Business

BANGKOK — Thailand needs to do more to keep its tourists safe if it wants to achieve its objective of attracting more high-end travellers, operators say, or it risks losing out to its up-and-coming neighbours.

With its palm-fringed beaches, Buddhist culture and racy nightlife, Thailand has been the poster child for Asian tourism for decades, attracting a range of visitors from backpackers and adventure-seekers, to families and culture vultures.

In recent years, increasing numbers of Chinese tourists have joined the mix. But dark clouds could be forming even as a record 32 million tourists are expected this year.

The industry, which accounts for 10 per cent of the gross domestic product (GDP), has been resilient to political upheaval over, the last decade that has included violent street protests and military coups.

Even a deadly 2015 bomb attack on a Bangkok shrine popular with tourists failed to dent arrivals to any discernable degree.

But crime and accidents, and the perception Thailand is becoming a mass market, could pose a bigger threat to the government plan.

The murder of two British tourists in 2014 hit world headlines. Last month, two French women filed complaints of rape.

Woeful road safety, accidents at sea, scams and even angry elephants have added to what seems like a never-ending litany of bad news.

"Visitor volume is high but with that the probability of crime also increases," Surapong Techaruwichit, chairman of the Hotel Association of Thailand, told Reuters. "We need to reassure tourists that Thailand is safe."

The government's Tourism Authority now wants to focus on "quality tourism", and has launched a campaign to attract visitors who spend more, and hopefully stay out of trouble.

"Many people say tourists come here because it is a cheap destination. This needs to change," Tourism and Sports Minister Kobkarn Wattanavrangkul told a tourist safety workshop.

But luring more discerning travellers might not be so easy.

"If we want to attract the high end we need to reassure them. Meeting our target luxury-traveller target will be harder after the recent negative publicity," said Surapong.

The figures can be frightening.

Fourteen US citizens died of unnatural causes in Thailand from January to June 2015, higher than the 11 who died in France, a top destination for US tourists, according to US State Department figures.

Thailand had the second-highest number of deaths of British nationals in 2014 after Spain, which is the top holiday spot for Britons, British Foreign Office figures show.

Major General Surachet Hakphan, commander of the Tourist Police, says things will change. The men and women in his division will focus on safety, he said.

"Elephants trampling on tourists and tourists having their legs cut off by speed boats, this won't happen any more," Surachet added, referring to two recent fatal accidents.

According to Jason Friedman, managing director at J.M. Friedman & Co. - Bespoke Hospitality Services, Thailand had managed to preserve its image as a holiday paradise despite the bad news

"People want to believe Thailand is a great place and nothing goes wrong here — this is a perception that works in our favour," Friedman said.

For Friedman, who focuses on the high end, the bigger risk is the volume of arrivals creates the impression that Thailand has become a mass market. Or as Friedman puts it: industrial tourism.

Tourists wanting off-the-beaten-track travel need not look far, he remarked.

"The industrial-strength tourism will push people away. They have started looking for remote beaches in Cambodia or Myanmar," he added.

Separately, chronic water shortages are pushing the country to move away from a grain that dominates its fields and has defined a way of life for generations. Thailand has long served as one of the globe's main rice bowls and is one of the world's top rice exporters.

Laddawan Kamsong has spent the past 40 years coaxing rice from her plot in central Thailand, but she is tired of watching her farmland squeezed dry by increasingly severe droughts. 

"I plan to replace some rice paddies with limes," she said after attending a government-run workshop urging farmers to diversify their crops.

But four consecutive years of below-average rainfall have drained water reserves and strangled production, pushing many farmers into debt. 

The current drought, the worst the country has seen in decades, has hit nearly a third of Thailand's 76 provinces, particularly in the rice-heavy central and northeast. 

Reservoirs are also dropping to historically low levels. 

The kingdom's military government is now organising training sessions to encourage millions of rice farmers to diversify into crops that require less irrigation. 

Unlike nearly all other crops, rice grows best in a flooded field, with the stalk's base completely submerged for most of the growing season. 

At an army-run workshop held in patch of shade in a field in Nonthaburi province near Bangkok, Laddawan was sold the merits of cultivating fruit trees. 

In other regions, they are suggesting sugarcane or peas. 

These alternatives will drastically reduce water consumption but also break the monoculture that has deteriorated Thai soil for decades. 

