Promise & Peril of SOE Reform in Mainland China

♠ Posted by Emmanuel in at 2/29/2016 06:15:00 PM
There are approximately--count 'em!--150,000 state-owned enterprises (SOEs) in the PRC. When discussing SOE reform, the natural tendency will be for readers to think of privatization. Thousands upon thousands of SOEs are now being loosed from government controls? Think again. China being a practitioner of gradualist tinkering with the economy, the government has announced a scheme that does not go all the way. Rather, China will experiment with allowing SOEs more leeway in business decision-making instead of clearing all and sundry actions with government officials.

However, this (somewhat) increased amount of discretion comes at a certain price, once again demonstrating that there is no such thing as a free lunch--even in the PRC. China will no longer as readily extend credit from government banks if these firms encounter duress if they are categorized as "commercial" entities:
China announced last year it would kick off the process of overhauling state companies by categorizing them into commercial or public-service entities, a move that’s prompted many SOEs to seek discussions with regulators over how they should be classified, according to four people familiar with the matter. These talks are bound to heat up in Beijing this week at the National People’s Congress, the Chinese government’s biggest gathering of the year, according to three of the people.

For China’s many SOEs -- JPMorgan Chase & Co. has estimated there are more than 150,000 of them -- the stakes are high. Being branded as commercial could lead to higher salaries in some sectors and less government meddling but also deprive a company of cheap financing and state protection in the event business sours, as is increasingly the case in China’s slowing economy.
The upshot is that SOEs classified as commercial enterprises will be pressured to show more profits in exchange for this increased independence:
"This categorization will impact SOEs and their business models because commercial companies will face higher pressures to make profits and public ones will need to focus on social benefits," said Zhou Jingtong, Beijing-based director of macroeconomic research at Bank of China Ltd. "It will also influence investor decisions when they buy SOE bonds and shares because commercial companies will be riskier options."

The likelihood of government support is already factored in for some SOEs’ debt ratings. For example, Standard & Poor’s rates Aluminum Corp. of China Ltd., China Railway Group Ltd., China General Nuclear Power Corp. and Citic Group Corp. as investment-grade issuers although each would be rated junk purely based on their financials, according to a S&P report in January.

The idea behind the dual categorization, announced in September, is for the government to control public-interest companies and turn the rest into more market-oriented firms by loosening oversight and making them accountable for their performance. Most SOEs will be categorized as commercial, the people familiar said.
It's another step in the road to China turning into a market-based cconomy the rest of us will recognize, replete with "shareholder" capitalism and such. As per traditional criticisms of state-owned enterprises, their dynamism has been found lacking in China compared to their entirely private counterparts in terms of generating returns--on assets, for example--and the state is seeking to inject some of this dynamism:
Though individual cases vary, SOEs as a whole are ripe for reform. While they generated profits of 2.3 trillion yuan ($352 billion) in 2015 -- more than South Africa’s entire economy -- that’s still down 6.7 percent from a year earlier and those returns were only 1.9 percent of the 119.2 trillion yuan in assets they held, according SASAC figures.

Industrial profits at SOEs have also fallen for 14 straight months, while the last time earnings declined in the private sector was more than three years ago. SOEs are also less adept than private companies in cutting debt, according to research at the Chinese University of Hong Kong.

PRC, Beijing Now Lead World in Billionaires

♠ Posted by Emmanuel in at 2/26/2016 02:24:00 PM
Nothing better shatters the myth of the PRC as a "socialist" republic than the emergence of an uber-capitalist class in the billionaires. So China may be slowing economically nowadays, but several decades of astounding growth have nonetheless resulted in the flowering of this class in the meantime. So much for equality and all that communist propaganda. Unleashing market forces all those years ago has led to a lofty kind of stratification on a level not found in any purportedly "capitalist" country. To get rich is glorious, right?

