MOP 6.00 Closing editor: Joanne Kuai
Hong Kong leads surge in IPOs in South-East Asian markets Page 12
Year IV
Number 914 Friday November 6, 2015
Publisher: Paulo A. Azevedo
Most Asia stocks climb as Japan gains, China enters bull market Page 9
China’s next batch of figures expected to lift the mood Page 11
150 Companies Close in Q3
Companies in dissolution. In Q3, the number increased 40 pct y-o-y to 150. The second highest number of companies to dissolve in Q3 since 2001. While registered capital in dissolved companies jumped to MOP127.42 mln vis-a-vis MOP43.11 mln Y-o-Y. An increase of 195.57 pct. New incorporations decreased 10.8 pct to 1,226. Of these, 36.46 pct are in wholesale and retail, with 447 such companies representing the largest share Page 2
Subsidy central The Cultural Industries Fund. Injected with MOP200 mln by the gov’t. To support the development of local cultural and creative industries. MOP16 mln has been disbursed to eight firms this year. A reduced MOP89 mln in subsidies is available to successful applicants. But 24 applicants have rejected aid
No “secret deals or promises”. This is the pledge made by Taiwanese President Ma Ying-jeou. With regard to his historic meeting with Chinese President Xi Jinping. The encounter is not intended to influence the island’s upcoming election, it is claimed
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Brought to you by
HSI - Movers November 5
Green business
Name
EDP Energy Solutions Asia is mulling the possibility of entering the solar energy market in Macau. The company’s first investment in the territory if a deal can be reached. Parent company EDP Energias de Portugal has entered into an agreement with Hong Kong based Hydro Global Investment Ltd. to build dams around the globe
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Gaming
www.macaubusinessdaily.com
If it sounds too good to be true it probably is. Chinese tourists are learning the hard way. With ‘fabulous’ travel deals accompanied by big risks. More specific standards for budget tours have been called for. With legal enforcement on the table following a recent tragedy in Hong Kong
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Just a friendly chat
Strings attached
Smoke and mirrors Union Gaming analysts say October revenue figures misrepresent reality. They believe the decline in mass gaming tables was likely in the mid-teens or less. Because they say more operators opted to reclassify mass market tables to VIP status. For legal incasino smoking purposes, and likely owing to the Golden Week holiday
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%Day
China Unicom Hong Ko
+5.97
Ping An Insurance Gro
+2.83
HSBC Holdings PLC
+1.89
China Life Insurance Co
+0.87
China Resources Powe
+0.70
China Shenhua Energy
-1.61
Want Want China Hold
-1.74
Cheung Kong Property
-1.92
Tingyi Cayman Islands
-2.28
Sino Land Co Ltd
-2.66
Source: Bloomberg
I SSN 2226-8294
2015-11-6
2015-11-7
2015-11-8
23˚ 27˚
23˚ 26˚
23˚ 28˚
2 | Business Daily
November 6, 2015
Macau Orient Thai plans to fly to MSAR Orient Thai is preparing an expansion plan for the coming years that includes flying to Macau. The information was released by the Thai airline as part of the announcement of a partnership with Amadeus. The agreement announced by the two companies involves the distribution of the fares of Orient Thai on the Global Distribution System, a reservation tool travel agents use when making an air, hotel, car or other travel service booking. Besides flying to Macau, Orient Thai intends to fly to Singapore, Taiwan, Japan, South Korea, Indonesia and Malaysia. The Bangkok-based company already flies to Hong Kong.
Number of companies in dissolution increases 40.19 pct The third quarter of the year recorded the second highest number of companies dissolved since 2001 João Santos Filipe
jsfilipe@macaubusinessdaily.com
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he number of companies in dissolution during the third quarter increased 40.19 per cent year-on-year to 150 from 107 during the same period last year, according to Company Statistics.
Considering only the third quarter, this is the second highest number of companies dissolved since 2001, being only exceeded by the first quarter of 2014, when there were 155 companies in dissolution.
According to information published yesterday by the Statistics and Census Services (DSEC) the registered capital in dissolution jumped to MOP127.42 million from MOP43.11 million in the third quarter of 2014. This represents an increase of 195.57 per cent year-onyear. In terms of capital in dissolution, this is the greatest amount since the first quarter of 2013, when it amounted to MOP188.21 million. During the same period, the number of new incorporations amounted to 1,226, a decrease of 10.8 per cent year-on-year from 1,375 companies created in the third quarter of last year. However, the value of registered capital increased 87.4 per cent year-on-year
to MOP376.74 million from MOP201.08 million.
Wholesale and retail sectors expanding
In terms of new incorporation, some 1,226, 447 companies, or 36.46 per cent, were related to the wholesale and retail industry. Business services recorded the second largest growth, with 302 new companies, or a share amounting to 24.63 per cent. During the same period, new construction companies amounted to 182 and real estate 92. However, in terms of registered capital the largest industry for new incorporations was business services, amounting to MOP292.6 million, a yearon-year of 206.1 per cent.
Cultural Industries Fund approves MOP15 mln for eight firms The Fund, which is to support local creative and cultural industries, has approved financial aid to eight companies this year
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he Cultural Industries Fund has approved financial aid to eight local cultural and creative companies for this year’s application as at the end of last month, of which the amount involved totals MOP15 million (US$1.88 million), the Fund announced yesterday. As at the end of October, the Fund had received 71 applications from local firms, of which only some 39 were qualified and 34 evaluated. The eight approved companies will invest
some MOP104.1 million in the local market and offer 60 job positions related to the field, the department in charge of the fund said in a press briefing yesterday. Established in April 2014, the Fund was injected with MOP200 million by the government to support the development of local cultural and creative industries. Companies which fit the government’s categories of ‘creative design’, ‘cultural exposition and performance’, ‘art collection’ and
‘digital media’ are qualified to apply for interest-free loans or subsidies from the Fund.
Decreased amount
In 2014, the Fund received 321 qualified applications and approved 86. Yesterday, the financial aid body revised the total subsidy amount to the batch of successful applicants to MOP89 million as opposed to the previous MOP110 million announced in March, with 24 applicants rejecting aid.
The capital registered by construction and real estate decreased 16.5 per cent and 39.5 per cent, respectively.
British Virgin Islands playing big role
The offshore finance centre of the British Virgin Islands accounted for 20.8 per cent of the capital of new incorporations, meaning around MOP78.6 million. Mainland China was the origin of the largest share of capital, with 48.1 per cent, meaning MOP181.30 million. Capital from Macau amounted to MOP76.48 million in the third quarter for new incorporations, which means a share of 20.3 per cent, behind capital originating from the British Virgin Islands. The Special Administrative Region of Hong Kong was the origin of 8.1 per cent of capital (MOP30.52 million) while only 2.7 per cent, or MOP10.17 million, came from other places. Analysed by size of registered capital, 881 new companies (71.9 per cent of the total) registered with capital of less than MOP50,000, while the total value of capital was MOP23 million. Meanwhile, 22 new companies registered with capital of MOP1 million or over; the total value of capital amounted to MOP316 million (83.8 per cent of total).
