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Thursday, October 13, 2016

US has to accept China’s rise: expert said in 7th Xiangshan Security Forum


http://www.xiangshanforum.cn/


https://youtu.be/jb3B6OHJBYg


https://youtu.be/_xpGrocWVWc

Major powers threaten other countries by seeking ‘absolute security’

Professor Zheng Yongnian (right) speaks to reporters at the Xiangshan Forum in Beijing on Wednesday. Photo: Chen Ping/GT

The US is sending the wrong diplomatic signals to South Asia, a Singapore-based scholar said at a security forum in ­Beijing on Wednesday. And he called for a balance in major power relations in the region.

Zheng Yongnian, professor and director of the East Asian Institute at the National University of Singapore, said "the US is adjusting itself toward the rise of China … But I don't think the US is sending the right signals to South Asian countries."

He noted, "although it will not go to war with China because of the Philippines [over South China Sea disputes] or any other nation, the signals the US sends out, including the Trans-Pacific Partnership or its 'Pivot to Asia,' are viewed negatively in South Asia."

Zheng made the remarks on the sidelines on the third day of the Seventh Xiangshan Forum. He dismissed the concept of absolute power in the globalization era.

"Major powers should understand that they pose a threat to other countries by seeking absolute security for themselves," Zheng said.

He emphasized that the expansion of NATO after the collapse of the Soviet Union led to conflict in eastern Ukraine, since the organization raised Russian security concerns.

Zheng also noted that as the world's major power, the US has to accept the natural rise of China. "China's economic rise means it will also have geopolitical influence regardless of the intentions of its leaders."

He lashed out at the notion of "alliances," which is an "offshoot" of the Cold War.

"Alliances mean there is an enemy. And no alliance is equal because there will be a leader and followers," he said, adding "the US, Japan and the Philippines remain in an alliance. I believe once Japan and the Philippines get a chance, they will seek an equal ­position."

However, smaller countries have to respect a major power's interests, otherwise it will cause regional conflict, like when South Korea agreed to deploy the Terminal High Altitude Area Defense (THAAD) ­system, he said.

The US anti-missile defense system has caused a rift between South Korea and China. Although some South Koreans have been raising health and environmental concerns, President Park Geun-hye defended it as a national defense necessity.

Separately, referring to the position of the US toward China, J. Stapleton Roy, former US ambassador to China, told the Global Times, "We would consider China hostile if it enjoys greater military might."

"Americans like to think in terms of using our robust military presence in the Asia-Pacific to balance the rise of China, but not to contain it, so that China's neighbors are not alarmed over its growing military and economic power."

China doesn't want to be a dominant power in the region, which is not a military showcase for the US as well, said Su Ge, president of the China Institute of International Studies.

"China is not intent on replacing the US," he said.

- Global Times - Asia-Pacific, Cross-Borders

US Policy towards China:



https://youtu.be/brUWyCi_x-4

Related posts:
 

Xiangshan Defence Forum: Regional military chiefs hail Beijing's security proposal 


China committed to upholding peace, stability in S. China Sea island-building, rejects US criticism to isolate China in Asia

Wednesday, October 12, 2016

Bizarre world of new debt, low, even negative interest rates a threat to global stability

New debt crisis a threat to global stability


 
https://en.wikipedia.org/wiki/Debt-to-GDP_ratio; 
The global debt clock: http://www.economist.com/content/global_debt_clock

Global debt has jumped alarmingly to RM631tril and as capital flows out from developing countries, some are facing new debt crises.

DEBT worldwide has grown to unprecedentedly high levels and has to be brought down to prevent another financial crisis.

This was highlighted by the Inter­national Monetary Fund at its annual meeting in Washington last week.

Other problems facing the global economy include the stagnation in world trade, a decline in commodity prices and the reversal of capital flows to developing countries.

A recently released United Nations report has analysed the situation as a third phase in the global crisis that began with the United States in 2008, then spread in a second wave to Europe, and is now moving on to the developing countries.

The IMF said that world debt had reached US$152tril (RM631tril), a record level. It was 200% of the value of global gross domestic product in 2002, but has risen to 225% in 2015. The private sector holds two thirds of the total, but government debt has also risen fast, and the IMF warned about the risk of another financial crisis.

“Excessive private debt is a major headwind against global recovery and a risk to financial stability,” said Vitor Gaspar, IMF director of fiscal affairs. “Rapid increases in private debt often end up in financial crises.”

Most of this global debt is concentrated in developed countries. The huge jump there has been due to policies of easy money and low, zero or even negative interest rates, and especially to quantitative easing in which Central Banks bought bonds and pumped trillions of dollars into the banking system.

 
https://sputniknews.com/europe/201607121042814891-germany-italy-europe-financial-crisis/

It was hoped that this massive infusion would cause the banks to increase lending to consumers and businesses and thus stimulate economic growth.

However, the real economy did not benefit much. Instead, most of the money went into the equity markets, boosting prices, and to the developing economies as investors searched for higher yield, and this helped to fuel the growth of their debt.

The debt of non-financial corporations in emerging economies jumped from US$9tril (RM37tril) at end-2008 to over US$25tril (RM104tril) by end-2015, or from 57% to 104% of their GDP.

Foreigners now own unprecedentedly high shares of bonds and equities in developing countries, which have become vulnerable to investor-mood swings and funds, resulting in financial crises.

When market sentiment or conditions change, the massive inflows can turn into equally large outflows. Indeed, the boom-bust cycle of capital flows has gone through many turns through the years.

Huge amounts left developing countries in the fourth quarter of 2015, and for that year as a whole there was a net outflow of US$656bil (RM2.7tril) or 2.7% of their Gross Domestic Product, according to the UN Conference on Trade and Development (UNCTAD).

