Airbus, Boeing count on China to buffer Southeast Asia slowdown

Asia's biggest airshow kicks off in Singapore this week amid a rout in the global financial markets. You can't tell any of that looking at plane orders for Airbus Group SE and Boeing Co. 

PHOTO: REUTERS

FEB 15, 20167:48 AM

[NEW DELHI] Asia's biggest airshow kicks off in Singapore this week amid a rout in the global financial markets. You can't tell any of that looking at plane orders for Airbus Group SE and Boeing Co.

The hey days of multi-billion orders from India and nations in Southeast Asia is giving way to concerns about airlines in the region delaying delivery of planes. The lone bright spot - China.

China Southern Airlines Co, Air China Ltd and other carriers in the nation will require about 6,330 new planes worth US$950 billion in the next two decades, according to Chicago-based Boeing. That's about 17 per cent of the global total. During last year alone, Chinese airlines and leasing companies announced orders for some 780 planes valued at about US$102 billion.

"China's aviation outlook is not just bright, but arguably the strongest it has been in its history," said Will Horton, a Hong Kong-based analyst at CAPA Centre for Aviation. "Chinese airlines are waking up to their potential." As China re-balances its economy toward consumer spending after its slowest annual growth rate in 25 years, the government is trying to encourage more air travel by building 66 airports as part of its current five-year plan. That good news for the aerospace and airline industries contrasts with overcapacity and losses among airlines in Southeast Asia and India.

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MOMENTUM SWING

From Brazil's Embraer SA to Bombardier Inc of Canada, aerospace manufacturers will chase hard to come by orders during the Singapore Airshow, which starts on Tuesday.

United Technologies Corp's engine-maker Pratt & Whitney will open its engine fan- blade manufacturing facility in the city state this week. No major Chinese airline executive will be at the show. China's future as the world's biggest travel and aircraft market and a gradual shift in momentum toward Asia are among themes aerospace manufacturers and airlines will discuss.

Airbus's and Boeing's 20-year outlooks are dependent on Asia Pacific for new fleet sales, with estimates that 39 per cent of their total deliveries will be to that region through 2034.

ORDER SPREE

China is poised to displace the US as the world's biggest aircraft and travel market in two decades, according to Boeing. The Chicago-based company announced its largest industrial investment in China and received US$38 billion in orders from its carriers and lessors when President Xi Jinping visited Boeing's Seattle factory in September. Airbus already has a final jet assembly facility near Beijing.

"The overall Chinese economy has slowed down," Tony Tyler, head of the International Air Transport Association, said in Singapore Sunday. "However, air travel in China has remained quite robust."

It's a different story in Southeast Asia and India, two other regions that saw a surge in air travel and aircraft orders. Many carriers are mired in losses, some have shut shop and a few have already delayed delivery of new planes.

India is home to a fare war and the industry has long remained unprofitable.

Airlines in this region have over-ordered aircraft, according to Shukor Yusof, founder of Endau Analytics in Malaysia. Given Airbus's bigger exposure to budget airlines in Southeast Asia, the European planemaker has a higher risk of having to confront deferrals or cancellations, Mr Shukor said.

AIRBUS'S CHALLENGE

Airbus has the greatest Asia Pacific concentration in its narrow-body backlog at 30 per cent, 15 percentage points higher than Boeing's, Bloomberg Intelligence analysts George Ferguson and Ian McFarlane wrote in a report this month.

It's most exposed to carriers in Southeast Asia and India, with Lion Air (463 aircraft), Indigo (430) and AirAsia (307) accounting for 51 per cent of Asian orders.

The Bloomberg Asia Pacific Airlines Index has fallen 16 per cent this year amid concerns of a global economic slowdown even as oil prices are down. Boeing shares have fallen 25 per cent and Airbus has declined 17 per cent.

"As long as fuel prices stay low, disposable income is with the consumer and air travel is still in reach," said Mark Martin, founder of Dubai-based Martin Consulting LLC.

That's prompting China to allocate about 77 billion yuan (S$16.5 billion) for investment in civil aviation this year. The nation is planning to build new airports to boost the national total to 272 by 2020, according to a summary of 2015 figures released by the aviation regulator.

"China is not heading for a downturn," Mr Horton said. "It's heading for an upturn."

