Facebook Tries to Monetize By Annoying; LinkedIn Adds to Value of its Site

In the span of 24 hours this week, the two most important (for now) publicly traded social networking companies in the world, Facebook (FB) and LinkedIn (LNKD), each made fairly minor strategic moves that did a magnificent job of highlighting the major differences not only in their corporate identities but why investors have thus far embraced one and abjectly shunned the other.

First, LinkedIn on Tuesday unveiled a new feature that will let its 175 million-plus users easily follow a panel of 150 or so “influencers” including the likes of President Obama, Richard Branson, a slew of other business leaders, entrepreneurs, bloggers and even LinkedIn CEO Jeff Weiner himself.

The idea is that because LinkedIn users generally skew older and more “professional” than the 950 million-plus Facebook devotees, giving them convenient access to these prominent thought leaders’ will encourage longer and more frequent visits to the site which, in turn, will generate more advertising revenue and that elusive “stickiness” that all online operations crave.

LinkedIn is still working out the “Who” and “How” and “Why” of this evolving reservoir of deep thinkers but the overall idea would seem a logical fit for its audience of professionals who mainly use the site for job-seeking purposes or to inundate their networks with links to their various professional endeavors. Users can pick and choose which influencers they do and don’t want to hear from. Bottom line: it’s free and potentially adds to the value of the site for users.

And while LinkedIn has been trading for almost exactly one year longer than Facebook, it’s still very, very early. That said, the stock’s performance (on the stodgy, old NYSE) has been nothing less than spectacular as you can see here:

LNKD data by YCharts

Meanwhile, Facebook on Wednesday countered (indirectly) with news of its own, announcing a new feature that will let U.S. members pay to promote their posts to friends in the same way that advertisers do now. Having a blowout Halloween party or garage sale or conniption fit that you want everyone in your network to know about? Pay the piper.

The company didn’t detail the exact price it would charge users to bump up their posts in all their friends’ news feeds but this potential new revenue stream has been in dress rehearsal in 20-some other countries and, apparently, is something that Facebook thinks its younger, more socially obsessed users would be willing to punch in their credit card numbers to leverage. It costs users money and, quite certainly, will be an annoyance to users who receive the “favored” posts. The move further cements the view here that Facebook is a great service, if sharing is your thing, but not such a great business. If you have to pay to get your ramblings noticed on Facebook, isn’t that a little sad? Perhaps Aunt Sally has already hidden your posts.

As you can see from this chart, Facebook’s post-IPO run has actually been worse than advertised when juxtaposed against the sharp performance of the “younger, hipper” NASDAQ as a whole:

^IXIC data by YCharts

Time will tell if either of these new initiatives will make much, if any, impact on the short- and long-term financial performances of both of these social networking giants. But at least they’re trying.

LNKD Revenue Growth data by YCharts

On the surface, LinkedIn’s new feature smacks of a snoozefest waiting to happen and probably not particularly engrossing to the majority of its users who are either too busy working or looking for work to nestle in for Richard Branson’s musings on whatever.

Likewise, Facebook’s pay-to-display scheme probably will find some takers — depending on the price — among the child-photo-sharing and Spring-Break-updating crowd. But then again, chances are most of the people who would actually consider paying to barnstorm their “friends’” news feeds probably are long on time but short on the expendable cash required to sustain an extended self-promotion campaign.

YCharts, Forbes Contributor

Larry Barrett is an editor for the YCharts Pro
Investor Service which includes professional stock charts, stock
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Yuan Trade Settlement Seen Reaching $1 Trillion

Cross-border trade settled in Chinese renminbi will triple to 6.5 trillion ($1.03 trillion) yuan within three years as relations with the world’s second largest economy grow, Royal Bank of Scotland Group Plc. said.

Settlement will grow from 12 to 20 percent this year, reaching $1.03 trillion in two years, up from $330.8 billion in 2011, Janet Ming, head of the China desk for RBS in Europe, Middle East and Africa, said in a Oct. 9 interview in Dubai.