This trend is working at two levels based on the most recent report by the infamous Hurun Rich List, the PRC's equivalent of Forbes and Fortune's billionaire listings. The first is that China now has more billionaires than any other country on Earth, although Hurun's methods are regarded with some suspicion by foreign sources:
The Hurun Report said China now has 568 billionaires versus the United States' 535, giving it the largest population of billionaires in the world. According to Hurun, China's billionaire population first surpassed the U.S. in August, and grew by a total of 90 last year.

Granted Hurun's numbers are subject to some debate, as they differ from those of Forbes and other wealth research firms, which still put the U.S. far ahead of China when it comes to billionaires. According to Forbes' 2015 China report, China has 335 billionaires compared with 536 in the U.S.
The potentially more interesting finding from the Hurun report is that Beijing--yes, that radically polluted capital of theirs--has surpassed New York in being the residence of the most billionaires:
Beijing, according to the list, has displaced New York as the “billionaire capital of the world,” with 100 billionaires compared with the Big Apple’s 95. Hong Kong, with 64 billionaires, and Shanghai, with 50, also placed in the top five. After New York, the only U.S. cities in the top 20 were San Francisco, the 12th-ranked city with 28 billionaires, and Los Angeles, No. 19, with 21.
That said, keep in mind that, in terms of billionaire provenance, Beijing is more provincial than more cosmopolitan New York since the Chinese capital has zero foreign billionaires residing there:
Unlike the U.S. cities, Beijing’s billionaires are all Chinese, Hurun’s founder, Rupert Hoogewerf, said in a phone interview. New York, he said, is “much more international. ... But in terms of super-wealth created, China has been coming up a lot in the past two years, and this is sort of the icing on the cake for it.” 
With Beijing's superpollution, you do have to wonder if folks wealthy enough to live anywhere they choose stay there. I wouldn't be surprised to find Beijing's distinction to be a short-lived one.

Propaganda Time: PRC Campaigns Against Fakeries

♠ Posted by Emmanuel in , at 2/25/2016 03:40:00 PM
Counterfeiting crime in China doesn't pay...or at least that's what they'd like to portray.
Chinese officialdom's reaction to the PRC's image as a manufacturer of copycat products--knock-offs, fakeries, and so forth--has been consistent. That is to say, it publicly discourages the manufacture of such items. Aside from making China vulnerable to copyright and trademark infringement suits, it does not do the national image any favors. You can of course argue that these same authorities have actually been loath to crack down on the manufacture and sale of such fakeries insofar as they remain a source of livelihood for some citizens, but the official line is that they are unwelcome.

How unwelcome? Visiting the China Daily recently reminded me that they have an entire section dedicated to the "fight against counterfeit goods":
China has been the manufacturing powerhouse for some decades. By capturing 22 percent of the global manufacturing market, the country makes and sells everything from needles to cars.

But industrial-scale production has also created some problems. Companies looking to make a quick buck have taken to making counterfeit products. To crack down on this practice that not only hurts consumers, but also the country’s trade, the government has stepped up its drive to reform legal infrastructure and amend copyright, patent and trademark laws.
Aside from stories of enforcement--or better yet, the difficulties of enforcement when there are admittedly a lot of counterfeits still being made in China--others of interest include those of former fake makers going legit. For instance, see this one on motorcycle parts:
When Yu Guoping came to Guangzhou two decades ago, he dreamed nothing more than just selling bunches of Chinese motorcycle accessories to businessmen from home and abroad. He didn't really care which brand he was selling or whether the quality deserved the price, as long as he made as much money as he could to feed and clothe and shelter himself in the emerging southern city.

"The market was largely unchecked back in those days when counterfeit and low-quality goods were rife," said Yu, admitting that prices trumped all when selling Chinese products without the protection of intellectual property rights. However, profits lure competitors, which then squeezes profits. Yu had to find another way to keep his business from continued slowdown and survive highs and lows of trade. 
There inevitably comes the "aha" moment:
He established his own brand, with the trademark of YGP, in 2008, targeting mainly African countries. "Promoting a new brand is like raising your own baby. It may be tough at first, but the boy will become strong and stand out if given time and efforts," said Yu. "You don't have much leeway of pricing if you keep selling other companies' products."

