A frequently discussed topic in global emerging markets is the “new Silk Road”, a complex economic web that links Latin America, Africa, the Middle East and Asia. Although the BRIC (Brazil, Russia, India, and China) nations still dominate this web, more players have been emerging. particularly in Latin America. As an example, trade between China and Chile, China’s second largest trading partner in Latin America, reached a record $17.7 billion dollars in 2009, while China's trade volume with Venezeula grew to $7.2 billion.
Trade between Latin America and China is expected to expand. According to a recent report by the Economic Commission for Latin America and the Caribbean (ECLAC), “China may be the second world destination of the region's exports, buying 19.3% of its total exports in 2020, up from 7.6% in 2009.” The report also predicts that “China could surpass the European Union and the United States by 2020 as origin of the region's imports.”
The relationship between the Chinese and Latin America has not been without its share of tension. One extreme example is that of the Shougang iron ore mine in Peru, one of China’s earliest forays into Latin America. Upon arriving in 1992, the Chinese were viewed favorably by local workers, but this quickly changed, as the workers began to believe “they were being exploited to help build the new China, but without seeing any of the rewards for doing so.” Although tensions between workers and their Chinese managers at the mine continue to run high, Shougang plans to increase its investment in Peru by $1 billion in the next five years.
China’s investments in Latin America have had ripple effects in other parts of the world. Brazil’s Vale SA, helped by growing commodities demand from China and a currency that has doubled against the dollar since 2003, made natural resource investments in Africa that include a $1.3 billion coal mine in Mozambique, and copper projects in both Zambia and the Democratic Republic of Congo. Additionally, the company agreed to pay $2.5 billion for iron ore deposits in Guinea, including assets the country confiscated from the Rio Tinto Group.
Although the BRIC nations, especially China, are primary catalysts in the creation of the “new Silk Road”, other less visible alliances also are shaping global emerging markets. Consider Mercosur, South America’s largest trading bloc and the world’s fourth-largest behind NAFTA, the EU, and ASEAN. Mercosur recently signed a free trade agreement with Egypt and is currently negotiating pacts with Jordan, Morocco and the Gulf Cooperation Council (GCC), which includes gulf states such as Saudi Arabia and Qatar. Mercosur also is working to ratify a “south-south” trade agreement with the South African Customs Union (SACU), whose members include Namibia, Botswana, Lesotho, South Africa and Swaziland. Mercosur’s members include Argentina, Brazil, Paraguay, and Uruguay, while its associate members include Chile, Bolivia, Colombia, Ecuador, and Peru.
There is no question as to the significance of the “new Silk Road”, but the importance of less publicized trading blocs and alliances cannot be discounted. Should cases like the Shougang mine and concerns over product dumping turn Latin American public opinion against China, Mercosur members may decide to place more focus on the alliances they have negotiated in Africa and the Middle East.
Monday, August 30, 2010
Monday, August 23, 2010
How China is Establishing Biofuel Leadership
China, the world's second-largest oil consumer, is expected by some analysts to import over 65% of its crude oil by the year 2020. Although its crude oil importation has slowed recently, China continues to drive towards building a biofuel manufacturing infrastructure that could supply as much as 15% of its fuel by the year 2020, from 2% today.
China’s focus on developing second-generation biofuels, while helping to alleviate its thirst for fossil fuels, is also creating business opportunities for a variety of companies globally. One such example is Denmark-based Novozyme’s partnership with Chinese companies COFCO and Sinopec. Novozyme is providing its partners with enzymes that facilitate the conversion agricultural waste into ethanol-based biofuels. It is believed that the use of ethanol-based fuels in cars reduce China’s reliance on imported petroleum by as much as 10% by the year 2020. A demonstration conversion facility is expected to be online by 2011. COFCO is a leading grain, oils and foodstuffs import and export group in China, while SinoPec is the world's third largest oil refiner.
Another example is the CNOOC Biolux Project, a joint venture between CNOOC New Energy Investment Co., Ltd. and Austria-based Biolux for the purpose of developing biodiesel fuel using oil producing seeds. Funded at a cost of $118.5M USD in 2008, the plant began its trial production in March 2010. In addition to building global biofuel partnerships, China has developed its own in-country initiatives that include the Integrated Renewable Biomass Energy Development Sector Project, which recently received a $66M loan from the Asian Development Bank.
