28/07/2014 Asia Business Report

Is Latin America the new battleground for Japan's rivalry

with China? Prime Minister Abe is there to boost ties. And strong

competition facing Starbucks, as it opens shop in Hanoi. Welcome to the

programme. Japan's Prime Minister Shinzo Abe has kicked off a 5`nation

tour of Latin America by signing a series of oil and gas deals with

Mexico. Japan has been focused on energy since the Fukushima disaster,

which shut down the country's nuclear reactors. It comes hot on

the heels of a trip to the region by China's Premier Xi Jinping. Both

China and Japan are keen to tap into Latin America's natural resources.

One of the most important issues around Asia, including in Japan and

China, is energy and resources. This is where Shinzo Abe is following

China on many accounts. Already into Africa and now into South America.

Very important deals have to be signed on oil and gas, which is so

important in Japan after nuclear power was switched off. Is it a

competition between the two? Is Japan looking for resources as well

as other things? There might be some competition in Asia and even in

Africa, but not so much in South America. Everyone is after resources

but for Japan, this is a very important market. When there is a

deal on infrastructure or energy, Japan is much more about selling its

technology, while China is just trying to connect its market to

major projects. We have seen this deal with Mexico. Japan has a

free`trade agreement with Mexico. Now they have signed deals in oil

and gas. Is this the first of many contracts to be signed over the

course of this visit by Shinzo Abe to Latin America?

Yes. Mexico is very important because it is the market that

connects Japan to the US. It is the energy market. In Brazil, it will be

security relations but also energy. Japans wants to sell its technology

and major infrastructure projects. And Chile is very important because

already half of Japan's copper comes out of Chile, which is so important

for the electronics industry. There will be more contracts and major

projects. Thank you. China's industrial profits continue to

expand at a faster pace than expected, due to strong growth in

June, when profits rose 18% compared to one year before. The US company

that owns the meat supplier at the centre of China's latest food scare

is withdrawing all products made by its subsidiary, Husi Foods. It is

sending its own representative to Shanghai to investigate claims that

Husi Foods sold out of date meat. That includes McDonald's and KFC.

India's consumption of soft drinks is well below that of China, the US

and Europe, but it is growing rapidly. In the budget is a plan to

add a 5% tax to sugary fizzy drinks. The debate over soft drinks and

their potential harm in large quantities has been bubbling over

around the world. India's government has now weighed in, unexpectedly

raising taxes on them. I propose to levy an additional duty

of excise of 5% on aerated waters containing added sugar.

The extra money will not do much to balance the books but it is

certainly an attempt to balance the scales. In the past few years, more

and more Indians have been getting health`conscious and consulting

experts for guidance on what they should eat and drink. Steering clear

of too many fizzy drinks is one piece of basic advice. But there is

scepticism about whether this so`called healthy tax will

discourage the large majority. They want something to make an

impact and to dissuade the public from using fizzy drinks. So, why

don't they prohibit advertising such products? Similarly how we have a

ban on tobacco and smoking and cigarettes and alcohol?

India is not the first country to bring in extra taxation on these

products. In fact, it is a list that has been growing and which includes

nations like France, Germany and Mexico. Compared to other countries

around the world, India is a relatively small consumer of fizzy

drinks. Roger Tan says these health taxes have been effective in other

parts of the region. It has been shown that there is a 10% rise in

prices can create a 4% drop in consumption. These tend to be more

effective than the other ways of trying to prevent somebody will

discourage somebody on drinking or consuming something that would cause

future health problems. Those figures, are they specifically for

alcohol or more broadly? We have seen taxation on fizzy drinks in

other jurisdictions. From what I have seen for alcohol, there is some

for tobacco as well, it does show that in general, price changes tend

to be more effective than things like education, advertisements and

so on. What does this mean for the business bottom line? If it does cut

consumption, does it move that consumption to other products?

Businesses will find a fall in consumption affecting their

business, so they will start producing more healthy things like

fruit juices. With alcohol consumption, the interesting thing

is that with heavy drinkers, the monetary change does not change

consumer behaviour. It is the same with heavy users of tobacco. Do you

see these tax changes is becoming more common in Asia as governments

become more aware of their health budgets? What we have just seen,

this monetary change does affect consumption. If that reduction in

health issues in the future offsets the dropping consumption, that is

something that they want to do but unfortunately, how much savings will

you actually get in the future? Is too far the future to see and it is

too cause. `` too indirect. So far, it is an excuse for them to raise

taxes more than really to reduce health issues for the future.

Staying on beverages, it was always going to be a gamble moving into a

country with an established coffee culture. Starbucks first opened in

Vietnam last year. Coffee is huge in Vietnam. The south`east Asian nation

is the world's second largest exporter of coffee. There are more

coffee shops crammed into Hanoi than probably anywhere on earth, so

opening a cafe in Vietnam's capital could be a bit of a gamble. But this

month, Starbucks is making an aggressive push, opening three

branches in this bustling city, possibly one of its most challenging

markets yet. It is unique and special in that

there is a long and deep coffee history and heritage in Hanoi and

many things in Hanoi happen over coffee.

The US coffee chain already has 11 outlets in two other Vietnamese

cities, but France's coffee legacy is most visible in the capital. Most

city streets overflow with coffee shops that sell one cup for as

little as 50 cents. Black coffee in Starbucks costs about $2.60, about

half the average daily wage. TRANSLATION: I'm not concerned about

the competition because we have a number of regular customers. Some

have been drinking coffee here for the last 61 years. Hanoi's first

Starbucks drew the crowd on opening day, but the question is if it can

keep up the momentum, as many Vietnamese people feel financially

squeezed. The country is mired in debt, hit by bankruptcies and last

year suffered its slowest growth in four years. Not everybody has the

money to spare. TRANSLATION: Having more types of

coffee, like with Starbucks, it certainly makes things seem more

interesting. But for me, I prefer Vietnamese traditional coffee. The

streetside coffee is more down`to`earth and it suits my

wallet. Starbucks hopes to brew up profits in Hanoi, but the coffee

giant might just find that it is not everybody's cup of tea. Now, a quick

check of the markets. Wall Street closed lower on Friday, but regional

markets are up. Australia was up earlier in the UK, but is down one

point. `` earlier in the day. That is it for this edition of Asia

Business Report. We are on Twitter, don't forget to follow us there.

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