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Asahi and rivals prepare for drier times in Asia



Roppongi is suffering — and with it Japan’s drinksmakers.

Bars in the popular Tokyo nightlife district must close at 8pm under a central government-imposed state of emergency to tackle the coronavirus, which is squeezing alcohol sellers. But the greater long-term problem for Japan’s brewers and distillers might be seen in the name of one Roppongi bar: 0% Non-Alcohol Experience.

When 0% opened its doors last summer it was billed as Japan’s first nonalcoholic and vegan bar — and was a big hit. “As soon as we opened in July, it got fully booked. It was unexpectedly popular,” a representative of operator The Human Miracle told Nikkei Asia. Most of the customers at 0% are in their 20s and 30s — a generation that doesn’t imbibe the same as previous ones and would not normally have gone to Roppongi.

“People who cannot drink alcohol just want to drink something high quality and have a variety of products, not just orange juice or nonalcoholic substitutes for alcoholic drinks,” Kentaro Takahashi, a 22-year-old student at 0%, told Nikkei.

This article is from Nikkei Asia, a global publication with a uniquely Asian perspective on politics, the economy, business and international affairs. Our own correspondents and outside commentators from around the world share their views on Asia, while our Asia300 section provides in-depth coverage of 300 of the biggest and fastest-growing listed companies from 11 economies outside Japan.

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How drinks companies go about appealing to such customers is a challenge but also an opportunity for Asia’s drinks giants as they deal with damaging long-term trends in their core alcoholic beverage business.

Fewer drinkers, changing consumer tastes, tightening restrictions on alcohol and, of course, the pandemic are a sober reality for the industry. But companies have the chance to capture a new generation of customers if they can mix the right cocktail to appeal to changing tastes.

Asahi Group Holdings, a Japanese beverage maker, said in December that its beer subsidiary would increase nonalcoholic and low alcoholic drink sales volumes to 20 per cent of its portfolio by 2025, or more than three times their share in 2019.

Asia’s drinksmakers are increasingly offering reduced and even zero content products © Ken Kobayashi

“[The number of] consumers who want to drink nonalcoholic [beverages] is increasing,” Akiyoshi Koji, chief executive at Asahi Group Holdings, said in an interview with Nikkei, suggesting the trend was accelerating as virtual social gatherings replace physical get-togethers during the Covid-19 pandemic.

“There was an atmosphere in Japan where people had to drink alcohol at parties due to peer pressure. But when it comes to online drinking parties, consumers start to drink what they really want,” Koji said, adding that he was considering nonalcoholic wine and whiskey highball in addition to nonalcoholic beer.

Low or nonalcoholic products can be highly profitable for drinksmakers as they are less heavily taxed. “The marginal profit margin is very high but the nonalcoholic beer market is still small and there is ample room for growth,” Kiyokazu Shibukawa, a partner at EY Advisory and Consulting in Tokyo told Nikkei. “If the nonalcoholic beer category grows in the overall portfolio, it will be a factor to boost the overall profit margin for large alcohol companies.” Shibukawa envisions a shift to a structure where profit margins are centred on nonalcoholic beer.

According to Euromonitor International, only 6% of millennials are daily drinkers in the Asia-Pacific region, compared with about 14% of baby boomers © Yuki Kohara

Companies such as Asahi must do something — Japan’s beer market shrank for the 16th straight year in 2020. And the business environment will remain “harsh even after the coronavirus”, Satoshi Fujiwara, an analyst at Nomura Securities wrote in an October report. Beer demand by restaurants and bars will only return to 80 per cent of its pre-pandemic level even in fiscal year 2022, Fujiwara said, with trends such as teleworking expected to persist even if the Covid-19 crisis is overcome.

According to Euromonitor International, just 6 per cent of millennials are daily drinkers in the Asia Pacific region compared with about 14 per cent of baby boomers. The report also said that 63 per cent of millennials are trying to reduce or quit drinking alcohol. Reasons vary but most simply want to feel better and avoid long-term health risks.

Yoshinori Isozaki, president of Japanese drinks group Kirin, said his company was focused on healthier living trends. “Alcohol will not be eliminated, but it is not healthy,” he told Nikkei. “Demand for nonalcoholic beverages is increasing because people want to refresh their working from home routine.” Isozaki acknowledged that World Health Organization alcohol warnings had also pressured beverage makers.

