Macau Business Daily September 25, 2015

MOP 6.00

4G Era

Closing editor: Joanne Kuai

A full outdoors network coverage for 4G services. SmarTone Macau pledges to deliver by November says CEO Patrick Chan Kai Lung.

With 4G speeds 20 to 30 pct faster than 3G services. 4G services can be purchased without being bundled with a monthly plan, he says

Year IV

Number 887 Friday September 25, 2015

Publisher: Paulo A. Azevedo

Page 2

Survival of the Fittest

Possibly a 20 pct drop. A local MICE association predicts fewer trade shows in 4Q. Due to fewer Esprit Holdings increase government subsidies and reduced consumer spending. Director of Macao Convention and Exhibition turnover in MSAR Page 4 Association Alan Ho Hoi Meng says small scale trade fairs are most at risk. And will gradually retreat from the city. Larger MICE business operations should flourish, he says. Supported by more Recyclers Association hardware facilities following completion of Cotai 02 casino-resort projects Page

3

Trial Adjourned

Pages 8 & 9

Chinese consumers restrain spending on economy concerns

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PBOC is preparing new rules. For yuan-denominated bonds sold by foreigners on the Mainland, known as panda bonds. The central bank has plans to let more companies issue them.

And will ease controls on proceeds

www.macaubusinessdaily.com

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Page 4

President Xi strengthens links with U.S. IT firms

Adjourned until March. A Hong Kong court will try Cheung Chi-tai, a former major shareholder of Neptune Group junket. Who faces three charges of laundering HK$1.8 billion. Hong Kong authorities will co-operate with Macau officials to disentangle the complex issues involved. Cheung has been ordered to pay an extra HK$100,000 bail and report to police every fortnight

Panda bonds bonanza

striking on Saturday

HSI - Movers September 24

Coloane Conundrum

Name

Power Assets Holding

+1.92

It’s been a long wait. Now Cheuk Nang Holdings Limited is expecting its new Urban Condition Plan by the end of this year. Hong Kong billionaire Cecil Chao has plans for a Coloane complex. And is relying on expansion in Mainland China to offset rocky interim results

Hang Lung Properties

+1.40

Li & Fung Ltd

+0.73

Bank of East Asia Ltd/T

-2.10

BOC Hong Kong Holdin

-2.12

Bank of Communicatio

-2.21

AIA Group Ltd

-2.64

Gaming

Swire Pacific Ltd

-2.76

Smoke and mirrors

Source: Bloomberg

Page 2

No need to worry, says DICJ. Predicting that the proposed implementation of the universal smoking ban in casinos will have minimal effect on gaming revenues. Calculated at between 2.76 and 4.6 pct.

Health Bureau Director Lei Chin Ion believes only a small proportion of smoking tourists will reduce their visits to Macau. While a full smoking ban will attract more non-smoking customers to the gaming industry

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%Day

China Mengniu Dairy C

+2.47

China Resources Enter

+2.20

I SSN 2226-8294

2015-9-25

2015-9-26

2015-9-27

26˚ 32˚

26˚ 31˚

25˚ 30˚

2 | Business Daily

September 25, 2015

Macau Submarine cable affects CTM service CTM’s telecom services were affected yesterday around 3:30 pm by an incident with a submarine cable, which caused an outage to the cable system located within the region of South China and South East Asia. The Macau-based company announced in a press released that ‘immediate actions and contingency measures; were adopted in order to keep the effects of outage minimal and that ‘an emergency mechanism’ was activated in order to bring the affected services back to normal within hours.

SmarTone Macau says 4G services ready by November SmarTone Macau chief executive Patrick Chan Kai Lung said the company could achieve a full 4G outdoors service coverage once launched Stephanie Lai

sw.lai@macaubusinessdaily.com

T

he Chief Executive Officer of SmarTone Mobile Communications (Macau) Ltd., Patrick Chan Kai Lung, said the company plans to launch its fourth-generation (4G) wireless telecommunications service by November, by which time full outdoors service coverage will be ready.

Mr. Chan was talking to local Chinese language media, noting that SmarTone Macau’s network equipment provider for the 4G services is Nokia, the same provider for the firm’s 3G services.

SmarTone Macau, along with local telecommunications operators Companhia de Telecomunicações de Macau SARL (CTM), China Telecom (Macau) Company Ltd. and Hutchison Telephone (Macau) Company Ltd., are all required by the government to achieve half of the city’s network coverage for 4G services within this year, with 100 per cent coverage in 2016.

Speaking to media, Mr. Chan said SmarTone Macau will achieve a full outdoors network coverage for 4G services when it is launched by November but the company would need more time to achieve full indoors coverage of the city.

The company also intends that 4G services can be purchased without being bundled with a monthly plan, Mr. Chan told media.

The telecom operator’s CEO added that the speed of the 4G service application will be 20 per cent to 30 per cent faster than that for 3G services.

SmarTone Macau’s competitor CTM, which has already started a 4G trial service, is officially launching its version on October 20.

According to the Bureau of Telecommunications Regulation (DSRT) Director Hoi Chi Leong, the 4G service fees per data unit will be cheaper than the current 3G service fee.

Both CTM and SmarTone Macau will introduce a capping charge on customers for overuse of data for 4G service.

MTEL meets obstacles in achieving network coverage Fixed-line telecommunications service provider MTEL Telecommunication Company Ltd. has encountered difficulties in achieving 70 per cent network coverage of the residential units here by the end of 2016 as contractually required as the service provider’s network coverage work has

Cheuk Nang expects approval for Coloane project by year-end The Seac Pai Van project of the company controlled by Cecil Chao Sze Tsung is dependent upon the government’s Urban Condition Plan

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heuk Nang Holdings Limited, the company chaired by billionaire Cecil Chao Sze Tsung, is expecting the government to define the conditions for the company to start developing a plot of land in Coloane by the end of the year.

‘It is anticipated that the Macau Government will issue a new Urban Condition Plan (PCU) by the end of 2015.

Based on the conditions of the new PCU, the architect will revise the plans and re-submit a new set of preliminary project [plans] and new air ventilation report for approval’, the company said in the results for the first six months of the year.

The Urban Condition Plan is a document issued by the public works department that determines a project’s

construction area, height cap and plot ratio.

Cheuk Nang holds a plot of land in Seac Pai Van road with an area of 9,044 square metres (97,361 square feet), where it planned to develop a project previously called Golden Cotai No. 1. The gross floor area of the project is planned to occupy 1.6 million square feet and comprise 5 blocks of multi-storey buildings. This

already been stalled during the first half of this year. Timothy Leong, head of the executive office at MTEL, told Business Daily that the government’s restrictions on digging works over transportation concerns has interrupted the company’s network coverage works.

Mr. Leong said MTEL has expressed its concerns about the issue with the government with the aim of improved co-ordination of road works that can eventually help the company achieve its network coverage target.

property would also provide 1,147 residential units, one hotel, a large shopping mall and car parking spaces, according to the information released in the results for the first half of the year.

Net profits sink 39 per cent

Concerning the results of the first half, the company’s net profit decreased 39 per cent to HK$241.02 million (US$31 million) from HK$395.23 million. This decrease was primarily driven by changes in the fair value of the investment properties that dropped to HK$282.92 million from HK$404.20 million, a decrease of 30 per cent year-on-year.

While the enterprise operates in Hong Kong, Mainland China, Macau and Malaysia, the first two markets are the most important for the property company. However for the second half of the year

and the coming years, Cheuk Nang is expecting trouble in Hong and relying on expansion in Mainland China.

“Looking at the recent market condition in Mainland China and Hong Kong and the devaluation of the renminbi, it is anticipated that the property market in Hong Kong will fluctuate more in the second half of the year.

The growth of the group will be supported by the sale of properties in Shenzhen and Hangzhou in the coming years’, the company noted in its financial results.

According to the document, the directors of the company also propose paying a dividend of HK$13.5 per share for the whole year, which will be paid on 30 December 2015. This dividend is still pending the approval of shareholders at their annual general meeting.

J.S.F.

Business Daily | 3

September 25, 2015

Macau

Possibly one-fifth fewer trade shows in Q4 Fewer government subsidies and reduced consumer spending are forcing smaller-scale trade show organisers to cancel their events, says a trade chamber head Stephanie Lai

sw.lai@macaubusinessdaily.com

T

he city could see a 20 per cent year-on-year fall in the number of trade shows to be held in the fourth quarter, as fewer government subsidies and reduced consumer spending causes small-scale trade show organisers to cancel their planned events, says Director of Macao Convention and Exhibition Association Alan Ho Hoi Meng.

“In the fourth quarter of last year about 30 exhibitions were held here, of which 20 were trade shows; but we’ve learned that at least four or five of these trade show organisers plan to cancel events originally scheduled for the fourth quarter of this year, which means it represented a fall of about 20 per cent or more,” Mr. Ho told Business Daily.

Scale matters

Mr. Ho’s Association, which comprises 90 corporate

in its grants supporting MICE events held here after a meeting with the advisory body Committee for the Development of Conventions and Exhibitions in late August. Mr. Ho is also a member of the committee.

Government support

members engaged in the meetings, incentives, conference and exhibition (MICE) business, reckons the fall in some small-scale trade shows that target walkin attendee spending will be even more evident.