"We have no choice, we need to adapt," Laddawan said, explaining that she used to plant three rice crops annually, but next year will only have enough water for one. 

Rivers run dry        

As the drought bites, some 2,000 Thai villages are surviving off water delivered by the government, while “rainmaking” airplanes are flying over parched plains, sending an iodine solution into the air in an effort to seed clouds.

After last year's especially weak rainy season, which falls between June and October, the ruling military junta asked farmers to abandon their winter rice crop, which is normally cultivated through irrigation and not rainfall. 

"The amount of water in storage is low and now we expect that this year's rainy season will be delayed because of El Nino," said Suphot Tovichakchaikul, who leads the country's water management department.

The El Nino weather phenomenon tends to weaken the annual monsoon, which is a lifeline to farmers across the region.  

According to a study from the University of the Chamber of Commerce, the drought could shave between 0.5 and 0.8 per cent off Thailand's GDP growth, with its annual rice production predicted to drop almost 30 per cent to 25 million tonnes. 

Thailand is also facing increasing competition from Vietnam and India, who have been jockeying for the top exporter spot and at times surpassed Thailand's output in recent years. 

The junta says Thai rice is no longer sustainable on its current scale.

"We must find a way to motivate rice producers to switch to other crops," junta chief Prayut Chan-o-Cha said in a recent speech. 

His military government, which grabbed power in a 2014 coup, has struggled to revive Thailand's flat economy, which is beset by falling exports, high household debt and low consumer confidence. 

Rice politics

Yet convincing the country's rice growers to change their crops is no easy task. 

"It is difficult because it is their career, it is their way of life for decades conceded Somnuk Srithiengtrong, head of the ministry of agriculture for Nonthaburi.

In recent years rice farming has become entwined with a strong political identity too. 

Many rice farmers support the family of Thaksin Shinawatra, a controversial ex-premier who injected money into villages in the kingdom's long-neglected rural north and northeast. 

The former telecom tycoon was ousted in a 2006 coup.

But parties linked to him have won all Thai elections since. 

His sister Yingluck, who became prime minister in 2011, also poured subsidy into the rice sector, winning the devotion of the so-called grassroots "Red Shirt" pro-democracy movement.

She was also ousted in a 2014 coup, and faces up to a decade in jail over  negligence charges linked to her rice subsidy scheme.

That policy saw the government purchase paddies from farmers at nearly twice the market rate, pumping cash into the Shinawatra heartlands.

But it led to massive rice stockpiles after global traders turned away from the Thai grain, whose price had been inflated by government hoarding.

The ruling junta has shot down the Shinawatra's policies as "populist".

But it too recently resorted to massive rural subsidies to prop up the country's floundering rice and rubber industries. 

And while a reliance on rice looks increasingly perilous, farmers like Prateep Jinpracha, 46, say that cannot be swayed to change crops.

"Growing rice, that's what my parents and grandparents did before me," she said. "This is my life."

FRANKFURT — Germany, Europe's biggest economy, shaved 24 billion euros ($27 billion) off its overall public debt burden to 2.153 trillion euros in 2015, the country's central bank, or Bundesbank, said last week.

Measured against the gross domestic product (GDP), that meant Germany's total public debt ratio fell to 71.2 per cent last year from 74.7 per cent in 2014, the Bundesbank calculated.

Under European Union (EU) rules, a member state's overall debt must not exceed 60 per cent of GDP.

Nevertheless, the EU average stands at 86 per cent and Germany has pledged to bring its own debt back below the 60 per cent limit by 2020.

Germany's public finances have been in surplus since 2014, thanks to the robustness of its domestic economy, and low interest rates and the government is using the budget surplus to bring down its overall debt. 

The Bundesbank calculated that GDP growth of 1.6 per cent last year accounted for 2.7 percentage points of the reduction in the overall debt ratio.

German economy to slow down in second quarter: Bundesbank

Also last week, the Bundesbank said the German economy will likely slow down in the second quarter after showing steady growth in the year's first three months.

"The German economy started 2016 with a lot of momentum," it added in its latest monthly report. However "a decline in the pace of economic growth looks to be on the horizon for the second quarter".

The Bundesbank recalled that the German economy had seen "a solid rate of expansion" in the second half of 2015 with growth in the third and fourth quarters of about 0.3 per cent, which it said "largely matched its potential".

