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Last week, en route to Brazil, I stopped off in Mexico, a little too early for the World Cup, but still a good opportunity to get a feel for the atmosphere. Opinions on the chances of Mexican national football team were unanimous: they’re going home after the first round. The joy of having won the play-off against New Zealand to secure the very last place in the World Cup turned to doubt the moment the Mexicans were drawn in the same pool as Brazil, Cameroon and Croatia.
Thankfully, the Mexican clients I visited in Monterrey, in the north, and in Mexico City were more optimistic about the energy reforms in their country. Last year, President Enrique Peña Nieto announced that sweeping changes were required to get the Mexican economy, which grew by only 1% last year, back on track again. He announced changes to regulations to attract foreign investment and a number of projects in the electricity sector are already beginning to take shape.
Earlier this year, additional domestic investment in infrastructure, roads, ports and railways amounting to USD 60 billion was announced. This immediately caught the attention of foreign investors, especially from Brazil, Spain and Portugal. Improved infrastructure means a better market for cars, among other things, so we’re seeing more investment from international manufacturers in the automotive sector. Setting up a car factory costs a few hundred million, but a gas or oil plant of a certain size will quickly generate a couple of billion in additional investment. When combined with the fact that the gas in the neighbouring US is getting cheaper and is once again being transported to Mexico, the picture is pretty clear: Mexico has some big plans and the government, which has a mandate through 2018, has plenty of time to implement them.
One other major issue in Mexico is safety. Although an important drug baron, El Tigre, was caught this week, the fight against organised crime is far from over. The last time I was in Monterrey, I received an email with the details and a photo of the driver that would be collecting us from the airport. At least that way we knew we had the right driver! Monterey is about 200 km from the border with Texas and in many ways it looks like the US. You’ll find exactly the same restaurant chains there on the same straight streets with businesses and shops on either side. Given its location, Monterey is the perfect place for foreign investors. Labour is cheaper than in the US and there’s enough room for new investors.
A little more densely populated – or should I say a lot more densely populated – is Mexico City. The aerial photo of the airport reveals just how close together the houses are in the approach to the airport from air. Like the old Hong Kong airport, where you could see the laundry hanging on the lines, in Mexico City just before you land you can look right into the houses. The city and its satellite towns are officially home to 21 million people, but that could easily be a couple of million more. As the city is situated between hills, there is very little room for expansion. Traffic is constantly backed up and the associated air pollution does not make it a pleasant city to live in.
Tortillas with ant larvae
One of the advantages of travelling a lot is getting to try the local food, so also in Mexico. A business lunch only starts at 2 p.m., and the tortillas and guacamole taste very different to those from the Albert Heijn supermarket in Amsterdam! Something else that tastes ‘different’ are the fried worms, grasshoppers and escamoles, or ant larvae – a delicacy that is eaten with the aforementioned tortillas and guacamole. Incidentally, you no longer have to go to Mexico for these, now that we have grasshopper muffins in the Netherlands!!!! Check out the video that I tweeted before. After lunch, it’s off to the airport for the overnight flight to Sao Paulo, Brazil, to weigh up the chances of the Mexican and Dutch football teams!
In my previous blog I talked about the speed of getting through Sinapore’s Changi Airport – a record that South Korea managed to crush. Upon arrival at Incheon Airport – an hour’s drive from Seoul – it took just five minutes for me to retrieve my suitcase and get the all familiar stamp in my passport and I was ready to take a taxi to the city. President Obama arrived an hour after me from Japan en route to Malaysia, but he probably didn’t need a stamp…
Unlike other countries in Asia, Seoul is not known for its smog or air pollution. Yet, there was a pall hanging over the city. The reason became clear when I arrived and read the local English-language newspapers. The tragic Sewol ferry accident, which claimed the lives of mainly children, is the subject of national mourning across the country and in Seoul, where yellow ribbons have been strung everywhere as a sign of support for the families who lost their children. The prime minister resigned even last week following criticism of the slow rescue efforts, while a large-scale investigation is being conducted into the ferry owner and the cause of the accident. Reportedly, the owner was engaged in dodgy business dealings. There is speculation about the legitimacy of the permits to renovate the ferry, called ‘deachung daechung’ in Korean. While it is not uncommon to flout the rules in South Korea, people are now openly critical about the practice after the terrible accident. This was evident during a recent large-scale protest, which didn’t make the news or papers…
What makes this tragedy even more painful, according to the media, is the reason why so many children drowned. Apparently, when the ferry capsized they were told to put on a life jacket and wait for further instructions. These never came. Given their strong sense of hierarchy, the children did as they were told and followed the instructions of a superior, in this case the captain. My visit showed this is not unusual here, where processes with clear instructions are executed flawlessly. But an out-of-the-box brainstorm session about a strategic direction was far from easy.
