China gives Qantas more time to ‘correct’ Taiwan reference

China gives Qantas more time to ‘correct’ Taiwan reference

China has given Qantas more time to “clarify” how it refers to Taiwan, Hong Kong and Macau in public material following Beijing’s threat to punish a number of global airlines for suggestion the territories were independent countries.

“We made adjustments to our websites earlier this year and, along with various other airlines worldwide, have been given additional time to further clarify how we refer to Chinese territories,” a Qantas spokesperson said on Thursday.

Chinese media this week said Qantas, United Airlines, Delta, and other major airlines, had not yet complied with a request by the country’s aviation regulator to change references to the territories. Virgin Australia has not been approached about the issue.

The White House earlier this month condemned Beijing’s threat to punish airlines over the issue as “Orwellian nonsense”.

Companies globally are scrambling to “correct” the way they refer to Taiwan, Hong Kong, and Macau following a clampdown by Chinese authorities on international companies, like the Marriott International hotel chain, over the issue. 


Qantas said in January it was changing the way it described some “Chinese territories” on its website after it and 23 other foreign airlines came under pressure for what Beijing has called a geographical blunder.

Defusing China’s ticking debt bomb

Defusing China’s ticking debt bomb

There are two potential triggers to China’s ticking debt bomb. The first is any stumbling blocks to President Xi Jinping’s race against the clock to weed out risky and opaque lending by reforming the country’s shadow banking system. The second is the threat of a trade war with the US.

There are already early indications that Chinese regulators have been relaxing the amount of money the country’s lenders must keep in reserve since US President Donald Trump’s threat to launch a trade war gathered steam. The temptation to stimulate the economy in preparation for an external jolt is tempting, but economists say this could threaten the task of tackling a decade of irresponsible lending.

While China’s debt to gross domestic product (GDP) ratio is showing signs of levelling off, it remains well above levels that would have triggered a banking crisis in any other country. Economists expect total debt will be 260 per cent of GDP by the end of 2018, broadly in line with last year but double where it was a decade ago.

As Reserve Bank of Australia governor Philip Lowe points out, history suggests that level of debt typically leads to a financial crisis.

China's debt to gross domestic product ratio is showing signs of levelling off, but it remains well above levels that ...
China’s debt to gross domestic product ratio is showing signs of levelling off, but it remains well above levels that would have triggered a banking crisis in any other country.

Asim Hafeez

While many economists believe the risk of a full-blown debt crisis have decreased dramatically in the last two years, it would not take a lot to unravel Mr Xi’s overhaul of the country’s financial system. One of the biggest challenges is reforming the country’s murky shadow banking sector, which was responsible for a sharp increase in non-performing loans over the last decade and is harder for the state to control. China earlier this year banned the practice of entrusted loans, where companies provide finance to each other, which is one of Mr Lowe’s key concerns.


“What they are worried about is what they cannot see,” says Raymond Yeung, ANZ’s chief economist for Greater China. “They have a very short time span to fix the problem. The question now is whether the Chinese government has the execution power.”

Others worry a trade war with the US would give the economy a sharp enough jolt to burst the debt bubble. About 20 per cent of China’s exports go the US. The International Monetary Fund said China’s GDP growth could slip by as much as 0.5 per cent if that took place.

A lot rides on the central government’s unique position to reform the country’s under-regulated banking system. A crackdown on the spending sprees by companies like Dalian Wanda Group, Angbang Insurance Group and Fosun International is being played on the front pages of Chinese newspapers. Wu Xiahui, the founder of Angbang, was jailed for 18 years earlier this month.

Wei Jie, professor at Tsing Hua University, told an economics forum in China last week that corporate debt was 160 per cent of China’s GDP and pointed to a sharp rise in individual debt. He said individual debt had risen from 30 per cent of total GDP to 45 per cent between 2015 and 2016. These figures are not surprising given China’s soaring property prices, which are forcing many middle-class workers to pour the bulk of their wages into mortgage repayments.

Economists inside and outside of China are nervously watching efforts by President Xi Jinping's new senior team of ...
Economists inside and outside of China are nervously watching efforts by President Xi Jinping’s new senior team of economic advisors to tackle the threat.

Naohiko Hatta

Capital Economics economist Julian Evans-Pritchard says China’s government has a unique degree of control over the financial system because the banks are state-owned. But this level of control in the corporate sector is also a risk in other areas.