“Actually, the number of the bigger-scale and professional-buyer oriented trade shows like G2E Asia or Macao Gaming Show is not reducing,” Mr. Ho said.

“But for the smaller-scale

trade fairs, especially those small and medium event organisers in the market that use government subsidies and test the market with their events, this is the type that will see shrinking events,” he continued, citing less spending by visitors as an additional factor for the expected fall in the number of small-scale trade shows.

The government has announced that it will be more selective and scrupulous

Currently, there are two schemes practised by the government to subsidise MICE events, namely the ‘Convention and Exhibition Stimulation Programme’ and ‘International Meeting and Trade Fair Support Programme’.

These two programmes, which have slightly different scope of target coverage, subsidise event organisers’ costs for participants’ accommodation, promotion and marketing, transportation as well as interpretation and translation services. The grantor of the two programmes

is the autonomous Macao Industrial and Commercial Development Fund.

Mr. Ho believes that small-scale trade fairs that have no market potential will gradually retreat from the city. But he has an optimistic outlook on the MICE business here, supported by more hardware facilities in place following the completion of a new round of Cotai casinoresort projects.

“I think Macau can attract more and more trade shows that are professional buyeroriented, as the government is still implementing incentive programmes to support the organisation of these events,” Mr. Ho remarked. “Also, we have more new flight connections to some Southeast Asian destinations, such as the recently launched [route to]Ho Chi Minh City. That is a positive factor for the sector.”

4 | Business Daily

September 25, 2015

Macau opinion

All we need is legislation

Pedro Cortés

Lawyer* cortes@macau.ctm.net

T

he Dore case is a good opportunity for the Secretary for Economy and Finance to order and propose once and for all the legislation of the gaming industry.

Since its liberalisation, we have had only a very few scraps of legislation, most of them important, of course, but of Di lana caprina or piddling interest when compared to the essential regulation of key employees regarding the requirements to operate as a gaming promoter or, ultimately, on how to deal with the 2020-22 period ahead.

Since the so-called Gaming Commission was dismantled we have not had a specialised body to structure and conclude what is required for the industry despite the best efforts of the Gaming Inspection and Co-ordination Bureau (DICJ).

As a matter of fact, there is one body grandly titled the Specialised Commission of Games of Fortune and Chance with at least one member appointed - but we have never heard about its work, meetings or any other related activity. It is one of those bodies that has existed for five years solely on paper.

These times of correction or downturn must also be times for deep reflection on what we have achieved and what we shall achieve.

Some say that the invisible power of the gaming promoters or junkets does not permit change to be made to the status quo. Well, if we have the necessary amendments and changes, we will thank the government for preventing or at least trying to prevent situations like Dore occurring. It seems that we are facing some crimes and thus the confidentiality of investigation should be respected.

Of course, from what emerged, we have people using a junket as a bank, with good interest rates. But not so long ago we had advertising by the junket operations in Macau offering partnerships to those who were interested.

All gaming concessionaires and subconcessionaires are obliged to supervise those who carry out promotional activity.

Maybe such supervision was not enough to hide the millions of dollars of the people that now call for the government to assist them. The same people that should have known that banks are required to be licensed by the Monetary Authority of Macau (AMCM) and not by the DICJ. In my view, only a handful of people in Macau that have been in the gaming industry since the very beginning know exactly what the process of liberalisation was, and how it affected gaming operations in the subsequent first years of the first decade of this century.

Those shall be secured by the government, as they are important assets for the future of Macau.

Unfortunately, with a few exceptions, the vast majority of the members of the Legislative Assembly are linked to the gaming operators or to the junket operations. It would be good to know which of them are licensed as gaming promoters.

In addition to all of this we envisage more regulation of the areas mentioned - and why not? - creating a system under which the government could immediately revoke the licences to work as a member of the concessions or as a key employee working in the industry.

I wouldn’t be surprised that if some regulations for this were created 80 per cent of the industry members would not fulfil the minimum requirements. *Part-time lecturer at the Chinese University of Hong Kong

Esprit Holdings increase turnover in MSAR

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sprit Holdings recorded a net loss of HK$3.7 billion (US$476.90 million) for the year ended June, as turnover dipped 19.8 per cent to HK$19.42 billion from HK$24.23 billion. However, in spite of the declining number of visitors in Macau the company improved turnover.

Sales in the territory increased from HK$123 million to HK$132 million, HK$9 million up on the previous year. However, the Macau

market was in counter-cycle to the group’s most important market.

According to the filing submitted to the Hong Kong Stock Exchange by the retailer, the results were influenced by the slowdown of German and Chinese economies and the warmer winter in Europe. CEO Jose Manuel Martinez also blamed the lost of controlled space, at 8.8 per cent year-on-year, and the weak collections sales performance for the decrease in turnover.

Recyclers Association striking on Saturday

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he Macau Recyclers Association said it would halt the recycling of waste this Saturday, urging the government to conduct policies to support the local recycling industry.

The Association said in a public letter appearing in the Chinese language newspaper Macao Daily yesterday that the local recycling industry is undergoing hard times and hopes that the government can enhance the capacity of discarded recycling and separation.

‘Every member firm of the Association is facing unprecedented difficulties and pressures, which include surging rents, high manpower costs and low material return rate. In

addition, due to the space [in the city] being small we are easily fined [by the authorities] when we are working, which is painful for our operations,” the Association wrote in the letter.

‘We perceive that it is more important for the government to support the recycling industry than to support other social activities and the cultural creative industry because the environment can affect health and air quality,’ it added.

Meanwhile, the director of the Environmental Protection Bureau (EPB), Vai Hoi Ieong, said yesterday that his department understands the operational pressure and difficulties local recyclers are facing. He urged the industry to put the public benefit

In Germany alone turnover was went down to HK$8.96 billion from HK$11.34 billion in the previous year. The situation was very similar in Mainland China, where turnover dropped to HK$1.50 billion from HK$1.76 billion.

Given this result, the board of directors of Esprit Holdings decided not to pay any dividend to shareholders.

J.S.F.

first, according to local broadcaster TDM Radio.

Claiming it is hard to look for appropriate land plots for recycling in the city due to the lack of land resources and the peculiarity of the industry, the Bureau head said he would study the issue again with the related planning departments.

The Association, formed in 2011, has about 1,100 members from more than 100 local recycling units, excluding drivers, involved in trucking materials for export. However, the head of the association, Chan Man Nin, told Business Daily in a recent interview that the member firms of the Association handled less than 70 per cent of the recyclable waste collected in the territory.

‘If we don’t handle the recyclable waste well, the poisoned discards will pollute us again. This is exactly what the Macau Government and residents have been neglecting,’ the Association complained, urging its members to unite to voice their demands and opinions to the government.

K.L.

Business Daily | 5

September 25, 2015

Macau

Hong Kong adjourns trial of Macau junket boss until March Cheung Chi-tai, a former major shareholder of the Neptune Group, faces three charges of money laundering, in a case the prosecutor said involved funds of up to HK$3.4 billion

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Hong Kong court on Thursday adjourned until March the trial of a Macau junket operator who faces three charges of laundering HK$1.8 billion (US$232 million) through accounts in the financial centre.

Junket operators in Macau, the world’s largest casino hub, have come under increased scrutiny as President Xi Jinping’s anticorruption campaign targets the flight of illicit capital from China.

Gambling revenue has plummeted for the last 16 months, with a drop of 30 per cent forecast this year.

The junket business, which uses middle men to bring in gamblers from mainland China, extending them credit and collecting debts, has also suffered.

Cheung Chi-tai, a former major shareholder of one of Macau’s biggest junket operators, the Neptune

Group, faces three charges of money laundering, court documents show, in a case the prosecutor said involved funds of up to HK$3.4 billion.

The court adjourned Cheung’s trial until March 24, to give Hong Kong authorities time to cooperate with Macau officials and disentangle some of the complex issues involved.

Angela Leong: Increased business unlikely in Golden Week

A

ngela Leong On Kei, Executive Director of casino operator SJM Holdings Ltd., said she does not expect the gaming business in the city to jump over the upcoming National Day Golden Week starting next Thursday.

The SJM boss told Hong Kong media yesterday that she does not anticipate the national holiday helping the local casino business, although the food and beverages and MICE industry [should do well]. She said the public should not expect the city to post double-digit increases in tourist numbers every year following the soaring growth of the past few years.

Meanwhile, she indicated that the government’s intention to enhance its supervision of the junket business will certainly affect the VIP gaming business.

On Tuesday, the city’s Secretary for Economy and Finance, Lionel Leong Vai Tac, announced that the government would soon implement internal guidelines for the local junket firms in order to provide more transparent disclosure of the VIP rooms and shareholder structure for the public.

The SJM executive director also said her company will focus on developing the mass market business amid the downturn in VIP gaming. Hoping overall gaming revenues can stabilise at the current level, Ms. Leong said she is confident that gaming revenues can rebound in the next one to two years.

K.L.

It ordered Cheung to pay an extra HK$100,000 in bail and report to the police every two weeks.

Cheung’s lawyer said his client was not a flight risk, adding that he was still active in managing his businesses in Macau and China and remained the key decision maker.

