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China sees property silver lining but can’t shake Japan comparisons

A GENERAL VIEW shows Beijing’s skyline on a sunny day in this file photo. — REUTERS

BEIJING – A plunge in China’s new housing construction is fueling hopes the battered property sector is finally coming to terms with chronic oversupply, but a clean-up of bad assets is the missing policy piece that keeps Japan-like stagnation fears alive.

On paper, the world’s second-largest economy is almost where the US and Spain were when their late 2000s property crises began to stabilize, with new Chinese housing construction now at less than half its 2021 peak.

This could indicate, analysts say, that home building activity may find a bottom within a year or so, removing some of the weight China’s real estate troubles are placing on economic growth.

“It’s reasonable to expect that construction will stabilize soon,” said Rhodium Group partner Logan Wright.

New home starts in China fell 63% from their peak to 634 million square meters (7.46 billion square feet) in the 12 months through April.

Taking into account demographics and other factors, the International Monetary Fund estimates fundamental demand for housing in China to average 950 million square meters over the next 10 years.

Some of the demand would have to absorb China’s giant existing inventory, therefore the Fund projects new housing starts to average 715 million square meters – slightly above current rates.

This could mean real estate investment, whose steep 10% back-to-back annual declines JPMorgan estimates chopped 1.5 percentage points off China’s economic growth in each of the past two years, may be close to finding a floor.

George Magnus, research associate at Oxford University’s China Centre, says that could come in 2025 or even sooner.

“There is potential for a cyclical rebound, even while we’re talking about medium-term shrinkage,” in the property sector, said Magnus.

 

JAPAN’S FOOTSTEPS

Property investment is expected to gravitate more towards wealthy coastal areas. Shanghai and four of China’s richest provinces – Zhejiang, Jiangsu, Guangdong and Shandong – accounted for 49% of January-April investment, up from 39% five years ago.

But that is where the cyclical silver lining ends and less favorable comparisons with 1990s Japan start.

Wright estimates the industry as a whole, which used to represent about a quarter of China’s economic activity, will stabilize at 40-50% of its peak levels and never return as a driver of growth.

Prices have yet to fully adjust and the negative financial spillovers will continue, he said.

New home prices in China have fallen 11%, according to official data. JPMorgan estimates prices for older apartments dropped by a similar amount.

The 30-40% peak-to-trough plunge in the U.S. and Spanish downturns started in 2006-07 and lasted more than five years. In Japan, the correction took more than 18 years, pushing prices down by 47% in the end.

So far, China’s pace has matched Japan’s. Odds are that it will continue to do so, analysts say.

What’s missing from both the Chinese and Japanese responses to the crisis is an early recognition of losses.

Japan asked banks to purchase land to slow down the fall in prices. China achieves something similar by placing limits on how much developers can lower new home prices and through a drip-feed of other support measures.

JPMorgan analysts say this is “perhaps an intentionally chosen strategy to mitigate financial spillover risks.”

A stock of unsold homes estimated at almost twice the size of London still exists on the balance sheets of cash-strapped Chinese developers, whose debts sit on the books of banks and other institutions.

By contrast, the United States spent an initial 5% of gross domestic product to absorb toxic assets from financial institutions through its Toxic Asset Relief Program. Spain created a bad bank.

 

PROTRACTED ADJUSTMENT

China is not keen on sweeping bailouts, one policy adviser said, asking for anonymity to discuss a sensitive topic.

“The government has no intention to prop up the property market,” the adviser said. “It aims to stabilize it, or at least slow down its decline.”

China introduced in May a new support package for the sector, cutting mortgage rates and downpayments and instructing local governments – already $9 trillion in debt – to buy “some” unsold apartments and turn them into affordable housing.

Analysts say the purchases transfer bad assets from developers to local governments, delaying writedowns. But eventually, the losses will have to be recognized, which is why comparisons with Japan’s lost decades persist.

Alicia Garcia-Herrero, Asia Pacific chief economist at Natixis, says local governments may suffer a similar fate to the Japanese banks, which ultimately had to be recapitalized, implying a “longer, more protracted adjustment.”

“There hasn’t been a clean-up,” Ms. Garcia-Herrero said. “This is why China looks more like Japan and not like the US or Spain.”

“I do not think China’s housing prices will ever be higher on average. Tier 1 cities, maybe,” she added, referring to Beijing, Shanghai, Shenzhen and Guangzhou. – Reuters

Philippines says troops held weapons but did not point at Chinese coast guard

BRP SIERRA MADRE, a marooned transport ship which Philippine Marines live in as a military outpost, sits on the disputed Second Thomas Shoal, part of the Spratly Islands in the South China Sea. — REUTERS

MANILA – Philippine troops stationed on a warship grounded on a disputed South China Sea shoal held on to their weapons after Chinese coast guard boats came very close to the ship but they did not point their guns at them, military officials said on Tuesday.

Armed Forces of the Philippines Chief of Staff Romeo Brawner disputedan account by China’s state CCTV of what transpired during a routine resupply mission for Filipino troops on May 19.

