Olympics and business

The economic benefits of hosting the Olympic Games have been rather dubious at best

IF you were a hard-core sports fan, you would have woken up at 4am to watch the opening ceremony for the London Olympics this morning. In which case you probably won’t read this until afternoon as you regain some sleep.

Yes, the long-awaited games are upon us and we wait again to see if someone will bring a gold medal home finally. I think our only chance is Lee Chong Wei in badminton who lost the last Olympics final to Lin Dan of China in 2008 and returned with a silver.

What continues to boggle the mind is the cost of the games and how it keeps on going up and up. For Britain, the injection of money into the economy as well as a slew of business opportunities the games must have thrown up must offer some welcome respite from the bad times and even a chance to stem the downturn in the economy.

As former British Prime Tony Blair put it at an event publicising the Olympics: “If you were to pose the question to (fellow bidders) Paris or Madrid or New York ... ‘Would you prefer to be putting on the Olympics right now?’ I’m sure they would say ‘Yes’.”

Well that’s his take on it. The cost of hosting the games is £9.3bil or a massive RM46.5bil. But what is telling is that the original estimated cost was just £2.4bil (RM12bil).

Blair helped to deliver the Olympics to London for 2012 in 2005 over other competitors which included Paris and New York, with Paris being the hot favourite. Given the traditional rivalry between the French and the British, the unexpected victory must have been sweet.

But not so the near quadrupling of the costs in hosting the Olympic games. This has been heavily criticised with people questioning loudly whether London would benefit from hosting the games with costs having increased so much.

Besides, London through its mayor Ken Livingstone, signed off considerable rights to the International Olympic Committee (IOC) which requires cities bidding for the games to sign the contract ahead of the awarding of the games to a particular city.

A lengthy article in Vanity Fair gives a glimpse of such requirements revealed by activist groups. Below is an extract:

“To comply with its terms, London must designate 250 miles of dedicated traffic lanes for the exclusive use of athletes and ‘the Olympic Family,’ including IOC members, honorary members, and ‘such other persons as may be designated by the IOC.’ (These traffic lanes are sometimes called ‘Zil lanes,’ alluding to the Soviet-era express lanes in Moscow reserved for the politburo’s favourite limousines.)

“Members of the Olympic Family must also have at their disposal at least 500 air-conditioned limousines with chauffeurs wearing uniforms and caps. London must set aside and pay for 40,000 hotel rooms, including 1,800 four- and five-star rooms for the IOC and its associates, for the entire period of the games. London must cede to the IOC the rights to all intellectual property relating to the games, including the international trademark on the phrase ‘London 2012.’ Although mail service and the issuance of currency are among any nation’s sovereign rights, the contract requires the British government to obtain the IOC’s ‘prior written approval’ for virtually any symbolic commemoration of the games, including Olympic-themed postage stamps, coins, and banknotes.”

One would be forgiven for thinking that London has surrendered its sovereign rights to the IOC for the period of the games!

Back to business. Lloyds Banking Group chief economist Patrick Foley meantime estimates that the Olympic Games will give a boost of £16.5bil (RM82.5bil), mostly through construction, to the UK economy although how he arrives at that is not clear.

That’s not a lot simply because the direct spend on the Olympics is already £9.3bil and unless such spending has the recurrent ability to reproduce income over many years, it is not justifiable.

Foley points that the bigger impact will be the regeneration of a neglected area of East London which became the Queen Elizabeth Olympic Park. However, it is naïve to think that the area would continue to be as lively after the Olympics and there would be the question of what to do with all that excessive infrastructure post the games.

At best, the benefits of the Olympics for the host city is dubious. At worst, one can argue quite cogently that all that money could have been put for better use in infrastructure and regeneration that would have been more sustainable than for providing facilities for a large and temporary influx of athletes, even if they were world-class, and others.

Meantime, Britain is making the best out of the Olympics. Prime Minister David Cameron just two days before the opening ceremony for the Olympics launched a high-powered attempt to woo global business at a conference to showcase Britain to the world.