The neat thing about official sources is that they seldom deviate from the state-promoted line regardless of their veracity, and it's no different here.

Why London Mayor Boris Johnson Backs (Unlikely) Brexit

♠ Posted by Emmanuel in at 2/22/2016 01:30:00 AM
Would this guy be able to convince Britons to leave the EU?
A few days ago, UK Prime Minister David Cameron negotiated concessions from the European Union that he believes are sufficient to keep his country in it. (The BBC has a good backgrounder on these concessions and the referendum overall.) This notion will be put to the test on June 23 through a referendum on whether to remain in the EU decided by a simple majority. One of the interesting side stories is that his old friend and London Mayor Boris Johnson has now decided to campaign against Cameron with the "no" camp. While not entirely a surprise--he edited the rather Eurosceptic Spectator for a long time--the choice remains curious.

For one thing, the expectation among oddsmakers--yes, bookies--is that the UK will ultimately choose to remain anyway. Is backing a losing position also a loser for his political future? BBC pundit Laura Kuenssberg suggests otherwise. Quite soon, Cameron will step down and Johnson will have his shot at being PM. (Cameron said he will not contest the next elections.) To win the favor of the Eurosceptic party faithful who remain numerous and influential, Johnson has thus decided to cast his lot with the "no" faction:
Doing the rounds inside Number 10 and Number 11 (the chancellor's abode) so the theory goes, is that Boris is intent on becoming 'The Man Who Tried'. What? Well, as people await his likely final decision to plump for Brexit, Downing Street has concluded that he will go for Leave precisely because he is confident that they will lose.

This allows him to create the perfect platform for his leadership ambition - campaign for Leave, Remain wins, but Boris manages to then glide onto the leadership ballot as the man who gave it his damnedest, didn't quite pull it off, but can scoop up oodles of votes from the broken-hearted Tory membership, despairing in defeat, but ready to go over the top for their hero...

If you got this far, and feel enlightened by it all, then marvellous. If it seems fanciful, then don't say I didn't warn you! But with the prime minister having already announced that he's leaving his job before the next election, there is no escaping the fact that the future of the Tory leadership is a factor in both sides' campaigns. 
It sounds plausible, methinks. Like many things with these sorts of folks, it's partly conviction and partly calculation. 

After Myanmar: Iran as a Promising Growth Market

♠ Posted by Emmanuel in ,, at 2/18/2016 10:11:00 AM

Whither Iran? With few large developing country markets remaining untapped, Iran's large population and energy-rich economy certainly hold attractions for multinationals. The last one of note, of course, was Myanmar. As multinationals ponder whether to enter this potential growth market, however, risks abound. The Economist Intelligence Unit (EIU) recently put out a report on the opportunities and hazards of investing in Iran. As you can see from the table above, political-economic governance remains a strong concern, yet this observation is almost expected.

Let us begin with situation of Iran opening up which should be generally familiar:
2 January 16th 2016 will forever be viewed as a watershed for Iran. On that day, the International Atomic Energy Agency (IAEA) judged that Iran was fully compliant with its internationally agreed nuclear obligations—a ruling that in effect restored the Islamic Republic to the global community of nations and removed a mass of international sanctions that had been piled on the country since 2006. Keen to make up for lost time, Iran’s president, Hassan Rowhani, has been urgently seeking to drum up new business. On January 23rd he hosted a summit for China’s president, Xi Jinping, in Tehran, at which the two sides agreed to boost bilateral trade to US$600bn within a decade. This was swiftly followed by a trip to Italy and France, where some €50bn (US$55bn) in contracts were signed.
That said, there are still plentiful caveats here. This momentary thawing of relations is always provisional, with leadership changes and their associated geopolitical manifestations remaining in a state of flux. Entrenched economic interests are also unlikely to easily relent on the rents they have accumulated during the sanctions era:
However, even with Iran’s doors thrown open, it would be wise for businesses to keep in mind the ancient Persian proverb: “He who wants a rose must respect the thorn”. Iran’s economy is unusual among the region’s oil exporters; it boasts the largest natural gas reserves in the world and the fourth-biggest oil reserves, and yet it has a diversified economy (including a significant manufacturing sector), all backed up by a large, youthful, well-educated and welcoming population. But the business climate is less welcoming. Vested interests still permeate almost every aspect of the economy, typically operate outside the parameters of international commercial law—especially those businesses connected to the Islamic Revolutionary Guards Corps—and will jealously guard the gains they accrued during a decade of sanctions. And the finger of blame for Iran’s tricky operating environment should not be pointed solely at Iran; an array of residual US sanctions can snare the more unwitting investor, and Iran’s economic momentum is still too dependent on the vagaries of the global oil market.
Still, it's the same story for MNCs with these "frontier" markets: no guts, no glory. The interesting thing with Iran is that it's hedged its FDI bets by approaching China. Which, of course, could care much less than Western nations about long as there's money to be made.

