China and Asian central banks wary of QE3 inflation risks

BEIJING - China's central bank governor has warned that quantitative easing policies worldwide could cause inflationary risks, state news agency Xinhua said on Saturday.

The remarks by People's Bank of China (PBOC) Governor Zhou Xiaochuan come even as analysts credit policy easing from G4 central banks - the US Federal Reserve, the European Central Bank (ECB), the Bank of Japan and the Bank of England - in the third quarter of the year as underpinning business confidence.

Chinese data on Saturday offered a sign that G4 policy easing was being felt in the world's second biggest economy, with trade numbers showing exports grew at roughly twice the rate expected in September while imports returned to the path of expansion.

"The data shows both imports and exports are improving - especially a rebound in export growth reflects a rising confidence after the U.S. and European countries launched further easing policies last month," said Xue Hexiang, an analyst at Guotai Junan Securities in Shanghai, after the trade numbers were released.

Across Asia, central banks are wary about the potential inflationary impact of the Fed's latest quantative easing, dubbed QE3, as well as policy stimulus unveiled by the ECB.

Central banks "should consider draining excessive liquidity injected into the market and eliminate inflationary pressure in the long-term", Zhou was quoted as saying by Xinhua, which cited the Journal of Public Research, a magazine published by the People's Bank of China.

China's central bank said in September that it would "fine tune" policy to cushion the economy against global risks while closely watching the possible impact from recent policy loosening in the United States and Europe.

China's economy has slowed for six successive quarters and economists expect that Q3 growth data due on Oct. 18 will confirm the slide extended for a seventh. The consensus forecast in a Reuters poll is for annual growth of 7.4 percent in Q3, down from Q2's 7.6 percent.

Under the banner of policy fine-tuning, China's central bank cut interest rates twice in June and July and lowered banks' reserve requirement ratio (RRR) three times since late 2011, freeing an estimated 1.2 trillion yuan for boosting loans.

But it has refrained from cutting interest rates or RRR since July. Instead, it has opted to inject short-term cash via its open market operations into money markets to ease credit strains.

China's annual rate of inflation was 2 percent in August, half the 4 percent targeted by the central bank, though nudging higher from July's 1.8 percent rate. The PBOC has fought hard to bring inflation down from a three year peak of 6.5 percent hit in July 2011 and is determined to contain price pressures.

Consumer price data for September is due to be published on Oct. 15 and the benchmark Reuters poll has a consensus forecast for annual inflation of 1.9 percent.

Meanwhile China's long-term inflationary pressure could be alleviated by the slowing rate of acquisition of foreign exchange reserves, Zhou said.

China's official reserves, the world's largest at US$3.29 billion as at the end of September, have been relatively steady this year as global trade has slowed and Chinese exports along with it.

Foreign reserves are a key component of money supply. A slowdown in accumulation implies a reduction in the rate of monetary expansion and consequently easing inflation pressure.

Zhou, writing in the official China Financial Research Journal, said reserves would not keep growing endlessly as the share of the current account surplus in the country's economy was already very high and would drop in future, according to a report in the Security Times newspaper. REUTERS

Related posts:
QE3 triggers fear of new currency wars! What it means?
QE3: Get ready for influx of cash!

Golf clubs in Malaysia face closure with new tax

Golf industry cries foul over new form of taxation and there is definitely a cause for concern.

Golf clubs in Malaysia face an uncertain future with the new tax issue hanging over their heads.

THE Malaysian golf industry has come under threat of closure again and this time it comes from the Inland Revenue Board.

The IRB now wants to tax all the 180 proprietary clubs (private commercial clubs) on the advance licence fees since the clubs were set up.

The advance fee is the collection of 80% of membership fees that they collect when folks first sign up.

This amount is collected in advance and slowly released into the balance sheet of the companies for the period of the trust deed.

While the industry disputes that the money was taxable as it was a sum that they had to refund if there was a breach of the trust deed, the IRB said it was income to the club and thus is taxable.

The total amount the authorities want the clubs to cough up is more than RM600mil – a sum the golfing industry cannot afford to pay and this could spell the end of many clubs in the country.

A spokesman for the Malaysian Association of Golf & Recreational Club Operators (Magro) said it was not as if the clubs had not been paying taxes or had been hiding the advance fee from the IRB.

He said that the clubs had been in touch with the IRB from the start and had proposed the normal way of taxation based on services.

“This was accepted until 2010 when the IRB wrote to a few clubs and after conducting field audits, decided that the advance fee was taxable.

“The total bill is over RM600mil and they wanted to back tax us all the way to the day the very first member signed up,” the spokesman said.

However, the IRB after several rounds of discussion agreed to cap the backdate of taxation and allow the amount owed to be paid over three years.

A club manager of a popular club in Petaling Jaya said even that concession by the board is totally unacceptable because it will mean the effective end of the golf industry in Malaysia.

“All our profits for the next few years will be wiped out just paying this back taxes. Our club owners will definitely want to exit this business.

“Most of the land we sit on are worth a lot of money and it will make sense for the owners to close down the club and build residential units instead.

At the most, the value of a golf course is only about RM200 per square foot but the houses, condominiums and shops built on top of these land will be worth thousands of ringgit per square foot,” he added.