In 2020, its Kirin Brewery beer unit saw a 10.4 per cent increase in its nonalcoholic drink sales volume, while beer volume dropped 18.6 per cent. The company this year aims to increase nonalcoholic sales volume by 23.2 per cent from the previous year.

Alcohol consumption in Asia

Although Kirin’s wine business is small, it aims this year to double sales volume of low alcoholic wine from last year in response to the growing demand for nonalcoholic options. It will also develop nonalcoholic wine.

Investors too see promise in nonalcoholic drinks.

Hiroshi Saji, a Mizuho Securities analyst told Nikkei that “investors’ interest in the nonalcoholic business is higher than before.” Saji cited an increasing emphasis on proper drinking practices from the perspective of environmental, social and governance investment principles. “Nonalcoholic drinks are becoming a more important business for both Asahi and Kirin as the domestic beer market is not growing,” he said.

Despite population growth, total consumption of alcoholic beverages in the Asia Pacific region is expected to fall to 85.5bn litres in 2024, down about 4.7 per cent from 2014, according to Euromonitor International. It forecasts that demand for nonalcoholic and low alcohol beer will rise by 18.9 per cent to 395.5m litres in 2024 compared with 2014.

Alcohol market volume

In South Korea, makers of soju, or distilled liquor, are coping with changing market trends by increasing mildness. Hitejinro, the biggest soju maker in the country, has been lowering alcohol by volume, or ABV, almost every year recently for its benchmark soju brand Chamisul Fresh, to 16.9 per cent in 2020 from 19 per cent in 2012. Lotte Chilsung Beverage, the second biggest, also trimmed ABV of its Chum-Churum soju to 16.9 per cent from 17 per cent last year.

Soju makers also cut ABV to lower costs. Producers can save Won6 (0.5 US cents) to Won7 a bottle by shaving one percentage point off ABV, local media reported.

Hitejinro said the company cut ABV as consumers say they want milder liquor they can enjoy at home during the pandemic. Homemade soju cocktails are increasingly popular, especially among millennials — a contrast with their elders who enjoyed strong liquor at company dinners.

South Koreans drink glasses of soju at a bar in Seoul. Makers of the South Korean distilled liquor are coping with changing market trends by making the drink milder © BLOOMBERG NEWS

The trend comes as South Korea has been tackling a culture of overwork with legislation that slashed the maximum workweek to 52 hours from 68 for some large companies. That means fewer late toiling office workers, thus decreasing opportunities for company dinners with heavy drinking.

The country’s nonalcoholic beer market is expected to double by 2024, according to Euromonitor International, as local and international brands such as Oriental Brewery and China’s Tsingtao Brewery release more products, analyst Oryoon Lee at Euromonitor International told Nikkei. She said another growth driver was that nonalcoholic beers were available online during the pandemic, whereas South Korean bans online sales of alcohol.

The remarkable economic growth of Asian countries such as South Korea and Japan was fuelled by long working hours. But in recent years, the culture of increasing camaraderie and relieving stress by drinking has hit social headwinds, while widespread telework during the coronavirus adds pressure.

A beer bar in Hanoi © AFP via Getty Images

In contrast to ageing and shrinking markets in developed countries in north-east Asia, drinksmakers had seen big potential in south-east Asia, especially Vietnam, with a young and increasingly middle class population. But there are signs of change.

“The shocks to the market this year have forced us to look very hard at our core mission statement and how we go about doing our business.” Stanley Boots, founder of Vietnam’s 7 Bridges Brewing Company, told Nikkei in December.

Hardest hit were local companies that depend on tourism, such as 7 Bridges Brewing, which said revenues plunged 80 per cent when Vietnam sealed its borders to contain the virus. With no sign of an end to the travel ban, 7 Bridges and other businesses that rely on nightlife must pivot. Boots said the downturn pushed him to focus on Vietnamese drinkers. For example 7 Bridges has introduced beer recipes catering to locals, who prefer lagers to ales.