“We’re seeing a lot more customers starting to practice in renminbi,” Ming said. “For most companies and banks, China and India is where the growth is. If you’re dealing with China, ignoring renminbi is not the right thing to do.”

The Euro and U.S. dollar are the top two settlement currencies with market share of 41 percent and 33 percent, according to the bank.

RBS also expects a growing number of foreign companies and governments to issue bonds in the Chinese currency as they become “more confident” with the renminbi as an international currency, Ming said.

“Different Asian governments are investing into the renminbi to use it as a reserve currency,” she said.

Hong Kong is currently the global hub for renminbi trade settlement. RBS, along with Industrial & Commercial Bank of China (601398) Ltd., HSBC Holdings Plc (HSBA), Standard Chartered Plc (STAN), JP Morgan Chase & Co., Barclays Plc and Deutsche Bank AG (DBK), is lobbying to make London another offshore hub for the currency. Singapore, Taipei and Paris are also being considered.

“London has many competitive advantages such as timezone, robust legal frameworks and efficient markets,” Ming said.

Global issuers accounted for a record share of yuan- denominated bond sales in Hong Kong last quarter as it became more attractive to raise Chinese currency and swap the proceeds into dollars.

Export-Import Bank of Korea led 10.7 billion yuan ($1.69 billion) of so-called dim sum offerings by non-Chinese companies, whose share of the market rose to 49 percent, excluding certificates of deposit, according to data compiled by Bloomberg.   

By Stefania Bianchi

World banking is gloomy, McKinsey consulting report

Banks worldwide remain scarred by the 2007-2009 financial crisis and are years away from developing new business models that will produce sustainable profits, according to a new study.

Despite progress in meeting regulators’ requirements to build capital, revenue growth is slow, costs are rising and new competitors exploiting digital technologies are emerging, McKinsey & Co said in a report.

The consulting firm prescribes a rigorous mix of cost cutting, business simplification models adapted from the auto industry and image repair that requires fundamental changes in employee culture and respect for societal values.

“It’s the banks’ game to lose,” Toos Daruvala, a McKinsey director who helped write the report, told Reuters.

The challenges are so great, though, that the consultant expects a host of large and small US banks over the next five years to throw in the towel and merge.

In the United States, where almost two-thirds of U.S. banks are earning less than their cost of capital. Reuters

“You will see significant consolidation, particularly among banks with less diversified income streams that are highly dependent on net interest margins,” Daruvala said. “They will be troubled and forced to sell.”

The report also sends an ominous message about banks’ central role in the global economy.

A 30-year trend in which national average bank revenue has grown faster than countries’ gross domestic products “is likely now being broken,” the study says. “In both emerging and developed markets, banking revenues are expected to flatline at around 5 percent of GDP for the foreseeable future.”

In the United States, where almost two-thirds of U.S. banks are earning less than their cost of capital, investors will have to wait three to five years for returns on equity (ROE) to return to historical averages of 10 to 12 percent, Daruvala said.

Banks cannot control central bank interest rate cuts that are squeezing their net interest margins but have only themselves to blame for outdated business models and internal cultures that fall short of customer needs and perceived societal values, the report says.

“MASSIVE” COST CUTS

Banks that rely heavily on trading and other capital markets activities are particularly challenged because of regulatory changes eradicating their proprietary trading models, according to the report. It prescribes “massive cost cutting” to supplement what has already occurred at the capital markets giants.

Retail banks, however, face decreasing customer loyalty and business banks “no longer enjoy structurally lower funding costs than many of their large corporate clients,” the study says.

Compounding banks’ problems are technologies that make it much easier for new competitors to steal customers. Wal-Mart Stores Inc  and American Express Co  on Monday announced a joint venture to provide financial services through a prepaid debit card aimed primarily at low-income customers.

