Author: Helen

Harmony Relocation Network’s specialist services encourage global movement

Posted on by Helen

Today, businesses are often no longer confined to one nation, but have offices that straddle continents. With this comes the increased mobility of people around the world. However, moving from one nation to another is no small feat, with transferees often requiring assistance.

This can come in the form of the logistics of moving property and valued goods, or support services for transferees in their new location, such as orientation tours to ensure they are comfortable and familiar with their new location, and ensuring they have access to essentials such as utilities, schools and accommodation upon arrival.

World Finance spoke to Paul Bernardt, Managing Director of Harmony Relocation Network – a firm that provides such services – to gain an insight into how the industry is progressing, and why the firm is one of the clear leaders in the move management services industry with its unique boutique approach.

How has the market changed recently for move management services, move operations and destination services?
For us at Harmony Relocation Network, those are three distinct services, sometimes performed under one roof by one company or by specialists as a separate service. Move operations is the actual execution of a household goods move. By and large, this is still a very traditional service requiring skilled labour and specialised packing material. Move management is the coordination of a larger number of moves, often under a regional or global contract, whereby the move management company selects the best moving companies both at origin and destination. Destination services are support services for transferees when they arrive at their new location, such as orientation tours, home finding, connection of utilities, school selection, temporary accommodation, furniture rental and the like. In recent years, this industry has evolved from mainly decentralised small to-medium-sized local businesses, to an industry that is largely dominated by a few large regional and global players that offer a complete outsource package of all relocation services.

Compliance is the number one concern for multinationals when sending their people on assignment

There are still a fair amount of global companies, each being specialists in their specific field of global mobility, that offer their services directly to clients, rather than through a third-party relocation management company, such as immigration, spouse support, shipping, expense management, taxation and policy consultancy.

What exactly is it that Harmony Relocation Network does?
The members of Harmony are all local household goods moving and relocation service providers. The only difference is that our member companies have chosen to become part of a larger global network. The Harmony International Head Office provides them with central services such as IT, compliance, billing, sales support and ISO certification for quality, health and safety, and environment. We are in fact the only such organisation at a global scale whose mission it is to add value to their member companies.

What differentiates your services from others in the field?
The main difference is that all our members are locally owned companies – often family owned – to whom providing a service is not just a business transaction: it is what they do best, and are proud of. We are not influenced by venture capitalists or the stock exchange. Most of our companies have a long-term view, and are there to be passed on to the next generation – more of a boutique approach. What makes our member companies different from other local companies is that we form a connected network, globally.

Can you tell us a little about your recent name change and the reasons for it?
From 2001 to 2015 we had an alliance with a US-based company, and we shared a common brand name. This alliance ended because of a difference in strategic direction. We seized the opportunity to come up with a brand name that was much better aligned with the core of who we are as a network, so that implied a focus on a personal service, rather than being a large corporate anonymous entity. Furthermore, Harmony is a pleasant word, which means the same in more than 45 languages, spoken in more than 130 countries across the globe.

What types of clients do you serve?
Our network serves all sorts of clients. Large multinationals that want to outsource their shipping and relocation services regionally or globally, along with private individuals that move locally, domestically or overseas. In our network we have several different types of companies, and some specialise more in the high-end corporate work, whereas others have a focus on the private customers. Beyond moving and local relocation services, our network also provides other services, such as storage, archive handling, office moving and art transportation. In general, this is a very competitive business, and it is important to diversify services.

What are the biggest challenges and opportunities associated with what you do?
The biggest challenge is to transform our network – and the industry at large for that matter – to adopt better technology, and better integrate with other platforms out there. Clients increasingly select service providers and buy online, both private and corporate, and our industry needs to embrace that.

The largest opportunity is that international labour mobility in general is increasing. And although the average volumes are going down, there will be more people relocating to other countries in the future. Combine this trend with the challenge to adopt better technology and there is a completely new market emerging.

Can you expand on the issue of compliance?
In all the reports we read, from the big four, RMCs, to the RES Forum and others, compliance is the number one concern for multinationals when sending their people on assignment. Non-compliance with immigration, tax or labour laws can have major consequences, and put the license to operate in a country at risk. The speed with which ‘the business’ is operating is very hard to keep up with for the global mobility function, and the risks are considerable.

So, that means that these companies put pressure on their staff and also on their supply chain. All multinationals have compliance officers and large programmes in place. Suppliers must also demonstrate compliance. So, the days are over when you could say your policy simply was ‘don’t get caught’, or ‘I was not aware of that’. In today’s world, you have an obligation to know – or at least to do everything in your power to make sure you are informed about – potential non-compliance.

We have a sophisticated compliance programme in place, with mandatory network-wide online training programmes. It is crucial to have this today – companies are simply unable to do business with you if you don’t.

What is the role of technology in facilitating what you do?
Without technology, we could not operate efficiently. We continuously monitor and review our processes, and use technology to work smarter and faster, reducing cost and increasing staff productivity. We have a network-wide IT system called RedSky that is not only accessible to all the network agents, but also to the transferees who are moving, and to our corporate customers that need management information. Our business intelligence team is second to none.

What are your plans for the future?
The speed with which change is taking place is so fast that it is not easy to plan for the longer term. We do have a vision of the future that is based on making investment plans through a strategic direction. This is based on a more dominant role of the global relocation management companies with the larger corporate contracts, but equally a more dominant role of our member network with the smaller corporate contracts. The top 20 multinationals 20 years ago are no longer the top 20 today, so what we feel is most important today is to stay flexible, fluid and at times take a leap of faith. We stay in touch with what is happening in our industry, but also with the broader spectrum around our industry, like long-term consumer trends and technological developments that may impact our industry.

Is there anything you would like to add?
Yes, this industry is a very exciting industry to work in, especially, for young people who are trying to build a career. There are very few industries that are more international and multicultural than ours, and if you are service-orientated and proud of doing a good job, you should give it a try. We’ve added a few talents of our own these last few years, but when they were first presented the job description, they were not naturally associated with working in the relocation industry. Only after the interview and the first work experience did their enthusiasm grow. It is our collective industry challenge to attract more talent, not just to relocate the talent of other firms.

