2012年3月19日 星期一

CapitaLand Sees Plenty of Spark in China


Despite all the hand-wringing over China's growth trajectory, the Middle Kingdom remains a land of milk and honey for Singapore real-estate company CapitaLand Ltd. President and Chief Executive Liew Mun Leong is a longtime bull on China's property market, often expressing confidence in the macroeconomic fundamentals that fuel housing and commercial-property demand there.
Under his leadership, the developer—Southeast Asia's largest by market value—expanded aggressively into China over the past decade, and now owns there a portfolio worth about 12 billion Singapore dollars ($9.5 billion), or 38% of the company's total assets, including residential properties, offices and shopping malls.
Bloomberg News
CapitaLand president and CEO Liew Mun Leong
CapitaLand's China push isn't without its detractors, especially among investors who have shied from the stock amid rumblings of a possible hard landing for the Chinese economy and its softening property market.
But Mr. Liew remains unfazed. "Urbanization and economic growth will support demand, and the Chinese people love to buy their own homes," he said. "Also, there's no alternative class of investment—they can't invest outside of China, they don't understand anything about equities, but they understand how to buy an apartment."
Mr. Liew shared with Chun Han Wong his views on real-estate trends and management experiences. The following interview has been edited.
WSJ: How has recent market turmoil and global economic woes affected real-estate investment in Asia? Are you concerned about policy risks in your key China and Singapore markets?
Mr. Liew: Asia is still attractive for investors, but they will be selective. For instance, I doubt they will put much money in India. Instead they would look at countries like China, Singapore, Hong Kong, while the more daring ones may put money in Vietnam, even if they may be worried about the macroeconomic situation there.
Cooling measures are good. We'd be worried if there weren't any; that means people will be speculative, and bubbles will generate. If there are cooling measures, we will account for them, but we won't slow down or halt our investments.
After the global financial crisis, we bought [Orient Overseas (International)'s real-estate business] for US$2.2 billion. Now with the euro-zone debt crisis, we've put S$4.3 billion in Chongqing [for the Chaotianmen mixed-used project]. We can do this because we do our capital management on a long-time-horizon basis.
For China, we're there for the long term; we have always reinvested our profits there. With the recent cut to the reserve-requirement ratio, China has signaled that they know they have to relax. It won't be sudden; it will be incremental.
In Singapore, there's still an underlying shortage of residential units. From 2005 to 2011, the resident population grew 9.3%, or 320,000 people, but the number of dwelling units increased only by 6.4%, or about 70,000 units. The government may intervene from time to time, but the demographics are positive.
WSJ: Credit availability in China is a concern for some real-estate market watchers. How might the industry be affected?
Mr. Liew: The days in which small developers can get started by borrowing a hundred million yuan are gone. Consolidation is possible; more and more will realize the burden of debt and run into trouble. If these companies have good assets, we will look at them for possible acquisitions.
During the global financial crisis, we secured over 20 billion yuan (US$3.16 billion) in credit allocation from the likes of Bank of China, ICBC, Agricultural Bank, and China Merchants Bank. It's a flight to quality. They have to lend, and between some small Chinese companies—in which they have little confidence—and CapitaLand, who would they choose to lend to?
WSJ: What about prospects closer to home in Southeast Asia and India?
Mr. Liew: I think Vietnam will grow very well in the next five to 10 years. It's a big economy with a young population—the Vietnamese are hardworking and very prepared to learn—and has got stable government as well. We have a presence in India—serviced apartments and some shopping malls—but progress is slow. We haven't made money yet. I worked on an IT project in Bangalore back in 1993, but from then till now, I haven't seen any visible signs of change in the business environment.
WSJ: What's your approach to managing your large work force and businesses in more than 20 countries?
Mr. Liew: I don't manage the business; I select the right people and manage them. We've been successful in attracting and retaining talent and the key is staying close to them. I spend a lot of time on people—interviewing them, looking at their training, reviewing their postings, and visiting overseas staff regularly. Every year, I give lectures on management and leadership for two days, eight hours a day. Anyone can write to me, and I get many responses to my weekly emails to staff, which address a broad range of business and human topics in a casual, conversational tone.
We also devise a lot of family-friendly policies. For instance, every employee can book a free four-day stay at our Ascott (serviced residences).
WSJ: During the financial crisis, you cut your pay by 20% to avoid retrenching staff. What was the philosophy behind that move?
Mr. Liew: As a company, we all have to pool together and suffer together. I call it the "theory of common happiness and common misery"—something I learned from my days in the Ministry of Defense. I always tell my staff: "I'm not the lao-ban ("boss" in Mandarin). I'm also a salaried worker." I wasn't born with a silver spoon in my mouth; I champion the proletariat.
WSJ: What did you take away from your civil-service experience, and how did you manage your transition into the private sector?
Mr. Liew: The civil service taught you integrity—we were "brainwashed" into being honest—and the importance of good corporate governance and compliance. You also learned how to work with systems, and deal with people and policy makers. The Singapore government is very paranoid; they plan for everything. I worked at the Ministry of Defense—and the concept of defense is founded upon paranoia—so I learned to be even more paranoid and plan for things.
But I think I am basically a private-sector person, but was caged in the public sector for too long before I was released to become my natural self. By nature, I am outgoing and more prepared to take risks.
Write to Chun Han Wong at chunhan.wong@dowjones.com
Education: Bachelor's degree in civil engineering, University of Singapore (now the National University of Singapore)
Career: 22 years in the public sector; chief executive of L&M Investments; president of Pidemco Land, which merged with DBS Land to become CapitaLand
Interests: Daily treadmill jogs and qi-gong exercises.