US banks had an average ROE of 7 percent last year, up from 6.2 percent in 2010 as credit quality gradually improved, but “are still far from earning their cost of equity,” McKinsey said. Even if interest rates rise and banks reprice their services upward, they are “unlikely to return ROE to acceptable levels” any time soon, the report said.

Expenses for US  banks last year exploded to 68 percent of total income from 60 percent in 2010 while revenue grew just one percent, according to the study.

Bank revenue globally rose 3 percent to $3.4 trillion in 2011 from the previous year, slowing from a 9 percent rise from 2009 to 2010. Returns on equity last year fell to an average of 7.6 percent from the low double-digits and profit fell by 2 percent.

INVESTORS CHOKE

Investors’ doubts remain strong.

More than two-thirds of publicly traded banks in developed markets now trade “significantly” below book value, according to McKinsey, and the average price of insurance against bond defaults for 124 banks sampled by McKinsey rose to the highest level on record last year.

Bank stock prices globally last year traded at 11 times earnings, down from 15 in 2007.

Some analysts challenged the dire report. Focusing on conventional double-digit returns to shareholders when interest rates and funding costs are at historic lows is irrational, said Richard Bove, an analyst at Rochdale Securities.

“Anyone who says that banks should be making traditional returns on equity today when the ten-year Treasury is around 1.6 percent has got to explain themselves,” he said.

Bove said he was excluding the outlook for banks that are heavily involved in capital markets such as Goldman Sachs Group and Morgan Stanley.

Sanford Bernstein analyst Brad Hintz, in a note to clients last week, said few trading units anywhere are generating returns and echoed McKinsey’s pessimism about the outlook for their profitability. “Simply cutting compensation ratios and implementing technological improvements may not be enough to reach a target ROE,” he wrote.

The good news is that banks that adapt can prosper by financing infrastructure projects that are expected to grow 60 percent by 2020, the report says, and by selling advice and retirement products to aging populations in developed nations and core banking services to new customers in emerging markets.

The study was based on a review of financial data at the world’s 30 largest banks, with some data extending to over 2,400 banks in the 69 countries followed by McKinsey. - Reuters

Chinese telecom giants hit back at US allegations

 US blacklists China's tech giants 

 VIDEO: US BLACKLISTS CHINA’S TECH GIANTS CCTV News - CNTV English



US lawmakers have alleged so-called security threat from Chinese telecom giants Huawei and ZTE. The two Chinese tech companies have denied such allegations.

But the U.S. House of Representatives’ Intelligence Committee said it will release findings of a nearly year-long investigation of the alleged security risk on Monday local time.

Huawei and ZTE have had a tough time in the US, and now, it’s going to get even tougher.

The black listing of the two Chinese tech giants, comes amid U.S. allegations that the companies are involved in economic espionage and could pose a risk to the country’s telecommunication infrastructure.

A draft report by the House Intelligence Committee dominated by the Cold-War thinking, says the two firms "can’t be trusted" to be free of influence from the Chinese government and could be used to undermine US security.

In response, China’s foreign ministry has warned the US not to harm the interests of both countries.

Hong Lei, spokesman of Chinese Ministry of Foreign Affairs, said, "Investment by China’s telecommunications companies in the United States showed the countries have mutually beneficial relations. We hope the US will do more to benefit the interests of the two countries, not the opposite."

The firm’s top executives appeared at a hearing held by the panel last month, stressing that they were focused on business, not politics.

Charles Ding, Huawei Vice President, said, "It would be immensely foolish for Huawei to risk involvement in national security or economic espionage."

Zhu Jinyun, ZTE Vice President, said, "Would ZTE grant China’s government access to ZTE telecom infrastructure equipment for a cyber attack? Mr. Chariman, let me answer emphatically: no!"

Both Huawei and ZTE have rejected the allegations that their expansion in the United States poses a security risk and have denied any ties with the Chinese government.

Huawei said that it was "globally trusted and respected."

