Penang flood aftermath: design pump system needed to drain out water, fix funding snag ...

Good plan needed to drain water from flood-hit areas

PENANG’S drainage system is unable to cope with heavy rain falling within a short period of time, said state Local Government, Traffic Management and Flood Mitigation Committee chairman Chow Kon Yeow.

He said the cause of flooding in the state on Sunday night was due to the “very heavy and continuous downpour”.

“In Teluk Kumbar, the occurrence of flash floods can only be remedied by the installation of a more efficient pump system with a higher capacity to drain the water out from the affected area during high tides and rain.

“At the moment, a consultant has already been appointed to come up with the design in a few months for a RM3mil project to upgrade the pump system. Hopefully by the second half of next year, the tender can be called to appoint the contractor to carry out the installation.

“A detailed design is also being drawn up for a RM7.5mil flood mitigation project, approved by the state, in order to upgrade the drainage of Sungai Nipah, Sungai Teluk Kumbar and Sungai Relau,” he said at the launching of the ‘Pedestrian is King’ campaign at Town Hall yesterday.

Chow added that the Irrigation and Drainage Department (DID) had also ordered a developer to clear the clogged drains at its project site in Batu Maung that had allegedly caused a mudslide.

He said the areas affected by the downpour from 7.30pm onwards were Sungai Tiram, Relau, Teluk Kumbar, Bandar Baru Bayan, Kampung Seronok and Batu Maung as well as roads including Jalan Mahsuri, Jalan Tengah and Jalan Sultan Azlan Shah.

“The Sungai Ara catchment also recorded 80mm of rain water in a hour. It would be a different outcome if the 80mm downfall took place over two to three hours, instead of within an hour which made the effect more pronounced,” said Chow.

The categorisation of rainfall intensity exceeding 60mm in one hour is considered very heavy according to the DID.

Bayan Baru MP Sim Tze Tzin urged the state government to immediately implement the southwest district flood mitigation masterplan.

“Developers from southwest district have been contributing to flood mitigation funds. Residents also pay their quit rent diligently.

“It is only fair to start using these drainage contribution funds to upgrade drainage infrastructures within the area,” he said.

Call to fix Penang’s flood funding snag

PENANG will carry improvements on the drainage and irrigation systems if it had the money, said state Local Government, Traffic Management and Flood Mitigation Committee chairman Chow Kon Yeow.

“In the 11th Malaysia Plan, we applied for more than RM800mil worth of projects but none was approved.

“If we have the money, we will, of course, conduct works on Sungai Pinang, Sungai Junjung, Teluk Kumbar and other places,” he told a press conference at 1st Avenue Mall yesterday.

Commenting on the drainage system in the southwest district that was built in the 70s, Chow asked that funds be given so the state could replace the antiquated system.

“Drainage and irrigation is a joint responsibility of the state and the Federal Governments, moreover, the Irrigation and Drainage Department (DID) is a federal agency.”

Meanwhile, state Housing Committee chairman Jagdeep Singh Deo said it was imperative that Sungai Pinang be deepened and widened as scheduled under Phase II of the flood mitigation project.

“The rainy season has started and we need to start work on the second phase as it involves the areas most effected by flood.

“I sent Natural Resources and Environment Minister Datuk Seri Wan Junaidi Tuanku Jaafar a letter dated Dec 1 to ask for the funds for the project (to be released),” Jagdeep, the representative for the constituency, told a press conference.

“The state has done its part and relocated the residents in Sungai Pinang.

“We want the Federal Government to be committed to carry out the RM450mil Sungai Pinang Phase II flood mitigation project.”

Under Phase 1 of the project, the river was widened and deepened from Kampung Rawa to the Dhoby Ghaut bridge.

Phase 2 involves, among others, relocating residents to make way for the project and the rehabilitation of the entire river.

Other flood mitigation projects involve Sungai Juru and its basin (RM80mil) as well as restoration works for Sungai Jawi (RM40mil), Sungai Perai (RM35mil) and their basins.

The projects for Bayan Lepas are estimated to cost RM153mil, Sungai Perai (RM35.4mil) and Sungai Kechil in south Seberang Prai (RM12mil).

Odd job worker Nurjan Md Shabdin, whose house is near Sungai Pinang, said she has experienced flooding as high as chest level during the 50 years that she has lived there.

“There are still snakes and monitor lizards that swim into our houses during the floods. My appliances and mattresses have had to be replaced many times,” she said.

Hammad Noor Abdullah, 41, who has lived there since he was 14, said he had to carry his school uniform in a bag and swim to school when the are was flooded.

“I am hoping the Phase II project is carried out and the village is finally free from floods,” he said.

On a separate matter, Chow said the state government had formed a steering committee and four sub- committees to implement the Penang Transport Master Plan.

“We have the Legal and Finance, Technical, Land Use, and the Strategic Communication committees which I head.”

When asked what the plans were for Eastern & Oriental Bhd’s 131 acres of reclaimed offshore land of Gurney Drive for the STP Phase 2, he said the plans had yet to be finalised.

“Part of it will be given to Ewein Zenith Sdn Bhd and there will be a road, green area, linear park and low-density commercial buildings. It’s just a concept now.”

