China attempts to walk the economic tightrope
Phillip Wen SMH
After a torrid few weeks on the financial markets prompted renewed doubts over its handling of the economy, this was the Chinese government’s attempt to reassert control of the narrative.
Official figures on Tuesday showed China’s economy expanded by 6.9 per cent last year – dead on expectations and in line with government targets.
Retail spending remained robust, struggling industrial production stabilised; property prices, in larger cities at least, have continued their tentative recovery, according to the data released on Tuesday.
Addressing an economic policy meeting on Monday, President Xi Jinping urged senior officials to “stabilise short-term growth”.
China’s long-term economic fundamentals, he said, remained sound, despite downward growth pressure and financial market volatility.
State media has been awash with reports dutifully projecting this resolute yet optimistic tone.
World critical of government bungling
But to the world, China’s ham-fisted attempts to prop up its sharemarket and interfere with its currency have indelibly damaged its veneer as an institution with an economic Midas touch.
The embattled head of China’s securities regulator, Xiao Gang, has been widely blamed by investors for mishandling the recent market crisis. He championed a “circuit-breaker” to limit market losses which instead exacerbated the sell-off that wiped $US5 trillion ($7.25 trillion) off the value of China’s two largest stockmarkets.
A Reuters report, citing unnamed sources, said Xiao had offered to resign. Highlighting the government’s sensitivity to criticism on its handling of the economy, the securities regulator promptly denied the report and demanded a correction.
The news agency’s official Chinese-language Weibo account, with close to 800,000 followers, was swiftly suspended; its more than 50,000 previous posts instantly erased. (Its website, as with numerous other foreign news outlets, was already blocked by China’s internet firewall).
Xiao, for his part, blamed the market meltdown on just about everything: “an immature market, inexperienced investors, imperfect trading system, flawed market mechanisms and inappropriate supervision systems”.
Global sharemarkets react strongly to the volatility but will likely grow more accustomed to the downswings in what are still massively overpriced Chinese shares.
But in the real economy, the attention remains squarely on how China continues its high-wire act of balancing its desire to prop up economic growth with stimulus and monetary easing (cutting interest rates), without inflating its credit bubble to irretrievable proportions.
Annual growth of 6.9 per cent is still China’s slowest since 1990. December quarter growth of 6.8 per cent, as well as a raft of other economic indicators, were also shy of consensus analyst expectations.
Many economists believe China’s true economic growth rate is considerably lower than official figures suggest.
Making matters even harder is the country’s increasingly divergent two-track economy. The nation’s construction and industrial sector – once the engine of the global commodities boom – continues to slow.
Steel- and coal-producing towns across China are in the doldrums, while reports of factory closures in the southern manufacturing hubs of Guangdong and Zhejiang proliferate.
Crude steel production has suffered its first yearly fall since 1981 amid weak demand and a massive supply glut.
Retail sales and services, meanwhile, are a rare bright spot and have surged to account for more than half of economic output for the first time.
But as one analyst put it, “coal miners do not become internet programmers overnight”.
Stimulus looks likely
To achieve this year’s target growth rate of about6.5 per cent, China will likely have to resort to more stimulus and monetary easing, though six interest rate cuts in the space of a year and an influx of infrastructure projects have thus far failed to have the desired impact.
Most worrying for economists in the medium-term is that the gap between credit growth versus nominal GDP growth, having been pegged back, has widened significantly towards the end of last year. It suggests less bang for each investment buck, and the dangerous inflation of China’s credit bubble.
Some of this has been attributed to increased capital flight from China to safer assets offshore. Anecdotal reports suggest Chinese authorities have tightened up on both legal and grey market cash transfer mechanisms as a result.
China will want to devalue its yuan further, both to boost its struggling exports while decoupling it from the US dollar and more to a basket of currencies. But it will be forced to think twice after just a modest adjustment earlier this month exacerbated market panic.
These conundrums have been present since China’s massive credit stimulus during the global financial crisis contributed to today’s overcapacity in housing and the industrial sector.
The difference from a few years ago is that every perceived misstep will be amplified by an increasingly watchful global investment community parched for good news and which is, now more than ever, trading on the fortunes of Chinese economic sentiment.
Australia’s long-awaited free trade deal with China finally comes into force
Adam Gartrell SMH
For dairy farmer Aaron Thomas and his wife Vanessa the weekend marked the dawn of a potentially bright new future as the long-awaited China-Australia Free Trade Agreement finally came into force.
More than a decade in the making, the deal is expected to deliver immediate benefits to exporters across the country.
From now, more than 85 per cent of Australia’s goods exported to China – worth about $86 million last year – will enter duty free. That will rise to 96 per cent when the FTA is fully implemented.