Although being the second largest telecom equipment maker in the world, the company has already had to drop several of its attempts to expand in the US -- due to allegations from U.S. lawmakers. 

US report accusing firms of being security threat sparks angry denial

Two telecom giants rejected as "baseless" the findings of a US congressional investigation that accused them of posing a national security risk.

The allegations indicated growing commercial disputes between China and the United States, especially in the high-tech sector, trade experts said.

Huawei Technologies Co, the world's second-largest telecom equipment manufacturer in terms of revenue, described the US congressional report as containing "dangerous political distractions” from normal business practice.

"Baseless suggestions purporting that Huawei is somehow uniquely vulnerable to cyber mischief ignore technical and commercial realities, recklessly threaten American jobs and innovation, do nothing to protect national security, and should be exposed as dangerous political distractions from legitimate public-private initiatives to address what are global and industry-wide cyber challenges,” Bill Plummer, Huawei's US vice-president of external relations, said in an e-mail to China Daily.

The US House of Representatives’ Intelligence Committee said that Huawei and ZTE Corp, the world's fifth-biggest telecom gear maker, should be excluded from the US market because they pose a security threat.

ZTE urged the committee to extend equal treatment to all telecom equipment makers because "most or all US telecom equipment is made in China, including that provided by Western vendors”, it said in an e-mail to China Daily.

China hopes the US will "respect reality, discard biases and improve economic relations between China and the US, not vice versa”, Foreign Ministry spokesman Hong Lei said on Monday.

The report, which came amid rising trade disputes between the two countries, surprised experts.

"The report is not just about economic issues, but goes further with guesswork about alleged conspiracy," said Huo Jianguo, director of the Chinese Academy of International Trade and Economic Cooperation Institution. "It has obvious political intentions because displaying a tough attitude to Chinese companies may help win more votes with a presidential election campaign going on,” he said.

More trade disputes are likely to happen in the advanced industries like telecommunications, compared to low-end manufacturing, as Chinese companies move up the value chain and expand globally, Huo said.

There has been an increasingly large number of trade investigations into Chinese exports, led by the US, since 2009.

The committee launched a security probe into the two companies in November. In May, a congressional delegation, including some of the committee members, went to China where they met Ren Zhengfei, Huawei's board chairman, and the top management of ZTE.

On Sept 13, Charles Ding, Huawei's corporate senior vice-president, and Zhu Jinyun, ZTE's senior vice-president for North America and Europe, testified at the House committee hearing. This was the first time the Chinese telecom companies had the chance to communicate with US authorities in public.

In an interview after the hearing, Zhu told reporters that, due to different social and cultural backgrounds, there was one thing he felt difficult to explain to Americans: the relationship between the government, the Communist Party and the enterprise in China, especially when many Congress members still harbor a Cold War mentality and know little about China's development.

"ZTE really understands American concern about cyber security, but we expected more constructive solutions from the US government to address the issue instead of just finger-pointing,” Zhu said.

In a draft of the report made available to Reuters, the panel leaders said that US intelligence must stay focused on efforts by Huawei and ZTE to expand in the US and tell the private sector as much as possible about the purported espionage threat.

"US network providers and system developers are strongly encouraged to seek other vendors for their projects," it said.

The report is likely to have an impact on Huawei and ZTE, both of which are expanding aggressively overseas to fuel growth, said analysts.

"The two companies have been trying to build a larger presence in the US market but failed, and the report is likely to make their business in the US even harder,” said Xiang Ligang, a Beijing-based industry specialist and president of industry website cctime.com.

The companies may find it more difficult to win deals with US telecom carriers and their mobile phone business will be affected, he added.

Huawei, which ranks only after Sweden's Ericsson in the global market, conducts 70 percent of its business outside China. It reported sales of $1.3 billion in the US last year.

The Wall Street Journal reported earlier that Huawei is preparing for a public offering, but the company denied the report later. ZTE has a smaller footprint in the US, mainly through sales of devices like smartphones. Its sales in the US were $30 million last year.