Creativity is suppressed at school, where the focus is on rote-learning. That’s why it is a focus area of South Korea’s President Park’s economic policy. The country has made fantastic strides in production, with names like Hyundai and Samsung, but now needs to focus on creativity and the services industry. Export remains a driver of economic growth, but has become more challenging given the strength of the South Korean won. Nevertheless, my plane from Seoul to Shanghai was packed with Chinese bargain hunters carrying far too much hand luggage and flashing all kinds of luxury clothing and labels.
The South Korean focus on foreign markets, with Africa unsurprisingly a main target, also became clear from my conversations with several large internationally-operating South Korean construction companies. Among the new focus areas are Kazakhstan and Turkey but especially Uganda, Mozambique, Ghana and Gabon. A number of our clients see great potential here in infrastructure and oil and gas, compared to South America and the Middle East.
In South Korea itself there are also interesting developments. In addition to the inflow of Chinese shoppers mentioned above, other streams of tourists are flowing in, including those coming for the sole purpose of obtaining a driver’s licence. A recent article in the Financial Times reported that Chinese nationals can get a driver’s license in Korea with no waiting period and for half the price. There are presently 70,000 Chinese drivers with Korean licenses. Casinos are expected to open up another flow of tourists. As in Singapore, casinos were not welcome under former president MB Lee. Now, South East Asian investors have signed contracts to invest billions in building giant casinos or possible integrated resorts (!). A European toy manufacturer will soon begin constructing a large amusement park.
Departing from Incheon Airport for the next stop of this trip, to Delhi via Shanghai, my flight to Shanghai was delayed. As this would only leave me one hour to transfer to Delhi, it was looking pretty tight. The ground stewardess suggested I take an earlier flight that had also been delayed but hadn’t left yet, which meant I had to run to the gate! Whether my suitcase arrives in Delhi via Shanghai remains to be seen, but I did appreciate the creative solution…
May 2014 – I still remember the approach to Singapore’s Changi Airport from our stay in this Asian hub in 2007-2010. Since then, the skyline around the central business district or CBD has changed dramatically. Especially the developments around Marina Bay, which in seven years has seen a whole new district in Singapore emerge.
One thing that has remained the same, however, is the number of ships moored off the coast or en route to (Northern) Asia. 60,000 (!) freighters sail this route every year, one of the world’s most important transit routes and one that has been very important to Singapore. The location of this city state is one of the many reasons why it has been able to develop into a major hub at the mouth of the South China Sea.
Another thing that hadn’t changed was the efficient manner in which customs formalities were dealt with. My passport was stamped within 10 minutes, and by the time I went to collect my luggage, it had nearly been removed from the belt! Changi Airport now has three terminals, with the fourth one on its way. There are even plans for a fifth one to handle all the passengers (more than 57 million in 2013). The temperature of 27-32°C is another constant, which means that you don’t walk as fast here as you would in NYC, otherwise you’d always be changing your shirt! The standard, refreshing, late afternoon rain shower makes everything that little more comfortable: 27°C. The lowest temperature ever recorded here is 19.4°C (in 1934), which is still pretty decent.
The aim of this trip was to visit both international and Dutch clients with regional offices in Singapore, as well as Singaporean clients that we serve from Asia and from Europe in particular. Europe remains an important destination for Asian clients, especially now that merger and acquisition activities continue to increase. But Africa is also very clearly in the picture. Earlier this month, Temasek, Singapore’s investment driver, announced a major investment in Nigeria, and they’re not alone.
We discussed the trends in Asia with the regional CEOs, and Indonesia and India both came up a lot. Although both countries are too large not to be included, they both continue to have challenging investment climates for companies. Hopefully, the upcoming presidential elections there will bring about some change. Reports about China and South Korea were more positive. China in particular was praised for its long-term policy and its ability to implement and achieve successive five-year plans. Singapore has the same long-term strategy, which was very evident from our tour of the port.
