Chinese Economics Thread

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Another China and other country joint venture in HSR victory.

JAKARTA, Indonesia (AP) — Officials from China and a domestic consortium signed an agreement Friday to build the first high-speed rail line in Indonesia after Japan lost in the bidding late last month.

The estimated $5.5 billion high-profile railway deal signed by China Railway International Co. Ltd. Chairman Yang Zhongmin and Dwi Windarto, the president director of a consortium of Indonesian state companies, PT Pilar Sinergi BUMN Indonesia.

China had been expected to secure the project in Southeast Asia's largest economy after Indonesian officials rejected Japan's requirement for a government guarantee of loans late last month.

Regional rivals China and Japan had been competing to construct the 150-kilometer (93-mile) Jakarta to Bandung high-speed line as part of 750 kilometers (466 miles) of new rail planned for Indonesia.

The Indonesian state-owned companies forming the joint venture agreement are a construction company PT Wijaya Karya, railway operator PT Kereta Api Indonesia, toll-road builder PT Jasa Marga, and a plantation company PT Perkebunan Nusantara VIII.

"We hope this new company will compete outside Indonesia for high-speed railway projects," said the joint venture chairman Sahala Lumban Gaol at the signing ceremony.

He said the construction is expected to begin early next year and completed in 2018. The trains are to start operating in early 2019 with eight stops, speeds of 250 kilometers (155 miles) an hour, and a fare of about $16.

The existing regular trains to Bandung, the capital of West Java province, take about three hours and cost about $8.

President Joko Widodo has ambitious plans to improve Indonesia's infrastructure, which could boost manufacturing and create hundreds of thousands of new jobs.

The competition between China and Japan for the rail project has been accompanied by many twists and turns as Indonesia weighed proposals and counterproposals.

China won the rights to build the high-speed railway after standing firm on not using Indonesian government money or requiring a government guarantee for loans.

China will hold 40 percent of the venture and the state-owned China Development Bank is to finance 75 percent of the project.

"We stand ready to work with Indonesia to ensure the quality and safety of the project," Yang told reporters, "We hold our commitment strongly since the beginning."

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[advill]

In any business competition due consideration is given to financing, experience, quality, past performance etc. The best team won - in this case China. Congrats go to the Chinese team.

 

[Brumby]

In any business competition due consideration is given to financing, experience, quality, past performance etc. The best team won - in this case China. Congrats go to the Chinese team.

I presume your comments are referring to the article on the high speed rail. I note the article specifically state :

China won the rights to build the high-speed railway after standing firm on not using Indonesian government money or requiring a government guarantee for loans.

The deal breaker was the guarantee provision against a default. In this case, China was prepared to take on more risk unlike the Japanese.

 

[B.I.B.]

In any business competition due consideration is given to financing, experience, quality, past performance etc. The best team won - in this case China. Congrats go to the Chinese team.

Is this an example of winning a contract no matter what the costs? Given the state of Indonesian finances, would it not be prudent to ask for government gaurantees for the loan? Some financial commentators suggest Indonesia is a ticking debt bomb

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Investors selling the rupiah on concern Indonesia will suffer a debt crisis risk a self-fulfilling prophesy.

The rupiah has slumped to its lowest level since the peak of the Asian financial crisis, when Indonesia was bailed out by the International Monetary Fund. Its nine-week decline is the longest since June 2004. That’s unfortunate timing for the nation’s government, banks and companies that owe a

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in foreign debt, almost three times the country’s $105.4 billion of international reserves, according to central bank data.

Indonesia’s currency has plunged 13.3 percent this year, Asia’s worst performing after Malaysia, as China’s yuan devaluation in August fueled speculation of currency wars in the region. Bonds denominated in the U.S. currency have lost 3.9 percent over the last three months, JPMorgan Chase & Co. indexes show, as companies face a vicious cycle of higher debt servicing costs, falling earnings and slumping asset prices. Only Mongolia’s debt fared worse in Asia.


“The debt servicing costs of these companies will go up and that means impact on leverage and coverage ratios,” said Raymond Chia, the head of credit research for Asia ex-Japan at Schroder Investment Management. “The impact could affect a company’s reported bottom line as well as dividends, which may cause their stock to drop. That drop could eventually feed through to the bonds given investor sentiment.”

Most Exposed
Of the debt, $169.7 billion is private, according to central bank data. Companies listed in Jakarta reported about $22 billion of foreign currency debt as at the end of June, 24 percent more than a year earlier, according to data compiled by Bloomberg. PT Astra International, which assembles and sells cars for Toyota Motor Corp., has the biggest exposure with $3.5 billion in currencies outside of rupiah, or about two thirds of its total borrowings.

 

[Blitzo]

Via swoosh, on CDF, an interesting report on China's economic involvement in Africa which seems to refute a few stereotypes about China's cooperation with African countries.

AidData dispels notions about China's motivation in aid to Africa

by Christopher Katella, AidData | October 15, 2015

Research published by AidData, a leader in the global movement to change the way that development assistance is targeted, measured and evaluated that is housed at William & Mary, found that Chinese aid to Africa does not favor authoritarian or corrupt regimes, despite the rhetoric of Western policymakers. However, African countries that align with China’s voting at the United Nations General Assembly tend to receive more development assistance from Beijing.

These two findings are included in a massive, updated dataset tracking more than $94 billion in Chinese funding to 50 African countries from 2000 to 2013.

In "Apples and Dragon Fruits: The Determinants of Aid and Other Forms of State Financing from China to Africa," AidData researchers from William & Mary, Heidelberg and Harvard universities refute popular misconceptions and clarify common misunderstandings about what the Chinese are up to in Africa.