In spite of market volatility, firms in Thailand continue to flourish

Posted on by Helen

Market volatility is a challenge to asset managers, and many are scrambling to find winning investments. UOB Asset Management (Thailand) – UOBAM (Thailand) – has managed to differentiate its services by looking at foreign investment markets. With this, the aim is to become the market leader in investment management and advisory services with global partnerships.

The company continues to seek innovative investments in different asset classes in line with its active investment strategy by exploring new fund ideas appropriate for different market cycles, and in keeping with corresponding investor segments. World Finance spoke to Vana Bulbon, CEO of UOBAM (Thailand), for a deeper insight into how it is leading the latest developments in terms of investment strategies, not to mention its commitment to technology and attention to customer service. Beyond that, Bulbon also gave an insight into the challenges and opportunities facing the fund industry in Thailand.

How is the company’s fund performing in the local market?
During the last few years, Thai investors have shifted their investment allocation to low-risk investment asset classes – such as fixed-income funds – comprising short-term bonds and mid- to long-term bond funds in order to protect their principal and seek a stable source of income payments. However, at UOBAM (Thailand), we have a different view. We believe the current market environment presents an opportunity to tap into foreign investment funds (FIF) or sophisticated financial solutions. Through our efforts in creating awareness of FIF, our FIF assets under management have increased to THB 50bn ($1.4bn) and have moved up the ranks to third place in terms of FIF market share. Our strong strategic alliances across the region, extensive global network, and long-standing investment expertise also contributed to this achievement.

The investment environment today is increasingly complex and volatile. We face an unpredictable environment with structural changes brought on by new technology

What are your marketing strategies today, and why they are so important?
The investment environment today is increasingly complex and volatile. We face an unpredictable environment with structural changes brought on by new technology, increasing connectivity and tighter regulations. At the same time, the Thai mutual fund industry is also undergoing financial liberalisation. As such, it is challenging for both asset management companies and Thai investors to find investment opportunities with stable returns.

In view of the present market situation, UOBAM (Thailand)’s marketing strategy is to provide tactical investment opportunities to our clients through our regional networks and international alliances, particularly through FIF offerings in the Japan Small and Mid-Cap Fund and Healthcare Fund.

To enhance our FIF offerings, we launched a European Small-Cap Fund, a Japan Real Estate Securities Fund and a Thai Small and Mid-Cap Fund in 2015 to capture the thematic trends and investment opportunities where we see solid business fundamentals and attractive valuations. In addition, we continued to actively manage and oversee our fund performance to deliver returns to our clients.

Another success story of UOBAM (Thailand)’s mutual fund business is the development of a tax benefit fund, specifically the Good Corporate Governance Long Term Equity Fund (CG-LTF), which invests mainly in listed companies with good corporate governance and sustainable earnings growth potential. With profound investment management expertise, CG-LTF has recently been ranked the best performing fund among 53 long-term national equity funds for its three-year track record, and rated five stars by Morningstar for three consecutive years in Thailand.

As part of our continuous effort to widen our suite of products, our head office in Singapore – UOBAM – signed a memorandum of understanding with Wellington Management Singapore in May 2015 to develop investment solutions designed specifically for the group’s increasingly sophisticated client base in Asia. This brought together the complementary strengths of the Wellington Management group’s asset investment industry experience globally, and UOBAM’s strong investment expertise and extensive distribution capabilities across Asia.

What is the one key characteristic that helps your company stand out from the pack?
We pride ourselves on our relationships with our clients. We are constantly reaching out to our clients to understand their needs, investment objectives and goals. We regularly provide investment recommendations, including new investment solutions to our clients and distributors, especially given current financial market uncertainties.

For example, in response to our investors who are looking to build up their retirement fund and protect their savings from eroding through inflation, we launched the UOB Smart Asia Pacific Income Fund and United Income Focus Fund with an option of automatic redemption feature to provide potential regular income.

Similarly, in March this year we launched a fixed-income fund, the United Income Daily Ultra Plus Fund. This fund invests in foreign fixed income instruments such as foreign deposits, high-yield fixed income and debt securities to provide investors with better returns from fixed-income investments. On top of this, we are mindful of the unique needs of our institutional clients and provide them with tailored solutions through our professional investment advisory.

The company prides itself on the high standard of customer service it provides – how is this achieved?
In today’s age where information is crucial, UOBAM (Thailand) seeks to enhance the customer experience with our Premier Online platform, enabling our investors to access our services at their convenience. Service innovations and technology improvements are important factors to cater to investors’ lifestyles and enhance competitiveness in the industry. We continuously improve the platform with additional services and a more user-friendly interface to serve our clients. Premier Online users have substantially grown by 32 percent in year 2015 as compared to the year of 2014.

This is just one of the few initiatives we have taken to become a premier regional asset manager and a leader in the investment management and advisory industry. We are focused on delivering customer satisfaction, investment returns and services with professional management. At the same time, we maintain strong business practices, continue to innovate, and recognise our commitment to shareholders, employees and society.

Given the current uncertainties in the market, what advice would you give to a prospective investor?
Given market uncertainties, UOBAM (Thailand) advocates investing in a diversified investment portfolio, such as a multi-asset fund like the United Income Focus Fund, to reduce downside risk. We also recommend the United Global Durable Fund, which has exposure to durable and stable companies that typically exhibit characteristics such as moderate but predictable revenue growth, prudent capital allocation, good management practices and a low risk of significant profit decline.

Another investment theme that offers potential investment opportunity in the long term are trends shaping the future of society, such as the demand for security services.

Therefore, we invest in companies that contribute to safeguarding the integrity, health and freedom of individuals, companies and governments, and would recommend the United Global Security Fund to investors interested in seeking exposure to this sector.

Changes to Hungary’s banking sector can encourage foreign investment

Posted on by Helen

The financial system in Hungary underwent significant changes even prior to the economic transformation that started in 1990. The foundations of the two-tier banking system were laid in 1990, before a wave of privatisation swept the financial sector and large, foreign-owned credit institutions became the backbone of the financial system. Then again, since joining the EU in 2004, Hungary’s financial sector – and its economy generally – has shown extraordinary promise.

Never one to shy away from a challenge, Hungary’s banking sector has undergone quite a dramatic transformation, and while more changes are needed, the sector is still among the region’s most resilient. World Finance spoke to István Salgó, Country Manager of ING Wholesale Banking in Hungary, about the changes across the nation and how the bank’s services stack up against the competition.

