Bamboo Innovator

In China, Air Quality Boosts SUVs; The big winners should include domestic players like Great Wall Motor who saw SUV sales volumes jump 90% year-on-year in February

April 25, 2013, 4:50 a.m. ET

In China, Air Quality Boosts SUVs

ByABHEEK BHATTACHARYA

Following a run of several smog-ridden months in China, investors might be looking to bet on fuel-efficient or electric cars. In fact, it is sales of sport-utility vehicles that are soaring. The number of SUVs sold in China jumped 43.4% in the quarter ended March 31 compared with a year earlier, according to IHS Automotive. Total auto sales volumes were up just 13.8%. China’s middle class consumers see SUVs as a status symbol and view them as a safer option on the country’s notoriously dangerous roads, says China Auto Analyst Michael Dunne.

Ironically, air pollution might be playing a part too. China’s government rolled out new fuel-efficiency regulations last month aimed at the country’s air quality problem. A quirk in those rules could juice the SUV market, says Bernstein Auto Analyst Max Warburton. Fuel-economy targets based on different car weights—including easier targets for heavier vehicles—mean manufacturers have an incentive to make more SUVs, Mr. Warburton says. Something similar occurred in the U.S. in the 1980s, when more relaxed fuel-efficiency standards for heavier cars saw the big auto makers invest heavily in minivans and SUVs. The big winners should include domestic players like Great Wall Motor2333.HK +2.99% and foreigners like Jaguar-Land Rover, owned by India’sTata Motors 500570.BY +4.19% . Great Wall Motors saw SUV sales volumes jump 90% year-on-year in February, more than twice the increase in overall vehicle sales. The company boasts 35-40% of the low-end SUV market and 8% of the market overall, Nomura says. Read more of this post

How Chinese Subsidies Changed the World; Since 2008, through government subsidies, the manufacturing capacity of China’s solar-panel industry grew tenfold, leading to a vast global oversupply

How Chinese Subsidies Changed the World

by Usha C.V. Haley and George T. Haley  |   8:00 AM April 25, 2013

Last week, LDK Solar, a struggling Chinese manufacturer of solar wafers and panels, announcedthat it had missed $24 million in bond payments. This news followed the bankruptcy in March ofWuxi Suntech, the main operating subsidiary of the world’s largest maker of solar panels, after it defaulted on a $541 million bond payment.

It is no coincidence that this upheaval in the Chinese solar industry is occurring at a time when the central government’s subsidies that had financed the industry’s explosive expansion have declined even as problems in the global solar-panel market have soared.

Since 2008, through government subsidies, the manufacturing capacity of China’s solar-panel industry grew tenfold, leading to a vast global oversupply. A surge in exports of Chinese panels depressed world prices by 75%. In 2012, China’s top six solar companies had debt ratios of over 80%. Our research showed that without subsidies, these companies would be bankrupt. If the Chinese government sticks to its decision to stop funding unprofitable solar-panel manufacturers and support a revamping of the industry, more bankruptcies and restructurings are sure to follow. Read more of this post

Israelis Rise Up Against the Oligarchs, a group of 20 families that control about 50 percent of the value of the Tel Aviv stock exchange

Israelis Rise Up Against the Oligarchs

By David Wainer and Calev Ben-David on April 25, 2013

Ilyan Marshak was outraged when he heard that Bank Leumi would forgive as much as $42 million in debt owed by companies controlled by Nochi Dankner, one of Israel’s so-called oligarchs—a reference to the group of 20 families that control about 50 percent of the value of the Tel Aviv stock exchange. Marshak wanted to know why a rich man was getting a break while he worked odd jobs to pay off about 100,000 shekels ($27,600) of debt. “These tycoons are getting bargains because of their influence in our economy, and that comes at the expense of the public,” says the 28-year-old Tel Aviv resident.