HSBC Decides Against Moving HQ to Hong Kong

♠ Posted by Emmanuel in , at 2/15/2016 11:54:00 AM
HSBC ain't going back to Hong Kong...if ever.
Imagine that a bank with "Hong Kong" in its name, with over 60% of its profits coming from operations in the Asia-Pacific, decides against having its headquarters in the aforementioned financial center of Hong Kong. Since moving its headquarters to London in 1993, HSBC has held board meetings every three years to decide on where its headquarters should be located. Even with seemingly onerous regulations being placed on the UK financial sector in the aftermath of the global financial crisis, HSBC has decided to remain in London.

And so it was again the case today: upon further review, HSBC has announced that it will stay put in the UK. Mindful of the current financial situation in China, Harry Sender of the FT says it's lack of faith in Chinese financial governance on top of the PRC's diminished attractions that explain HSBC's move:
For a start, the regulatory risk has soared as local and foreign investors have lost their faith in the [Chinese] government and regulators’ ability to manage the markets and the currency. That matters to HSBC because if it had shifted back to Hong Kong, the People’s Bank of China [PBoC] would have been in effect its regulator and certainly its lender of last resort.
You may quibble that it's the Hong Kong Monetary Authority (HKMA) that would be more applicable as the financial authority in HSBC's case than the PBoC. However, recent political events question the level of independence in Hong Kong:
Since that 1993 move, HSBC has reviewed its headquarters location every three years, and top executives often held a move back to Hong Kong out as a real possibility. But the Chinese government, which under president Xi Jinping has conducted a brutal crackdown on free speech, human rights, and his political opponents, appears to have spooked the bank’s board yet again.

HSBC just wrapped up its latest review of where the bank should be located, and despite the fact that some analysts estimated moving to Hong Kong could save the bank $14 billion, and Asia contributes most of the bank’s profits, HSBC will stay in London...

A bank spokesman would not elaborate on how much of a factor Beijing’s influence on Hong Kong played in the decision, but HSBC’s board reportedly enlisted former US secretaries of state Henry Kissinger and Condoleezza Rice for advice—a sign that politics, not the nitty-gritty of tax savings or employee recruiting played a big factor. 
China's "Big Brother"-like domineering of Hong Kong is certain to have played a part in HSBC's decision not to move there. Refer to anti-PRC booksellers somehow winding up confined in the PRC. In other words, if political freedoms are not guaranteed, what basis is for there to think that economic freedoms are?
Beijing’s growing control over Hong Kong was certainly considered by the board, an unnamed HSBC “insider” told Reuters last month. “The situation in Hong Kong appears to be getting worse. You have to wonder if the city will remain a suitable base for an independent-minded, top global financial institution.” Beijing’s government is violating the “Basic Law” and breaking the pledge it made to the UK, the UK foreign secretary said last week, a reference to the “involuntary” removal of British citizen and bookstore employee Lee Bo to mainland China.