Already there are several clubs in the Klang Valley, which have either been closed down like Kajang Hill GCC or downsized like KGSAAS, because it is so much more profitable to develop the land into residential and commercial projects.

The owners could also go the way of Palm Garden Golf Club where the owners bought back all the sold membership and turned it into a “premier public course” and thus paying taxes only on income earned from services.

There are about 500,000 members to the 180 proprietary clubs (this ruling by the IRB does not affect members club, at least, not yet) who will eventually lose out in terms of facilities.

There is also the 50,000 direct and indirect workers who will be jobless once the clubs close down.

There is also a tremendous loss of tourism dollars. A total of 120,000 foreign golfers play in Malaysia each year.

They spend an average of four hotel room nights per visit translating into 480,000 room nights. Each of them spend an average of RM300 per night for accommodation and a further RM1,500.

This means that if the golf industry collapsed the country’s economy would lose RM864,000,000 annually.
Let’s not be pound wise penny foolish. The tax dollars can be found through other means and let’s hope the authorities realise this.

CADDY MASTER By WONG SAI WAN

Related post:

Golf courses targeted for re-development - Too valuable for golf?

Cost of vehicle ownership in Malaysia

MALAYSIA is perceived to be one of the costlier countries in the region when it comes to vehicle prices. But industry observers believe that this is compensated by the fact that the country’s fuel prices are heavily subsidised, and that it also enjoys the lowest interest rates in South-East Asia.

“One should not compare vehicle cost of ownership in the region purely based on the price of the car alone,” says Malaysian Automotive Association president Datuk Aishah Ahmad.

According to data by the Malaysia Automotive Institute (MAI), the average interest rate in Malaysia for a loan tenure of between 60 months and 108 months is between 2.5% and 3.6% - which is the lowest in Asean.

Interest rates in Vietnam is the highest, which has a flat rate of 16% per annum for loans that range between 12 months and 60 months.

“Given the fact that Malaysia’s interest rates are the lowest in the region, as well as the fact that fuel prices are subsidised, the total cost of vehicle ownership is one of the lowest in Asean,” says MAI chief executive officer Madani Sahari. The cost of interest rates used in MAI’s calculations is over 5 years.

The MAI is the think-tank for the Malaysian automotive industry.

Madani notes also that the price of subsidised RON 95 in Malaysia was one of the lowest in the region at RM1.90 per litre. Comparatively, the cost for the fuel in Thailand is RM3.80 per litre, Indonesia (RM3.35 per litre), Singapore (RM5.10 per litre), Vietnam (RM3.60 per litre) and the Philippines (RM3.20 per litre).

“In terms of road tax, we are also quite competitive in Asean. Malaysia is still cheaper compared with countries such as Thailand and Indonesia and comparative to Vietnam and the Philippines,” he says.

Perusahaan Otomobil Kedua Sdn Bhd managing director Datuk Aminar Rashid Salleh says Malaysians are blessed to have their fuel subsidised.

“We have low fuel prices and interest rates. All of these factors have contributed to Malaysia’s low cost of vehicle ownership.”

Madani points out that over a five-year period, the average road tax and insurance in Malaysia was among the lowest in the region, costing RM1,990 and RM15,310 respectively.

The five-year cost of road tax and insurance in Singapore was the highest at RM13,779 and RM39,806 respectively, compared with Indonesia (RM9,186 and RM22,965), Thailand (RM2,297 and RM33,682) and the Philippines (RM1,531 and RM14,238).

When comparing vehicle prices, especially those of popular international marques such as Toyota, Honda and BMW, Madani points out that prices in Malaysia were still lower compared with countries such as Singapore and Vietnam.

According to data from the MAI, a 1.5-litre Toyota Vios (as at September 2012) costs RM87,313 in Malaysia but costs RM88,456 and RM303,136 in Vietnam and Singapore respectively. The Vios is cheapest in the Philippines at RM60,271.

A brand new 1.5-litre Honda City meanwhile retails for RM88,443 locally and costs RM106,090 and RM295,800 in Vietnam and Singapore respectively and lowest in the Philippines at RM61,472.

The BMW 3 series, a popular premium model that is represented in most Asean countries, costs RM238,800 in Malaysia. It costs RM248,200 and RM541,200 respectively in Vietnam and Singapore. It costs the least in Indonesia, retailing at RM191,900.

However, when taking into account the vehicles’ selling price, down payment and loan repayment (including interest rates), road tax and insurance, as well as the fuel prices of the different countries, the total vehicle cost of ownership for a 1.5-litre Toyota Vios is RM130,382, which is the second lowest in the region after Philippines, where the total vehicle cost of ownership is RM128,933.

Total vehicle cost of ownership for the Toyota Camry (2.5-litre) in Malaysia is also second lowest in the region at RM243,182. The total vehicle cost of ownership for the Toyota Altis (1.8-litre) in Malaysia is however the cheapest in the region at RM163,973.

After the Philippines, Malaysia also boasts the second lowest total vehicle cost of ownership for the Honda City (1.5-litre), Civic (1.8-litre) and Accord (2.4-litre) models in the region. Malaysia also has the lowest total vehicle cost of ownership for the BMW 3 series.

By EUGENE MAHALINGAM eugenicz@thestar.com.my