Chow did not rule out a public consultation on the works should there be a need. Reclamation works on the land is expected to start this month.

Separately, Chief Minister Lim Guan Eng claimed that the Federal Government had sidelined the state.

“Penang has been excluded from the Budget over the years and several projects have also been cancelled.

“The state’s application of RM805mil for flood mitigation projects was rejected and promises to build an LRT system to reduce traffic on the roads have not been fulfilled,” Lim said.

“The request for an upgrade of the Penang International Airport was also not given serious consideration.

“I hope the promise to build a multi-storey car park to increase parking capacity at the airport will not become an empty promise,” Lim said in a press statement.

Coping with flood aftermath

Flood water flowing onto the lane in front of the arrival hall of Penang international Airport in Bayan Lepas.

SPRING-CLEANING was the order of the day throughout Penang due to the extraordinary downpour that lasted more than 10 hours and inundated many areas.
Residents living in Permatang Damar Laut Road felt the full brunt of Mother Nature as their houses were filled with mud after the flood.

About 50 residents held a demonstration, blaming the upgrading works along the road for their plight.

“The project has a poor flood mitigation system. Each time it rains, residents know the area will flood,” said housewife Hasiah Md Isa, 57.

Resident Zulkifli Abdullah, 63, said contractors should dig drains alongside their project.

According to Bayan Baru Umno division chief Datuk Mansor Musa, who was present at the demonstration, the Public Works Department (JKR) is undertaking the project.

“We have contacted JKR along with the contractor in charge of this project, asking them to visit the site and explain the situation. It is important for them to identify the cause of the problem.

“We are now requesting that the contractor pay compensation to the residents affected,” he said.

Kampung Sungai Tiram resident Zaliha Yaacob, 28, said the family spent a sleepless night moving their belongings from the rising water.

“We always expect a flood when it rains but we did not expect it to be this bad,” she said while clearing the mess at her home.

Business owner Lau Kok Peng, 60, was also busy cleaning his popular coffee shop.

“It’s a good thing my shop closes on Monday but there’s a lot of work to do,” he said.

In Teluk Kumbar, 44 flood victims from 12 families have left the evacuation centre for home.

Operations officer Lt Muhammad Aizat Abdul Ghani said flood victims began seeking shelter at the Dewan Perda Kampung Masjid Teluk Kumbar from 8.55pm on Sunday.

“They are from Kampung Sulup, Kampung Nelayan and Kampung Seronok.

“They received sufficient supplies from the Welfare Department during their overnight stay,” he said.

On Sunday evening, heavy rain lashed the island and mainland, inundating several low-lying areas.

Traffic came to a crawl as motorists sought safer routes out of flooded roads.

The state recorded 80mm of rain water in an hour from 7.30pm.

Penang Fire and Rescue operation centre head Y. Anbarasan said rescue personnel, including a boat unit, were dispatched as soon as the first flood distress call was received at 9.32pm.

“At 5.10am (yesterday), we evacuated 37 flood victims from 11 families to Dewan Perda Kampung Masjid Teluk Kumbar.

“There were no landslides but two trees fell in Tasek Gelugor and one in Batu Uban,” he said.

At the Pesta site in Sungai Nibong, ankle-deep water forced some operators to close shop early.

Other flooded areas on the island included Jalan Tengah in Bayan Baru, Bukit Jambul, Relau and Batu Maung.

Penang Island City Council Urban Services Department director Mubarak Junus said about 40 staff members were dispatched to help clean up the mud in affected areas including Permatang Damar Laut, Jalan Kampung Bukit and around the Penang Snake Temple in Bayan Lepas.

“We’ve also deployed backup squads to help clean up the roads and drains, and two teams to help in the garbage collection,” he said.

On the mainland, the worst affected areas were Permatang Tinggi as the river bund there broke, causing water from the river to flow into Kampung Permatang Tinggi, Taman Usaha, Taman Usaha Jaya and Taman Pewira.

Seberang Prai Municipal Council president Datuk Maimunah Mohd Sharif said a special squad and six response teams were dispatched to the affected areas on Sunday night.

“Some of the team members stayed until 1am (yesterday) while some stayed on until 3am to monitor the situation. No residents were evicted,” she said.

She said Seberang Prai district received an average 50mm of rainfall.

The Meteorological Department forecasts cloudy mornings followed by thunderstorms in the afternoons and evenings every day for the entire week until Sunday.

A spokesman from the department said the north-east monsoon would cause the northern region of peninsular Malaysia to receive heavy rainfall late in the day until the end of this month.

Also affected was the Penang International Airport which saw the driveway outside the arrival hall flooded.

When contacted, Penang International Airport senior manager Mohd Ariff Jaafar said there was not much discruption to the airport.

“The prior RM1.5mil flood mitigation project involving the installation of an on-site detention tank helped decrease the water during flash floods.

“There was backflow of water from a monsoon drain for two hours in the evening.

“The volume of water increased to about 69mm at 8pm but the water cleared up in less than 30 minutes,” he said in a text message.

Rainy day for commuters

Long journey home: Cars moving at a snail’s pace along the SPICE indoor stadium in Jalan Tun Dr Awang in Bayan Lepas.

GEORGE TOWN: A torrential downpour which lasted about 90 minutes caused flash floods in several areas in Bayan Baru, Bayan Lepas and Relau near here.

