Monthly Archives: October 2012

A wave of anti-Japanese protests in China erupted following the Japanese government’s purchase of islands in the East China Sea. The islands were previously owned by a Japanese family but it is the nationalisation of the islands that is troubling the Chinese government.

One of the disputed islands

The violent protests resulted in many Japanese businesses temporarily shutting down and an overall drop in the demand of Japanese goods. Honda, Toyota and Nissan sales dropped. China is Honda’s second largest market and they reported a 40.5% drop in sales in September. Honda’s shares also dropped down to 9 month lows. Following all of this, Honda reduced their yearly forecasted profit by one fifth.

This story in the news is a clear example of how politics directly affects businesses. Honda’s sales are directly being affected by the territorial dispute. It’s interesting to see how people’s taste in product can change so quickly due to external factors. Honda had to revise their forecasted profit taking into consideration the unexpected change in demand. This is why forecasting demand is so hard; it’s impossible to know what sort of situation or problem is going to occur in the future that will directly impact a company.

Articles:

http://sg.finance.yahoo.com/news/honda-slashes-net-profit-forecast-031712823.html

http://edition.cnn.com/2012/09/24/world/asia/china-japan-dispute-explainer/index.html

Could the Chinese Yuan replace the US Dollar as the reserve currency?

Since the financial crisis back in 2008, many emerging economies in east Asia have been using the Yuan as the main reference currency. Countries such as Malaysia, Singapore and Indonesia have been reported to track the Chinese currency more closely than the American dollar.

Yuan vs Dollar

Why?

One of China’s many economic goals is to internationalise it’s currency; promoting international trade in Renminbi. It is said that currently, as both the US dollar and the Euro are under pressure, Investors are looking for a new reserve currency.

But, what would happen?

This article by Deutsche Bank Research,

http://www.dbresearch.com/PROD/DBR_INTERNET_EN-PROD/PROD0000000000260162/Yuan+as+a+reserve+currency%3A+Likely+prospects+%26+possible+implications.PDF

gives a great insight into the advatanges and disadvantages of having a currency as the ‘reserve currency’.

However, there is one section that catches the eye. In short it says that China’s fall in dependence on the USA as an export market and the USA’s constraints in terms of financing its foreign debt will allow China to influence US economic and financial flexibility. This is likely to affect the USA’s political position in the world.

Will the USA allow this? What actions will they take to prevent/stop this from happening? International Relations and Global Politics will greatly be affected by this change in power and currently, it seems that with the US dollar and Euro in dismal situations, we may see this change in the next 5-10 years.

Cartoon depicting China helping the USA’s current financial problems.

Articles:

http://www.reuters.com/article/2012/03/18/us-china-currency-imf-idUSBRE82H02L20120318

http://europe.chinadaily.com.cn/business/2012-10/24/content_15840921.htm

Samsung has announced a mini version of it’s highly popular smartphone the Galaxy S3. In comparison to the normal Galaxy S3, the Mini version will have a 0.8inch smaller screen. This will give it the same screen size as Apple’s new iPhone 5. Technically, the Galaxy S3 mini will have various differences to the normal Galaxy S3, such as a reduction processing power and camera quality.

Galaxy S3 mini (left) and it’s big brother the Galaxy S3 (right)

Apple and Samsung are currently battling head to head in the smartphone market. It’s interesting to see that the Apple opted for a larger screen on it’s latest iPhone, much like Samsung’s larger screened smart phones. Now we also see that Samsung are going to implement a smaller screen, the same size as the iPhone.

In comparison to Apple, Samsung has a broad range of smart phones. In the ‘smaller screen’ smartphone market, the iPhone is arguably at the top of the ladder. However, when it comes to larger screen phones, Samsung is at the top. Following the announcement of the Galaxy S3 mini, should Apple consider making larger variants of it’s iPhone to compete with Samsung. The question now becomes, at what size does a ‘device with a screen’ become a tablet?

Samsung’s Galaxy S3 vs Apple’s iPhone

Articles:

http://www.bbc.co.uk/news/technology-19913940

http://in.reuters.com/article/2012/10/11/cellphones-poll-q3-samsung-apple-idINDEE89A09120121011

China’s GDP grew at a 3-year low of 7.6% in the second quarter of this year. Will the engine of the global economy continue to drive forward?

The Euro-zone crisis and a slow US economy has lead to a slump in Chinese exports. Domestic growth, especially investments have slowed down too. Nissan and Toyota have reduced their output in China due to a reduction in demand.

http://www.bbc.co.uk/news/business-19725269

A slowdown in China means that much of neighbouring South East asia will be affected. Even Brazil will feel the affects as the slowdown in Chinese demand for commodities will reduce Brazil’s exports dramatically.

http://www.bbc.co.uk/news/19709213

Is the chinese economy affecting the global economy? Or are global factors such as the Eurozone crisis affecting the Chinese economy? The world’s economies are too interdependent to run on their own – China has really established itself in a wide range of markets and as a key trading player, whatever happens to the Chinese economy can be felt throughout the world. If unfortunately the chinese economy was to cripple, who would drive the global economy? Amongst the current downturn, there are some exceptions in South East Asia such as the Philippines, Indonesia and Thailand have seen a boom in investment spending. Are these South East Asian markets the next global powerhouses?

Articles:

http://www.reuters.com/article/2012/10/08/us-worldbank-asia-outlook-idUSBRE89701420121008

http://www.bbc.co.uk/news/business-18815595

Vale, the largest iron-ore producer in the world, has faced a lot of trouble trying to get their iron ore to China. Currently, China is the largest iron ore importer due to its huge demand for steel.

How does a company in Brazil transport iron ore all the way to China and still hold competitive prices against other iron ore companies closer by? The answer — economies of scale. Vale, with the help of ship builders in Asia, has been able to acquire the largest capacity dry-bulk carriers on the planet. One of these ships is able to transport 400,000 tonnes of iron ore. Using these vessels from Brazil to China reduces transport costs by approximately 20-25%.

Largest ore carriers in the world

http://www.reuters.com/article/2012/05/21/vale-china-idUSL4E8GL38F20120521

However, following sending only one ship into the Chinese port of Dalian, Chinese authorities refused to allow these massive ore carriers to dock in any of its ports. The authorities enforced a limit on the size of the ships allowed to enter its ports. So now what? What does Vale do with 35 massive ships?

http://www.forbes.com/sites/greatspeculations/2012/09/04/vales-valemax-service-remains-grounded-in-china/

Vale now sends its 400,000 tonne ships to the Philippines and Malaysia. There, the ships are emptied into smaller vessels which then go onto the chinese ports.

Iron ore is transferred from the Valemax to a smaller ship

Is it better to have a transhipment hub to then send smaller ships to various locations around China? Or is it better to send the 400,000 tonne ships directly? With growth expected in other Asian countries in the near future and with a slowing down in China perhaps the transhipment hub will benefit Vale into tapping into other countries iron ore demands.