Ho Chi Minh City-based SSI Securities Corporation forecast Vietnam’s beer consumption could rise 20 per cent in 2021, in contrast to a drop of 12.7 per cent in the first half of 2020 from the year-earlier period. But it doesn’t necessarily mean a return to previous growth due to the rise of concerns about health, alcoholism and road fatalities.

Motorbike riders in Hanoi. In January 2020, Vietnam introduced Decree 100, ratcheting up fines and prison terms for drunk driving © Getty Images

Government regulation is also casting a shadow. In January last year, Vietnam introduced Decree 100, ratcheting up fines and prison terms for drunken drivers. Alcohol is one of the top three causes of vehicle accidents, costing Vietnam the equivalent of 1 per cent of gross domestic product, according to the government. The decree pushed beer consumption down 25 per cent that month versus January 2019, according to Rabobank Research.

Bars and brewers have responded by arranging rides home for drinkers, as well as encouraging them to bring in growlers for take away refills. Heineken, which has a 23 per cent market share according to S&P Global, added alcohol-free beer to its Vietnam line-up in March, joining low alcohol options such as Sagota and Asahi’s Dry Zero.

Jarred Neubronner, senior analyst at Euromonitor International, expects Vietnam’s non-alcohol beer market to maintain double-digit growth until 2025. “This will be driven by leading brands Heineken and Sagota, and the entry of other international brands looking to compete for a share of the growing pie,” Neubronner said. He sees Heineken as a strong player not only in Vietnam but also in nearby markets such as Thailand, Malaysia and Singapore. “Heineken stands to benefit from marketing and production synergies across its markets,” he added.

Beverage companies in Asia

Investors and industry giants are also paying attention to alcohol-free beverage start-ups. The world’s largest spirits producer Diageo last year announced that it has invested in US-based Ritual Zero Proof, the first American spirit alternative start-up.

As competition in nonalcoholic drinks intensifies in south-east Asia, young entrepreneurs have sniffed an opportunity.

Lorin Winata, a 27-year old from Singapore, said she often felt pressure to drink. “This was particularly so during my time working in investment, as I would often be expected to attend networking events after work,” Winata recalled.

In response, she launched Melati, which makes nonalcoholic drinks. The Singapore-based company released its first product, an aperitif crafted from 26 different Asian botanicals, in October.

For Winata, these are exciting times. “Now more than ever people are concerned with what they are putting into their bodies — from the health benefits of each product, to how it is sourced and made,” she said.

A version of this article was first published by Nikkei Asia on January 29 2021. ©2021 Nikkei Inc. All rights reserved

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Can the lumbering US housing department become a force for change?




One of Marcia Fudge’s first big battles as an elected official was over a shopping centre in Warrensville Heights, Ohio.

A developer wanted to build a hub for major retailers in the largely black Cleveland suburb, which has a population of 13,000. But Fudge would not have it. Warrensville Heights did not want “giant retail stores,” but office space and hotels, she said.

“We also control our own destiny and our own vision for the future,” Fudge, who was mayor of Warrensville Heights between 2000 and 2008, said at the time. “The days of plantation rule are over.”

Fudge won that battle and many others like it, and is widely credited for revitalising the area during her eight years as mayor.

Now she is being counted on by progressives to do the same in urban areas across the US as President Biden’s nominee to lead the Department of Housing and Urban Development (HUD). The $50bn agency manages 1m units of public housing and oversees a vast array of federally-funded housing programs — from insuring mortgage loans to voucher programs for low-income families.

Housing reform is expected to be a key part of Biden’s efforts to support the black voters who propelled him into office, many of whom still deal with the consequences of decades of segregation and discrimination in America’s housing market.

Malcolm Glenn, a fellow at the New America think-tank, called Fudge’s appointment to HUD “a real opportunity” to make tangible progress on an issue where race and economics are tightly bound.

“If this administration and Secretary Fudge make racial equity, not just a core, but sort of the singular core guiding force around everything that they do, I think we’ll be in a much much much better place than we’ve ever been,” Glenn says. “I don’t think any HUD secretary has ever done that.”
Ro Khanna, a Democratic Representative from California, believes Fudge is uniquely qualified for the job. “She understands deeply housing inequity, she understands racial exclusion,” Khanna said. “[She will] really focus on equity in housing and anti-racist zoning laws and anti-racist policies.”
But to deliver on those hopes, Fudge will have to grapple with a demoralised agency facing dual crises. An unprecedented number of Americans face the threat of eviction because of the Covid crisis. And inside HUD, a mass exodus of career staffers under previous Secretary Ben Carson has decimated the ranks.