Among the worst affected roads yesterday were stretches of Jalan Sultan Azlan Shah, Jalan Tengah and Jalan Mahsuri.

Many vehicles were stalled in the flood waters which rose to about knee high at some places following the heavy rain which began at about 6.30pm.

The situation was so bad at one point that a stretch of Jalan Sultan Azlan Shah in Bayan Lepas was temporarily closed off to traffic in both directions which worsened the traffic congestion already faced by road users.

Among the places where motorists were caught in traffic jams lasting for more than an hour were Jalan Sultan Azlan Shah and Jalan Tun Dr Awang.

The driveway outside the Penang International Airport’s arrival hall and the roundabout leading to the airport were also flooded, causing vehicles to move at a snail’s pace. Some people could have missed their flights due to the floods and traffic congestion.

The Penang Pesta ground was also hit by the floods. The annual fair began on Saturday.

Penang Works Committee chairman Lim Hock Seng, when contacted, said the rainwater could not flow off quickly enough due to the high volume from the heavy rain.

“The drains are also clogged by rubbish. The Penang Island City Council, Public Works Department and Drainage and Irrigation Department are looking into the matter,” he said.

Among the villages flooded were Kampung Sulup in Teluk Kumbar and Kampung Sungai Tiram in Bayan Lepas where the waters rose up to about 0.6m high.

Kampung Sungai Tiram villager Zaliha Yaakob, 28, urged the authorities to solve the flood woes in the village.

Source: The Star/Asia News Network

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Timely superpower funds from China to ease woes

Fruitful talks: Top Malaysian businessmen having a meeting with Li (centre right) on Nov 23. Also present was Prime Minister's Special Envoy to China Tan Sri Ong Ka Ting (centre left)

Republic’s generous gesture is like prescribing right medicine to a sick patient, say top businessmen.

LAST Monday, Chinese Premier Li Keqiang announced numerous measures to help Malaysia stabilise its financial market, and their positive impact was felt the next day with the gains in ringgit and bonds seen.

For the country, the most significant measure had to be Beijing’s pledge to buy up Malaysian government bonds, which have been hit by foreign dumping since the second half of last year after crude oil prices began to plunge.

For 1Malaysia Development Bhd (1MDB), the sale of its power assets under Edra Global Energy Bhd to state-owned China General Nuclear Power Corporation for RM9.83bil cash was a huge relief. This transaction will help 1MDB cut its debts of RM42bil by about 24%.

And for Prime Minister Datuk Seri Najib Tun Razak, China’s choice of Malaysia to issue the first “silk-road” bond and plan to invest more here is a major diplomatic victory.

As expected, sentiment on the capital market improved the following day. The ringgit rose the highest among emerging-market currencies, while stocks and bonds gained, due mainly to the power deal, according to Bloomberg. The ringgit strengthened 1.3% to 4.2495 a dollar in Kuala Lumpur while the KLCI index rose 0.5%.

On the sale of power assets, Credit Suisse said in its research report on Nov 24: “The sale of the 1MDB power unit is the first step towards resolving 1MDB’s RM42bil debt. We see this news as positive for the ringgit. The sale of 60% of Bandar Malaysia will likely be concluded by year-end. We believe 1MDB would then be wound down.”

Strong ties: (picture left) Najib showing the development of Putrajaya to Li during the latter’s recent visit to Malaysia.

Strong ties: Najib showing the development of Putrajaya to Li during the latter’s recent visit to Malaysia.

To recap, at the Malaysia-China High-Level Economic Forum on Nov 23 in Kuala Lumpur, Li said: “It is imperative to stabilise the financial market. So, we want to assume a market role by purchasing your treasury bonds in accordance with market principles.”

The Chinese premier also said that in the next five years, China was expected to import foreign goods worth US$10 trillion (RM42.6 trillion) and this demand could unleash business opportunities for Malaysian firms.

“A waterfront pavilion gets the moonlight first,” he said, citing a Chinese proverb. This means that Malaysia, being close in terms of distance and diplomatic ties with China, will enjoy the most benefits generated by China’s economic policy.

Li was in Malaysia for four days from Nov 20 to 23 to attend the Asean-East Asia Summit and to hold bilateral talks with Najib.

But Li, who was paying his first official visit to Kuala Lumpur as premier, did not reveal how much Beijing would invest in Malaysian bonds. However, businessmen who know China well believe this bond purchase could be major.

“As the Chinese Premier handles China’s economic policy and affairs, I believe this bond purchase will be significant enough to stabilise the ringgit that is grossly under-valued,” says Datuk Ter Leong Yap, president of the Associated Chinese Chamber of Commerce and Industry of Malaysia (ACCCIM).

Ter was among the 10 corporate captains whom Li met with before speaking at the forum. Ter, in this private meeting, says he had proposed that China buy Malaysian bonds to halt the ringgit’s decline.

Malaysian top businessmen meeting with Premier Li on Nov 23 of 2015. -
Ter (left) sharing a light moment with Li during a meeting as Ong (centre) looks on.

The ringgit, seen as facing further decline due to the impending hike in US interest rates, has been hit by three waves of outflow of foreign funds.

