Eldon-Online

Year Of The Tiger

Followers of the Chinese zodiac will know that this is the year of the Metal (Gold) Tiger. It started on 14 February and will run through to 2 February 2011. And the beginning of the year is when all the predictions start to emerge - and is also a time when I find people either believe in horoscopes/predictions (if they are favourable), or dismiss them as a load of superstitious old rubbish if they are not!

This year, I believe them!! It seems to be a pretty good year for Roosters, for a change. Last year was supposed to be rough for us chickens, but whatever happened in the markets around the world, you really have to judge life from an overall perspective; are you healthy, do you have food and clothing, can you be happy - and can you do your bit to alleviate the suffering of the millions upon millions of people less well off than you are. It was only yesterday that someone sent me some depressing statistics; 80% of the world live in poverty, 70% of the world is illiterate and 50% are hungry. Whether or not the numbers are meticulously accurate is not important - they would still be too high even if they were halved. If you are reading this blog on your own computer, for example, you are in the 1% of the global population that owns a computer. The Download Global Village has a long way to go before it is developed!

So, if you do nothing else in the Year of the Tiger, at least do your bit for others! Then it will make two sides smile - those you help and you yourself!

Now, before we get into total depression mode, what about Britain's first solo Gold Medal at a Winter Olympics in 30 years? Amy Williams was born in the year of the Dog. It's a good year for dogs - apparently - and so it has proven to be in her case. Rabbits too, are due a good year so who knows, perhaps that well known Scottish Rabbit Andy Murray can bring it home at last!

As for Tiger (who in Chinese Zodiac terms is actually also a Rabbit) - Woods, what a shame about his staged "confession". Great golfer, great athlete, [and no comment from me on his private morals which he has to live with] but not much showing "from the heart" as far as I could see. He seems to fall squarely into the quote from Lord Byron when we wrote "Man's love is, of man's life, a thing apart; ''Tis a woman's whole existence". Anyway, as noted above, the Rabbit is supposed to have a good year in 2010 although not in the months of February or particularly September. Being part Asian maybe he should take Chinese horoscopes and Feng Shui seriously.

But to the more normal commentary, and China this time following on from my recent notes on Korea and Dubai.

Watchers of the Chinese banking scene have all commented on the recent changes in the position of the authorities with regard to bank lending. From the open encouragement of last year, where the main beneficiaries seem to have been people living in the rural areas, to the more recent exhortations to pull back the lending, and the increases required in bank reserve requirements in an attempt to at least temper the expectations of the marketplace without closing the door altogether.

But I am more curious about the effectiveness of some of the underlying rules being implemented in terms of bank lending in China that could well be a model for elsewhere. For example the imposition of, and differentiation between Loan to Value ratios for first homes (20%) and others (40%) - supported by what appears to be a pretty good credit reference bureau to avoid borrowers (and family members) visiting different banks in an attempt to circumvent the system. Lending requirements that call for absolute verification of income; none of this "tell me what you earn and I'll believe you" type of situation. Discouragement of changing banks and taking your mortgage elsewhere for a better deal. Make your bed and lie in it, seems to be the call which, of itself, will discourage banks from undercutting prices and becoming more competitive - so there are downsides. And one particularly interesting rule which prohibits securitisation of low quality assets!!

So the banks in China in 2010 are expecting a tougher year ahead - and they are certainly talking to me about it already, with particular regard to what they are going to do to attract new (and profitable) business during the year. Welcome to the real world - and expect to see a few more of them looking, very selectively, at overseas expansion opportunities. Links with suitable institutions will be important in those markets where they don't really have the expertise - and in particular those countries where the Chinese business communities are becoming more active. The Middle East, Africa and Latin America.

And just on the subject of the Middle East and China, I was talking to a friend the other day for whose wisdom on those subjects I have a lot of time - a rare Western gentleman who speaks both Chinese and Arabic - who is as convinced as I am that the linkages between these two regions is quite definitely being re-kindled. Low key for now, but watch this space.

I was going to write more about other events in China; the currency (stop pushing them to revalue or the heels will get dug in harder), and succession in the financial services industry, but in the interests of keeping the blogs at a readable length, this will have to be another time.