Although China’s primary purpose for developing its biofuel infrastructure is to reduce its reliance on foreign oil, it could stand to benefit in other ways. According to Al Bryant, Boeing’s VP of Research and Technology in China, Boeing has started to shift its focus on biofuel based aircraft research from the United States to China because "they (China) have made the decision to move faster.” The speed at which China is driving its biofuel agenda combined with the potential for arrested growth in the EU due to environmentalists’ concerns over re-purposing land from food production to fuel production is likely to provide China with a competitive advantage in the world biofuel market as it matures. A recent International Energy Agency (IEA) report states that “current IEA analysis sees a shortfall in domestic production in both the US and EU that would need to be met with imports” by 2020. Should this analysis hold true, China will become a net exporter in a new category (biofuels) sometime during the next decade.
Despite China’s potential to become the world’s biofuel leader and largest exporter within the next decade, it still faces challenges that include uncertainty of oil prices, feed stock supply, and government policies. As oil prices fall, biofuels become a less attractive alternative and the government becomes more likely to slow the development of biofuel infrastructure. The Chinese, given their large population also have a natural tendency to reserve land for food production, rather than fuel production. However China is more likely to find new options for biofuel creation than to slow its programs or change its targets. One such example is ZTE Agribusiness Company Ltd’s lease of 6.91 million acres in Africa to develop the world’s largest palm oil plantation. While there has not been any announcement as to whether the palm oil will be used to develop biofuels or for food, it appears that the Chinese have a plan that eventually will establish them as the leader in the biofuel space. It is not too late for the U.S. or the E.U. to catch up, but they must work quickly to create a business environment that allows entrepreneurs to develop this emerging market with speed and effectiveness.
China’s focus on developing second-generation biofuels, while helping to alleviate its thirst for fossil fuels, is also creating business opportunities for a variety of companies globally. One such example is Denmark-based Novozyme’s partnership with Chinese companies COFCO and Sinopec. Novozyme is providing its partners with enzymes that facilitate the conversion agricultural waste into ethanol-based biofuels. It is believed that the use of ethanol-based fuels in cars reduce China’s reliance on imported petroleum by as much as 10% by the year 2020. A demonstration conversion facility is expected to be online by 2011. COFCO is a leading grain, oils and foodstuffs import and export group in China, while SinoPec is the world's third largest oil refiner.
Another example is the CNOOC Biolux Project, a joint venture between CNOOC New Energy Investment Co., Ltd. and Austria-based Biolux for the purpose of developing biodiesel fuel using oil producing seeds. Funded at a cost of $118.5M USD in 2008, the plant began its trial production in March 2010. In addition to building global biofuel partnerships, China has developed its own in-country initiatives that include the Integrated Renewable Biomass Energy Development Sector Project, which recently received a $66M loan from the Asian Development Bank.
Although China’s primary purpose for developing its biofuel infrastructure is to reduce its reliance on foreign oil, it could stand to benefit in other ways. According to Al Bryant, Boeing’s VP of Research and Technology in China, Boeing has started to shift its focus on biofuel based aircraft research from the United States to China because "they (China) have made the decision to move faster.” The speed at which China is driving its biofuel agenda combined with the potential for arrested growth in the EU due to environmentalists’ concerns over re-purposing land from food production to fuel production is likely to provide China with a competitive advantage in the world biofuel market as it matures. A recent International Energy Agency (IEA) report states that “current IEA analysis sees a shortfall in domestic production in both the US and EU that would need to be met with imports” by 2020. Should this analysis hold true, China will become a net exporter in a new category (biofuels) sometime during the next decade.
Despite China’s potential to become the world’s biofuel leader and largest exporter within the next decade, it still faces challenges that include uncertainty of oil prices, feed stock supply, and government policies. As oil prices fall, biofuels become a less attractive alternative and the government becomes more likely to slow the development of biofuel infrastructure. The Chinese, given their large population also have a natural tendency to reserve land for food production, rather than fuel production. However China is more likely to find new options for biofuel creation than to slow its programs or change its targets. One such example is ZTE Agribusiness Company Ltd’s lease of 6.91 million acres in Africa to develop the world’s largest palm oil plantation. While there has not been any announcement as to whether the palm oil will be used to develop biofuels or for food, it appears that the Chinese have a plan that eventually will establish them as the leader in the biofuel space. It is not too late for the U.S. or the E.U. to catch up, but they must work quickly to create a business environment that allows entrepreneurs to develop this emerging market with speed and effectiveness.