Congress slashed the department’s operating budget by 15 per cent last year.

Carson, a black surgeon who grew up in public housing, did not believe that it was the government’s responsibility to rectify the effects of systemic racism on the American housing market.

HUD also has a long record of underdelivering, and has sometimes been regarded as a backwater of government. Rates of home ownership among blacks have been largely stagnant since the 1968 Fair Housing Act outlawed discriminatory policies that, among other ills, made it exceedingly difficult for blacks to take out mortgages.
Even Fudge acknowledged its shortcomings soon after her nomination. “I don’t know that anybody can even tell you what HUD has done,” she said. “So I really do think that HUD has not fulfilled its mission.”

Fudge, 68, has lived in the same tightly-knit neighbourhood for decades. Her personal phone number is listed in the local phone book, and she drives her 89-year-old mother to church every Sunday morning, stopping first at McDonald’s for a cup of coffee.
Her success in Warrensville Heights elevated her to Congress before the end of her second mayoral term. But her ascent was also tinged with tragedy: she was elected to fill the seat of her close friend and former boss, Congresswoman Stephanie Tubbs Jones when she died suddenly in August 2008.

“She’s tough as nails and I have to caution her sometimes about being too tough,” said Jim Clyburn, the House majority whip, adding that Fudge is the first person that fellow members of the Congressional Black Caucus members confide in during a crisis.

During her time in Congress, she worked closely with the Department of Agriculture, an agency not often thought to be at the forefront of the fight for racial justice. But Fudge prodded it to expand food voucher programs, development schemes in rural areas, and for clearer labelling on food products.
She was actually angling for the top agriculture job when Biden tapped her for HUD instead. Last year, she told Politico in November: “You know, it’s always ‘we want to put the black person in [the Department of] Labor or HUD.’”

At HUD, Fudge has proposed boosting spending on housing, establishing programs to help Americans save up for mortgage down payments, and transforming a voucher program for low-income renters from a lottery to a guarantee for everyone that meets the requirements.
“Her style is not combative. She prefers to get along, but she’s not a pushover,” said Cleveland mayor Frank Jackson, who worked closely with Fudge during her mayoral tenure. “That means just don’t piss her off.”

In response to a question at her confirmation hearing from Republican Arkansas Senator Tom Cotton on what he called a “long history of intemperate comments”, Fudge replied: “Sometimes I am a little passionate about things.”

She is almost certain to meet further opposition. During the confirmation hearing, Pennsylvania’s Republican Senator Patrick Toomey complained that Obama-era fair housing policies were too costly and time consuming for home builders — and Fudge wants to go much farther than the Obama administration did.

People who know Fudge do not expect her to back down. “I think President Biden and his team want to have a slugger in that position,” said Tami Jackson Buckner, a partner Michael Best Strategies and sorority sister of Fudge’s. “She is someone who knows that without a home, it’s hard to fulfil your American dream.”

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Britons brace for price of UK going to net zero




When the UK became the world’s first major economy to commit to a binding target of “net zero” carbon emissions by 2050, it had already made good progress with its electricity grid.

The rapid growth of renewable energy in the UK and the closure of many coal-fired power stations has cut the sector’s emissions by more than 70 per cent since 1990, and sent cleaner electricity to homes with minimum impact on consumers’ lives.

But as chancellor Rishi Sunak prepares to deliver a green-tinged Budget on Wednesday, and the UK gets ready to host the UN COP26 climate conference in Glasgow in November, experts are warning that decarbonising the electricity grid was in many ways the easy part of the journey to net zero.

“This year half the electrons supplied to British homes were green, but that doesn’t matter much to the consumer — the next stage of reforms and changes will be very different,” said Chris Stark, chief executive of the Committee on Climate Change, an independent body that advises the government on how to reach net zero.

The next leg of the journey will require consumers to adapt the way they live and, for those able to pay, also get their wallets out.