Marshak was one of thousands who posted on a Facebook (FB) page titled “Bank Leumi Consumer Boycott,” after a local paper reported in mid-April that the bank had agreed to erase some of Dankner’s debt as part of a broader corporate debt restructuring. The scion of a family that made its fortune in table salt and real estate, Dankner has spent the past 15 years building his own sprawling empire, which includes the country’s biggest supermarket chain, Shufersal (SAE), and its largest mobile operator, Cellcom Israel (CEL). The deal with Leumi would have allowed the businessman some breathing room as his IDB Holding (IDBH) struggles to meet payments on about $560 million in debt. Read more of this post

Regulating China’s Shadow Banking System Isn’t Easy; Attempts to bring transparency to China’s $3.4 trillion shadow banking system are foundering, judging from a pilot program in Wenzhou.

Regulating China’s Shadow Banking System Isn’t Easy

By Jun Luo on April 25, 2013

On a morning in March, row after row of chairs in the waiting room of Wenzhou Private Lending Registration Service Center sit empty. Zhou Xiang, a manager at one of the five government-sanctioned loan brokers operating in the center, which opened in 2012, hasn’t had a single customer today. “The volume of lending is so low we ourselves won’t be here long without expanding into some other businesses,” he says.

The dearth of clients helps explain the failure of China’s year-old effort to regulate informal lending. Former Premier Wen Jiabao chose to locate the center in Wenzhou, a city of 9 million in southeastern China, after more than 80 businessmen in the area committed suicide or declared bankruptcy because they were unable to make payments on black-market loans. Brokers like Zhou match cash-strapped businesses with private lenders, draft loan contracts, and monitor monthly payments.

Wen’s goal was to impose some controls on what is a huge but disorderly market. Many Chinese savers prefer to lend their money to businesses and real estate developers, rather than letting it languish in a bank account. Estimates by UBS (UBS)put the size of the nation’s so-called shadow banking system at $3.4 trillion, equal to 45 percent of gross domestic product. In Wenzhou, almost 90 percent of families and 60 percent of companies participate in the informal market for loans, according to a 2011 survey by the People’s Bank of China. Read more of this post

In China, the License Plates Can Cost More Than the Car; None of the top 10 passenger car models sold in China are Chinese brands

In China, the License Plates Can Cost More Than the Car

By Tian Ying and Alexandra Ho on April 25, 2013

Shanghai’s busy streets teem with Buicks, Fords, Volkswagens, and Toyotas. More than 9 out of 10 cars in the world’s most populous city are made by foreign companies, and it’s not just a reflection of mainlanders’ preference for Western design. Some local automakers say the city’s license plate auctions are responsible for their weak sales. Shanghai is one of four Chinese cities that limit car purchases by imposing quotas on registrations. The prices paid at Shanghai’s license auctions in recent months—90,000 yuan ($14,530)—have exceeded the cost of many entry-level cars, the stronghold of Chinese brands such as Chery, Geely, and Great Wall. While residents with modest incomes may be able to afford an inexpensive car, the registration cost is often beyond their reach. “Whenever there’s a restriction of new car purchases through the quota system, there is always a big impact on lower-price cars like the ones we make,” says Lawrence Ang, executive director of Geely Automobile Holdings (175), whose Panda minicar sells for 37,800 yuan.

After Beijing (pop. 21 million) introduced a license plate lottery in January 2011, the combined share of Chinese brands sold there plunged by more than half, to 9.7 percent for the year, according to researcher IHS Automotive. In Shanghai, which began auctioning license plates in 1994, domestic brands made up only 8.9 percent of cars sold in 2011 (the most recent data available), less than a third the level nationwide, IHS reports. Read more of this post

Watchmakers fret over China sales slump

Watchmakers fret over China sales slump

1:26pm EDT

By Silke Koltrowitz

BASEL (Reuters) – Luxury watchmakers expect sales growth to slow this year as a recovery in the United States and buoyant Middle East demand fail to offset a China slump more deep-rooted than a temporary blip caused by anti-corruption moves.

The heads of Swatch Group’s (UHR.VX: Quote, Profile,Research, Stock Buzz) biggest brand Omega and LVMH (LVMH.PA: Quote, Profile, Research, Stock Buzz) flagship brand TAG Heuer as well as high-end independents Patek Philippe and Ulysse Nardin all said demand in Greater China had tumbled, particularly for high-end models. Read more of this post

Few $1-Salary CEOs Make a Buck as Ellison Gets $96 Mln

Few $1-Salary CEOs Make a Buck as Ellison Gets $96 Mln

The chief executive officers of software developer Oracle Corp. (ORCL) and watchmaker Fossil Inc. (FOSL) both work for a salary of a dollar or less a year. The only difference: $96.2 million.

