking back over those days is Bandung1955: Non Alignment and Afro AsianSolidarity* by Jamie Mackie, a long-timeSoutheast Asia watcher, and professor emeri-tus at the Australian National University.Featuring a rich array of contemporary photo-

graphs, the book captures well the spirit of thetimes, as well as a flavour of Bandung, a city inthe mountains southeast of Jakarta.

Leaders already famous – or who were to be– were there: Apart from India’s Nehru (and hisdaughter Indira, acting as an aid), andIndonesia’s Sukarno, China’s Zhou En Lai,Prince Sihanouk of Cambodia and Egypt’sNasser. Delegations from 29 Asian, African andMiddle Eastern states attended the conference,the idea for which had come from Indonesia’sPrime Minister, Ali Sastromamidjojo.

Mackie writes that US concern overBandung was misplaced. The Soviet Unionitself briefly came in for some criticism of itsimperialist behaviour in eastern Europe, along-side the expected condemnation of remainingolder western colonial rule around the globe –most of Africa did not become independentuntil the late 1950s and early '60s.

But with a mix of countries that were in factmoderate in leadership and members ofSEATO or CETRO, as well as those more firmlywedded to a third course in international polit-ical affairs, the conference’s concluding com-muniqué was quite moderate. The principles ofgentle non-alignment, non-interference in theinternal affairs of other countries, peaceful set-tlement of international disputes, and respectfor human rights consistent with the Charter ofthe United Nations, were endorsed.

So what did Bandung in fact achieve? Whatare its legacies?

It was a greatly symbolic event pointing to anew era in international affairs. India’s PrimeMinister, Jawaharlal Nehru, said it marked the“political emergence in world affairs of over halfthe world’s population”. But did it do more thanaffirm the ending of the colonial era?

Mackie says that while the idea of Asia-Africa solidarity fell away, Bandung did givemomentum to today’s worldwide Non-AlignedMovement. Closer to the times, Mackie, whohimself worked in Indonesia in the 1950s, says

that it probably contributed to a softening of USpolicy towards Asia and Africa that occurredwhen John Kennedy became President in 1961.

“Bandung represented one of the first andmost significant steps towards the emergenceof a new multipolar world that developed lateras the sharp polarities of the Cold War disinte-grated,” he writes.

From an Australian perspective, Nehruflagged at Bandung the possibility thatAntipodean destiny may be linked in some partwith Asia: “…Indeed Australia and NewZealand are almost in our region,” Nehru saidin his concluding address. “They certainlydon’t belong to Europe, much less to America.They are next to us and I should like indeed forAustralia and New Zealand to come nearer toAsia, where they are. I would welcome them.because I do not want what we say or do to bebased on racial prejudice.” Fifty years on, justhow Australia and New Zealand do fit in withAsia will also be a question perhaps for the firstEast Asian Summit in Kuala Lumpur inDecember, with the leaders of the two coun-tries joining those of ASEAN nations, andChina, South Korea, Japan and India.

** BBaanndduunngg 11995555:: NNoonn--AAlliiggnnmmeenntt aannddAAffrroo--AAssiiaann SSoolliiddaarriittyy,, bbyy JJaammiiee MMaacckkiiee,,EEddiittiioonnss DDiiddiieerr MMiilllleett,, SSiinnggaappoorree,, UUSS$$2255..0000..

Bandung revisitedReviewed by Andrew SymonASIA TODAY INTERNATIONAL Correspondent

November 29 after being granted an AirOperator's Certificate by the Civil AviationSafety Authority. Owner Paul Stoddart saidOzJet would target its economy-priced fares atthe "business-conscious" traveller forced toadhere to tight budget constraints. "Many ofthese people want to travel business class, but,because of their structure, they're just notallowed to, unless they are high enough up thefood chain," Stoddart said, adding thatAustralia's fourth domestic carrier would notspark a price war with Qantas, a situation thatwould lead to a downward price spiral.

Airbus lifts ChinaSouthern offeringGUANGZHOU – China Southern hasintroduced its new AirbusA300-200 aircraftwith cocoon-style flat bed seats in PremiumBusiness Class to its Melbourne-Sydney-Guangzhou and Sydney-Guangzhou routes. Tillnow, the new aircraft has been used only on theHong Kong-Guangzhou-Beijing route.

China Southern has increased flights fromAustralia to Guangzhou in its summer sched-ule, with a third weekly flight from Melbourneand a fifth weekly service from Sydney. To meetpeak Christmas-New Year demand, there willbe a series of supplementary flights fromSydney, offering a daily service in some weeksof December and January.

China Southern is offering a package of spe-cial fares from Sydney and Melbourne toAmsterdam and Paris with economy starting atAUD1,299 plus tax for low season travel.Shoulder season fares start at AUD1,499 plustax and high season at AUD1,799 plus tax.