The total investment of the remaining 62 companies amounts to MOP460 million, offering a total of 413 positions. The president of the Fund, Leong Heng Teng, explained that the sharp decline in the number of applications this year is due to the fact that most of the city’s cultural and creative enterprises interested in the Fund probably submitted applications last year. On the other hand, he denied that the decrease in subsidy amount this year is because of the government’s austerity measures, claiming the Fund would not reduce its support for the local cultural and creative industry. Four of the eight newly approved projects engage in creative design, while two are in the fields of cultural exposition and performance, with the other in digital media. The remaining company is not in these four categories. According to the Fund, their names would only be announced by the end of the year. K.L.
4 | Business Daily
November 6, 2015
Macau opinion
I love the Macau taxi service!
EDP Energy Solutions considers solar energy investment João Paulo Meneses in Portugal newsdesk@macaubusinessdaily.com
Pedro Cortés
Lawyer* cortes@macau.ctm.net
M
acau has a great taxi service. Real individual public transportation services the envy of other places. We don’t have problems with taxi drivers. They all stop when we flag them down. They don’t charge tourists more than what is established by law. They’re great. They speak English and two other languages. The cars smell great and are pleasant to travel in to Taipa, Cotai or Coloane. Even to Hengqin Island for those who work or study at the University. Back to the drivers; they always take the shortest route. And are happy to chat about the latest news in town. They don’t receive commissions from anyone and only provide the services they are licensed to provide. They drive as smooth as silk, respecting zebra crossings and other drivers, be they motorcyclists or truck drivers. We never see taxis hovering for passengers around the city trying to extort more money from them. Whenever we have a typhoon in Macau, the prices are exactly the same and the drivers are attentively available with a smile. With the service they provide, we can conclude that they know exactly what a public service is. They all know and contribute to the public interest. To the community. I am really glad to have such a super service on my doorstep. All the countries and jurisdictions around Macau copy our services. It is a model followed by all and studied by universities everywhere. The way it is implemented is so good that I guess no other public service can even try to reach the Olympian heights of our homebred taxi titans. New York, London, Paris, Singapore, Tokyo – you name it - please stop doing what you’re doing. Macau taxi drivers and the Macau taxi service is the standard par excellence to be followed everywhere. Even the United Nations is considering setting up an organisation based on the great experience and service provided by Macau’s finest. The Mars space probe is already transmitting messages throughout the Universe to the effect that there is no other taxi service in the world like the Macau public taxi service. For everyone’s wedding, transportation is assured by the taxi drivers and their sparkling cabs. Macau Government is even considering suspending transportation services for their officials in favour of that provided by the current taxi drivers. They are respectful and they know how to treat clients and why therefore spend public funds on private transportation for such officials. I’m glad I live in Macau with this kind of service. To such an extent that I’ve been asking myself for about two weeks: why do we need other services when we already have such a superlative one right under our noses! *Part-time Lecturer at the Chinese University of Hong Kong
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DP Energy Solutions Asia is currently studying the possibility of entering the solar energy market in Macau, João Marques da Cruz, the company’s president, told Business Daily. João Marques da Cruz is also the Vice-Chairman of the Board of Directors of Macau’s sole electricity supplier CEM – Companhia de Electricidade de Macau. He did not go into details but rejected the idea that EDP Energy Solutions Asia, which is currently owned by EDP and is a subsidiary of China Three Gorges (CTG) is on standby. Despite the recent news of EDP – Energias de Portugal creating
a partnership with Hydro Global Investment Ltd., a Hong Kong company, to build dams in several parts of the globe without including EDP Energy Solutions Asia could give one that idea. However, João Marques da Cruz admitted to Business Daily that, “the Hong Kong option is more interesting, taking into account the dimension of the projects and the double taxation agreements’ clauses”. If a deal is reached, it will be the company’s first investment in Macau, following its creation in 2009 with plenty of local and regional plans, but few results. During the 2011 International Environmental Co-operation Forum
Kingston Financial Group expects increased net profits
UM holds seminar on smart grid technology
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he increased income from financial investments is expected to raise the net profit of Kingston Financial Group for the period of the six months ended September 2015. The announcement was published yesterday by the company in a positive profit alert with the Hong Kong Stock Exchange. The Hong Kong listed company runs Macau casinos Casa Real and Grandview and in last year’s interim report recorded a net profit of HK$579.02 million. ‘Such a significant increase was primarily attributable to, among other factors, the increase in income from securities brokerage, underwriting and placements, margin and IPO financing business’, the company explained.
he University of Macau’s (UM) Department of Electrical and Computer Engineering and the Companhia de Electricidade de Macau (CEM) recently co-organised a seminar on the future development of power systems and emerging technologies. UM Faculty of Science and Technology (FST) Associate Dean Tam Kam Weng said in his opening speech that the economic growth in Macau has led to a sharp increase in power consumption, and local universities, companies, and government departments have been discussing the use of renewable energy and smart grid technology in Macau as a solution to this issue. The seminar attracted experts and scholars from Europe, Australia, Canada, Hong Kong, Macau, and Mainland China. Participants
and Exhibition, the company announced a co-operation agreement with the Macau Ecologic Association ‘in order to implement a regional project similar to Mobi.E – electrical mobility – and its transformation in a sort of ‘InovCity’’. Another project was the construction of a natural gas plant in Macau. Arnaldo Santos, co-ordinator of the Energy Sector Development Office, recently told our sister publication Macau Business that solar energy is viable and “relatively abundant” in Macau. Stanley Ho sold his 40 per cent share in EDP Energy Solutions Asia to CTG.
discussed the applications of smart grid technology in their countries and regions, including a new type of EV motors in Mainland China, a wireless EV charging technology in Europe, the use of alternative energy in Denmark, and the latest developments of micro grid technology around the world.
6 | Business Daily
November 6, 2015
Macau HK facilitating wine entering Chinese Mainland The customs facilitation measures for wine entering the Chinese Mainland through Hong Kong have been extended from designated ports in Guangzhou and Shenzhen to all ports in five Mainland cities, Hong Kong’s Secretary for Commerce and Economic Development Gregory So said yesterday. Besides Guangzhou and Shenzhen, the other three cities included in the new measures are Beijing, Shanghai and Tianjin, So said, adding the measures will help wine from all over the world enter the northern China market and consolidate there. Under the measures, which were enhanced in September 2014, Hong Kong-registered wine exporters submitting advance wine consignment information online may enjoy instant customs clearance at the Mainland ports concerned.