The first came after the crude oil price plunge, the second after the 1MDB saga was highlighted and the third, political instability amid calls for the resignation of the Prime Minister.

The ringgit has lost about 20% of its value to the dollar so far this year. Its fall is the biggest among currencies in the region.

The outflow of funds has not only hit Malaysia’s economy and investor confidence, but also reduced its international reserves tremendously.

Li also announced that China would provide a 50 billion yuan (RM33bil) quota under the Renminbi Qualified Foreign Institutional Investor (RQFII) programme for Malaysian institutional funds to purchase shares and bonds directly in the world’s second largest economy.

In response to this announcement, Bank Negara Malaysia said the RQFII programme would complement the renminbi clearing bank arrangement in Malaysia. And collectively, the initiatives will support the growing bilateral trade, investment and financial flows as well as position Malaysia as an offshore renminbi centre in the region.

In conjunction with Li’s visit, China Construction Bank (Asia) Corporation Ltd announced it would list the world’s first ever 21st Century Maritime Silk Road bond of one billion yuan (RM667.1mil) on Bursa Malaysia. The notes will support China’s “The Land & Maritime Silk Road” initiative.

“These announcements, together with the bond purchase, are significant for Malaysia as they imply that this big economic power is reading Malaysia positively and has confidence in our country. Confidence crisis is a major reason for people dumping the ringgit.

“By making announcements to invest in Malaysia and invite local funds to invest in China, Li is sending two strong signals: China is reading Malaysia positively and this superpower has confidence in Malaysia,” said Ter in an interview.

Chinese daily Nanyang Siang Pau describes Li’s announcements as “gifts” that will stabilise Malaysia’s financial market, while China Press sees these as “timely rain after a long drought”.

During one of his speeches here, Li told Malaysia to get ready for the influx of Chinese tourists, as his government would encourage its people to visit the country.

Chinese tourists, who form a significant portion of in-bound visitors, have declined since the dis­appearance of Flight MH370 last year.

As tourism is high on Najib’s agenda to bring in the much-needed foreign exchange earnings, this influx will cheer Malaysia up.

But China’s generous gesture is not to be taken that it’s all about friendship, though both countries say bilateral ties have been lifted to a new height now. There is the interplay of diplomatic and economic reasons.

It is public knowledge that Beijing appreciates Malaysia’s stance to play down China’s dispute with other nations in the disputed waters of South China Sea, in which China, Japan and several South-East Asian nations, including Malaysia, are territorial claimants.

China’s construction on islands and reefs in the disputed waters has caused diplomatic tension, heightened recently by the United States’ move to send a warship within 12 nautical miles of a Chinese reef in the area.

There are also investment returns and economic benefits in the long run for the Chinese.

“China’s investments in Malaysia is a smart move, contrarian investing at its finest. What the wise man does at the beginning, the fool does at the end. Our fundamentals are intact, ringgit tremendously undervalued,” says Ian Yoong Kah Yin, business development director of Red Sena Bhd.

This former investment banker at CIMB believes Chinese investments will pay as the ringgit should improve to 3.70-3.90 to a dollar by the end of 2016, from current levels of around 4.25 to 4.30.

In response to China’s timely aid, Najib pledged that Malaysia was committed to awarding the Johor Baru-Gemas double-track rail project to a consortium of Chinese companies. Indeed, China’s state-owned construction giants have been awarded local projects worth over RM15bil in the last three years.

Najib also took note of China’s interest in the high-speed rail project between Kuala Lumpur and Singapore, but said this would be decided via international tender.

Referring to the bilateral trade target of US$160bil (RM683mil) by 2017, the Prime Minister said there should be doubling of efforts to reach the level. Annual bilateral trade has exceeded US$100bil (RM426bil) since last year.

Summing up Li’s visit to Malaysia, QL Resources Bhd’s Dr Chia Song Kun says: “All these measures announced by Premier Li during our most trying times will certainly help Malaysia, be it from the economic or political aspect.”

The vice-president of the Selangor/Kuala Lumpur Chinese Chamber of Commerce adds: “Our country is facing a confidence crisis and this has undermined business and consumer confidence. China’s move this time is like prescribing the right medicine to a sick patient.”

By Ho Wah Foon The Star/Asian News Network

A superpower, but not a threat

Premier Li’s visit to Malaysia serves as ‘silent counterattack’ over South China Sea conflict.

600-year-old bond: Li (second from right) and his wife Cheng Hong touring the Cheng Ho Museum during their visit to Malacca. — Bernama

“WE come in peace, as always,” is the strong message sent out by China’s Li Keqiang to Malaysia and other countries in the region during his recent visit.

When the Premier made repeated refe­rence to Admiral Zheng He (or Cheng Ho) in his speeches, he reiterated that the prominent navigator had embarked on his voyages with friendship and peace in mind.

Admiral Zheng He and his Chinese fleet of the Ming Dynasty did not invade the lands they visited 600 years ago, and China has no plans to do so now, too.

China wishes to assure its neighbours that its rise as a superpower in the realms of politics, economy, and military should not be seen as a threat.

On the contrary, it is now offering vast opportunities to cooperate for mutual benefit while insisting on harmonious ties with other countries.

Li, who was on his first official visit to Malaysia as the Premier of China, had inclu­ded Malacca in his itinerary.

