ASIA NEWSFLASH
August 2015
Country Spotlight
Thailand
External Sector Holds Back
Thai Economy
Thailand’s economic performance in 2015 to-date has
been disappointing. In its Monetary Policy Report that
was released on 19 June, the Bank of Thailand (BOT) cited
mainly unfavourable external factors as the reason for
cutting its 2015 real GDP forecast significantly from 3.8%
to 3.0%. Thai domestic demand also faces some challenges.
In particular, consumer confidence remains fragile owing
to the uncertain political outlook, the drought conditions
in dozens of provinces that are constraining rural sector
output and incomes, and consumer debt levels that are
among the highest in the region.
Although stability continues to be imposed by the
military regime, developments remain unfavourable and
the medium-term outlook is still uncertain. In mid-May,
it was announced that planned elections would be pushed
back to August 2016 at the earliest, instead of the earlier
indication of February 2016. For some time, we have
warned this might be case and we think further delays
are entirely possible. In respect of the latter, the official
consumer debt-to-GDP ratio is high, at around 80%, but
we have long highlighted that this figure is very likely to
be greatly understated by vast sums owed to loan sharks,
especially in the already stretched farm sector.
In addition, a bigger concern for the Thai economy
is the weak performance of the external sector. In the
recent Monetary Policy Report, the BOT attributed
recent weakness to:
1)Structural problems in Thai exports
2)Slowing global economic recovery
3)Shifts in global trade
4)Appreciation of the nominal effective exchange
© 2015 Dun & Bradstreet, Inc.
In Dun & Bradstreet’s view, this is correct and since
points 2 and 3 above are largely beyond Thailand’s own
control, and policies should accordingly be focussed on
addressing points 1 and 4. In terms of relative exchange
rate appreciation, however, we were surprised by the
Bank of Thailand’s decision in its 10 June meeting to
desist from cutting interest rates further, especially with
CPI in negative territory in the whole of 2015 to-date.
For more details on Country Risk, please visit Dun &
Bradstreet Singapore / Dun & Bradstreet Malaysia.
Country Headlines
Cambodia - Market conditions still favourable
for growth
Indonesia - Illegal to use foreign currency in
domestic transactions
Malaysia - Labour market and infrastructure as
focus points
Myanmar - Suu Kyi’s visit to China augurs well
for bilateral relations
Philippines - Quarterly growth disappoints as
exports falter
Singapore - Consumer prices fluctuate amid low
oil prices
Vietnam - Public debt pressures pile up on the
growth outlook
Click here to check out more analysis on these countries
or any of the 130 countries covered worldwide.
ASIA NEWSFLASH
August 2015
Market Insight
Foreign Debt Could Upset
Malaysia and Indonesia
By Oana Aristide
“Original sin” — in an economic context
— was coined to help explain how foreign
borrowing and weak currencies sent Asia
into a full-blown financial crisis in the
late 1990s. Now the term has resurfaced
to describe the worrisome borrowing
practices of such fast-growing Asian countries as Malaysia
and Indonesia.
Essentially, governments and companies in the two Asian
countries have already borrowed more in foreign currencies
in 2015 than in all of 2014 and their currencies are weak.
Because of their depreciating currencies, bond yields are
higher and domestic-currency bonds are less attractive
for foreign lenders. When countries are unable to borrow
abroad in their own currency, the subsequent debt mountain
in foreign currency results in a currency mismatch that can
cause financial crises. That’s “original sin.”
The problem with foreign borrowing by Malaysia and
Indonesia now is that US interest rates are set to rise, which
means servicing their foreign-currency-denominated debt
will become more difficult. At the very least, borrowing in
foreign currency for both governments and corporations
complicates domestic policy-making.
An index computed by the Bank of America Merrill Lynch
shows how “original sin” is returning. The index takes
into account how much of the debt buildup is in foreign
currency and how much is domestic. A country that
borrows entirely in domestic currency would get a zero, and
one that borrows entirely in FX would get a 1. Malaysia’s
value has increased from an average of 0.1 during 2009-14
to 0.37 by mid-July 2015, and Indonesia’s is up from 0.3 to
0.67 over the same period.
© 2015 Dun & Bradstreet, Inc.
History has proven that countries that become accustomed
to relying on cheap funds find it difficult to stop borrowing.