The bank forecast first-quarter growth would match or slightly surpass that rate.

However it said stagnating industrial orders and a further worsening of the closely watched Ifo business climate index, including a sharp decline in its previously stable production and export expectations indices, did not bode well for the second quarter.

International demand for German goods had long kept the country largely insulated from external shocks including the slowdown in Chinese growth and other emerging markets as well as geopolitical tensions.

But the combined effect of negative factors is starting to be seen in certain indicators.

For the moment "the mood of consumers remains very optimistic", the Bundesbank said, after domestic consumption replaced exports last year as the primary engine of economic growth.

Speaking at the Bundesbank's annual news conference, President Jens Weidmann said the German economy was "in good shape overall" and hailed a "distinct rise" in real disposable income, due in part to low inflation.

For 2016 as a whole, the Bundesbank is pencilling in growth of 1.8 per cent, slightly more than the government's forecast of 1.7 per cent.

Separately, German companies are trying not to let themselves be spooked by the economic slowdown in China, even if they concede they are currently seeing a drop in demand for their products there.

"Of course we're experiencing a fall-off in demand in China at the moment," said Franz Hampel, head of Garant-Moebel, a furniture wholesaler.

"Our Chinese partners have become jumpy. Business has been good for them the past few years. But they're now asking themselves what the future will bring," Hampel added.

Employing a workforce of around 230 and active in around 20 countries, Garant-Moebel opened an office in Hong Kong two years ago where it employs a dozen people.

However, the strong fluctuations in the Chinese currency, the yuan, resulting from the country's recent financial woes, are leading Chinese furniture retailers to roll back business, Hampel continued.

Garant-Moebel is not alone in watching economic developments in People's Republic with a wary eye.

"It seems obvious that the period of double-digit growth is behind us," said Jan-Christoph Block, head of international sales at drive systems specialist Getriebebau Nord in Bargteheide, north Germany. "It's still possible to achieve growth, but it's become more difficult." 

Both companies can be seen as representative of the mostly family-owned small and medium-sized enterprises (SME) that form the backbone of the German economy and were quick to establish a foothold in China. 

It is not just big companies like Volkswagen, BMW and BASF that are suffering from China's woes, the SMEs are feeling the pinch too. 

'Enormous potential' 

China's economic growth is projected to slow to 6.7 per cent in 2016, its lowest growth rate since 1990,  from 6.9 per cent in 2015, according to the latest forecasts from the World Bank.

The slowdown is worrying for German exporters, since China is their most important market after Europe and the United States.

In 2014, Germany exported a total 74 billion euros ($81 billion) worth of goods to China, not including the sales generated by companies' local subsidiaries in China. 

According to the specialist consultancy firm EAC, some of the major players listed on the Frankfurt stock exchange generated combined turnover in China of 131 billion euros in 2014, an increase of nearly 10 per cent over the previous year. 

So it hardly comes as a surprise that the market turbulence in China has left its mark on Germany's blue-chip DAX 30 index, too. It has lost more then 7 per cent since January 1. 

Nevertheless, China's "enormous growth potential remains", said Block of Getriebebau Nord.

"Currently, more than 5,200 German companies are active in the People's Republic, employing a combined workforce of more than 1 million there," said Alexandra Voss, head of the German Chamber of Commerce in China.

"The economic slowdown in China will certainly not be painless. But the huge growth potential remains," Voss told AFP. 

A number of companies are hoping to benefit from the massive investment programme launched by Beijing to transform China from the world's biggest factory to the world's leading market place for innovation in services and technology. And the sectors covered by German companies were "particularly well placed" to take advantage of this, said Voss.

UniCredit economist Erik Nielsen also argued that "concerns over China are overdone".

China's "real economy leaves no particular reason to worry, at least not in the short term," Nielsen said.

WASHINGTON — Facing slowing growth in the global economy, the International Monetary Fund (IMF) called last week for policies that support research and development to promote innovation.

"Fiscal policy can play an important role in stimulating innovation through its effects on research and development [R&D], entrepreneurship, and technology transfer," the IMF said in a report ahead of its twice-yearly meeting in Washington in April.

Among its recommendations, the IMF estimated that businesses in advanced economies should invest 40 per cent more in R&D on average than they do currently, which could in the long run increase the gross domestic product (GDP) of their respective countries by 5 per cent, and in turn boost growth in the global economy through technology transfers.