The document cited what it called long-term security risks associated with the companies’ equipment and services but it did not provide detailed evidence, at least not in an unclassified version.

A classified annex provides "significantly more information adding to the committee's concerns,” the draft said.

Based on classified and unclassified information, Huawei and ZTE, "cannot be trusted to be free of foreign state influence and thus pose a security threat to the US and to our systems”, it said.

CBS aired a segment on Huawei on Sunday evening during 60 Minutes. The committee's chairman Mike Rogers told the program's host Steve Kroft: "If I were an American company today, and I’ll tell you this as the chairman of the House Permanent Select Committee on Intelligence, and you are looking at Huawei, I would find another vendor if you care about your intellectual property, if you care about your consumers’ privacy, and you care about the national security of the United States of America.”

Plummer, the only person from Huawei who appeared on the show, insisted that Huawei is a company just doing business.

The company's "$32.4 billion in revenues last year” was obtained from "150 different markets, 70 percent of our business is outside of China. Huawei is not going to jeopardize its commercial success for any government, period”, he told Kroft.

By TAN YINGZI in Washington and CHEN LIMIN in Beijing 
Contact the writers at tanyingzi@chinadailyusa.com and chenlimin@chinadaily.com.cn
Reuters contributed to this story.

Downside of Facebook

Grouses are mounting on the use of Facebook.

According to a recent report, less and less young people in the UK are turning to drugs, partly because they are too busy on Facebook or sending text messages.

“It could be, if they are on Blackberry all the time, that that’s the way they socialise and communicate; you don’t want to be doing that and having a spliff at the same time.” Or so an expert said recently.

Like, why not? Why would having a spliff (joint) stop you from getting on Facebook or sending your friends a text message, or vice versa?

“Just wanted to say high, everybody!” you could write on your Facebook timeline, thereby satisfying two addictions at the same time: the need to get high on drugs, and the need to say “hi” on the Internet.

It also seems that a large number of people go on Facebook when they are drunk, so much so that a browser extension has been developed to prevent them from making embarrassing drunken comments like, “Jenny, you hag. I’m so glad I dumped you.”

Or “My boss sucks big time”. After overlooking the fact that their boss is actually one of their Facebook friends.

Apparently, the software will ask you to do something that only a sober person can do – like recite the alphabet backwards or trace a moving object across a computer screen with your index finger. I’m not sure if I can recite the alphabet backwards with any sort of speed while completely sober, never mind after a couple of glasses of merlot.

If I really wanted to get my message online, I would probably cheat by writing out the alphabet from beginning to end, making it easier to recite it backwards. If you’re really drunk, and you really want to do something, you will find a way.

Of course, after all that faffing around you might get online only to forget what it was that you wanted to say on Facebook. Then your bladder might take charge, so all you get to write is, “Going for a pee, be back in a sec.”

In some Western countries, Facebook’s popularity is waning, with more and more people pulling the plug on their social media accounts.

For example, an increasing number of Australians claim that Facebook promotes a culture of “narcissism and self-absorption.” They are fed up with the constant flow of inane comments like: “Going for a pee, be back in a sec.” Some want to delete their online presence but are afraid of losing contact with their friends.

I’m not sure how that works. If your family and friends make inane, narcissistic comments online, to the extent that you’re irritated by them, why would you want to keep in touch with them anyway?

All you have to do is “unfriend” the irritating narcissistic people in your network and you will be left with people who don’t irritate you – possibly people you have never met before or hardly know.

Another grouse with Facebook comes from former couples who have just split up. It seems that it is easier to extricate yourself from someone in the real world than it is online.

If your ex is one of your Facebook friends, all you have to do is delete him/her, but what about all your mutual friends? If you make an inane comment on Facebook about your current depressed mood, something like, “Bleh, bleh, bleh, bleh, bleh ...”, what’s to stop a mutual friend from writing a response to your comment, thereby enabling your ex to witness your friend’s comment and your depressive state?