CCTVhad reported at least two Filipino personnel pointed guns in their coast guards’ direction during the confrontation at BRP Sierra Madre, which Manila grounded on Second Thomas Shoal and turned into a garrison in 1999.

“It was just in preparation for self-defense in case something happens because they were very close,” Mr. Brawner told a press conference, describing the actions of the China Coast Guard as “provocative.”

Military officials said Chinese rigid hull inflatable boats came within five to 10 meters of the BRP Sierra Madre and seized some of the supplies that were air dropped for troops, actions they said were “illegal” and “unacceptable.”

“This was a cause of alarm. So our soldiers as a precautionary measure, held on to their firearms. It is part of the rules of engagement,” Mr. Brawner said.

“We are denying that any of our soldiers pointed deliberately their guns at any of the Chinese … But we will not deny the fact that they were armed,” Mr. Brawner said.

Mr. Brawner said the BRP Sierra Madre is a commissioned vessel of the Philippine navy so it is authorized to have weapons.

“We have the right to defend ourselves,” Brawner said, adding the Philippines will continue to assert its sovereignty in the area.

China claims almost the entire South China Sea, which includes the Second Thomas Shoal. It has deployed hundreds of vessels to patrol the waterway, including what Manila refers to as “Chinese maritime militia,” which it said were also present on May 19.

There was no immediate comment from the Chinese embassy in Manila. – Reuters

Taiwan president says Tiananmen crackdown will never be forgotten

TAIWAN President-elect Lai Ching-te, of Democratic Progressive Party (DPP), holds a press conference, following his victory in the presidential elections, in Taipei, Taiwan, Jan. 13, 2023. — REUTERS

TAIPEI – Taiwan President Lai Ching-te on Tuesday said he will work hard to make historical memory last forever and reach out to everyone who cares about Chinese democracy, on the 35th anniversary of the 1989 Tiananmen Square crackdown in Beijing.

The events on and around the central Beijing square on June 4, 1989, when Chinese troops opened fire to end the student-led pro-democracy demonstrations, are a taboo topic in China and the anniversary is not marked or publicly discussed.

Public commemorations now take place in overseas cities including Taipei where senior Taiwan government leaders sometimes use the anniversary to criticize China and urge it to face up to what it did.

Mr. Lai said in a post on Facebook that it is important to respond to authoritarianism with freedom and that the memory of June 4th will not disappear.

“This reminds us that democracy and freedom do not come easily and that we must build consensus with democracy and responds to authoritarianism with freedom,” Mr. Lai wrote.

“The memory of June 4th will not disappear in the torrent of history. We will continue to work hard to make this historical memory last forever and move everyone who cares about Chinese democracy.”

China detests Mr. Lai and calls him a “separatist”.

Last month China carried out war games around Taiwan in what it said was “punishment” for Mr. Lai’s separatism.

Mr. Lai and his government reject Beijing’s sovereignty claims, saying only Taiwan’s people can decide their future. Mr. Lai has repeatedly offered talks with China but been rebuffed. – Reuters

China’s Chang’e-6 probe lifts off from far side of moon

DAVID DIBERT-UNSPLASH

BEIJING – China’s Chang’e-6 probe has lifted off from the far side of the moon, starting its journey back towards Earth, China’s national space agency announced on Tuesday.

The probe’s successful departure from the moon means China is closer to becoming the first country to return samples from the far side of the moon, which permanently faces away from Earth.

The probe, which departed the moon at 7:38 am local time (2338 GMT) successfully completed its sample collection from June 2-3.

China’s National Space Administration (CNSA) said in a statement that Chang’e-6 “withstood the test of high temperature on the far side of the moon”.

Compared with its predecessor Chang’e-5, which retrieved samples from the near side of the moon, Chang’e-6 faced an additional technical challenge of operating without direct communications with ground stations on Earth, according to CNSA.

Instead, the probe relied on relay satellite Queqiao-2, put into orbit in April, for communications.

The probe used a drill and robotic arm to dig up soil on and below the moon’s surface, according to state news agency Xinhua.

Chang’e-6 displayed China’s national flag for the first time on the far side of moon after sample acquisition, Beijing Daily said.

The probe is now in lunar orbit and will join up with another spacecraft in orbit, CNSA said on Tuesday morning.

The samples will then be transferred to a return module, which will fly back to Earth, with a landing in China’s Inner Mongolia region expected around June 25.

The return of the lunar samples to Earth is being followed by scientists around the world, who hope the soil collected by the Chang’e-6 can help answer questions about the origins of the solar system. – Reuters

Bangladeshi garment workers fall ill as temperatures soar

STOCK PHOTO | Image by Mohammad Rahmatullah from Pixabay

DHAKA (Thomson Reuters Foundation) – In the factory where Aysha Talukder Tanisa stitches jeans and children’s clothes for Western brands, the cooling system has been no match for Bangladesh’s longest heatwave in 70 years.

“Some of us – mostly girls – fall sick, vomiting or swooning due to the boiling heat,” the 22-year-old told the Thomson Reuters Foundation by phone from Ashulia, a town near the capital, Dhaka.