Innovation is also a way to improve productivity amid concerns "that the global economy may be trapped in an era of mediocre growth", the report said.

"The slow growth in total factor productivity [TFP] is particularly worrisome," it added, referring to the part of output than cannot be explained by the amount of inputs, typically labour and capital, used in production.

Slow growth in TFP "explains a significant part of the overall decline in potential growth since the early 2000s in advanced economies, and more recently in emerging-market economies", warned the IMF, calling for structural reforms in labour and product markets.

According to IMF data, only 13 countries have R&D spending that is above 2 per cent of GDP: Australia, Denmark, Estonia, France, Finland, Germany, Iceland, Japan, South Korea, Switzerland, Sweden, the United States and French Guiana, an overseas department of France in northern South America.

Targeted budget policies may help to offset periods of weak economic growth when businesses encounter more difficulties in financing, the 188-nation institution said.

IMF experts highlighted that tax incentives for intellectual property rights, known in Europe as "box regimes", have mixed outcomes in promoting innovation and R&D.

Introduced in Ireland in the 1970s, box regimes have been adopted by 13 European countries, notably France, Belgium, the Netherlands and Britain. They are currently under discussion in the United States and India, the IMF remarked.

But, according to the institution's experts, they act more as a way for countries to attract revenues from patents, copyrights and trademarks than to encourage applications for intellectual property rights protection, thus innovation.

The IMF studied the impact of box regimes in France, Belgium, the Netherlands and Spain and concluded there was no effect on R&D spending in France and Spain, while gains were seen in Belgium and the Netherlands. It cited differences in design of the box regimes as a cause of the mixed results.

Overall, the IMF said, box regimes are not an efficient way to spur R&D in part because of potential "significant" foregone tax revenues from intellectual property.

MANILA/LONDON — Steel producers in high-cost countries say their best hope for surviving the global glut is to develop higher value specialised products. But they will still face a tough time competing with low-cost Chinese producers that are breathing down their necks.

The announcement that India's Tata Steel is abandoning Britain has hammered home the threat to developed countries' steel industries from a glut caused by overcapacity in China, which has led to a collapse in the global price of commodity steel used mainly in construction.

Firms from Europe, Japan and South Korea say they are trying to keep afloat by increasing the share of higher-value products in their output, focusing on specialty steels used mainly in manufacturing, which command a premium over lower grades.

Some companies are venturing further down the supply chain to make their own aircraft or auto parts. Others are forming tighter relationships with their customers as a way to keep their order books full.

"Sticking to technological and quality leadership will be the only solution for European steel producers to secure profitability and future growth," indicated Wolfgang Eder, chief executive officer of Austrian steelmaker Voestalpine..

Voestalpine is aiming to become less dependent on traditional steel markets by raising its production of finished parts for the aerospace, rail and automotive industries. The auto sector alone generates around 30 per cent of group sales.

"Given the cost structure that European steelmakers are facing, they will not be able to produce steel commodities in competition with countries such as China, Russia, Turkey or Ukraine in the long run," Eder said. 

"Energy, labour and regulatory costs in Europe have reached a level at which mass production has become utterly unattractive," he added.

But the strategy may not be a permanent solution to the crisis that has caused plant closures around the developed world. 

Making specialised high-end steel still requires huge, capital-intensive smelters that mostly produce the lower value commodity material. And China, which now produces half of the world's steel, is developing more sophisticated production of its own.

Paul Gait, an analyst at Bernstein, said Voestalpine's strategy means the company "essentially provides an engineering service, a solution to a manufacturing process. It is not just selling steel".

But even at a high level of sophistication, the Chinese can catch up.

"Specialty steels will help Voestalpine survive for a few years, but eventually the Chinese will probably be able to produce the more bespoke, more tailored steel," Gait added.

High value specialty products by themselves can't save European steel, says European Steel Association Eurofer, which wants Brussels to do more to protect the industry from what it says is dumping by China. 

To be cost effective, a steelmaker still needs to produce large quantities of the lower-margin commodity product, and needs a market for it.

Balance sheet

"Steelmaking isn't on the whole that cost effective if you only concentrate on the high grade or speciality product lines. High end is also usually lower volume, and the rest of the balance sheet is made up of a diverse range of lower grade or non-speciality products," said Eurofer spokesman Charles de Lusignan.