Have a good year.

Korea - The Other Side of Success

The Korean economy has made a spectacular return to the "real" world - quickly out of recession (if it was ever in), and through a combination of good measures, the usual Korean impressive single-mindedness, and a little bit of luck, it has been arguably the best performing Asian economy in the last twelve months. It has been a performance worthy of applause.

Much of the direction for that success has come from the top. From a President for whom I have the greatest respect. He is progressive, and I believe fully understands what needs to be done for the future benefit of his country. I have sat in meetings where the future structure of a new Korean society - both business and social - has been debated and measures put forward that would, if and when approved, start to change some of the old "rules". Measures designed to open up the economy, which it is acknowledged will take time, but matters that deal with some of the more negative aspects of Korean business practice - and punishment.

But the sands of time are running out. 

 

So, what is bothering me? It is simply this.

A successful economy needs to be built for the long term. So although like the picture of the man with his head in the sand you might get some short term success or relief by being single minded, there is a danger you do so to the exclusion of other things that are going on around you. By not recognising there is another, dynamic, world out there. A world that would like to invest - as long as it is comfortable that their investments will be welcomed. A world keen to participate in a developed OECD economy, for example. But a world that also has alternatives. A world that, by and large, is interested in the long term.

The other side of success, therefore, is less encouraging. It is littered with examples of difficulties faced by truly international foreign companies operating in Korea. Companies used to dealing in a universal world. Regular contributors to the fabric of global society, and businesses that are happy to see Korean companies operate freely in their world, and only seek in return some reciprocity in the Korean economy. An opening up that would, in many cases create an environment of improved skills for many, (as long as we don't teach them "Wall Street Finance"), more opportunities in the work place, and greater revenues to the economy. 

And on the subject of Korean companies operating freely in the global world, just look at what they have achieved, according to a recent article in the Financial Times:

- Samsung Electronics is the world's largest technology company.

- Seoul has recently won a contract to supply nuclear reactors to Abu Dhabi.

- A Korean company has recently secured a USD6bn renewable energy project in Canada.

This is excellent for Korea, and a great tribute to the companies involved, but what would the reaction be in Seoul if some of those countries turned round and demanded reciprocity, or a level playing field in matters of arbitration, anti-protectionism or legal judgements. 

So, again, what is bothering me? The inability to deliver the message that the longer term effects of the short term successes are not yet understood. Japan is more open today than it used to be, and it is a much larger economy than that of Korea. China marches inexorably onwards, opening up as it goes, albeit little by little in some cases, but tangibly. Korea sits in the middle of these two economic superpowers. Imagine the picture above showing a stationary army tank behind the rear (Japan) and a fast moving tank coming in from the front (China). No prizes for guessing what happens to the man in the sand, and he won't even see it happening.

In my Advisory role, I continue to provide feedback about those actions taken in Korea that continue to reinforce the view internationally that Korea has a strong belief that it can do all its growing without any outside "interference". Major companies from Europe, the Middle East and the USA have, to my certain knowledge, invested much time and effort in the market only to eventually fall into a cycle of protectionism, ambiguous legislation and incomprehensible judgements, making their experiences an altogether unpleasant one. And one where their stories eventually find their way in to the international market place, thereby putting off more potential investors.

I have never set out to be anything other than honest in my assessments and my feedback to the President and the Government. I was asked to advise on the basis that I would do so even if it was not pleasant. I am neutral, but perhaps too frank, some might say. But I see no benefit in merely saying there is a strong wind ahead when it's actually a typhoon.

This year, Korea holds the mantle of the G20 Chairmanship. As the Financial Times article also pointed out, it is a matter of intense national pride for Korea, but it will be a year when Korea will come under intense scrutiny from the rest of the world and particularly from potential investors who may be having one last look at the country before they decide whether it is worth trying to invest - or whether they walk away for ever.

My hope is that tangible changes will be made to improve the climate - heaven knows we have enough climate change going on as it is - and that real progress can be made, and demonstrated, during President Lee's third year (out of a maximum of five) in office, to yet make Korea an international success.

