Annual Report 2016 - page 223

Annual Report 2016
209
Risk Factors
D. Major Risk Factor on Subsidiaries
(continued)
New World China Land Limited (“NWCL”)
(continued)
12. In recent years, the PRC Government has promulgated administrative measures to gradually liberalise the control over
cross-border remittance of Renminbi where payment of current account items, including profit distributions, interest
payments and expenditure from trade may be made in foreign currencies without prior approval, but subject to
certain procedural requirements. However strict foreign exchange controls continue to implement in respect of
capital account transactions including repayment of loan principal and return on direct capital investments and
investments in negotiable securities. Such exchange controls may impact the distribution plans of NWCL’s PRC
subsidiaries to the Company.
13. NWCL’s property development business required substantial capital investment. NWCL will require additional
financing to fund working capital and capital expenditure, to support the future growth of its business and/or to
refinance existing debts obligations. NWCL’s ability to arrange for external financing and the cost of such financing
are dependent on numerous factors, including general economic and capital market conditions, interest rates, credit
availability from banks or other lenders, investor confidence in NWCL, success of its businesses, provisions of tax and
securities laws that may be applicable to NWCL’s efforts to raise capital and political and economic conditions in the
PRC. In additions, a substantial portion of NWCL’s borrowings are linked to benchmark lending rates published by the
PBOC. The PBOC has adjusted the benchmark one-year lending rate a number of times in the past in response to the
changing PRC and global financial and economic conditions. As such, NWCL is exposed to foreign currency exchange
risk, interest rate risk, credit risk and liquidity risk.
New World Department Store China Limited (“NWDS”)
1.
PRC Government announced that the expected GDP growth for 2016 is around 6.5% compared with 6.9% last year and
it was 6.7% in the first half of 2016 which is the lowest since the financial crisis. It is anticipated that GDP would
continue to decelerate modestly. As a result, it would inevitably affect, to certain extent, the disposable income of
citizens as well as personal consumption behavior, which in turn may have a negative impact on the retail industry in
the PRC.
2.
This slowdown also causes an adjustment of economic structure which has brought great challenges to the traditional
industries, manufacturers and suppliers as well. Nowadays, industrial and commercial transformation aiming to
increasing efficiency, reducing pollution and eliminating irregular and unnecessary intermediaries is being
implemented. Consumers’ requirement to the products and services becomes more quality, functional and
environmental oriented. Therefore, it requires players in retail market to be more responsive, caring and socially
responsible in order to satisfy customers’ need.
3.
Moreover, wage growth in China is not as fast as that of CPI, resulting in a decline of purchasing power. In addition,
rising price of property, especially in the first tier cities, increases burden of citizens and hence further weakens the
purchasing power. For example, customers would prefer buying goods with lower price from the internet to the retail
stores.
4.
The retail market remained sluggish as relevant government policies and measure in the PRC exerted significant
pressure on the retail market, especially the luxury goods, shopping (stored value) cards sales and group (bulk)
purchase. Therefore, it is anticipated that these sectors will continue to underperform to a larger extent as compared
to other general goods and products.
5.
The purchasing power of people in China diminishes as a result of continuous devaluation of RMB. The market also
expects this will continue for a certain period of time due to recovery of US economy resulting in hiking USD interest
rate and hence strong USD environment. It may affect the demand for imported goods or products substantially made
of or assembled from imported materials.
6.
According to the statistics, it shows that a total of 216 million Chinese were aged over 60 by the end of 2015 (2014:
212 million), about 16.7% (2014: 15.5%) of the total population. It also expects this will grow to 300 million by 2025 and
the aged population will account for 30% of the population in 2042. The aging society can exacerbate the effects of
recession. The good news, however, is that many aging populations are healthier than previous generations of senior
citizens, and much more prosperous. So it would be a huge opportunity to the retail industry if they could accurately
identify and take advantage of this large segment of consumers’ preferences and habit.
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