Among those for whom the red carpet will be rolled out is a 30-strong delegation from China. Britain is wooing foreign investors in a real big way and using the Olympics to the hilt to do that.

And read what Cameron’s predecessor Blair said to Vanity Fair earlier: “If you said to David Cameron, or anyone involved with this, ‘If you could click your fingers, and the Olympics would be held in Paris instead of London, what would you feel: (a) relieved, or (b) Oh, my God, what did we give that up for?’ it would be b. What you make of the Olympics is in a way up to you. For a country like Britain, it’s a great thing for us to have the Olympics here. We can afford to do the Olympics. We’re Britain. We’re not some Third World country.”

Really? That’s almost a desperate attempt to try and get foreign investments in to help soothe the troubled waters that is the British economy smacks of what many Third World countries would have done to boost their own economies.

A Question of Business by P.GUNASEGARAM

 l Independent consultant and writer P Gunasegaram (t.tp.guna@gmail.com) does not love the Olympics so much as to stay awake until 4am to watch the opening ceremony.

National Instruments to set up its largest R&D facility outside US in Penang

KUALA LUMPUR: US-based National Instruments (NI) is aiming to set up its largest research and development (R&D) facility outside the United States with the expansion of its facilities in Penang.

“Currently we are operating in a rented space. With this expansion, we will have our own infrastructure to support our business in the region,” NI Penang managing director Raj Purushothaman told a press briefing on the expansion plans of the company yesterday.

The company also aims to increase its manufacturing capacity to support an additional US$1bil in the company's growth.

Raj: ‘With this expansion, we will have our own infrastructure to support our business in the region.”

The capacity would add another 40% to its global hardware manufacturing capacity which would include the manufacturing of academic products, embedded controllers, industrial chassis and modular instruments.

Its manufacturing arm is slated to be operational in the fourth quarter.

In tandem with the planned five to 10-year expansion, the company is aiming to expand its local headcount to 1,000-1,500 employees from its current 165.

This includes 250 engineers in electrical, mechanical and engineering management fields.

The technology hardware and software provider began operations in Malaysia in 2009 with an US$80mil capital investment.

Raj said as part of the planned investment, the expansion was envisioned to transform its facilities in Penang to be the Asia-Pacific hub, serving its clients in the region and elsewhere.

“It will be an integrated operations centre, which manages R&D, manufacturing, supply chain, product distribution, product services, IT and finance,” he said.

Its expansion includes the construction of a 314,000 sq ft office and manufacturing space on a 23-acre site in Batu Maung, Penang.

Its manufacturing arm slated to be operational in the fourth quarter would have the capacity to support an additional US$1bil in the company's growth.

NI is among other American multinationals that have established its presence in Malaysia such as Honeywell, Dell, Intel, General Electric, Western Digital and Motorola.

At the event, International Trade and Industry Minister Datuk Seri Mustapa Mohamed said the United States was the third largest foreign investor in the manufacturing sector in 2011 with RM2.5bil.

The investments were mainly in electrical and electronics, chemical and chemicals products, transport equipment and wood & wood products.

“The electrical and electronics (E&E) industry continues to be a major contributor to Malaysia's gross domestic product growth . For the period January to May 2012, E&E exports were 32.27% of the total country's exports and 48.73% of the manufactured exports,” he said in his speech delivered by Malaysian Investment Development Authority (Mida) chief executive officer Datuk Noharuddin Nordin.

- The Star

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The mystery woman from N. Korea is leader's wife

SEOUL (Reuters) - North Korea's new young leader, Kim Jong-un, is married, state media said on Wednesday, putting an end to speculation over the relationship with a woman seen at his side during recent events.

North Korean leader Kim Jong-Un (C) and his wife (red), who was named by the state broadcaster as Ri Sol-ju, visit the Rungna People's Pleasure Ground in Pyongyang in this undated picture released by the North's KCNA on July 25, 2012. REUTERS/KCNA

The announcement, which fits a trend the upbeat Kim has followed to break out of the dour management style of his late father, Kim Jong-il, came just two weeks after he was seen at a gala performance accompanied by the woman, with rumours swirling as to whether she was his wife, lover or sister.