Temperatures soared to more than 40 degrees Celsius (104 Fahrenheit) in late April, taking a particularly heavy toll on factory workers including most of Bangladesh’s four million garment industry employees, 60% of whom are women.

Around the world, more than two-thirds of workers have been exposed to excessive heat while doing their jobs, a U.N. report said in April.

Bangladesh loses $6 billion a year in labour productivity due to the effects of extreme heat, according to a study published by the Adrienne Arsht-Rockefeller Foundation Resilience Center.

As climate change fuels the frequency and intensity of heatwaves, leaders of the country’s crucial garment industry are scrambling to implement measures to protect workers.

“Heat poses a serious business risk for the apparel industry,” said Manirul Islam, deputy director at Bangladesh Institute of Labour Studies (BILS).

Islam, who surveyed more than 400 garment workers, said one in five workers had to go on sick leave at least once during the hottest months due to the effects of heat, and 32% said their working abilities sank due to the sweltering conditions.

Some leading clothing manufacturers are taking steps to keep workers safe, but labour rights activists say protecting workers’ health and productivity requires more money and commitment from suppliers, brands, and the government.

The DBL Group, which employs about 35,000 workers and supplies some of the world’s biggest clothing retailers, has been ensuring employees have drinking water on hand and oral hydration salts, said Mohammed Zahidullah, chief sustainability officer at the family-owned conglomerate.

Water sprinklers are being used to cool the roofs of factories that get particularly hot during the summer, he added.

Team Group, another leading clothing supplier in Bangladesh that employs about 23,000 people, uses exhaust fans to keep indoor temperatures 4-5 C (7.2 F-9 F) cooler than outside, said Md. Monower Hossain, head of sustainability at the group.

“We also use double-glazed glass at one side of the factories which allows in sunlight but wards off the heat – keeping the inside cool and well-lit,” he added.

In factory compounds, the company is trying nature-based cooling solutions, such as planting trees and installing water features such as ponds and fountains.

 

SWELTERING COMMUTES, CROWDED HOMES

But keeping factories cool does not protect workers during their commutes, or at home, where many live in tiny, crowded houses with shared kitchen and bathroom facilities, said Guy Stuart, executive director of the Global Worker Dialogue (GWD) who runs regular surveys into workers’ conditions.

The minimum monthly wage for a seamstress in Bangladesh is about 13,300 taka ($113), putting costly air conditioning and generators out of reach.

Yousuf Bin Ibrahim, a garment worker in his early 30s from the central city of Narayanganj, said frequent power cuts render useless the electric fans he bought for his rented flat.

“(It) gets too hot to bear for me and my kids in the summer days,” he said, adding that it was often more comfortable at work.

Nearly 19,000 people die every year due to workplace injuries attributed to excessive heat, and an estimated 26.2 million people are living with chronic kidney diseases linked to workplace heat stress, according to last month’s report by the U.N.’s International Labour Organization (ILO).

As climate change increases the risk of extreme heat, Zahidullah said manufacturers will need to make big changes to existing factories and climate-proof newly built premises.

“Going forward, we should consider a scenario when summer heatwaves will climb to, say, 45 C (113 F),” he said.

As head of operations at energy technology firm Grit Technologies Limited, Sudip Paul has spent years helping factories address climate-related challenges. He said simple, inexpensive steps can make a difference.

They could include starting shifts at 6 a.m. rather than 8 a.m., so workers can go for lunch before the midday heat peaks, providing them light cotton clothing and white parasols for the walk home, besides proper maintenance of cooling fans, Paul said.

Such measures are welcome, but the government and investors must do more to tackle the threat of rising heat, said Zahangir Alam, who has worked for three decades with top global brands – including H&M, Walmart and Denmark’s Bestseller – on labour issues and sustainability.

Bangladesh needs to put in place a clear legal standard on what temperature is permitted inside factories, rather than simply saying it should be “within tolerable limits” as it does at present, Alam said.

“The government should up its game and set down a national strategy to deal with the heat risk in industry – while brands should step up to financially support actions to protect workers,” he added. – Reuters

May manufacturing growth slows

THE HEALTH of the manufacturing sector in the Philippines continued to improve in May, according to the S&P Global Philippines Manufacturing Purchasing Managers’ Index (PMI). — REUTERS

By Beatriz Marie D. Cruz, Reporter

FACTORY ACTIVITY in the Philippines expanded at a slower pace in May as employment fell for the first time in five months, S&P Global said on Monday.

The S&P Global Philippines Manufacturing Purchasing Managers’ Index (PMI) stood at 51.9, slightly down from 52.2 in April, indicating “modest improvement” in factory activity.

A PMI reading above 50 signifies improved operating conditions from the previous month, while a reading below 50 shows the opposite.

Manufacturing Purchasing Managers’ Index (PMI) of select ASEAN economies, May 2024“The [Philippine] manufacturing sector continued to report further gains midway through the second quarter, with growth sustained in new orders and output,” Maryam Baluch, an economist at S&P Global Market Intelligence, said in the report.

