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Dispatch (Asia edition)
| by Peta Tomlinson, Nazatul Izma Abdullah, Sonia Kolesnikov-Jessop 07 Jun 2007 Topic: News |
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The classified advert sounded urgent. A 'motivated vendor must sell' his luxury mega-yacht - for a mere A$1.2m - before 30 June. 'I need the money,' the advert explained, 'to put into my super.' To outsiders such reasoning might sound a stretch. Within Australia, it is indicative of a mindset that is causing near-retirees to ditch traditional investment vehicles for the flavour-of-the-month, personal superannuation. 'Super' emerged as a serious third contender in the age-old property versus shares investment debate last year, when the Government announced a shake-up of the system. Suddenly, super promised a sweetener the incumbents could not: tax-free income for people over 60. And there was more. Until the end of the financial year (30 June), Australians were allowed to boost their super by up to A$1m, resulting in fire sales of assets, the media reported. One financial adviser told the Melbourne Age that this window of opportunity had caused 'an explosion' of investors cashing in on property and shares to top-up their super. Even the Treasurer, Peter Costello, advised the nation: 'If you want to save, put money into super - you will never find a better savings vehicle.' Yet Phillip McGann, financial adviser and general manager of the Hudson Institute, described the hype as 'more of a big swell than a tsunami'. 'We have had a handful of members who have sold principal places of residence tax-free and placed funds into super for access in July, but by no means the rush a lot of the media have been speculating on,' he said. 'It appears the June end transition rules are very attractive but not readily suitable both time-wise (as the property market in the eastern states is flat) and capital gains tax-wise, as the vast majority of potential retirees have enjoyed good gains over the past 10 years in property and the share market.' The long-term consequences are great but the short-term windfall from the 'A$1m limit' timetable has not materialised, he said. Besides, retirees are generally a conservative lot who cannot be sure the rules will not change again. Many 'will wait for the new system to operate and see how it goes first before making a judgement call', McGann predicted. Special economic zones (SEZs) such as China's Shenzhen are poster boys for stimulating growth. Malaysia is taking a leaf from the SEZ handbook with the 2,217 sq km Iskandar Development Region (IDR), billed by Prime Minister Datuk Seri Abdullah Ahmad Badawi as the single largest development project ever to be undertaken in the region. Two-and-a-half times the size of Singapore, the IDR is slated to create 800,000 jobs over a 20-year period and targets investments approximating RM47bn over the five-year period between 2006-10. Under the Ninth Malaysia Plan, the Government has earmarked an initial investment of RM4.3bn development to kickstart work on security, infrastructure, drainage, river management and traffic improvement. The IDR will leverage Malaysia's existing strengths while developing new service-based industries. Given its enviable location covering the logistics triangle of Senai Airport, the Port of Tanjung Pelepas and Johor Port, the IDR boasts excellent road, air and rail links to Singapore and the region. 'Its strategic location and proximity to some of the world's most rapidly growing and important economies is a key differentiating factor for the development,' said the Iskandar Regional Development Authority (IRDA) in a media statement. Apart from being positioned as a logistical hub, the IDR will function as hubs for healthcare, education, R&D, Islamic finance, biofuel and halal manufacturing. Analysts hailed the recent incentives outlined to stimulate IDR investment. Notably, the waiver of the 30% Bumiputra or ethnic equity quota offered to companies operating approved projects in Danga Bay and Nusajaya signals increasing flexibility. 'Hopefully this, coupled with other free market measures, can make the IDR a success and cause the liberalised policies to be extended to other parts of Malaysia,' noted licensed independent investment adviser Capital Dynamics Sdn Bhd. Other incentives include the freedom to source capital globally and employ foreign employees freely within the approved zones, as well as exemptions from corporate income tax and exemption from withholding tax on royalty and technical fee payments to non-residents for a period of 10 years from commencement of operations. vision for future development unveiled The Singaporean Government has unveiled its vision for the future, a new growth formula to take the country through to the next phase of economic development. Having consulted top executives from leading international firms like Rolls-Royce, Tata Group and Infineon Technologies, the Government fine-tuned the World.Singapore vision its civil service had been working on for the last two years. The formula taps into the city-state's reputation for clean governance, its commitment to a knowledge and research-based economy, and its reputation as a safe and liveable environment, explained the Defence Minister, Teo Chee Hean, who is also in charge of the civil service. 'World.Singapore is the key organising idea that commits all ministries and statutory boards to work together to achieve this vision,' he said at a press conference. 'Trust, Knowledge, Connected and Life' are the four key words at the heart of the formula, which the Government believes builds on the country's existing strengths and which will be hard to replicate elsewhere because it has taken the country years to gain recognition for the qualities that now define it. 'To put it in simpler terms, trust is why people come to us,' said Teo. 