Beijing has been cracking down on Hong Kong booksellers who sell materials critical of president Xi Jinping and the Communist Party—a violation of a pledge to allow free speech in Hong Kong, made when the city was turned over from Britain to China. HSBC’s decision will have financial implications for Hong Kong, and China, which could have used the extra jobs and tax revenue the move would have brought. With thousands of employees still in Hong Kong, the bank is by no means abandoning the city, but the headquarters decision shows the board lacks confidence in city’s future. 
Others would say HSBC raised the possibility of moving to Hong Kong as a bargaining chip for less obtrusive UK government scrutiny. That may be true, but the larger point remains that China didn't really go out of its way to make it attractive to move to Hong Kong.

Japan's Last Hope: Can G20 Calm World Markets?

♠ Posted by Emmanuel in ,,, at 2/12/2016 12:28:00 PM
The once-again mighty yen is one of Japan's larger problems once more.
With global financial markets going crazy as of late, the hardest-hit have been in Asia due to China's slowdown causing expectations that its closely-linked regional peers will suffer. Even within Asia, though, Japan has been particularly affected as of late. Late last month, the Bank of Japan adopted negative interest rates--albeit on excess deposits of commercial banks only--on top of massive quantitative easing through buying not only Japanese government bonds (JGBs) but also ETFs.

In the aftermath of the BoJ announcement, the yen spiked to 121 to the dollar. Competitive devaluation was clearly intended and worked. For a while, at least: the roiling of global markets which has increased as of late has led many to buy yen as a "safe haven" currency. The chart above shows the dramatic slide in the yen to the 111-something mark in a matter of days. With expectation that Japanese companies would become uncompetitive in export markets due to a strong yen, the resulting selloff in Japan-listed stocks has been brutal.

As it so happens, the G20 finance ministers' meeting is due to be held in Shanghai later this month (China is the rotating head this year). Evidently, Japan wants to put market volatility on the agenda. Here is their current predicament:
Japanese policymakers on Friday said they would seek a global policy response from G20 nations to world market turbulence, as the country's central bank governor dismissed suggestions the rout was caused by the bank's new negative interest rate policy. Underscoring Tokyo's alarm over the relentless drop in stock prices, Prime Minister Shinzo Abe held talks with Kuroda for the first time in nearly five months to discuss global economic and market developments.

"I explained the BOJ's thinking on quantitative and qualitative easing with negative interest rates and its effects," Kuroda told reporters after the meeting, adding that Abe made no particular remarks on monetary policy. Kuroda declined to comment on recent yen moves and what he discussed with Abe on currency policy. Japan's Nikkei share average fell more than 5 pct to a fresh 16-month low on Friday, while the yen remained near a 15-month high against the dollar as investors flocked to the safety of the Japanese currency on concerns about the health of European banks and the global economic outlook.

Verbal threats of intervention by Finance Minister Taro Aso failed to knock the yen lower. Yen strength has added to headaches for the BOJ, whose adoption of negative interest rates last month has so far failed to produce a sustained positive stock market impact amid a wider market rout.

And here is the plan to use the G20 to talk things over:

Aso and his subordinates at the Finance Ministry said they will look to see whether G20 finance leaders can agree on policy coordination when they meet in Shanghai later this month. "There are a lot of deep-rooted problems behind recent market moves. Naturally, we have to look at ways we can promote policy coordination heading into the G20 meeting," top currency diplomat Masatsugu Asakawa told reporters on Friday.

Earlier, Kuroda said the BOJ's negative rate policy will help stimulate the economy by lowering borrowing costs, dismissing criticism that the policy move has aggravated the market turmoil by stoking fears it will further squeeze bank profits. "I don't think the BOJ's negative rate policy is behind (the recent market turbulence)," Kuroda told parliament on Friday. "Excessive risk aversion is spreading among global investors," he said, adding that he will carefully watch how recent market moves could affect Japan's economy and prices.

He also reiterated that the BOJ would not hesitate to expand monetary stimulus further if needed to achieve its 2 percent inflation target. The BOJ cut the benchmark interest rate to below zero last month, stunning investors with another bold move to stimulate the economy as volatile markets and slowing global growth threaten its efforts to overcome deflation.

The essential difficulty for Japan's policy remains that, in order for the yen to be weaker, the currencies of those of its trading partners will have to become stronger. Who would voluntarily make themselves worse off for Japan's sake by appreciating their currencies? 

