12/06/2014 Asia Business Report

extra staff are tackling the backlog and his has blamed it on a surge

which has led to a backlog. Time now for all the latest business news

from Singapore. Thank you for joining us on Asia Business Report

on BBC World News. Indonesia's Central Bank meets today. Fierce

competition as Air Asia India takes off for its maiden flight. What will

it mean for its rivals? Indonesia's Central Bank meets today. An

interest rate move is not expected. The spotlight is on the outlook for

south`east Asia's biggest economy. This is the key to the government's

political fortunes. I spoke to an investment officer. He explains why

it is unlikely that the Bank of Indonesia will change its markets

policy. US long`term interest rates have been coming down in recent

months. So there is really no pressure for Indonesia to raise

rates. Inflation ran at 7.3% in the month of May. So there is really no

pressure for the Central Bank to raise rates. Having said that, a

longer term issue is for Indonesia to keep attracting capital. To fund

investment and to fund the growth of the economy. Why not cut rates now?

We saw a slowdown in the Indonesian economy in 2013. Yet again in the

first quarter of 2014 it stands at 5.2%. Isn't there a case for them to

reduce the cost of borrowing now rather than later? Indonesia's

economy is held down by subsidies. Basically electricity and energy

prices are subsidised by 2.5% of GDP. As a consequence, the

government has to reduce those subsidies to spend that money on

infrastructure and other more important things. How can they

attract foreign investment when they have that minimum export and looser

labour laws? There is a shift in terms of investment focus. Away from

resource`based investments. Mining, towards manufacturing. So you see

big Japanese automakers, tyre makers, car companies setting up big

plants in Indonesia in recent months. They may have problems in

terms of it attracting foreign investment, but the biggest asset

right now is the large population of 240 million people. They support the

domestic economy. Indonesia last year got $22 billion of investment.

That's not too bad. When you consider that China got about $115

billion. So Indonesia does get a fairly large foreign investment. The

issue is to change the quality, the nature of that investment away from

mining to as manufacturing. `` towards. China is investing to build

railways on the roads, airports along the Yangtze River. To help

promote business along its waterways. It is the government's

latest attempt to sustain high growth rates. It is that nation's

third largest river and joins the inland provinces to Shanghai.

Japanese engineering giant Mitsubishi has joined forces with

German firm Siemanns to come up with a French offer to rival that of

General Electric. They are due to put up a proposal to the board next

week. Toyota has decided and added 650,000 cars all in Japan to the

recall list. It issued the list last year over a defect in passenger

airbags. That takes the number of cars recalled over the issue to 2.8

million. Shares have plummeted after the airline cancelled an order for

70 aircraft. That is Dubai's Emirates Air. It says it is,

confident that new orders in the coming months will compensate for

the cancellation. Malaysia's airline is said to be the first airline to

fly in these skies. Air Asia India is becoming the fourth budget

carrier after Space Jet. As well as Indigo and Go Air. Our correspondent

reports. I am here at the Bangalore airport, one of the largest in the

country. It is from here that Air Asia India's landmark flight will

take off to Goa with 180 passengers. For its maiden flight the airline

was selling tickets at $17. That is cheaper than a second class train

ticket. That has triggered an airfare war with other domestic

carrier slashing fares and offering heavy discounts. All this means

great news for travellers, but that may not be the case for Indian

airlines. Because financially, most of them are struggling. The combined

losses of Indian airlines have been running into the billions of

dollars. Due to high taxes on fuel and steep airport charges, which

have pushed up costs. A couple of airlines, including Kingfisher, had

to shut due to the same reasons. So how is Air Asia India planning to

make money? If you look at demand and supply, there is a lot more

capacity that the Indian market can take on in terms of air traffic.

With that being said, our model has always been about low fares, keeping

the fares low, make sure that we make it affordable enough that

people can fly. Bringing that model into India, keeping our costs razor

thin. The new airline's main partner is a group which is joining hands

with Singapore airlines to start another domestic carrier later this

year. Last year, Abu Dhabi`based Etihad invested in jet Airways. This

means more flight options for passengers. And also renewed

interest in Indian aviation. But financially for the new entrant, it

will not be a smooth ride. In Asia's third largest economy.

on American players like Amazon and eBay. This comes ahead of their

share sale in the US. I spoke to the Asia`Pacific chief executive who

explained why Alibaba is likely to succeed. I think they will apply the

same principles that they have. I think we should not forget that in

2006, eBay had 80% market share of the e`commerce in China. And Alibaba

was a late starter. It wiped out eBay very quickly on two principles.

One was putting in touch sellers and buyers, the second was not taking a

cut money out of marketing tools in an

ecosystem they created. And I believe they will do exactly the

same thing in the, maybe not to the same extent, but the principal will

remain the same. ``in the United States. So should Amazon and eBay be

worried with the entry of Alibaba? They should, but they should be

worried for the growth of Alibaba for quite awhile now. This is only

the beginning. The main platform of Alibaba will be without ads. What

kind of business model do they have? How will they be making money? The

fact that they will be out of advertising, is not dissimilar to

what they do in China. I think they will make money by monetising

marketing tools and services to the stores is as opposed paid

advertising. `` to the stores as opposed to paid advertising.

Electronic cigarettes. Details have not been exposed, but the firm

expects to wrap up acquisition in the second quarter of the 2014

fiscal year. Analysts believe that E`cigarettes will eventually outsell

traditional cigarettes in some markets. Moving on now. In

Indonesia, the country's big commercial banks are testing out a

scheme called branchless banking. Life in this village has been like

this for a generation. But change is on its way here. For decades,

farmers like this man have struggled to access basic financial services.

The nearest bank is 16 kilometres away. But a new scheme means he can

transfer money and save right here in a small shop in his village.

TRANSLATION: If I put my money in this branch, I have to wait for a

minibus to take me. Here I can withdraw my money faster and get to

the rice field earlier. Shopkeepers here work as agents for the bank,

carrying out simple transactions. Increasing access to financial

institutions is crucial if Indonesia is to boost economic growth in rural

areas. 28 million people in areas like this were living below the

poverty line last year. Critics say that Indonesian farmers need access

to credit. This scheme does not offer that. TRANSLATION: In order

for this scheme to work, banks need to provide borrowing services in

rural areas. If it is simple transactions, like saving money and

withdrawing funds, it is going to have limited success. But while this

initiative may be a step in the right direction, some observers say

it doesn't go far enough. And before we go, here is a quick

look at the markets. Asian stocks are in negative territory in early

Thursday trading. US equities fell overnight following the World Bank's

production of its global growth forecast.

Thank you for investing your time in us.

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