"Kim Jong-un's move appears to give the youth hoping for change, especially young women, a favourable impression of him although it can make conservative old North Koreans uncomfortable," said Cheong Seong-chang, a senior fellow at the Sejong Institute think tank.

"Although Kim Jong-un continues a one-man dictatorship, he is expected to have a more open attitude in culture than in the Kim Jong-il era."

Some observers in South Korea speculated she was a singer, Hyon Song-wol, he dated years ago before his father put a stop to it, but who was now back on the scene.

But the North Korean state broadcaster named his wife as Ri Sol-ju, without giving details. It is not clear when the two tied the knot.

Recent TV footage showed the two laughing with each other, touching a child's hair together and clapping while watching a performance featuring western show tunes and Mickey Mouse.

"While a welcoming song was playing, our party and people's supreme leader, Marshal Kim Jong-un, came out from a ceremony of the completion (of a 'pleasure ground') with wife, Ri Sol-ju," it said.

Kim, in his late-20s, took over the family dynasty last December with the death of his father, whose rule took North Korea deeper into isolation, abject poverty and large-scale political repression.

KIM DID IT HIS WAY

Since then he has taken a more glitzy approach, at least on the surface, to ruling a country which is locked in a stand-off with the West over its nuclear weapons programme.

Once the official mourning period was over, the youngest Kim to rule North Korea was seen laughing with fusty old generals, gesticulating in delight at a military parade and, the biggest shock of all, speaking. Most North Koreans went to their graves never having seen Kim the elder speak.

Kim the younger has steadily worked to impose his own stamp on the top leadership of North Korea, and on Sunday ousted Vice Marshal Ri Yong-ho, the country's leading military figure, who was seen as close to Kim Jong-il.

Kim was named marshal of the army in a move that adds to his glittering array of titles and cements his power. He already heads the Workers' Party of Korea and is First Chairman of the National Defence Commission.

He is also gearing up to experiment with agricultural and economic reforms after purging Ri Yong-ho for opposing change, a source with ties to both Pyongyang and Beijing told Reuters earlier.

This month's unusual gala performance, where Kim was seen with his wife, featured Walt Disney's "It's A Small World", a thumping rock version of the theme tune to "Rocky" and Frank Sinatra's "My Way", a song that might have particular appeal to the Kim family, whose word is law in North Korea.

Bizarrely for a state which frequently voices its loathing for all things American, it featured a cast of Disney characters, including Winnie the Pooh and Minnie Mouse.

The family does have a previous Disney connection: the ruler's elder brother, Kim Jong-nam, said he was on his way to Tokyo Disneyland when he was caught illegally entering Japan in 2001.

(Editing by Nick Macfie)

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How to impress Malaysian law examiners?

The semester examination has just ended at my university. Working late till the wee hours of many mornings, I completed the evaluation of several thick bundles of examination scripts. As always, a fair number of answers were illegible, incomprehensible and terribly disorganised.

FOR all of us in the teaching profession, the periodic ordeal of marking examination scripts arouses suicidal as well as homicidal instincts!

Many students fail to exhibit basic knowledge of the subject and, understandably, fail the examination. Others have undoubted ability but not the technique or methodology of writing effective answers. It is to the latter group of law students that I wish to address today’s column.

Let me begin by saying that law is “reasoned argument”. To perform satisfactorily in the field, some special skills and techniques need to be cultivated.

Language: A law student should understand that oral and written communication skills are absolutely indispensable for the effective practice of the law. Law students should seek constantly to improve their command of the language by reading newspapers, law books and law journals.

Original sources: A good law student buys her own textbooks and statutes and does not rely entirely on class handouts. She constantly supplements class handouts with self-study from textbooks and adds to the “bank account” of knowledge opened by the lecturer for the students.