How to Play a Slowing China


It has been a tough few weeks for China investors. After looking like the nation's slumping stock market had turned a corner, a wave of bad news sent it tumbling again.
That could present opportunities for patient investors, experts say.
After falling 18% in 2011, the MSCI China index rocketed up nearly 18% in January and February, its best start of the year since 1996.
But the rally has stalled, with the MSCI falling 2.7% in March. The reason: Concerns about Chinese economic growth. On March 7, Chinese policy makers announced they were targeting economic growth of 7.5%, slower than in past years, and two days later reported a trade deficit of $31.5 billion in February, the largest since at least 2000.
Some strategists, however, say the spate of bad news might actually be a positive sign for China's economy—and its equity markets.
The growth rate, while lower than the double-digit clip many investors had come to expect, is a sign that China intends to make the transition from an economy dominated by exports and state-targeted investments to one that is fueled by consumers, says Anna Stupnytska, a London-based macroeconomist at Goldman Sachs Asset Management. While that might mean slower growth, it also should be more stable in the long term.
"This transition is absolutely necessary to make the economy sustainable," she says. "The rise of the Chinese consumer will be the most important trend in the coming decade."
Bloomberg News
Workers adjusting an Emerson Electric natural-gas burner
That isn't to say the change will be easy on investors. The Chinese stock market typically moves in tandem with industrial-production growth, says Tony Welch, a global analyst at Ned Davis Research.
Since 1994, during periods when the amount of goods produced by China has trended higher, the market gained an annualized 6.1%; it lost 10% when industrial-production growth was falling. Right now, the direction of industrial production is unclear, but with the transition under way, it could take a hit.
"Growth could be decelerating for some time," Mr. Welch says. "If you saw extreme weakness in China, it could break the whole China trade."
Still, many strategists expect the People's Bank of China to stimulate the economy, now that inflation has dropped to a manageable 3.2%. When the central bank began easing monetary policy in 2008, stocks rallied 30%.
"They have the tools they need to keep this from becoming a much worse slowdown," Aaron Gurwitz, chief investment officer at Barclays Wealth, says of China's central bankers. "If they're able to manage the cycle and manage away from an export-oriented growth strategy, people will make a lot of money on investments in China."
So how should investors take advantage? One popular way to play China has been to look for U.S.-based multinational companies with exposure there, includingMcDonald'sMCD +0.18% Nike NKE +0.81% and Yum! Brands.
Recent concerns about Chinese growth also have made some of these companies cheaper than they have been recently, says Mark Finn, manager of the T. Rowe Price Value fund. He owns Emerson ElectricEMR -0.25% which has a price/earnings ratio—a valuation measure computed by dividing share price by earnings per share—of 14 based on profit forecasts for the next 12 months, below its 15-year average multiple of 18. He says he has been adding to his position recently.
Jeff Shen, a managing director at asset manager BlackRock, says investors should consider buying "the real thing"—Chinese equities. The P/E ratio of the FactSet Aggregate China Index, a gauge of Chinese stocks, is about 9.9, below its 15-year average of 12, according to FactSet Research Systems data.
"Chinese companies aren't that expensive, and that hasn't always been the case," Mr. Shen says. "Right now, they're more interesting than China proxies."
There are two kinds of China stocks—A shares, consisting of companies traded on mainland China, and H shares, or Chinese companies traded in Hong Kong.
A shares have lost 3.3% over the past five months, and are near their lowest valuations in five years, says Jonathan Garner, chief Asia strategist at Morgan Stanley MS +4.07%in Hong Kong.
H shares, on the other hand, have gained nearly 18% over that period. The wide gap is a sign that the A shares soon might find a trough, Mr. Garner says.
"There's been a huge outperformance in China shares listed in Hong Kong," he says. "We're interested in switching to the A market."
One problem with A shares is that they are generally restricted to Chinese investors. The Market Vectors China PEK -1.07% ETF, however, gains access to the market through "swaps"—a type of financial contract that provides similar returns.
A word of caution: The ETF trades just 6,000 shares on an average day, according to Morningstar. Another option: the Morgan Stanley China A Share CAF -0.18% closed-end fund.