The deal is expected to save exporters hundreds of millions of dollars in extra tariff payments next year alone.
For Mr Thomas, a sharefarmer in Binginwarri in South Gippsland, the free trade deal has given him confidence to stay in the industry – and he’s now contemplating buying his own property.
“I think the FTA’s going to really bolster the industry. It’s going to give people the confidence to invest, whether that’s in new properties or expanding their current businesses,” he told Fairfax Media.
“In a nutshell I think it’s a fantastic thing and it’s been a long time coming. And it’s not just the dairy industry that’s going to benefit, but the agriculture sector generally.”
China is Australia’s largest trading partner, buying almost a third of all Australian exports.
Under the FTA, tariffs of up to 25 per cent on beef and 20 per cent on wine will also be eliminated over the coming years. Duties on resources, medicines and services will also start coming down.
Consumers will benefit from more affordable Chinese goods such as electronics, clothing and other household items.
The Abbott government signed the deal – commenced by the Howard government way back in 2005 – in June.
A political bunfight over labour market testing ensued, but the opposition eventually helped the government pass the enabling legislation through the parliament in early November.
On Sunday Trade Minister Andrew Robb called it an historic day.
“This will prove a major fillip for our exporters in market of 1.4 billion people which includes a rapidly rising middle class,” he said.
Exporters will see a “double whammy” of tariff cuts, with one round today and another on January 1, he said.
Waterfront officials accused of taking kickbacks to help illegal tobacco importation
Ava-Benny Morrison SMH
Sydney waterfront employees have been accused of accepting lucrative kickbacks in return for allowing the passage of illegal tobacco into Australia.
A multi-agency operation has thwarted the alleged cigarette and tobacco racket, with police charging 13 people, including businessmen and a Lone Wolf bikie gang member.
Seventeens raids were rolled out in Sydney’s south and south-west on Tuesday with more than $400,000 in cash, cigarettes and documents seized.
Police will allege in court employees attached to customs brokerage companies and freight forwarding firms received payments to create false declarations and shipping documents.
These actions allegedly enabled more than 10 million cigarettes and 5.6 tonnes of tobacco to be illegally imported.
That included, police will allege, the passage of nine million cigarettes from the United Arab Emirates, which arrived at Port Botany this month.
Police said they worked closely with Dubai customs officials from the UAE as part of this investigation phase.
A local syndicate then collected the shipments for distribution around Sydney.
As a result of the racket, the group allegedly avoided paying more than $9.1 million in customs duties on 10 million cigarettes and 5.6 tonnes of tobacco.
Police allege some syndicate members were also dabbling in cocaine supply.
About 270 grams of cocaine worth $184,000 was seized during the joint Australian Federal Police, NSW Police and NSW Crime Commission investigation.
Assets, including houses, and bank accounts attached to some of those in the syndicate have been frozen or confiscated.
Detective Superintendent Nick Bingham said further arrests would take place in the future.
“This operation has shut down a significant syndicate allegedly involved in facilitating the importation of illicit goods into the country and distributing those goods into the community, as well as trafficking in commercial amounts of prohibited drugs,” the Polaris Waterfront Task Force commander said.
“The importance of a multi-agency taskforce that has the capacity to work with authorities in the United Arab Emirates and the shipping industry cannot be understated.”
The array of charges laid against 12 men and one woman included smuggling tobacco products, fraud and dealing with proceeds of crime.
The 24-year-old Lone Wolf gang member was charged with cocaine supply and perjury.
A 37-year-old customs broker was charged with smuggling, forgery, fraud and drug supply offences.
A customs underbond warehouse manager is facing charges of forgery, conspiracy to fraud and dealing in proceeds of crime.
Australia needs to invest in exporting
Treasury flying blind on online shopping tax
Treasurer Joe Hockey has confirmed the GST will apply to all overseas online purchases from 1 July 2017, although the GST will remain on feminine hygiene products.
“If there is leakage out of the GST, it is our is our responsibility to plug the hole,” Mr Hockey told reporters in Canberra on Friday.
“We are doing it with the unanimous agreement of Labor and Liberal states and territories.”
Mr Hockey said he was confident the additional tax would raise more revenue than it cost to administer. He said the idea of inspecting every parcel that came through was “plainly ridiculous”.
“There were three or four proposals we were looking at, and we think we have the best proposal because it’s consistent with what’s happening internationally,” he said.
“Companies are more willing than they were even a short time ago to comply. There’s many levers we have available to apply pressure.”
EARLIER: Treasury has confirmed it has done no modelling on the economic impact of applying the GST to overseas online purchases under $1000.