What impact has joining the EU had on Hungary’s financial services?
The country has gained new knowledge, technology, capital and direct funds that have enabled many aspects of its economy to be transformed. In practical terms, a new highway infrastructure was constructed, and the environment is cleaner with improved air quality.

Hungarians are also better educated and have more opportunities: they can work for global companies or in skill-based sectors, much more than 10 years ago.

Hungary has gained new knowledge, technology, capital and direct funds that have enabled many aspects of its economy to
be transformed

A less tangible – but no less important – achievement over the past decade is the increased openness of Hungarian society. Hungarians are now free to travel or relocate across Europe, although Hungarians are known to be less mobile than other nations in Central and Eastern Europe (CEE). Hungarian attitudes have been changed by increased interaction with other Europeans: an increasingly large number of foreigners are choosing to move there. Hungary now has a modern economy and exports more as a percentage of GDP than any other CEE country.

Partly as a result of Hungary’s high public sector debt in the years immediately after accession, economic growth has been lower in the past decade than might have been anticipated when the country joined the EU, partly due to the global financial crisis. However, while average growth has been below the CEE average, it has been well above the EU average.

Hungary’s location, low costs, relatively good infrastructure and high education standards ensured that it was one of the largest recipients of foreign direct investment in CEE even before 2004. The Hungarian Government encouraged investment in the manufacturing sector by harmonising tax, legal and business rules in line with EU requirements, helping to create an attractive investment climate.

The EU has also helped Hungary to improve its relationships with its CEE neighbours. Hungary’s relationship with the EU, however, has not always been smooth. Enthusiasm for the EU has waned: immediately after joining the EU, a record 92 percent of Hungarians said that they felt attached to Europe. Now, just 44 percent of Hungarians trust the EU. This seemingly sharp change in public opinion has several explanations many people had overly high expectations of the speed with which Hungary would converge with the EU in terms of living standards and opportunities. There have been huge improvements in its citizens’ prosperity and life chances, but over time people inevitably become accustomed to new ways of living and discount the scale of change.

Hungary’s future clearly lies within the EU. It has an open and fully integrated economy, and its laws are closely aligned with those of other EU member states. Most importantly, while there may be disillusionment with the EU among Hungarians – similarly to some other EU countries – citizens are EU citizens: they value the freedom and the opportunities that EU membership has delivered and no one wishes to wind the clock back 15 years.

What changes still need to be made to improve financial services in Hungary?
A stable operating environment is a necessity, but in itself does not form a sufficient condition of investment. In the last few years, partly as a consequence of the financial crisis, and partly due to the need of balance sheet adjustment, fiscal and monetary regulation changed frequently and compliance with these regulations sometimes required higher resource allocation. A calmer regulatory environment seems to be crucial. Looking forward, we are optimistic since Hungary slowly left the crisis behind, just like fiscal and households’ deleveraging.

On the other hand, not just the macro, but also the micro matters. Intensive competition in the banking sector decreases the margins and fee type of incomes; therefore banks should have more risk on their books in order to maintain profitability. That is not necessarily healthy for the banking sector as a whole, and that excess risk can spill over to the fiscal side as well (similar to what has been witnessed in Ireland), or other parts of society. A consolidation of the banking industry is needed to restore fair costs of its services, and that can trigger investment and research in the sector.

What do these patterns mean to investors looking at Hungary?
Hungary’s outward-looking approach has resulted in significantly increased exports in the past decade: exports as a percentage of GDP have risen from 63.3 percent in 2004 to 96.2 percent in 2014, with only a brief decline in 2009 following the financial crisis. Exports to the EU have remained fairly constant as a percentage of total exports over the past decade, although the percentage exported to new EU members has increased markedly.

Hungary is a very open economy with significant connections to western Europe and integrated more and more into the CEE region. Based on its geographical location, the country is in the heart of Europe, and therefore provides exceptional trade opportunities for western European countries that wish to reach the East, and Asian countries.

How does ING help facilitate foreign investment into the country?
If we look at our clients, more than 90 percent of them derive from the global network of ING Group, and we provide the same look and feel as in every other country for our international clients. Product-wise crossborder cash management, international cash pooling and global trade finance services are also available in Hungary – as being a network location for ING and adding value to ING’s global Transaction Services business is a core focus area of ING’s offering.

ING Hungary

ING Wholesale Banking has one of the strongest European presence of all international banks at 28 countries, including Hungary. It is strong in local products and support as well as international solutions, and so it is in a front-runner position in Benelux and CEE. ING offers the ability to deliver crossborder solutions on the back of ING’s strong international network, along with senior support to further develop and strengthen the transaction and lending services franchise.

How else does ING provide a valuable service to the economy?
ING Bank Hungary is a member of ING Group, which is of Dutch origin and belongs to the top 20 financial institutions in Europe. Established in September 1991 and started as one of the first 100 percent foreign-owned banks in Hungary. In regards to several products and services, ING Wholesale Banking in Hungary has achieved a leading position in the field of corporate and investment banking in its niche market. It is a market leader in foreign exchange transactions, and has attained outstanding results trading in government securities.

How does ING stand out from its competitors in Hungary?
As a branch we have access to major ING knowledge centres and operate as an integral part of a global network. ING Wholesale Banking in Hungary is taking advantage of earlier decisions made prior to the financial crisis in 2009. The post crisis operations show a clear and pure wholesale banking portfolio, and due to the fact that ING Wholesale Banking in Hungary was never entered into foreign currency denominated retail lending and real estate financing business lines, ING in Hungary was not exposed to major provisioning.

ING Wholesale Banking is streamlining its procedures and channels to make daily banking easier and faster for our clients. ING Bank is introducing its new service called InsideBusiness. This will be an omnichannel strategy that will allow our corporate clients that bank with us across countries a single point of access to the services and products they need wherever they are in the world via safe apps.

Our customers are at the heart of what we do. Our more than 52,000 employees globally offer retail and commercial banking services to customers in over 40 countries, including Hungary, where 155 dedicated and committed local employees provide wholesale banking services to local and international corporate and financial institutions.