This was a big change from a net inflow of 1.3% of GDP in 2013. This turnaround of 4.4% is much larger than the reversals of capital flows in 1981-83, 1996-98 and 2007-08.

But in recent months the cycle turned again, with the return of fund investors to emerging economies. For example, in Malaysia, after suffering large outflows in 2015, there have been net inflows of funds into the equity and bond markets in the past few months.

Going through these cycles, the debt of developing countries has grown. “Easy access to cheap credit in boom times has led to growing debt levels across the developing world,” says UNCTAD’s Trade and Development Report 2016.

Developing countries’ external debt rose from US$2.1tril (RM9tril) in 2000 to US$6.8tril (RM28tril) in 2015. Overall debt (foreign and domestic) jumped by over US$31tril (RM129tril) with total debt-to-GDP ratios reaching over 120% in many countries and over 200% in some others.

Now a nightmare scenario is emerging. For many countries, the tide is turning and access to cheap credit has begun to dry up. Says UNCTAD: “Against the backdrop of falling commodity prices and weakening growth in developed economies, borrowing costs have been driven up very quickly, turning what seemed reasonable debt burdens under favourable conditions into largely unsustainable debt.”

In some countries, the problem is compounded by currency devaluation (which increases the value of external debt) and lower commodity prices.

These countries are thus hit by multiple whammies – lower commodity prices and export earnings, net outflow of funds, devaluation (which causes their foreign debt to increase), a higher cost of servicing debt, and economic slowdown.

More and more low-income countries are in a downward economic spiral that has led them into a new debt crisis. They have had to turn to institutions like the IMF and World Bank for bailouts. UNCTAD lists Angola, Azerbaijan, Ghana, Kenya, Mozambique, Nigeria, Zam­bia and Zimbabwe as countries that have already asked for financial assistance or are in talks to do so.

This points to a shortfall in the international financial system – the lack of an orderly and fair debt mechanism which countries facing a debt crisis can have recourse to.

At the national level, the developed countries and some developing countries have corporate bankruptcy laws, aimed at helping companies to recover from a debt crisis through an orderly debt workout.

But there is no such debt workout mechanism, with fair burden sharing between debtor and creditors, when countries fall into a debt crisis.

In its absence, indebted countries often face many years of austerity and recessionary conditions im­­posed by the creditors and rescuing agencies, and with no guarantee that their debt level will even decrease.

With the present level of worldwide debt and the emergence of a new debt crisis in several countries, especially poor ones, it is time to consider smarter policies that prevent debt crises, and to manage them properly when they happen.



Global Trends By Martin Khor Global Trend The Star/ANN

Martin Khor (director@southcentre.org) is executive director of the South Centre. The views expressed here are entirely his own.


The bizarre world of low, even negative, interest rates


 
Draghi’s point: ECB president Mario Draghi speaks during a news conference in Berlin. He vigorously defended his stimulus policies to critical lawmakers in Berlin, while reaffirming the urgency to step up structural reforms. – Bloomberg

INTEREST rate is the price of money.

It sets the benchmark as it serves to oil the financial system’s engine, helping capital to flow freely and effectively in the global economy. Rates have been positive for the past three centuries despite world wars and the Great Depression. The system is not designed for a world of ultra-low, let alone negative rates.

The traditional business of banking, as we know it, is to take money from savers (in the form of deposits – representing banks’ liabilities) and lend it, at higher rates and over longer periods, to borrowers (investors, whose loans become their assets). Essentially, banks borrow short and lend long.

So the shape of the yield curve (chart of interest rates reflecting their term structure) is critical as it drives profits. The smaller the margin (gap) between short and long-term rates (i.e. the flatter the yield curve in economists’ jargon), the tighter banks’ profits are squeezed. The problem becomes even more difficult as interest rates or bond yields move near or to zero or worse, get negative.

Negative world

Negative rates invert the norms of banking. Strangely, borrowers are paid for taking money, while savers pay to hand over their deposits. Banks already face resistance from depositors who won’t pay to save with them. Even as the return on their assets falls, banks find it hard to reduce the cost of their liabilities. When central banks impose rates on the reserves kept by banks with them – as is done at the European Central Bank (ECB) and Bank of Japan (BoJ) – it’s difficult for the banks to pass on this cost.

Indeed, negative rates act as a tax on bank profits. Banks also own government bonds, partly because regulators require them to keep a portfolio of liquid assets. Revenue here is a handy source of income. But as the older, high-yielding bonds mature, their replacements are now much lower yielding, thus eating into banks’ profits.

So banks look for other ways to re-coup, resorting to fees for services. Indeed, wealthy clients of private banking are starting to wake up to the impact of fees.

Insurance companies are also badly affected. They buy bonds to match assets with their long liabilities. But insurance companies in Germany and Switzerland are stuck with savings products they had sold in happier times, which guarantee returns well above current yields. A similar problem hit Japan in the 1990s and 2000s. Those with asset management arms have some protection, where returns are linked to the markets. But the impact of low returns is slowly but surely squeezing them too.

Impact

The underlying economic problem today remains inadequate global demand. In response, ECB has since stepped up its stimulus activities, joining BoJ and others in breaching the “zero lower bound” (inability of interest rates to get negative). So far, the impact on growth and employment has been dismal – simply because there is so much excess capacity worldwide.

Lower rates (even going negative) don’t appear to work. Lending has become more risky and banks today, as I see it, have neither the appetite nor enthusiasm to lend. Negative interest rates (NIRs) hurt banks’ balance sheets.