"If China takes the 'commodity' end of the market, and it's not as if they are only focusing on that, then it takes with it the specialty segment, because it is impossible to sustainably operate on high grade or specialty alone," he added.

According to Heinz Joerg Fuhrmann, chief executive of German steelmaker Salzgitter, an integrated steel plant only makes sense at a scale of at least 3 million tonnes, and must be used to full capacity to be cost-effective.

"If it's only half used, its production costs are far too high. This means that they can't just serve the top 5 or 10 per cent where indeed the direct competition is lower, but they also have to include the premium standard product," he said.

For the world's No. 2 steel producer, Japan's Nippon Steel and Sumitomo Metal Corp, increasing the volume of high-value products is part of a strategy that also includes boosting volumes of mid-range steel.

"We expand the middle-end to take advantage of economies of scale while maintaining leading position in high-end steel," said Toshiharu Sakae, executive vice president.

Practical limits

In India, there is also a shift towards producing more high value-added steel. 

"Clearly the world is moving in that direction," said H. Shivramkrishnan, chief commercial officer at India's Essar Steel.

Seshagiri Rao, joint managing director at India's JSW Steel Ltd., said: "Every steel company, particularly the major companies, they're looking at value addition, meaning high-end value-added steel products - tin plates or automotive steel, or high-strength steel or electrical steel."

But ultimately, he remarked, there are practical limits to how much of a company's output can be higher end steel.

"I don't think anybody can do more than 30 per cent, 35 per cent so the balance 65 per cent remains commodity grade steel," Rao added.

Meanwhile, Chinese firms are moving up the value chain too.

Baoshan Iron and Steel Co. Ltd., China's biggest listed steelmaker, expects its huge, modern Zhanjiang steel production base with annual capacity of about 9 million tonnes and which it calls its "dream factory" to operate later this year.

The companies that survive, especially in high-cost countries, will have to find creative ways to develop closer relationships with their customers. They can do this even when the steel they produce is commodity grade, provided there is a level playing field, said Eurofer's de Lusignan.

"Profitability is all about value creation for your customers. Commodity producers can for example excel in services provided to their customers: short delivery times, small order quantities, 24-7 order intakes, client-specific product dimensions, etc," he indicated

According to Jeremy Platt, an analyst at UK-based consultancy MEPS, both producers and their customers could benefit from closer relationships up and down the supply chain.

"In future, you could see greater cooperation between steel producers and steel manufacturers. It happens to an extent already but it's something that could be expanded upon in future to the benefit of everyone really. Steel end-users should be looking to do this more and more," he said.

Separately, Europe's steelmakers called last week for sharply higher anti-dumping tariffs to protect against a flood of cheap Chinese imports, blamed for plunging the future of Britain's biggest steelworks into doubt.

Steelmakers blamed slow, ineffective action by the European Union (EU) for failing to stop other countries, particularly China, from massive steel dumping, exporting their excess production at below-cost prices.

Tata is putting all or part of its British business up for sale, including the nation's leading Port Talbot steelworks, because of a global glut, plunging prices and a "significant increase" in cheaper imports to Europe.

The United States takes just four to five months to deploy anti-dumping duties, compared to 16 months in the EU, said De Lusignan.

US anti-dumping tariffs are also significantly higher than those in Europe.

The United States recently levied a duty of 266 per cent on a Chinese steel product while the comparable tariff in Europe was 13 per cent, De Lusignan told AFP.

"The European Union is certainly putting out lots of action plans and it is making all the right noises. The issue is that the methods that can be used to defend against injurious dumping are too slow to deploy and result in measures which are too small to be effective," De Lusignan said.

"This means that whereas the United States vigorously defends against dumping, the EU is seeing its markets drowned out by the effects of pricing pressure from abroad," he added.

Europe's steel sector, which has an annual revenue of 166 billion euros ($189 billion) and accounts for 1.3 per cent of the bloc's total economic output, directly employs some 328,000 people, according to the European Commission.

Last month, EU heads of state and government vowed to take strong action to support the industry.

'Flooding the market' 

Steelmakers say they need that support urgently.

Luxembourg-headquartered ArcelorMittal, the world's biggest steelmaker, announced in February it had lost $7.95 billion in 2015, blaming deteriorating global prices because of excess production capacity in China.