Mission Creep: EBRD Turns Into Mideast Aid Agency

♠ Posted by Emmanuel in ,,, at 2/08/2016 05:48:00 PM
You see a major Jordanian camp for Syrians refugees in Zaatari; the EBRD sees a development opportunity.
The European Bank for Reconstruction and Development (EBRD) was founded in the aftermath of WWII to rebuild a continent shattered by that conflict. It is one of four regional development banks together with those in Africa, the Americas, and Asia. Until recently, the EBRD's mission has not strayed far from providing funding for, yes, European reconstruction and development. In recent decades, it has helped transition economies from the former Soviet bloc move to capitalist systems.

Now, though, comes an element of "mission creep": with Middle East turmoil driving millions upon millions of refugees to European shores, the EBRD is now tasked with helping staunch this massive flow of humanity. How? By promoting economic development in Middle Eastern countries that are currently hosting large numbers of refugees:
This realization has prompted the European Bank of Reconstruction and Development to find a new calling: crisis development. Created after the fall of the Berlin Wall to help Europe's ex-communist nations become market economies, the EBRD controversially moved on to Egypt, Jordan, Morocco and Tunisia after the Arab Spring. Last summer, as he watched TV coverage of refugees coming to Europe, the bank's president, Suma Chakrabarti, told me he saw "an opportunity to show we are relevant to crisis situations." Now Lebanon has applied for EBRD membership.
Thus went the call for funding for Middle East projects:
In October, Chakrabarti says he got the EBRD's board to agree to a new approach. It would help stabilize refugee host countries by corralling funds and private investors to deal with the consequences of sudden population explosions and treat them as a development opportunity. On Wednesday, he announced a 900-million euro program. "We're ready to go," says Chakrabarti. All that's required is for donor countries to provide 400 million euros, and for the host countries to cooperate.
Jordan is currently one of the targeted nations given its massive population surge from refugees settling there:
In 2010, the population of Lebanon was around 4.3 million. By last summer the CIA estimated that figure at 6.2 million, mostly because of refugees from Syria. It is, said Lebanon's education minister Elias Bou Saab, as though 32 million people had suddenly descended on Britain...

Start with sewage. Already straining, Jordan's system can't cope with 1.4 million extra Syrians, so the first EBRD project would strengthen the network in the Zarqa River area, north of Amman. Then landfills - they're full. New ones have to be built.

Jordan, the second most water-poor country on earth, has had to halve cistern deliveries in some areas. Leaking water pipes need repair. Four hundred schools are running double shifts -- local kids in the morning, Syrians in the afternoon. More schools need to be built. Hospitals are overwhelmed. Transportation systems are overrun. Digging landfills and laying pipes is labor intensive, as is building schools and hospitals -- which is good. The work can employ both locals and Syrians.
Maybe it should now be called the EMEBRD--the European and Middle Eastern Bank for Reconstruction and Development.

South Korea, Where Speculators Short EU Stocks, HK$

♠ Posted by Emmanuel in , at 2/05/2016 12:26:00 PM
Beware the Seoul speculator whose derivatives trading causes disorder elsewhere in the world.
There's an interesting illustration of financial globalization in how derivatives trading in South Korea (of all places) is apparently helping drive down not only European stock indices but even the Hong Kong dollar. Despite being removed from where the action is--Seoul is not usually regarded as a front-line financial center--the consequences of Korean derivatives trading has magnified movements in offshore markets. The knock-on effects are evident when markets are especially turbulent--as they have been as of late:
Korea hosts the largest and most liquid market in the world for options on single stocks — bigger than the US, even, according to bankers — and retail interest in derivatives does not stop there. In what looks like the latest example of a “butterfly effect” in global markets, last year Korean investors bought record amounts of so-called “autocallables” — a structured product offering an attractive yield. About $40bn are outstanding. 
The distinguishing feature of these structured products is that they tend to magnify volatility when the indices or underlying securities they are based on fall below a level known as the "knock-in" level which makes the derivatives (and therefore mark-to-market losses) active. When this happens, investors write put options--to sell at a certain price in expectation they may decrease--to hedge against future losses. All this activity introduces additional volatility:
Since these autocallables are two- or three-year deals, and most were sold last year, the final reckoning over who has lost what is some way off. The area of interest for now is their effect on other markets. The products in essence sell volatility. They work by offering investors a “worst of” basket of two or three reference securities — typically indices.