That’s how much Oracle founder Larry Ellison really earned in fiscal 2012 when you count options awards and other extras, more than any other CEO in the Standard & Poor’s 500 Index. Fossil’s Kosta Kartsotis’ actual take-home pay: Zilch.

While CEOs with single-digit salaries are a rare breed, those who really work for nothing when other compensation such as bonuses is included are rarer still. These executives, sometimes big shareholders, only benefit if the stock rises or dividends are paid, an alignment of interests that appeals to some investors. Read more of this post

Risk of Miscalculation Over North Korea Has Grown, Dempsey Says; North Korea is “in a period of prolonged provocation rather than cyclical provocation,”

Risk of Miscalculation Over North Korea Has Grown, Dempsey Says

The risk of a miscalculation in the dispute over North Korea’s nuclear and missile programs has increased, and China takes the tensions “very seriously,” the chairman of the U.S. Joint Chiefs of Staff said yesterday.

North Korea is “in a period of prolonged provocation rather than cyclical provocation,” Martin Dempsey told reporters yesterday after arriving in Beijing April 21 and meeting officials including President Xi Jinping.

Dempsey’s visit is part of a series of high-level contacts between the U.S. and China this month to discuss issues including cybersecurity and the North’s nuclear program. Tensions on the Korean peninsula have been high since February, when Kim Jong Un’s regime tested a nuclear device in defiance of the United Nations Security Council.

“The risk of miscalculation is higher and I think the risk of escalation is higher,” Dempsey said. “They are on a path that will certainly increase risk in the region.”

China is North Korea’s largest trading partner and Beijing regards the neighboring country as a strategic buffer with U.S.- backed South Korea. In a visit to China earlier this month, Secretary of State John Kerry said China needs to “put some teeth” into restraining Kim’s regime.

“I will leave here with the belief that the Chinese leadership is as concerned as we are,” Dempsey said. “We think there is still time for North Korea’s leaders to back away from provocations and we hope they take the opportunity to do so.” Read more of this post

Thai 7-Eleven King Turns Retail Dream to Stock Nightmare; Thailand Stock Exchange to Probe Siam Makro Trades

Thai 7-Eleven King Turns Retail Dream to Stock Nightmare

Billionaire Dhanin Chearavanont’s ambitions to create Southeast Asia’s largest retailer already wiped out $2.3 billion for CP All Pcl (CPALL) investors. Now, funding the industry’s most expensive bid may put more value at risk.

Dhanin’s CP All, which runs more than 6,800 7-Eleven stores in Thailand, slid 10 percent in Bangkok yesterday — the most in more than four years — after saying it will pay $6.6 billion for discount wholesaler Siam Makro Pcl. (MAKRO) The offer is 41 percent above Siam Makro’s average price in the prior 20 days, a record premium for a retail deal in emerging Asia, according to data compiled by Bloomberg. CP All’s bid also represents the highest multiple to net income, the data show.

While Dhanin plans to squeeze suppliers for better terms and export Siam Makro’s membership-warehouse model across Asia, the limited increase to profits isn’t enough to justify the price, said Credit Suisse Group AG. Although the Bangkok-based company says it has no plans to sell new stock to fund the deal, CP All’s share price will be weighed down by concerns that it will eventually have no other option, said UOB Kay Hian Securities (Thailand) Pcl.

“CP All is going to have to do a cash call,” Alan Richardson, a Hong Kong-based fund manager who helps oversee about $110 billion for Samsung Asset Management Co., including Siam Makro shares, said in a phone interview. “The valuation doesn’t make sense. With this kind of emerging market, the potential is definitely there, but for a stock investor who looks on a time horizon of one to two years, it would be negative.” Read more of this post

Euro may only last five years, says senior German government advisor

Euro may only last five years, says senior German government advisor

The euro has a “limited chance of survival” and may only endure another five years, Kai Konrad, one of the German government’s closest economic advisers, has claimed.

“Europe is important to me. Not the euro,” said Dr Konrad.