Dotted with historical landmarks, the state has a meaningful position in the relations between Malaysia and China.

It was where it all began.

From the Sky Tower observatory deck on the 43rd floor of The Shore shopping complex, Li looked out at the Strait of Malacca, which Admiral Zheng sailed through to dock at the port of Malacca during his voyages.

At the Baba Nyonya Heritage Museum, Li learned about Peranakan culture that came into existence from the interactions between people from the two lands. He also toured the Cheng Ho Cultural Museum, where Admiral Zheng’s warehouse once stood.

But Li’s visit to the state was more than just a walk down memory lane.

Malacca is now the “friendly state” to China’s southern province of Guangdong. This is the first of such status approved by the Cabinet, as the usual practice has been establishing a sister city tie with another foreign city instead of a state-to-state pact.

According to the Chinese Foreign Ministry, Guangdong province is now “actively dovetailing development with Malacca, and making preparations to build a modern seaside industrial park integrating maritime high-tech industries, deep-water wharf and logistics centres”.

The Strait of Malacca is included in the route of the 21st-century Maritime Silk Road, together with the land-based Silk Road Economic Belt, which represents China’s great ambitions to boost connectivity and cooperation with countries in the world.

Malacca Port is also one of the six Malaysian ports to form an alliance with 10 Chinese ports, as specified in a memorandum of understanding signed between both coun­tries during Li’s visit.

Li’s stopover in Malacca, although brief, has reverberating effects. Besides giving an official stamp of approval to the bilateral project in Malacca, Li wanted to get across the message of peaceful exchanges, harmony and inclusiveness.

China Foreign Affairs University vice-president Jiang Ruiping told state-owned news agency, China News Service, that Admiral Zheng’s friendly diplomacy is still relevant today.

It serves as a “silent counterattack” at a time when the international community plays up the South China Sea issue, referring to the territorial row between China and a few South-East Asian nations including Malaysia.

China’s assertiveness over the waters, as illustrated by its recent reclamation activities, has prompted the United States to patrol in the disputed waters. The US Navy has received the support of Japan, which is also embroiled in a territorial dispute with China over islands in the East China Sea.

Opposing the interference from countries outside the region, Li, when speaking at the Asean-China Summit in Kuala Lumpur during his visit, said China sees the high-profile intervention as an act that does no good to anyone.

He said China is committed to peaceful settlement of the dispute through negotiation and consultation.

“Together with our Asean friends, we have the confidence to make the South China Sea a sea of peace, friendship and cooperation for the benefit of all countries in the region.”

 By Tho Xin Yi Check-in China

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Can Asia escape global secular stagnation?

AS we settle down for the end of the year, the picture on the economic front seems to be a bit clearer, although on the political front, the Paris attacks, the downing of a Russian jet by Turkey and continuing refugee migration into Europe have escalated geopolitical risks.

By spreading the war on terror from 9/11 in New York to Paris, consumer confidence in Europe is likely to suffer, depressing already a weak recovery in Spain, Italy and Ireland.

Fed vice-chairman Stanley Fischer, one of the wisest and most experienced central bankers, gave a speech earlier this month in San Francisco on Emerging Asia in Transition. His view was surprisingly upbeat but clear-eyed, noting that a slowdown in Asia is not slow but still impressive. The pattern of growth in Asia has been quite consistent – a period of fast growth before deceleration to a moderate level, and when the economy reaches maturity, as in the case of Japan, a phase of slow growth or stagnation. Fischer explained the growth through two major drivers – trade and demographics.

Export drive: One of the reasons for the Asian success story was the export-driven manufacturing, creating he Asian global supply chain

One of the reasons for the Asian success story was the rise of export-driven manufacturing, creating the Asian global supply chain. But after the global financial crisis of 2007, imports from the advanced countries declined, which was compensated by China’s imports of commodities from the commodity producers.

But once the investment-led cycle in China turned, commodity prices declined sharply and today, demand from the emerging markets also came down. On top of weak demand in the advanced economies, this meant real weak aggregate demand in the world, facing a situation of huge excess capacity in manufacturing and commodity production.

Basically, despite massive monetary creation, the world is facing slower growth with very little inflation in sight, namely, secular stagnation. The second factor for the current situation is demographics. East Asia had a demographic dividend, as a flood-tide of young labour emerged even as global exports took off. But the advanced economies of East Asia are aging, just like the advanced countries of Europe. The 2015 UN World Population Projections show these trends starkly.

The two manufacturing powerhouses, Japan and Germany, have the highest median population age of 47 and 46, and by 2030, just under one in three persons will be over the age of 65. By that time, Korea, Hong Kong and Singapore population would have one in four over the age of 65.

China and the US share roughly the same population profile, with the median age of 37 and 38 respectively, but by 2030, 21% of the US population would be over the age of 65, still higher than the 17% in China.

On the other hand, the younger populations in India, Bangladesh, the Philippines, Indonesia and Malaysia still enjoy potential for high growth, with a median age of not more than 29 years and by 2030, less than 10% of the population would be more than 65. These large population countries, with the right infrastructure and policies, have the potential to grow above 5% per annum, with India leading the charge at 7.5%. We cannot underestimate power of these emerging population giants as new engines of grow.