Other problems: NIRs (i) encourage investment in capital-intensive and disruptive technologies; (ii) perversely encourage savings – as fixed, interest-dependent income earners dampen consumption; (iii) curb a bank’s ability to lend; (iv) distort financial markets; and (v) shift portfolios to riskier assets in search of higher yields. In the longer run, NIRs compel businesses and individuals to disengage from a financial system that now taxes their saving.

Short-term rate and government bond yields represent the risk-free rate that forms the basis of return in finance. The expected return on equities comprises this risk-free rate plus a premium to allow for stock volatility and risk of capital loss. A good chunk of income of service providers is the “cut” they take. Today, there is simply much less return to go around.

Global trading in government bonds had exceeded US$10 trillion, a testament to just how hard central bankers are pushing yields down to spur households and businesses to spend. US 10-year Treasury now yields below 1.7%. Returns on comparable bonds in Germany and Japan are negative. Falling rates promise limited relief for consumers and businesses because inflation is falling too. For many in Europe and Japan, even record low rates don’t translate into easier borrowing terms on a real, or inflation adjusted, basis. For example, 10-year Japanese bonds return a -0.07%; but consumer prices fell 0.3%, yielding a +0.23% at 10 years, a key rate for most Japanese. NIRs don’t appear to have helped boost inflation in Europe either. The real case against NIRs is the folly of relying on monetary policy alone to rescue economies from depressed conditions.

Scandinavian experience

Among Scandinavian nations, Denmark already has four years of NIRs. Its central bank benchmark rate now stands at -0.65% (mortgage rate, excluding fees, being at negative 0.0562%). Neighbour Sweden’s is -0.5% (below zero for 14 months). In Norway, rates can go negative to prop-up an economy hard hit by low oil prices. ECB and BoJ are using sub-zero rates to stimulate growth with little success.

Meanwhile, Switzerland, Sweden and Denmark are trying NIRs to keep their currencies in line with the struggling euro. Their experience points to concerns about undesirable side-effects, including: (i) savers pay the price of getting no interest; even so, bank profitability is squeezed; (ii) excessive investment in real estate; (iii) households gorging up mortgages they can’t afford to repay when rates rise or real estate values fall.

Sweden’s household debt to disposable income ratio is at an unsustainable 175% (90% in mid-1990s); and (iv) run to physical cash by savers. The flip-side points to success in keeping the currency in check, holding steady against the euro to protect euro-trade and competitiveness.

In Denmark, despite NIRs, private saving is rising (26% of GDP, against 21% before 2012 when rates were positive) to protect future purchasing power. But, investments fell (16% of GDP against 18.1% in 1990-2012). So, NIRs appear to be counterproductive. This chorus of discontent is spreading to other parts of Europe.

NIRs have pushed up savings and done little for corporate investment, while eviscerating pension plans. Politically, in Europe’s sclerotic economy, in the face of high unemployment (double the US rate) and an uncertain outlook, NIRs can be even more toxic, driving voters to support populist causes.

Japan

BoJ took radical measures for 3½ years to reflate the country’s sagging economy, resorting this January to NIRs. Yet growth and inflation remain elusive. Core-inflation is at minus 0.5%, far below BoJ’s 2% target. Prices today are still lower than they were in 1997. BoJ’s primary method to raise consumer expectations has been buying assets, mostly government bonds but also real estate and equities.

As a result, Japan’s monetary base tripled to US$4 trillion (80% of GDP). Investors’ patience is fraying. In a bold move to deepen the yield curve, BoJ on Sept 21: (i) capped the 10-year government bond rate at 0%, vowing to overshoot its 2% inflation target; and (ii) maintained its existing policy to purchase 80 trillion yen (US$78bil) of assets a year. Both these goals are incompatible. They pose a dilemma – in the event demand for government bonds collapses, BoJ will need to buy more and more to keep yields at zero. Similarly, strong demand may even make it unnecessary to buy any.

As I see it, the new approach is a sensible response to market realities. BoJ had conceded real difficulties in shifting price expectations towards the inflation target. Besides, the flattening yield curve is eating into banks’ profits.

By targeting its future purchases at the shorter-end (rather than buy longer bonds as now), BoJ is expected to tolerate a steeper yield curve. The yield cap should make NIRs more effective. Indeed, it allows BoJ to further test the bounds of its NIRs policy. In essence, the new approach shifts focus to interest rates, a retreat from the unpopular quantitative easing (QE). For investors, there is no longer a willing buyer. Instead, a price setter – adding uncertainty. Its pledge to overshoot the inflation target as soon as possible is designed to raise future price expectations more forcefully.

Whether BoJ can shake off deflation depends on whether domestic demand can revive to rekindle the still elusive price expectations. QE needs to be accompanied by more purposeful fiscal stimulus – including even a last ditch effort to issue “helicopter money” – to directly underwrite government spending by BoJ.

In search of yields

With NIRs, some of the world’s un-venturesome investors – the Japanese – are going abroad at an unprecedented rate this year: up to US$500bil being invested so far in foreign securities. For the risk taker, Venezuela bonds earned as much as 27% return over the past year. However, most prefer to just take “duration” risk: measured on when the investor gets his money back.

Longer bonds have higher duration risk – as do bonds with low coupons (more waiting time). Rule of thumb: 1 percentage point change in the rate changes the bond price equal to the duration. The price of 25-year bonds will jump 25% if rates fell by 1 percentage point; and falls 25% if rates rose 1 percentage point. As duration gets longer, risk mounts. For example: last year, 40-year Japanese bonds carried a 1.4% coupon. Rates have since turned negative; so the price rose by as much as 34%.