Business Class fares are AUD3,799 plus tax andPremium Business AUD4,099 plus tax for theduration of the offer, to March 31, 2006. ChinaSouthern's Paris flights operate nonstop fromGuangzhou, and services to Amsterdam viaGuangzhou and Beijing.

Xian to Europe, USXIAN – Passengers from Xian, capital ofNorthwest China's Shaanxi Province, can nowfly direct to Frankfurt, Paris, Los Angeles,London, New York, Vancouver and SanFrancisco via Beijing. Previously, NorthwestChina had no cross-ocean international airroutes. Air China's seven international airroutes will provide international-domestic jointtransport mode using one ticket and throughtransport of luggage.

PAL to BeijingMANILA – Philippine Airlines began aregular Manila-Beijing service from November11, returning to Beijing – its third destination inChina – after a 16-year absence. The flight oper-ates three times weekly, with departures fromManila every Tuesday, Friday and Sunday andreturn services from Beijing on the same day.The airline already operates a daily service toShanghai and four weekly flights to Xiamen.

MAS adds to PerthPERTH – Malaysia Airlines has added twoflights weekly to the current nine weekly servic-es departing Perth to Kuala Lumpur. Specialfares for the new flights only are availablethrough travel agents.

Virgin benefits as Sydney-HK traffic lifts 35%SYDNEY – The number of air travellersbetween Hong Kong and Sydney has increased35 per cent over the past 12 months, with anaverage increase across Australia on this sectorof 20 per cent, says Mackenzie Grant, VirginAtlantic’s Head of Asia Pacific.

He says Virgin Atlantic, which marks 12months of operation on the Hong Kong-Sydneyroute on December 8, has met budgetted loadfactors for business traffic with its Upper Classproduct, with 45 seats available on each flight.First-time flyers are returning to Virgin, he says,and through traffic from Sydney via Hong Kongto London is increasing month-by-month.

Virgin Atlantic has also benefitted from acode-share with Virgin Blue introduced fromJune for domestic sectors within Australia – sofar more than 5,000 sectors have been sold.Grant says the code-share involves a world firstin matching the reservations systems of aninternational carrier and a discount carrier.

Virgin Atlantic will move to daily London-Shanghai flights in December, with ChinaEastern, British Airways and Virgin Atlanticnow offering a total of 16 flights weekly on thissector, up from nine a year ago.

Grant describes the Shanghai market as a‘sleeper’ with very strong demand. BritishGovernment moves to ease visa requirementswill see a lot of growth, he says. In India, VirginAtlantic will increase London-Mumbai frequen-cy to daily from December (it already flies dailyto Delhi), but even with extra capacity, there ishuge pent-up demand, says Grant.

OzJet looking tobusiness marketSYDNEY – Australia’s new budget busi-ness-class airline, OzJet was to begin flights on

NEW AUSTRALIAN CARRIER


TTHHEE OOTTHHEERR SSIIDDEE

BusinessTravel

Airlines, British Airways, Qantas, CathayPacific, Iberia, LAN, Finnair and Aer Lingus.Royal Jordanian is to join oneworld fromJanuary 1, 2006 and Malev Hungarian Airlineshas signed an MoU as its first step towardsmembership.

JAL has also expanded code-share arrange-ments with Cathay Pacific and Korean Air andinaugurated its first joint services with Malev.JAL and Cathay now include a daily round-tripcode-share on the Fukuoka-Hong Kong routeand JAL and Korean code-share on KAL'stwice-daily flights between Fukuoka and Seoul.JAL has placed its flight numbers on specifieddaily intra-European round-trip flights operatedby Malev between Frankfurt and Budapest toprovide JAL passengers with the option of dailyservices between Japan and Hungary – the newcode-share flights connect with JAL's existingdaily service between Tokyo and Frankfurt.

Discover HK YearFOLLOWING completion of severalmajor new tourism projects, including HongKong Disneyland, Hong Kong Wetland Park andAsia World-Expo, the HongKong Tourism Board has des-ignated 2006 as DiscoverHong Kong Year. Detailedinformation on the newattractions, planned 2006events and ‘Moments ofDiscovery’ tours is availableon the HKTB websites,www.discoverhongkong.comor www.discoverhongkong.com/australia

Shangri-La, TradersHotels for MacauHONG KONG – Shangri-La Hotels andResorts has entered a management agreementwith developer Venetian Cotai Limited to oper-ate the Shangri-La Hotel, Macau and theTraders Hotel, Macau, both opening in 2008.The properties wil be located on the Cotai Strip,a master planned development of hotels, casi-nos, entertainment attractions, retail and meet-ings and conventions facilities projected tobecome the world's largest gaming and enter-tainment centre. The 500-room Shangri-LaHotel and the 1,000-room Traders Hotel willoccupy a 39-floor building, which includes acasino tower, performance hall and large retailshopping mall, none of which will be operatedby Shangri-La.

SHANGRI-LA is to open its first property inthe US, in Chicago, in early 2009. The 200-roomhotel will occupy floors 12 to 27 of the new 90-storey Waterview Tower on the Chicago River.