2012年3月4日 星期日

Auto Makers Step on the Gas in Indonesia



JAKARTA, Indonesia—The world's top car makers are in the middle of an expansion spree in Indonesia, battling for a piece of the world's next auto hub.

Toyota Motor Corp. and other Japanese auto makers have dominated the Indonesian market for decades. But General Motors Co., Ford Motor Co., Tata Motors Ltd. and others are trying to wedge their way in. They have plans for new plants, new models or new dealerships, aimed at reaching the emerging middle class in Indonesia.

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Bloomberg News
Toyota on Wednesday said it would invest $200 million in Indonesia beyond expansion plans announced last year.

Toyota on Wednesday said it would invest an additional $200 million beyond expansion plans announced last year, lifting its Indonesia capacity to 230,000 vehicles annually by 2014. That would more than double today's output.

With overall Indonesian auto sales expected at nearly one million vehicles next year, the country is becoming one of the world's largest car markets. More important, its low auto-ownership rate means Indonesia—the world's fourth most-populous nation, behind China, India and the U.S.—could be one of the world's last great growth markets.

Less than one in twenty of Indonesia's mostly young and increasingly affluent population of 240 million people owns cars. As strong growth in gross domestic product puts cars within reach to more Indonesians, the country could quickly become a three-million-car-a-year market in the next decade, analysts say. Although that isn't on the scale of China, where 18 million light vehicles were sold last year, the Indonesian market is expected to expand faster.

"This is going to be a period of unprecedented growth in Indonesia," says Peter Fleet, president for Ford's operations in Southeast Asia, which recorded 90% growth in sales in Indonesia last year. "With the low level of car ownership in the country and the GDP per capita growing, it is at a takeoff point."

Auto companies need new markets to offset slowdowns in their home countries and expected leveling in India and China over the next few years. Indonesia's economy and auto sales are expected to continue climbing at a rapid pace this year even as developed economies struggle, largely because much of Indonesia's economy is driven by domestic demand rather than exports to the West.

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Bloomberg News
Indonesian auto sales are expected to approach one million vehicles next year and triple in the next decade.

Indonesia attracted a national record of $20 billion in foreign direct investment last year as its GDP rose 6.5%. Moody's last month upgraded Indonesia's debt to investment grade—another sign of Indonesia's economic coming of age.

Light-vehicle sales climbed 17% to nearly a record 900,000 units in Indonesia last year. Meanwhile, sales fell in Japan, rose just 2% in Thailand and climbed less than 10% each in China, India and the U.S., according to consulting firm LMC Automotive.

GM is investing $150 million to reactivate a plant to produce a seven-seat van in Indonesia after having left the country seven years ago. The plant will produce 40,000 vehicles a year for local consumption and for export.