What then, are we to do

It is startling that the total volume of sovereign and corporate bonds with NIRs now exceeds one-half of all western debt. It’s equally amazing how investors continue to gobble up these bonds even though they are likely to get back less than what was invested.

Just as astonishing is the rising demand for cash – the world’s largest asset managers now hold 5.8% of their assets in cash! Why? Points to investors and fund managers being downbeat on the ability of central bankers to raise inflation in the face of growing pessimism about growth prospects (17% of them expect a global recession, and as many as 39% expect “helicopter money” to be handed out). Most fear the policy landscape will become weirder.

QE appears broken. This playbook has limited success in US and is patchy at best in Europe and Japan. Frankly, US bankers and economists are growing increasingly uncomfortable with the cycle of QE infinity and more aware of its collateral effects, including keeping US dollar cheap.

But consumers and businesses have been saving rather than spending, with stagnant unemployment overshadowing the windfall from rising asset prices. European banks have been hit by low interest rates, tighter regulation and rising non-performing loans that have hurt profitability. Policymakers are today rethinking strategies. Mario Draghi is, and Haruhiko Kuroda has had a recent relook. The key question remains: how to regain policy effectiveness. That’s where the focus should be – adopt pro-growth structural reforms to make the economies more competitive, and to enhance fiscal creditability.

Sure, BoJ has to make people believe in inflation. Inflationary expectations won’t materialise until BoJ is credible. Credibility – that’s what makes our world in 2016. In the US, both presidential candidates have pledged fiscal stimulus. Hopefully, by next year (after elections in Spain, Germany and France), a more balanced application of softer QE and aggressive fiscal stimulus can turn Europe from a good trade into a good investment.


  • What are we to do?
  By Lin See Yan

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 welcome; email: starbiz@thestar.com.my.


Related posts:


 

Global economic order under threat


Jun 15, 2016 ... Negative rates: ECB president Mario Draghi at the Brussels ... that European bank profits will struggle more as negative interest rates play into ... Exceptionally high debt burden can only be financed by exceptionally low interest rates. ... Chinese local governments had net assets of a further US$11 trillion or ...

May 28, 2016 ... ALL of us are worried about growing global debt as a precursor to another round of crises. ... created a global savings glut, which meant lower real interest rates. ... Negative interest rates are causing a major problem in the global economy ... are keeping rates near zero or in the case of the EU, in negative .
 
Oct 3, 2016 ... THE Fed failed to raise interest rates on Sept 21, giving many markets and ... are being constrained by the large debt overhang and toxic politics. ... The European and Japanese central banks are running negative interest rate ...

Monday, October 10, 2016

Housing affordability is an income issue, what's with the fuss?

 
Success story: The Pinnacle@Duxton, a HDB public housing estate, in the Tanjong Pagar district of Singapore. The HDB programme provides the government with an effective means to ensure targeted housing supply meant for community dwelling. – Bloomberg

Best practices from from HDB should be carefully studied


IT is increasingly a cause for concern to see the rising cost of living leading to a significant erosion of income. This results in more youths and job entrants unable to afford decent dwelling, be it in urban or sub-urban areas.

Therefore, it has become a pressing policy matter to find an effective solution to keep real estate prices in check. Many governmental agencies have been set up, but affordability remains a problem.

> Current state of health

From property developers to banks offering mortgages, the real estate sector supply chain has a high correlation with domestic economic performance.

According to the National Property Information Centre (NAPIC), the Malaysian House Price Index growth has been moderating since 2014.

The index had eased to 7.2% in the fourth quarter last year, down from a 7.4% expansion in the previous quarter. It is the fifth consecutive quarter of slower pace of growth.

Similarly, Malaysia’s gross domestic product (GDP) growth had tapered to 4.0% in the second quarter this year, down from 4.2% in the previous quarter.

Notwithstanding the current sluggish economic conditions, the pertinent issue surrounding the real estate segment is affordable housing.

>Severely unaffordable

Even though broad property prices growth have plateaued, the high absolute price to own a house continues to be out of reach for the common Malaysian.

According to the report “Making Housing Affordable” by Khazanah Research Institute, the overall Malaysian housing market is ‘seriously unaffordable’.

Using the “median-multiple ratio” standard by the United Nations Centre for Human Settlement at the World Bank, a housing market is considered “affordable” if the house price to household income ratio is below 3.0 times.

The study conducted by Khazanah Research Institute, following the latest available data by the Department of Statistics, indicated that the overall Malaysian median-multiple in 2014 was 4.4 times.

More worryingly, the median multiple ratio for Kuala Lumpur (5.4 times), Penang (5.2 times), Terengganu (5.5 times) and Sabah (5.1 times) are considered to be ‘severely unaffordable’.

According to NAPIC data in the first quarter of the year, the median residential property sale transaction price in Kuala Lumpur was within the range of RM400,000 to RM500,000.

Assuming that the property price is RM450,000, after paying the 10% down payment deposit and taking a 35- year tenure housing loan at 4.5% interest per annum, the monthly mortgage repayment comes up to slightly over RM1,900.

Meanwhile, the surveyed salary of a four-to-five-year experienced sales manager with a university degree was reportedly at between RM5,000 and RM8,000 per month, according to a local recruitment specialist report.

Effectively, this means that the manager is looking at a house-to-individual income ratio of 4.7 to 7.5 times if he or she were to purchase the Kuala Lumpur property on his or her own capacity.

 
Property price and value to Income per country in SEA 20014

Moreover, given Department of Statistics’ expectation of 1.2% annual population growth rate between 2016 and 2020, Malaysia’s demography will have to accommodate a projected 1.6 million more people by the end of the decade.

Housing is a pressing socioeconomic issue for the long term not only in Malaysia but also worldwide. It has to be sustainable and affordable.