By Jeevan Vasagar, Berlin

3:15PM BST 24 Apr 2013

In notably outspoken remarks for a senior German figure, Dr Konrad, chairman of a scientific council that advises the finance ministry, said: “Europe is important to me. Not the euro. And I would only give the euro a limited chance of survival.”

Asked whether he thought the single currency would last five years, the economist said: “A concrete period is hard to identify as it depends on so many factors. But five years sounds realistic.”

This pessimistic judgment by a senior adviser runs counter to the official German government view that the euro must be held together for the sake of unity in Europe. Dr Konrad’s remarks came in an interview with the newspaper Welt am Sonntag, on the debt crisis in Europe. Read more of this post

Changing Rules of the Road for China’s Auto Industry; Domestic car makers face a tough struggle to adapt to their evolving marketplace

April 24, 2013, 12:25 p.m. ET

Changing Rules of the Road for China’s Auto Industry

Domestic car makers face a tough struggle to adapt to their evolving marketplace.

By LARRY WANG, PAUL GAO AND AXEL KRIEGER

In many areas of the Chinese economy, from refrigerators to computers and banking to consumer goods, domestic players have captured the lion’s share of the enormous market. There is only one glaring exception: autos. Even after the government plowed billions into building up domestic champions, Chinese auto makers account for fewer than 30% of the new cars sold in China each year. This week’s Shanghai Auto Show is a good time to consider why that is and how local firms can change it.

Chinese auto makers have achieved impressive success, building their 30% market share from virtually zero 15 years ago mainly by delivering relatively inexpensive cars to a large number of first-time car buyers. They also are closing the quality gap with their international peers in surveys such as the J.D. Power and Associates Initial Quality Survey, although a gap still remains.

But their share has remained relatively flat in the past five years. This suggests they already have plucked the low-hanging fruit in the marketplace. Further success will hinge on their ability to adapt to a more sophisticated auto market. Read more of this post

Nespresso’s bitter taste of defeat in the $10bn coffee capsule market where it has a market share of roughly one-third

April 24, 2013 7:49 pm

Nespresso’s bitter taste of defeat

By Louise Lucas

Even judges, it appears, are waking up and smelling the coffee. The phalanx of patents designed to protect Nestlé’s Nespresso machine-and-capsule coffee systems has been dented by a UK High Court ruling. The decision hands consumers the option of using rival capsules made by Dualit, the British manufacturer better known for its retro toasters, in their Nespresso machines. Dualit, which spent about £1m on lawyers during the course of the 10-month legal battle, was delighted. Leslie Gort-Barten, managing director, said he already had an appointment next Tuesday with one of Britain’s big four supermarkets that could now consider stocking its capsules.

Nespresso has a powerful grip on the $10bn coffee capsule market. It has a market share of roughly one-third, according to Euromonitor, more than the next two biggest players – Green Mountain and DE Master Blenders – put together. It generates sales of just under SFr4.5bn ($4.75bn), estimates Jamie Isenwater, analyst at Deutsche Bank, and margins on earnings before interest and tax (all of which comes from pods rather than machines) of more than 30 per cent. Read more of this post

Indonesia is the world’s biggest market for one American icon: Tupperware.

April 24, 2013, 1:54 p.m. ET

Indonesia Provides a Tasty Dish for Tupperware

‘Open your hearts,’ CEO Rick Goings told salespeople in Jakarta this month. ‘Indonesia is the No. 1 market in the world.’

By ERIC BELLMAN

JAKARTA, Indonesia—Companies from across the globe are just starting to tap Indonesia’s booming consumer sector. But the Southeast Asian archipelago already is the world’s biggest market for one American icon: Tupperware. Indonesia last year replaced Germany as the biggest market for Tupperware Brands Corp., TUP -4.14% which sells plastic containers for leftover beef stew and baba ganoush at house parties world-wide. Indonesia is likely to lead the company’s growth in Asia this year. That will help make the Asian-Pacific region the company’s biggest this year, topping Europe, South America and North America, said Chief Executive Rick Goings. Tupperware’s sales force has exploded to an army of more than 170,000 people here from only 2,000 a decade ago, riding a consumer boom in Southeast Asia’s largest economy and selling record numbers of water bottles, plastic lunchboxes and neon-green plastic dining sets.

Read more of this post