Coming from Rotterdam, the port of Rotterdam concerns me, or should I say: the position that we lost concerns me. While it took more than ten years in the Netherlands for a decision to be made about the second Maasvlakte, in Singapore it took less than two years for new ground to be reclaimed and a temporary container terminal to be built. Temporary because the plan is to transfer all container transloading from the district near CBD to the reclaimed artificial industrial island Tuas in the west. The space that this will create can then be used for new apartments to facilitate the growth of Singapore.
Incidentally, that increase in population – the final goal is 6.5 million compared to the current 5.5 million – is something you really notice in traffic. That journey to the airport which used to take no more than 30 minutes, now takes more than an hour, and that’s after the evening rush hour I’ll have you know. The smog coming from Indonesia has also worsened since the burning of the palm oil fields. In the past, this mainly caused a nuisance after the summer, but last June there was so much smog that Singaporeans had to wear masks. Something you’d normally associate with Beijing, not Singapore!
Pragmatism as a philosophy is how Robert Kaplan describes the management style of the Singaporean government in his recent book ‘Asia’s Cauldron’, which is about the geopolitical situation around the South China Sea.
The above-mentioned developments of Changi Airport, the port and housing are all part of Singapore’s long-term plans. So too are the integrated resorts on Sentosa and in Marina Bay. Less than ten years ago, there was absolutely no space at all for casinos in Singapore. Now there are two very successful ones at the integrated resorts. In this case, of course, they’re not called casinos, but the pragmatic Singaporean tax office doesn’t care; both businesses are cash cows! In 2011, the casinos earned nearly as much as the Las Vegas Strip (6 billion dollars!), even though they only opened in 2010!
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In Dutch we say ‘maart roert zijn staart’, which according to my American colleagues translates to ‘March comes in like a lion, and goes out like a lamb’, or March starts stormy but come April, it’s spring. This was not the case in either New York or Chicago this week, where I was visiting American corporate clients with colleagues from our NYC office. This morning I woke up to snow! The bumpy flight from New York’s LaGuardia airport to Chicago’s O’Hare was a further sign that spring has yet to arrive….
When we lived in New York between 2001 and 2004, the city’s pace never ceased to amaze me. Once back in Amsterdam, I had to consciously slow myself down because everything is faster in NYC, even crossing the road. That same pace applies to its real estate prices, the inflow of immigrants and retail consumption. Let me start with the latter. When I visited the Apple Store on Fifth Avenue at 5.30 a.m. (jet lag!) there were at least 40 or 50 people there, mostly tourists, trying out the latest gadgets. The store is open 24/7 and it said that when Hurricane Sandy hit NYC in November 2012 they could not find the keys to shut it down for safety!
Real estate prices are also soaring again on both sides of Central Park. Apartments in 15 CPW (short for Central Park West), one of New York’s most prestigious residential addresses, recently listed at USD 88 million! A bestselling book by author Michael G
ross lifts the lid on this luxury apartment building, home to celebrities such as Hollywood actor Denzel Washington, New York Yankee basketball star Alexander ‘A Rod’ Rodriquez and hedge fund manager Daniel Loeb. (http://www.businessinsider.com/15-central-park-west-facts-2014-3).
Finally, what struck me this visit was the country’s ongoing vitality. Immigrants are one of the reasons the US will not face the demographic headwinds of an ageing population. Taxi drivers in both Chicago and NYC hailed from all corners of the globe, from Tashkent in Uzbekistan to Ulan Bator in Mongolia and various places in China. Youth, energy and a good command of English are some of the ingredients to start a new life in the US. As the song goes, ‘If you make if there…’.
During the meetings with our US corporate clients the conversation naturally turned to economic developments in Asia and Europe. It became apparent that while volatility in emerging markets is a serious setback, these growth markets remain important sources of revenue for US companies. Economic recovery in Europe and the US is still tentative and emerging markets offer opportunities for growth. Ironically, the tapering measures the US Federal Reserve took in 2013 to improve US market sentiment led to outflows from emerging markets as investors brought their dollars back to the US. This hurt US companies exporting to emerging markets, which was felt in the economic recovery at home! Despite economic uncertainty around Russia and Ukraine and ongoing debt problems in China, emerging markets continue to be important to US businesses.