Blaming weak domestic local-bond-market conditions,
Indonesia’s Debt Management Office announced plans
to increase the FX-denominated portion of government
securities to 30% (from 23% planned previously). Malaysia
has accumulated imbalances that make it one of the most
vulnerable nations financially in the region. External debt
has increased from 48.1% in 2007 to 68.7% in 2015, and
FX reserve coverage is down to 1.1 times the short-term
external debt.
Both Malaysia and Indonesia are in a far better situation
than they were prior to the Asian crisis — having freely
floating exchange rates, among other criteria, is positive.
But their relatively high external debt singles them out as
especially vulnerable among emerging markets. The cost
of insuring the debt of Indonesia and Malaysia is already
increasing, according to the Financial Times. Corporations
across the developing world are in a similar predicament.
The question for some of these countries is whether the
long run will arrive soon enough. Dun and Bradstreet’s
analysis of emerging markets’ long-term growth outlook
and short-run vulnerabilities signals trouble could be ahead.
Companies currently benefiting from strong consumer
demand in emerging markets should be wary of countries
growing so rapidly that they are bursting at the seams.
Oana Aristide is a Senior Economist on D&B’s Global Data,
Insight and Analytics team. Based in the UK, she covers three
Scandinavian countries as well as Romania, Japan, Malaysia, and
the Philippines as a contributor to D&B’s Macro Market/Country
Insight Products. She has a background in central banking.
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ASIA NEWSFLASH
August 2015
Asian Perspectives
China Down, Where Next
For Automakers?
By James Bryant
For more than a decade, most of the world’s
carmakers have gone all-in on China,
wagering that its combination of rising
wages, urbanization, and huge population
would make it the center for global
growth for years to come. But an equities
conflagration in June erased an estimated $4 trillion of
the Chinese stock market’s value. In the wake of China’s
market crash, the China Association of Automobile
Manufacturers forecast the country’s light-vehicle sales
growth would slow to 6% for 2015 and perhaps go even
lower if the stock market remains unstable.
China’s new-car sales fell 3% in June, marking the first
monthly sales decline since 2008. The worry is that
ongoing uncertainty and destroyed equity on China’s
stock market will make consumers wary about new car
purchases. To lure hesitant buyers back to the market,
dealers are slashing prices. Some dealers in China have
reported order cancellations, and the secretary-general of
the China Passenger Car Association characterized the
recent market crunch as a “meat grinder” for car sales.
A slowdown in China’s light-vehicle demand comes at
a bad time for global carmakers. Many of the emerging
markets they’d hoped would generate demand have sunk
into economic turmoil. Much has been written about the
combined economic might of the BRIC nations (Brazil,
© 2015 Dun & Bradstreet, Inc.
Russia, India, and China), but among them only India
isn’t currently mired in economic crisis. Russia, once on
the road to becoming Europe’s largest car market, is in
recession, and light-vehicle sales have fallen 40% in the
first half of 2015. Brazil is Latin America’s biggest car
market but has seen car sales fall 20% so far this year
amid a recession that is forecast to persist into 2016.
With many key emerging markets faltering, the world’s
major carmakers are looking back to traditional markets
— Western Europe and North America – for growth.
Demand pent up by the global economic slowdown and,
in Europe’s case, the eurozone debt crisis, is still fueling
car sales as economic conditions continue to improve.
European car sales are up more than 8% in the first
half of 2015, according to the European Automobile
Manufacturers’ Association. That’s nearly double the
level of growth seen so far this year in the US.
Europe’s auto market is dominated by Germany (nearly
25% of Europe’s overall sales in the first half of 2015),
James Bryant is an industry editor for Dun & Bradstreet. Based
in Austin, Texas, he writes about issues affecting the global
manufacturing sector. He’s been the company’s specialist on the
auto industry for 15 years.
ASIA NEWSFLASH
August 2015
Continued from previous page
Case Study – General Motors
in ASEAN
by Edward Barbour-Lacey | Asian Briefing
In 2014, GM
shifted most of
its non-Chinese
international
operations from
Shanghai
to
Singapore. GM
first established its Asia-Pacific headquarters in
Singapore in 1993. The company then moved its
operations to Shanghai in 2004 in order to take
advantage of the exploding China car market.
Now, the winds have changed direction again
and GM is back in Singapore and looking to take
advantage of the ASEAN market, among others.
Taken as a whole, ASEAN is the world’s fifth
largest automobile market.
which has been enjoying a period of rising wages, low
unemployment, and healthy exports. However, if the
Greek crisis hurts confidence in Europe, Germany’s
economy could suffer, which would also hurt demand
for automobiles. Likewise, an economic slump in China
could hinder demand for imported goods from Germany,
which would also likely translate into slower car sales
in Europe’s biggest national market.