Low cost tours with hidden traps China has seen a slew of high-profile scandals involving cheap tours, especially to the SARs. Last month, a Chinese mainland tourist died in Hong Kong while mediating a shopping dispute. The man was reportedly on a budget group tour
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hinese tourists are learning that travel deals that sound too good to be true probably come with big risks and strings attached. Offers such as five-day tours to Hong Kong and Macau for 599 yuan (US$95 Udollars) or one-day 100yuan tours to China’s southwestern city of Chengdu have lured many tourists. But these budget tours have earned a reputation for trickery and forced spending following recent scandals. Lei Min expected her tour to Chengdu, capital of Sichuan Province, during October’s National Day holiday to be pleasant, but it turned into a nightmare she will never forget. Lei, a 29-year-old white-collar worker from northwest China’s Shaanxi Province, was forced into a duty-free shop in Chengdu’s Pixian County, along with other tourists on the one-day tour. “They threatened not to let us go unless we bought the jewels they recommended, which cost thousands of yuan,” Lei said in a report carried by Shaanxi’s local Huashang Newspaper this week. Lei was finally able to leave when one of the tourists unwillingly spent more than 3,000 yuan on jewels some 40 minutes later, according to the newspaper. The story circulated on Chinese social media, with netizens lambasting the budget tours for deceiving tourists. “I would rather get lost in a city than join a guided low-cost tour,” wrote a netizen on microblog Sina Weibo.
“How do you expect a shoppingfree tour at such a low price?” said another. “Don’t fall into cheap traps again!” China has seen a slew of highprofile scandals involving cheap tours. Last month, a Chinese mainland tourist died in Hong Kong after he was allegedly beaten unconscious by a gang of four men while mediating a shopping dispute. The man was reportedly on a budget group tour.
Popular cheap tours
Low-cost group tours are a growing strain on tourist experience in the country, according to a Tuesday report jointly issued by tourism website mafengwo.cn, news app Toutiao and the Bank of China. The report was compiled based on information from travel service searches, question and answer sessions between tourists and agencies, and comments from 600 million Chinese tourists over the past two years. But even though scandals abound surrounding the low-cost tours, they so far have not dampened their popularity. Dong Wei, president of Kangwei International Travel Agency in Qinghai Province, said the popularity of budget tours is tied to the attitudes of the tourists themselves. “Many tourists already know that tours cannot be as cheap as they are priced in the slick ads, but they just want to gamble their luck on marketing gimmicks,” Dong said. “After all, such
In an effort to guide the development of the tourism industry, the National Tourism Administration issued a guideline to crack down on “unqualified cheap tours” in September, stipulating that any tours priced 30 per cent lower than official prices are considered illegal
cheap offers are really hard to resist.” Fierce competition in the tourism market has also forced some travel agencies to market budget tours to win more customers, contributing to the growth of low-cost tours, Dong added. “Sometimes the cheap tours are given as gifts when you buy houses or cars, or when you win a lottery,” Weibo user “Nvrenhuarenshengmeng” said. “You think you got a good deal, but then when you go on tour, there’s forced shopping, insults or even threats.” In an effort to guide the development of the tourism industry, the National Tourism Administration issued a guideline to crack down on “unqualified cheap tours” in September, stipulating that any tours priced 30 per cent lower than official prices are considered illegal. But Li Jie, with Qige Law Firm in Qinghai, said that even though China has taken action against cheap tours, more measures are needed. “I think there should be more specific standards about the definition of budget tours, so that the public has a clearer idea,” Li said. “The government should also guide the public on how to avoid illegal lowcost tours.” The lawyer added that different government departments should cooperate to supervise the tourism market to ensure the healthy and sustainable development of the industry. Xinhua
8 | Business Daily
November 6, 2015
Macau
Union Gaming: Operators ‘adjust’ mass tables to VIP A research note by the firm claims that the city’s gaming operators had classified their mass gaming tables as VIP, thus allowing gamblers to smoke. As a result, mass market revenues may have been understated Kam Leong
kamleong@macaubusinessdaily.com
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ore local gaming operators reclassified their mass gaming tables to VIP for smoking purposes last month, which may have led to mass market revenues being understated for the period, according to Union Gaming Research yesterday. “We understand that more operators opted to reclassify mass market tables to VIP in October, likely owing to the Golden Week holiday,” Christopher Jones and John DeCree, analysts of the research firm, claimed in a research note yesterday. Last month, the city’s gaming revenues posted a drop of 28.4 per cent year-on-year to MOP20 billion. Nevertheless, the number is an improvement from some MOP17.1 billion in September.
Increasingly understated
Meanwhile, according to the analysts “as reported by the DICJ
(Gaming Inspection and Coordination Bureau)”, revenues generated by the mass market were down 21 per cent year-on-year to HK$7.7 billion, while those from the VIP segment plunged 33.4 per cent year-on-year to HK$10.9 billion. Some HK$955 million was generated by electronic gaming, which is down 20.8 per cent yearon-year. However, the analysts say Macau’s mass market is being “increasingly understated by table classification”. “We expect the decline [in mass gaming tables] was likely in the mid-teens or less, after adjusting for mass market tables classified as VIP for smoking purposes,” the Union Gaming analysts wrote. However, the research firm noted that the reclassification of gaming tables also means that the amount of VIP gaming revenues could be even lower last month.
“VIP win was off 33.4 per cent year-on-year in October to HK$10.9 billion although that number is likely lower when making the adjustment for table classification,” it said. “The sequential improvement in October represents the seasonal benefit of Golden Week… Overall, we are encouraged by the seasonal lift in October as it evidences demand for Macau during peak periods”.
Too soon to tell
Meanwhile, the Union Gaming analysts perceive that Studio City, the new Cotai project of Melco Crown Entertainment that was officially opened on October 27, could not contribute much to the city’s October gross gaming revenues. The gaming operator is to release its third quarter results to the Nasdaq Stock market early today morning.
THERE ARE THINGS WE DON’T DO BUT WE DO • Advertising • Branding & marketing consulting • Marketing strategy • Creativity • Design
“Studio City opened at the end of the month, although it was not open long enough to make a meaningful contribution to GGR in October. We expect investors will be focused on early signs of demand at the new property; however, it is likely still too early for any meaningful insights,” the two analysts claimed. But a research note from Deutsche Bank yesterday estimated that Studio City may have generated gaming revenues of some US$6 million (MOP48 million) for the period. “If we were to extrapolate the daily results, and assume the contribution is purely incremental, the US$440 million run rate would add [some] 1.6 per cent to annual revenue at the current market run rate pace,” analysts Carlo Santarelli and Danny Valoy wrote. The two analysts forecast that the city’s gaming revenues would drop by 27.5 per cent year-on-year next month from MOP24.3 billion.