“If he wants to hide or run

away, he could have done it a long time ago,” the lawyer, Kevin Tang told reporters outside the court. “Even if he hides in Macau, Hong Kong can’t do anything about it.”

Cheung, whose assets were frozen after police started their investigation last November, wore a grey tracksuit and a white surgical mask over his face as he arrived at the court.

The court allowed Cheung to receive a travel document to deal with his investments in China, including real estate projects in the cities of Shanghai and Dongguan, worth HK$100 million and HK$40 million, respectively, and a HK$35million investment in a pawn shop in Zhuhai.

Cheung was alleged to have been a key player in the money laundering case of former Birmingham City owner Carson Yeung last year, and has been named as a top lieutenant of the Wo Hop To triad, according to a 1992 U.S. Senate report.

A Reuters’ 2010 special report found links between Cheung and organised criminal gangs.

Cheung has not been convicted of any triadrelated crimes, but his ties to organised crime were corroborated by U.S. authorities and former and current police officials.

Reuters

Gov’t: Full smoking ban inconsequential effect on gaming revenues

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he Gaming Inspection and Co-ordination Bureau (DICJ) predicts that the future implementation of the universal smoking ban in local casinos will only affect the city’s gaming revenues by between 2.76 and 4.6 per cent.

The Director of the Health Bureau, Lei Chin Ion, made the statement in response to legislator Si Ka Lon’s written enquiry that the gaming regulator counts only 23 per cent of the city’s total tourists as smokers, while between 30 and 50 per cent smoke when gambling.

‘The consuming ability of these smoking tourists is two times higher than non-smoking tourists. Hence, if 20 per cent of the smoking tourists stop coming to Macau to gamble, it is assumed that the city’s gaming revenues will only be affected by 2.76 to 4.6 per cent,’ the Bureau official said, quoting DICJ’s preliminary estimate.

Mr. Lei added that a survey conducted by the Health Bureau also shows that only 13.6 per cent of the interviewed smoking tourists claimed they would reduce their visitation to Macau due to the smoking ban measures.

In the written interpellation, the legislator urged the government to release its evaluations on the impact that the full smoking ban might have on the city’s economy, as well as explain why it would introduce the full smoking ban from allowing smoking lounges inside local gaming venues.

The Heath Bureau head said the proposed smoking control bill, which passed its first reading at the Legislative Assembly in July, will improve the city’s tourist structure.

‘We estimate that only a small proportion of smoking tourists will come to Macau fewer times following the implementation of

the full smoking ban. However, [the policy] will attract more nonsmoking customers for the gaming industry,’ Mr. Lei wrote, adding the downturn in gaming revenues is also correlated with overall economic development and changes in the external environment.

K.L.

Business Daily | 7

September 25, 2015

Gaming

Brazil in talks on gambling legalization amid fiscal crunch Brazil has banned casinos since 1946 and it outlawed bingo halls in 2007. Winning over public opinion in a country where many people associate casinos with corruption could be a challenge

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razil's cash-strapped government is in talks with lawmakers over legalizing gambling to increase revenues as Congress balks at President Dilma Rousseff's efforts to overcome a budget deficit by raising other taxes.

Rousseff's chief of staff, Aloizio Mercadante, ran the idea by lawmakers last week after they signalled the government will struggle to pass a controversial tax on financial transactions.

Brazil has banned casinos since 1946 and it outlawed bingo halls in 2007 amid concerns they facilitated money laundering, though it allows federal lotteries and bets on horse racing.

Proponents say Brazil, facing its worst recession in 25 years, can no longer afford to forego what could be 23.5 billion reais (US$5.9 billion) in annual gambling taxes - an amount that could have increased during the 2014 World Cup and 2016 Olympic games.

"When Brazilians want to gamble, they go to Paraguay, Montevideo, Las Vegas... and they leave all the money there," said Mauricio Quintella, leader of the small, centre-right Party of the Republic in the lower house of Congress and one of the lawmakers tasked with leading consultations on the idea.

He supports legalizing gambling, but emphasized that the talks are preliminary.

You talk about gaming and people think about fraud, money laundering, mafia and addiction Luiz Felipe Maia, Sao Paulo-based lawyer specializing in gaming

The office of the president's chief of staff declined to comment on the talks.

Winning over public opinion in a country where many people associate casinos with corruption could be a challenge, however, especially amid the current uproar over a more than US$2 billion kickback scheme focused on state-run oil firm Petrobras.

Prior scandals have even been linked to gambling. An aide to former president Luiz Inacio Lula da Silva, for example, was sentenced to 12 years in prison in 2012 for asking for bribes from an illegal lottery operator in 2004.

"You talk about gaming and people think about fraud, money laundering, mafia and addiction," said Luiz Felipe Maia, a Sao Paulobased lawyer specializing in gaming who believes Brazil's legal gambling market could be worth 70 billion reais per year, about a third of which the government could take back in taxes.

The president of Brazil's national prosecutors' association JosĂŠ Robalinho Cavalcanti says legalizing bingo halls would be "a huge step backwards," noting that the period in which they were legal was marked by smuggling and money laundering.

"We would have to wait to see if the government's proposal to regulate bingos again will solve all these problems, which unfortunately we doubt," he told newspaper Correio Braziliense.

Past errors

Maia said the key to avoiding past errors and corruption is better regulation, including a new federal agency to oversee payouts and to prevent addictions to gambling.

Brazil would also be able to incorporate new technology that allows casino operators to more closely track money, he said. Maia said Brazil is among a handful of countries outside the Middle East and Africa that has not implemented laws to regulate gambling.

Brazil has an estimated 18 billion reais illegal gambling market, mostly consisting of a numbers game known as 'game of animals' and many Brazilians gamble online.

Illegal gambling surpasses the 14 billion reais annual market for a legal lottery run by federal bank Caixa Economica Federal and bets on horse racing.

Regulated gambling wouldn't provide immediate relief to the government's stressed finances, however.

Rousseff's proposal to run a deficit in 2016 triggered a downgrade from Standard & Poor's rating agency, and Rousseff proposed new measures including tax hikes as a result.

Maia said any gambling proposal would need to be passed by Congress and could take around a year to implement. Then, auctions to award licenses for casino and bingo operations would be held.

There are a few proposals in congressional committees already but one aide to the federal government expressed concerns that they do not include enough controls.

International casino and game operators are eager for an opening of Brazil's gaming market, whenever it happens.

"By the time the Brazilian market opens there will be a line out the door," Maia said, declining to name companies that have contacted him about the Brazilian market.

Reuters

8 | Business Daily

September 25, 2015

Greater China Cisco joins flurry of tech partnerships Cisco Systems Inc said yesterday it would form a joint-venture with Chinese server maker Inspur to sell networking and cloud computing products in China, where the Silicon Valley firm faces political pressure and declining sales.

Cisco and Inspur said they would invest US$100 million in the project, although they offered few other details. The partnership is one of a growing number of tie-ups between Chinese and U.S. technology firms announced during or ahead of Chinese President Xi Jinping’s visit to the United States this week.

Xi promises better investment cl

Beijing pledged to loosen restrictions on foreign investment as it trie state-owned firms and adopt market-friendly policies Michael Martina, Eric M. Johnson and Joseph Menn

Shipping companies’ fees probed China is probing shipping companies over allegations that they have been levying arbitrary and excessive charges, following complaints from foreign trade firms, the country’s cabinet said. The State Council has ordered seven departments including the country’s top economic planner, transport and trade ministries to investigate alleged double charges on imports and exports and other illegal fees, according to a notice posted on the cabinet’s website. For instance, terminal handling charges at some ports have surged to 1,200 yuan (US$188) per container from 700 yuan last year.

New oil and gas pipeline firm China plans to create a new crude oil and liquefied natural gas pipeline transportation company by stripping these operations out from its three largest oil firms, the state-backed China Securities Journal reported yesterday. The move is aimed at reducing such firms’ monopoly in the oil and gas market and improving competition, the newspaper reported without saying where it had obtained the information from. The newspaper said that the plan had been set, and was now being studied and implemented in steps.

Fonterra’s pizza strategy pays dividends in mainland New Zealand dairy processor Fonterra posted record consumer product sales in China yesterday as it saw reward for its efforts to reduce reliance on milk powder and boost its branded milk, cheese and cream in Chinese pizzerias and bakeries.

The world’s largest dairy exporter posted net profit after tax of NZ$506 million (US$318.07 million) in the year to July 31, a 173 percent rise from a year earlier. Consumer products operating profit in China leapt more than five-fold to a record NZ$45 million, with sales volumes up 33 percent.

Firm wins bid for New Delhi-Mumbai rail study A consortium led by a state-owned Chinese firm has won a bid for a feasibility study into a high-speed rail link between India’s political and financial capitals New Delhi and Mumbai, the company’s parent said, in what could lead to a major deal between the Asian rivals. China Railway, a spinoff from the former railway ministry, said the line will be around 1,200 kilometres long but provided few other details. China has hugely expanded its own high-speed rail network in recent years, and it is now the largest in the world with around 17,000 kilometres of track in service, according to China Railway.

UK's Osborne courts Beijing investment

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ritish finance minister George Osborne will open bidding during a visit to China yesterday on 12 billion pounds (US$18 billion) of contracts to build a high-speed rail line, the latest effort to bring Chinese cash to Britain.