"Building and selling great new products that are suitable to Indonesian customers will enable us to keep up our growth in this important market," said GM Indonesia spokeswoman Maria Sidabutar.

China's Zhejiang Geely Holding Group Co. is looking to expand its vehicle-assembly capacity in Indonesia. India's Tata said last month that it plans to bring its iconic Nano minicar to the country.

Ford doesn't produce cars in Indonesia—shipping from nearby production hubs instead—but it is considering the possibility. Ford unveiled its popular Fiesta brand in the country last year and plans to introduce other models soon as it expands its dealership network 20% this year, Mr. Fleet says.

South Korea's Hyundai Motor Co. expects its sales will climb around 35% and is considering building a factory in Indonesia, said Jongkie Sugiarto, president director of PT Hyundai Mobil Indonesia. "If our parent company agrees, Indonesia will have a Hyundai manufacturing plant instead of just an assembly plant to produce a model aimed at the Southeast Asian market," he said.

Japanese auto makers moved into Indonesia before most other car makers and stuck it out through the Asian financial crisis and other economic and political instability. As a result, Japanese companies now control about 90% of Indonesia's market. Toyota alone controls 60%.

The Japanese manufacturers see Indonesia as an important source of demand and production as they face rising costs at home and increasing competition from India and China.

"It is like holy ground for Japanese auto makers," says Michael Dunne, president of auto consulting firm Dunne & Co. "They will not cede it without a fight."

Suzuki Motor Corp. last month said it will spend $780 million to almost double its capacity in Indonesia to 150,000 four-wheeled vehicles a year. The Japanese company said it also is in the early stages of negotiations with the government for tax incentives that would allow Suzuki to start producing a small eco-friendly car in Indonesia.

Nissan Motor Co. and Daihatsu Motor Co. also are expanding capacity.

Toyota celebrated its 40th year in Indonesia last year with groundbreaking on a new factory, part of a $340 million expansion plan.

"We are not concerned about the newcomers," says Irwan Priyantoko, Toyota's chief of corporate planning in Jakarta. "Indonesia now is a very important market for us and we are happy it's getting bigger."

Indonesia is hoping to follow in the footsteps of Thailand, which has used favorable government policy and infrastructure to attract investment and become one of the world's biggest sources for vehicles, especially pickup trucks.

"We want to multiply our auto-manufacturing production to become an export hub for at least some of the signature models," says Indonesian Trade Minister Gita Wirjawan. "We definitely can catch up [with Thailand], particularly with tax facilitation and supportive regulations we already, and will, have in hand."

Executives warn that the government needs to do more—particularly to refresh outdated infrastructure and clear up obtuse regulations—if it wants to stay on the fast track. Toyota says Jakarta's port already is stretched to capacity and won't be able to handle increased trade.

And challengers to Japan's domination here could face a rocky road. Ford and GM have been trying to crack the Thai market for more than a decade but combined still have less than 10%, analysts say.

Still, if capacity increases as planned over the next three years, Indonesia's auto sales could climb as high as 1.5 million vehicles, according to analysts. That could make the country Asia's fifth-largest auto hub, behind China, Japan, Korea and India.

"No one wants to look back and say, 'How did we miss it?,' " says Mr. Dunne, the consultant.

Write to Eric Bellman at eric.bellman@wsj.com

China’s State Capitalism: the Real World Implications


By Stanley Lubman
Chinese leader-in-waiting Xi Jinping’s visit to the U.S. last month and the recent release of a World Bank report on the future of China’s economy have helped to once again revive debate around the state-led “China model” as an alternative blueprint for economic development. As these debates unfold, it has become clear that China’s version of “state capitalism” (as opposed to “market capitalism”), still is not adequately understood abroad.