 >Focus on sustainable supply side dynamics

Fundamentally, housing affordability is an income issue.

Given the high absolute value of real estates, household income – at a much lower base – would have to multiply much higher to catch up to the affordability threshold.

To extrapolate it further, even with higher income growth, would real estate ever be considered ‘affordable’?

A conventional profit maximisation motive could mean that property developers would eventually price their units in tandem with income growth rates, therefore creating the ever elusive ‘affordability’.

Keep in mind that there is no lack of demand for housing in Malaysia in light of the relatively young demographic.

In 2016, the estimated age group younger than 24 years old of around 13.4 million people makes up 43% of total population.

Besides, the average household size is expected to shrink from 4.6 people in 2000 to an estimated 4.0 people by the end of the decade, according to Khazanah Research Institute.

>More residential units would be required for dwelling.

Essentially, policy makers should focus more on the supply side dynamics to tackle the issue of home ownership and also on sustainable policies to ease the cost of ownership – especially for first- time home buyers.

Under the 11th Malaysia Plan, the government has already outlined the need for affordable housing – especially for the bottom 40% of households – to alleviate the increasing cost of living.

The government targets to provide 606,000 new affordable houses during course of the 11th Malaysia Plan spanning from 2016 to 2020, introduce an integrated database to match supply and demand dynamics and also establish a land bank for future affordable housing projects.

This would be a continuation of the Program Perumahan Rakyat 1Malaysia (PR1MA), Ruman Idaman Rakyat and Rumah Mesra Rakyat initiatives.

The government looks set to establish a land bank for houses and an integrated database for all relevant stakeholders to match demand and supply dynamics.

Across the straits, the Singapore Housing and Development Board (HDB) is often cited as a success story in providing affordable and quality homes.

The HDB programme is a comprehensive nationwide strategy that aligns the government’s legal powers to acquire land for public housing purposes, act as a central authority on township development, while leveraging on the Central Provident Fund as a financing means to ensure affordability.

Moreover, there is a holistic township planning whereby the development of physical HDB flat infrastructure is complemented by socioeconomic integration that promotes a cohesive society.

No doubt there are studies that indicate Singapore’s median multiple ratio is around 5.0 times in 2015, thereby classified as ‘severely unaffordable’.

The scarcity of land in the island state limits the potential for competitive supply of land.

Nevertheless, the comprehensive central planning that the Singapore government employs allows it to have a firm grip on keeping property prices in check.

In short, the HDB programme provides the government with an effective means to ensure targeted housing supply meant for community dwelling.

Given that Singapore’s home ownership rate has increased from 29% in the 1970s to close to 90% in 1990 and a vibrant resale market for the private sector, it is a considerable success story for providing quality living standards for the nation.

While it would likely be a gigantic task for other countries to emulate Singapore’s public housing policy from scratch in light of the legal matters of land and elements of socioeconomic welfare distribution, the best practices from HDB should be carefully studied.

>Housing matter should be top on policy priority

In Malaysia, land matter is a state matter. For a comprehensive public housing plan to take off, the government would have to put up an economically viable proposal to develop new townships across the nation with a cost effective structure.

The Urban Wellbeing, Housing and Local Government Ministry is mulling over the idea of developing a ‘Youth City’ township to cater to the young population.

Perhaps that could be a platform for the government to walk the talk and deliver value-added townships for affordable housing.

On the other end of the equation, besides providing dwelling space, real estate is also an asset class that yields cash flow from rental and also capital appreciation through time.

Therefore, it is imperative that the housing market price should never be trapped in an asset class bubble.

The 2008 United States’ sub-prime mortgage crisis serves as a grave reminder of the dire consequences and the impact on the real economy.

Fortunately, Bank Negara has already in place various macro-prudential policies since 2010 such as limiting loan-to-value ratio to 70% for home financing, and increase in real property gain tax to 10% for sales of real estate within two years to stem real estate market speculation activities.

In light of these, the recent consideration to allow property developers to offer home buyers financing at a much steeper financing cost of 12% interest rate per annum should be deliberated properly.

It is one matter to provide easier credit facility to own a property but it is an entirely different matter to compromise on the people’s capabilities to service the loan in the longer run and the spillover impact on real estate prices.

In short, housing is a necessity and it is imperative for authorities to have a policy interest in the issue.

The policy challenges going forward would only be more challenging as demand for housing continues to surge. It would be interesting to take stock of the plan that government has in mind come Budget 2017 on 21 October.

By Manokaran Mottain

Manokaran Mottain is the Chief Economist at Alliance Bank Malaysia Bhd

 Related Stories:

Draghi’s point: ECB president Mario Draghi speaks during a news conference in Berlin. He vigorously defended his stimulus policies to critical lawmakers in Berlin, while reaffirming the urgency to step up structural reforms. – Bloomberg
The bizarre world of low, even negative, interest rates


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Malaysian income: bread and butter, affordability of owing a house 

 

Malaysian homes more unaffordable than Singapore, Japan and the US; Budget 2015 brings little joy 

 

Young adults in developed countries rent, we buy houses for good 

 

Cars are more expensive than houses? A house can buy how many cars?

 

How to allocate your money wisely: lessons from my father 

 

 When will the property market pick up? 

 

Unemployment in Malaysia is rising, the latest data released by the Statistics Department show. The obvious correlation to the rise i...

Sunday, October 9, 2016

Water corruption, an integrity crisis is disruptive, debilitating, damaging and hurting us

 
Water Corruption | SSWM http://www.sswm.info/content/water-corruption

The Star Says: A crisis of integrity and a lesson to be learnt


THE country’s gaze is fixed on the alleged corruption in the Sabah Water Department, following the arrest of two of its senior officers.