Inviting bids on seven contracts to build the first phase of the high-speed rail link between northern England, the central Midlands and London, the British government said it would encourage Chinese firms to link up with domestic companies.

In remarks released by his office, Osborne said Britain and China were entering a “golden era of cooperation”.

He has led a delegation of senior ministers and business representatives on a week-long trip to China to strengthen economic and financial ties.

The push for investment from the world’s second-largest economy has been criticised by some who say it exposes Britain to risks in the Chinese financial system and ignores concerns about human rights.

Osborne, who wants to make China Britain’s second-largest trading partner after the United States, has responded by saying he disagrees with Beijing on rights issues but wants to engage.

Osborne has already promised 2 billion pounds of support for a Chinese-backed nuclear power plant in Britain and agreed steps to link up China’s equity markets with the City of London.

The 43 billion-pound rail project, called High Speed 2, has divided opinion in Britain because of its rising

costs and the potential impact on the countryside and local communities.

The proposed route would link London to Birmingham, and the northern cities of Manchester and Leeds. The first phase is due to be completed in 2026 and the second phase in 2033.

The project has attracted a growing number of joint-venture partners such as Carillion, Kier and Eiffage and possible collaborations between firms like Ferrovial, BAM Nuttall and Morgan Sindall and Costain and Skanska.

The Chinese had expressed their interest in the project early on. Rail builder China Railway Group sent a letter to officials and industry executives in Birmingham in early 2014 offering to finance a section, according to a Birmingham Airport spokesman and local media reports.

Beijing’s leaders are heavily promoting China’s high-speed rail exports after it built the world’s longest network at home in less than a decade.

Its firms have aggressively competed for deals in Mexico, Indonesia and Russia.

Osborne will also invite Chinese investment in a series of projects dubbed the ‘Northern Powerhouse’, designed to spur development in northern England, where growth has lagged London and the southeast.

Among the key investment opportunities being touted are building 10,000 homes in Manchester and regenerating a 130 hectare site in Leeds.

Reuters

Business Daily | 9

September 25, 2015

Greater China

limate

es to improve inefficient

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hinese President Xi Jinping vowed to cut restrictions on foreign investment, while his chief Internet regulator appeared to lay the groundwork for a basic agreement later this week on cyber warfare.

Xi’s busy stop on the West Coast is the first leg of a week-long trip to the United States and offers him a chance to highlight China’s cooperation with U.S. companies before he heads to Washington, where he will contend with the full spectrum of irritants in relations, from tension in the South China Sea to human rights.

The Chinese leader started publicly assuring U.S. business leaders that he is making it easier to invest in China, and he was later quizzed in a private session about intellectual property protection, common standards and clear, transparent regulations, according to the Paulson Institute, which hosted the event.

“We are working to create a new open economic system, push forward reform of foreign investment management and greatly reduce the restrictions on foreign investment,” Xi told the gathering of executives in Seattle, including Apple Inc Chief

Executive Tim Cook and Berkshire Hathaway’s Warren Buffett.

“GM and Ford can increase their investment in China,” Xi said.

A few hours after, Boeing Co announced plans for an aircraft finishing centre in China, its first outside the United States.

To the east of Seattle, at Microsoft’s campus in Redmond, China’s top Internet regulator told U.S. tech executives that both countries must work together on cyber security issues, including crime and espionage, addressing one of their most pressing concerns.

“We are on the same boat,” said Lu Wei, at the eighth annual meeting of the U.S.-China Internet Industry Forum. “The only choice we have is to cooperate.”

In a closed-door session afterwards, Lu gave the impression that China and the United States were set to reach some kind of agreement on cyber warfare, banning attacks on

Our positive list will be bigger, a longer list. We will continue to build an open and law-based environment Xi Jinping, President of China

infrastructure in peacetime, according to one person present, who asked not to be named given the privacy of the meeting.

Samm Sacks, an analyst at U.S.based consulting firm Eurasia Group, said that American business leaders remain chiefly concerned with cyber theft targeting corporate secrets, though any renewed cyber crime dialogue with Washington likely would be limited in scope and not deal with corporate espionage.

“Overall, I do not see any meaningful progress on cyber issues or a shift in Beijing’s approach toward U.S. tech companies in China,” Sacks said.

Visits Microsoft campus

Xi later visited Microsoft’s campus in Seattle where he was greeted by co-founder Bill Gates, CEO Satya Nadella and other top executives.

He was then led to a gathering of American and Chinese CEOs and was greeted, among others, by Facebook CEO Mark Zuckerberg, who spoke to the Chinese leader in Mandarin.

The conversation, which was private, lasted about a minute.

Facebook is banned in China.

Although some companies had privately spread word that the meeting with their CEOs could prove significant and last an hour or more, in fact it was little more than pleasantries and a photo op.

A Microsoft spokeswoman said that Xi spoke for about six minutes and that none of the U.S. business leaders responded.

Late on Wednesday, Xi sampled a bit of American teen culture, visiting Lincoln High School in Tacoma, south of Seattle, along with first lady Peng Liyuan.

They watched the school’s football team practice before addressing students in a packed auditorium.

Xi urged the students to carry on the spirit of ping pong diplomacy that 40 years ago was so important to boosting US-China relations.

“Ping pong balls are small. Much smaller than the American football,” Xi deadpanned, as the auditorium erupted in laughter.

Xi toured the Everett, Washington, factory where Boeing its largest aircraft, and was shown a demonstration on board a 787 Dreamliner, which is popular with Chinese airlines.

Investment rules

China has repeatedly pledged to loosen restrictions on foreign investment as it tries to improve inefficient stateowned firms and adopt market-friendly policies to stave off slowing growth, but foreign business groups say that so far action has not kept pace with promises.

U.S. investors would like a bilateral investment treaty that would give them increased access to state-dominated industries such as telecommunications and financial services.

Xi said a key part of China’s reforms would be to reduce the scope of the current “negative list” of industries in which foreigners could not invest. He added: “Our positive list will be bigger, a longer list. We will continue to build an open and law-based environment.”

Chinese regulators issued a negative list of prohibited and restricted industries for foreign investors in March, though business lobbies have complained that the government has been reluctant to cede too much control over sectors it deems central to national interests.

Reuters

10 | Business Daily

September 25, 2015

Greater China a year earlier, partly due to falling shipments of car parts to Chinese factories, where activity has fallen to a six-and-a-half year low.

No more foreign brands

Mainlanders tighten belts Many of the world’s biggest companies are feeling the effects of weaker Chinese consumer demand

D

omestic consumption contributed 60 percent of China’s economic growth in the first half of 2015, up from 51.2 percent in the whole of 2014, suggesting Beijing’s desired rebalancing is on track.

But forward looking indicators and companies’ experiences in China are more worrying.

A China consumer confidence index produced by ANZ Bank and

polling company Roy Morgan fell to a record low in August.

Car sales in China could drop this year for the first time in two decades, while smartphone sales recorded their first fall in China during the second quarter, consumer research firm Gartner said.

If that translates into a slowdown in overall consumer spending, the impact will be felt beyond China.

The study projected that if

domestic Chinese demand growth fell by 2 percentage points for two straight years, combined with a 10 percent fall in global equity markets, it would shave around 0.25 percentage points off the pace of U.S. GDP, and more than half a percentage point off Japan’s already-sluggish growth by the second year.

Japan’s exports to China, its largest trading partner, are already flagging.

They fell 4.6 percent in August from

New rules easing panda bonds restrictions on the horizon Yesterday, both HSBC and Bank of China (Hong Kong) said they will start selling panda bonds on September 29 Michelle Chen and Ina Zhou

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hina’s central bank is drafting new rules for yuan-denominated bonds sold by foreigners on the mainland, known as panda bonds, and plans to let more companies issue them and ease controls on how proceeds can be used, two people with direct knowledge of the matter said.

The People’s Bank of China will allow both international financial and non-financial institutions to sell the bonds in its domestic market, and

proceeds can be used within and outside of China, said the people, both of whom were consulted by the central bank and saw the draft rules.

Currently, only global development institutions such as the International Finance Corp (IFC), the private sector arm of the World Bank Group, are allowed to sell panda bonds, and the proceeds must remain in China.

“The draft regulation is ready, but has not been finalised.

It is prepared in parallel with the two issues that are in the market now and may see tweaks from their feedback,” said one of the sources.

HSBC Holdings and Bank of China (Hong Kong) Ltd. were approved to issue 1 billion yuan (US$156.9 million) and 10 billion yuan of panda bonds, respectively, the People’s Bank of China (PBOC) said in a statement on Tuesday.

Yesterday, both HSBC and Bank of China (Hong Kong)

Many of the world’s biggest companies are feeling the effects of weaker Chinese consumer demand.

Volkswagen’s high-end Audi brand said this month it had eased back output at its China plants.

German rival BMW has reduced output of its locally produced 3 and 5 series models.

Xie Kang, 46, who runs a small plastic goods factory in Dongguan has scrapped plans to buy a Toyota Highlander for around 400,000 yuan, and will stick with his Volkswagen Polo instead.

His company supplies parts to the toy, electronics and bicycle industries but the number of his clients has fallen from 30 to 4.