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Business Daily | 9
November 6, 2015
Macau
Most Asia stocks climb as Japan gains, China enters bull market SJM Holdings Ltd. fell in Hong Kong after China Merchants Securities downgraded its rating on the Macau casino operator to sell
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ost Asian stocks climbed after comments from Federal Reserve Chair Janet Yellen boosted the dollar against the yen, spurring equity gains in Tokyo, and Chinese shares entered a bull market as state rescue efforts halted a US$5 trillion rout. Citic Securities Co., China’s biggest brokerage, advanced 7.4 per cent amid speculation of state intervention in financial stocks. Japan Tobacco Inc.
jumped 6.8 per cent after raising its year-end dividend. Yokogawa Electric Corp. surged 8.6 per cent in Tokyo after the maker of factory automation equipment reported first-half operating profit doubled. SJM Holdings Ltd. fell 3.7 per cent in Hong Kong after China Merchants Securities downgraded its rating on the Macau casino operator to sell. Five stocks rose for every four that fell on the MSCI Asia Pacific Index, which was
little changed at 134.71 as of 4:07 p.m. Hong Kong time. The Topix index climbed 1 per cent. U.S. shares slid on Wednesday and the greenback strengthened after Yellen, speaking before the House Financial Services Committee, said an improving economy has set the stage for a December interest-rate increase if reports continue to assure policy makers that inflation will accelerate over time. Companies in the U.S. added 182,000 workers to payrolls in October, signaling steady improvement, figures released by ADP Research Institute showed. “Yellen really means it when she says she wants to raise interest rates this year, so as long as employment or inflation don’t disappoint, it remains a real possibility she will follow up on her words,” said Mitsushige Akino, executive officer at Ichiyoshi Asset Management Co. in Tokyo. “The weaker yen will likely boost Japanese
stocks at the start, however a weaker yen that comes with the threat of higher interest rates isn’t a positive.”
Fed liftoff
Following Yellen’s remarks, Fed Bank of New York President William Dudley said at a press briefing he “completely” agrees with Yellen that a December liftoff is “a live possibility”. Investors are also waiting to hear from Vice Chair Stanley Fischer. Traders now price in a 56 per cent chance the central bank will increase rates at its December meeting. China’s Shanghai Composite Index gained 1.8 per cent, taking its advance from its Aug. 26 low to more than 20 per cent. The government took extreme measures to shore up equities as a boom turned to bust in June, including banning major stockholders from selling shares, curbing short selling and directing state funds to purchase equities.
Margin debt is also rising and trading volumes have stabilized. The Hang Seng China Enterprises Index of mainland stocks in Hong Kong added 0.5 per cent.
State buying
“I suspect that the state or the state-backed funds are buying brokerage stocks and by doing that, they can quickly boost sentiment on the broader market,” said Wang Zheng, the Shanghaibased chief investment officer at Jingxi Investment Management Co. Hong Kong’s Hang Seng Index was little changed. South Korea’s Kospi index lost 0.2 per cent. Australia’s S&P/ASX 200 Index sank 0.9 per cent. New Zealand’s S&P NZX 50 Index was little changed. Taiwan’s Taiex index slipped 0.1 per cent. Singapore’s Straits Times Index fell 0.4 per cent. E-mini futures on the S&P 500 increased 0.1 per cent. Bloomberg
10 | Business Daily
November 6, 2015
Greater China
Coal town bears scars of waning growth More than 80 percent of Chinese mines are losing money because of plummeting prices David Stanway
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eneath the mask of official Chinese jobless figures, barely changed through thick and thin since 2002, the northeast mining city of Jixi bears the scars of China’s slowing economy and ailing heavy industry. Giant mounds of unsold coal sprout weeds in the makeshift depots marking nearly every junction, and bitter Siberian winds blow sulphurous dust through streets peopled by laidoff miners. “This is a coal city and there is nothing else,” said Xin Qinling, a former miner now responsible for dwindling shift rotas at Jixi’s depleted Zhengyang coalmine. State-owned Longmay Group, which owns most of the collieries in Jixi, including Zhengyang, has been making losses since 2012. It said last month it would adopt a “wartime work atmosphere” and cut its 248,000 headcount by as much as 100,000 by year-end, more than the entire labour force of the U.S. coal sector. As a state firm, it still has to grapple with its various “social responsibilities”, including the pensions of 180,000 retirees and the upkeep of 42 hospitals and 130 schools in the region. With Chinese economic growth dipping to a 25-year-low and government waging a “war on pollution”, the plight of Jixi, 19 miles from the Russian border in the province of Heilongjiang, is echoed across China’s coal belt. The Luan Group in Shanxi province, another of China’s big state
KEY POINTS Jixi coal city hit by tumbling coal prices, demand Longmay Group cutting headcount by 100,000 by year-end China National Coal Assoc says 80 pct mines losing money Mines across country cutting wages, slashing jobs Coal prices at Qinhuangdao port down 28 pct in 2015
Wang Xianzheng, head of the China National Coal Association, said in July that coal firms throughout the country have been slashing wages by as much as 30 percent. His association surveyed 85 coal firms and found 40 were struggling to pay staff, and many had failed to keep up with mandatory pension and health insurance contributions. The association estimates that more than 80 percent of Chinese mines are losing money because of plummeting prices. Xin said the Zhengyang mine had already cut its workforce to 1,600 from 4,000 at its peak, and all miners aged 50 and over had been let go. Other Longmay-owned mines in the city have made similar cuts. “We are certainly facing closure,” Xin said, adding that monthly output, once more than 200,000 tonnes, had been slashed to around 80,000 tonnes.
Downstream drought
miners, said last month it had no choice but to cut output and put some workers on extended unpaid leave. The industrial provinces of Liaoning, Shanxi and Heilongjiang were China’s slowest-growing provinces in the first half of the year, with growth of 2.7 percent, 2.6 percent and 5.1 percent, compared with a nationwide 7 percent. “Many laid-off miners went elsewhere,” said Xin.
The malaise affecting coal has also hit other heavy manufacturers and the construction industry. At job fairs in first-tier cities like Beijing and Shanghai you can find the casualties, like a laid-off welder from Jining in his 30s who gave his surname as Lu. But the focus of growth in such cities and in booming coastal provinces is in services like finance, cocktail bars, and software development, which doesn’t help people like Lu. “Jobs are hard to find this year. It’s like an economic crisis that you have to fight so hard for a job,” he said.
While coal consumption in Jixi will pick up as winter temperatures plunge, it won’t compensate for the closure of Beigang, the city’s biggest steel mill, last year. Demand from major downstream industries like steel, cement and electric power has declined in the first three quarters of the year, leaving massive overcapacity in coal built up in the boom years. Industry officials say survival for the sector, which employs an estimated 5.9 million people nationwide, with productivity per worker around 20 times lower than the United States, depends on making cuts. Even so, the job losses are unlikely to budge the unemployment statistics, stuck between 4 and 4.3 percent for 13 years, which even officials admit are unreliable. Some economists doubt China’s growth figures are an accurate reflection of circumstances on the ground, too, with measures like falling power consumption painting a much less rosy view of economic activity. That helps explain why coal prices at the port of Qinhuangdao are about 28 percent lower than at the start of the year and still falling. “The prices are either the same or lower than our costs, but we are trying to keep going for the sake of holding onto our customers,” said Sun Meng, who owns a small coal depot in Jixi. “It is impossible to keep our heads up; everyone is cutting production, but it isn’t enough to make a difference, and most people think the market won’t pick up for at least another three years.” Reuters
Business Daily | 11
November 6, 2015
Greater China Oaktree’s Marks to tap more Mainland funds Howard Marks, co-founder and chairman of Oaktree Capital, the world’s largest distressed debt investor, said yesterday he expects to raise more funds from Chinese high net worth investors to buy distressed debt overseas. Speaking at the AVCJ Private Equity & Venture Forum 2015 in Hong Kong, Marks said Oaktree was looking at opportunities in the global energy sector, which he said was the most “stressed” in the world today due to the plunge in oil prices. In China, Oaktree was eyeing potential investments in the domestic stock market after so-called A-shares plunged over the summer, Marks said.