'Knowledge will be why they work with us. Connected is why people team with us. And Life will be why they stay with us.' The earlier 'East plus West' growth formula, which worked for Singapore when it opened its doors to multinational corporations to bring in the capital, technology and management know-how, is now copied by everyone, and the rise of Asia's two economic powerhouses, China and India, is putting new pressure on the country to remain competitive. The small city-state has been able to prosper, thanks in part to the constant reinvention of its economic model. In recent years it has moved away from electronic manufacturing towards new engines of growth like biomedical sciences, and it is also counting on tourism to become a key component of its growth performance. Consumerism and affluence usually go hand-in-hand with surging debt levels, and Malaysia is no exception to this rule. According to The Star, Malaysia's household debts grew an average of 15.9% in the past six years, and outstanding loans stood at RM394.8bn as of the end of 2006. About 50% of these debts consist of mortgages while another 24% were hire-purchase financing, said Datuk L Meyyappan, chairman of Bank Negara Malaysia Credit Counselling and Debt Management Agency (AKPK). Credit card use - and debt - has been booming too. Last year, the number of credit cards in circulation grew by 12.8% to 8.8 million, while total transactions and payments using credit cards rose by 15.5% to RM47.5bn, reported The Star. Meyyappan said outstanding balances for credit cards have been posting double-digit growth over the years. However, credit card debts made up just 3.3% of banking sector loans and 5% of household debts. Meyyappan added that defaults for credit cards remained low at 3.7% of the outstanding credit card balances, and credit card delinquency accounted for only 1.5% of the banking sector's non-performing loans. To help mitigate debt defaults, AKPK offers credit counselling, debt and money management, and financial education services free of charge to borrowers. Since the agency started operations in April 2006, more than 20,000 individuals have sought its services and over 3,000 have been assisted via AKPK's Debt Management Programme, which helps borrowers formulate feasible budgets. Approximately 50% of people seeking help have trouble managing their credit cards. For thousands of years, it would have been unthinkable. In modern times, it took 13 years of debate. Yet today, 'property' is the buzz word in the world's most populous nation after China passed a law protecting the rights of the private landowner. In reality, property has been bought and sold in China for decades. According to Colliers International, around 80% of Beijing residents own their own homes. Among local Beijingers, it is as high as 95%, said Jason Yang, Colliers' manager for professional services in Beijing. Yet, until now, the legal ownership of their land was unclear as the purchasers were actually buying not a clear title but a 70-year leasehold. Now that a law passed by the People's Congress in March formalises their rights for the first time, investors can buy with confidence, Yang said. Although criticised internally as a blow to socialism, the move was more widely accepted as necessary to stabilise an economy increasingly dependent on private investment. As Frank-Jurgen Richter, President of Horasis: The Global Visions Community and former director of the World Economic Forum, points out, capitalism is already established as China's new financial model. 'In China, almost everything is possible if you have an idea and want to create a business,' he said. 'In Europe, we are moving in the opposite direction. We cling to the idea of a nanny-state economy with a large government role. The last missing element of “pure capitalism” was the situation around the property rights - you couldn't own land. By embracing private property, the Chinese are moving full-speed towards American-style capitalism. Almost everybody is benefiting from the new law: entrepreneurs but also farmers in the countryside. It makes a big difference if you own your land or if you only take a lease on it.' The new law will propel foreign direct investment as multinational corporations can take their investments for granted, Richter predicts. 'It's a very symbolic move,' he said. 'The new law symbolises China's rise to global eminence and its ambitions as a new world power. It shows China will now play by global standards.' Hong Kong should dip into its budget surplus to offer tax breaks to foreign firms setting up regional headquarters in the city, says ACCA Hong Kong. ACCA suggests halving the taxes payable by corporates on income generated through their Hong Kong operations. Even though the Hong Kong SAR has one of the lowest tax rates in the world, and inward investment is flourishing, ACCA believes more incentives are needed, particularly in the finance and logistics industries. According to the United Nations Conference on Trade and Development (UNCTAD) World Investment Report 2006, Hong Kong was Asia's second largest destination for foreign direct investment (FDI) in 2005, after the Chinese Mainland. On a global scale, Hong Kong ranked sixth, its FDI inflows increasing by 5.6% year-on-year to US$36bn. Invest Hong Kong also points out that the influx of regional operations in Hong Kong reached a new high in 2006. Based on a government survey, the number of overseas firms setting up regional operations in Hong Kong increased by 20% in the three years to 1 June 2006. Yet Fergus Wong Wang-tai, co-chairman of ACCA's tax sub-committee, says Hong Kong should not take its competitive edge for granted, especially given that the Chinese Mainland is rapidly closing the gap. Wong says the greatest threat comes not from traditional rivals Japan or Singapore, but from Shanghai, which he describes as 'one of the rising stars of the region'. 'The only competitive edge Hong Kong has over Shanghai is its legal system, infrastructure and communications, and I can see Shanghai catching up fast,' he said. 'Shanghai could perhaps pass Hong Kong within 10 years. Hong Kong needs to act now.' Logistics and professional services (in particular, finance) are key industries deserving of tax breaks as these are the things Hong Kong does best, Wong said. 'These are our strengths, and we should build on them by attracting more multinational companies to set up their regional headquarters here.' With the Government this year announcing a budget surplus of HK$55bn - its biggest surplus since 1997, according to JPMorgan Chase & Co - it is time for a pre-emptive strike, Wong says. 'It's all very well to save for a rainy day, but Hong Kong should also use some of that surplus to plan for the future.' in brief...
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