Sunday, August 15, 2010
HVDC is Emerging in Asia, Africa and Europe as a Renewable Energy Enabler
During the “War of the Currents” of the late 1800’s, Alternating Current (AC) and Direct Current (DC) were competing to become the standard for electricity distribution. During that time AC, which was promoted by Nikola Tesla and George Westinghouse turned out to be more practical and safer than the DC solution that was proposed by Thomas Edison. Edison, if he were alive today, may feel some sense of vindication with the emergence of High Voltage Direct Current (HVDC) as a way of implementing “Super Smart Grids” that are able to integrate different types of renewable energy sources and deliver energy over longer distances.
The use of HVDC systems for transmission of renewable energy is growing rapidly in both Africa and Asia, with Siemans and The ABB Group leading the way. Recently, the China Southern Power Grid in conjunction with Siemans Energy put into operation the first 800-kV High-Voltage Direct-Current Link in China, to deliver energy from the remote Yunnan Province to the rapidly growing industrial region in the Pearl River delta in Guangdong Province with its megacities Guangzhou and Shenzhen. Covering nearly 1,500 km (932 miles), this is expected to reduce annual CO2 emissions by more than 30 megatons compared with equivalent fossil-fueled power plants in the power grid of Guangdong Province.
ABB completed its own HVDC project in conjunction with State Grid Corporation of China (SGCC) to create an Xiangjiaba to Shanghai transmission link. This link has the capacity to transmit up to 7,200 megawatts (MW) of power from the Xiangjiaba hydropower plant in southwest China to Shanghai, the country's leading industrial and commercial center about 2,000 kilometers away. The new link is able to meet the electricity needs of about 24 million people.
An even more ambitious project in Africa, spearheaded by the DESERTEC Foundation, proposes to deliver energy generated by a set of solar and wind-based power generation plants to Europe. This project has brought together a variety of green energy companies that include U.K. based Nur Energie and recent addition Prysmian, based in Italy. Another company that could play a key role is the Italian solar thermal company Enel that has developed a technology that uses molten salt to store energy. A key player from the United States is First Solar a producer of thin-film solar panel technologies. It is anticipated that North Africa eventually could produce as much as 15% of Europe’s electricity.
HVDC represents an enabling technology that can lead to the emergence of new businesses that can provide low-cost components for long-haul energy transportation systems. It further represents opportunities for local businesses in emerging regions to provide low-cost manufacturing services that can support the development of projects such as the one proposed by DESERTEC.
The use of HVDC systems for transmission of renewable energy is growing rapidly in both Africa and Asia, with Siemans and The ABB Group leading the way. Recently, the China Southern Power Grid in conjunction with Siemans Energy put into operation the first 800-kV High-Voltage Direct-Current Link in China, to deliver energy from the remote Yunnan Province to the rapidly growing industrial region in the Pearl River delta in Guangdong Province with its megacities Guangzhou and Shenzhen. Covering nearly 1,500 km (932 miles), this is expected to reduce annual CO2 emissions by more than 30 megatons compared with equivalent fossil-fueled power plants in the power grid of Guangdong Province.
ABB completed its own HVDC project in conjunction with State Grid Corporation of China (SGCC) to create an Xiangjiaba to Shanghai transmission link. This link has the capacity to transmit up to 7,200 megawatts (MW) of power from the Xiangjiaba hydropower plant in southwest China to Shanghai, the country's leading industrial and commercial center about 2,000 kilometers away. The new link is able to meet the electricity needs of about 24 million people.
An even more ambitious project in Africa, spearheaded by the DESERTEC Foundation, proposes to deliver energy generated by a set of solar and wind-based power generation plants to Europe. This project has brought together a variety of green energy companies that include U.K. based Nur Energie and recent addition Prysmian, based in Italy. Another company that could play a key role is the Italian solar thermal company Enel that has developed a technology that uses molten salt to store energy. A key player from the United States is First Solar a producer of thin-film solar panel technologies. It is anticipated that North Africa eventually could produce as much as 15% of Europe’s electricity.
HVDC represents an enabling technology that can lead to the emergence of new businesses that can provide low-cost components for long-haul energy transportation systems. It further represents opportunities for local businesses in emerging regions to provide low-cost manufacturing services that can support the development of projects such as the one proposed by DESERTEC.
Monday, August 9, 2010
The World Bets on Mobile Payments in Africa
While they have been “business as usual in Asia and South America” for some time, mobile payment (mCommerce) systems are considered to be an emerging technology in the United States. However, their impact is more likely to be felt in Africa and Asia than across America.