"If you look at the operating results of steel companies, the level of Chinese exports and the impact on prices in our main markets, it is clear that there is an urgent need for action," Finance Director Aditya Mittal told reporters at the time.

Philippe Chalmin, head of the Paris-based Cyclope commodities research institute, said Europe had no comparative advantages in basic steel production.

"There is 300-500 million tonnes of excess steel capacity in the world. The Chinese are suffering, too, but they have exported their problems," he added.

Though worldwide steel production fell by 2.8 per cent in 2015, China's share of that edged higher to 49.5 per cent from 49.3 per cent.

Steel prices may have hit the bottom already, said Chalmin. "But you should not expect too much. It is a bottom that could last quite a long time," he added.

In Britain, where Tata Steel's operations employ 15,000 people, the threat to the steel industry has provoked heated political debate.

Prime Minister David Cameron said the country is doing "everything it can" but he dismissed opposition calls for the loss-making industry to be nationalised.

Following Tata Steel's announcement, analysts at Hamburg-headquartered investment bank Berenberg said they believed the Indian group's British steel assets could be merged with those of Germany's ThyssenKrupp Steel Europe.

"A potential consolidation between the two companies' European steel assets would give the combined entity more pricing power and better market coverage," Berenberg said.

Consolidations aside, European steelmakers say they could already be competitive if market distortions were removed.

"European steel is competitive. It is just that it is competitive in a global, fair market," said De Lusignan. "But we are not looking at a fair market. We are looking at a market which has an overcapacity of 400 million tonnes, twice EU demand, that is flooding the market."

BEIJING — Huge industrial overcapacity in China will drag on both the country's and the region's growth this year, the Asian Development Bank (ADB) said this week, cutting its forecast for the world's second-largest economy.

China's gross domestic product (GDP) growth is expected to slow to 6.5 per cent in 2016, the ADB added in its flagship Asian Development Outlook, lowering its December forecast of 6.7 per cent.

With China casting its shadow over the continent, the bank also reduced its prediction for Asia's growth to 5.7 per cent, down from 6 per cent and slower then last year's actual 5.9 per cent expansion.

China's "growth moderation and uneven global recovery are weighing down overall growth in Asia", said ADB's chief economist Shang-Jin Wei.

The document comes at a time of global uncertainty about Beijing's ability to make much-needed cuts to its steel, coal, and cement sectors and manage a tough economic transition to a more consumer-led model.

China's economy grew at its slowest pace for a quarter-century last year, and concerns have been mounting it could soften further after Beijing set a 6.5-7 per cent target for 2016.

"Weak external demand and excess capacity in some sectors, on top of a shrinking labour force and rising wages, continue to induce a gradual decline in the PRC's growth rate," Wei indicated. 

A "sharp slowdown" in Chinese real-estate investment will be a "drag" on the economy, the bank said, although it would be partly offset by consumption and green investment. 

The ADB's China economics head Jurgen Conrad stressed that the government "urgently needed" to accelerate cuts to excess capacity in real-estate and manufacturing, and cited high corporate debt as another challenge. 

"Supply-side reform is what China needs and what Asia needs," he said, adding that Beijing would not use "shock therapy" to make changes.

India outpacing China 

Elsewhere across the continent the prospects were brighter, however, according to the Manila-based bank.

The ADB predicted growth in India, the fastest-expanding large economy in the world, would slow to 7.4 per cent, from 7.6 per cent in 2015, but would accelerate again to 7.8 per cent in 2017. 

"India is growing faster now than China... and is likely to remain so in the near future," Wei said, saying structural reforms and improvements to labour market regulations would help boost activity.

Indonesia will lead Southeast Asia as Jakarta ploughs cash into infrastructure and encourages private investment, the ADB indicated, predicting GDP would grow 5.2 per cent this year, up from 4.8 per cent in 2015.

China's heavy industries, many of them state-owned, have provided mass employment for tens of millions of people but are increasingly loss-making and debt-ridden.

Shutting inefficient companies could cause further problems, the bank said, potentially leading to 3.6 million job losses and drying up tax revenues for local governments. 

"What China is now attempting to do, in terms of the transformation of the economy, is absolutely unprecedented in human history," China country director Hamid Sharif said in Beijing. 

"We know from the experience of other countries that reform is very much an art, and not a science," he added. 

"In every country, decisions have to be made taking into account what is possible, and what is achievable, rather than what some theoretical economist may sit in a room and decide ought to be done," Sharif elaborated.