How can it not be when the Malaysian Anti-Corruption Commission (MACC) displayed at a press conference on Wednesday the cash, cars and luxury goods found in the duo’s homes and offices?

If a picture is worth a thousand words, imagine how much power there is in photographs of items worth tens of millions of ringgit.

And the numbers that the case has yielded so far are dizzying.

The MACC has seized about RM57mil in cash, nine cars (estimated value is RM3mil), 19.3kg of gold jewellery (RM3.6mil), almost 100 handbags (RM500,000) and 127 land title deeds.

The commission has also frozen bank accounts with balances totalling RM60mil.

It is certain that more assets will be uncovered as the probe deepens and widens.

There are additional figures to digest.

The MACC has discovered that the department had given contracts to 38 companies owned by family members and proxies of the two senior officers.

These contracts were awarded for projects funded by the Federal Government. In total, RM3.3bil was set aside for the projects.

The Star reported yesterday that 60 sen out of every ringgit thus allocated was pocketed by many individuals.

We marvel at the size of the MACC’s haul and we are outraged by the extent of the apparent theft of government funds, but we should also take note of another set of numbers.

According to 2015 statistics from the National Water Services Commission, which is better known as SPAN, 87.9% of Sabah’s population has treated water supply.

Only Kelantan has a lower water coverage (64%), although SPAN explained that many households in Kelantan relied on alternative water sources.

At the national level, 95.5% of the population has water coverage.

Sabah did just as poorly in the handling of non-revenue water (NRW), which is the difference between the water that comes out of the treatment plants and the water for which consumers are billed.

The gap is due to theft, leakage, burst pipes, faulty meters and maintenance works.

Last year, Malaysia’s NRW rate was 35.5%. Sabah’s rate was 55.1%, which again placed the state as second from the bottom.

Perlis was slightly worse, with 56.3%.

Yes, Sabah is large, and its rural communities are dispersed. But the same can be said about Sarawak, which has performed better in these areas of water supply management.

Whichever way you look at it, Sabah cannot claim to have a sparkling record in providing water to the people and in taking care of the water infrastructure. And now we can think of many million reasons why this is so.

The MACC investigations probably have some way to go, and if it leads to people being charged in court, a lot more will have to happen before the Sabah Water Department case can be put to rest.

Nevertheless, this is also a time for a compelling case study on how corruption directly hurts us.

Here is a great example of why we should all fight corruption. Underestimate its impact, and we may one day be left high and dry. Let us not waste this learning opportunity.

We have lately been fretting about being hit by a water crisis, but we should also understand that an integrity crisis is just as disruptive, debilitating and damaging. The Star Says

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Malaysia's jobless rate on the rise as economic expansion slows


Unemployment in Malaysia is rising, the latest data released by the Statistics Department show.

The obvious correlation to the rise in the jobless rate, which in Malaysia is counted as those who are unemployed but remain actively looking for a job, is the slower pace of economic growth.

The economy, up until the second quarter ended June 30, has slowed for five quarters in a row with weak exports the main drag on growth.

Although private consumption and investments supported the economy in the second quarter, economists are not very confident that this will drive growth in the coming quarters without supportive government policies and improvement in overseas consumer demand.

This will have implications for jobs and the economy.

There could be reason for short-term cheer with data exceeding expectations, as August trade data released yesterday show but there are indications that downside risks remain.

Positive sentiments as reflected in the Malaysian Institute of Economic Research’s (Mier) business conditions index, which is now above the 100-point threshold, indicating that businesses’ confidence levels are up, can just as easily dissipate.

Consumers do not share the same sentiments as businesses, as the Mier’s consumer sentiments index show.

Although rising steadily since the beginning of the year, the index is still below the 100-point threshold, largely reflecting benign inflation and the fading impact of the goods and services tax implemented last year.

Standard Chartered plc Asean economic research head Edward Lee says private consumption growth momentum will not be sustainable because of the weak labour-market conditions.

Besides the higher unemployment rate, weak wage- and job-growth together with the slowdown in the property market and financial-market volatility to also affect spending sentiment.

Lee, who expects the economy to grow 3.8% this year compared to the official estimates of 4% to 4.5%, adds that the weakening labour market will be a drag on economic growth.

“Private consumption will be key to achieving this target, and we think it may come in weaker than the central bank expects due to weaker labour-market conditions.

“We will therefore monitor consumption metrics closely over the next few months,” he says.

Cautious consumer sentiment largely reflects the state of the job market and high household debt.

 
Different views: Consumers do not share the same sentiments as businesses, as Mier’s consumer sentiments index shows.

Data from Bank Negara and the Nikkei Malaysia manufacturing purchasing managers index (PMI) compiled by IHS Markit Ltd paint a bleaker picture.

While the September Nikkei Malaysia manufacturing PMI, which was released at the end of last month saw an improvement from August, it is still below the 50-point threshold, indicating that the manufacturing sector is still contracting.

But what is interesting is the press statement following the release of the August data, in which IHS Markit economist Amy Brownbill says the Malaysian manufacturing sector saw a sharper deterioration in operating conditions underpinned by quicker declines in output, new orders and employment with the rate of job shedding the fastest in over three years.

The August PMI report noted that firms cut back on payroll numbers as part of efforts to make cost savings.

Bank Negara report

A Bank Negara report also showed that labour market conditions have become challenging, with the recent high unemployment rates coinciding with lower job vacancies available per active job seekers.

AllianceDBS Research chief economist Manokaran Mottain said in a report released last week that while the manufacturing sector was shedding jobs, selected services subsectors has added headcount and could be cushioning job losses in the manufacturing sector.