Beijing continues to loosen price controls China’s local governments have given enterprises more autonomy to price their products and services, said an official with the country’s top economic planner yesterday. So far, 30 of China’s 31 provincial-level governments have revised their “pricing catalogues,” reducing the number of items subject to government price controls by 55 percent, said Li Pumin, secretary general of the National Development and Reform Commission. Last month, the central government revised its catalogue, cutting the number of items subject to its price controls by 80 percent as part of efforts to give the market a bigger role.
Watchdog accepts Alibaba probe
A Chinese regulator has formally accepted a request by JD.com, the country’s second-biggest online retailer, to investigate its rival Alibaba for possible unfair practices during promotions, JD.com’s official microblog said yesterday. Alibaba, China’s biggest e-commerce firm, has previously denied accusations outlined in a JD.com letter to the State Administration for Industry and Commerce in the run-up to November 11 ‘Singles’ Day’ promotions, the biggest online shopping day of the year in China. JD.com said in its letter said Alibaba, was “forcing merchants” to choose to deal exclusively with one e-commerce site for promotional activities.
Disney to get special trademark protection China will give special trademark protection to Walt Disney Co as the iconic U.S. firm prepares to open its first theme park in mainland China next year, a regulator said yesterday. Authorities will carry out a year-long campaign to crack down on Disney counterfeits, the State Administration for Industry and Commerce said, underlining wider concerns that fake products are damaging the country’s reputation. China has struggled to shake off a reputation for fakes, from replica handbags to knockoff cars, which cause headaches for global brands such as iPhone maker Apple and luxury retailer LVMH.
October data expected to show economy steadying Annual consumer inflation likely inched down to 1.5 percent in October from September’s 1.6 percent
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deluge of Chinese data due in coming weeks could show tentative signs of stabilisation in the world’s second-largest economy with growth remaining uneven across the country. Industrial output may have expanded at a slightly faster pace in October while exports and imports likely declined at a slower rate, a Reuters poll showed, which would represent a long-awaited welcome pickup in demand. Underscoring an uneven growth path, investment is seen weakening to multi-year lows in October while producer prices likely continued to decline and bank lending may have cooled from a surge in September. However, the mixed data is unlikely to dissuade economists who have called for Beijing to roll out more support, including both easing and fiscal stimulus, in coming months keep growth on keel. UBS economists, for example, expect the numbers to show real economic activity remaining sluggish, necessitating further policy support. “We see unabated policy support in the coming months, as the real activity has remained sluggish and the downward pressures persist,” the UBS economists said in a research note. To shore up growth, Beijing has rolled out a flurry of support steps since last year, including slashing interest rates six times since November 2014 and lowering the amount of cash
that banks must hold as reserves four times this year. However, the lack of end-user demand combined with produce price deflation have combined to dissuade many business owners from further investment. As a result, while the cost of existing debt burdens has declined, helping keep businesses from sinking, the easing has yet to translate into recharged growth momentum. Beijing has also boosted spending on infrastructure and eased curbs on the ailing property sector as part of attempts to avoid a hard landing, but the government has admitted publicly that it has yet to find a “new growth engine” to replace dependence on investment intensive manufacturing and exports.
Headwinds
The Reuters poll showed that fixedasset investment - a key economic driver - is forecast to have grown 10.2 percent in the first 10 months of 2015 from a year earlier. Through the first nine months, the increase was 10.3 percent, the slowest pace since 2000. In a sign of subdued domestic and external demand, exports in October likely fell 3.0 percent from a year ago, compared with a fall of 3.7 percent in September, while imports were seen falling 16 percent, easing from a 20.4 percent drop in September. Factory output likely grew 5.8 percent year-on-year in October, quickening from September’s 5.7
Industrial output may have expanded at a slightly faster pace in October
percent rise while retail sales, a key measure of domestic consumption, likely grew 10.9 percent, the same pace as in September, according to the poll. Firms were still struggling to cope with persistent deflationary pressures with the producer price index (PPI) falling for a 44th straight month in October. The poll also showed banks are likely to have extended 798.2 billion yuan (US$125.98 billion) in new loans last month, cooling from September’s 1.05 trillion yuan, while annual growth of M2 money supply may have risen to 13.2 percent, little moved from 13.1 percent in September. Reuters
Fuel surplus to double by 2020 as refining sector opens Teapot refiners could win quotas to import a total of 1.6 million barrels of crude oil per day Chen Aizhu
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urplus annual production of diesel, gasoline and kerosene in China will double to nearly 30 million tonnes by 2020 from last year’s level, boosted by increasing output from independent refiners, according to an industry research paper. Smaller and independently operated refineries, known as ‘teapots’, are set to churn out more and higher-grade oil products after Beijing allowed them to import crude for the first time to encourage competition and boost private investment. That could stoke exports of finished products from the world’s second-largest refining industry after the United States, dragging on Asian refining margins already pressured by rising supplies from mega-sized new refineries in the Middle East. “With improved feedstock, they’ll be able to produce higher quality fuel ... Teapots will become more competitive in the Chinese fuel
market,” CNPC Economics and Technology Research Institute, the in-house research arm for state energy giant China National Petroleum Corp, said in its paper. These plants, mostly in the eastern province of Shandong, used to produce diesel and gasoline by processing imported fuel oil from places such as Russia or Venezuela, a feedstock heavier and generally of poorer quality than crude oil. The paper, released to media this week, estimated that teapot refiners could win quotas to import a total of 1.6 million barrels per day of crude oil. By the end of October, Beijing had granted 11 plants quotas to ship in a total of nearly 1 million bpd. China’s refining industry has long been dominated by state companies Sinopec Corp and PetroChina, which have only until recently started scaling down expansion after nearly two decades of building frenzy. The growing fuel surplus will see
independents queuing up to apply for permits to export as early as next year, industry experts said. For now, only a handful of state refiners are licensed oil exporters. Total Chinese exports of diesel, gasoline and kerosene stood at around 20 million tonnes in 2014, according to customs data. Teapot refineries are forecast to operate at 60 percent of their total capacity in 2016, up from an estimated 37 percent in 2014, according to CNPC. It also estimated China’s total crude oil processing capacity would reach 800 million tonnes, or 16 million bpd, by 2020 assuming an average addition of 400,000 bpd of new capacity each year. Crude throughput is likely to hit 12 million bpd, or 1.6 million bpd more than the current rates shown in official data. Reuters
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November 6, 2015
Asia
Cash-hungry firms steer Asia IPOs into fast lane With mainland IPO market frozen since July, smaller markets such as Thailand and India are also reaping increased activity Elzio Barreto and Denny Thomas
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s the world absorbs life with a slowing Chinese economy, business is brisk for one group - Asia’s bankers, handling a burst of stock listings by mainland firms that need funds now and are resigned to their shares being worth less than before. Though initial public offering valuations may be cheaper, the pace of deals is accelerating. A Reuters review of upcoming deals showed an estimated US$17 billion for IPOs due for the last two months of the year in Asia, with a near-doubling of Hong Kong deals after China growth jitters cast a third-quarter pall. Helped by Japan Post’s US$12 billion privatisation - the country’s biggest in 30 years - Asia’s fourthquarter IPO tally could be US$36 billion. That would make it the region’s best three months since fourth-quarter 2010’s record US$76.2 billion when China was in full flight, according to Thomson Reuters data. “Everything is being marketed in the context of slower growth” in China, said Mille Cheng, co-head of Asia Pacific Equity Capital Markets
at Morgan Stanley in Hong Kong. “Investors want to use capital, but remain cautious.” The rebound in deals has provided a much needed reprieve for fee-starved bankers after the third-quarter drought. Underwriting of IPOs and other equity deals account for about half of investment banks’ revenue in Asia, compared with 20 percent in the United States and 19 percent in Europe, making it critical for their operations. But bankers caution they expect deals in the pipeline for early 2016 will reflect valuations staying low even for solid firms with decent prospects - a consequence of the new reality of a slower-growth China. Hong Kong’s Hang Seng index remains 19 percent below a high for the year reached in late April. “Sentiment has improved, but we’re not seeing a complete recovery yet,” said Morgan Stanley’s Cheng, “it has to be the right story and the right valuation.”