“To be honest, I need a better car but my debts are getting larger, and I’ve not made a profit for several months now”.

Zhao Wenke, 32, who manages an auto parts company in Shanghai, is also curbing spending, despite a monthly income of 83,000 yuan.

The father-of-two says he now saves 40 percent of his monthly salary given the economic uncertainty, up from 30 percent previously.

Apple shares have fallen 13 percent since July 21, partly on China worries, though chief executive Tim Cook said its third quarter performance has been “reassuring”.

Other Western consumer companies though flagged in their second-quarter earnings that China was turning into a tough market, before most of the recent equity market turbulence.

said they will start selling panda bonds on September 29.

They are the first overseas commercial banks to get permission to sell bonds in China’s US$6 trillion interbank bond market.

From investors’ perspective, diversification demand for this new category of investment product will see some asset managers pursuing panda bonds, but they will likely be cautious initially.

“I’ll wait to see how these panda bonds are priced to decide whether to invest or not. I may have some interest if the yield is above 4 percent for three-year tenor,” said an asset manager at a Shanghai securities firm.

Some investors also have concerns on panda bonds’ secondary market liquidity as there are only several such ones available now in the interbank bond market.

China kicked off the socalled panda bond market in 2005, but only a handful of foreign entities have tapped the market mainly due to strict restrictions of issuers and proceeds use.

Reuters

The IFC became the first foreign issuer in China’s domestic interbank bond market. The Asian Development Bank launched its debut yuan bonds later.

The central bank will not set a total quota for panda bond issuance and deals need to be approved on a case-bycase basis, according to the draft rules, said one of the people knowledgeable about the matter.

Ma rk et pa rt ici pa nt s expect the initial pipeline to be strong as international financial institutions and companies eye China’s big market and potentials in addition to the falling interest rate environment.

“Funding cost is just one factor foreign issuers will consider, and the more important factor is that they hope to gain bigger market share in China as the country accelerates opening up,” said Banny Lam, co-head of research at Agricultural Bank of China International in Hong Kong.

Reuters

Business Daily | 11

September 25, 2015

Greater China New round of FTA with Japan, ROK The eighth round of top-level talks among China, Japan and Republic of Korea over establishing a free trade area (FTA) kicked off in Beijing yesterday. The two-day talk attended by chief negotiation representatives from the three countries including Chinese vice commerce minister Wang Shouwen will focus on commodity trade, service trade, investment and the domain of the FTA agreement. The three-party FTA talk started in November 2012 after top leaders of the three countries reached a consensus in May that year.

The FTA initiative aims to establish a comprehensive framework for trade.

Guangdong granted extra 13 bln yuan bond quota

Deals seen on hold as offshore debt rules raise questions

China’s Guangdong province has been given finance ministry approval to issue an additional 13 billion yuan (US$2.04 billion) of municipal bonds this year, the state-backed Xinhua News Agency reported yesterday, citing an announcement made at a policy meeting. The capital raised from the latest batch of bond issuance is expected to be invested in road and water projects, Xinhua quoted Zeng Zhiquan, director of Guangdong’s department of finance.

Earlier this year, the province’s standing committee approved the issuance of 20.3 billion yuan of muni bonds for investment in infrastructure projects and underdeveloped areas.

The rules demand that domestic Chinese firms and their overseas subsidiaries need to register with the NDRC before they issue debt or borrow offshore

40 entities and nations confirm security forum presence

Michelle Chen

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fforts by China’s top economic planner to boost offshore fund raising, in part to support national projects, are more likely to act as a brake on the deal pipeline than spark a rush of new issuance.

Last year, Chinese firms sold US$100 billion of bonds in overseas markets, mostly in dollars, euros and yen, a record amount and more than double the 2013 total, Thomson Reuters data shows. Issuance so far this year was more than US$70 billion.

Bankers who arrange these deals said new rules announced by the National Development and Reform Commission (NDRC) appear to conflict with some of the requirements of the State Administration of Foreign Exchange (SAFE).

For example, the NDRC rules suggest funds raised offshore can be freely used in or outside of China.

The requirements of SAFE, the

KEY POINTS NDRC requirements conflict with FX regulator, bankers say Issuers and arrangers seeking clarification In the meantime, bankers say some deals seen on hold

foreign exchange regulator, are more restrictive.

“All our deals in the pipeline have been suspended as there are too many details that need to be explained. I heard many other banks are doing the same as us,” a debt banker at a Chinese bank said.

The NDRC and SAFE did not respond to requests for comment.

The planning agency announced new rules last week as it said offshore borrowing should support national initiatives such as China’s “one belt, one road” undertaking, a sweeping plan to rebuild the historic Silk Road trading route.

The rules demand that domestic Chinese firms and their overseas subsidiaries need to register with the NDRC before they issue debt or borrow offshore. After a deal is done, they simply need to report it to the NDRC within 10 working days, the regulator said.

Previously, Chinese companies could issue debt offshore via their subsidiaries and no approval or registration was needed by Chinese regulators.

As foreign exchange regulator, SAFE restrictions come into force when companies want to repatriate funds raised in offshore markets.

Proceeds that have been guaranteed by the parent company on the mainland are not allowed to flow back to China under SAFE regulations.

Under certain other debt structures though, SAFE allows repatriation

if the deal is registered with the regulator after it is done.

So bankers say they have been left unsure which way to turn.

“We are all very confused and are waiting for the NDRC’s clarification to see to what extent it would like to regulate the market and how it can coordinate with SAFE to solve these issues,” said a Beijing-based lawyer.

The NDRC said it would still set a quota limiting the amount of offshore funds that Chinese firms can raise in a year.

Toll road operator Shenzhen Expressway is one of the first issuers in China to say it is using the NDRC’s new system, according to IFR, a Thomson Reuters publication.

However, for other deals already being marketed to potential buyers via road shows, bankers said it isn’t clear how they can proceed until the conflicts between the NDRC and SAFE rules are cleared up.

“I have travelled a lot recently to persuade Chinese companies to sell bonds offshore. It’s already not easy to pitch deals,” said a banker at a foreign bank in Hong Kong, referring to the expected rise in U.S. interest rates, which are increasing offshore borrowing costs.

“The NDRC rule is just like pouring oil on the flames and for those companies which hesitate whether to go offshore or not, they may easily choose not as the rule adds to uncertainties,” the banker said.

Reuters

More than 40 countries and international organizations will send delegations to the Xiangshan Forum to discuss security cooperation in the Asia-Pacific region in Beijing next month, a spokesperson said yesterday. China’s Defense Ministry spokesperson Wu Qian said participants at the 6th Xiangshan Forum in mid-October will discuss the opportunities and challenges for security cooperation in the Asia-Pacific region, maritime security and coping with regional terrorism. The building of the ASEAN Community, cyberspace norms and humanitarian aid cooperation will also be on the agenda, Wu said.

First lady tours U.S. cancer research centre

Chinese First Lady Peng Liyuan on Wednesday visited a leading U.S. cancer research institution here and called for closer bilateral cooperation in health care. Upon arrival at the Fred Hutchinson Cancer Research Centre, she was greeted by Dr. Gary Gilliland, president and director of the organization; Bill and Melinda Gates, co-chairs and trustees of the Bill & Melinda Gates Foundation; and Melodee Hanes Baucus, wife of U.S. Ambassador to China Max Baucus, among others. She spoke highly of the booming medical cooperation between China and the United States.

12 | Business Daily

September 25, 2015

Asia

Indian PM heads to Silicon Valley chasing digital dream

paper-heavy bureaucracy, with GE leader Jeffrey Immelt this week lamenting that it requires “17 stamps on each document officially -- in the digital age”.

The government has repeatedly bungled its handling of IT regulation, this week backtracking swiftly on a draft encryption policy that sought to monitor emails or private chats on Whatsapp after an outcry. Last month it overturned a ban on 857 porn sites after widespread ridicule.

Technology firms have also suffered problems, with Google under investigation by India’s competition regulator and a Facebook project, Internet.org, criticised for only allowing selective web access.

In addition, about 70 percent of Indian Internet users get online via a smartphone, many on sluggish 2G connections, creating a unique challenge.

Modi is set to fly to California after attending the UN General Assembly in New York

H

e has 30 million fans on Facebook and tweets multiple times a day -- but as Narendra Modi visits Silicon Valley this weekend, it is Indian technology that will be centre-screen.

India’s social media-addicted prime minister is looking to tap investors’ pockets on the trip and win support from the Valley giants to burnish his Digital India campaign.

“India is emerging as a hub of start-ups in a wide range of areas and we aspire to take this further,” Modi wrote on Facebook. “We want the world to see our innovation capabilities in the start-up sector.”

America’s technology titans have rolled out the welcome mat, with meetings at Apple, Facebook, green carmaker Tesla and Google, while leading Indian entrepreneurs will present themselves to investors.

Modi is set to fly to California after attending the UN General Assembly in New York, where he is expected to meet US President Barack Obama on the side-lines.

It is the first visit to the West Coast by an Indian PM since 1982 and comes at a bright moment for

home-grown talent, with India-born CEOs running Microsoft, Google and Adobe.