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Focus on partisan advantage has rendered modern democracies ineffective: Ng Eng Hen

By

Kelly Taykellytay@sph.com.sg@KellyTayBT

FEB 14, 201610:59 PM

MODERN democracies have been unable to govern effectively, in part because they have focused on partisan advantage, said Minister for Defence Ng Eng Hen in Germany on Sunday.

"We all understand how modern democratic, liberal democratic systems work - checks and balances to counter the concentration of power of dictators. But modern democracies focused on partisan advantage and interests, and have not been able to govern effectively," said Dr Ng.

Using the example of the US - because it is the richest democracy - Dr Ng noted how in recent years, the US federal government faced shutdown when its budget could not be passed.

"Coalition governments compromise themselves into ineffectiveness. So citizens become disenfranchised and cynical about the entire political process," said Dr Ng.

He was speaking at the 8th Munich Young Leaders Round Table on the sidelines of the 52nd Munich Security Conference.

    
 

Yen off highs on calmer sentiment, eyes on China

The yen nursed losses early on Monday, having retreated from its highest in over a year as a rally in European and US stocks late last week dulled demand for the safe-haven currency. 

PHOTO: BLOOMBERG

FEB 15, 20167:57 AM

[SYDNEY] The yen nursed losses early on Monday, having retreated from its highest in over a year as a rally in European and US stocks late last week dulled demand for the safe-haven currency.

But there was not much follow-through yen selling in Asia yet as investors kept a nervous eye on Chinese financial markets, which reopen after a week-long holiday.

The dollar was up a touch at 113.64 yen, having pulled away from a 15-month trough just under 111.00. The euro fetched 127.61 yen, up from a 2-1/2 year low of 125.795. "The China equity market's reaction to last week's turmoil as well as the degree, if any, of a lower USD/CNY fixing could set the tone for the week," said Rodrigo Catril, FX strategist at National Australia Bank.

Adding to the suspense is China's trade data due later in the day. A disappointing outcome could easily re-ignite flight-to-safety flows.

Perhaps in an effort to head off any adverse reaction from Chinese investors, central bank governor Zhou Xiaochuan said there was no basis for the yuan to keep depreciating.

In the well-timed interview, carried in the Chinese financial magazine Caixin over the weekend, Mr Zhou also said China would keep the yuan basically stable versus a basket of currencies while allowing greater volatility against the US dollar.

For now though, investors were still soothed by a welcome bounce in US consumer spending last month, which offered hope the economy was picking up after slowing to a crawl at the end of 2015.

The data helped the greenback regain some ground versus the euro. The common currency was last at US$1.1233, having slipped from a 3-1/2 month peak of US$1.1377.

Commodity currencies put in a mixed performance. The Australian dollar kept its head above 71 US cents, while the kiwi was at US$0.6625, having slipped from Friday's high of US$0.6740.

REUTERS

    
 

Indonesia's Jokowi finds traction after tumultuous first year

FEB 15, 20167:35 AM

[JAKARTA] Shoppers clamber atop slippery fish stalls in a town in rural Indonesia to catch a glimpse of President Joko Widodo and jostle to kiss his hand, a sign the star power that swept him to office a year-and-half ago is intact.

Until recently, the same couldn't be said for his relations with the parliament, or even his own party.

While challenges remain, that now looks to be changing as the former furniture exporter gets a better grip on national politics and the once-majority opposition coalition crumbles. Set against neighbours Malaysia and Thailand, Indonesia looks relatively calm.

"Our relationship with all political parties is good, there is no problem," the president, better known as Jokowi, told Bloomberg Television after stopping off at the market and visiting a toll road project on Sumatra island last week. "Our relationship with the parliament is also very good." He put his initial woes down to "communication" issues.

The shift, which has been accompanied by an improvement in macroeconomic indicators and positive polling numbers, is crucial.

Mr Joko needs political stability and smoother relations with parliament for the rest of his five-year term to reach his goal of lifting economic growth to 7 per cent by 2019. He's planning a massive increase in public spending on infrastructure and seeking greater foreign investment.

DIVISIVE ELECTION

Mr Joko took office in October 2014 after the most divisive election in the country's history saw him beat former Suharto- era general Prabowo Subianto. Under Indonesia's electoral system, Mr Prabowo's coalition of parties occupied most of the seats in the parliament as well as its leadership roles, making it harder for Mr Joko to govern effectively.