The need to better understand China’s system goes beyond abstract arguments about the future of the global economy. The continuing expansion of the state sector of China’s economy limits the private sector and favors state-owned enterprises (SOEs) over foreign companies in some domestic markets. As SOEs extend their investments abroad, nations in which China seeks to invest need to become more aware of frequent links between state ownership and state control.
A recent paper by Curtis Milhaupt, a scholar of comparative corporate law at Columbia Law School, and Li-Wen Lin, a graduate student in sociology at Columbia University, sheds useful light on what they call the “black box” of SOE organization.
As Lin and Milhaupt note, the Chinese system is based on “vertically integrated groups” of large state-owned and related companies. Each group has a “central holding company,” the State-Owned Assets Supervision and Administration Commission (SASAC), which is the majority shareholder in a “core company.” That company, in turn, owns a majority of shares in the state-owned companies that comprise the group, including a finance company that is a source of finance for members.
Altogether, these vertically integrated groups control some 120 SOEs, all subject to government control via SASAC. According Lin and Milhaupt, total SOE assets equaled 62% of China’s GDP in 2010.
There are intra-group linkages via joint ventures, alliances, and shareholding. Also, the Chinese Communist Party (CCP) structure exists parallel to the structure noted above. The Organization Department of the Party is decisive in choosing top managers of the SOEs, and in turn some managers hold positions in government and the CCP. The authors emphasize that more than a chain of command from top to bottom is implied by this structure: “These hierarchical structures are embedded in dense networks –not only of other firms, but also of party and government organs,” and exchange and collaborate on many matters of production and policy implementation.
The implications of this system for market competition run deep. One is that SOEs are exempt from anti-trust enforcement. Also, as the Economist noted in a recent overview, the government “enforces rules selectively, to keep private-sector rivals in their place” and foreign firms can be blocked from acquiring local firms.
Understanding the governance of SOEs is difficult. Lin and Milhaupt state that SASAC has control rights over the transfer of shares in SOEs. Most SOEs have no board of directors, and shareholder rights are “downplayed.”
A recent study of shareholders’ derivative suits in China by the University of Michigan’s Nicholos Howson and George Washington’s Donald Clarke finds that although there is a “robust” use of such suits against insider and controlling shareholder abuse in limited liability companies (closely-held companies), derivative lawsuits involving listed companies limited by shares (which include the SOEs in the groups described) are “strikingly absent.” At the same time, in the private sector some gains from transparency have been found to result from shareholder suits against closed corporations which are known as “limited liability companies” under Chinese law.
Although the strength of SASAC’s control over the companies it oversees may vary in practice, insiders exercise control in each SOE, which means that corporate governance is very weak. Shareholders have no voice in corporate affairs and can not access the courts. Lack of transparency means that corporate misgovernment is easy to hide.
Questions surrounding Chinese laws and corporate governance within China may seem remote, but they are not. If any SOEs intend to invest in the U.S., they must be reviewed by the Federal Interagency Committee on Foreign Investment in the United States (CFIUS), which is charged with evaluating mergers or takeovers that ”threaten to impair the national security.” Legislation specifically requires that foreign investment transactions in which the foreign entity is owned or controlled by a foreign government must be reviewed. Foreign firms have the burden of proof to demonstrate they are not “a threat to national security.”
Not only is this standard vague and undefined, but the process is politically charged, as demonstrated by two notable cases.
Perhaps most notable is the attempt state-run Chinese oil firm China National Overseas Oil Corporation (CNOOC) to acquire Unocal, a U.S. subsidiary of the Union Oil Company, in 2005. The attempted acquisition set off a storm of Congressional criticism while the transaction was being reviewed by CFIUS, eventually leading CNOOC to withdraw its bid. “The national security argument gets bound up in a zero-sum view of China: the idea we can’t give them any advantage, any edge, if they are going to be a future enemy,” Georgetown Law School China exerpt James Feinerman was quoted as saying at the time.
That views were underscored in 2011 when Huawei, a Chinese telecom company that claims to be publicly owned rather than state-owned, sought to purchase a small California company. As the deal was being considered by regulators, a Bloombergreport quoted cited intelligence officials as saying Huawei maintained “close ties and what appears to be regular communication with officials of the People’s Liberation Army and the Ministry of State Security in China.” The outcry from Congress was so great that the offer was withdrawn.
A Wall Street Journal report at the time of the Huawei fracas predicted “the environment for Chinese companies in America is only going to worsen as the 2012 presidential election nears and politicians look for targets to criticize.” The accuracy of this apprehension has recently been demonstrated in the rhetoric of some of the candidates in the Republican primary. “Mitt Romney and other Republican candidates have stepped up their denunciation of China’s trade practices, casting the country as predatory and a culprit for lost jobs at home,” the New York Times noted in November. The Republicans, however, are not alone. In the same article, a former adviser on China to President Obama was quoted by the New York Times as being “hard-edged” on economic issues that trouble U.S.-Chinese relations.
While much of the recent political rhetoric surrounding China can be written off as election-year bluster, China’s “state capitalism” will continue to be number among those issues on which leaders in Washington are likely be “hard-edged,” and rightly so. If an SOE appears as a possible investor, CFIUS will most likely have difficulty probing its relations to Chinese government agencies of concern. And the Chinese side will most likely not display satisfactory transparency.

