MONDAY, JULY 25, 2016 BUSINESS growth sucks more debt bucks for less bang Efficiency of China GDP growth continues decline

BEIJING: As China’s economy notches up anoth- er quarter of steady growth, the pace of credit creation grows ever more frantic for every extra unit of production, as inefficient state firms swallow an increasing share of lending. The world’s second-largest economy grew 6.7 per- cent in the first half of the year, unchanged from the first quarter, testament to policymakers’ determination to regulate the pace of slow- down after 25 years of breakneck expansion. Analysts say that determination has come at the cost of a damngerous rise in debt, which is six CHENGDU: Britain’s Finance Minister Philip Hammond (centre L) speaks with dele- times less effective at generating growth than a gates after taking part in a “family photo” with other ministers and central bank few years ago. chiefs at the G20 finance ministers meeting. — AFP “The amount of debt that China has taken in the last 5-7 years is unprecedented,” said Morgan Stanley’s head of emerging markets, Ruchir Corporate raiders seek Sharma, at a book launch in Singapore. “No developing country in history has taken on as much debt as China has taken on on a marginal Brexit bargains in UK basis.” While Beijing can take comfort that loose money and more deficit spending are averting a LONDON: Overseas buyers lured by a deals that were aborted in recent years more painful slowdown, the rapidly diminishing plunge in the pound are looking to snare because of price disagreements. After the returns from such stimulus policies, coupled British companies on the cheap, ensuring a vote British companies have become 10-15 with rising defaults and non-performing loans, steady flow of deals since Britain voted to percent cheaper for overseas buyers due to are creating what Sharma calls “fertile (ground) leave the European Union and defying the devaluation of the pound which was CHENGDU: Hostesses pose for photos during a break from the G20 Finance Ministers and for some accident to happen”. Central Bank Governors meeting. — AP expectations of an M&A drought. Almost trading at $1.31 on July 22 against $1.50 From 2003 to 2008, when annual growth 60 transactions totaling $34.5 billion have the day before the referendum. “When you averaged more than 11 percent, it took just one dem with new lending, and at 149 trillion Yuan is cient heavy industry, that aspiration clashes with been struck by foreign companies for have a material currency discontinuity it Yuan of extra credit to generate one Yuan of GDP now 73 percent higher than in the United States, its more immediate ambition to hit its growth British firms since June 23, according to makes sense to dust off previous M&A growth, according to Morgan Stanley calcula- an economy about 60 percent larger. “China is targets. Thomson Reuters data, compared with 79 analyses and crunch the numbers again,” tions. It took two for one from 2009-2010, when the largest money printer in the world - they For now it seems the latter goal is over-riding deals amounting to $4.3 billion in the said Paulo Pereira, a partner at boutique Beijing embarked on a massive stimulus pro- have been for some time. The balance is really the former. Policymakers say that while corpo- month leading up to the vote. advisory firm Perella Weinberg. gram to ward off the effects of the global finan- extreme,” says Kevin Smith, CEO of US-based rate debt is high, the central government has This activity - dominated by Japanese cial crisis. The ratio had doubled again to four for Crescat Capital. The reason China gets such poor room to increase its debt ratios and raise its fis- group SoftBank’s$32 billion swoop for chip ‘Political football’ one in 2015, and this year it has taken six Yuan returns from this pump-priming is that state cal deficit to between 4 and 5 percent to boost designer ARM Holdings has defied warn- Surveys conducted in the run-up to the for every Yuan of growth, Morgan Stanley said, firms are the main beneficiaries of extra credit, at the economy. And analysts expect more mone- ings that dealmaking could dry up for a referendum had warned a Brexit vote twice even the level in the United States during the expense of the more efficient private sector. tary easing in the form of interest rate cuts, period if Britain backed Brexit, given uncer- would threaten M&A activity. A study the debt-fuelled housing bubble that triggered Some of the slowdown in private sector which will encourage more borrowing and more tainty surrounding risks to the economy released on June 16 by Merrill Corporation, the global crisis. Total bond debt in China is up growth is weak confidence in the business out- bad debts. “We believe that China’s short-ter- and access to the EU single market. The list a provider of technology and services in over 50 percent in the past 18 months to 57 tril- look, but a lack of access to affordable financing mism will only add to its long-standing prob- of British takeovers could grow after the the M&A industry, and market intelligence lion Yuan ($8.5 trillion), equal to around 80 per- is also a factor, the government and economists lems of excess capacity and non-performing summer, according to bankers who say firm The M&A Advisor found a Brexit vote cent of GDP, and