Dubai - Devil in the Detail

It has been some time since I put finger(s) to keyboard, and apologies for the absence. The month of January seems to have been spent juggling my work commitments so I can make more sense of them, thinking about hiring some poor unsuspecting victim to do research for me so that I can become more effective, and making visits to UK (right in the middle of the snow), Dubai, Tokyo and three cities in China. I love retirement!

At the end of December I said I would comment on Dubai and Korea in my next blogs - well, better late than never I guess so here is the first one.

I was in Dubai a couple of weeks ago. It was after the opening of Burj Khalifa. The place was quiet. The walk in through Arrivals to the Arrival Hall was as empty as I have seen it as, despite the early hour, previously there were usually more people around. Not this time. Outside, the roads were running more freely than I have known them for a while, making journeys from one part of town to the other a pleasure again. Meaning you can make appointments and stand a fair chance of getting there on time, without getting "cut up" on the inside by a boy racer wanting to prove.. I don't know, something! There is a degree of gravity about the place, suggesting that the enormity of the situation in which they have found themselves has touched many lives. 

And while some outsiders continue to revel in the delights of schadenfreude, all that I have seen is not necessarily bad. I wonder sometimes, for example, what would be the fate of Dubai had the development continued unabated in an environment where the earnings that were destined to pay for it all had continued to be depressed. Would there have been enough money in Abu Dhabi in that case to provide assistance? So the brakes have been applied, and a new focus is being brought to bear on the situation.

Oil, of course, was never going to be the salvation of Dubai. Revenue from that source had been written out of budgets with effect from 2010, but income to replace those revenues was being generated from tourism, from logistics and, latterly - from the contribution made by such areas as the Financial Centre. (My interest in such being duly noted). Revenue was going to come from the investments that had been made by various companies related to, but not guaranteed by, the Government of Dubai. And you can understand that many banks and financiers were under the assumption, only implicit, that their lending was somehow "guaranteed". Now they know the truth of that mistake. But, to the case in point, many of the investments made in the face of a deepening financial crisis were not, in the short term anyway, going to be paying the sort of returns on which those earlier investments had been predicated. So it was to be expected that cash flows would be tightened, and difficulties experienced in repaying debt.

Fast forward, then, to the events of last November when announcements were made to the effect that Dubai World was seeking a moratorium on its debt repayment until May 2010. Period. In my Blog of 28 November "Dubai - A View"  as I noted, I thought the timing of the announcement was not appropriate for an investment community that were major lenders to Dubai companies, particularly given the lack of other information provided. (I also said I was surprised at the news - I was. I thought the bad news was likely to come from another quarter rather than a company where I knew first hand there were bits doing well. Information is one thing, interpretation another and infallibility only for a very few!!). I remain concerned at the lack of information being provided to a community that I believe wants to help, but cannot do so in isolation. I also worry that whatever you may think of the media, they have a job to do too and if they are asked to comment they will do so, either from a position of strength and knowledge or from the standpoint of a mushroom. (Mushrooms thrive on being kept in the dark and fed fertiliser!).

Perhaps the lack of news is a good thing. Maybe it means that banks are closeted in meetings with Dubai World to seek means of reaching mutually acceptable agreements. Smaller banks will be playing "chicken" with the bigger lenders, threatening to walk out of the negotiations unless they get paid out, leaving the bigger banks to swallow hard and take on the small banks debts or risk losing even more than they have already set aside for losses. Been there, done that!

Did the financial world breathe a sigh of relief that Abu Dhabi turned up with some cash at the last minute in December? You bet, and therefore is everyone expecting that they will do so again in May, come what may? Well I can tell you that a number of people I have spoken to think this will be the case, but I am not so sure, although my Scottish background suggests that despite the differences Clans will usually stick together at the end.

I think that Dubai companies will be expected to hammer out the detail with their lenders to seek a satisfactory way forward that everyone can live with and then, and only then, if there is still a gap will Abu Dhabi consider whether they can provide more assistance.

But I would suggest that in spite of the difficulties, the devil that lies in the detail needs to be exorcised sooner, rather than later.