Our strengths include our well-known, strong brand with positive recognition from customers in many countries, our strong financial position, omnichannel distribution strategy and an international network. Moreover, ING is currently the number one diversified financials company on the Dow Jones’ Sustainability Index, providing more and more to customers in relation to helping sustainable transitions for their businesses and life.

Our strategy aims to create a differentiating customer experience, enabled by simplifying and streamlining our organisation, striving further for operational excellence, enhancing the performance culture within our company and expanding our lending capabilities.

Federal Reserve divided on labour market strength

Posted on by Helen

The latest release of minutes from the US Federal Reserve’s Federal Open Market Committee (FOMC) June meeting shows that the central bank is hesitant about raising rates. The minutes, released on July 6, show that members of the Fed are concerned about the possible implications of Brexit, as well as slowing job growth in the US.

The committee was divided on the issue of job growth in the US. The US Bureau of Labour Statistics’ employment report from May – the latest available to the committee at the time of their meeting – showed that job growth had been weaker than expected. Employment growth in May was expected to have resulted in 162,000 additional jobs, but the report showed that the economy had added just 38,000.

However, the minutes noted some participants had argued that “transitory factors, such as statistical noise and the effects of a strike in the telecommunications industry”, had led to the reported rate of growth to appear slower than its actual underlying pace. It was also pointed out that other indicators, such as regional labour market surveys, surveys of business hiring plans, low levels of initial unemployment welfare claims, and positive views of the labour market found in consumer surveys, suggested the US job market was continuing to strengthen.

Most participants expected to see a return to strong job growth in the coming months

Other members disagreed, arguing that the lower rate of job growth “could instead be indicative of a broader slowdown in growth of economic activity”, citing the US’ sharp drop in labour force participation rates and an increased number of workers reported to be employed part-time due to economic reasons.

All participants noted that weak job growth has increased their uncertainty about the outlook for the labour market ahead, but “they were reluctant to change their outlook materially based on one economic data release”, according to the minutes. Most participants expected to see a return to strong job growth in the coming months.

The meeting, which took place prior to the UK’s EU referendum, expressed concerns that the fallout from the referendum could impact the US economy. According to the minutes: “Most participants noted that the upcoming British referendum on membership in the European Union could generate financial market turbulence that could adversely affect domestic economic performance.”

As a consequence, meeting participants judged that it would be “prudent to wait for the outcome of the upcoming referendum” in order to “assess the consequences of the vote for global financial market conditions and the U.S. economic outlook”. Now that the result of the referendum is known, along with the extent of the resulting market fallout, it appears likely that Brexit will contribute to the US delaying any rate rise.

China looks at new ways to measure GDP

Posted on by Helen

The validity of Chinese economic data has long been a topic of concern among economists. Many express scepticism over China’s official GDP data, suspecting the Chinese Government has likely manipulated the figures.

China is now set for a shake up regarding how it records its GDP figures, with Chinese officials suggesting that activity from the so-called sharing economy should be included

Xu Xianchun, the Deputy Head of the National Bureau of Statistics of China, recently told a press conference that certain free services now provided in the sharing economy are not being included in official GDP results, thereby causing the size of the Chinese economy to be underestimated.

Many economists express scepticism over China’s official GDP data, suspecting the Chinese Government has likely manipulated the figures

Activities such as couch surfing or crowd-sourced answers provided online are not registered as a transaction, and therefore not counted in GDP figures. However, Xu argued, they still should be thought of as economic activity. “The sharing economy shares homes, cars, parking spaces, books — the participants are individuals”, Xu was quoted as saying by the Financial Times. “So traditional statistic methods are unable to collect complete statistics.”

To include these uncounted activities, Xu argued that China should develop new methodologies that will ensure their inclusion. However, while accounting for the as yet unrecorded sharing economy activity of hundreds of millions of Chinese consumers would likely provide a significant boost to China’s GDP figures, it is likely to further fuel global mistrust of their credibility.

The proposal comes at the same time as the Chinese search engine provider, Baidu, has announced that it hopes to launch its own measure of economic growth. The internet giant claims that it intends to create its own macroeconomic indicators, using data it collects from its 700 million users. Speaking to CNN Money, Wu Haishan, Senior Data Scientist at Baidu, said that the internet firm’s many users “represent a good portion of Chinese consumer behaviour”.

Chevron approves $36.8bn oil field expansion

Posted on by Helen

Undeterred by a wave of project delays and cancellations, Chevron has given the green light to a $36.8bn expansion of the Tengiz oil field in Kazakhstan. The investment is the largest made by any private sector oil company this decade, and is unusual in the sense that it comes at a time where many in the oil business are clamouring to slash capital spending and keep expansion plans on the backburner.

The investment marks the continuation of Tengizchevroil’s (TCO) Future Growth and Wellhead Pressure Management Project, which, according to according to Chevron’s Chairman and Chief Executive Officer, John Watson, “represents an excellent opportunity for the company”.

A recent wave of investment suggests an
oil recovery could be
on the cards

Already the site has undergone extensive engineering and construction planning reviews against a backdrop of a low cost climate for oil goods and services. Materials and labour are cheaper than in years past, and a recent wave of investment suggests an oil recovery could be on the cards.

Big oil firms have reduced their budgets by approximately a quarter since the start of 2015 and have slashed upwards of 30,000 jobs in a bid to weather the low oil price environment. However, as prices begin to stabilise at around $50 per barrel, oil companies are only now beginning to reassess – if not reconsider – their options. Some are treating the latest from Chevron as an inflection point, as it is the first investment of more than $10bn this year.

The field in question already accounts for more than a third of Kazakhstan’s crude output, the country being the second biggest former-Soviet oil producer, behind only Russia. The expansion will generate $120bn in added tax payments by 2033, when the Tengiz contract expires. It will also increase production by 260,000 barrels per day and TCO’s total production capacity to one million barrels. At today’s oil prices, the field will just about break even, and though the economics are not all that special, it’s a stable bet in an otherwise volatile market.

Asia finds post-Brexit opportunities

Posted on by Helen

Britain’s decision to leave the EU has left many Asian firms questioning their continued presence in the UK, fearing the potential repercussions that could come from the UK no longer having access to Europe’s single market. For many Asian investors and economies, however, Brexit is also presenting new opportunities.