More than half of the workforce are employed in the services sector with the manufacturing sector employing about 16%.

Further evidence of the deteriorating conditions in the job market comes from the Employees’ Provident Fund (EPF).

Manokaran says the monthly contribution value growth rate from the EPF’s members have moderated, signalling weak wage growth in recent years.

This also mirrors the slowdown in the economy over the past few quarters as businesses will not give higher increments or pay out bonuses.

Manokaran says based on trend-growth estimates, seasonally and inflation adjusted monthly EPF contribution growth has tapered to 2.7% in February on a year-on-year basis before the voluntary employees contribution rate reduction effective in March, down from around 10% growth in 2011.

He noted that while average household income grew 9.6% per annum between 2012 and 2014 in inflation adjusted terms based on the Statistics Department’s household income survey, this was largely propped up by government cash transfers (Bantuan Rakyat 1Malaysia payments) to the bottom 40% of earners.

“On average, given that 65% of household income is from paid employment, signs of wages growth moderation could weigh on household income growth going forward,” Manokaran says.

He adds that the state of labour market and income growth are among the key underlying factors in assessing the state of economic growth outlook.

Earlier this week, the World Bank slashed its growth forecast for Malaysia from 2016 to 2018 on the weak exports and commodity-price outlook. Its chief economist for the East Asia and Pacific Region, Sudhir Shetty, says despite the region’s favourable prospects, growth is vulnerable to a sharp global financial tightening, a further slowdown in world growth or a faster-than-anticipated slowdown in China.

By Fintan Ng The Star/ANN

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Saturday, October 8, 2016

Water theft: 60% of RM3.3bil project allocation stolen by senior officers

 
Jabatan Air Negeri  - Customer Service


How the millions were stolen?


1. Contracts broken down to small packages of RM100,000 each. This is to ensure the director or the deputy can award the contract.

2. Department carries out a limited tender process whereby between eight and 10 companies registered as contractors with the department are invited to put in their bids.

3. All the companies invited tend to act in concert. The ‘limited tender’ process is ‘fixed’ and given to the lowest bidder.

4. The other companies are paid off for their participation.

5. The project is finally carried out at a fraction of the tendered price.

Senior official: Unprecedented scale of corruption going on since 2010


In a shocking revelation, a senior government official said some 60% – close to RM2bil – of the RM 3.3bil Federal Government allocation for water projects in Sabah was siphoned off into individual pockets.

The projects were broken up into awards of less than RM100,000 each and tendered out to companies owned by the families of two top civil servants.

60% of project allocation stolen

 
Under scrutiny: MACC sources said they had identified 40 witnesses, mainly state Water Department officials, to have their statements recorded.

KOTA KINABALU: It’s shocking. Sixty sen out of every ringgit allocated by the Federal Government for water projects was siphoned off into the pockets of many individuals.

A senior state government official said only 40% of the federal allocations for water reached the ground in Sabah, and the rest of the money seemed to have been pocketed by individuals.

The official, who has knowledge of developments in the investigations involving the two senior Sabah Water Department officers, said there seemed to be an unprecedented scale of corruption involving the siphoning of federal allocations amounting to RM3.3bil for water projects in Sabah since 2010.

The Malaysian Anti-Corruption Commission (MACC) has arrested Sabah Water Department director Ag Tahir Ag Talib, 54, and his deputy Teo Chee Kong, 52, and seized over RM115mil, including some RM57mil in cash, from their houses and office.

Two others, including Teo’s older brother – a 55-year-old businessman – and his accountant have been arrested since Tuesday for investigations into what is possibly the country’s biggest abuse of power, bribery and money laundering case.

It is believed the tender process was fixed so that proxy companies would get the project at inflated prices.

In many cases, the projects were broken up into smaller parcels of up to RM100,000 to avoid the tender process.

The director or his deputy can sign off projects below RM100,000.

MACC deputy chief commissioner (operations) Datuk Azam Baki has confirmed that there are 38 companies owned by family and friends of the two detained civil servants.

It is learnt that 17 of the companies were connected to the director while 21 were linked to his deputy.

These companies are said to have been used as fronts to take part in limited tenders to secure the projects.

This has been happening over the last five years with the amount adding up, sources explained, but declined to reveal the specific details of the projects.

MACC sources said they had identified 40 witnesses, mainly state Water Department officials involved in processing the contracts and contractors, to have their statements recorded.

A special team of 70 MACC officers are continuing to record statements, and scan through documents and the money trail.

They are also getting the director and his deputy to declare all their assets under Section 36 of the Malaysian Anti-Corruption Act 2009 as investigators want to obtain comprehensive details of their wealth.

So far, MACC has recovered some RM57mil in cash found from their offices, homes and safe boxes, frozen RM60mil in bank accounts of the duo including that of a company they were linked to.

They also seized 19.3kg of gold jewellery worth about RM3.64mil from the duo, and some 97 designer ladies handbags worth RM500,000 used by the director’s wife.

They also recovered some 127 land titles from Teo.

MACC is also working to repatriate funds banked into an account in a neighbouring country.

By Muguntan Vanar and Ruben Sario The Star/ANN

Pairin: State had nothing to do with stolen funds

 
Normal day: It’s business as usual at the Sabah Water Department despite the corruption issue surrounding the office.

KOTA KINABALU: The state government had nothing to do with the RM3.3bil Federal Government allocation to the Sabah Water Depart­ment, from which a large amount has been siphoned off.

Deputy Chief Minister Tan Sri Joseph Pairin Kitingan said the projects allocated since 2010 came under the Rural and Regional Development Ministry.

Sabahan Datuk Seri Mohd Shafie Apdal held the portfolio until 2015, when he was dropped from the Cabinet.