Back to the bumpy flight from NYC to Chicago, where we also went to see clients. Delta Airlines now has wifi on its flights – most convenient for checking emails at 10,000 feet! Usually I use this time to catch up on my reading, but the wifi proved too tempting. So I checked my mail instead and called my daughter in Amsterdam using FaceTime. She was very surprised to see me calling from inside the aircraft at 10,000 feet!
Will the Asian financial crisis repeat itself? Contrary to the crisis of 1997, most Asian economies have shored up their foreign exchange reserves and brought down their external debt. Also, they have moved debt from mostly USD denominated to local currency debt, while China’s economy is holding up – four factors why ING’s economist Van Vliet feels the Asian financial crisis will not repeat itself.
Watch the video and more from eZonomics via below link:
Following an earlier blog after visiting Hongkong and Shanghai in November last year, please find an excerpt from todays FT article on rising housing prices in China – are measures by the Chinese government working?
Please see attached link
By Simon Rabinovitch in Shanghai
Chinese property prices soared again at the start of 2014 but their year-long run of accelerating increases showed signs of losing steam amid the government’s moderate policy tightening.
New housing prices in China’s 70 biggest cities rose 9.6 per cent year on year in January, down from 9.9 per cent in December, according to a population-weighted average. Of the 70 cities monitored by the national bureau of statistics, six posted price declines from the previous month, up from just two in December.
Last week Thursday I addressed the annual forum of Dujat, the Dutch & Japanese Trade Federation that has been very active and successful for the past 30 years in strengthening the ties between the Japanese and Dutch business communities. The theme of the forum was “Made in Holland, Made in Japan”. In my welcome speech, I explored the question regarding what ”Made in…” stands for today in an environment of further globalization and shifting markets, and whether this concept still matters as much as it did 20-30 years ago. It was an interesting discussion about how both countries have different macro-economic challenges to overcome, but both still maintain a strong position in the forefront of technological developments in global markets.
At this year’s event, two macro economists shared their views on the Japanese and Dutch state of economic affairs while two professors shared their views on the theme Made in Holland, Made in Japan. Many Dutch (Bluetooth, wifi) and Japanese (Walkman, calculators) inventions have travelled around the world. Nowadays, more and more Japanese parts are included in an iPhone, but that does not make it a Japanese product. Still, Japanese are known for their quality and Dutch for their inventions, despite the fact it is not visible from the outside of a product.
The Dutch economy is progressing according to ING economist Maarten Leen as the housing market seems to be bottoming. Massive pension reserves, a strong export led economy and a great investment climate according to the OECD and WEF, should help the Dutch economy. The fact that there are such big pension reserves also explains why the Dutch are so gloomy despite the fact that we are one of the wealthiest and happiest people; we have a lot to lose! According to the same statistics the Greeks are also very ‘happy’, also explained by the fact that they don’t really have to worry about their pension reserves…
Currency strategist Hidetoshi Honda from Japanese Mizuho bank described the static state of the Japanese for the past 10 years with close to zero inflation. The current policy of Abenomics is based on three pillars, around monetary and fiscal policy and a focus on growth. Since the Japanese yen and the Nikkei stock index are moving in parallel, any (orchestrated) weakening of the yen is positively impacting the export led Japanese economy, boosting the Nikkei, weakening the yen etc. Also, Abenomics has more staying power. While before the Japanese have had 6 prime ministers over the same number of years, Abe however has retained his approval ratings and therefor can implement more in popular measures, like the recent consumption tax.
The two professors, Kruit from Delft and Fukuda from Nagoya, covered the various developments in their respective fields, robotics, microscopes and nano technology. Especially in microscopes (FEI and Hitachi) and semiconductor (ASML and Nikon) lead globally, which explains Dutch and Japanese technology inside the approximate 7 billion (!) cell phones we use globally everyday!
Interestingly enough the pendulum technology invented by Dutchman Christian Huygens in the 17th century serves as the backbone for the Karakuri technology. The use of springs inside typical Japanese wooden dolls allows them to move mechanically. Even today the technique of Karakuri is applied by Japanese carmaker Mazda, a great showcase of using historic applications in modern automobiles. (http://www.youtube.com/watch?v=yXuT4rDq3TY&sns=em). Watch the enthusiasm the Mazda manager displays in using a very simple technique to produce something simple but esthetic and useful.