Art of reading: Reading is an art. Unless we have a smart strategy, it is entirely possible to get lost in the undergrowth. In reading a book or article, the student must avoid beginning at the beginning and plodding to the end. She must first look at the headings and sub-headings to get a broad feel or outline of what the chapter contains.

She must proceed from the general to the particular; from the woods to the trees. If an easy book or handout is available, she must read that first to get a background.

Self-study: Her study techniques must have three aims. First, to understand the basic principles of the law. Second, to recall basic ideas. To achieve this she must summarise the main principles or ideas in simple diagrams, charts, “magic words” or acronyms. These “scaffoldings” or outlines must be committed to memory. A third aim must be to evaluate existing materials and to highlight the flaws in the laws.

Attending tutorials: Successful students go prepared to class bubbling with queries. During the class or tutorial, they don’t just hear, they listen. They jot down prolific notes. They ask questions orally or by e-mail or in other written form. They participate.

Study groups: Successful law students form informal groups for study and revision. They try to be in a group of hard workers and independent thinkers. They encourage differences rather than conformity. They expose their understanding to scrutiny by others.

Summarising notes: Organising, systematising and summarising knowledge is the best way to master it. In preparation for the examination, a good student summarises each topic on one A4 page or on index cards or uses flow charts or diagrams to organise the vast amount of material collected.

For example, the whole topic of constitutional supremacy in constitutional law can be summed up in six points:

> Article 4(1) and 162(6) on supremacy of the Constitution
> Fundamental rights
> Federal-state division of powers
> Judicial review
> Amendment process
> Darurat (emergency).

These six points can, in turn, be summed up in one magic acronym AFFJAD to help you to recall the broad contours of the topic effortlessly.

Likewise, important cases could be summed up in half a page with a few lines each on three important parts of each case: the facts, the issues, and the court’s decision on each issue.

Past years’ examination papers: Familiarity with existing patterns of evaluation helps greatly in preparation. A successful student obtains and analyses past years’ examination questions. She prepares charts to discover the examiners’ preferences or patterns. She is, however, aware that examiners change from year to year and are not bound by patterns or precedents.

Practising written answers: A good student solves some past years’ questions and submits them to her lecturer for evaluation. This way she seeks to learn by simulation. She submits her knowledge as well as her methodology to sympathetic scrutiny.

Effective presentation: Examinations are like life. Substance is important but so is show! An organised, easy-to-read presentation always secures higher marks than one that is all jumbled up, disconnected and disorganised.

In writing her answers in the examination hall, a wise student does not start writing the moment she is allowed to do so. She spends five minutes organising her answer; drawing up the scaffolding or the outline on the left page of the answer book.

ATACR formula: For each essay or problem question, a wise student follows the ATACR formula. “A” stands for analysis or breakdown of the question or problem into its constituent parts. The more issues the student spots, the higher her marks are likely to be.

“T” refers to theory or the law relating to each issue identified above. The theory and the law are found in statutes, decided cases and juristic works.

The next “A” stands for application of theory or law to the facts of the case or question at hand.

“C” refers to conclusion on the point being discussed and “R” signifies the remedy or course of action to be recommended.

Reflecting On The Law
By Shad Saleem Faruqi

> Shad Faruqi is Emeritus Professor of Law at UiTM 

Stop playing race game in Malaysian politics

The country has changed so much since 1969 that to keep using the argument that we are on the verge of race war is rather obsolete.

I WAS wondering when it was going to happen; when certain quarters were going to dust off that old chestnut of May 13, 1969, and use it as a political tool.

It all seems terribly coincidental that as the general election draws nearer, suddenly race riots get inserted into political speech, and a movie about May 13 is apparently waiting to be released.

The country has changed so much since 1969 that to keep using the argument that we are on the verge of race war is rather obsolete.

Let’s look at some facts. Firstly, the vast majority of the Malaysian population were not even born in 1969.

This means that first-hand knowledge of that terrible time is simply not part of most of us. Without that emotional connection, I believe that younger Malaysians are willing to question the feasibility of such a thing happening again.