Stanley Lubman, a long-time specialist on Chinese law, is a Distinguished Lecturer in Residence at the University of California, Berkeley, School of Law and is the author of “Bird in a Cage: Legal Reform in China After Mao,” (Stanford University Press, 1999).

2012年3月3日 星期六

Asian Manufacturing Shows Resilience

SINGAPORE—Asia's manufacturing sector is gaining strength, economic data released Thursday suggest, a message that could convince some central banks in the region that they don't need to rush into measures to support growth.
However, disappointing trade figures from India made clear that some parts of Asia are still suffering from slack demand in the West. In addition, weakness in China's banking and property sectors continues to pose risks to the region, economists say.
China's official Purchasing Managers Index, a key gauge of manufacturing activity, rose to 51.0 in February from 50.5 in January. It was the highest reading for the index since last September.
A reading below 50 indicates manufacturing activity contracted from the previous month, while a reading above 50 indicates expansion.
Taiwan's industrial activity rebounded strongly in February to 52.7 from 48.9 in January, growing for the first time in eight months, according to HSBC's survey of purchasing managers.
Global growth prospects are starting to improve. China, the U.S. and even the euro-zone are showing signs of expansion. But with oil prices rising, inflation fears might be rising too. Dow Jones's Alen Mattich examines the latest data. Photo: Getty Images
Tim Condon, head of Asia research at ING Financial Markets, said he expects governments to revise their 2012 gross domestic product forecasts higher in coming weeks. He also expects most central banks to remain on hold for the next several months, even those that had been preparing to ease policy if necessary to support growth.
"We got too bearish in the fourth quarter because of the situation in the euro zone and the resulting export weakness here," Mr. Condon said. He credits the European Central Bank's liquidity operations with "halting the panic and getting European consumers to buy things again."
Improving employment and consumer confidence in the U.S. in recent weeks also appear to be helping to firm up Asian exports.
South Korea swung back to a trade surplus of $2.2 billion in February after recording a trade deficit in January, with exports rising more than expected. Mr. Condon said the data will help persuade the Bank of Korea to keep policy settings where they are.
Manufacturing growth in India remained robust, with HSBC's February PMI coming in at 56.6 in February, only slightly slower than January's 57.5 reading.
But India's trade deficit widened to $14.8 billion in January from $10.3 billion a year earlier, as imports surged and exports failed to keep pace.
Inflation remains in check in most parts of Asia, giving central banks the luxury of keeping policy steady rather than having to tighten to stabilize prices.
Indonesia's consumer price index rose 3.56% in February from a year earlier, a slower pace than the previous month's 3.65%, and was virtually flat month-to-month. Thailand's CPI also eased slightly, rising 3.35% last month compared with January's 3.38%.
In China, despite the somewhat more upbeat external picture, some say warning signs are flashing. New yuan loans by China's four largest banks came in well short of market expectations for February, amid Beijing's efforts to cool the property market.
Nomura economist Zhiwei Zhang predicted the People's Bank of China will deliver a 0.25-percentage-point interest rate cut in March and 0.5-percentage-point cut in reserve requirements in April, driven by factors including the anemic loan growth and a likely lower PMI reading in March.
"We believe that the focus of policy makers has shifted from inflation to growth," he wrote.
Write to Martin Vaughan at martin.vaughan@dowjones.com