The main source of confusion, they find, is a failure to differentiate between aid in the strictest sense (“official development assistance,” or ODA) and more commercial forms of state financing. Beijing has made the problem worse, they find. By disclosing little reliable information about its overseas development activities, it has fueled speculation and made it difficult to confront false and exaggerated claims with evidence.

Among other findings, the authors report that:

● When African states consistently vote with China in the UN General Assembly, or align their voting with China’s voting over time, they tend to receive more ODA from Beijing.

● Contrary to a commonly held belief by Western policymakers, China does not privilege authoritarian regimes or so-called “rogue states” in its allocation of ODA.

● China does not seem to take commercial self-interest or natural-resource acquisition considerations into account when it allocates ODA. In fact, Chinese ODA flows to Africa are strongly oriented towards poorer countries, suggesting that Beijing considers humanitarian needs when making allocation decisions.

● Despite the popular perception that “Chinese aid” is funnelled to corrupt and natural resource-rich countries, Chinese ODA does not favor countries that are rich in natural resources and countries with higher levels of corruption. It is less concessional – and more commercially-oriented – forms of Chinese state financing (e.g. so-called “other official flows,” or OOF) that flow disproportionately to such countries.

● China’s aid-giving motivations actually bear a striking and surprising resemblance to those of Western donors.

Visit aiddata.org/aiddata-working-paper-series to download “Apples and Dragon Fruits.” AidData worked with Foreign Affairs to create this visualization, also released today: Aid and Other Financing to Africa from China.

The analysis in “Apples and Dragon Fruits” was made possible through a large and ongoing open-source data collection and triangulation initiative at AidData that to date has helped identify more than 2,300 Chinese development projects in Africa (via china.aiddata.org). The updated (1.2) version of AidData’s Chinese Official Finance to Africa dataset – also released today – reflects and includes data drawn from more than 6,000 sources, including academic case studies, NGO reports, individual Chinese ministry press releases, diplomatic cables, implementing agency websites and media reports. It also eliminates some data gaps, including health-aid information that was corrected based on feedback from Chinese government officials and university researchers.

The introduction of “Health of Record” scores that help external users distinguish between project records that are more reliable and project records that require further validation.

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[Brumby]

Is this an example of winning a contract no matter what the costs? Given the state of Indonesian finances, would it not be prudent to ask for government gaurantees for the loan? Some financial commentators suggest Indonesia is a ticking debt bomb

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I think it depends on the risk profile of each bidder and their respective objectives. The Japanese probably viewed it on a commercial basis i.e. the risk of non collection is too great if there is no guarantee provision and was not prepared to budge. The Chinese could have viewed this as a strategic investment and prepared to write off if there is a default with the broader view of gaining access to other opportunities.

 

[advill]

Risk taking is part and parcel of business in Asia. Good examples are the Overseas Chinese Business people who have been and are really big risk takers in South East Asian countries where they have domiciled since 1940s or even earlier. The bigger the risk the bigger the profits, although there have been big losers too. Studying these Overseas Chinese firms now (family owned included), a good number are very rich and successful. I suppose it's in the Chinese (whether from China owned or Overseas) blood to take risks; also in gambling for some big timers.

 

[Brumby]

Risk taking is part and parcel of business in Asia. Good examples are the Overseas Chinese Business people who have been and are really big risk takers in South East Asian countries where they have domiciled since 1940s or even earlier. The bigger the risk the bigger the profits, although there have been big losers too. Studying these Overseas Chinese firms now (family owned included), a good number are very rich and successful. I suppose it's in the Chinese (whether from China owned or Overseas) blood to take risks; also in gambling for some big timers.

Risk management is universal. Some Chinese just takes it to a different level. Lol. I once worked for a Chinese family (many years ago) with operations throughout Asia. I was the group CFO. The risk management was very conservative.

 

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An interesting graphic comparing the world's two biggest economies.

The United States has had the world’s biggest economy for 140 years, but the International Monetary Fund now ranks China as the world’s largest economy. We examine the differences between the two economies.

South China Morning Post

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Mr Cameron's spokesman has said "nothing is off the table" when it comes to talks between the pair.

Earlier, the prime minister told MPs he would raise the issue of subsidised Chinese steel with his counterpart.

Human rights and cyber attacks are also likely to be discussed.

The visit comes after Chancellor George Osborne visited China last month, where he said it was the government's intention to make

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.

Mr Osborne also announced earlier this month that the UK will allow Chinese companies to take a stake in British nuclear power plants - a move questioned by some.

Mr Cameron told Chinese state TV Mr Xi's visit marks a "very important moment".

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Schedule for this week:

Tuesday

• President Xi and his wife Peng Liyuan receive a ceremonial welcome at Horse Guards Parade before travelling in a carriage procession along The Mall to Buckingham Palace
• Later, Mr Xi will address members of the Houses of Parliament
• The president is due to meet Labour leader Jeremy Corbyn
• The Queen will give a state banquet at Buckingham Palace

Wednesday

• Mr Xi will visit Imperial College London with the Duke of York and Chancellor George Osborne
• He will meet David Cameron at Downing Street before before visiting the UK-China Business Summit at Mansion House and then Chinese telecommunications company Huawei Technologies

Thursday

• Mr Xi, joined by the Duke of York, will visit Inmarsat, a global satellite communication services company, before attending a Confucius Institute conference hosted by UCL Institute of Education
• In the evening, Mr Xi and Ms Peng will join Mr and Mrs Cameron at Chequers for dinner before flying to Manchester

Friday

• Mr Xi will visit the National Graphene Institute at the University of Manchester with Mr Osborne and then the City Football Group with Mr Cameron
• The president and Mr Cameron will attend an event at Manchester Airport before Mr Xi and Ms Peng depart