Indeed, what’s to stop the person who unceremoniously dumped you from writing a comment on a mutual friend’s timeline to the effect that they have met someone new: the soul mate that they have been waiting for their entire life? And what’s to stop all your mutual friends from “liking” that comment? And you get to watch it all as it unfolds.

Feeling crushed and humiliated, you might want to go out and get drunk. There’s a good chance that you get so inebriated that you want to express yourself online. And there’s also a good chance that your determination ensures you can recite the alphabet backwards and you successfully log onto Facebook.

With a bit of luck, before you have the chance to write anything incriminating about your ex, you might need to go for a pee.

BUT THEN AGAIN BY MARY SCHNEIDER
> Check out Mary on Facebook at www.facebook.com/mary.schneider.writer. Reader response can be directed to star2@thestar.com.my

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Japan rocking the boat to make waves, mostly hitting itself

Japan is striking out diplomatically and politically, hitting mostly itself so far.

IF any country ever wanted to make Japan look bad and feel worse, it could not have done more than Japan itself over disputed islands in the East China Sea.

All parties claiming the five uninhabited Pinnacle (Diaoyu for China, Senkaku for Japan and Tiaoyutai for Taiwan) Islands had long accepted the status quo of lingering disputes because the risk of fighting was too high for any provocative action.

For much of that time, national sensitivities in the disputes were strong enough to ensure that the status quo prevailed.

In the early 1990s for example, a Chinese general declared that the PLA (Navy) would come to Taiwan’s aid if any country challenged Taipei’s claim. Intriguingly, this was despite China and Taiwan occasionally having to work out their differences over their rival claims.

The writing on the wall was that whatever the differences across the Taiwan Straits, China was protective of Taiwan precisely because of its claim to Taipei itself. Taiwan did not question or reject Beijing’s position then or since: Taipei did not regard China’s stand as compromising the US commitment to protecting Taiwan.

This year Vietnam and the Philippines also tangled with China over other rival claims in the South China Sea, with its own separate dynamics. But if any Japanese official thought that would leave China weary enough to be pushed on the defensive, he would soon realise his mistake.

Disputed claims in the East China Sea involving China, South Korea and Japan are also a measure of Chinese and Korean bitterness over Japan’s wartime atrocities in their respective territories.

Both China and Korea suffered gravely under Imperial Japan, and regard modern Japan as insufficiently owning up to its horrific past to make amends for it. Thus Japan’s posturing over disputed territory readily inflames government positions and popular sentiment in China and Korea.

Talk of Japan considering the “purchase” of the Pinnacle Islands from a private owner early this year provoked Beijing and put Seoul on notice. As the purchase drew near in early August, Tokyo released a Defence White Paper re-asserting its claim to the disputed Liancourt Rocks (Dokdo in Korea, Takeshima in Japan).

Within days South Korean President Lee Myung-bak repeated his country’s claim to the territory by personally visiting it, the first for any Korean leader. Japanese officials lambasted his presence there, but media opinion in Japan cautioned against Tokyo overstretching itself with multiple disputes simultaneously.

The idea of purchasing the Pinnacles came in April from the incendiary nationalist Tokyo governor Shintaro Ishihara. His personal politics has enraged China and Korea, with denials of the Japanese massacre of Chinese civilians in Nanjing and the forced sex slavery of Korean (“comfort”) women.

Economy affected

Meanwhile Japanese officials continued to bait China. Last month Japan “nationalised” the islands.
China protested, and anti-Japanese demonstrations erupted in dozens of cities. Protesters targeted retail outlets, resulting in closures and cutbacks in production and distribution.

Employment in China suffered somewhat, but Japan’s economic standing suffered more. Last Thursday an editorial in the Yomiuri Shimbun cited an industry survey indicating Japanese business sentiment in September to be the worst this year.