A spokeswoman for Mr Hockey last night told news.com.au there had been no modelling carried out, but could not explain why.
It comes as state treasurers prepare to meet in Canberra today, where they are expected to sign off on lowering the low-value import threshold (LVIT), agreed to in principle by state premiers at last month’s COAG meeting.
Debate will centre around the proposed level of the new threshold. Mr Hockeyflagged last month that the online GST threshold “could be zero”. Assistant Treasurer Josh Frydenberg said “it was different in different parts of the world”. “We are making headway,” he told news.com.au.
“The breakthrough was at the COAG meeting.”
Mr Hockey told ABC radio he held preliminary discussions on Thursday night and there “appears to be a consensus” to create an equal playing field for Australian businesses.
If they agree, the Federal Government would then need to introduce legislation to push through the change. The retail industry has been pushing for the threshold to be lowered to “level the playing field”, arguing the tax-free purchases unfairly penalise Australian businesses.
Consumer group Choice warned on Thursday that changes to the threshold could lead to consumers paying a ‘parcel pick-up’ tax when buying goods from small online retailers not registered with the Australian Taxation Office to collect GST.
It argues at the same time, the US is heading in the opposite direction, with a bill introduced in the Senate to increase its LVIT from $US200 to $US800, bringing it roughly in line with Australia’s current level.
The government has been arguing that large online retailers such as Amazon and Book Depository already have the ability to add GST to purchases, but Choice argues consumers could be slugged with unexpected costs.
A 2013 report by Ernst & Young, commissioned by the National Retailers Association, suggested Australia introduce a similar system to the UK, which would involve two different processes for collecting GST.
Large retailers with sales over $75,000 per year would be required to register with the ATO, charge the GST upon purchase and pay the tax to the Australian government.
Smaller operators, if they choose not to register, would have to have their packages assessed for GST liability by Australia Post or a private cargo operator, which would incur a processing fee.
“If any change mirrors overseas measures, consumers would have to go to their local parcel pick-up, pay the GST and also pay a ‘parcel pick-up’ tax before they can get what they ordered,” said Choice’s director of campaigns and communications, Matt Levey.
“Under the same approach as the UK system, a $20 book purchased online from an unregistered business could end up costing an extra $2 in GST, plus $16.97 for the parcel pick-up tax.
“It would also throw online retail into chaos, as uncollected parcels ordered from unregistered businesses are left to clog up post offices across the country.
“Paying almost $17 in fees to collect $2 in tax would be crazy economic policy. It’s got nothing to do with raising revenue or removing a 10 per cent price difference — it’s about punishing consumers to protect local retailers from global competition.”
It comes as the Australian Retailers Association, which is pushing for the LVIT to be lowered to zero, urged state treasurers to reach an agreement.
“Extension of GST to international online purchases is crucial to the survival and growth of Australian retailers and the retail industry as a whole,” ARA executive director Russell Zimmerman said in a statement Thursday.
“This is about removing the anomaly and levelling the playing field for Australian-based retailers to ensure our local industry can thrive and compete effectively in what is now a global economy.”
Mr Zimmerman said international retailers already had mechanisms in place to be able to accept GST at the point of purchase. “We don’t envision that this would involve extra effort on their part, and will not incur any additional costs by the Government,” he said.
“While the ARA welcomes this long overdue extension of the GST, it is critical that the process does not stall. The agreeance of State Premiers must also be backed up by State Treasurers tomorrow.”
Choice says it supports levelling the playing field, but only if the LVIT can be reduced while raising net revenue. Mr Levey said if treasurers had found a way to fix the problem, consumers would be “keen to hear the details”.
In a statement last night, a spokeswoman for the Treasurer’s office said: “On Budget night, the Commonwealth Government released for consultation an exposure draft Bill and associated explanatory material that would extend the application of the GST to cross border supplies of digital products and services imported by consumers from 1 July 2017.
“In line with these reforms, the Australian Leaders’ Retreat on 22 July 2015, agreed to broaden the GST to cover overseas online transactions (physical goods) under $1,000.
“At tomorrow’s Tax Workshop of State and Territory Treasurers, the states and territories will discuss the need to develop a way forward for the low value threshold for physical goods including the need for further work to be undertaken to progress the matter.
“Any change to the low value threshold and the GST requires the unanimous agreement of the states.”
Moorebank freight hub emerges as property play for Qube
Jenny Wiggins SMH
The new freight hub at Moorebank in Sydney’s south-west will be a storage boon for retailers when it opens in 2017 with developer Qube Holdings revealing it will contain 850,000 square metres of new warehousing space.
Construction on the Moorebank freight terminal, which is expected to receive final approval from the Commonwealth government next week, is expected to start within the next 12 months.