The sales pitch is that investors get a yield on top of their capital if the reference securities stay within a specified range. If they rally above it, investors are “knocked out” and get their money back with a bonus. If it falls below a specified point — usually between 40 and 50 per cent of the level, when the product was sold — they are “knocked in” and lose some capital.
Holders can be made whole if the index recovers all lost ground before the autocallable ends — hence it being difficult to gauge losses at this point. However, the nearer an index falls to that strike price, the more product sellers have to hedge, which they do via selling futures. This is what is weighing on the HSCEI, which was a popular inclusion in the first half of last year because of China’s soaring markets. But it is now down 46 per cent from its May 2015 peak — putting it right in the zone where issuer hedging will be at its highest.
To illustrate, consider the Hong Kong dollar. As speculative rumors swirled on breaking its 32-year-old peg to the US dollar, Koreans were forced to follow suit lest this become another source of losses:
Hong Kong indices are even more popular in Korean products because of the 32-year unchanged link between the Hong Kong dollar and its US counterpart. So imagine the fear among Korean sellers of autocallables last month on seeing the Hong Kong currency suddenly spike higher after Chinese authorities quashed speculative shorts in the offshore renminbi market. The result was additional weakening pressure on the Hong Kong dollar as Korean groups rushed to hedge.  
Who'd have thought the Koreans were introducing more volatility into global finance?

Why Cheap Oil Hurts Its Net Importer, the Philippines

♠ Posted by Emmanuel in ,, at 2/01/2016 05:39:00 PM

There's an interesting story in Bloomberg about how a largely oil-importing nation, the Philippines, can be negatively affected overall by lower oil prices. Sure, the country benefits from lower oil prices to an extent. However, in the larger scheme of things, matters appear less rosy. As a large labor exporter, the Philippines has, since the first oil shock, sent large numbers of migrant workers to the Middle East. With the country dependent on workers' remittances from abroad to improve its external position--the Philippines runs a sizable trade deficit annually but nevertheless manages a current account surplus due to the aforementioned remittances--current trends are worrying:
The share of remittances coming from the Middle East could be as high as 40 percent, compared with 23 percent in the official [Philippine] data, according to a Jan. 27 research note by Michael Wan, a Credit Suisse Group AG analyst in Singapore. Remittance growth slowed to 3.6 percent in dollar terms last year through November, from 5.8 percent in 2014, central bank data show. Volumes have held up reasonably well so far, said Wan.

That could change as the impact of a 29 percent drop in Brent crude over the past six months forces Saudi Arabia to cut generous subsidies to its citizens, while the United Arab Emirates’ Etihad Rail suspended a major rail project this week after firing almost a third of its workforce. Brent recovered to around $35 on Monday after falling to a 12-year low of $27.10 a barrel on Jan. 20.

“Before, when the trouble would be concentrated in one of the countries in the Middle East and North Africa, the workers could just simply move to a neighboring country and find employment,” central bank Governor Amando Tetangco said Jan. 25. “Now the trouble is more widespread.”
Aside from affecting land-based workers in the Middle East, another possible avenue for low oil prices negatively impacting the Philippines is via reduced crew aboard oil services-related ships.  Somewhere between a fifth to a fourth of all seafarers worldwide are Filipino, so it follows:
As well as declining oil prices, a more general slowdown in global trade is affecting the job prospects of Filipino seamen. Many drillers and oil-service companies have suspended operations and shipping companies are also hurting, said Nelson Ramirez, the president of United Filipino Seafarers. “I have talked to one of the biggest crew suppliers of offshore vessels,” he said in Manila. “They have many laid-up ships. There will be more job losses.”