While structural changes in the Dutch housing sector seems to provide for a rebounding of the economy, Abe needs structural positive approval ratings in order to continue his three pillars of Abenomics. And the application of Karakuri in present day car making as well as Dutch and Japanese chips in your cell phone shows that it is not the outside but the inside that matters, and that Made in Holland or Japan after many years still indicates state-of-the-art technology.
After returning from a skiing holiday in December, I left for the cold of New York where the first week of the year another record was broken: the largest swing in temperature, downward that was!
I missed the happy-new-years wishes in the office since that is only ‘allowed’ until the Three Kings day. However, since Chinese New Year only starts 31 January, I thought a good way to (re)start my blog is on the new year of the Horse.
2014 is Male Wooden Horse year. Next to the 12 animals (www.chinesefortunecalendar.com) that, according to legend, came to Buddha to meet him on Chinese New Year, the various elements also play a role: wood, fire, metal, water and soil. Since the Horse sign already contains a lot of the element fire, and 2014 is a year of wood and fire, the combination of the two elements does not bode well. According to financial analysts quoted the first couple of weeks, there could be some fiery rebalancing amongst others in the shadow banking market in China!
Back to Budha who announced that the people born in each animal’s year would have some of that animal’s personality. Those born in horse years are cheerful, skillful with money, perceptive, witty, talented and good with their hands. Some famous people who were born in the various Horse years: Rembrandt, Chopin, Aretha Franklin and Harrison Ford.
At Chinese New Year celebrations people wear red clothes, and give children “lucky money” in red envelopes. Red symbolizes fire, which according to legend can drive away bad luck. The fireworks that shower the festivities are rooted in a similar ancient custom. Long ago, people in China lit bamboo stalks, believing that the crackling flames would frighten evil spirits.
Hopefully, the flames are able to frighten the evil spirits of any rebalancing or financial distress!
Also check out this video from Bloomberg on the so-called skyscraper curse….
On the last morning I attend a presentation about Shanghai’s recently announced Free Trade Zone and the opportunities it will offer foreign banks. The presentation takes place during a breakfast meeting of European bank country managers represented in the European Chamber of Commerce in China.
At this moment it is unfortunately still unclear what the exact goal of the Shanghai FTZ is. Is it about further nationalising the Chinese currency, the renminbi? Attracting foreign companies? Facilitating the export of Chinese companies? Or a combination of all three?
The same day, the FTZ is also discussed during our conversations with subsidiaries of several American clients. Here too the feedback is that the exact plans and regulations are still unclear. However, we agree that the spectacular growth of the Chinese economy is behind us and this growth is set to stabilise at around 6 to 7% in the medium to long term. During the transition to a new phase in economic development one of the reasons for the FTZ would indeed be managing the exchange rate, alongside further opening up the Chinese market. Personally, I believe that the FTZ is a next step in the right direction of further opening the Chinese economy. Although it happens at the pace determined by the bureaucrats in Beijing, the introduced reforms are being pushed through.
Looking at the growth in the number of skyscrapers in Pudong – the growth phase is over. Although the Jinmao and Shanghai World Financial Centre towers in the Lujiazui district will soon be accompanied by the largest skyscraper in China – the Shanghai Tower, which will reach a height of 632 meters in 2014. It appears that the ground under Pudong is sinking several millimetres per year, but my local ING colleagues ensure me that the current towers are well anchored. They also told me that there are only two(!) fire trucks with ladders able to reach the 29th floor in the whole of Shanghai. I might stay a few floors down next time, although the view from the 84th floor is magnificent in the morning.
The development of Pudong only started in 1990. Back then, the area was made up of rice fields and a few buildings east of the Huangpu river, looking over the city Shanghai on the other side. Now, 23 years later, the district has one of the most impressive skylines in the world. The developments around the FTZ have led to strong price increases and according to several real estate agents this is set to continue for a while. Nevertheless, several studies praise Shanghai for its regulations which at least ensure an orderly increase, even though that was around 100% for land prices near the FTZ!
The journey continues to Hong Kong where there is also plenty to do around the property market. In the back of the taxi on the way to the airport I realise that I should take the Maglev again next time, that’s a lot faster. The Maglev is the magnetic levitation train between the airport and Pudong, which covers the 30-kilometre track in 7.5 minutes. My taxi driver is stepping on it, but a top speed of 430 km/h is not an option!