The commentary quoted the survey as seeing “a bleak outlook... ahead,” with the “scenario... coming off the rails.” It noted that the survey had been done before the latest spat with China, so the situation after September would be worse.

Meanwhile Japanese officials reprimanded China for allowing the anti-Japanese protests to occur. For many in China, Japan’s deliberate act of sealing ownership of the islands by officially nationalising them showed even greater irresponsibility.

Strategically, Japan’s action also brought Taiwan and China closer together against it. Policymakers in Tokyo had not only shot themselves in both feet, but failed to understand what had happened.

Writing in Forbes magazine, Stephen Harner said Japan’s action was “an unmitigated disaster” because economically Japan needed China much more than China needed it. He said “the fundamental truth” was that while China could easily get what it needed from other major suppliers, not so Japan.

Later Harner examined Article 5 of the US-Japan Treaty and questioned a US commitment to defend Japan if hostilities broke out over disputed islands. He noted that after the US Defence Secretary told Japan to behave better on his way to Beijing, Leon Panetta told China that the US was neutral over the dispute and even discussed future US-China military cooperation.

Harner then interviewed Prof Susumu Yabuki, a leading China expert who had warned of the current problems and advocates replacing the US-Japan Treaty with a more realistic “US-China co-dependency.”

After weighing discussions between Japanese and Chinese leaders recently and in the past, Hamer found the current impasse the wilful legacy of Prime Minister Yoshihiko Noda and Japan’s foreign ministry.

Confrontational

In the Washington Post, Chico Harlan reasoned that Japan was becoming more confrontational diplomatically and militarily as China’s rise became more evident. While describing Noda as hawkish, he said all Noda’s likely successors would be even more so.

Columnist Nicholas Kristof in The New York Times reflected on his own longstanding interest in the Pinnacles, observing that the US claimed to be neutral but was actually on Japan’s side. After assessing China’s and Japan’s island claims, Kristof found China’s case to be more persuasive.

In Taiwan’s The China Post, columnist Frank Ching noted that the Chinese government and public both regarded the US as “very much on Japan’s side,” and that Washington should help “calm the conflict it helped create.” Ching mentioned a Chinese foreign ministry document detailing how in the 1951 San Francisco Treaty granting the US trusteeship, Washington “arbitrarily expanded its jurisdiction (over the Ryukyu Islands) to include (the Pinnacles).”

Like Harner, Ching Cheong in Singapore’s The Straits Times found the current problems the clear result of Japan’s actions. He also found Japan not only unable to contain the Pinnacles situation, but opening another can of worms in the disputed Ryukyus (Liuqiu).

He traced China’s connection to these islands to AD621, long before Japan annexed them in 1879. Ching Cheong noted that since the 1943 Cairo Declaration and the 1945 Potsdam Declaration, both the US and the Soviet Union agreed that the islands should be returned to China.

However, with the Cold War the US handed administration of the islands to Japan, for sovereignty to be decided later between Beijing and Tokyo. This vagueness later combined with self-interest to produce the present mess.

The 1972 Sino-Japanese Joint Statement establishing diplomatic relations between China and Japan later required post-war Japan to abide by the conditions of the two declarations. Whether Japan succeeds or fails in that will determine its future, which shall entirely be its own making.

Japan’s ambassador to China Uichiro Niwa had advised against Japan’s confrontational course, but instead of being taken seriously was sacked. Then his replacement suddenly died, and Niwa had to return to the post until another replacement, heightening Japan’s sense of impotent angst.

It’s just not Japan’s year, or century.

On Sept 25 the foreign ministers of Japan and China met in the first of a series of talks to cool down a volatile situation. They may realise that their greatest challenge is not each other’s government, but their own respective publics and popular sentiment on the streets.

Behind The Headlines By Bunn Nagara

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How will the Malaysia's Tax Budget 2013 affect your sales and cashflow?

I AM back. A hilarious quip by cigar chomping Arnold Schwarzenegger in The Expendables 2 as he signals his return to Hollywood after serving two terms as the governor of California, one of the largest economies in the world.