new total social financing, the say, as banks prefer the security of state-owned loans,” Fathom Consulting analyst Laura Eaton they are working on possible bids on would have a “negative and tangible” near- widest measure of credit provided by China’s borrowers. Private firms had to pay 6 percentage wrote in a note following the release of first-half behalf of foreign companies interested in term impact on UK dealmaking, with British central bank, rose 10.9 percent in the first half of points more in interest for bank loans in the sec- GDP data. Smith at Crescat Capital thinks it will UK targets. companies becoming less attractive to 2016 to 9.75 trillion Yuan. ond quarter versus the public sector, analysts at lead to a twin currency and banking crisis, with a The SoftBank deal was hailed by the overseas buyers. investment bank CICC estimate. Though Beijing 20 percent crash in the Yuan versus the dollar. government as a sign of UK economic A survey of 1,500 global dealmakers “Short-termism” officially wants to rebalance the economy to the “It’s a question of when, and it looks like it’s com- resilience, prompting new Prime Minister published the same day by technology China’s money supply has increased in tan- private sector and cut surplus capacity in ineffi- ing pretty close,” he said. — Reuters Theresa May to declare the country “open provider Intralinks suggested a decision to for business”. But M&A bankers said some leave the EU would lead to dealmaking of the post-vote takeovers had more to do “chaos”, driving down M&A levels in Britain with the relatively low valuations of British as well as the rest of Europe. But the M&A Bottom line: Brands companies given current exchange rates, drought has yet to materialize. The sectors rather than being driven by confidence in with the highest concentration of foreign- chase China’s rich the British economy. Sterling has taken the takeovers in the past four weeks were tech- brunt of market concern since the Brexit nology, consumer, industrials and media, market vote on June 23, falling to a 31-year low in with an overall 37 sales valued at $33 bil- the aftermath of the vote. lion. Industry sources said some had roots “Clearly this is a buying opportunity,” in discussions that began well ahead of the HONG KONG: High-end lingerie sales are outpacing said Ben Ward, head of UK corporate at law June referendum. China’s generally downbeat luxury market, and heating up firm Herbert Smith Freehills. “People with “If we have learned one thing from the competition between international brands and local rivals strong currencies - dollar, renminbi, yen - global financial crisis it’s that standing still looking to go upmarket. US brand Victoria’s Secret will will no doubt be interested in acquiring means moving backwards,” said Steve open its first store, and companies including Italy’s ultra- sound sterling-denominated assets.” There Krouskos, EY Global Vice Chair, Transaction luxury La Perla and Germany’s Triumph are adding stores have been dozens of other deals since the Advisory Services, adding that companies and moving beyond China’s mega-cities to tap a lingerie market that has more than doubled in five years to $18 bil- referendum. South African retailer need to carry on doing deals to boost their lion, according to Mintel Group. Chinese consumer tastes Steinhoff agreed to pay nearly 600 million organic growth, build a global presence are maturing, women are more confident about buying for pounds for British-based discount chain and stay ahead of the technology curve. themselves and President Xi Jinping’s drive against con- Poundland on July 13, for example. It came JPMorgan’s Cristerna stressed that “boards spicuous consumption is likely diverting spending from a day after AMC Entertainment Holdings - still have strategic needs and ambitions flashy branded bags and accessories to sports and ath- an American company majority-owned by and need to remain open to external leisure wear and the more discreet lingerie. a Chinese conglomerate - said it would buy sources of growth”. VILAMOURA, Portugal: French tourist couple, Gilles Barboux (R), 53, and his wife Christine (L) play golf at Vila Sol Resort. — AFP “Luxury is ... not about buying to show off, it’s about London-based Odeon & UCI Cinemas Pricing aside, however, dealmaking will buying items that make you feel good,” says Chiara Scaglia, Group to create the world’s largest cinema still be tough for overseas buyers who La Perla’s Asia chief. China’s women’s underwear market is operator, in a deal valued at about 921 mil- must evaluate the uncertainty surround- Priced out by tourists: Rentals expected to have a retail value of $25 billion by next year - lion pounds. On Thursday, China’s Fosun ing Britain’s future relationship with the effect Lisbon’s historic centre double that of the United States - and will grow to $33 bil- International snapped up English football EU, and the prospects of a messy divorce lion by 2020, according to Euromonitor. Chinese firms such club Wolverhampton Wanderers. that may take several years to conclude. LISBON: Alfama, one of the oldest and global destinations, those renting space as Beijing Aimer, Maniform and Ordifen are also chasing Additionally, any sizable takeover could that money, targeting higher-end customers and raising most