“However, firms struggled to maintain their workforce numbers with job shedding noted for the first time in five months.”

The Philippines’ PMI reading remained the second-fastest among four Association of Southeast Asian Nations member countries in May, behind Indonesia and Myanmar (52.1) and ahead of Vietnam (50.3).

As of publishing time, no PMI data for Thailand and Malaysia were available.

For the Philippines, S&P Global noted total sales growth continued in May, although this “eased fractionally” from April.

“Nonetheless, a further improvement in underlying demand trends and an expanding customer base helped stretch the current run of increase to nine consecutive months,” it said.

New export orders increased for a fourth straight month and “at a pace most pronounced since December 2016,” S&P Global said.

“Growth in new sales from abroad was widely attributed to improved demand trends in key export markets and new client wins,” it added.

Strong growth sales pushed factories to increase their production, S&P Global said. Factory output grew at the fastest pace in the year to date.

Even as production grew, S&P Global noted that manufacturing jobs dropped for the first time since December 2023.

“The rate of decrease was the fastest in nine months, with firms largely attributing this to voluntary leavers,” it said. “Backlogs, though, continued to fall, indicating that many companies were equipped to handle the sustained rise in demand.”

Meanwhile, manufacturers continued to increase purchases of inputs for a sixth straight month. Pre-production inventories also expanded at the fastest pace in 13 months.

“Stocks of finished goods were also raised in May, though the rate of growth was the weakest in the current three-month sequence of expansion,” S&P Global added.

Input prices dipped for the first time since April 2020 as some companies said they switched to “more competitively priced” suppliers.

“However, charges continued to rise, indicating that firms wished to maintain and build their margins,” Ms. Baluch said.

S&P Global said Filipino manufacturers were hopeful of improved demand and plan to expand operations and launch new products. It noted that expectations for the 12-month outlook for output rose for the first time in five months.

“Subdued inflationary pressures and a further improvement in the demand picture indicates that economic growth will likely be sustained in the coming months. Reflecting positive sentiment, optimism picked up to a nine-month high,” Ms. Baluch said.

PMI measures a country’s manufacturing activity based on the weighted average of five indices — new orders (30%), output (25%), employment (20%), suppliers’ delivery times (15%) and stocks of purchases (10%).

“The recovery in external demand may still be attributable to the cyclical rebound in global electronics trade. The slower hiring may be a one-off. Prints for forthcoming months may improve by July,” Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. said in a Viber message.

Security Bank Corp. Chief Economist Robert Dan J. Roces said in a Viber message the strong external demand can be traced to the “ongoing recovery in major export markets, weakening Philippine peso making exports more competitive, growth in digitalization and e-commerce driving demand for electronics, a rebound in global travel and tourism, and a generally brighter economic outlook.”

However, supply chain bottlenecks, rising shipping costs, and a possible slowdown in key markets could hamper growth in the manufacturing sector in the coming months, Mr. Roces added.

Union Bank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said some manufacturers might have lacked the capacity to meet the uptick in demand.

“Some firms may have not been able to respond by adding more people to work and meet the higher demand,” he said in a Viber message.

In an e-mail, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said slower manufacturing activity in May could be partly attributed to the heatwave that led to some reduction in business activities, as well as a tight power supply.

BSP may start easing by Q4

Headline inflation likely accelerated for a fourth straight month to 4% in May, according to the median estimate of a BusinessWorld poll of 16 analysts. — PHILIPPINE STAR/WALTER BOLLOZOS

THE BANGKO SENTRAL ng Pilipinas (BSP) will likely begin easing by the fourth quarter when inflation is expected to have firmly settled within target, Metropolitan Bank & Trust Co. (Metrobank) said.

“In line with the BSP’s guidance, we forecast domestic headline inflation to peak in July, which in turn would only be observable in early August,” the Metrobank Research and Market Strategy Department said in a note.

The central bank earlier said inflation could temporarily accelerate above the 2-4% target from May to July due to base effects. However, inflation is expected to return to the target after July.

“This supports our view that the BSP will start its easing cycle in the fourth quarter, rather than the third quarter, when inflation expectations have settled well within the BSP’s 2-4% range,” Metrobank said.

The Monetary Board’s next meeting is on June 27, but BSP Governor Eli M. Remolona, Jr. has signaled that policy easing could begin as early as August.

The Monetary Board’s only meeting in the third quarter is scheduled for Aug. 15, followed by two meetings in the fourth quarter (Oct. 17 and Dec. 19).

Metrobank said the central bank would likely keep a sufficiently restrictive policy stance as upside risks to inflation remain.

It cited risks such as “still-elevated food prices and heightened geopolitical risks that could lead to renewed supply shocks.”

Inflation likely accelerated for a fourth straight month to 4% in May, according to the median estimate in a BusinessWorld poll of 16 analysts.

The BSP gave an inflation forecast of 3.7-4.5% for May. Inflation data will be released on June 5.

“We also continue to see the BSP lagging the US Federal Reserve’s own easing cycle, where we expect the first policy rate cut in the September Federal Open Market Committee (FOMC) meeting, which should then support the peso,” Metrobank said.