The terminal, which will be developed and operated by logistics group Qube and rail group Aurizon as part of their Sydney Intermodal Terminal Alliance (SIMTA), will improve rail links to Port Botany, reducing truck traffic between the port and western Sydney by an estimated 3000 trips daily when it is operating at full capacity.
But it has also emerged that the freight terminal will have significant storage capacity, with Qube chief executive Maurice James announcing on Wednesday that 850,000 square metres will be allocated to warehousing.
Qube’s investors and analysts are waiting to see the details of SIMTA’s lease with the Commonwealth government, including the length of the lease and whether there is potential for SIMTA to eventually buy assets on Commonwealth land, before estimating the impact of the Moorebank development on future earnings.
But Anthony Moulder, analyst at Citigroup, said property development at Moorebank could boost Qube’s valuation in the short term, particularly if SIMTA leases warehousing on the site before the terminal reaches its full capacity of handling 1.05 million freight containers annually.
“It’s conceivable that people will see this as a good place to be,” Mr Moulder said.
The warehousing is expected to appeal to retailers that have storage centres scattered around Sydney. It will enable retailers to import containers directly from Port Botany and store them at Moorebank before distributing their contents to stores.
Qube, which has a 70 per cent stake in the SIMTA alliance, will disclose details of its plans for Moorebank after receiving final approvals from the government.
Qube has declined to comment on the cost of developing Moorebank, but has indicated it will consider a range of options for financing, including contributions from third parties.
Qube originally budgeted $1 billion for development when it was considering building its own freight hub, including $500 million for warehouses and one rail terminal but the new freight hub will be much bigger, with two rail terminals.
Commonwealth government land at Moorebank, currently occupied by the Department of Defence, will be combined with adjoining land owned by SIMTA and leased to the two companies.
Moorebank’s position, at the junction of the M5 and M7 motorways in south-west Sydney, is “ideally located” to transport freight not only to Port Botany, but also to ports in Brisbane and Melbourne, Mr James said.
Proposed rent hikes for stevedores at the Port of Melbourne, currently Australia’s largest container port, ahead of its privatisation are also expected to make Port Botany more competitive.
Port Botany would eventually become Australia’s “number one” container port as shipping volumes increase and terminals are automated, making them more efficient, Mr James forecast.
Asciano, which introduced automated machines at its Patrick terminal in Port Botany this year, has also commissioned three new cranes so it can handle bigger ships.
Traditionally, Asciano has moved containers on and off ships carrying between 2500 and 4000 twenty-foot equivalent units (TEUs) but wants to be able to handle ships with a capacity of between 5000 and 6000 TEUs.
The inside job … customs broker
An interesting interview that looks at the life of a customs broker…
Sue White SMH
Name: Ramona Francis
Job: Customs broker at Platinum Freight Management
My job in a nutshell: A customs broker deals with the documentation for imported products.
My clients could be companies or individuals, like someone buying a wedding dress from overseas. I work from an office, rather than the airport as I don’t have to have the item in front of me – customs does that. If there is anything suspicious, I can flag it for customs. I have up to 30 jobs on the go at once; you have to prioritise.
How did you start out? I started off in the industry in accounts. Most people don’t know about the job unless they are in the industry – you take a job before it to train.
To gain your brokering license, you must complete three years at TAFE, pass a national exam, and have some industry experience. [Often people] get their experience by preparing the entries for the customs broker.
A great day is: Saving storage costs for clients on an import by having their shipment cleared before its arrival. I also look through legislation like tariff concessions to see if we can save them money there as well.
A challenging day is: If we receive a client’s documents after the shipment has already arrived. I need to put everything else on hold to minimise their storage costs and juggle to get it done.
I’ll never forget: When we had a customer [saying they were] importing biscuits. When customs inspected the shipment it was actually cigarettes – the customer was trying to evade the GST.
Most people don’t know: Most people don’t realise how much customs brokers need to know about so many different items. [To clear an item] I have to go into a lot of detail about what it’s made of and how it’s used. We research how much wool is in a jumper, or the amount of hops in beer, or meat in a meat pie. It’s so interesting.
Know the hidden costs;
When negotiating your international deals, your ability to make a profit not only hinges on product quality and price, it also relies on your landed costs to your place of business.
Quite often the seller is unaware and unlikely to want to be responsible for quoting you your local charges.
These charges can make up 60-70% of your total freight costs.
Local port charges, customs clearance your duties and taxes quite often come as a shock to first time importers.
Ensure you engage a local customs broker who has the time to help you with your enquiry, one who can accurately quote you those landed costs and ensure that your profit margins are established, and preserved when your purchase is delivered.