Chinese and Indian investments in Africa’s mobile infrastructure and payment systems will provide rural areas greater access to communications and cash, both of which are critical to market development and commerce growth. Bharti Airtel Limited recently acquired Zain Group’s mobile operations in fifteen countries across Africa. Bharti’s intent is to “increase the teledensity from the present 20% to 50% in the next six years” and to “serve the interest of the rural population with affordable but qualitative telephony service in the years ahead.” China Mobile, Ltd. also has stated its intent to increase its presence in Africa, and develop mobile infrastructure in rural areas, according to a recent interview with its Chairman Wang Jianzhou.
Banks have seen mCommerce in Africa as a large emerging opportunity for some time, and are seeking to capitalize on it. Through a partnership with Zain, banks such as National Bank of Malawi (NBM), EcoBank of Niger, Zenith Bank of Sierra Leone and Citibank are facilitating mobile payments in Africa, while European financial services company Societe Generale recently began deploying its mobile payment services.
The African mCommerce market becomes even more complex as payment methods and technologies battle for acceptance. NFC (near field communications) is an emerging technology that allows the user to make a payment via contactless communication with another device. This however requires chipsets that reside within the mobile device. Since users in rural areas are unlikely to own NFC enabled phones, SMS (text messaging) will be the prevalent technology for at least the next several years. This creates a window of opportunity for companies like Obopay, based in Redwood City California. Obopay has partnered with Societe Generale as their payment technology provider in Africa.
If the Chinese are able to gain a strong enough foothold in Africa, part of the continent could be using a payment method that is similar to China Unicom’s “All-In-One-Mobile-Card”, which consists of a phone with an integrated SIMpass™ antenna. SIMpass™, a technology developed by Beijing-based Watchdata, allows a device to be detected when passed over a contactless reader.
Mobile commerce and payment technologies represent economic hope for Africa, which has been struggling to escape its colonial history. The one lingering question is whether Africa’s emerging middle class will expand fast enough to drive a high and sustainable level of mCommerce growth. The good news for those who are building Africa’s mCommerce infrastructure is that they can help answer this question positively by working proactively with African businesses and governments to help create jobs locally.
Chinese and Indian investments in Africa’s mobile infrastructure and payment systems will provide rural areas greater access to communications and cash, both of which are critical to market development and commerce growth. Bharti Airtel Limited recently acquired Zain Group’s mobile operations in fifteen countries across Africa. Bharti’s intent is to “increase the teledensity from the present 20% to 50% in the next six years” and to “serve the interest of the rural population with affordable but qualitative telephony service in the years ahead.” China Mobile, Ltd. also has stated its intent to increase its presence in Africa, and develop mobile infrastructure in rural areas, according to a recent interview with its Chairman Wang Jianzhou.
Banks have seen mCommerce in Africa as a large emerging opportunity for some time, and are seeking to capitalize on it. Through a partnership with Zain, banks such as National Bank of Malawi (NBM), EcoBank of Niger, Zenith Bank of Sierra Leone and Citibank are facilitating mobile payments in Africa, while European financial services company Societe Generale recently began deploying its mobile payment services.
The African mCommerce market becomes even more complex as payment methods and technologies battle for acceptance. NFC (near field communications) is an emerging technology that allows the user to make a payment via contactless communication with another device. This however requires chipsets that reside within the mobile device. Since users in rural areas are unlikely to own NFC enabled phones, SMS (text messaging) will be the prevalent technology for at least the next several years. This creates a window of opportunity for companies like Obopay, based in Redwood City California. Obopay has partnered with Societe Generale as their payment technology provider in Africa.
If the Chinese are able to gain a strong enough foothold in Africa, part of the continent could be using a payment method that is similar to China Unicom’s “All-In-One-Mobile-Card”, which consists of a phone with an integrated SIMpass™ antenna. SIMpass™, a technology developed by Beijing-based Watchdata, allows a device to be detected when passed over a contactless reader.
Mobile commerce and payment technologies represent economic hope for Africa, which has been struggling to escape its colonial history. The one lingering question is whether Africa’s emerging middle class will expand fast enough to drive a high and sustainable level of mCommerce growth. The good news for those who are building Africa’s mCommerce infrastructure is that they can help answer this question positively by working proactively with African businesses and governments to help create jobs locally.