Discerning investors
While South Korea, Australia and Thailand are set to remain
comparatively steady IPO markets through the end of the year, the fourth quarter has already seen meaty Hong Kong deals from China Reinsurance and Huarong Asset Management mainland companies that want to raise funds for expansion. Last weekend, China International Capital Corp, the country’s oldest domestic investment bank, raised US$811 million in Hong Kong IPO at the top of a marketing range that was set modestly to lure after the company made initial pitches on the deal to investors. While investors are willing to buy, fund managers have been discerning about their bets, driving hard bargains even for strong brand names and consumer plays that are better placed to tide over the economic slowdown - as cinema equipment maker IMAX China Holding Inc found to its cost last month. IMAX China raised US$248 million in an Hong Kong IPO where shares had to be priced near the bottom of a marketing range, representing a 2015 price-to-
earnings multiple of 24 compared with a sector median of 32, according to Thomson Reuters data. With mainland China’s own IPO market frozen since July after regulators tightened scrutiny of new listings to limit supply of new stocks, smaller markets such as Thailand and India are also reaping increased activity. Star Petroleum Refining plans a US$500 million deal in Bangkok, while an up-to-US$465 million offering is due from Indian budget airline IndiGo in November. Hong Kong, though, provides the mainstay. Upcoming deals include an up-to-US$1.3 billion listing by snack maker Dali Foods Group and a US$2 billion IPO by China Energy Engineering Corp Ltd. “Market performance has improved since the lows over the summer and companies are taking advantage of that to get deals done rather than waiting for further improvement,” said Jonathan Penkin, head of growth markets equity capital markets at Goldman Sachs. Reuters
Australia’s RBA takes banks to task on mortgage reporting Some banks have reclassified loans as owneroccupier that had once been investor debt
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ustralia’s central bank yesterday castigated local banks misreporting the scale of their investor and owner-occupier home lending, saying it justified closer supervision by regulators. Reserve Bank of Australia (RBA) Deputy Governor Philip Lowe (pictured) said regulators planned to join with the Australian Bureau of Statistics to undertake a thorough review of bank lending data sometime next year. The RBA has long been worried that a too-rapid build up in investment lending for homes could inflate a price bubble and trigger a subsequent crash. As a result, regulators
tightened supervision of the banks and sought to cap growth in investment lending. Lowe said it was concerning, then, that over the past six months a range of banks sharply revised upward the amount they had leant as investor loans, debt that had formerly been classified as owner-occupied. The revisions from 10 institutions, including two of the four major banks, increased the stock of investor credit outstanding by around A$50 billion, or 10 percent. The revisions meant investor loans now accounted for 40 percent of mortgages outstanding, and not 35 percent as first indicated.
Furthermore, over the last couple of months some banks had reclassified loans as owneroccupier that had once been investor debt. The effect was to make it seem that growth in investor lending had fallen sharply. “These various data problems have reinforced our view that the supervisory focus on investor lending has been entirely appropriate,” said Lowe. “And it is disappointing that some lenders’ internal systems have not been up to the task of reporting accurate data on the split between investor and owner-occupied housing loans.” Reuters
editorial council Paulo A. Azevedo, José I. Duarte, Mandy Kuok Founder & Publisher Paulo A. Azevedo | pazevedo@macaubusinessdaily.com Newsdesk João Santos Filipe, Michael Armstrong, Stephanie Lai, Óscar Guijarro, Kam Leong, Joanne Kuai GROUP SENIOR ANALYST José I. Duarte Designer Francisco Cordeiro WEB & IT Janne Louhikari Contributors James Chu, João Francisco Pinto, José Carlos Matias, Larry So, Pedro Cortés, Ricardo Siu, Rose N. Lai, Zen Udani Photography Carmo Correia Assistant to the publisher Lu Yang | lu.yang@projectasiacorp.com office manager Elsa Vong | elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd.
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Business Daily | 13
November 6, 2015
Asia
Indonesia’s growth pace inches up in third quarter
Forum on RMB internationalization held in Cambodia
Some analysts said the policy changes haven’t been bold enough and will take some time to aid growth Nilufar Rizki and Hidayat Setiaji
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ndonesia’s economy grew slightly more quickly in the third quarter than the second, thanks to higher government spending, but the pace was not strong enough to show a sustainable turnaround has begun. Southeast Asia’s largest economy expanded 4.73 percent in JulySeptember from a year earlier, the statistics bureau said yesterday. That was faster than the 4.67 percent pace in the previous quarter - the slowest in six years - but below the 4.79 percent median in a Reuters poll. “It came lower than expectations but nonetheless it did mark a turnaround,” said Wellian Wiranto, economist at OCBC Bank in Singapore. “We think it would actually signal a more sustained pick-up from here.” But Capital Economics said growth continued to be weak and a turnaround is unlikely. “With tight money policy and low commodity prices likely to remain a drag on the economy, we expect growth to remain stuck at 4.5-5 percent over the next few years,” Asia economist Gareth Leather said.