In the long-run, the bank warned China faces a demographic squeeze as the population ages, which increases pressure on authorities to act now to reform the economy. 

"Rising wages... and shrinking working age population are fundamental reasons why there will be a slowdown," ADB chief economist Wei told reporters in Hong Kong.

Separately, ratings agency Standard & Poor's (S&P) cut its outlook on China from stable to negative on Thursday, warning that economic rebalancing was taking longer than expected.

"The economic and financial risks to the Chinese government's creditworthiness are gradually increasing," it said in a statement.

S&P kept its rating on Chinese sovereign bonds unchanged at AA-/A-1+.

Beijing is grappling with a tough economic transition away from dependence on heavy industries toward a consumer-driven model, but fluctuations in the exchange rate and stock markets have undermined confidence in leaders' willingness to push through reforms. 

S&P added that it could downgrade Chinese government bonds this year or next if Beijing tries to keep economic growth at 6.5 per cent by opening the credit floodgates and pushing investment to above 40 per cent of GDP.

That would be "well above what we believe to be sustainable levels of 30-35 per cent of GDP and among the highest ratios of rated sovereigns", which it noted would weaken the economy's resilience to shocks.

The US-based agency also said its downgrade was motivated by its view that much-needed reforms to hulking, inefficient state-owned enterprises may be "insufficient" to reduce the risks of credit-fuelled growth. 

It projected the economy would expand at 6 per cent or more over the next three years, but forecasted that government debt would rise to 43 per cent of GDP. 

But it said ratings could stabilise if Beijing takes measures to cool credit growth so that it is more in line with nominal GDP.

A lowered outlook does not necessarily mean there will be a downgrade of Chinese bonds, which would push up borrowing costs for Beijing in international markets. 

Chinese stock futures fell after the announcement on Thursday evening, but analysts said the outlook cut was unlikely to weigh heavily on markets. 

"I don't see this as a game changer," NordineNaam, global macro strategist for Natixis SA told Bloomberg News, adding he did not expect "any major impact".

"While things will remain difficult, we're expecting fiscal stimulus in the coming months that will be supportive of growth," he said.

China's foreign exchange reserves, the world's largest, fell to $3.2 trillion in January, the lowest in more than three years, official data have showed.

S&P pointed to increased global use of the yuan and ambitious plans to increase fiscal transparency as positive signs for the economy, while noting that a history of uneven implementation and a lack of "checks and balances" or a "free flow of information" could lead to distortions and "foster discontent over time". 

S&P joins fellow ratings agency Moody's, which cut its outlook on Chinese sovereign bonds in March, citing increasing capital outflows and rising debt. 

After the Moody's downgrade the official news agency Xinhua carried a commentary criticising the "short-sightedness" of Western ratings agencies, and claiming they lacked credibility and significance.

OCCUPIED JERUSALEM — The Palestinian mobile phone industry lost more than $1 billion (885 million euros) in revenues in the past three years, the World Bank estimated on Thursday, citing Israeli restrictions as a leading cause.

Israel limits imports of equipment by Palestinian telecoms companies, while they are unable to operate in the parts of the occupied West Bank under direct Israeli control, a World Bank report said.

As such, more than 20 per cent of customers in the West Bank use Israeli providers instead.

"The sector was hindered by years of delay in mobile broadband, presence of unauthorised Israeli operators in the Palestinian market, restrictions on importing equipment, and absence of an independent regulator," indicated the report, titled "Missed Opportunity for Economic Development". 

Israel and the Palestinian leadership signed a deal late last year to allow 3G Internet.

"However, the Palestinian operators remain at a competitive disadvantage because Israeli operators have 3G and 4G capabilities and are able to attract higher value customers," the bank added. 

It called for Israel to ease restrictions to allow the telecom sector to grow.

"The Palestinian telecom sector has the potential to boost the economy and create job opportunities," Steen Lau Jorgensen, World Bank country director for West Bank and Gaza, wrote in the report.

"In order for that to happen, Palestinian operators should be able to access similar resources as their neighbours," he emphasised.

Separately, Israel's state-run electricity company on Thursday reduced the power supply to Jericho over a debt of $450 million, causing blackouts in the Palestinian city in the occupied West Bank, officials said.