“State intervention is already harming productivity and is likely to be a growing constraint: it becomes harder for state planners to allocate resources effectively as a country gets richer.”

The focus is increasingly turns to soaring household debt due to rising property prices – something Australia can identify with – as well as local government and corporate debt. Still, even the China bears are becoming increasingly confident that China can stave off a debt crisis – unless something unexpected like a full-blown trade war with the US takes place.

One challenge is deciphering the rhetoric coming out of Beijing and assessing whether Mr Xi will come good on promises ...
One challenge is deciphering the rhetoric coming out of Beijing and assessing whether Mr Xi will come good on promises to tackle local government debt and an under-regulated shadow finance sector.


Westpac CEO Brian Hartzer feels vindicated on BBSW case

Westpac CEO Brian Hartzer feels vindicated on BBSW case

   Minutes after Justice Jonathan Beach handed down his 637-page decision, Westpac chief executive Brian Hartzer called his legal team from North America where he had been waiting, late at night, for the decision to express his relief.

The corporate regulator also claimed victory in the case minutes after the decision, after the judge found the bank had acted unconscionably on four occasions in setting the bank bill swap rate (BBSW) and had breached their financial services licence.

Hartzer and the bank will face criticism but can feel vindicated after dodging the heart of the regulator’s case in a qualified victory.

ASIC wins four out of 48

Westpac chief executive Brian Hartzer expressed relief at the BBSW decision.
Westpac chief executive Brian Hartzer expressed relief at the BBSW decision.

Peter Rae

The Australian Securities and Investments Commission had claimed the bank engaged in unconscionable conduct, misleading conduct and market manipulation on 16 occasions between April 2010 and June 2012. During the course of November’s trial, the case narrowed in on four dates in 2010: April 6, May 20, December 1 and December 6.


ASIC successfully made their case on one limb (unconscionable conduct) out of three on those four dates – but lost their key allegation – that Westpac actually rigged the BBSW. Another way to score the case is that ASIC was successful in four of their 48 claims.

Westpac will face a modest penalty – no more than $3.3 million and ASIC are expected to seek some of its more than $100 million in legal costs. The bank’s official response was suitably humble. But Hartzer sees Thursday’s decision as clear vindication for fighting the long running case for three key reasons.

Three reasons Hartzer vindicated

Firstly, Hartzer and Westpac chairman Lindsay Maxsted personally stepped in to roll the dice on fighting the case when the other three banks all settled. Commonwealth Bank, which faced three contraventions, paid $25 million earlier this month. NAB, which originally faced 50 alleged breaches, and ANZ, which faced 44 alleged breaches, both paid $50 million although only admitted to attempted unconscionable conduct.

Westpac's Colin Roden (left) leaving the Federal Court last November.
Westpac’s Colin Roden (left) leaving the Federal Court last November.

Josh Robenstone

Secondly, insiders admitted Westpac was extremely nervous about the result shortly before Thursday’s 10am decision with the bank’s lawyers said to be like “cats on a hot tin roof”. When Justice Jayne Jagot approved ANZ and NAB’s $50 million settlements, she was scathing saying the general public would be “shocked, dismayed and disgusted” by the behaviour of the banks.

Observers suggested it would be hard for Justice Beach to excuse Westpac in the wake of such damning comments from his fellow Federal Court judge. Beach’s decision also shuts down the prospect of a wave of class actions against the bank.

Last and most importantly, Westpac sees the decision as vindication of its key traders and Treasury executives who remain at the bank. While Colin “The Rat” Roden is believed to have recently retired, others including Daniel “Bench” Park is now Westpac’s key trader and Sophie “The Steamroller” Johnston is expected to shortly return to work at the bank.

Key traders have left the other major banks, which meant CBA, ANZ and NAB felt more free to pursue a settlement with ASIC.

Westpac employee Sophie Johnston is expected to return to the bank.
Westpac employee Sophie Johnston is expected to return to the bank.

Wayne Taylor

Given much of Westpac’s team is still intact, Hartzer and Maxsted are believed to have felt compelled to back their team, who Justice Beach found on Thursday were mostly credible witnesses. If Westpac settled the case, the expectation was that those traders would have to be asked to leave.

Westpac now hope they will be able to stand by their traders, pay the moderate fine and move on with business having fought off the heart of ASIC’s case.

Justice Johnathan Beach's findings on the Westpac case.
Justice Johnathan Beach’s findings on the Westpac case.