President Joko Widodo has said he hopes 2015 growth will be near 5 percent. With each of the first three quarters being around 4.7 percent, growth would likely be below 5 percent for the first time since 2009. He has set a target of 5.3 percent for next year. Helping lever up the July-September rate was government spending, which had been slack in the first half. Suhariyanto, the statistics bureau deputy head, said higher capital spending meant better growth in public consumption and investment.
Weaker household consumption
However, growth in manufacturing slowed and mining contracted. Household consumption weakened slightly, as revenue from exports fell and business activity slowed. Rising poverty and unemployment are putting pressure on President Joko Widodo, who last month completed the first year of a five-year term. Widodo, Indonesia’s first president from outside the military and political elite, emphasized social programmes
KEY POINTS Q3 GDP y/y growth 4.73 pct, slightly lower than expected Q3 GDP q/q growth, not seasonably adjusted, 3.21 pct in his campaign while he also pledged to lift economic growth to an average 7 percent annually during his term ending in 2019. In an attempt to improve Indonesia’s investment climate and boost sagging growth, Widodo in September began rolling out stimulus measures. But some analysts said the policy changes haven’t been bold enough and will take some time to aid growth. Bank Indonesia’s tight monetary policy, to combat inflation and support the fragile rupiah, has been one of the factors keeping growth sluggish. Reuters
Thai stimulus lifts consumer mood for first time in nearly a year
India has dismissed international rating agency Moody’s report which suggested Prime Minister Narendra Modi should keep the ruling Bharatiya Janata Party members in check. “It is with regret the government of India notes the irresponsible and distorted reporting by certain sections of the Indian media on what was the personal opinion of a junior associate economist employed with Moody’s Analytics,” an official release said Wednesday. The report came out last Friday and urged Modi to keep his party members in check or risk losing domestic and global credibility.
The resale prices for Housing Board flats in Singapore remain unchanged in October, according to the latest report released by Singapore Real Estate Exchange (SRX) yesterday. On a year-on-year basis, the resale prices dropped 2.6 percent, if compared to April 2013, the prices declined 11.7 percent, SRX said. Resale volume also saw an increase of 16 percent on-month, with 1,745 resale flats sold in August, compared to the 1,504 in September. The overall median Transaction Over X-Value, which measures whether people are overpaying or underpaying SRX Property’ s estimated market value, was 1,000 Singapore dollars (US$714) last month.
Kitiphong Thaichareon and Orathai Sriring
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Toshiba flags huge H1 operating loss
Consumers are still worried about economic uncertainties at home and abroad
by steps to help small firms and the property sector and home buyers. This week it approved 13 billion baht of support for rubber farmers. “The economy appears to have bottomed out in October. It’s the first time that people thought the economy would get better,” Thanavath Phonvichai, an economics professor at the university, told a news conference. “If the government can inject money as it has said, consumer confidence and the economy will improve further,” he added. Thanavath said the government
India dismisses global rating agency Moody’s report
Singapore resale home prices remain flat
In a bid to boost the economy, the junta recently approved stimulus measures worth US$3.84 billion
hai consumer confidence rose for the first time in 10 months, a university survey showed yesterday, boosted by stimulus measures from the military government as it tries to revive the economy. Southeast Asia’s second-largest economy has been in the doldrums since a military coup last May ended months of political unrest, with exports and consumption sluggish amid high household debt and shaky consumer confidence. Falling commodity prices have cut farmers’ incomes. The consumer confidence index of the University of the Thai Chamber of Commerce increased to 73.4 in October from 72.1 in September, when it struck a 16-month low. Consumers are still worried about economic uncertainties at home and abroad, the university said in a statement, so spending will likely improve gradually only late this year as more funds from the measures become available. In a bid to boost the economy, the junta recently approved stimulus measures worth 136 billion baht (US$3.84 billion) aimed at lifting rural areas’ purchasing power, followed
A forum on the internationalization of Renminbi (RMB), or known as Chinese Yuan, was held here yesterday with the participation of around 50 bankers and entrepreneurs. Speaking at the opening of the forum, Neav Chanthana, deputy governor of the National Bank of Cambodia (NBC), said the forum provided an excellent opportunity for all participants to exchange views and gain insightful information about the latest development related to the RMB internationalization. “Since the trade between China and the globe is increasing, the need for RMB clearing and settlement is also high,” she said.
likely injected about 10 to 20 billion baht (US$282-563 million) in October from the support measures along with higher foreign receipts on strong growth in tourism The university has forecast economic growth of 2.7-2.8 percent this year and rising to 3.5-4.0 percent next year, he said. The projections are in line with the central bank’s growth estimate of 2.7 percent for this year and 3.7 percent for 2016. The economy grew just 0.9 percent last year, the weakest in three years. Reuters
Japan’s Toshiba Corp signalled yesterday that it expects to book a large first-half operating loss as it struggles to recover from a US$1.3 billion accounting scandal, fuelling concerns that it may need a more drastic restructuring. The grim outlook also adds pressure on the embattled electronics maker to decide whether to sue former management for negligence over accounting practices in a bid to avoid lawsuits from angry shareholders. Toshiba said its operating loss would be roughly in line with the 90 billion yen (US$741.11 million) loss the Nikkei business daily.
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November 6, 2015
International ECB analyses slower inflation causes A rebound in the euro late last summer, coupled with further falls in the price of oil, partly explains a slowdown in euro zone inflation, the European Central Bank said yesterday. “Some of the loss of momentum in the pick-up in underlying inflation can be attributed to a recent strengthening in the euro exchange rate and the indirect effects of recent further declines in oil prices,” the ECB said in its Economic Bulletin. Consumer prices in the euro zone dipped 0.1 percent in September and were flat in October despite the ECB’s 60-billion euros a month asset-purchase programme, which was launched in March with the aim of reviving inflation.
Pacific trading partners release trade pact details The TPP would be a boon for factory and export economies like Malaysia and Vietnam Krista Hughes and Matt Siegel
Norway central bank keeps rates on hold Norway’s central bank kept its main interest rate on hold yesterday and repeated that it may cut rates again in the coming year, adding that economic developments had been slightly weaker than expected since September. All 12 economists polled by Reuters had expected the central bank to keep its main rate on hold at a record-low 0.75 percent in November. “An overall assessment of new information implies that the key policy rate be kept unchanged at this meeting,” the central bank said in a statement.
German factory orders fall in September German industrial orders, a key measure of demand for goods in Europe’s top economy, fell in September, weighed down by declining demand from the euro area, the economy ministry said yesterday. Provisional official data showed a decrease of 1.7 percent month-on-month, following declines of 1.8 percent in August and 2.2 percent in July. Analysts polled by financial services firm FactSet had pencilled in an increase of 1.0 percent for September. The decline was attributable to weaker foreign demand for German-made goods. Export orders fell by 2.4 percent, while domestic orders slipped by 0.6 percent, the ministry calculated.