Investors in China and Hong Kong in particular have benefited from the weakened pound. The Nikkei Asian Review reported how the Hong Kong-listed Magnificent Hotel Investments concluded their agreement to purchase the London-based Travelodge Royal Scot Hotel on June 23, the day of the referendum, for £70.3m. When the referendum result was announced the next day – sending the pound to 31-year lows against the dollar – 10 percent was automatically wiped off the firm’s buying price.

For many Asian investors and economies, Brexit is also presenting new opportunities

It has also been reported that many investors in Hong Kong have been looking to purchase sought-after London property in light of the devalued pound.

Hong Kong investors have been particularly poised to benefit from the changes, as the Hong Kong dollar is pegged to the US dollar. However, mainland Chinese investors have also sought to make the most of the referendum outcome. Within China’s stock markets, listed travel and tourism firms that service the UK have been trading upwards on the hope that a weakened pound will entice Chinese holidaymakers to visit the UK.

Southeast Asian economies have also identified some benefits from the referendum outcome: it now likely that economic uncertainty will delay the US Federal Reserve raising interest rates. The Fed’s move to raise rates is widely expected to lead to currency outflows and a tightening of liquidity for southeast Asian economies, meaning any delay is likely to be welcomed.

Italy’s banks continue to wobble

Posted on by Helen

As Italy’s banking sector continues to creak under the pressure of bad debt, the European Central Bank has ordered Banca Monte dei Paschi di Siena to take action. The ECB has asked the firm – the third-largest bank in Italy – to cut its non-performing loans (NPLs) by 40 percent within the next three years.

While just one of the country’s many struggling banks, Monte dei Paschi is the weakest. The bank, which is the oldest operating bank in the world, currently has €46.9bn gross of NPLs. News of the ECB’s request for the sharp cut in exposure to bad debt was greeted by a 14 percent fall in the struggling bank’s already-tanked share price.

Although the current economic and financial instability surrounding Britain’s recent vote to leave the European Union has exacerbated the problems engulfing Italy’s banks, a crisis in the sector had been gradually developing. In total, the country’s banking sector has €360bn-worth of NPLs, a figure that continues to rise.

The current economic and financial instability surrounding Britain’s recent vote to leave the European Union has exacerbated the problems engulfing Italy’s banks

Officials in the eurozone are increasingly worried that Italian banks may once again precipitate a union-wide financial crisis. The Italian Prime Minister, Matteo Renzi, has toyed with the idea of using public money to once again bail out his country’s troubled financial institutions, however such a move is now illegal under new EU regulations. These regulations now require creditors to fund the rescue of banks rather than taxpayers – so-called ‘bailing in’.

Italy is reluctant to use the bail in method to prop up its banks, due to the potential toll it will take on retail depositors. In Italy many retail investors and depositors are exposed to Italian bank bonds, and would take the hit from any bail in plan. The recent bailing in of smaller Italian banks in November 2015 caused uproar, with many customers misleading sold bonds and investment products facing ruin.

Italy has requested these new rules be temporarily suspended, although EU leaders have rebuffed such requests. Renzi, however, has stayed defiant and remains open to the possibility of Italy unilaterally injecting billions of euros into Italy’s banks – threatening the credibility of the EU’s new banking rules.

The legal practices behind PPP in China

Posted on by Helen

On October 24, 2014 the Chinese Prime Minister of the State Council, Li Keqiang, opened the State Council executive meeting on innovation in the investment and financing of key areas in the Chinese economy. The meeting stated that financing facilities should be vigorously innovated and that public-private partnerships (PPPs) should be actively promoted, opening the door to social capital –especially private capital – in more areas. This meeting demonstrated the attitude of the Chinese Government in developing and promoting PPPs.

According to data from the Ministry of Finance, up until February 29, 2016 there have been 7,110 PPP projects recorded on the PPP Comprehensive Information Platform in China, with a total investment value of CNY 8.3trn ($1.3trn). These investments cover numerous sectors, including energy, transportation, hydraulic construction, ecological construction and environmental protection, municipal engineering, area development, agriculture, forestry, science and technology, affordable housing projects, tourism, medical care and sanitation, education, cultures, social insurance, and governmental infrastructure.

Around 91 percent of these funds – a total value of CNY 7.6trn ($1.1trn) – has been invested into newly built PPP projects, while only CNY 730bn ($112bn), or nine percent, was invested in existing PPP projects. 78 percent of ventures (5,542 projects) are in the recognition stage, while only five percent (351 projects) are at the execution stage. This indicates the huge need for PPP investment, but shows that very few have received financing. Social capital investors are showing both enthusiasm and despair at the slow pace of PPP projects’ development.

PPP is not a concept born in China, and there is no fixed definition in the language. The specific meaning of PPP tends to be decided on a case-by-case basis

New regluations
PPP is not a concept born in China, and there is no fixed definition in the language. The specific meaning of PPP tends to be decided on a case-by-case basis. Despite this, in China it is summarised into three factors: partnership, interests-sharing relationship, and risk-sharing relationship.

In 2014 and 2015, the Ministry of Finance and the National Development and Reform Commission announced a series of pilot PPP projects, and actively encouraged private sector participation. Subsequently, local governments announced their own PPP projects to stimulate the development of their local economies.

If the purpose of doing business is to make a profit and not a loss, in a business deal each party should bear in mind that risks exist in every situation, and negligence for such risks may result in substantial loss. In a PPP project, loan security is the most common concern. Lenders rely on two factors: first, reimbursement ability, and second, the method of guarantee. The lenders usually believe that if the local government is responsible for reimbursement, the project is safe, as it is effectively underwritten by the government. However, just the opposite might be the case: for various reasons, such as the capaciousness of government, uncertainty of local budgets and the unreasonableness of the adjustment mechanism, contracts are frequently breached by local governments, causing serious loss to funders.

In a typical PPP project, the funders usually require the project company to provide a mortgage secured against its assets. Alternatively, its parent company could provide a guarantee, or the local government could make a commitment as a guarantor. Even so, there exists the risk that such a guarantee may not be realised due to the nature of PPP project. For example, on a mortgage on assets, PPP projects are usually applied to infrastructure and public services. The fundamental nature of these is to satisfy the needs of the public and therefore the project is unlikely to change its terms of use. However, poor liquidity and low level commercialisation can have a dramatic effect on the terms of the mortgage as well.