India is today a US$2 trillion GDP economy, one fifth the size of China, with roughly the same population. When the Philippines and Vietnam (100 and 91 million population respectively) reach the same per capita income as Malaysia, their economy would be in the US$1 trillion class, roughly 3 times the size of either Singapore and Hong Kong today.

On the same basis, Indonesia would be a US$2.8 trillon economy, roughly the same size as France today. One of the factors weighing down markets is the trajectory of interest rates, which are still historically low. The Fed may be interested in raising them back to normal, but the European Central Bank and the Bank of Japan are still committed to quantitative easing.

Emerging market interest rates and corporate borrowing rates have already started rising worldwide and this is, in the short run, negative to growth recovery. However, getting these population giants to move beyond the middle-income trap require huge reforms in many areas, including the power to put in infrastructure, educate the labour force and deal with structural impediments.

Countries like the Philippines and Vietnam are using external pressure, such as signing up to the TransPacific Partnership, to push through reforms even as opportunities for more trade appear. But the headwinds against such reforms are not small. Each country faces its own set of internal obstacles. In some countries, it is antiquated labour and land laws, in others corruption, inefficient state-owned enterprises, and lack of much needed infrastructure. In many, the transaction costs of doing business remain too high to compete effectively. In others, domestic giants resist competition from foreign multinationals that can bring in new knowhow and markets.

At the same time, labour unions and fear for jobs resist the introduction of new robotics and labour and resource-saving technology. All these risk factors collectively produce a global secular stagnation trap, very much like the 1930s, when no single government was strong enough to pull the world out of the global depression.

The US today is no longer in the position to be the lead engine. Even though it is recovering, US consumers are spending less on hardware imports and more on domestic services. Hence, even if emerging markets cut exchange rates to defend their trade positions, the exorable rise in dollar exchange rates spell future trouble because there are limits to the growing size of US trade deficits.

What can Asian countries do to get out of the secular stagnation? The answer lies in the willingness to reform and to restructure the current overdependence on exports, debt and manufacturing/resource exploitation. The willingess to bite the bullet will produce a J-shaped recovery, rather than the current L-shaped stagnation.

But every leader knows that reform is politically unpopular because it hits various vested interests. So all pundits deplore the lack of leadership. Leadership in these times of transition requires guts and will. The only problem is that it often takes someone else’s guts and the need to write the reformer’s own political will.

By Andrew Sheng Think Asian

Tan Sri Andrew Sheng writes on Asian global issues.


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THERE we go again. Even before the ink is dry, global growth forecasts are downgraded once more.

Paris-based OECD’s (rich nations’ think tank) November Economic Outlook attributes a slump in the growth of world trade (brought about partly by China’s slowdown) as the major factor behind the sluggishness of the global economy.

It was only in October that IMF estimated world GDP will grow 3.1% in 2015 and 3.6% in 2016, in the face of slowing global trade at 2.8% this year (3.9% in 2016).

Now, OECD thinks global growth will ease to 2.9% (3.3% in 2014) and recover modestly to 3.3% in 2016.

Even these, I think, are optimistic. Bear in mind that growth in world trade had slackened in recent years (falling behind global GDP growth which is unusual and not a good sign) and has stagnated since late 2014. It is expected to grow only 2% this year against 3.4% in 2014 and a much faster rate in the early years of the decade: “World trade has been a bellwether for global output, and that global trade growth observed so far this year have in the past been associated with global recession.”

Meanwhile, further GDP slowdown in emerging market economies (EMEs) is weighing heavily on global economic activity. In addition, sluggish trade and subdued investment and low productivity growth are checking the momentum of recovery in the rich nations.

Indeed, there are already signs that many advanced economies are unlikely to reach anywhere near their potential output, despite continuing easy money. Over the medium term, the risks of recession and deflation have become more probable than indicated by the IMF.

Because of recent headwinds, the probability of recession in eurozone and Latin America has risen beyond 30% and 50% respectively, with Japan now in recession.

Simultaneously, the probability of deflation in eurozone and Latin America now exceeds 30%, while Japan is already experiencing significant deflationary tendencies.

This raises the spectre of secular stagnation (what Harvard’s Larry Summers refers to as the inability of an economy to grow to reach its full potential) at a time when policymakers are running out of firepower – fear that the policy tools available to combat deflating forces are becoming increasingly blunt.

The immediate risks

As I see it, many factors are shifting the global economy into a secular slowdown. Immediate risks include:

> Continuing deficient global demand in the face of excess capacity: The rich nations as a whole are in growth recession, with the US pulling-up the others which are struggling to jump start anaemic output. The eurozone is in extended stagnation; growth if any is low (in Germany) and uneven; indeed, the region is flirting with deflation.

Consumer prices have turned increasingly negative in Q3’15. Abenomics is faltering, moving Japan into recession (-0.7% in Q2’15 and -0.8% in Q3’15). IMF predicts the biggest contributors to global growth in 2015-2020 are the faster growing EMEs. Among the top 10, only two are rich nations (US & UK); heading the list are China (accounting for nearly 30%), India (15%) and US (10%); the remainder being (in descending order) Indonesia, Mexico, South Korea, Brazil, Nigeria, UK and Turkey.