Jericho Governor Majed Al Fityani said up to 30,000 people were without power out of a total population of around 50,000 in the city and surrounding area.

Fityani said his office was operating with a generator and that the cut came without prior notice.

Power to the city was reduced to a third of its capacity, according to Hisham Omari, director of the private Palestinian Jerusalem District Electricity Company (JDECO).

An Israeli energy industry official said the measure came after the Palestinian Authority (PA) and Omari's JDECO failed to pay long-standing dues, currently amounting to more than 1.7 billion shekels ($450 million/397 million euros).

"We've informed all the relevant parties, and after endless attempts to reach arrangements, we've decided to act to reduce the debt," said the official, speaking on condition of anonymity and adding that the Jericho move was "open-ended".

Omari called it "collective punishment against the Palestinian people" which would disrupt daily lives and stop factories from operating in the area.

He said that ongoing talks with the Israel Electric Corporation (IEC) and PA have so far not resolved the debt problem.

Omari said he sent a letter to the Palestinian prime minister's office to "immediately intervene to stop this measure".

The PA has struggled financially and is largely dependent on foreign aid. It also relies heavily on IEC for electricity supplies.

The Palestinian economy has faltered in part due to Israeli restrictions in much of the West Bank.

In January 2015, the IEC cut power to Palestinian cities for a number of hours every day over a similar debt.

It ceased doing so the following month however, despite the standing debt.

The Israeli finance ministry and prime minister's office, which would normally be involved in any decision to reduce the electricity to the Palestinians, did not immediately respond to requests for comment.

GAZA — Child labour has risen sharply in Gaza, where youngsters toiling in garages and on construction sites have become breadwinners for families feeling the brunt of the Palestinian enclave's 43 per cent unemployment rate.

In the past five years, the number of working children between the ages of 10 and 17 has doubled to 9,700 in the territory, according to the Palestinian Bureau of Statistics.

The bureau said 2,900 of those children are below the legal employment age of 15. Economists in the narrow coastal strip, home to 1.9 million Palestinians, estimate the real number of underage workers could be twice as high.

The increase in Gaza goes against trends. The International Labour Organisation says the worldwide number of children in labour has fallen by a third since 2000, from 246 million to 168 million, with more than a fifth in sub-Saharan Africa.

At one garage in downtown Gaza, 16-year-old Mahmoud Yazji and another boy, aged 12, work nine hours a day. Mahmoud said he earns the equivalent of $13 a week; the younger boy takes home half of that.

"My father makes 1,000 shekels [$258] a month. It disappears in a few days and we struggle for the rest of the month," Mahmoud added.

Haitham Khzaiq, 16, quit school six months ago to sell candy apples to visitors at Gaza's newly developed seaport, a major picnic venue. He works a half-day, seven days a week, and said he earns a total of 20 shekels ($5).

"We are five brothers and eight sisters. I am the oldest son and I had to work because my father is unemployed," he added. "I don't earn enough but it is better than nothing and it is better than begging people for money."

A devastating 2014 war between militants and Israel, border restrictions imposed by Israel and Egypt and the destruction of cross-border smuggling tunnels by an Egyptian  government at odds with Gaza's Hamas rulers have contributed to economic hardship in the territory.

Aid dependence

The United Nations estimates that 80 per cent of the population is aid dependent, with unemployment rising to its current level from around 35 per cent five years ago.

"Some people are living like kings and many others like us are hardly finding anything to eat," said 10-year-old Mohammed, who sells potato chips on the street and began working after his father, a construction labourer, lost his job.

A gap is evident on the Gaza beachfront, where child vendors lugging trays of tea, coffee and snacks mingle with other children using expensive cellphones to record their family picnics. Several smart hotels overlook the port and beachfront.

A Dutch-funded organisation, El Wedad Society for Community Rehabilitation, has been running a project for three years aimed at convincing families in Gaza of the importance of returning working children to the classroom.

"We are very worried. We feel children's rights are being trampled on," said Naeem Al Ghalban, who heads the society.

Its representatives visit the homes of working children they meet on the street and invite them to guidance sessions at the organisation's headquarters. Children are taken for visits to Gaza's colleges to show them what could lie ahead if they go back to school.

Ghalban indicated that over the past three years, some 50 working children have taken up their studies again as a result of the organisation's efforts.

"We have managed to persuade some families that educating their children is far better and more valuable than the little money they make," he added.