Without any political or state administrative experience, he was famous for his continuous high-deficit budgets while governing California State. Popular budgets that kept his constituents happy and his seat safe.

So are you happy with the recent Budget 2013? If you are a low wage earner pulling in below RM3,000 a month, you should be. Lots of goodies dished out in the race to earn your votes with promises of more to come by both political groups. At least the national wealth is distributed to the needy mass and not leaked to the greedy few.

Billions of ringgit will be circulating in the economy by year end as the additional bonuses for the civil servants kick in, which is good news for our domestic consumption. Hopefully, this cash handouts from heaven is used wisely to reduce personal debt first and the balance spent in our domestic market. Which means we will be better insulated against the fast deteriorating external economies of other regions.

So how will the entrepreneurs and small and medium enterprises benefit from this budget?

Only certain industries will benefit from the tax breaks announced. I heard the travel agents are putting in additional mileage to get many Malaysians out of the country and get any kind of foreign tourist in.

Most working mothers do not have to fret if their maids run away as there will thousands of daycare and pre-schools sprouting up all over the country.

And if everybody insist on “kurang-kurang manis” on all their teh tarik and kopi tarik, Mr. Mamak will have no reason to increase the price of the cuppa.

Normally, the rich are not affected by most national budgets. Unless, of course, if you are French because their new government is planning to levy a 75% income tax rate on all citizens who make more than a million euros a year. This has caused an exodus of French investment bankers to work in London and I understand that they have started taking English language lessons.

For a lower 45% tax bracket, the elite French is willing to tolerate inferior language and inferior food. Just to show how national budgets and changes in tax rates can affect people's lives.

If you are on your own, there are only two key business issues that you need to understand as you interpret the new budget and new tax proposals. How will it affect your sales and how will it affect your cashflow?

Whatever business you are in, your sales is determined by your customers' ability to purchase, which means you have to follow the trail of money. New initiatives or projects by the Government means new opportunities.

Try to spot windfall sales potential. Like the group of car salesman plonking themselves into Felda settlements getting the going-to-be rich settlers to sign order forms for new cars way before the cash came in. Just follow the money, get there early and you will be fine.

As for cashflow, if you cannot afford to hire a chief financial officer, I suggest you get a good qualified tax adviser to help you understand how the changes in tax policies will affect your business.

If you know how to take advantage of the tax breaks and tax allowances, you will save a tremendous amount of cashflow by virtue of paying less tax legitimately.

You will learn to structure your business model according to the most tax-effective way of increasing your cashflow. Just remember, an efficient tax model is useless if it is not backed up by an equally efficient accounting system.

In short, entrepreneurs should focus equally on sales, finance and tax. To make a profit, you need to sell with a good gross margin and control your expenses. To make more after tax profits from the same sale, have proper tax planning.

If your paper profit is translated into cash in the bank, then your tax planning is in good order. If you have only paper profit and no cash to show, it is time to sit down with your accountants and tax advisors. Ask them to show you the money. Which should translate into a solid cashflow strategy.

For many chief executive officers and chief financial officers, the silly budget season is in full swing now. The board of directors are waiting anxiously as to what final numbers will be in the 2013 forecast. With such uncertainty in the domestic and world economy, the only thing certain in the forecast budget will be the half facts, half truths and brilliant guesswork.

Strangely enough, I have never bothered much with forecast budgets all my life. As long as my business model is well structured with an efficient tax plan, I only concentrate on bringing in the sales and viola! The cashflow appears.

Should a retired entrepreneur re-enter the business world? We will discuss this topic another day. Like good old Arnie, I would love to hold my favourite cigar in my hand and have the opportunity to tell my competitors ... I'll be back.

ON YOUR OWN By TAN THIAM HOCK

l To access earlier articles of On Your Own, log on to www.thiamhock.com. Honest comments welcomed and approved.  


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