Monday, August 2, 2010
Bubble or Not: Why China's Economic Programs are Working
After the Chinese government announced its Beijing-London railway project, the global discussion around its ambitious economic stimulus and infrastructure programs heated up. People have been asking if these represent a recessionary bubble in the making, or whether there is a method to the apparent madness of the Chinese.
Although China’s policies potentially could create a bubble on the long term, a near-term recession is not likely and a number of factors are working in China’s favor, despite recent GDP growth deceleration. These can provide insight into the conditions under which large-scale government projects and economic stimulus programs can succeed.
The first factor is that China is a net exporter, with average monthly trade surpluses of $10B to $15B. This allows the government to keep corporate income tax rates relatively low while generating enough revenue to finance projects without having to print more cash.
China also has adopted business and entrepreneur friendly policies. Under its Unified Corporate Income Tax Law (“New CIT Law”) which took effect from January 1, 2008, foreign owned enterprises and domestic businesses are subject to a unified tax rate of 25%. Additionally according to Rule 28 of New CIT Law, income tax of small low-profit enterprises is subject to a reduced rate of 20%. In some cases businesses that are classified as a “resource multipurpose utilization enterprise” can receive an income tax holiday of a year or more. Compare this to average U.S. corporate tax rates that often exceed 40% when state and local income taxes are factored in.
Innovation also is encouraged by aspects of the government’s five year planning cycle, particularly in its modernization policies. In a recent interview, top policy advisor Hu Angang said, “The 12th five-year plan will not only be China’s first national plan for ‘green development’, but a historical starting point of the nation’s path towards a ‘green modernization’.”
Chinese entrepreneurs and their investors are seeing a greater number of exit strategies, due to both favorable policies and trends towards industry consolidation in infrastructure verticals. China Infrastructure Construction Company (CHNC:OTCBB) is an example of a small company that was able to offer its stock publicly in the United States. As one of the few producers of ready-mix concrete that is “green” (i.e., made in part from recycled materials), its prospects are bolstered by the government’s green modernization efforts.
These factors have been important contributors to the expansion of China’s expanding middle class that continues to demand more domestic products and services. Some estimates show a Chinese middle class of 700 million people by the year 2020.
Could China’s “growth bubble” burst? It could over time, but not in the near term. The emerging middle class will increase its demand for foreign goods, but barring an internal economic shock or banking meltdown, it will be many years before the balance between cash in and cash out shrinks to the point that the country’s ambition drives an economic contraction.
Although China’s policies potentially could create a bubble on the long term, a near-term recession is not likely and a number of factors are working in China’s favor, despite recent GDP growth deceleration. These can provide insight into the conditions under which large-scale government projects and economic stimulus programs can succeed.
The first factor is that China is a net exporter, with average monthly trade surpluses of $10B to $15B. This allows the government to keep corporate income tax rates relatively low while generating enough revenue to finance projects without having to print more cash.
China also has adopted business and entrepreneur friendly policies. Under its Unified Corporate Income Tax Law (“New CIT Law”) which took effect from January 1, 2008, foreign owned enterprises and domestic businesses are subject to a unified tax rate of 25%. Additionally according to Rule 28 of New CIT Law, income tax of small low-profit enterprises is subject to a reduced rate of 20%. In some cases businesses that are classified as a “resource multipurpose utilization enterprise” can receive an income tax holiday of a year or more. Compare this to average U.S. corporate tax rates that often exceed 40% when state and local income taxes are factored in.
Innovation also is encouraged by aspects of the government’s five year planning cycle, particularly in its modernization policies. In a recent interview, top policy advisor Hu Angang said, “The 12th five-year plan will not only be China’s first national plan for ‘green development’, but a historical starting point of the nation’s path towards a ‘green modernization’.”
Chinese entrepreneurs and their investors are seeing a greater number of exit strategies, due to both favorable policies and trends towards industry consolidation in infrastructure verticals. China Infrastructure Construction Company (CHNC:OTCBB) is an example of a small company that was able to offer its stock publicly in the United States. As one of the few producers of ready-mix concrete that is “green” (i.e., made in part from recycled materials), its prospects are bolstered by the government’s green modernization efforts.
These factors have been important contributors to the expansion of China’s expanding middle class that continues to demand more domestic products and services. Some estimates show a Chinese middle class of 700 million people by the year 2020.
Could China’s “growth bubble” burst? It could over time, but not in the near term. The emerging middle class will increase its demand for foreign goods, but barring an internal economic shock or banking meltdown, it will be many years before the balance between cash in and cash out shrinks to the point that the country’s ambition drives an economic contraction.
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