So if the economic woes of leading emerging markets
have a ripple effect that also slows auto sales in the US
and Europe, where do carmakers turn for growth? The
short answer may be “nowhere.” The global automotive
industry is about to enter a period of slower growth,
according to a June 2015 report by AlixPartners. Global
annual light-vehicle market growth is expected to shrink
from 3.1% (in the period between 2007 and 2014) to
2.6% (between 2015 and 2021). The AlixPartners report
is a sobering read for any automotive executive. It predicts
slower growth coupled with unprecedented challenges
and opportunities presented by emerging technologies
and shifting consumer opinions about mobility.
Industry impact: As global light-vehicle manufacturers
face geographic and quantitative shifts in demand, they
may adjust their strategies related to manufacturing
footprint, product development alliances, and
investments in technology centers and R&D.
© 2015 Dun & Bradstreet, Inc.
The company’s Singapore unit is now responsible
for sales and marketing, product planning, and
communications activities for ASEAN, Africa,
India, South Korea, and the Middle East. It is
also managing Chevrolet’s European operations
and the luxury Cadillac brand.
In Thailand, known as the ‘Detroit of Southeast
Asia’, GM announced plans to build new factories
and expand existing ones. 40% of cars produced
in Thailand are exported to the region. Exports
of Thai auto parts and vehicles are subjected to
a maximum tariff of 5% only within the ASEAN
Free Trade Area. GM has been operating in
Vietnam since 1993, when it joint ventured with
a state-owned enterprise. It opened a dealership
in Laos in 2013.
After halting its operations in Indonesia in 2005,
GM invested US$150 million into reopening
its old factory in Bekasi, West Java, in 2014 to
produce seven-seat sports utility vehicles (SUVs)
for the local market. However, recent reports
point to the company again closing its Bekasi
factory. The market is certainly there – Japanese
companies have been very successful – but finding
the right niche can still be difficult.
For the full story, click here.
Related article: Choosing an Investment Location
in ASEAN’s Automobile Industry
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ASIA NEWSFLASH
August 2015
Regional Briefing
‘Green Card’ From
China Just Got Easier
As of July 1, the Chinese government has
significantly relaxed requirements for foreign
workers to apply for permanent residency, which
was previously only open to senior executives at
tech firms or professors at academic institutions.
The new policies for visas and residence permits
will most benefit foreign experts, high earners, and
exchange student graduates, and reflect China’s
desire to retain foreign talent in the country.
read more
Multi-Level Marketing:
China Isn’t Buying It
From our experience, a large number of foreign
companies have expressed interest in entering into
the Chinese market through a Multi-Level Marketing
structure. While regulations make clear that Direct
Sales is permitted in the mainland (some rules
apply), Multi-Level Marketing is not. Nonetheless,
many companies are still operating under the MLM
structure and this does not seem to be changing.
read more
Vietnam Removes
Foreign Ownership Cap
Starting from September 1 this year, foreign
investors are permitted to buy shares and own
charter capital without any cap if they fulfil a
twofold criteria. Organizations which do not meet
the above requirements and individuals may only
own under 51 percent charter capital of a securities
trading organization. Most public companies are
also no longer subject to any foreign equity caps.
read more
Vietnam Encourages
German Investment
Germany is Vietnam’s most important trade
partner in the European Union, making up 28%
of its total trade value with EU. Bilateral trade
reached US$1.28 billion in the first two months
of 2015, up 15.9% from the same period in 2014.
Germany and Vietnam’s recent push to establish a
Joint Chamber of Commerce (JCC) has affirmed
both nations’ desire to further trade relations and
foreign investment opportunities.
read more
Indonesia Plans
Tax Cut on
Luxury Goods
According to Indonesia’s Finance Minister, several
items will soon be exempt from the country’s luxury
tax, including furniture, electronic devices, and certain
accessories. Luxury tax on certain real estate holdings
might also be changed. The government has previously
stated that apartments with an area of over 150 square
meters could be exempted from the current 20% tax if
they are not considered “prime” properties.
read more
Heating Up: India’s
Solar Power Industry
India is not the only country with high solar
energy goals. However, what India has is
unprecedented backing from its government and
favorable geographical conditions. Already, two
of America’s leading solar firms have pledged
more than 20,000 megawatts of solar energy.