And really, could it? In 1969, the politics of the nation was so very clearly divided along racial lines. The Opposition was not united as it is today. PAS won 12 seats, DAP 13 and Gerakan 8.

They were not part of a coalition and each stood on its own, therefore it was possible to play the race game because, in Kuala Lumpur and Selangor in particular, the Opposition had the face of “the other”.

Today, with the Pakatan coalition in existence, the Opposition is a much more complex animal. If the Opposition wins, how can the race card be played when two of the component parties are so predominantly Malay?

Let’s take a look at recent events that has got some powerful people’s knickers in a twist.

In particular the Bersih demonstrations of 2007, 2011 and 2012. The demographics of these events were multi-ethnic and became even more multi-ethnic with each progressive one.

By the time of this year’s Bersih demonstration, the make-up of the people who took part was much closer to the make-up of the country as a whole. However, the predominant ethnic group was still Malay.

This goes to show that the political divide, not of political parties but of ordinary citizens, can no longer be conveniently divided along ethnic lines.

Significant numbers of Malaysians, regardless of their background, can be united when they have a common political goal, in this case clean and fair elections.

Furthermore, ethnic Malays can be vocally unhappy with the status quo. In the present-day scenario, it is ridiculous to say that the politics in Malaysia is simply a matter of Malays versus Non-Malays.

And let us look at the 2008 elections. The results were unprecedented and surprised most people. I remember that night very well, as the results became clear that Barisan had lost their two-thirds majority and five state governments.

I decided to drive around Kuala Lumpur, just to see what would happen. And what happened? Nothing.
The streets were quiet. No celebratory parties, no processions, no fireworks; nothing.

The Opposition and their supporters on the streets were as muted as the Barisan and their supporters.

No gloating, no taunting, no excuses at all to provoke a reaction from the supporters of the powers-that-be.

I am certain that if a similar result is achieved in the next elections, the same would happen. There will be no provocation from the opposition and their supporters.

That is not to say there will not be any trouble. Recent events in this country have proven that there are gangs of thugs who are willing to be violent for political purposes.

The thing is though, I believe that the Malaysian public are not going to rise to the bait.

I fervently hope we will show them that we are better than them, we are nobler than them and they are nothing but hooligans with delusions of grandeur.

No, the danger that faces this country will not come from race riots.

If we have trouble in Malaysia, it will be if there is a prolonged disrespect for true democratic principles.

If the election process is not transparent and fair, if the result of a clean election is not respected, then and only then should we start to worry.

BRAVE NEW WORLD

By AZMI SHAROM

The modern day slacker

It is this type which frustrates the hardworking Malays, who have worked so hard to bust the myth of the lazy Malay, the subsidy-mentality-bumi, and gives them a bad name.

YOU would have known at least two of this type: the young Malay boy in his late 20s to mid-30s who has the potential, but for no reason at all, seems intent on ruining his life, by simply being lackadaisical and complacent. He is the slacker.

It is this type which frustrates the hardworking Malays, who have worked so hard to bust the myth of the lazy Malay, the subsidy-mentality-bumi, and gives them a bad name.

The latter, who come from various economic backgrounds, burn the midnight oil at their corporate jobs. Some take on another as a side income or work at two jobs.

Their partners or spouses are equally as hardworking, but when drawn into conversation about the idle Malay boy, both will throw their hands up in the air.

Talk to non-Malay professionals and they say nonchalantly, “That’s what you get when you hire these Malays.”

A successful bumi businessman told me once that he hires only young non-Malays, because he had been duped too many times by the boys he wanted to help.

These boys, who seem to be mushrooming by the day, are articulate, and do keep abreast of current events. Interestingly, these boys mainly come from working class backgrounds.

They’re not unintelligent. Have a chat with them – they can be so perceptive that you wonder why they are not in politics or a think-tank. And yet, they are in debt, and seem to relish in their financial piccadiloes; when they are offered opportunities, they take and screw them up halfway.