> Falling commodity prices: Energy, food and metals prices have fallen significantly over the past year. As a whole, commodity prices are now down 51% from its peak on April 29, 2011. Oil price has fallen 61% since June 14 and is languishing very near US$40 a barrel last weekend. Gold price lost 9% so far in 2015, dropping to a 5-year low at below US$1,065 per troy ounce on Nov 18.

Already, weary investors have begun to sense an end to the raw materials rout, as prices for most dipped below production costs. But few expect a quick rebound. The historical record: after commodity prices tipped over in 1997, it took 21 months to correct the fall. In 2000-01, it was 13 months.

After collapsing in 2008, commodity prices hit bottom in just eight months. This time, the index has been falling for four years and still counting. Nothing preordains a turnaround. Studies of commodity prices dating back to the 19th century found that cycles have been known to last 30-40 years.

So, don’t raise your hopes. Off-setting these “cuts” are currency weaknesses in many commodity-exporting nations since most commodities are priced in US dollar - thus translating to higher revenues in local currency, at least for now.

> China slowing down; so are EMEs and BRICS: Latest data points to an Asia where growth is stabilising in the region of 5%, reflecting very low growth in the more advanced Asian nations as a whole, where growth was at 1.5% annually (with South Korea and Taiwan expanding about twice as fast).

Asian EMEs are decelerating from close to 8% in 2011 to 6.5% or less in 2015. China is down to 6.8% this year but India is doing well at 7.3%. Similarly, the Asean 5 (Indonesia, Malaysia, Philippines, Thailand and Vietnam) is also slowing down, from 6.2% in 2012 to 4.6% expected this year.

Within the region, performance is mixed: Thailand is doing rather badly at 2.5%; while growth in Vietnam will accelerate to 6.5%, with the Philippines not far behind at 6%.

Both Malaysia and Indonesia will each grow at around 4.5% this year and not much more next year. Expectation is that growth in Asean 5 will likely stabilise in 2016 at between 4.5%-5%.

The BRICS (Brazil, Russia, India, China and South Africa) will continue to slacken considerably, growing at less than 2%, dragged down by severe recession in Russia and Brazil and hardly any growth in South Africa. EMEs now face a host of problems constraining their ability to grow.

Plummeting commodity prices, BRICS’s slowdown and investor flight are exposing deep-rooted weaknesses requiring fundamental economic overhauls, but made difficult by domestic politics and corruption. China’s successful transition towards a slower, but a more sustainable growth path will benefit growth all round, despite disruptions generated by rebalancing reforms, notwithstanding China’s sizable buffers available for it to cope.

> Rising US interest rates: The spectre of Fed uncertainty over the rate uplift that has spooked world markets will soon end, hopefully. The probability of a rate-hike in December now exceeds 80% - delivering the first rise in borrowing costs for nearly a decade. Expectation is for a quarter of 1% rise, with gradual but orderly small bites over the coming year. No big deal really, considering that Federal funds rate is already close to zero (below 0.2%) today and the yield on 5-year US Treasuries is only 1.65% per annum.

> Strengthening US dollar: The consensus is for US dollar to continue to strengthen, reflecting its relatively strong economy and prospects of a near term rate-hike in the face of economic weaknesses world-wide. The US dollar index (against six of its peers) has tipped past 99.6 (up 10.3% so far this year) for the first time since April.

Odds are for euro to be at parity with the US dollar; it has already touched 1.05. Tge euro has depreciated 13% so far this year.

The Chinese yuan is stable since this summer’s policy change. It is now likely that the yuan will be included in the SDR basket of elite currencies before year-end – in practice, bestowing on it reserve currency status.

Against a basket of EME currencies, however, the JP Morgan US dollar index is up 13.7% over the year; the Brazilian real is down 30.1% so far this year (until December 10); Malaysian ringgit, -20.2%; Turkish lira, -18.6%; Mexican peso, -12.1%; and Indonesia rupiah, -9.9.

Most certainly, Malaysia’s strong economic fundamentals don’t deserve a near 30% currency downgrade over the past year – it’s over-depreciated by at least 10%-15% after discounting the “bad” politics.

US President Obama (in Malaysia recently) is right to emphasise the critical importance of accountability and transparency, and the need to root out corruption in government.

> Destabilising politics and conflict: G-20 continues to struggle to come up with workable viable steps to reshape an increasingly dour economic outlook. They also face a host of new troubles, from political problems to security crises, raising doubts about preventing the global economy from falling into a long-term funk. Now, the growing refugee crisis in Europe and renewed fears of widespread terrorism after the Paris, Sinai (Egypt) & Bamako (Mali) attacks are proving difficult to fix. Soon enough, these heinous acts will become a pressing economic and business issue, bringing with it far reaching pressures on recovery efforts on the global economy.

What then, are we to do

So it’s not surprising that global economic prospects are repeatedly marked down in recent years. Add to this calls to join-in the war to fight terrorism with its multi-faceted business implications.

What’s worrisome is the rising risk of a world economy persistently mired in sub-par growth – as though hysteresis (impact of past experience on subsequent performance) has taken hold, with the attendant unacceptably wide income disparities, serious security issues, and persistent unemployment.