The funder needs to confirm with the local government that the social capital and project company is entitled to set the above guarantee on these assets, and that the local government is fully aware of and accepts the results and consequences of exercising the guarantee. Under many circumstances, the legal consequence of exercising the guarantee are in contradiction with the administrative obligation and, indeed, public responsibility undertaken by the government, and this may inhibit the funder’s ability to exercise its rights as a creditor.

An effective way to protect the funder’s interest is through the right of direct intervention: the financing party may sign an intervention agreement with the local government, a project company or social capital, or set out their intervention rights in the PPP agreement. Once a trigger event occurs (such as a significant operational or financial risk), the financing party is entitled to intervene in the project. After the risk has been removed, the funder will no longer be able to intervene. The consequence of intervention and the mechanism for remedy or compensation shall also be included in the intervention agreement and/or PPP agreement. By doing so, the creditor’s right of the financing party is protected from any loss.

Problems and solutions
A major issue with PPP projects is the potential imbalance in the rights and obligations of local governments and private investors.

At the early stages of recognition, preparation and purchase, the public authority is always in charge of the whole project, often leaving very limited choice and rights for the private investors. Typically, the financing parties only come on board in the secondary execution stage and, indeed, many private investors are indifferent before this stage. This imbalance can mean that the over-powerful public authority could damage the whole project.

A solution is to encourage funders who are interested in PPP to actively participate at an early stage in the communication and scoping of the projects, thereby providing key opinions on the availability of the private funding. This would form a solid basis for the decision-making of the funders and on whether they sign the financing contract at the execution stage.

A second problem is that, although it makes sense that payment by a public sector authority is the most reliable form of income for project companies, in the eyes of the funders, it is treated as a loan with the least ‘political’ risk. However, there is another issue in practice: because of the wide range of government power, it is common that public sector authorities violate the contract, sometimes in quite unforeseeable and sudden ways that can be categorised as ‘non-market elements’.

As it is frequently difficult for private investors to stand against the power and activities of public authorities, funders should focus on whether there is a steady cash flow to maintain both the operational cost and debt servicing when analysing the early stage project, rather than looking merely at the payment terms.

A major issue with PPP projects is the potential imbalance in the rights and obligations of local governments and private investors

The third problem, which indicates the imbalance between the public authorities and private investors, is the absence of a sole project clause. The best example of this is the Hangzhou Bay Cross-Sea Bridge project, which was valued at CNY 10bn ($1.54bn) and was one of the most important state-level transportation financing projects at the time. The project attracted 17 private investors, and was purchased back at 80 percent of the project capital value by the public sector authority only five years after its completion.

To illustrate another issue, in July of the same year, another cross-sea bridge came into use on the same site, with a third cross-sea tunnel completed one year later, which further divided the traffic stream, and thus the projected project revenue. This caused severe benefit conflicts between the contractual PPP project and publically planned projects, and led to the factual failure of the entire PPP project.

While improper government planning of the other two projects contributed to this failure, the real reason was the lack of a sole project clause in the contract. This oversight left the public sector authorities free of any liability for their behaviour, and of the consequence of violation of the initial PPP contract.

Fortunately, there are now regulations in place that can assist with these issues, such as Article 21 of the Franchise Operation and Management Solutions of Fundamental Infrastructure and Public Facilities, as well as Article 5, Section 13 of the PPP Project Contract Guidance (Trial) published by the Ministry of Finance. In addition, the private sector can use the provisions of the contract to consolidate the sole project clause by, for example, providing breach of contract liabilities and other remedy mechanisms in the PPP contracts. Private investors should also physically pre-research the site in question to avoid any possibility that there will be any competitive project within, say, 50km of the target area.

Finally, there is an inherent conflict between PPP and the current legal system in China. On the one hand, it is a fact that there are no legislations specifically regulating PPP. However, some of the principles of PPP have been incorporated in the Government Purchase Law, Tendering and Bidding Law and even the Contract Law of China.

On the other hand, although there is considerable ministerial-level legislation in China at the moment – as set out above – it is obvious that the public authorities have been paying increasing attention to PPP since late 2014. This is demonstrated by the fact that in 2015 alone, there have been more than 10 ministerial regulations published.

We are firmly convinced that in the coming few years, the absence of national legislation would be properly addressed, and PPP projects will flourish in China.


Lianggang Wang is Senior Partner at Yingke Law Firm and the Director of the Yingke PPP Legal Issues Research Centre. Baozhong Du is Senior Legal Counsel at Yingke. Xuan Li is a trainee lawyer at Yingke.

China’s SOEs face appointment reform

Posted on by Helen

China’s state-owned enterprises (SOEs) are set to experience some of their most significant reforms in recent years. According to the Financial Times, authorities in China are moving to allow corporate boards to appoint SOEs’ senior executives, rather than the Communist Party.

At present, the leaders of SOEs are placed in their positions by the Communist Party’s personnel department. Since China’s opening up to the market, placing trusted managers in charge of the country’s largest SOEs has been seen as a key way for the ruling party to maintain control in the absence of traditional central planning.

At present, the leaders of SOEs are placed in their positions by the Communist Party’s personnel department

However, China’s SOEs have increasingly come under fire for urgently needing reforms. With their production totalling 30 percent of all of China’s output, they play a key role in the country’s economic performance, and their increasing levels of indebtedness and declining profits has been blamed for China’s current slowdown.

The move to start allowing corporate board appointments comes after a pilot project in 2014, in which five SOEs were allowed to appoint management via their boards of directors. Now, the Financial Times has reported, “a cabinet task force has approved an expansion of the pilot to include three to five additional groups”. As part of this process, State-Owned Assets Supervision and Administration Commission of the State Council (SASAC) will select a new batch of SOEs to implement the reform following Central Committee approval.

Although many see China’s SOEs as a drag on growth and a hangover from its pre-market reform era, within the country SOEs’ endurance is seen as an integral part of China’s economic strategy. According to the China Daily newspaper: “SOEs…have become the major force of China, ready to compete on an international scale”, citing a recent report delivered by Xiao Yaqing, Head of SASAC. However, Xiao noted that reform of SEOs and the management process behind them would have to continue to deepen in the future.