The reasons are unbelievable: I broke up with my girlfriend. I don’t have money. I don’t have the ilham. My friend owes me money. I owe myself money.

However, despite their apparent flaws, they complain about how the world owes them a living. The government should give me a grant. The government owes me a living because I’m Malay and poor.

People don’t like me because I’m not connected. Girls don’t want to date me because I’m poor and directionless.

Granted, some do try. But they look for short cuts.

Some of them become the “shadows” of the bodyguards, the lesser datuks and proxies to the middleman to the PA to the right-hand man of the “Man Himself”, in vain hopes for a small cut.

If they are lucky, they take back RM5,000. They create small enterprises and mark up costs that defy business logic, that in the end they have to close shop.

The opportunities are already there. Yes, our education system is not perfect, but many have come out from it better and richer.

I also do not deny that working or doing business is not easy either. Yet there are many Malaysian success stories.

Blame the NEP if you want, but the truth is, many have also thrived sans it. Some packed up their bags and moved abroad without a degree or connections. The Internet is at your disposal – for all this talk about not having money, a good number of these boys have a working computer. Mac, no less. So work from home.

Work with clients from everywhere! A friend once hired a Nigerian student in Nigeria to create his website. That young boy from the sticks of Nigeria delivered a really swoosh website within a month.

When asked why they are so dismissive of politics and youth activities, they can tell you, “It’s a waste of time. We’re not America. There’s a tradition of activism there, not here. Besides, we’re the grassroots. The government should take care of us and provide us with incentives.”

How can any government do so, and why should it? This is not about opportunities but attitude!
There is already a social and economic imbalance which will worsen.

Many marriages break down, and some of the increasing reasons I hear from my syariah lawyer friends are that these boys are complacent and do not contribute to the marriage financially.

They do not pick up the slack at home by being the housekeeper, and expect the wives to fund two families. Theirs and his.

Some resent their wives’ successes and create problems. Some of them bring their debts into the family equation.

Economically, if more and more of these youths opt to be slackers, the country’s GDP will go down greatly and crumble into a declining and worsening economy.

The divide between the haves and have-nots will widen. The gender imbalance is already there: More young (Malay) women are in tertiary institutions and working very hard.

Quite a number have told me they fear marriage because they do not want to be beholden to a spouse who cannot contribute to a marriage.

At this juncture, this begs another question.

Why are a good number of young and working class Malays complacent? Sometimes, I feel that the foreign workers deserve citizenship because they work and somehow manage to save for their families back home.

They live in the most deplorable living conditions, and some worse than the shacks I have seen in my kampung.

The question should no longer be about whether Malay youths are politically apathetic. The question should be how to make these boys work and be motivated.

It is a study I greatly welcome and would like to do.

A WRITER'S LIFE By DINA ZAMAN

Rude awakening for Kuala Lumpur

Kuala Lumpur ranked way down in Reader’s Digest latest appraisal

PETALING JAYA: Some things do not seem to change in Malaysia and foremost among them are rudeness and inconsiderate behaviour.

Six years ago, Reader's Digest placed Malaysia's rudeness level at 33 out of the 35 countries ranked.
The latest appraisal by the magazine shows Kuala Lumpur almost at the bottom of a list of Least Courteous Cities at number 34 out of 36 major cities in the world.

So impatient: Commuters trying to get into a train even before other passengers have alighted.

 

Police records show that more than 20% of the 1.3 million accidents yearly result from aggressive driving behaviour but inconsiderate and risky conduct on the roads remain the main complaints, according to findings in The Star Online's Facebook page (www.facebook/thestaronline) survey.

Other selfish acts like ignoring signs against smoking, eating and littering, and rushing in to lifts, trains and buses before allowing people to exit are also high on the list.

Poor toilet etiquette, talking loudly on phones even in cinemas, being late for appointments, not saying “thank you” and leaving trolleys in parking lots are the other bad habits that Malaysians continue to practise shamelessly.

Click on image to view bigger image.