Mr. Remolona earlier said that while the BSP monitors the Fed’s moves, it does not need to wait for the US central bank to cut rates.

On May 16, the Monetary Board kept its key policy rate steady at a 17-year high of 6.5%. This was the fifth straight meeting that the BSP stood pat since it delivered an off-cycle rate hike of 25 basis points (bps) in October.

From May 2022 to October 2023, the central bank raised borrowing costs by 450 bps.

Meanwhile, Metrobank said it expects the peso to continue to strengthen. 

“We expect the peso to be further supported by a narrowing current account balance driven in turn by improving trade deficit levels and recovering travel exports, accompanied by an expected uptick in business process outsourcing (BPO) revenues and overseas Filipino worker (OFW) remittances in the fourth quarter,” it said.

The BSP expects a current account deficit of $6.1 billion by the end of 2024, equivalent to -1.3% of the gross domestic product (GDP).

Metrobank said it sees the peso settling at P56.10 a dollar by yearend.

In May, the peso touched the P58-per-dollar level for the first time in over 18 months.

The BSP has said it would continue to monitor the foreign exchange market and would participate if necessary to “smoothen excessive volatility and restore order during periods of stress.”

On Monday, the peso closed at P58.68 per dollar, weakening by 17 centavos from its P58.51 finish on Friday. This was the worst finish in almost 19 months or since its P58.80-per-dollar close on Nov. 3, 2022. — Luisa Maria Jacinta C. Jocson

Meralco warns power rates to go up in June

Customers of Manila Electric Co. may face higher electricity bills this month. — PHILIPPINE STAR/MICHAEL VARCAS

POWER RATES are expected to go up this month, due to higher settlement costs in the reserve market and the implementation of the new feed-in tariff allowance (FIT-All) rate, according to Manila Electric Co. (Meralco).

A spike in generation charges amid tight supply, coupled with the peso depreciation, might also contribute to the higher electricity rates, the company said on Monday.

Meralco Vice-President and Spokesperson Joe R. Zaldarriaga said in a statement that there is “pressure for an upward adjustment” in electricity bills for June.

“This is expected to be driven by the settlement costs in the reserve market and increase in FIT-All that will be reflected in the bills of customers this month,” he said.

Last month, the Energy Regulatory Commission (ERC) ordered the partial lifting of the suspension on settlement amounts in the reserve market.

The ERC has allowed the settlement of 30% of the amounts due on reserve market transactions during the March billing month. Citing simulations, the regulator projected the partial payments to be worth P1.7 billion.

Meralco said the National Grid Corp. of the Philippines (NGCP) “can start recovering costs for trading transactions made in the reserve market in March.”

The NGCP has said ancillary services to distribution utilities might increase by more than 10 centavos per kilowatt-hour (kWh).

NEW FIT-ALL RATE
Meanwhile, Meralco said the ERC recently approved a new FIT-All this month, which would result in an increase of P0.0474 per kWh.

“The increase was based on the application of Transco (National Transmission Corp.) as administrator of the fund and ERC’s determination of the funding requirement to pay for the electricity supplied by RE (renewable)-FIT plants,” ERC Chairperson and Chief Executive Officer Monalisa C. Dimalanta said in a Viber message.

Ms. Dimalanta said the ERC approved a FIT-All rate of P0.0838 per kWh in March, which would be reflected in the June billing.

“The implementation of the new FIT-All is higher than the 2022 rate of P0.0364 per kWh,” Ms. Dimalanta said.

The FIT-All is a charge reflected in the bills of consumers that is collected from on-grid customers to support the development and promotion of RE.

Payments are remitted to the FIT-All fund established and administered by Transco, which keeps the funds with a government financial institution. The fund goes toward paying RE developers who have obtained fixed rates for electricity generated by their projects.

The ERC had lifted the suspension of FIT-All collection starting February due to a projected deficit in the FIT-All fund.

Mr. Zaldarriaga also said there is an upward pressure in the generation charge due to the continuing tight supply conditions in the Luzon grid.

“We’ve experienced a series of red and yellow alerts in the last supply month, and as we know, these conditions affect generation costs particularly in the Wholesale Electricity Spot Market or WESM,” he said.

As of June 3, the Luzon grid was placed on red and yellow alerts for 13 days and 29 days, respectively, this year.

In an advisory early Monday, the NGCP raised a yellow alert over the Luzon grid from 1-4 p.m. and 6-10 p.m. as a total of 2,692.8 MW were unavailable to the grid.

Meralco said the peso depreciation is also expected to increase generation charges in June, as it affects a significant portion of the costs of independent power producers and power supply agreements.

On Thursday, the peso fell to a near 19-month low, closing at P58.635 a dollar from P58.42 finish on Wednesday, data from the Bankers Association of the Philippines showed.

In May, Meralco raised the overall rate by P0.4621 to P11.4139 per kWh from P10.9518 per kWh in April due to the higher generation charge.

Households consuming 200 kWh had to pay about P92 more for their monthly bill.