Feverish speculation has hit the domestic press over possible announcements, with some suggesting Modi may seek a deal for Tesla’s solar batteries as part of a renewable energy plan to ease power shortages.

‘Investment flowing’

Digital India?

India is simultaneously a technology leader and laggard, with the world’s fastest growing start-up scene, according to software industry body NASSCOM, and armies of highly skilled IT workers in southern Hyderabad and Bangalore.

It also has almost a billion citizens still not online, many in impoverished rural areas, posing an opportunity and a huge challenge for the government and companies.

Hi-tech fan Modi has appeared at rallies in hologram form, has his own smartphone app and in March implored IT industry leaders to ask why India had not produced a Google.

Yet his technological fervour has made little dent in the country’s

Indian artist Raj Saini gives the finishing touch to a painting of Indian Prime Minister Narendra Modi

Philippines holds rates, 2015 inflation below goal Also yesterday, Fitch Ratings revised its outlook for the Philippines to positive from stable Karen Lema and Enrico Dela Cruz

T

he Philippine central bank found no reason to alter its monetary policy settings yesterday, with growth expected to gather pace in the second half and inflation seen staying benign despite the threat of a worsening dry spell.

The central bank’s policymaking Monetary Board voted to keep the overnight borrowing rate steady at 4.0 percent, where it’s been since September 2014. It also left the rate on

its short-term special deposit accounts (SDAs) unchanged at 2.5 percent.

“The benign inflation outlook and the economy’s underlying growth momentum provide ample room to keep monetary policy settings unchanged at this time,” Governor Amando Tetangco (pictured) told a briefing.

Reflecting soft oil and food prices, the central bank cut this year’s inflation forecast to 1.6 percent from 1.8 percent, while next year’s estimate was

US investors have paid relatively scant attention to Indian start-ups in the past, but entrepreneurs on the ground say this is changing.

Her two-year-old company has already drawn funding from Google India’s managing director and is taking part in the visit to gain exposure.

Entrepreneurs from India far outnumber all other immigrant groups at the helm of US start-ups, data from the Kauffman Foundation shows, and a Modi-led reception for the diaspora in San Jose has seen 45,000 people sign up.

Although Indians have long thrived in the Valley, observers point to a so-called reverse brain drain as a steady flow of American-educated entrepreneurs return home.

AFP

slightly raised to 2.6 percent from 2.5 percent.

Tetangco said domestic consumer prices were expected to fall below the government’s 2-4 percent target this year despite possible spikes in food costs as the intensifying El Nino weather pattern hurt the country’s farm output.

The inflation path will return to the target range by next year and in 2017.

Inflation slowed to a record low 0.6 percent in August, bringing the eight-month average to 1.7 percent.

Stronger 2nd half?

“The forecast is a stronger El Nino and it’s going to be prolonged until the end of June 2016,” said Diwa Guinigundo, central bank deputy governor, adding that the weakness of the peso “would have inflationary implications for 2016 and 2017”.

A rebound to 5.6 percent annual economic expansion in the second quarter - from 5.0 percent in the first - plus July’s pick-up in government

spending and shipments of capital and consumer goods suggest growth will gain steam in the second half.

While the government has given up its 7-8 percent growth target this year, it still expects healthy 6-6.5 percent expansion in 2015 as higher state spending and strong private consumption offset faltering exports.

“The only downside risk is the external sector. We should be seeing quite a substantial contribution of government spending in the second half,” economic planning chief Arsenio Balisacan told ANC news on Wednesday.

All 14 economists in a Reuters poll predicted the central bank would leave its interest rates steady, with eight seeing no change for the rest of the year.

Also yesterday, Fitch Ratings revised its outlook for the Philippines to positive from stable.

Also yesterday, Fitch Ratings revised its outlook for the Philippines to positive from stable.

Reuters

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Business Daily | 13

September 25, 2015

Asia

Park’s revamp of rigid SK labour laws faces opposition South Korea President wants to make it easier for companies to fire underperformers, base wages on merit, shorten work hours, ease outsourcing rules and expand unemployment insurance Choonsik Yoo

Monte Paschi reaches deal with Nomura Monte dei Paschi di Siena said on Wednesday it had reached an agreement with a unit of Japanese brokerage Nomura Holdings for the early termination of the so-called Alexandria derivative trade that has been bleeding money at the Italian lender. Monte Paschi, Italy’s oldest bank, said in a statement that the deal with Nomura International on the terms and conditions for early termination of the transactions entered into in 2009 would have a positive impact on its capital ratios and its net interest income.

Pacific trade pact closer to deal on rules for autos Japan, the United States, Mexico and Canada are moving closer to a deal on rules for the automotive industry in a landmark Pacific trade deal, a leading obstacle to agreement on the 12-nation pact, officials briefed on the talks said on Wednesday. Although two-day talks between negotiators from the four nations on auto trade did not reach a final agreement, ministers were readying for meetings in Atlanta next week for a final push to get the deal over the finish line.

S.Korea’s trade terms improve

I

n the past year, Kim Yoon-sung applied to about 120 companies for a job, and could not land even one.

Instead, the 26-year-old South Korean is on her fourth outsourcing contract, one of tens of thousands of young graduates struggling to get regular employment in Asia’s fourthlargest economy.

“It’s become normal for people in my generation to fail even after writing applications for well over 100 companies,” Kim told Reuters. “The situation is just getting tougher.”

South Korea’s rigid labour market is increasingly seen as a drag on an ailing economy that President Park Geun-hye says needs “major surgery.”

Park is pushing a revamp in labour laws that would be the biggest in nearly two decades. It would change the system of stable employment and seniority-based remuneration that was part of a social contract enforced by the unions and underpinned South Korea’s breakneck economic growth into the 1990s.

Park wants to make it easier for companies to fire underperformers, base wages on merit, shorten work hours, ease outsourcing rules and expand unemployment insurance.

Her ruling party hopes to push labour reform legislation through the current session of parliament ending in December, but faces opposition from some unions and the main rival party.

However, the conglomerates that have driven South Korea’s emergence as an industrial power support more flexible labour laws.

“This is the first time in many years that we are trying to do something to change a problem that is getting ever more serious,” said Kim Dong-

one, the dean of Korea University’s business school.

Limited labour flexibility makes it harder to build the services sector in an economy dominated by companies like Samsung Electronics and Hyundai Motor. Young graduates covet the big conglomerates for their better-paid jobs, and are less inclined to join smaller companies that would follow Park’s “creative economy” push.

The World Economic Forum ranks South Korea 86th for overall labour market efficiency and 106th for flexibility in hiring and firing; Japan, whose decades of stagnation are often invoked by Korean policymakers as a cautionary tale, ranks 22nd and 133rd.

Trade terms in South Korea improved for 12 straight months despite slowing exports that were offset by cheaper crude oil, central bank data showed yesterday. The net terms-of-trade index for goods, which gauges how many goods can be imported with a unit export, was 100.02 in August, up 11.6 percent from the same month of last year, according to the Bank of Korea (BOK). The index has increased for 12 months since September 2014 when it gained 0.6 percent. The income termsof-trade index jumped 13.6 percent in August from a year earlier.

This is the first time in many years that we are NZ, S. Korea trying to do something working for early to change a problem implementation of FTA that is getting ever The free trade agreement with South more serious Korea was approved by the New Zealand Kim Dong-one, dean of Korea University’s business school

Political opposition

The Korean Confederation of Trade Unions (KCTU), the more strident of two big labour umbrella groups, says the reforms would hurt job security and wages and destroy collective bargaining and has vowed to oppose all ruling party candidates at parliamentary elections due next April.

On Wednesday, it called a nationwide strike and held a rally in Seoul that drew thousands of people, with some protesters scuffling with police.

The opposition New Politics Alliance for Democracy (NPAD) is demanding any change in labour laws be tied to requiring firms to share more profits and increase employment.

With 47 percent of parliamentary seats, the opposition cannot by itself block law changes, although the NPAD holds the chairmanship of a key committee that would review law revisions.

The government is betting that enough voters are discouraged by their job prospects to make it worth pushing the legislation ahead of the parliamentary elections.

The last time South Korea made major changes to labour rules was in 1998, when it enabled companies to lay off workers under emergency circumstances in exchange for a bailout from the International Monetary Fund.

At 22 percent, the share of temporary workers in South Korea is double the OECD average. Nonpermanent workers are falling further behind on wages, earning 54 percent of what regular employees earn for similar work in South Korea, compared with 65 percent in 2004, government data shows.

Youth unemployment hit a 16year high early this year and could worsen as the retirement age begins to rise in 2016.

Reuters

parliament yesterday, bringing implementation a step closer. Trade Minister Tim Groser welcomed the passing of the Tariff (Free Trade Agreement between New Zealand and South Korea) Amendment Bill, which followed the signing of the free trade agreement (FTA) in March. The South Korean government was in the process of completing its own internal approval processes and the two countries were working to ensure the FTA’s early entry into force.

Australia’s population growth at lowest level in a decade Population growth has slumped to its lowest level in a decade, figures released by the Australian Bureau of Statistics (ABS) have revealed yesterday. Australia’s population grew by 316,000 people, or 1.4 percent, in the year up to March 2015, but Denise Carlton from the ABS said it was the slowest rate of growth witnessed in almost 10 years. “In the year to March 2015, Australia’s population growth rate continued to slow from its peak in 2008-09 and is now just below the 20-year average growth rate,” Carlton said in a statement yesterday.