There is also the need to address the “large-scale displacement of people” with far reaching humanitarian development dimensions. Given that the global economy is still faced with much economic slack and very low inflation (indeed, even deflation), the complex challenges ahead will require continued monetary accommodation and fiscal support, notwithstanding frequent disruptions arising from China’s and EMEs’ reform transition, in the face of financial market volatility emerging from the pending Fed rate lift-off and the prospective strengthening of the US dollar.

Warren Buffett is known to have said: only when the tide has receded can you see who has been swimming naked. Cheap QE money has spoiled EMEs. Traditionally, debt busts in EMEs are centred on their sovereign US dollar denominated bonds.

Today’s “naked” EMEs reside in the corporate sector, mostly exposed to local currency bonds.

Their total private debt now far exceeds 100% of GDP, even higher than it was among the rich nations on the brink of the 2008 financial crisis. In the face of a debt crunch, they can become unduly vulnerable, especially for EMEs with a difficult and uncertain future.

Clearly, tepid and uneven growth raises the risk that can tip an economy into recession. Easy times have come & gone. Much soul searching lies ahead.

By Lin See-Yan What are we to do? 

Former banker, Harvard educated economist and British Chartered Scientist Tan Sri Lin See-Yan is the author of ‘The Global Economy in Turbulent Times’ (Wiley, 2015). Feedback is most welcomed; email: starbiz@thestar.com.my.



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If China killed commodities super cycle, Fed is about to bury it

Has the Commodities Supercycle Run Its Course? bloomberg.com Gordon Johnson, A...

If China killed commodities super cycle, Fed is about to bury it

Has the Commodities Supercycle Run Its Course?

bloomberg.com

Gordon Johnson, Axiom Capital Management analyst, discusses the outlook for commodities and the prospects for SolarCity with Bloomberg's Carol Massar on "Bloomberg Markets." (Source: Bloomberg)

For commodities, it’s like the 21st century never happened.

The last time the Bloomberg Commodity Index of investor returns was this low, Apple Inc.’s best-selling product was a desktop computer, and you could pay for it with francs and deutsche marks.

The gauge tracking the performance of 22 natural resources has plunged two-thirds from its peak, to the lowest level since 1999.

That shows it’s back to square one for the so-called commodity super cycle, a hunger for coal, oil and metals from Chinese manufacturers that powered a bull market for about a decade until 2011.

“In China, you had 1.3 billion people industrializing -- something on that scale has never been seen before,” said Andrew Lapping, deputy chief investment officer at Allan Gray Ltd., a manager of $33 billion of assets in Cape Town. “But there’s just no way that can continue indefinitely. You can only consume so much.”

If slowing Chinese growth, now headed for its weakest pace in 25 years, put the first nail in the coffin of the super cycle, the Federal Reserve is about to hammer in the last.

The first U.S. interest rate increase since 2006 is expected next month by a majority of investors, helping push the dollar up by about 9 percent against a basket of 10 major currencies this year.

That only adds to the woes of commodities, mostly priced in dollars, by cutting the spending power of global raw-materials buyers and making other assets that generate yields such as bonds and equities more attractive for investors.

The Bloomberg Commodity Index takes into account roll costs and gains in investing in futures markets to reflect actual returns. By comparison, a spot index that tracks raw materials prices fell to a more than six-year low Friday, and a gauge of industry shares to the weakest since 2008 on Sept. 29.

The biggest decliners in the mining index, which is down 31 percent this year, are copper producers First Quantum Minerals Ltd., Glencore Plc and Freeport-McMoran Inc.

With record demand through the 2000s, commodity producers such as Total SA, Rio Tinto Group and Anglo American Plc invested billions in long-term capital projects that have left the world awash with oil, natural gas, iron ore and copper just as Chinese growth wanes.

"Without fail, every single industrial commodity company allocated capital horrendously over the last 10 years,” Lapping said.

Drowning in Oil

Oil is among the most oversupplied. Even as prices sank 60 percent from June 2014, stockpiles have swollen to an all-time high of almost 3 billion barrels, according to the International Energy Agency.

That’s due to record output in the U.S. and a decision by the Organization of Petroleum Exporting Countries to keep pumping above its target of 30 million barrels a day to maintain market share and squeeze out higher-cost producers.

A Fed move on rates and accompanying gains in the dollar will make it harder to mop up excesses in raw-materials supply.

Mining and drilling costs often paid in other currencies will shrink relative to the dollars earned from selling oil and metals in global markets as the U.S. exchange rate appreciates.

Russia’s ruble is down more than 30 percent against the dollar in the past year, helping to maintain the profitability of the country’s steel and nickel producers and allowing them to maintain output levels.

"The problem with lower currencies is operations that were under water a year ago are all of a sudden profitable on a cash basis," said Charl Malan, who helps manage $31 billion at Van Eck Global in New York. "Why would you shut them?"

While some world-class operators such as Glencore plan to cut copper and zinc output, others like iron-ore producers BHP Billiton Ltd., Vale SA and Rio Tinto are locked in a "rush to the bottom" as they seek to drive out competitors by maintaining supply even as prices slump, according to David Wilson, director of metals research at Citigroup Inc.

“With the momentum on the downside, it’s very difficult to say that we’re reaching a bottom,” Wilson said.

Source: Bloomberg

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