Hitting the net zero target will require sweeping changes in two key areas: transport, as the shift to electric cars accelerates, and buildings, where an overhaul is required to the way 30m homes are heated and insulated.

As the UK car fleet goes electric, the Treasury will need to find a way to recoup the £37bn a year it currently secures from carbon taxes, mostly fuel duty and vehicle excise duty © Dinendra Haria/SOPA/Getty

And the shift to low-carbon vehicles and swapping out of gas boilers for electric heat pumps presents the government with a series of delicate political and fiscal choices.

The projected cost is immense: the CCC estimates that annual capital spending largely by the private sector in greening the economy will peak at £50bn a year by 2030. That represents about one-eighth of current investment by the public and private sectors.

However, the CCC calculates that from the mid-2040s savings in operating spending — stemming in significant part from how it will be cheaper to run an electric car than a petrol-engine vehicle — will start to exceed the annual investment.

Stream graph showing that UK capital spending of about £50 billion a year is needed to hit the net-zero target, but it will be gradually offset by lower operating costs from deploying green solutions

The greening of transport and homes will create winners and losers, and the government has yet to clarify where the cost burden will fall. The Treasury has said it will later this year publish a net zero review, setting out in more detail “how the costs of achieving net zero emissions are distributed”.

For transport, which the CCC estimates will require £11.4bn of average annual investment over the next 30 years, the political pathway is easier than for buildings, according to Josh Buckland, who was an adviser to former business secretary Greg Clark and is now at consultancy firm Flint Global.

“Transport is to some degree a solvable problem,” he said. “Consumers can buy cars through financing deals, and so don’t have to pay up front costs.”

Still, there are political potholes ahead. As the UK car fleet goes electric, the Treasury will need to find a way to recoup the £37bn a year it currently secures from carbon taxes, mostly fuel duty and vehicle excise duty.

Stacked bar chart showing UK tax revenues from activities involving carbon emissions in 2019-2020 in billions of pounds sterling

The main contenders for replacing that revenue, said Buckland, are some combination of per-mile road-pricing and congestion charging — both ideas the Treasury has been toying with for years but shied away from for fear of a political backlash.

But far more problematic than transport, according to experts, will be the greening of the UK’s housing stock, which the CCC estimates will require £11.7bn of average annual investment over the next 30 years — and a massive shift in consumer attitudes. 

A 2020 poll by Energy Systems Catapult, a non-profit organisation, found that 49 per cent of people did not even consider their gas boilers as contributing to global warming — even though they account for almost one-fifth of carbon emissions.

The gap in public understanding is a huge challenge, according to Joss Garman of the European Climate Foundation, another non profit organisation. “Right now there is a big gulf about where the policy conversation is on decarbonising heat and where the public conversation is,” he said.

The scale of the necessary transition is also immense. The UK currently installs an estimated 30,000 electric heat pumps a year, while the government’s own goal is 600,000 a year by 2028, but to hit the net zero target installations will need to run at well over 1m a year into the 2030s and 2040s.

The CCC estimates that it will cost an average of £10,000 per household to achieve the target, with heat pumps priced at about £6,500 compared to £2,000 for a conventional gas boiler.

In its interim net zero review published in December, the Treasury was vague about how these costs will be borne, noting that they will be absorbed by households, property owners or the taxpayer, “depending on policy choices”.

Compared to transport, where an electric car is obviously attractive to the consumer, the political challenge of greening the nation’s homes are legion, said Buckland. 

“Firstly there is the upfront cost issue for homeowners, but also the consumer experience is different,” he added. “Gas boilers heat your home at the flick of a switch, whereas a heat pump takes 24 hours and heats the home to 17 to 19 degrees. It will require an attitudinal shift.”

Persuading consumers to spend money on heat pumps and loft insulation rather than kitchens and bathrooms will require a cocktail of grants and incentives, said Stark, which the government has so far failed to devise.

“There isn’t a technical barrier here, so much as the lack of a plan,” he added.

To drive change, the government could consider flipping the balance of energy taxes on to gas from electricity, which currently attracts far higher greenhouse gas levies.

Whatever the policy decisions, said Stark, the government will soon have to put some cards on the table when the Treasury publishes its net zero review before the UN COP26 summit. “To be credible it will have to spell out a clear plan . . . and that includes the fiscal choices ahead.”