He also lacked experience on a national level and didn't have well established networks within the major political parties in order to get things done. Before becoming president he was governor of Jakarta and the mayor of Solo.

Mr Joko found that out the hard way with early missteps and public spats within his coalition that caused unease among investors.

He drew criticism for some policies: The country's manpower ministry made it harder for foreign professionals to get work permits, while the trade ministry issued protectionist regulations.

Still, patronage and money, rather than policy or ideology, drive Indonesian politics so shifting allegiance is possible. Gradually, most opposition parties have expressed support for Mr Joko, most recently the Golkar party, giving government backers a majority in parliament.

'LEARNT FAST'

"Jokowi has good reason to be confident because he has been able to assemble broad political support," said Djayadi Hanan, a politics professor at Paramadina University in Jakarta. "He learnt fast. He has the backing of the parliament and the public. He should be optimistic of stability until at least mid 2018 when the elections begin approaching."

The president has an approval rating of 67 per cent, up from 41 per cent in June 2015, according to a survey carried out last month by Indikator Politik. Thirty seven per cent said they would vote for him in 2019, with Mr Prabowo in second place with 15 per cent. Indikator Politik conducted personal interviews with 1,550 people.

PARTY TENSIONS

Market sentiment has also improved. So far this year the rupiah is Asia's third-best performer, driven by inflows into the bond market.

Mr Joko seems to have smoothed out ties with his own Indonesian Democratic Party of Struggle, or PDI-P, led by former President Megawati Soekarnoputri.

Tensions between them were exposed last year by a destabilising dispute over Mr Joko's choice of police chief. In August, he appointed Pramono Anung, the PDI-P's deputy secretary general, as his cabinet secretary, a move that gave the party closer access to Mr Joko and helped heal relations with Megawati, said Mr Hanan.

Still, parliament last year passed just three bills into law, the lowest total in at least the last five years, according to the Jakarta Post. The 560-seat body has prioritized the passage of 40 new laws or amendments this year.

A coming test of Mr Joko's ability to work with parliament will be whether he can push through a tax amnesty law projected to bring in an extra 60 trillion rupiah of revenue this year. It's possible some parties may seek concessions from the president in return for supporting the measure.

GROWTH TARGET

While the economy has held up, there are headwinds as Mr Joko targets growth of 5.3 per cent this year, up from 4.79 per cent last year, including the external environment. With little prospect of a pick up in commodity prices and the extent of the slowdown in the Chinese economy still unclear, the pace with which Mr Joko can push through domestic reforms will be key to reaching the growth goal.

Also on the agenda is a revision of anti-terrorism legislation to better deal with the threat posed by the emergence of the Islamic State.

Parliamentarians, including those from Mr Joko's party, are seeking revisions to the anti-corruption agency that critics say would leave the body, ranked in surveys the country's most respected institution, severely weakened. Failure to stop them risks hurting Mr Joko's reputation as a reformer.

'SHOW LEADERSHIP'

"Jokowi's stance on corruption will be put to the test," said Frank Feulner, a governance analyst and former adviser to the Indonesian parliament. "The question is whether the president will show leadership by vetoing the parliament's attempts or instead succumb to horse trading."

After the enthusiastic reception at the market, where the president and his staff bought squid, cockles and fish from vendors and gave school books to young children, the trip to the toll road showed progress on at least a small section of his infrastructure ambitions.

Given the morning's agenda, Mr Joko was asked if he was considering running again in 2019. The president laughed before an aide cut in, also smiling, to shut off the line of questioning, saying: "It's still too early to talk about that."

BLOOMBERG

    
 

Pakistan default risk surges as US$50 billion debt bill coming due

      

FEB 15, 20167:48 AM

[PAKISTAN] Bets are rising that Pakistan will default on its debt just as it starts to revive investor interest with a reduction in terrorist attacks.

Credit default swaps protecting the nation's debt against non-payment for five years surged 56 basis points over the past week amid the global market sell-off, the steepest jump after Greece, Venezuela and Portugal among more than 50 sovereigns tracked by Bloomberg. About 42 per cent of Pakistan's outstanding debt is due to mature in 2016 - roughly US$50 billion, equivalent to the size of Slovenia's economy.