picturesque areas of Lisbon, is via the company are not just “hosts” Defense from raids face tighter government scrutiny, after their quality. “That means foreign brands will have to out- becoming a victim of its own charm. offering a spare room to “guests”: over a Some M&A bankers in London say they May pledged to oppose foreign compa- compete local brands not just on quality, but also innova- are working closely with British companies nies trying to buy British champions Short-term lets to tourists are driving quarter of owners place more than one tion,” said Matthew Crabbe, director at Mintel. who feel vulnerable to hostile bids from deemed “strategically important”, citing up rents and driving out old residents. advertisement on the site, and 73 per- For now, the market is highly fragmented, with none of cash-rich foreign buyers, in sectors includ- the sale of chocolatier Cadbury in 2010 “They want to throw me out to rent my cent have whole apartments available. the leading firms having more than around a 3 percent ing aerospace, housebuilding and retail. and Pfizer’s attempted takeover of home to tourists,” complained retired share. International brands see China as a priority to help Others say they are trying to win advisory AstraZeneca in 2014. salesman Antonio Melo, 70. His house Population flight bolster overall sales given a fairly bleak global outlook. La mandates at firms viewed as potential But SoftBank’s friendly takeover of ARM, has changed owners four times over Cities like Berlin and San Fransisco Perla, which sells priced around 2,000 Yuan ($300), has takeover targets. which won the blessing of the government the last year and his new landlord has have taken steps to prevent landlords eight stores in China and plans additional outlets in “We’re helping our UK clients think in less than 24 hours, established a useful just told him his lease will not be abandoning residential leases in favor of Chengdu and Chongqing within the year. It also aims to through the right fundamental value of blueprint for dealmaking following the Brexit renewed. “Soon there will only be short holiday lets, and have kept rents in open a men’s store in Beijing. “The perception of the lin- their business in the current environment vote, banking sources said. The Japanese tourists in Alfama,” he said. Melo has check as a result. Conversely, Portugal, gerie sector has changed,” Scaglia told Reuters. “At the and shoring them up to prevent unwanted company made legally-binding commit- lived in the district since he was five hit hard by a financial crisis in 2011, beginning many people we spoke to were confused as to opportunistic situations where an interna- ments to double ARM’s UK headcount in the years old but now fears he will have no levies less tax on income derived on rent why anybody should spend over $1,000 on for tional rival tries to buy them on the cheap,” next five years and preserve its Cambridge choice but to leave because his 600- from tourists than it does on that from something nobody sees.” said Hernan Cristerna, co-head of global headquarters. “There is so much ‘political euro pension won’t cover the rent of longer term tenants. The idea was to M&A at JPMorgan. US and Asian conglom- football’ going on that if you want to pull off any property there. attract foreign investment and boost the Expanding footprint erates are also stepping up efforts to a significant transaction in a sensitive sector Local mayor Miguel Coelho echoed real estate sector, and the policy has Victoria’s Secret will open a 20,000 square foot (1,860 secure bargain deals unseen in decades, it is wise to start planning some concessions the concerns of many in Alfama. “Real contributed to the renovation of many square meter) flagship store in Shanghai this year, taking sources said. beforehand to ease government approval,” estate speculation in Lisbon’s historic dilapidated buildings. But it risks acceler- over a prime downtown location that used to house a Louis Vuitton store. “I think it will announce our arrival in Some have hired banks to resurrect said Perella’s Pereira. — Reuters centre, which is particularly evident in ating Lisbon’s population flight: half a China in a very significant way, and should be the begin- Alfama, is causing a lot of stress,” he said. million people now live in the city, ning of an enormous business for us,” said Martin Waters, L “House prices and rents are exorbitant against 800,000 in the early 1980s. Brands International President. Triumph, which already has Beijing slaps EU, Japan, and people are having to think about “It’s good to renovate, but the prob- 1,000 China stores, plans to open in five new cities this year other options,” he added. The mayors of lem is all the work is aimed at tourists. and up to 11 cities next year. Korea with steel duties three of Lisbon’s central districts have People who live here would like their Cosmo Lady, a Chinese firm that has focused on the called on the government to intervene children to stay in the district, but that mass market, selling bras from 50 Yuan ($7.50), last year BEIJING: China said yesterday it has started our disposal”. He also said there was a urgently. They attributed spiraling prices has become impossible,” said Maria de bought Ordifen to increase its presence in the luxury mar- imposing