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China’s exporters hit by global shortage of shipping containers




Steve Chuang’s Hong Kong-based electronics manufacturing company has enjoyed steady demand from the US and Europe over the past year. But, like many Asian exporters, he is struggling to get his products to customers.

Chuang’s business, which makes solar energy electronics, is just one of many enjoying a trade boom that has helped the regional economy bounce back from last year’s pandemic-driven downturn.

But their success is being held back by disruption to global shipping supply chains. The surge in exports from China to the west, combined with disruption at ports due to coronavirus, has left many containers out of position, resulting in queues of ships outside ports and soaring freight rates. The Chinese media have dubbed it “a single box is hard to find”.

The amount it costs to send a 40-foot container from China to the US has more than quadrupled in the past year, Chuang said: “We have never seen anything like this in the last two decades . . . Empty containers cannot get back to Hong Kong.”

China has recovered faster from the pandemic than any other big economy and its exports of lockdown-related goods, electronics and medical equipment have soared.

Export volumes have been rising at a double-digit rate for several consecutive months, and at the end of last year China’s trade surplus hit a record high.

But the rise in demand for its products comes as pandemic-related restrictions and staffing shortages in ports across the US and Europe delay the return of containers to east Asian ports.

Roberto Giannetta, chairman of the Hong Kong Liner Shipping Association, said a lack of truckers and warehouse workers elsewhere in the world inhibited the ability of ports to return containers to China.

“There’s a huge number of containers that are just sitting around the middle of nowhere . . . Australia, eastern Europe, middle America,” he said. “It’s like a kind of perfect storm preventing containers from returning back to Asia.”

Hu Haoli, assistant to the president of Wanlong Chemical in Wenzhou, said freight rates remained elevated, although it had only a limited impact on his business because the products it sells are high-end.

But for other companies, especially China’s vast textile industry, the delays are having a more severe effect. An exporter in Shaoxing, a city on the east coast of China, said the sharp rise in freight rates in December had caused many textile businesses to shut.

Shipping executives had hoped the traditional factory closures that usually accompany the lunar new year would slow production volumes, giving shipping lines a chance to catch up. But those hopes have failed to materialise — some Chinese factories pressed employees to keep working over the holiday in a bid to keep pace with global demand.

The delays and shortages risk pushing up goods prices. In Hong Kong, Chuang said he faced shipping delays of two to four weeks and his company is negotiating with customers to share the costs, which have increased the price of his products by between 2 per cent and 5 per cent.

Having so far mainly affected routes out of Asia, there are signs that the shortage of containers is starting to feed through into the return leg, hitting companies that import into China. In January McDonald’s in Hong Kong announced the delays had disrupted its supply of hash browns. It also experienced a brief shortage of peanuts for ice-cream sundaes.

Ports are scrambling to find more containers to help alleviate the shortages. For example at Ningbo, a big facility in China’s Zhejiang province, authorities recently helped to source an additional 730,000 empty containers.

John Fossey, head of container equipment and leasing research at Drewry, a maritime research consultancy, said production of shipping containers slumped year on year in the first half of 2020, although it ramped up in the second half, taking total output up by 10 per cent over the full year.

But these new containers will cost more: as a result of the soaring demand, combined with rising costs of raw materials such as steel, the price of a new container for delivery this summer is now about $6,200, its highest level on record, according to Fossey. This is “likely to put several owners off contracting new equipment”, he warned.

While some reports from China indicate improving activity at its ports over recent weeks, others within the shipping industry remain pessimistic about the prospects for the coming months. Willy Lin, chairman of the Hong Kong Shippers’ Council, thought there would be “no relief” until summer at the earliest.

He flagged the growing likelihood that manufacturers could turn to overland trade routes, particularly by trucking from Guangxi province in southern China to Vietnam and on to South East Asia. Chuang said that some businesses were seeking to export to Europe by land across Russia.

Meanwhile, Asian exporters are scrambling to secure shipping space.

“Just about every single available ship in the world is being used at the moment, because there’s so many ships that are just sitting there [at ports] waiting to be offloaded,” said Giannetta.

Additional reporting by Wang Xueqiao in Shanghai

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