Prime Minister Nawaz Sharif has worked to make Pakistan more investor-friendly since winning a US$6.6 billion International Monetary Fund loan in 2013 to avert an external payments crisis. The economy is forecast to grow 4.5 per cent, an eight-year high, as a crackdown on militant strongholds helps reduce deaths from terrorist attacks.

"Pakistan's high level of public debt, with a large portion financed through short-term instruments, does make the sovereign's ability to meet their financing needs more sensitive to market conditions," Mervyn Tang, lead analyst for Pakistan at Fitch Ratings, said by e-mail.

Since Mr Sharif took the loan, Pakistan's debt due by end-2016 has jumped about 79 per cent. He's also facing resistance in meeting IMF demands to privatize state-owned companies, leading to a strike this month at national carrier Pakistan International Airlines Corp.

The bulk of this year's debt, some US$30 billion, is due between July and September, and repayments will get tougher if borrowing costs rise more. The spread between Pakistan's 10-year sovereign bond and similar-maturity US Treasuries touched a one-year high on Thursday.

If Pakistan's debt servicing costs rise, Mr Sharif doesn't have much room to maneuver. Already about 77 per cent of the country's 13 trillion rupees (S$173.2 billion) budget for the year through June 30 is earmarked for interest and principal repayment on loans.

Right now, there's not much reason to panic. Fitch's Tang says Pakistan's external liabilities are "relatively modest," foreign-currency reserves have risen, the IMF is ready to help meet maturing loans and Chinese investment in an economic corridor is on its way.

"Improving growth prospects, lower inflation and smaller budget deficit should help to underpin investor confidence, particularly the domestic investor base," Tang said.

S. Javed, a spokesman for Pakistan's Finance Ministry, didn't respond to emailed questions. Pakistan is committed to successfully implement its IMF macroeconomic stability programme, the Finance Ministry said in a statement Feb 1. Mr Sharif's administration has a "quite good" chance of completing the programme, IMF mission chief Harald Finger said last month.  Only 17 per cent - or US$8.3 billion - of Pakistan's 2016 bond and loan repayments will need to be in foreign currency. That accounts for 40 per cent of the nation's $21 billion in foreign-exchange holdings.

That stockpile, however, isn't airtight. While it increased by more than 55 per cent last year - the steepest rise in Asia - more than half consists of debt and grants that could leave the country quickly if global risk appetite worsens. Outflows would weaken the rupee, a currency that is estimated by the IMF to be as much as 20 per cent overvalued even though it's proved remarkably stable amid the recent market turmoil.

Investors should expect volatility in bonds and pressure on the rupee this year, according to Mustafa Pasha, head of investments at Lakson Investments, which manages US$200 million of Pakistani stocks and bonds.

While the plunge in oil prices helped the government last year, predicting the outlook would be like "reading the tea leaves," he said by phone from Karachi.

Another worry, as ever in Pakistan, is political stability. The military has ruled the country for most of the time since independence in 1947, and General Raheel Sharif - no relation to the prime minister - has boosted the army's image with a campaign to root out terrorists who massacred 134 children in 2014.

While Raheel Sharif has said he plans to retire when his term ends in November, the risk of political upheaval is ever present. Pakistan has the 10th highest political risk score among more than 120 countries in the Economist Intelligence Unit ranking, worse than Egypt and Iran.

BLOOMBERG

      

'Brexit' puts focus on European security as US urges unity

FEB 15, 20167:54 AM

[MUNICH] European Union leaders head into a week of crucial diplomacy on Britain's future in the bloc with a US warning to avoid "Brexit" and concern that disunity could undermine regional security.

Days before EU national leaders try to thrash out a deal aimed at keeping Britain in, German Chancellor Angela Merkel's senior foreign-policy lawmaker, Norbert Roettgen, said Europe needs more unity, not less.

That followed a warning by US Secretary of State John Kerry that a British exit would weaken Europe just as it needs strength to deal with the twin challenges of terrorism and refugees.

"We cannot any longer delegate this matter of European security to the US," Mr Roettgen, who heads the German parliament's foreign affairs committee, said at the Munich Security Conference on Sunday. "We have to pour in a much, much higher amount of financial, political, military resources. We have as Europeans to care for our security - this is fundamentally new."