 

Academic counsellor Joshua Johnson, 31, said the most common examples of bad drivers were those who did not use indicator lights when switching lanes and tailgating road bullies.

Christopher Oh, 25, a research assistant, said he was peeved by smokers who disregarded no-smoking signs in enclosed areas.

Describing them as rude public hazards, he said: “Smoking in a non-smoking area is thoughtless and irresponsible because second-hand smoke is harmful, especially to non-smokers,” he said.

Kevin Mcintyre, a Scottish expatriate working in Kuala Lumpur, said he missed his stop on the train because people were rushing into it as he was trying to get out.

“It was rude and caused me a great inconvenience,” he said.

A Keretapi Tanah Melayu Berhad spokesman confirmed that such uncaring attitude was common, especially during rush hours.

“Passengers also do not readily offer their seats to pregnant, handicapped or elderly passengers,” he added.

He said that during off-peak periods, there were also male passengers who indiscriminately boarded coaches reserved for women, ate on board, smoked and also littered.

In GEORGE TOWN, Penang Senior Citizens Association president Lawrence Cheah noted that young Malaysians were not as polite as their Singaporean counterparts.

“In Singapore, they willingly give up their seats on public transport,” he said.

He said that despite the higher level of literacy, people seemed to have adopted a less caring attitude.

“In the old days, people were more civic-minded, although they were not as highly educated as today,” he added.

Eden Handicap Service Centre assistant unit head S.K. Lee said it was meaningless to be highly educated if one behaved rudely.

“Parking in lots for the disabled and using public toilets meant for such people is very bad and rude behaviour,” he said.

Reports by YVONNE LIM,QISHIN TARIQ and CHRISTINA CHIN, The Star/Asia News Network

The yuan goes global: Money talks and London is listening to the yuan

The Chinese currency is fast gaining weight worldwide and becoming a key topic of conversation for bankers.

THE fashionable youths in hot pants flocking to high-end department stores in London and bankers in dark suits walking in and out of skyscrapers in the financial district have one thing in common, a growing interest in the Chinese currency.

During the recent holiday to celebrate the Diamond Jubilee of Queen Elizabeth II, Harrods, a department store known for its ties with the British royal family, launched its own Sina Weibo, a popular Chinese social media platform, to attract more Chinese customers. Shoppers can find “the very latest, limited edition and exclusive products”, with Hermes, Chanel and Louis Vuitton among the most popular brands, according to the store’s spokesman.

More than 100 UnionPay payment terminals in the store also help to make Chinese shoppers feel more at home. Through the machines, part of China’s unified bank card network, Chinese visitors can pay for their purchases with the same cards they use at home.

Hear, hear: A man walking past the London Stock Exchange in London. London is now a yuan offshore trading centre, which will help both Chinese and European business people to avoid foreign exchange risks. — China Daily/Asia News Network

 

A few streets from Harrods, a billboard featuring a green jade dragon shaped like the yuan symbol stands outside a bank. The ad reads: “A new global currency is emerging. Be part of it.” The commercial is for HSBC, a bank rooted in the silk and tea trade between China and Britain in the 19th century.

The UnionPay terminals, the jade dragon advertisements and the shops on the streets of London offering exchange services between the British pound and the yuan are the tip of the iceberg in the biggest story in the financial markets today: the internationalisation of the Chinese currency.

As people search for a bright spot amid sluggish economic growth in the West, beset as it is by the European debt crisis, companies, investors and financial institutions are increasingly focused on the yuan. From Beijing to Hong Kong, Tokyo to London, policymakers and businesses are part of the push.

There are several forces driving this move, both at home and abroad. The People’s Bank of China has made several moves this year to liberalise the exchange rate; George Osborne, the UK chancellor of the exchequer, took the initiative to develop London into an offshore trading centre for the yuan earlier this year; and this month, the yuan became convertible with the Japanese yen under an agreement between the Chinese and Japanese governments.

“All of it demonstrates that the Chinese government is pushing forward the internationalisation of the yuan and encouraging the use of yuan offshore. That will help the global economy in many ways,” said Adam Tyrrell, head of European capital markets for Standard Chartered in London.