Meralco’s controlling stakeholder, Beacon Electric Asset Holdings, Inc., is partly owned by PLDT Inc.

Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has an interest in BusinessWorld through the Philippine Star Group, which it controls. — S.J.Talavera

Krugman says China is ‘bizarrely unwilling’ to boost demand

BLOOMBERG

CHINA’S LEADERS are “bizarrely unwilling” to use more government spending to support consumer demand instead of production, according to Nobel laureate in economics Paul Krugman.

“The fact that we seem to have a complete lack of realism on the part of the Chinese is a threat to all of us,” Mr. Krugman told Bloomberg TV on Monday, where he also touched on Japan’s economy and the benefits of a weak yen.

Mr. Krugman echoed criticism by US economic officials including Treasury Secretary Janet Yellen that China can’t simply export its way out of trouble. The comments come amid renewed concern in the US and Europe over what is viewed as Chinese overproduction and the dumping of heavily subsidized products overseas.

“We can’t absorb, the world will not accept everything China wants to export,” Mr. Krugman said.

China’s whole economic model is not sustainable because of “vastly inadequate” domestic spending and a lack of investment opportunities, he added. Beijing should be supporting demand, not more production, he said.

Another prominent economist, Stephen Roach, weighed in on China’s economy on Monday. He said he found a grim mood on the ground in Beijing during a visit recently, especially among entrepreneurs and students.

“I found a Beijing that really didn’t have much of the spark that I had been accustomed to over my many years of traveling there,” Mr. Roach said in a Bloomberg TV interview. “Certainly, the best I could call it was a mood of grim resignation,” said the former chairman of Morgan Stanley Asia who now teaches at Yale University.

A regular policy adviser to the Chinese government, Li Daokui, predicted more supportive policies for the economy in the coming months. Speaking to Bloomberg TV, the Chinese economist called on Beijing to issue much more central government debt to make up for the inability of cash-strapped local authorities to spend money and drive growth.

Looking beyond China, Mr. Krugman said he found it hard to understand why Japanese authorities are panicking over a weaker yen that helps boost demand in that economy.

“I have to say what puzzles me is why Japan is so worried about the falling yen,” he said.

“A weaker yen, after [giving] it a bit of a lag, that’s actually positive for demand for Japanese goods and services,” Mr. Krugman said. It’s “puzzling why the weaker yen is inspiring as much panic as it seems to be.”

Mr. Krugman spoke after a government report on Friday showed Japan has spent a record amount to defend the currency in the past month. After the actions by the government side, the Bank of Japan (BoJ) is increasingly seen likely to raise rates by July to ease pressure on the yen.

Mr. Krugman, now at the City University of New York, isn’t all convinced that Japan is finally having sustainable inflationary pressures.

“I hope so, but I’m not convinced by trying to look at the Japanese data,” he said. “I still don’t see the kind of fundamental strength. A lot of Japan’s long-term weakness has to do with demography, has to do with extremely low fertility. That hasn’t changed, although Japan is at least more open to immigration than it used to be. But it’s a long way.”

Japan’s economy contracted in the last quarter, extending a period of no growth starting from the middle of last year. That underscored a lack of momentum even after the BoJ ended its massive monetary easing program in March with the first rate hike in 17 years.

The biggest driver for the yen weakening is a wide interest rate gap with the US Federal Reserve. While few expect the Fed to cut rates soon on the back of sticky inflation, Mr. Krugman reiterated his view that it’s better to cut rates soon with the chance of re-accelerating inflation looking very small if the Fed cuts rates.

“I would go for the rate cut if only to signal, ‘Hey, you know, we’re not asleep here, we’re not going to be obsessed with inflation until that’s so far in the rear-view mirror that we really should have been focusing on the car wreck in front of us,’” he added. — Bloomberg

JG Summit working to weather short-term headwinds — Gokongwei

JG Summit Holdings, Inc. President and Chief Executive Officer (CEO) Lance Y. Gokongwei on Monday expressed cautious optimism amid challenges posed by high fuel prices, interest rates, and foreign exchange fluctuations.

“While we remain cautious given short-term headwinds from elevated fuel prices, interest, and foreign exchange rates, we continue to work hard to accelerate recurring core profits in succeeding quarters,” Mr. Gokongwei said during the company’s annual stockholders’ meeting.

 JG Summit has allocated P87.2 billion as its capital expenditure budget this year to fund expansion plans.

Mr. Gokongwei said the merger between Robinsons Bank Corp. and Bank of the Philippine Islands (BPI) will be a key growth driver this year.

 “From JG Summit’s perspective, we look forward to realizing additional cash flows from our banking investments in the form of cash dividends which we can then allocate to the BPI network, and then we can then allocate towards efforts to further grow and support our other businesses,” he said.

 “We are excited to unlock the merger synergies between the combined Ayala and Gokongwei groups. This includes being able to provide a wider variety of financing solutions to our suppliers such as supply chain financing which we were previously able to offer only at the limited scale due to the smaller size of Robinsons Bank,” he added.

 Mr. Gokongwei also said that JG Summit’s business units are continuously expanding their capacity and footprint to support the growth plans of the conglomerate.