TPG Telecom mobile network to launch without voice services

TPG Telecom mobile network to launch without voice services

When David Teoh’s TPG Telecom launches its highly anticipated mobile network later this year it will launch with one unique feature – customers won’t be able to make a traditional voice call.

The entrance of TPG as Australia’s fourth mobile operator will be unique as calls will only be able to be made over internet protocol (IP) using applications like Whatsapp, Facebook Messenger calls and Viber.

Traditional voice calls made over mobile networks  will only be available later as the network is rolled out, but they won’t be available at launch. Initial customer plans will be data only.

It’s a bold, if not unusual, move for a mobile network operator. But, it helps explain how TPG will be able to deliver a new network for $600 million, with much less spectrum than its rivals, using fewer base stations and small cell technology.

“We’ve decided to go to data in the beginning,” TPG chief operating officer Craig Levy told The Australian Financial Review.


Mr Levy said voice calls will definitely come to TPG’s mobile network in time.

The news will give Telstra shareholders some cause for optimism. Australia’s largest telco warned falling mobile average revenue per user and poor NBN margins would hit its earnings last week. But Telstra remains under immense pressure to deliver a long-term strategy to offset the squeeze on earnings and fend off rivals such as Vodafone and Optus, which had its best year in mobiles in seven years.

$9.99 a month plan

TPG will launch later this year with $0 unlimited data plan for the first six months then $9.99 each month from then on.

“When you look in Australia, the size of the mobile market is massive. In our business plan, we look at as modest share we can aim for, and with that type of pricing, we feel we can do well. If you look at the track record of TPG, our financial discipline is one of our key ingredients,” Mr Levy said. 

“We wouldn’t be going down the path we are, if that didn’t make financial sense. This is the first product… it also means down the line, we’ve got other things planned.”

TPG is building its mobile network close to where its existing fixed-line customer base lives, works and commutes.

TPG’s dirt cheap mobile data plans could allow price conscious customers to bypass the expense of the National Broadband Network in the areas where the telco is building up.

“When you look at the offer we’ve put together, it gives us an opportunity to fine tune the network along the way, get a lot of feedback from the people who are using in free of charge…that’s why the free period needs to be a win-win for the company and our customers,” Mr Levy said.

NBN upended TPG’s consumer internet business, along with the rest of the sector. It was paying a wholesale price of $16 a user to rent lines from Telstra to offer ADSL, but NBN is targeting $52 wholesale average revenue per user, leaving little room for retail service providers such as TPG to make money.

A new regional broadband scheme also sees TPG levied with a charge of $7.09 per user per month on its fibre-to-the-basement network, which is in direct competition with the NBN.

TPG will expand its mobile network and begin offering voice services over time. Mr Levy also flagged TPG is planning to enter regional areas.

Technology questioned

There is scepticism around TPG’s use of small cell technology, which, true to its name, is much smaller, and cheaper, than traditional macro base stations. Telstra, Optus and Vodafone have a large number of macro base stations that offer much larger coverage areas, which means they do not need to build as many. However, they are more expensive on a site-by-site basis.

Last year, TPG paid $1.26 billion for an 11-year spectrum licence to build its mobile network. 

Mr Levy defended the use of the technology and TPG has actually increased its focus on small cells, reducing the amount of macro sites it had originally planned. He argues TPG’s plan is to leverage is enviable fibre assets, including those it acquired from PIPE Networks, AAPT, as well as its own fibre-to-the-basement network and dark fibre network it built for Vodafone.

Mr Levy says taking much of the processing from its small cell sites to a centralised point, via its fibre networks, allow TPG to minimise the amount of equipment it needs on each site, versus a traditional macro site which processes on site.

“Our network itself has been designed so we are using cloud-RAN architecture, so we’re moving towards a centralised processing approach. That means the footprint we deploy on a pole is significantly reduced and very different to a legacy operator. Effectively what we’ve done, we have removed the intelligent processing layer away from the pole and we’ve moved more towards centralising the intelligence,” he said.

“This will effectively mean a smaller footprint on poles. We’ve catered to a 5G upgraded path where we can make changes to the radio, but the actual real estate on the pole, and most importantly the backhaul and the centralised intelligence, we’re taking steps today for the future.”

2018 AFR Rich List: Anthony Pratt is Australia’s wealthiest person

2018 AFR Rich List: Anthony Pratt is Australia’s wealthiest person