The US’ job growth imbalance

Posted on by Helen

A new study published by Georgetown University has shown that the post-recession employment recovery in the US has been heavily skewed towards those with at least some university-level education.

According to the report, entitled America’s Divided Recovery: College Haves and Have-Nots, of the 11.6 million jobs created since the beginning of the post-recession recovery, 11.5 million went to workers with some post-high school education. The study showed that graduate degree holders gained 3.8 million jobs, while bachelor and associate degree holders gained 4.6 million and 3.1 million jobs respectively. At the same time, those with only a high school diploma gained just 80,000 jobs.

This pattern of job recovery has also led to a new landmark in the make up of employment in the US economy. As the report notes: “In 2016, for the first time, workers with a bachelor’s degree or higher are a larger proportion of the workforce (36 percent) than those with a high school diploma or less (34 percent).” At the same time, those “with more than a high school diploma but less than a bachelor’s degree, who are typically employed in middle-skill occupations, comprise the remaining 30 percent of the workforce”.

Increasingly, some form of post-high school education is needed to get ahead in the US economy

Employment imbalance
Part of this skewed job recovery is cyclical. As the report notes: “Two of the industries that blue-collar workers with lower education levels historically depended upon for jobs – construction and manufacturing – were especially hard hit in the Great Recession and have not yet fully recovered all the job losses they sustained.” Employment in construction is still 1.6 million jobs below its 2007 level, while manufacturing has one million fewer jobs.

The authors of the report suggest this imbalance in job gains is also indicative of a longer structural change in the nature of the US economy. As the report’s press release summarises: “Production industries, such as manufacturing, construction and natural resources, shifted from employing nearly half of the workforce in 1947 to only 19 percent in 2016.”

At the same time: “Industries that employ managerial and professional workers, such as healthcare, business, financial, education and government services, accounted for 28 percent of the workforce in 1947 and have grown to encompass 46 percent of the workforce today.” These sectors typically require workers with post-high school education qualifications.

Increasingly, some form of post-high school education is needed to get ahead in the US economy. “The modern economy continues to leave Americans without a college education behind”, Anthony P Carnevale, Director of the Georgetown Centre and lead author of the report, was quoted as saying in the report’s press release.

Tamara Jayasundera, Senior Economist at the Georgetown Centre and a co-author of the report, noted in the press release: “While it’s reassuring to see the economy back on track, we can’t ignore this tale of two countries with vastly different economic realities for those with and without a college education… Fewer pathways to the middle class for those with less education will continue to reshape the labour market and American culture as we know it.”

The industries hit hardest by Brexit

Posted on by Helen

Industries across the UK were not prepared for Brexit. Following the ‘leave’ result, they were forced to quickly rethink future strategies to avoid a sudden a drop in investment and revenue. International markets and investors panicked as the pound fell to its lowest level in 30 years, twice the amount it fell during the UK’s 2008 recession.

While it is likely that most industries’ finances will stabilise prior to rebuilding connections with foreign and domestic investors, the following sectors are at a higher risk of facing financial difficulties.

Automotive industry
There has been a surge in British car manufacturing over the last 10 years, but it is likely Brexit will put any short-term gains on hold.

The UK’s automotive industry produces an average of 1.6 million cars each year. A total of 77 percent are exported abroad, of which 58 percent are sent to EU countries.

Toyota issued its response to the referendum last week, stating: “Back in 1992, Toyota chose the UK for its first major manufacturing operations in Europe because of the availability of skilled workforce and the presence of a strong network of suppliers.” The manufacturer went on to say, “We are committed to our people and investments, so we are concerned that leaving would create additional business challenges. As a result we believe continued British membership of the EU is best for our operations and their long term competitiveness”.

UK-based low-cost airline EasyJet saw a 20 percent drop in its share price following the Brexit vote

Airline sector
Following the ‘leave’ vote, UK-based airlines will have to rethink their European routes, in keeping with EU laws and regulations. They will also have to recalculate fares and routes, taking into account the cost of visas.

UK-based low-cost airline EasyJet saw a 20 percent drop in its share price following the Brexit vote, and has since discussed moving its headquarters overseas to an EU country.

Pharmaceutical industry
A lot of UK-based pharmaceutical companies carry out their research and business overseas, which could cause logistical issues in the long term. However, the biggest uncertainty facing the industry is the impact on the regulatory processes and market authorisation of drugs in the UK.

The European Medicines Agency is responsible for the centralised authorisation of medicines valid in all EU countries, and although the UK also has its own authorisation process, it currently follows the EU’s drug regulations. The EU’s authorisation allows for the early approval of some drugs, providing faster access than the UK’s own process would.

Financial services sector
Shares in British banks were hit hard in light of the leave vote, causing loans to surge and a slump in investment banking revenues. Regulators have warned that banks must consider restructuring their operations and carrying out added assessments.

The hardest hit in the sector were Lloyds, Barclays and the Royal Bank of Scotland, which each suffered share price slides of more than 30 percent at the market open. However, trade began gradually recovered to 20 percent by the afternoon.

All four sectors will have to rely on maintaining strong relations with the EU and its member states in order to uphold stable trade deals with European countries, despite the outcome of the EU referendum.

Brexit could break UK’s ties with Asia

Posted on by Helen

The UK was not alone in responding to Brexit with a mass selloff: a similar situation is currently ongoing in Asia, acting as a testament to the close ties shared between the two locations. In the immediate aftermath of the vote, where the FTSE 100 ended the day at a 3.2 percent loss, stocks in Tokyo were down 7.2 percent. While the Topix has partially recovered in the days since, the index is still some way short of its pre-Brexit high.

In the UK, as in Asia, investors were unprepared for the ‘leave’ result, and were all too willing to pull their investments as a result of the vote. The MSCI Asia Pacific index sunk 4.3 percent in Friday afternoon trading, while at the same time Japanese shares and Hong Kong equities were down 7.7 and 4.3 percent respectively. The Chinese renminbi sunk to its lowest level against the dollar since 2011, while the yen soared to its highest level since November of 2013.

All things considered, the panic in Asia was not dissimilar to the situation in the UK. Ever since, policymakers in Japan and beyond have seized the opportunity to tighten monetary policy.

