Asia view July 2010
How China fared with its version of Nama; China's banks enjoying high profits; Asia makes plans for future growth in air travel; Fishing industry thriving in the East.
Chinese Nama
Long before Nama, China did a bail-out of its (granted, state-owned) banks using a model similar to the Irish one. So, how did China's asset management companies (AMCs) fare? It was set up a decade ago to take a trillion yuan (€100bn back then) in bad loans off the banks' books.
Head of the financial-services practice at KPMG's Beijing office Jason Bedford explains: "The Ministry of Finance issued bonds at face value to the banks to replace the bad assets which were then given to the big four AMCs. These AMCs have since restructured or sold off these assets, the most successful of which has been Cinda which has a 21% recovery rate.
"What will happen to the rest of those assets is anyone's guess. Rising prices and a recent court case which threw creditor's rights out the window, has largely caused nearly all foreign investors to withdraw from this space."
Profitable banks, gasp!
China's banks are back in the news with the upcoming IPO of the country's Agricultural Bank - snazzily renamed AgBank. Backed by early interest from Middle Eastern petrodollar states' sovereign funds, the IPO marks the last of China's colossal nationwide institutions to go for listing.
Chinese banks such as the Industrial and Commercial Bank of China are already the biggest in the world in terms of stock-market value but does that make them the world's biggest banks? Bedford told Business & Finance how Chinese banks may, in fact, be overvalued: "They are not the biggest in assets by a long shot - ICBC is the largest and comes in at number 10 in the global rankings. However, their stock price is a reflection of their profitability. Chinese banks currently enjoy an extremely high interest-rate spread that is not determined by market forces but rather by the government.
"When this changes and market forces are allowed to determine interest rates, the impact on profit will be immense. Currently, we have a situation where lending is incredibly profitable hence interest income tends to account for more than 90% of total income [at local banks].
"This compares to foreign banks earning a hefty portion of revenue from non-interest income such as credit cards, fees, commissions and leasing. Many foreign banks get more than 50% of income from non-interest sources."
High flying plans for Asia
The Dublin Airport Authority isn't the only airport manager putting on an extension. A new open-skies deal among members of the Association of Southeast Asian Nations (ASEAN) is one of the reasons for a blistering spate of airport expansions right across the continent.
Most eye-catching maybe is the build-out of Kuala Lumpur International Airport. The expansion is taking the form of a new low-cost carrier terminal to match the powerful growth of Air Asia, a no-frills carrier modeled on Ryanair (whose former executive Conor McCarthy today helps run Air Asia).
Flamboyant boss Tony Fernandes wanted to build his own airport in KL but was denied by the government, forcing Air Asia to work with the MALB, the country's listed airport management company. It promises to have a new low-cost terminal built into the existing airport by 2012.
The newly expanded airport will have a capacity for 30 million passengers a year when it's done, which will for the time being satisfy Air Asia. It will take delivery of 12 Airbus A330 jets up to 2011.
Not unlike the Irish carrier it models itself on, the airline fought with Malaysia's policy makers and the MAHB for concessions such as continued discounted fees and a dedicated runway at the new low-cost terminal - both of which the airline has been enjoying at a makeshift low-cost terminal 10km from the main airport.
MAHB's projection of growing Malaysia's airport traffic to 60 million by 2014 seems realistic, given the plans of ASEAN and Air Asia. Indeed air travel right across Asia will increase rapidly in coming years in line with regional economic growth.
But the big prize, China, hasn't encouraged the rise of brash, new low-costs: why would it, given three state-controlled airlines (Air China, China Southern, China Eastern) and government-invested Hainan Air control the market?
Fishing for new markets
Not content with supplying the US with its toys, clothes and electronics, China is also the world's top producer of seafood and number-two supplier of shrimp to the US.
It's often forgotten that even with its huge population, China is also a key food exporter: true, the country's rivers are dirty and drying up but China has, over the last two decades, encouraged the growth of a fish-farming business that has made it the world's key player in shrimp production.
With wild fish numbers dwindling worldwide, Asia has been a player on world seafood markets by using low labour and input costs to go after global markets with copious amounts of cheap, farmed fish.
Most of China's seafood exports are from aquaculture operations and reprocessed seafood from abroad. Similarly, Bangladesh and Vietnam are feeding into rising Chinese consumer demand, and fighting China for market share.
"In spite of increasing sales to their domestic market, Chinese producers will remain large exporters of high-volume items like shrimp, tilapia and eels," says Peter Redmayne, the man behind the annual China Fisheries and Seafood Expo. "China doesn't really export much of its wild catch. The quality isn't that great so exporting it is hard."
But while it's farming cheaper fish like carp and tilapia, China is also importing more expensive fish. "Farmed salmon imports from Norway, for example, are up sharply again this year in spite of a substantial price increase due to a reduction in supplies from Chile."
Chilean sea bass is another expensive imported fish, while the Chinese also import lower value fish like herring and mackerel. Much of this fish was imported for processing and re-exported but more of it is staying in China for local consumption. Like Europe - where the EU Common Fisheries Policy is widely regarded as weak since politicians are reluctant to reduce fleets - China has its own conservation effort, with seasonal closures in most large fishing areas to protect spawning fish.
Still, China has more than two million fishermen and the government is reluctant to reduce the fleet and put a lot of fishermen out of work. Many though have already moved into fish farming. So expect more fish from China.