 He said that listed food and beverage manufacturer Universal Robina Corp. (URC) is building a mega plant in Batangas, with the first line expected to be operational by the end of 2024.

 Meanwhile, Robinsons Land Corp. aims to open the high-end Opus Mall in Quezon City by July, as well as Robinsons Place Pagadian in Zamboanga del Sur, he added. The company also plans to add new rooms at the NuStar Resort and Casino in Cebu City by the fourth quarter.

 At the same time, he said that budget carrier Cebu Pacific aims to grow its total full year capacity by 12-15%. The growth will be led by the 18 additional aircraft that will be delivered this year, of which five had been delivered in the first quarter.

 “With these advancements across the group, we hope to remain ahead of the curve as we continue our commitment to providing our customers with better choices, and create shared success with all our stakeholders,” he said.

 Meanwhile, URC President and CEO Irwin C. Lee said the company is aiming to push volume growth to drive business despite inflationary risks.

 “What we’re trying to do is to make sure that we drive our own operating savings so we limit the amount of cost that we need to pass on to the consumers. That is the big push for 2024. We’re hoping to see renewed volume growth so that reliance on pricing growth will be minimized,” he added.

Mr. Lee added that the company has seen growth across various segments such as its snacks business despite inflationary pressures.

“We are seeing growth in our instant soluble business as people make their own coffee, and we are seeing growth where we have offerings that are below P5,” he said.

 “Equally, we are continuing to drive our brands in the higher price segments to prepare for the time that consumer confidence will be stronger. We’re also seeing that there’s a segment of consumers at the very top that are not as affected by inflationary impacts,” he noted.

 On Monday, JG Summit shares fell by 2.58% or 80 centavos to P30.20 per share. URC stocks dropped by 0.93% or P1 to P106 apiece. — Revin Mikhael D. Ochave

D&L says exports to capture half of revenue in next 2-3 years

D&L Industries says exports to account for half of total revenue in next two to three years.

D&L Industries, Inc. said it expects its export business to make up half of its total revenue in the next two to three years, driven by its new Batangas plant.

“Maybe it will take us another two or three years before we hit 50% (of total revenue contributed by exports),” D&L President and Chief Executive Officer Alvin D. Lao said during a virtual briefing on Monday.

He said that exports currently account for 32% of the company’s total revenue, which is expected to reach “mid to high 30%” by the end of the year. D&L’s export revenue rose by 39% in the first quarter.

“As the Batangas plant’s operation increases, then we will be exporting more. It ramps up over time,” Mr. Lao said.

D&L started the Batangas plant’s commercial operations last year.

The plant saw a P16-million net loss in the first quarter, lower than the P315-million net loss incurred at the start of its commercial operations.

Mr. Lao said the company is keeping its projection of at least double-digit earnings growth this year.

“Barring any unforeseen events, we maintain our stance and continue to guide for at least double-digit growth in earnings for this year,” he said.

“Over the long term, we have a lot of confidence that the new investments that we have made over the past years will pave the way for higher and more sustainable profit growth,” he added.

In a separate statement, D&L announced a regular cash dividend of P0.161 per share, along with a special cash dividend of P0.048 per share, for shareholders recorded as of June 19. The ex-date is June 18, and payment will be made within 30 days of the dividend declaration, or on July 3.

D&L reported a 4% increase in first-quarter net income to P618 million, with sales growing by 5% to P8.83 billion.

On Monday, D&L stocks rose by 1.43% or nine centavos to P6.37 apiece. — Revin Mikhael D. Ochave

Keep on the sunny side

QUEER WOMEN line up outside What's Your Poison to enter Sunny Side Club's all-sapphic singles' night. — BRONTË H. LACSAMANA

Queer women seek out safe spaces in Metro Manila

By Brontë H. Lacsamana, Reporter

SUNNY SIDE CLUB, simply referred to by its members as “Sunny,” is a relatively new community for queer women, formed online in 2023. Its regular events, taking place almost weekly and requiring registration from attendees, are a haven for those who want to meet other women who love women (WLW), be they masculine (masc), femme, butch, trans, nonbinary, and the like. There, femme queers can flaunt their attractiveness without unwanted advances from the opposite sex, and masc and gender-neutral queers can feel comfortable being themselves without judgement.

Sunny’s gatherings come in all shapes and sizes — loud parties in clubs blaring anthems by Chappell Roan, screenings of queer-themed films like the 2023 comedy Bottoms, and even calm breakfasts at cafes where casual conversation is ideal. The number one rule is: no cis (straight) men.

Founded in November, it is a direct product of pondering where the lesbian spaces in Metro Manila have gone, spurred on by an article on the topic published by The Philippine Star in March of 2023. In the story, the likes of exclusive queer womens’ club Ámame, butch lesbian gogo bar Miss Kon, and Studio Dance Club’s monthly girls’ nights were mentioned as the only places to go.

By the end of that year, Sunny had started a community of its own.