UK Prime Minister David Cameron needs approval from every other nation in the EU to secure a deal at a two-day summit starting Thursday in Brussels. That would pave the way for him to hold a referendum on staying in the bloc as early as June 23 and campaign against a British withdrawal.

As a week of diplomacy gets under way, the UK's role in fighting Islamic State militants and Europe's divisions over how to handle refugees underscore the stakes.

KERRY'S MESSAGE

"Europe is going to emerge stronger than ever, provided it stays united and builds common responses to these challenges," Mr Kerry said to applause at the Munich conference on Saturday. "Obviously, the United States has a profound interest in your success, as we do in a very strong United Kingdom staying in a strong EU."

European leaders shouldn't underestimate the risks of an EU without Britain, according to Ian Bremmer, founder of New York-based consultancy Eurasia Group.

"Brexit would be significantly destabilising," he said in an e-mail. "It would take years to manage the unwind, further referenda would become likely and leadership on foreign-policy issues would become much weaker across the board."

While Britain would remain a member of the North Atlantic Treaty Organisation military alliance if it left the EU, the UK is raising that spectre of a Europe preoccupied with its own unraveling.

"Without Britain, Europe would lurch very much in the wrong direction," UK Foreign Secretary Philip Hammond, said in a Sunday interview with the BBC.

'REAL FEAR'

"The thing we have to remember is there's a real fear in Europe that if Britain leaves, the contagion will spread," Mr Hammond said. "People who say we'd do a great deal with Europe if we left forget that the countries remaining in the European Union would be looking over their shoulder at people in their own countries saying, 'If Britain can do it why can't we?'"

Mr Cameron isn't assured of victory. The latest ComRes poll found 21 per cent of British voters expect him to get a good deal from his renegotiation, while 58 per cent doubted the package would be a success. Almost half - 45 per cent - had no idea whether they'd be personally better or worse off if Britain left the EU or stayed in, according to the poll.

Not all EU governments have the UK's future in Europe uppermost on their minds. Rather than looking westward, Polish President Andrzej Duda said he's fretful about the menace to his east.

"Of course we have problems, also in the European Union - migration crisis, Brexit and others," Mr Duda said at the Munich conference on Saturday. "But our security, military security especially, is now the most important when we see the situation for example in the Ukraine."

BLOOMBERG

    
 

PBOC ups ante in quest for stability as Zhou breaks long silence

FEB 15, 20168:02 AM

[HONG KONG] China's central bank has stepped up efforts to restore stability to the nation's currency and economy, with Governor Zhou Xiaochuan breaking his long silence to say there's no basis for continued yuan depreciation.

The nation's balance of payments is good, capital outflows are normal and the exchange rate is basically stable against a basket of currencies, Mr Zhou said in an interview published Saturday in Caixin magazine. That's an escalation in verbal support after such comments have been left in recent months to deputies and the central bank research department's chief economist.

Mr Zhou dismissed speculation that China plans to tighten capital controls and said there's no need to worry about a short-term decline in foreign-exchange reserves. The country has ample holdings for payments and to defend stability, he said.

"He's desperately trying to make sure that all of his work in the past few years on capital liberalization does not go to waste," said Victor Shih, a professor at the University of California at San Diego who studies China's politics and finance. "He's trying hard to instill investor confidence in the renminbi so that the Chinese government does not have to resort to the extreme measure of unwinding all of the progress on offshore renminbi in the past few years."

The comments come as Chinese financial markets prepare to reopen Monday after the week-long Lunar New Year holiday. The weakening exchange rate and declining Chinese share markets have fueled global turmoil and helped send world stocks to their lowest levels in more than two years.

AMPLE LIQUIDITY

Lost amid the angst over China's stocks, currency and sliding foreign exchange reserves is the flush liquidity situation at home. The People's Bank of China has been putting its money where its mouth is, pumping cash into the financial system to offset record capital outflows amid fears the yuan could weaken further.

Data due Monday is expected to show China's broadest measure of new credit surged in January on a seasonal uptick in lending, and as companies borrowed to pay off foreign debt. Aggregate financing likely grew 2.2 trillion yuan (S$468 billion), according to the median forecast of a Bloomberg survey of economists.