Pairin, who heads the state Industrial Development Ministry, said his ministry had no knowledge of the allocations as the water agency was the implementing agency for the federal funds.

Pairin said the procurement of the projects as well as the payments were handled by the federal ministry and the state water department.

“In light of this development, my ministry will study and propose an appropriate reporting system,” he said.

Investigators are looking into the possibility of some VIPS having links to the bribery and money laundering that have now been uncovered.

The sources, however, said it was still premature to speculate.

Foreign Minister Datuk Seri Anifah Aman had to step in to put an end to rumours linking the case to Kimanis Umno and also him.

Anifah, the Kimanis Umno division head, said MACC should be allowed to do its job.

He also threatened to take action if the defamatory statements continued to be published.

The Kimanis Umno link came as both the Sabah Water Department director Ag Tahir Ag Talib and his deputy Teo Chee Kong are from Beaufort and the Kimanis area.

There were claims on social media that Ag Tahir was the Kimanis Umno treasurer.

This has since been denied.

Sabah Chief Minister Datuk Seri Musa Aman has also ordered an immediate review of procurement procedures, and monitoring and financial management of all state departments and agencies, particularly those involving allocations and funds outside the state budget.

Musa, who is also state Finance Minister, gave an assurance that the review would not affect the ongoing MACC investigations. - The Star/ANN

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Internet addiction on the rise among Malaysian youths, Asians one of the most addicted to the Internet


Enough evidence to show links to anxiety, decreased job productivity, says expert.


CYBERJAYA: A 14-year-old boy loved gaming so much that he did not leave his home for half a year until his parents hauled him to therapy for Internet addiction.

This sounds like a story that happens in Japan, China or South Korea, where teenagers have died from binging on their computers. But this case happened right here in Kuala Lumpur.

At the International Society of Internet Addiction (Isia) Conference here, researchers said they were most worried that Malaysian youth were increasingly using the Internet in excess, with local studies revealing that 37% of Malaysian parents felt their children’s online life was interfering with their home and school obligations while 18% said their children were sacrificing basic social activities.

The research, led by child psychologist and Isia spokesperson Dr Norharlina Bahar, found that males under the age of 24, from the Klang Valley, Ipoh or Penang, were the most susceptible to Internet addiction in Malaysia.

“Most spend time on online games and browsing social media and there is enough evidence to show links to anxiety, depression, physical health problems, school disconnection, unemployment, decreased job productivity and social isolation,” she said.

Studies have also found frequent use of the Internet could translate to low self-esteem, depression, boredom and attention-deficit hyperactive disorder.

“There is no denying that Internet eases our life but when it affects your mental health capacity and interferes with your day-to-day work, then you need help,” she added.

In the case of the young boy, Dr Norharlina said he became irritable and angry when he was cut off from the digital world by his parents as part of the treatment.

“This is becoming a bigger problem now,” she said.

The challenge for the academic community is translating their data into tangible policies, as definitions of Internet addiction are still being worked out, she added.

That is something the Malaysian Communication and Multimedia Commission (MCMC) is seeking to address, by adapting research on Internet addiction into guidelines that can be used by school counsellors or pa­rents to identify addiction in adolescents, said MCMC advocacy and outreach senior director Eneng Faridah Iskandar.

“We want to know when is usage going to be a problem. When should I start regulating my child’s use of the Internet? We want to develop self-help tips that parents can use,” she said.

The conference was attended by 200 researchers and psychologists from 10 countries to present their findings on Internet wellness and discuss policies to address the effects of the digital world on users’ health.

Asians one of the most addicted to the Internet


CYBERJAYA: The Middle East, North America and Asia have the highest number of people addicted to the Internet, said Hong Kong University (HKU) Psychology. Department Associate Dean Prof. Dr Cecelia Cheng.

Dr. Cheng, who presented the findings of a HKU study on Thursday said that findings suggest that the more a country experiences traffic jams, air pollution and low life satisfaction, the more likely its citizens will be addicted to the Internet.

She added that out of 31 countries surveyed, European and South American nations had the smallest number of people addicted to the Internet. “Basically if the life satisfaction of a country is low, the people in that country are more likely to be addicted to the Internet, particularly gaming,” she said.

Speaking at the International Society of Internet Addiction (ISIA) conference here, Dr Cheng added that there was a link between countries that have high levels of air pollution and Internet addiction.

“The study suggests that the problem of Internet addiction could be linked with the external environment that drives people indoors. Low life satisfaction also suggests that people look to the Internet for escapism when they are dissatisfied with the outside world,” she said.

Dr Cheng pointed out that less people are addicted to the Internet in Europe because pollution and crime rates are generally lower.

“In Europe, and people there can afford to engage in more outdoor activities than those in the Middle East and Asia,” she said.

She added that improving the quality of environmental conditions might encourage residents to engage more in outdoor activities rather than relying solely on browsing the Internet at home for stress relief.

Malaysia was not surveyed in the HKU study, but local authorities suggested that Internet addiction was a rising trend here too. According to the Malaysian Communication and Multimedia Commission (MCMC), 50.4% of children already have a smartphone by the age of 12 and Malaysians have a 100.4% penetration rate for Internet connectivity and a 143% penetration rate for cellular use.

An ISIA study led by Dr Norharlina Bahar also found that the prevalence of problematic Internet users in Malaysia could be as high as 49.2%, with people spending at least five-hours in front of screens daily.

In last year’s World Happiness Index which measures a country’s general wellbeing, Malaysia ranked 61 out of 161 countries, behind Singapore, Indonesia, Thailand and the Philippines.

By Nicholas Cheng The Star/ANN

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