Vietnam signs up toAPEC Travel CardHANOI – Business executives from a num-ber of Asia-Pacific Economic Co-operation(APEC) member economies will be granted eas-ier access to enter Vietnam, which has official-ly joined the APEC Business Travel Card(ABTC) programme. ABTC holders will beexempt from visa and resident registration pro-cedures. They can use express immigrationlanes at airports and stay for a maximum of 60days each visit.

More orders for Airbus, BoeingNEW DELHI – The Indian Governmenthas cleared the purchase of 43 aircraft by IndianAirlines from Airbus Industrie at a contractprice of US$2.2 billion. The public sector carrieris to take 19 A-319s, four A-320s and 20 A-321aircraft.

NEW YORK – Garuda Indonesia andBoeing have signed anagreement to mod-ernise and enlarge theIndonesian nationalflag carrier`s fleet by upto 20 Boeing 787s fromthe 8th Dreamlinerseries.

JAKARTA –National private airlinecomp- any Lion Air hasfinalised a purchasecontract for 60 new

Boeing 737-900 ER aircraft worth US$3.9 billion.The first will be delivered early in 2007, and therest through to 2009.

Qantas to CanadaQANTAS will operate seasonal servicesbetween Sydney and Vancouver, via SanFrancisco, from June 14 to August 13, 2006,three flights weekly. Qantas is also adding extraservices for the December-February peak sea-son between Australia and the US.

New challenges for the corporatetravel buyerNEW YORK – Growing demand andhigher fuel costs will drive air and hotel rateshigher worldwide in 2006, presenting Corporatetravel buyers with a challenging environment,according to the American Express 2006 GlobalBusiness Travel Forecast.

The forecast says regions of strong businesstravel demand include Europe, North Americaand Japan, Asia-Pacific and Australia (JAPA),with significant traffic in the trans-Pacific andtrans-Atlantic markets. Published air and hotelrates will increase as suppliers feel intense pres-sure to recover losses, soften the effect of fuelcosts, and in some cases even grow profits.While pricing pressure remains across the air-line industry, continuing competition from low-cost carriers may limit airlines’ ability to raisefares in many markets, the report says.

Globally for 2006, Amex forecasts domestic/short-haul, economy class fares to rise by threeto six per cent and international/long-haul busi-ness fares by three to five per cent. On the hotelside, room rates overall for mid-range propertieswill increase by one to three per cent, whileupper-range properties will increase by three tofive per cent.

“Corporate clients are travelling more, andincreased globalisation is leading to strongdemand for long-haul air travel and hotel spaceat their travellers’ destination,” said MatthewDavis, Director of Global Consulting at Amex.

Within JAPA, the impact of deregulation hasfostered a growing number of low-cost carriersoperating in the region, allowing the carriers toexpand their networks and co-ordinate sched-ules across country lines, the forecast says.

On the hotel front, corporate negotiations willbe more challenging. “Yesterday’s good ratemay well be unobtainable tomorrow – leading tounpredictable hotel costs and, occasionally, aninability to obtain a suitable room. Unless acompany locks in a negotiated rate with ‘lastroom availability’, prices will likely rise in pro-portion to occupancy levels in a given city.”

In the JAPA region, growing businessdemand means hotel occupancy rates couldgrow considerably, particularly in India andChina. Amex is predicting a two to three percent increase in domestic/short-haul fares with-in key countries of the JAPA region in 2006. Oninternational/long-haul routes, productupgrades and service improvements could leadto a three to four per cent increase.

On the hotel side, AMEX forecasts a four tofive per cent increase in mid-range hotel ratesacross the JAPA region, and an eight to nineper cent increase in upper-range hotel rates.The dynamic growth rates in air travel will con-tinue to have a predictable effect on hotels,especially in markets like Bangalore,Hyderabad, Mumbai, Shanghai and Beijing.

JAL to oneworldTOKYO – Japan Airlines, Asia’s largest air-line group, is to apply to join the oneworldalliance, which currently includes American

EASIER ACCESS TO VIETNAM TTHHEE OOTTHHEERR SSIIDDEE


HolidaysDECEMBER: 2 Laos (National Day); 5 Thailand (H.M. the King’sBirthday); 8 Macau (Feast of Immaculate Conception); 12Thailand (Substitution for Constitution Day); 15 Sri Lanka(Unduvap Full Moon Poya Day); 20 Macau (Macau SpecialAdministrative Region Establishment Day); 21 Macau (WinterSolstice Day); 23 Japan (The Emperor’s Birthday); 24 Macau(Christmas); 25 Brunei, Korea, India, Indonesia, Macau, Malaysia,Myanmar, Pakistan, Philippines, Singapore, Sri Lanka(Christmas); Taiwan (Constitution Day); 26 Pakistan (Day afterChristmas (only for Christians)); 26-27 Hong Kong (Christmas); 30Philippines (Rizal Day); 31 Myanmar (Karen New Year Day)

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