“I made a survey on TikTok if people wanted to watch Bottoms online. I expected around 25 signups and got a hundred the next day, so there was a demand. We started looking for spaces for 12 people, and the number slowly got higher and higher every gathering, until we began entering deals with venues,” Sunny co-founder Jewel Enrile told BusinessWorld in an interview.

On May 31, the eve of Pride Month, the club welcomed hundreds of queer women throughout the night for their all-sapphic singles’ party, the venue What’s Your Poison (WYP) in Poblacion, Makati, overflowing with attendees.

Ms. Enrile gave BusinessWorld a quick glimpse of the organization behind such an event — from registration to ensure no one is under 18 or a straight man, to the planning and hosting of games and activities catering to Filipino and Gen Z lesbian culture.

“Our idea isn’t original. So many young people organize parties. There are so many collectives around Metro Manila formed from group chats on TikTok or Discord, asking ‘Gay girl ka ba? Gusto niyo ba sumali sa chat?’ (are you a gay girl and do you want to join our chat?) so it’s not original at all. We’re just an extra level of organization to it all,” she added.

Sunny co-founder Cal Lim Tolentino lamented about how she used to obsessively google “lesbian bars” and not find any. “We never actually went to one before we started this. Our events would be the first, though technically not since we don’t have a physical space,” she said.

The club’s all-sapphic singles’ night was lively and filled with dance tunes, girl anthems, and spicy dating games. But Ms. Tolentino confided that they hope to someday attend other queer womens’ events rather than be the ones hosting them all the time.

“What was around before we started were generally gay spaces, which are fun but not entirely meant for us,” added Ms. Enrile. “We went to drag clubs like Nectar and queer-friendly spaces like Today x Future, but those places primarily had gay men.”

A VARIETY OF WOMEN
On the demographic of Sunny attendees, Ms. Tolentino said that the majority are women on the cusp of generations — the oldest Gen Zs (22 to 27 years old) and the youngest millennials (28 to 30 years old). Coming out of isolation, a lot of the marketing has been around helping people move on from that.

“It has a lot to do with the pandemic, because a large chunk of 20-year-olds didn’t get to party in college. They were home and never got to experience a partying culture,” she told BusinessWorld.

However, the club’s events see quite a few 30- and 40-year-olds as well, there to support and celebrate a lesbian community that didn’t exist in their youth. Yana Romero, Sunny’s marketing head, cited social media platforms like Instagram and TikTok as the reasons they’re able to contact people across a range of ages.

“We get messages and comments from those not able to join, saying they hope to catch future events. The older queers tell us that they didn’t have this and they’re happy they get to experience it with us,” Ms. Romero said.

For Ms. Enrile, the fact remains that different activities appeal to people of different ages and personalities, which is why they have parties, film screenings, book discussions, and cafe gatherings, with the morning events usually skewing to an older crowd who want to sit down and talk.

“Ideally, we want more sapphic spaces and communities to crop up so we can address more subcultures,” she said. “While Sunny does welcome nonbinary and trans people, the WLW community is so nuanced that it deserves more spaces to cater to everyone.”

One of Sunny’s inside jokes addresses this variety of women. The “masc shortage” refers to a supposed lack of masc lesbians in the Philippines, compared to femmes who seem to be everywhere. Sunny documents an abundance of all types at their events, celebrating queer women no matter their SOGIE (sexual orientation, gender identity, and gender expression).

LONG-TERM GOALS
The lesbian pride flag on the registration table outside WYP signaled to guests that they had come to the right place, but Sunny’s founders revealed that the long-term goal is to have a physical space of their own.

“It’s hard to jump around,” Ms. Tolentino said. “You have to make sure of so many things, going to different venues. A physical space would be stable.”

In the meantime, Sunny focuses its efforts on developing a strong network of queer-owned businesses through their Sunny Features on social media. Some businesses they’ve promoted range from lesbian-owned cafe Maiora Bistro on Katipunan Ave., Quezon City, to the queer travelers’ vacation rental Affordalux Staycation in SMDC Wind, Tagaytay City.

“I realized that the value of attending Sunny events, being in the Sunny Discord, and following the Sunny instagram is the resources you get. We shout out these places and we invite lesbian drag queen Tiffany Brittany to perform at our events, so that queer women can go somewhere without being discriminated [against] or feeling uncomfortable or unable to relate,” Ms. Enrile said.

Eventually, the community can transition from hosting parties to having a solid database of resources — businesses and performers, as well as queer-friendly workplaces and employers, medical clinics and doctors.

“More than supporting lesbians, it’s about having a network of people and places that will make lesbians feel safer,” said Ms. Tolentino.

She pointed out that the Filipino gay community has its own home-for-the-aged, the Golden Gays. There is no such counterpart for elderly lesbians. “It doesn’t exist, which means there’s no space for all those old lesbians. They’re scattered around. That’s probably what’s happening,” she said.

Ms. Enrile added that Sunny may be named for the happier and brighter side of the queer experience, but it is not just about parties and its goals extend far beyond Pride Month.

“We advocate for all these serious things — a physical lesbian space, a database of resources, nonprofits for queer women — disguised behind something fun. We’re trying to get our name out there.” 

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