More recently, Prime Minister Modi’s trip to
China in May produced three agreements for
Chinese investment into Indian solar projects.
read more
The articles above first appeared in Asian Briefing, a subsidiary of Dezan Shira Group Ltd, a specialist foreign direct investment practice,
which has partnered with Dun & Bradstreet to publish and distribute its licensed contents.
© 2015 Dun & Bradstreet, Inc.
ASIA NEWSFLASH
August 2015
ASEAN Business Optimism Index
(BOI) Quarter 3, 2015
The ASEAN Business Optimism Index, released every
quarter by Dun & Bradstreet, is considered a leading
economic indicator for turning points in business
activity and measuring business sentiment. The Index
captures business expectations for the quarter ahead
based on six parameters: sales volume, net profit, selling
price, new orders, inventory, and employment. Sampling
in the Index represents key business sectors including
manufacturing, construction, wholesale, transportation,
services, finance, mining and agriculture, according to
their GDP contribution in each nation.
Wall St
D&B’s U.S. Economic Health Tracker
Reveals Continued Challenges
for Small Businesses Balanced by
Positive Job Growth
Dun & Bradstreet’s Small Business Health
Index fell for the third straight month during
the latest reporting period, signalling a
slowing trend in the small business sector. The
SBHI remains above its year-ago level.
We estimate 232,000 new non-farm jobs
were added to U.S. payrolls in June 2015. The
Business Services segment continued to lead
in employment gains, while the Real estate
vertical is expected to subtract from payrolls
for a second straight month.
U.S. business health continued its year-onyear decline in May 2015 as the Business
Health Index slipped 0.12 points from the
April reading. All three subcomponents of the
index were weaker, weighing on the overall
business climate.
To obtain a free copy of the report, please
contact your local D&B office. A summary
infographic is provided in the next page.
You can also click here to read the editorial
coverage in Asian Briefing and Business Insider.
Click here to read the report.
© 2015 Dun & Bradstreet, Inc.
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ASIA NEWSFLASH
August 2015
Special Report
ASEAN BUSINESS OPTIMISM INDEX
| QUARTER 3, 2015
The first regional metric of business confidence
for Southeast Asia
ASEAN-6
ID
MY
PH
SG
TH
VN
SALES VOLUME
NET PROFIT
NEW ORDERS
SELLING PRICE
INVENTORY
EMPLOYMENT
Businesses are asked to
give their outlook on six
key indicators
SALES
VOLUME
NET
PROFIT
NEW
ORDERS
SELLING
PRICE
INVENTORY
EMPLOYMENT
4%
6
%
$93,226 MIL
$138,071 MIL
OTHERS
10.9%
$250,436 MIL
38.1%
12
%
$878,198 MIL
$276,520 MIL
13.2%
$303,527 MIL
15.9
%
INDONESIA
MALAYSIA
SINGAPORE
PHILIPPINES
THAILAND
VIETNAM
The 6 countries
surveyed collectively
contribute
96%
Total GDP
$365,564 MIL
of total
ASEAN GDP
$2,305,542 Mil
Source: IMF estimates 2014
ASIA NEWSFLASH
August 2015
Industry Highlights
Malaysia
ASEAN
7-Jul Retail sales outlook hazy post-GST
6-July Rise in Asean tourists bar Indonesian
7-Jul Netherlands to decide on timber certification scheme
6-July Local focus, regional reach
10-July ASEAN is collectively strong
8-Jul Global semiconductor sales up 5%
16-July Asean market access paper launched
26-July Fundamental differences between Asean and EU
Cambodia
8-Jul Sales of kampot pepper grow in 1st half of 2015
8-Jul Heavy rain expected to boost rice growing
9-Jul In search of export market for mangoes
14-Jul Germany considers renewables funding
20-Jul Seafood, tourism, rice top Russia’s trading list
Indonesia
8-Jul Glove makers back in limelight on weaker ringgit
9-Jul Kenanga targets 8% returns per annum for new fund
9-Jul China equity turmoil hits Malaysia too
9-Jul Weaker ringgit will boost foreign investment
10-Jul Ford’s June sales rise 57% to 1,001 units
10-Jul June palm oil stocks decline 4.3% to 2.15mil tonnes
11-Jul AirAsia out of turbulence, climbs on active trade
13-Jul National Rubber output down 11.3%
20-Jul Smartphones, tablets seen driving tech growth
21-Jul Steady property demand in Penang
22-Jul Powering up on export growth prospects