Greenback to redback

These initiatives will have a profound influence on the development of trade. For instance, China and Europe are each other’s largest trading partners, but, up till now, the bulk of that trade has been settled in the US dollar. If a Chinese company buys pork from a UK company, it does not buy and sell in yuan, the pound or the euro. It settles in dollars.

That paradox is changing. Now the same pork company can open a yuan account at a British bank such as HSBC or Standard Chartered, or a Chinese bank that operates in Europe, such as Bank of China or Industrial and Commercial Bank of China, and can then invoice the goods or settle the deal with its Chinese clients in their national currency.

The advantage of this is clear: Settling in yuan helps both sides to avoid foreign exchange risks and reduces transaction costs. For instance, in 2008, many companies in southeast China had to lay off workers and close factories because they were losing money through currency appreciation.

That situation would have been different if the contracts had been signed in yuan, because the agreements would have a fixed value no matter what the change in the exchange rate.

The initiative can also benefit companies outside the European time zone, given London’s position as the world’s foreign exchange centre. “The beauty of London is not just about London,” said Patrick Law, Hong Kong-based managing director and head of trading for Greater China at Barclays. “If you look at the London time zone, it covers both the northern and southern hemispheres.” And that means it will also help facilitate business between China and Africa and the Middle East.

“Africa is a very interesting market to look into because China and Africa have a lot of business together,” Law said. He added that Barclays, a bank with strength in commodity trading, began to conduct trade between the South African rand and yuan from April.

Uncle Sam to dim sum

The internationalisation of the yuan will also offer a new platform for companies and investors looking for alternative methods of financing.

The “dim sum bond” got its name from delicacies in Chinese cuisine such as spring rolls, shrimp dumplings and steamed buns. The name has been appropriated for fixed income denominated in yuan and was started in Hong Kong when the city became the first offshore centre for yuan trading. The bond has become increasingly popular outside Asia and grew rapidly in Europe last year, according to Standard Chartered’s Tyrrell.

British banks were involved in five dim sum bond deals with European companies and financial institutions last year. It has also been involved in three client deals so far this year, according to Tyrrell: “Over time, as the yuan is used more, more European corporations and financial institutions will be interested in transacting in yuan, either for their China business, when they can remit onshore, or as a way of diversifying their investor base.”

The motivation for getting involved in dim sum bonds is also changing, he said. When the yuan market first developed offshore, a lot of investors were looking for a currency play rather than a bond play. At first, investors were looking to invest in the currency because they thought it was going to appreciate.

“Over time, it is developing into a more mature bond market,” said Tyrrell. “It will tend to be more driven by traditional bond market influences.”

Chances and problems

That’s particularly true this year, because of the fragile state of the global economy. If the investor sentiment is not there, there will be fewer bond issuances, according to Tyrrell. “There is definitely momentum in the yuan. It will not stop. It will grow,” he said.

Given the fact that the yuan is still not fully convertible, there is still a lot of work to be done to encourage people to hold it and conduct business with it, as they do with dollars.

The main issue for London as it attempts to develop into an offshore yuan trading centre revolves around the lack of liquidity. That’s due to both a paucity of knowledge about the yuan market and the limits of infrastructure to facilitate trade flows.

“Without liquidity, we cannot grow the pie and make the market more efficient,” Law said. “Everybody is definitely very interested. The current situation is that people have just started looking into it,” he said. “The involvement is still relatively small, but the amount of interest is actually very high.”

Some observers have suggested that the pool of yuan liquidity in London can grow through a huge variety of sources. For instance, Standard Chartered recently issued yuan-denominated European Commercial Paper to investors in Europe.

“ECP is issued to investors. Then Standard Chartered holds the liquidity in yuan and can use that for trade finance. This will help to increase trade flows with China for European clients,” Tyrrell said.

“As investors become more comfortable holding yuan, it will help build liquidity here.”

By Diao Ying, China Daily/Asia News Network