In the UK, as in Asia, investors were unprepared for the ‘leave’ result, and were all too willing to pull their investments as a result of the vote

For the time being at least, the referendum result is secondary to the slowdown in China, and the Asian market’s worst decline in five years looks unlikely to stabilise until the heat dies down. “All told, we suspect that a Brexit would have only limited impact on Emerging Asia, and that the main risks to the region lie elsewhere, with the potential for a sharp slowdown in China or a messy unwinding of the debt bubbles that have built up in a number of economies at the top of the list”, according to Daniel Martin, Senior Asia Economist at Capital Economics.

As much as Asian markets have rebounded in the days since, the situation for companies with strong links to the UK remains uncertain. Toyota last week issued a formal complaint against the ‘unauthorised use’ of its logo in the vote leave campaign, and Nissan echoed its intention to not partake in any campaign pushing for an EU exit. Of the cars Toyota manufactures in the UK, three quarters of the 90 percent it exports go to the EU. The carmaker warned previously that a vote to leave could result in a 10 percent duty on UK-made cars, and the repercussions for the UK will be all-important considering the advanced role Asia is set to play in the near future.

India and China, for example, are on course to increase their combined share of global GDP by 17 percent by 2030, and the continent as a whole looks like it will occupy a 52 percent share of the whole by the century’s midpoint. The damage that the ‘leave’ vote could inflict on the relationship between the UK and Asia, therefore, could severely handicap economic growth for both parties.

The UK anticipates post-Brexit trade deals

Posted on by Helen

Multiple international businesses have pulled out of UK investments in the immediate aftermath of last week’s shock ‘leave’ result. While the UK remains in a state of uncertainty, what’s certain is a new trade deal with international and EU markets will not come into effect for at least two years.

The EU Trade Commissioner, Cecilia Malmstrom, told the BBC that the UK cannot begin discussing trade deals until it has officially left the EU, following an estimated two-year process under Article 50 of EU law: “There are two negotiations. First you exit, and then you negotiate the new relationship, whatever that is.”

Once the Brexit process is complete, UK trade will be carried out based on World Trade Organisation rules – that is, until a new trade relationship with the EU can be agreed upon.

A recent trade deal between Canada and the EU took seven years to negotiate, which gives an indication of how the long the UK should expect the process to take

The long road ahead
A recent trade deal between Canada and the EU took seven years to negotiate, which gives an indication of how the long the UK should expect the process to take. Once a deal is settled, it can then take up to two years for it to come into effect.

However, there is widespread concern that the UK is not prepared to do business under World Trade Organisation regulations, which restrict the circumstances under which countries favour one another in trade.

EU officials have said the UK’s best option is to mirror a Norway-style single market, following EU rules and regulations and therefore avoiding a similar situation to Canada. British businesses are already compliant with EU rules and regulations, and a single market could potentially speed up the negotiation process.

The leave vote shocked the nation, not to mention the remaining 27 members of the EU. As a consequence, the pound plunged to a 30-year low – twice the amount seen during the UK’s 2008 recession – and the UK lost billions of pounds in investment within the first few hours of Brexit.

Political turmoil among the Tory party and its candidates has added to the UK’s uncertain state, following the resignation of Prime Minister David Cameron, with consumer sentiment worsening further still.

Nonetheless, the market is now beginning to stabilise, pointing to a more optimistic future for international trade. With stable leadership, the UK could regain the trust of international markets within the next two years and confidently enter a post-Brexit world intact.

Brexit – one week on

Posted on by Helen

A week on from the EU referendum, and we’re still no closer to understanding the long-term implications of Brexit for the UK and European economies. In business and in politics the situation is in a state of constant flux, and what’s clear now is that it’ll likely be months – or even years – before the true scale of the impact shifts into focus.

Markets were understandably chaotic in the immediate aftermath of the vote. Few expected that the majority of the UK population would vote ‘leave’, and so the pound plunged to a 30-year low as a result. Nevertheless, after an initial bout of panic, the market is now beginning to steady.

Government bond prices have nudged higher and the FTSE 100 sits just above pre-Brexit levels, buoyed by a weaker currency, rising commodity prices and central bank reassurances. Speaking to Bloomberg, Alan Higgins, the London-based Chief Investment Officer at Coutts & Co, was of the opinion that “life goes on for most of these companies”. The FTSE 250, meanwhile, is still some way short of its pre-Brexit (relative) highs, and so the difference between the two indexes suggests that investors feel the impact of Brexit on the global economy will be muted.

Few expected that the majority of the UK population would vote ‘leave’, and so the pound plunged to a 30-year
low as a result

The impact on consumer confidence, however, is telling. According to YouGov and the Centre for Economics and Business Research, consumer sentiment has slumped to its lowest level in over two years, not helped by UK Prime Minister David Cameron’s resignation in the hours after the result emerged. Those keeping tabs on the numbers are of the opinion that this pessimism will continue at least until the Brexit negotiations are underway.

Expecting the worst
On the jobs front, financial firms have been most vocal about potential losses. What’s clear is that the capital’s hiring market is headed for a prolonged slowdown, and while the environment was already tough, and the vote means the situation has only gotten worse. JP Morgan’s Jamie Dimon said the firm could slash as many as 4,000 jobs in the UK, whereas HSBC’s Stuart Gulliver said 1,000 investment banking jobs could move to Paris. For now at least, the impact on big city firms is purely speculative, and again the scale of the losses rests on negotiations with the rest of Europe.

The resulting deal is unlikely to be as lucrative as some in the ‘leave’ camp promised. Likewise, the situation is not as gloomy as some on the ‘remain’ side warned. The bigger issue here is whether the EU can stand up to the challenge of political unrest and keep other nations from following the UK’s example. Fortunately for the UK, policymakers have carved out some exemptions from EU rules, the most notable being its absence from the 19-country eurozone and 26-nation Schengen Area, which should cushion the fall. The departure of France, on the other hand, where anti-EU sentiment is rife, would prove much more costly for the national economy.

For now, frustrated voters can do little more than hope for a smooth negotiating process between EU leaders and whichever Tory candidate is selected to follow David Cameron. It’s clear now that the EU’s overreach on issues that affected British citizens was the straw that broke the camel’s back, but whether life outside the EU will be any different, or indeed any better, remains to be seen.