14 | Business Daily

September 25, 2015

International Norway central bank lowers rates Norway’s central bank cut its main interest rate yesterday and even hinted at the possibility of negative rates ahead to support a weakening economy, in comments that sent the crown to a 13year low against the dollar. The crown also slid 3 percent against the euro as markets were taken aback by the extent of the bank’s easing bias. “It is a new era for the Norwegian economy. We are no longer in a league of our own,” Governor Oeystein Olsen told a news conference, adding that the bank did not even discuss keeping rates on hold.

Firms upbeat in face of uncertainty abroad Morale among German consumers declined for the second consecutive month heading into October Michael Nienaber and Yann Le Guernigou

French minister doesn’t understand UK’s EU requests France is willing to help Britain’s push to reform the European Union ahead of a referendum on the country’s membership of the bloc, but remains unsure about some key British proposals, French economy minister Emmanuel Macron said yesterday. Macron said he had held discussions with Cameron and finance minister George Osborne and shared their ideas about cutting back on red tape and regulation. But he did not have a clear view on what Britain wanted to change.

Ukraine cuts key rate for second month Central bank lowered its benchmark interest rate for a second straight month as a more stable hryvnia helped slow inflation. The National Bank of Ukraine cut the discount rate to 22 percent from 27 percent, effective Sept. 25, according to a statement distributed Thursday to reporters in Kiev. The bank cited “a gradual decline in risks to price stability” as the reason for the rate reduction. Looser monetary policy reflects an easing in Ukraine’s economic and political crises, with the rate having risen to 30 percent as Ukraine sought to shield its currency.

Brazil votes to spin off corruption probe part Brazil’s Supreme Court voted on Wednesday to move part of the country’s largest-ever corruption probe to another judge, challenging the notion that all pieces of a case that initially focused on state-run oil firm Petrobras are legally linked. Justice Dias Toffoli argued that an investigation into whether President Dilma Rousseff’s former chief of staff Gleisi Hoffmann received bribes related to a federal planning ministry contract with a software firm was unrelated to Petrobras and could be heard by a different judge.

Fed’s Lockhart says markets overlook U.S. Investors that have roiled global markets and thrown Federal Reserve policy off track should focus on the strength of the U.S. economy rather than the more remote risks of a global slowdown, Atlanta Federal Reserve bank president Dennis Lockhart said on Wednesday Lockhart said he thought worries about the state of the global economy had become exaggerated, and were given too much weight over continued growth, healthy consumption and other U.S. strengths.

He supported last week’s decision by the Fed to delay an interest rate hike.

The German labour office research institute said the arrival of large numbers of refugees could push up German unemployment next year by 70,000

E

urope’s biggest economies are showing signs of resilience despite weakness abroad and the refugee crisis on their own doorstep, with firms in Germany and France expressing optimism about their prospects, surveys yesterday showed.

Such strength in the face of economic headwinds from China and other emerging markets could give European Central Bank policymakers pause for thought as they consider whether they need to expand the bank’s trillion-euro stimulus program.

The signals from Germany, the euro zone’s number one economy, so far remain positive. Business morale, tracked by the Ifo economic institute’s survey of 7,000 firms, unexpectedly improved in September, suggesting company executives in Germany remained upbeat.

The country’s HDE retail association also raised its forecast

for sales growth in its sector, thanks to rising real wages and low inflation.

Ifo economist Klaus Wohlrabe said the slowdown in the Chinese economy was not currently dampening the confidence of German exporters.

Industry morale in France also beat expectations, rising in September to its highest level since July 2011, data from state statistics body INSEE showed.

France has been struggling to deliver enough growth to bring down unemployment, with the economy stagnating in the second quarter, but the government says its labour market reforms are having a beneficial impact on businesses.

Business confidence also rose in the Netherlands in September.

There were even positive signs in Italy, the euro zone’s third biggest economy, where data yesterday showed both retail sales and industrial orders rising in July.

Volkswagen to start firings over emissions scandal The sources said it would give initial findings from an internal investigation into who was responsible for programming some diesel cars to detect when they were being tested and alter the running of the engines to conceal their true emissions Jan Schwartz and Andreas Cremer

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olkswagen will start firing people responsible for rigging U.S. emissions tests and shake up management today, two sources familiar with the plans said, as the German carmaker tries to get to grips with the biggest scandal in its 78year history.

The supervisory board of Europe’s biggest automaker is meeting on Friday to decide a successor to chief

executive Martin Winterkorn, who resigned on Wednesday.

The sources said it would give initial findings from an internal investigation into who was responsible for programming some diesel cars to detect when they were being tested and alter the running of the engines to conceal their true emissions.

Top managers could also be replaced, even if they did not know

Italy has been plagued by weak growth for years, but last week the main employers group raised its forecasts for the economy, crediting low oil prices and interest rates and a decline in the euro’s exchange rate.

The crisis on Europe’s borders which has seen nearly half a million migrants and refugees pour into the continent this year, many fleeing war in Syria, may yet cloud the economic outlook.

Morale among German consumers declined for the second consecutive month heading into October, market research group GfK said yesterday, amid uncertainty about the government’s handling of the crisis.

The German labour office research institute said the arrival of large numbers of refugees could push up German unemployment next year by 70,000.

However, Ifo’s Wohlrabe said the influx in recent weeks had boosted the retail sector, in particular sales of groceries, with supermarkets seeing a clear rise in turnover that was expected to continue.

The stream of relatively upbeat data from the continent will support those who argue that the ECB will need more evidence before ramping up its quantitative easing program.

ECB President Mario Draghi said as much on Wednesday.

While acknowledging risks to Europe’s inflation and growth outlook have increased due to the emerging market slowdown, he said the central bank needed more time before deciding on further stimulus.

Reuters

about the deception, with U.S. chief Michael Horn and group sales chief Christian Klingler seen as potentially vulnerable.

Volkswagen shares have plunged around 20 percent since U.S. regulators said on Friday the company could face up to US$18 billion in penalties for falsifying emissions tests.

The company said on Tuesday 11 million of its cars globally were fitted with engines that had shown a “noticeable deviation” in emission levels between testing and road use.

Regulators in Europe and Asia have said they will also investigate, while Volkswagen faces criminal inquiries and lawsuits from cheated customers.

When he resigned, Winterkorn denied he knew of any wrongdoing but said the company needed a fresh start.

“There will be further personnel consequences in the next days and we are calling for those consequences,” Volkswagen board member Olaf Lies told the Bavarian broadcasting network, without elaborating.

The heads of Volkswagen’s Porsche brand, Matthias Mueller; Audi brand, Rupert Stadler; and VW brand, Herbert Diess, are seen as the front-runners to succeed Winterkorn, three people familiar with the matter told Reuters on Wednesday.

Reuters

Business Daily | 15

September 25, 2015

Opinion Business

wires

Building climate trust

Leading reports from Asia’s best business newspapers

Rachel Kyte

World Bank Group’s Vice President and Special Envoy for Climate Change

THE PHNOM PENH POST Telecom operators responded yesterday to a new government directive that requires retailers to collect identification documents before selling mobile phone SIM cards to customers, playing down the potential impact on their sales and saying they would cooperate with regulators to implement the diktat. “We will work together with the industry and regulatory bodies to ensure that the directive is being complied to,” said Thomas Hundt, CEO of mobile operator Smart Axiata, which reported around 6.6 million subscribers as of March.

THE TIMES OF INDIA The number of new rich in India will almost double over the next five years, posting the fastest growth of 47%, a latest study says. In comparison, the number of such individuals with a wealth of over US$100,000 will grow 7% globally and 10% in Asia by 2020, the study says. The study, conducted by EIU and commissioned by Citibank, for the first time focuses on new wealth builders. In India, the number of such new wealth builders is expected to be close to five crore.

BANGKOK POST Finance Minister Apisak Tantivorawong says measures to stimulate the property sector will soon concluded. Waiving the transfer and mortgage fees is not the main issue -- more important are mortgage approvals, as rejection rates by financial institutions are very high at the moment, he said. “I’ve asked GH Bank to consider lending to those who have been refused by commercial banks, but they must not be too poor,” Mr Apisak said. Three real estate associations and major developers recently proposed tax incentives for the property sector to the new team of economic ministers.

THE STRAITS TIMES Rail operator SMRT Corp has been handed a S$5.4 million fine for a massive breakdown. The amount is the biggest penalty imposed on a rail operator here so far, but is less than what some analysts were expecting.

Soon after the incident, Maybank Kim Eng analyst Derrick Heng noted that SMRT could face a fine of up to S$50 million. He based his projection on new rules that allow the Government to fine an errant operator an amount equivalent to 10 per cent of its annual fare revenue for an affected line.

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n less than 80 days, world leaders will have the opportunity to strike a once-ina-generation agreement in the fight against climate change.

The United Nations Climate Change Conference in Paris in December could mark a turning point in world history: unanimous recognition of the need to act to prevent the most harmful consequences of global warming.