Bloomberg's China Monetary Conditions Index, a gauge that includes inflation-adjusted interest rates and the exchange rate, has been improving since June. Past episodes of improvement have presaged either an acceleration in economic growth, or a stabilisation.

Even as foreign exchange reserves have declined since mid 2014 - to a four-year low of US$3.23 trillion in January - M1 money supply has continued to rise.

CASH INJECTIONS

The central bank has turned to cash injections instead of cutting benchmark interest rates, as cuts could further exacerbate capital outflows.

Net injections have totaled more than 1 trillion yuan since mid-January, or about the same as a 1 percentage point cut to banks' required reserve ratios - the traditional way to boost liquidity. The difference is that injections are temporary and can be scaled back if policy makers don't roll over lending facilities, whereas a RRR cut is more permanent.

"The actions taken already arguably have taken away the need for an immediate 'announcement event' of a reserve ratio cut, which could have hit sentiment towards the yuan further," said David Mann, chief Asia economist at Standard Chartered Plc.

China has no incentive to depreciate the currency to boost net exports, and there's no direct link between the nation's gross domestic product and its exchange rate, Mr Zhou said in the Caixin interview.

Capital outflows need not be capital flight, and it would be hard to implement tighter controls because of the size of global trade, the movement of people and the number of Chinese living abroad, he added.

The country will not peg the yuan to a basket of currencies but rather will seek to rely more on a basket for reference and try to manage daily volatility versus the dollar, Mr Zhou said. The bank also will use a wider range of macro-economic data to determine the exchange rate, he said.

PACKED CINEMAS

Meantime, China's economy continues to give mixed signals. While areas like consumption and services show signs of holding up, the manufacturing sector remains in the doldrums. Trade numbers due Monday are expected to show that exports fell 1.8 per cent in US dollar terms in January from a year earlier, while imports dropped 3.6 per cent.

Retail sales over the Spring Festival holiday rose 11.2 per cent from the same vacation period a year earlier, with cinemas posting sharp increases in box-office sales, the country's Ministry of Commerce said in a statement Saturday.

A fuller reading on how China's economy has started 2016 won't be available until next month, when fresh readings on retail sales, investment and industrial output are due.

"The flush monetary condition is expected to help buffer the acute downside risk in the Chinese economy," said Andy Ji, a Singapore-based foreign-exchange strategist and economist at Commonwealth Bank of Australia.

BLOOMBERG

    
 

How Big Oil Conquered the World (Video)

How Big Oil Conquered the World

2015 

Our reliance on oil is only growing, and our unabated demand continues to bulk the pockets of the energy companies in the process. There are few regions of the globe that remain untouched by this powerful industry, and fewer lives that aren't affected by its dealings. Produced by the always provocative Corbett Report, How Big Oil Conquered the World skillfully traces the nefarious origins and evolution of this energy behemoth.

The film sheds light on aspects of the oil industry that have remained largely obscured by official historical records. For many of us, John D. Rockefeller comes to mind when we reflect on the moment when Big Oil first became big business. But the beginnings our global captivation with this precious source of energy really began with his father William, a man who gained notoriety for his illicit romantic affairs and tenacious gifts as a snake oil salesman. The industry as it exists today - and the general demeanor of the world it has cultivated - is a direct reflection of his slithery personality.

The documentary does not allow the son John escape from intense scrutiny, however. The filmmakers reveal the oft-told tale of how his company Standard Oil used merciless bribery and strong arm tactics to become a worldwide superpower. But in doing so, they deliver a series of surprising and altogether horrific anecdotes. According to the facts presented in the film, even the world's most revered philanthropic interests haven't been immune to the Rockefellers' devious touch. These pursuits have long allowed the richest elites powerful sway over the masses, and the ability to craft a world and a workforce that bends to their needs.

What's past is prologue. How Big Oil Conquered the World recounts the deeply checkered history of the oil industry to form a context for the even more troubling future that awaits an unsuspecting public. In these modern times, they have their fingers in nearly every conceivable pie of influence - from pharmaceuticals to green technologies to education. The scourge of rampant greed, and the continuing emergence of global monopolies, empower these companies with enough leverage to control every facet of our lives, and to make sheep of us all.