23-Jul Maybank views Asean as next tech start-ups area
17-Jun Indonesia coal production falls
19-Jun Slow business seen amid economic contraction
Myanmar
23-Jun Motorcycle sales could miss target
23-Jun Raises gas lifting target
24-Jun Steel industry demands levies on imports
25-Jun Coffee production drops 23%, exports fall
29-Jun Banking industry remains stable despite profit drop
30-Jun Bananas exported to Japan for first time
7-Jul Trade figures disappoint; domestic uncertainty
8-Jul Gas output to fall 2% each year from 2018 to 2024
8-Jul Rising peanut prices hit edible oil makers
15-Jul Mung Bean exports to India to fall by 100,000T
20-Jul Philippines to import Myanmar rice
30-Jun Water rules relaxed to allow private ownership
Philippines
30-Jun Fishery industry gets tax allowance
11-Jul Tin export increases by 32.90%
13-Jul June car sales tank
14-Jul Palm oil export levy imposed
15-Jul Weak power sales amid sluggish industries
18-Jun Smartphone users to increase 10% this year
22-Jun Sugar production near target
25-Jun Auto sales to stay strong
26-Jun Coconut oil exports jumped 20% in April
29-Jun Keen on exporting chicken to Asian countries
22-Jul Tire import regulation tightened to boost industry
29-Jun Positioned as global cruise ship destination
Laos
3-Jul Online hiring falling across all industries
6-Jul Motor vehicle production up 7.3% in 5 months
9-Jul Laos-Vietnam border trade agreement signed
15-Jul Viet Nam, Laos to bolster special ties
16-Jul Thai-Lao duty-free mall proposed
22-Jul CP Laos to intensify pig production this year
26-Jul Cameron calls in business chiefs to boost growth
© 2015 Dun & Bradstreet, Inc.
7-Jul Coal plants produce almost 70% or electricity
14-Jul Rice, corn inventories up
15-Jul Casinos to rake in $3B in gaming revenue
15-Jul Palay output seen lower by 4.1% in Q2
20-Jul Auto parts makers gear up for expansion
ASIA NEWSFLASH
August 2015
Industry Highlights
20-Jul Shipments of processed food to wealthy Efta countries
13-Jul Thailand outshines Asean in solar power
21-Jul Vehicle importers post 15% higher sales
13-Jul Bangkok Bank China takes cautious stance
Singapore
14-Jul Rice insurance selling like hot cakes
16-Jul Toshiba cuts 2015 sales target to 5%
19-Jul Huge benefit seen in baht-ringgit link
9-Jul Zouk’s Clarke Quay entry a boon to business
20-Jul Chinese still keen on Thailand
10-Jul Efforts to tap growth in regional cruise industry
10-Jul Solvay opens new manufacturing plant in Singapore
21-Jul Tighter credit cuts into domestic car sales
13-Jul Retail market still growing
23-Jul Alarm bells sound over relocations
24-Jul Thailand to gain from sale of US factory
14-Jul Potential for Asia-Africa economic cooperation
15-Jul Tough stance on financial crime: MAS
Vietnam
15-Jul Retail sales up 6.1% on strong vehicle sales
16-Jul Rise in investments into collaborative R&D efforts
16-Jul Initiatives to join maritime industry to be rolled out
30-Jun VN footwear tops Brazil market
30-Jun Foreign arrivals continue to fall
16-Jul Boutique hotels sprouting up to meet demand
1-Jul Lychee continues to shine in Australia
16-Jul Singapore’s exports up 4.7% year-on-year in June
1-Jul Food, fisheries exports decline
22-Jul Gold prices down, but sales surge not expected
11-Jul Vietnam has 29 million 3G subscribers
22-Jul Joint venture to develop MediaHub
11-Jul Cement consumption up
23-Jul Industrial property prices, rents continue to fall
24-Jul Manufacturing output down 4.4% in June
12-Jul Electronics industry booming with bright prospects
11-Jul Transport system needs $50b over next five years
12-Jul Shrimp exports decline over falling demand
Thailand
12-Jul Vietnam looks to sustain sea industry
8-Jul Rubber glove firm snaps back
12-Jul Beef, litchis gear up to prepare for TPP
8-Jul Panasonic rugged tablet joy
9-Jul State to pump up exports
15-Jul Mobile game market experiencing rapid growth
16-Jul Plastic exports to Europe slump
10-Jul Sugar cane output comes under threat
10-Jul Taiwanese firms eye Thailand
13-Jul Agriculture exports slow down
17-Jul $300 million Indian credit for textiles sector
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