22/06/2016 Asia Business Report

Digging up trouble? Find out how the UK's referendum might impact the

Australian economy. And the US Central Bank chief, Janet Yellen, on

the immediate consequences if the UK votes to leave the EU. Hello, and

welcome to Asia Business Report. Focusing on the EU Referendum this

week, one country that could be effected by a UK withdrawal is

Australia. The trade relationship is worth around $15.7 billion US and

the UK is the second-largest source of total and foreign investment to

Australia. Some of Australia's largest mining companies have UK

stock listings, so what are Australian businesses expecting? I

asked that to Jennifer from the Business Council of Australia. Many

Australian businesses are anxious about how it will go. We don't need

more volatility in global growth. We have fragile growth. We need Europe,

the UK and North America are to be growing so that this interconnected

global economy can benefit. You say it is not great for Australian

businesses, but we've just heard from Australia's former Prime

Minister John Howard, quoted as saying he is in favour of the UK

leaving, and that the EU is a flawed concept that has failed to live up

to expectations. Strong words from him. To most Australians agree with

him? Most Australian businesses wouldn't agree with that, and I

think most Australian people would be very concerned about anything

that is going to add to global volatility and slowdown in growth,

because they know that Australia is very connected and relies on other

parts of the world for foreign capital. We rely on markets to

export goods and services. There are two important things to say about

this, there is a philosophical issue about whether the EU has lived up to

expectations and if it is everything people hoped for versus the price

and cost to Britain and the flow on effects to the rest of the world

economy from leaving. That is the balancing act. Not everyone in the

business region is in favour of the UK remaining in the EU. Peter Allen

is CEO in Singapore of Grant Thornton and shared his views

earlier this morning with me. This is a personal opinion, not

corporate, and it derives from two things - the EU exhibits a lack of

democratic accountability. It is hard for electors to be heard

through the additional layer of the national governments and the

commission. And secondly, the policy choices of the union makes are often

dictated by or driven by the need for political integration, which

causes quite often substantial policy errors with the euro and the

Schengen zone being examples of it. In the medium to long-term this

might not play out very positively. We would be better off looking the

sidelines. You talk from the policy point of view. From the business

point of view the fear in this region is that you will see Paris

raised and trade barriers going up if the UK leads the EU and of course

the opposite is the real target people want, integration versus

disintegration -- tariffs. So, what do you have to say about that

argument? Well, in the event of a Leave vote, which is quite likely,

although of course it could go both ways, there will be challenges for

some businesses. Some businesses, for example, that rely for their

model on passport in into the union, they will have to reconsider that

model, and businesses reliant on cost-effective labour from the EU

will have to consider that. However, there will also be opportunities in

pricing, because of the government's need to construct free deals outside

the EU. In other news, Hasluck, US electric car maker, has made an

offer to acquire solar city in a stock deal worth 2.8 billion dollars

-- Telsa. It is the top-ranked company for homes in the US as well

as -- and as well, Telsa makes the electric units and says this would

complete the picture. And Boeing has agreed to sell 100 planes to Iran

air in a deal worth $25 billion at list prices. The agreement marks a

big step in economic relations between the US and Iran after

sanctions on to Iran were lifted last year. Boeing is working with

regulators to get the necessary US government approvals. The Royal Bank

of Scotland is cutting 900 jobs in plans to reduce costs by $1 billion.

The lender majority owned by the UK government has shed 2000 jobs since

January with the latest cuts to be in back office and technology

operations. Hong Kong has claimed the crown as the world's most

expensive city for expatriates. It has knocked off Angola from the top

spot. Singapore, Tokyo, Beijing were all in the top ten according to the

survey from human resources consultancy Mercer. It is a

different result from a survey from the Economist intelligent unit which

placed Singapore at the top several times. So, why do different surveys

say different things? That is what I asked Marriot Herero from Mercer.

They are used by international organisations that operate globally

and that send foreign employees to various locations -- Mario. And

therefore we survey the price of goods and services representative of

how expats are likely to spend their money. So, the survey doesn't

necessarily respect the spending habits of local populations, rather

focusing on expats. It is expats as you say, but the -- what is the

reality of these plush expats being available? Multinationals are

cutting back on this. Your survey doesn't include the cost of

education or the cost of buying a car. You say it is included in expat

packages. Are they really? When they are included, accommodation is

usually provided by employers. And in some locations a car is still

necessary. Not necessary in some locations. Education is obviously a

necessity for expats. However, often allowances are covered by the

employer under separate allowances and therefore in order to reflect

the cost of living experienced by expatriates we include in the basket

items that are typically covered by the expats themselves. Very often

these baskets also include a lot of imported goods. They can be very

expensive or in short supply in certain locations, especially in

emerging markets, which explains why we see so many locations from

emerging markets in the list in the top ten. Once upon a time they were

called hardship postings, for instance Angola on top last year,

knocked off by Hong Kong. What are some of the other determining

factors leading to the cost of a place? Let me say that the currency

fluctuations can have a significant impact on where a location sit in

the ranking. One of the key factors why Angola went to second place was

because of the devaluation of the currency against the US dollar by

more than 40% as a result of the oil prices. That allowed Hong Kong to

bubble up to the top position. Now, the chair of the US Federal Reserve,

Janet Yellen, told a Senate hearing that the central bank is likely to

be cautious about raising interest rates in the coming month and noted

caution about the upcoming UK referendum. Just a a few days after

America's central bank said it would not raise interest rates the chair

of the Federal Reserve was facing questions from US lawmakers --a few

days. I want to go back to Brexit for a minute. Unsurprisingly Janet

Yellen was asked about financial repercussions if Britain chooses to

leave on Thursday. I think the financial reaction to what is

unleashed by that decision could result in a kind of risk off

sentiment that we would see impact on financial markets that we might

-- on financial markets, that we might see safety flows that could

push up the dollar or other so-called safe haven currencies.

While fears of a Brexit dominate the vulnerabilities to the global

economy, Janet Yellen also spoke of the continuing fears in China.

Although concerns about slowing growth in China and falling

commodity prices appear to have eased from earlier this year, China

continues to face considerable challenges as it rebalances its

economy towards domestic demand and consumption and away from export-

led growth. With uncertainty in the global economy and uneven growth

here in the US, well, what does all of this mean for interest rates?

Well, for now, America's monetary policy remains accommodative. And

that it for this edition of Asia Business Report. Thanks for

watching. You're watching BBC