anti-dumping tariffs on certain “clear link” between the steel issue and the to an “excessive proliferation” of short- Lurdes Pinheiro, who heads the Alfama ket. “We would like to gradually step into the high-end steel imports from the European Union, EU’s decision on whether to grant China term rentals. Heritage and Population Association. market,” said Peter Lam, Cosmo Lady’s assistant chief finan- Japan and South Korea, as Beijing itself “market economy status”-a prize eagerly Long-term rental housing stock in cial officer. Gao Qiannan, a 22-year-old Shandong student comes under fire for similar trade practices. sought by Beijing. ‘Threatened identity’ Portugal has shrunk by a third over the who says she spends upwards of 1,500 Yuan a year on lin- Duties on the materials, used in power China has been pressing the EU to grant Coelho said that while tourism was past five years. In Lisbon, rents rose by gerie, doesn’t think there’s a big difference between transformers and electric motors, will range it the status-which would make it harder a boon to the local economy, “when it an average of 7.6 percent between 2014 Chinese and foreign brands. “If I can buy a domestic brand, from around 37 to as high as 46.3 percent, for the bloc to levy anti-dumping tariffs- becomes excessive it’s a real threat to and 2015. I will, but if I particularly like the international brand’s style, the commerce ministry said on its website. before the year’s end, citing World Trade the district’s identity”. This is especially Airbnb hosts in the city earned 43 I’ll get that,” she said. The measures are intended to prevent Organization rules. China’s announcement so in Alfama, a pretty maze of narrow million Euros in rent from tourists last The international brands say they don’t offer products the sale of the product at below cost, a is the latest in a tit-for-tat fight with other streets leading up from the Tagus estu- year, according to the company, which specifically for the Chinese market, though La Perla notes practice known as dumping, it added. The countries over the special metal known as ary that is one of Lisbon’s biggest tourist added that the visitors spent a further that some colors - red and baby pink - sell far better in Asia world’s second largest economy, which oriented electrical steel. attractions. 225 million Euros during their stay. than in Europe or the United States. The Italian brand has also used Chinese supermodel Liu Wen in its campaigns. makes more than half the world’s steel, In May last year the EU imposed similar “Every day we see estate agents “There’s more money going around but Japanese and South Korean brands are also growing in finds itself under attack by EU countries for duties on imports of Chinese oriented elec- going door to door to find people willing the local community is disappearing,” allegedly flooding world markets with steel tric steel as well as products from other popularity in China. Yin Huijuan, 23, who spends 800 Yuan to leave,” said Ana Gago, a 28-year-old said retired psychologist Leonor Duarte, ($120) on lingerie every three months, said she prefers and aluminium in violation of international countries, in a move which Bloomberg geography student who is conducting a 63, who has lived in Alfama for five years. trade agreements. News said was intended to curb competi- Japanese brands such as and Narue. “I feel foreign survey of people moving out of the dis- Duarte has joined forces with other On Friday Premier Li Keqiang told a tion for EU producers. The decision prompt- brands’ style is more detailed and diversified, these are group of visiting leaders from the World ed China to launch an investigation into trict because of the rising costs. Lisbon citizens to urge authorities to areas where domestic brands fall short,” she said. Bank, International Monetary Fund and imports from the European manufacturers. Airbnb, the world’s leader in short- “halt the bleeding-dry of the historic other organizations that China “will not China has imposed such duties before. In term private rentals, says bookings in centre”. She is also among many people Consumer caution engage in a trade war or currency war”. 2012 the World Trade Organization ruled Lisbon using its service doubled in 2015, from Alfama who complained about the Even in the lingerie market, though, there are bumps. Nevertheless, the EU sees itself under that Chinese duties on high-tech steel to 433,000 visitors. The traditional hotel noise tourists make late into the night Cosmo Lady, which has 8,600 outlets including Ordifen’s attack. Earlier this month in Beijing, EU from the US violated trade rules. In 2015 sector saw bookings by foreign tourists and the space they take up in the 550 China stores, saw robust growth in its mass market Commission head Jean-Claude Juncker the organization censured Beijing for con- rise by a more modest 7.5 percent. In ancient trams that snake through the sales last year, but has warned about its profits for the first pledged to defend the group’s steel indus- tinuing the practice despite the judgment Lisbon, which is among Airbnb’s top 10 district’s narrow streets. — AFP half of this year, citing China’s slowing economic growth, try against China using “all the means at against it. — AFP consumer caution and competing online sales. —Reuters