But if a deal is to be secured, participants in the conference will have to overcome the mistrust that has led to polarization and inaction during past negotiations. Implementing an agreement with robust limits on greenhouse-gas emissions will first require honouring the commitments that have already been made, including promises by developed countries to spend US$100 billion a year by 2020 to help the developing world mitigate its contribution to climate change and adapt to a warming world.

Given the scale of the challenge and the costs that inaction imposes on the world’s most vulnerable people, development financial institutions and other interested parties must demonstrate their commitment to preventing the most harmful effects of climate change. Doing so requires a renewed – and transparent – dedication to the effort.

That is why the World Bank Group is examining what more can be done to help put economies on a sustainable path. Keeping a keen eye on the national plans being submitted ahead of the Paris

summit, we are surveying the full spectrum of our work in order to find opportunities to help countries in the areas of energy, transport, agriculture, forests, urban management, and much more.

Indeed, the fight against climate change must be carried out across a wide variety of fronts.

Rising global temperatures and an increasingly unstable climate will influence all aspects of development and jeopardize existing investments unless adequate mitigation and adaptation strategies – which are also central to the new Sustainable Development Goals that the United Nations will adopt later this month – are put in place.

Part of this effort to fight climate change must involve addressing sources of economic inefficiency, such as fossilfuel subsidies and inadequate accounting of the cost of pollution. And there is a growing recognition that development funds and climate finance can be used to spur and catalyse investment from public and private sources.

But, above all, a successful climate deal will have to include proper measures for the management of the trillions of dollars that will need to be invested in low-carbon infrastructure and increased resilience to the harmful effects of rising global temperatures.

This must be carried out in as public and transparent a fashion as possible. It is crucial that we ensure that financial flows being channelled into the fight against climate change can be

The time to invest in the fight against climate change is now

tracked, so that citizens can hold their governments and institutions to account.

In order to accomplish this, the six large multilateral development banks and the International Development Finance Club – a network of national, regional, and international development institutions – have been painstakingly working on developing common principles for tracking climate finance.

These principles should apply to all projects intended to help countries adapt to or mitigate the impact of climate change.

In a report released in June, the six banks described how they have provided more than US$100 billion in climate finance in the four years since joint reporting began. The World Bank Group finances can also be tracked under its access to information policy.

The conference in Paris offers the opportunity to establish a clear path toward averting the most harmful effects of climate change; world leaders attending the meeting must not allow it to slip through their fingers.

By credibly and transparently honouring their promises, rich countries can demonstrate their commitment to the effort and increase the likelihood of an effective agreement.

The time to invest in the fight against climate change is now.

Our emissions are already having devastating effects around the world. As climaterelated volatility and uncertainty mounts, the cost of inaction will only continue to rise.

Project Syndicate

16 | Business Daily

September 25, 2015

Closing Myanmar, China to co-operate in curbing illegal timber production RBS to exit India private banking business Myanmar and China will effectively cooperate in addressing the issue of illegal timber production, Myanmar Environmental Conservation and Forest Minister U Win Tun told a consultation workshop on Myanmar-China Timber Trade Stakeholders in Nay Pyi Taw yesterday. While taking measures in curbing illegal timber production, enhancement of legal trade on wood and wood products as well as long-term development with the sector should also be addressed, he said. Fu Gui, an official with the State Forestry Administration of China, also stressed the need for deepened cooperation than ever in getting rid of illegal timber production.

Royal Bank of Scotland Group Plc said it is selling its Indian private banking unit to a company led by the head of the business, Shiv Gupta, as the British bank pulls back from some foreign markets to focus on UK retail and commercial banking. Gupta’s company Sanctum Wealth Management will take over the RBS private banking unit’s onshore clients and staff, the bank said in a statement yesterday. Sanctum plans to retain all branch networks currently operated by RBS private banking in India, it said. The bank announced the sale of overseas business of British wealth manager Coutts to Switzerland’s Union Bancaire Privee in March. The India private banking business was not part of that deal.

Japan PM unveils 600 trln yen GDP goal Abe said he would raise the sales tax to 10 pct from the current 8 per cent in April 2017 as planned Stanley White and Tetsushi Kajimoto

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apanese Prime Minister Shinzo Abe vowed yesterday to raise gross domestic product by nearly a quarter to 600 trillion Japanese yen (US$5 trillion), pledging to refocus on the economy after the passage of controversial security bills that eroded his popularity.

Abe unveiled the plan at a news conference marking his election to a second threeyear term as ruling Liberal Democratic Party leader and hence, premier.

Abe stopped short, however, of setting a timeframe for the new GDP target, which could raise doubts about the goal.

Facing the need to rebuild public support with 10 months to go before an upper house election in July 2016, Abe said he would focus on shoring up economic growth and reform the social security system to make it easier to work while raising children and caring for the growing ranks of elderly.

“The economy will continue to be our top priority,” Abe told the news conference, which was short on specifics.

“The goal is to create the largest economy in the

post-war era to help make people’s livelihood the most affluent. I’ll make GDP worth 600 trillion yen as our clear target.”

Parliament last week enacted unpopular bills that

could let troops fight overseas for the first time since 1945, a milestone in Abe’s push to loosen the limits of the pacifist constitution.

The legislation triggered large public protests and has eroded Abe’s voter ratings, which fell six points to 40 percent in a poll published on Monday by the Nikkei business daily. His disapproval rating rose seven points to 47 percent.

“It is obvious that the one thing they want to do is demonstrate that it’s the economy first, that the economy is back on the front burner,” said Jesper Koll, CEO at WisdomTree Japan KK. Abe said he would raise the sales tax to 10 percent from the current 8 percent in April 2017 as planned, barring big economic shocks,

and put revising Japan’s U.S.drafted pacifist constitution - a potentially divisive issue - on the agenda in next year’s upper house election.

The GDP target could draw criticism for being unrealistic because it implies levels of growth not seen in the last two decades, while economists doubt the government will enact policies bold enough to even come close to the target.

Since Abe took office in late 2012, nominal GDP has expanded 5.8 percent as the central bank pursued quantitative easing.

In fiscal 2014, nominal GDP was 491 trillion yen. Since fiscal 1994, the earliest date that data is available, Japan’s nominal GDP has actually contracted by 1 percent.

Reuters

Japanese Prime Minister Shinzo Abe (C) chants ‘Banzai’ (meaning: 10,000 years) with his fellow senior lawmakers in front of a national flag after being officially re-appointed as President of the ruling Liberal Democratic Party yesterday

UBS, DBS said among buyers in China Post deal

Taiwan cuts rate to bolster struggling economy

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ostal Savings Bank of China Co., which has the most outlets of any lender in the nation, is nearing an agreement to raise more than US$6.5 billion from investors including UBS Group AG and Temasek Holdings Pte ahead of a planned initial public offering, people familiar with the matter said.

UBS is seeking to invest about US$2.5 billion and may syndicate a significant portion of that stock to other investors, the people said, asking not to be identified before an announcement.

Singapore’s DBS Group Holdings Ltd. is buying about US$250 million of shares, while International Finance Corp. and JPMorgan Chase & Co. will also invest, the people said.

Postal Savings Bank is selling about a 15 percent stake to outside investors, according to the people, as Chinese President Xi Jinping seeks to introduce more market discipline to state- owned enterprises.

Some foreign investors were attracted to the bank, which was set up in 2007, because of its relatively clean balance sheet with few legacy bad-loan issues, one of the people said.

The Beijing-based bank is still finalizing the allocations for the group of Chinese and domestic investors, one person said Bloomberg News

Beijing to let foreign investors participate in state firms reforms

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aiwan’s central bank lowered its key interest rate for the first time in four years yesterday to stimulate the slowing economy in the wake of sluggish demand from abroad.

Following the cut, announced after a much anticipated quarterly board meeting of the central bank, the discount rate was lowered from 1.875 percent to 1.75 percent.

The reduction of rates -- the first for 16 quarters, since June 2011 -- comes amid calls for substantial steps to lend a hand to the export sector, which is the major engine of the economy.

“Considering the slow recovery of the global economy and uncertainties facing it, slow domestic economic growth, negative export output, mild inflation and relatively high substantial rates, the board believed that lowering the discount rate should help the economy grow while maintaining domestic prices and banking stability,” the central bank said in a statement.

Taiwan in August slashed its growth forecast for 2015 to lower-than-expected 1.56 percent, saying the economy was losing strength due to weak demand from abroad and stiffer competition from China in the tech sector.

hina will allow foreign investors to participate in reforms of state-owned enterprises (SOEs) in “an orderly manner”, the cabinet said yesterday, as part of broad efforts to shake up the inefficient sector.

Foreign investment will be introduced into stateowned firms via restructurings and joint ventures, as well as overseas mergers and acquisitions, the State Council said in new guidelines on SOE reforms.

China would “attract foreign investment in mixed ownership reform of state-owned enterprises in an orderly manner”, it said.

In a long-awaited reform document published this month, the government said it would introduce “mixed ownership” to its sprawling state sector, heralding its most far-reaching overhaul of SOEs in two decades, a task that has become more pressing as the economy slows.

The document said private investors would be encouraged to buy stakes in state firms as “mixed ownership”.

China would improve the pricing mechanism of state-owned assets and ensure state assets sales to be “open and fair” to prevent the loss of state assets, according to the guidelines.

AFP

Reuters