Pressure grows on Kazakh tenge Kazakhstan’s tenge currency has fallen to new lows this week after the reshuffle at the central bank, while the regulator remained silent on its policy plans but appeared to be taking a hands-off approach. The weighted average of the Kazakh tenge fell to 298.92 per dollar in the main, morning session on the Kazakhstan Stock Exchange yesterday from 284.28 in the previous morning session. The weighted average rate, which is used as the official one, has slid 6.2 percent since presidential aide Daniyar Akishev replaced Kairat Kelimbetov as central bank chairman on Monday.
U.S. senators probe pharmaceutical drug pricing Two U.S. senators on Wednesday launched a bipartisan investigation into pharmaceutical drug pricing, requesting documents from four drugmakers, including Valeant Pharmaceuticals. They also requested information from Turing Pharmaceuticals, Retrophin Inc and Rodelis Therapeutics, Senators Susan Collins and Claire McCaskill, who lead the Senate’s Special Committee on Aging, said in a statement.
TPP will have to face strong opposition from U.S. lawmakers
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he long-awaited text of a landmark U.S.-backed Pacific trade deal was released yesterday, revealing the details of a pact aimed at freeing up commerce in 40 percent of the world’s economy but criticized for its opacity. If ratified, the Trans-Pacific Partnership (TPP) will be a legacydefining achievement for U.S. President Barack Obama and his administration’s pivot to Asia, aimed at countering China’s rising economic and political influence. China has responded with its own Regional Comprehensive Economic Partnership (RCEP), a proposed 16-nation free-trade area including India that would be the world’s biggest such bloc, encompassing 3.4 billion people. But TPP, which will set common standards on issues ranging from workers’ rights to intellectual property protection in 12 Pacific nations, was
kept largely from public scrutiny, angering transparency advocates concerned over its broad implications. It is opposed by labour unions and many of Obama’s fellow Democrats, including presidential candidate Hillary Clinton, who backed the developing trade pact when she was secretary of state during Obama’s first term. Some pro-trade Republican lawmakers are also wary of the deal, heralding a tough fight to get the deal through Congress, although this is not expected before March. Republican White House contender Donald Trump has labelled it a “disaster.” The deal does not include measures demanded by some U.S. lawmakers to punish currency manipulation with trade sanctions or set monopoly periods for next-generation biologic drugs at 12 years. Agreement on the pact, which was more than five years in the making,
Iceland prepares measures to quash monetary speculation Higher yields are once again making Iceland a magnet for investors that borrow in low-rate currencies and carry them into the island’s economy Omar R. Valdimarsson
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s Iceland prepares to rejoin the club of countries with open economies, the island’s central bank is drafting proposals that will allow it to keep the door shut for carry traders hoping to make a quick buck. The bank’s drive comes after it raised its benchmark interest rate
for a third time since June, hitting 5.75 percent and driving it further away from the unprecedented low, and even negative, rates dominating the rest of western Europe. Higher yields are once again making Iceland a magnet for investors that borrow in low-rate currencies
was trumpeted a month ago after intense talks in Atlanta broke a deadlock over trade in dairy products, pharmaceuticals and autos. The fine print will be important. Details on local content thresholds for the auto industry are sketchy, for example, and U.S. footwear importers are waiting to see how long duties will stay. The TPP would be a boon for factory and export economies like Malaysia and Vietnam. Anticipated tariff perks are already luring record foreign investment into Vietnamese manufacturing and both countries are expected to see increased demand for their key exports, from palm oil and rubber to electronics, seafood and textiles. That could put pressure on several of Asia’s major developing economies, including the Philippines and Indonesia, which have recently expressed interest in signing up to the pact. . Thailand said it was studying the deal and may consider joining. Japan has pledged to ease trade barriers on imported French fries and butter - products which have been in short supply in the Asian market while Malaysia will eliminate tariffs on all imported alcohol for the first time in a trade agreement. Other firsts cited by the partners - Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam - include the first commitments to discourage imports of goods produced by forced labour and to adopt laws on acceptable working conditions, and the first prohibition on harmful fisheries subsidies. Reuters
and carry them into the island’s economy. A similar inflow of capital was instrumental in helping cause the financial instability that triggered its 2008 collapse. Since May, foreign investors have snapped up 49 billion kronur (US$377 million) in nominal Treasury bonds, or about 7 percent of the outstanding stock, pushing down yields. “It’s no secret that we’re seeing certain cracks in the monetary policy process because of these inflows,” Governor Mar Gudmundsson said in an interview Wednesday in Reykjavik. Iceland is raising rates to rein in inflation as the island completes its resurrection amid plans to ease capital controls next year. Economic growth is now faster than in the euro zone on average and inflation will move above the central bank’s target next year as wage growth soars, according to the bank. To stem the inflows, Gudmundsson said the bank is working on proposals that will allow it to reduce investors interest in short-term krona positions. Iceland could choose to tax carry traders or impose minimum reserve requirements with very low or no interest. Bloomberg News
Business Daily | 15
November 6, 2015
Opinion Business
wires
The fraught politics of the TPP
Leading reports from Asia’s best business newspapers
Koichi Hamada
Special Economic Adviser to Japanese Prime Minister Shinzo Abe, is Professor Emeritus of Economics at Yale University and at the University of Tokyo
THA KOREA HERALD South Korea’s industry minister pledged yesterday to remove administrative red tape that is holding up foreign investment. In a meeting with members of the American Chamber of Commerce and Industry in Seoul, Yoon Sang-jick said he will work closely with other government ministries to find reasonable ways to deal with regulatory obstacles that are hindering inflows of investments. “Efforts will be made to work closely with foreign companies operating in South Korea to find ways to make the local business environment more attractive to companies,” the industry minister said.
TAIPEI TIMES Hon Hai Precision is expected to be the sole assembler of Apple’s new 4-inch iPhone next year, KGI Securities said in a client. As there is still demand for 4-inch iPhones, KGI analyst Kuo Ming-chi said Apple might begin to mass produce an upgraded 4-inch iPhone that would be based on iPhone 5S specifications in the first half of next year. “As Hon Hai was the sole assembler for the iPhone 5S, we believe the company has a very high chance of receiving the order to assemble the upgraded 4-inch iPhone next year,” Kuo wrote.
PHILSTAR The Bangko Sentral ng Piipinas (BSP) stressed the need for Philippine banks to shape up amid intense competition from the entry of foreign banks into the country and economic integration in the region. BSP Governor Amando Tetangco Jr. said banks operating in the country need to beef up and strengthen their operations to survive intense competition from regional banks. “In an increasingly integrated regional setup, there is wisdom for further beefing up, given current size of our banks and the system as a whole,” he said.
JAKARTA GLOBE Indonesian banks maintained their loan growth in September as rising loan demand from state-owned enterprises (SOEs) made up for loss of appetite among private firms, data from Bank Indonesia showed. The number of domestic loans expanded 10.9 percent year-on-year in September to Rp 3,987.5 trillion (US$293.3 billion). The growth pace also stood at 10.9 percent in August, accelerating from 9,7 percent in July. SOEs took up Rp 214 trillion in loans, up 4 percent from a year earlier and accelerating from 2.3 percent pace in August.
The Trans-Pacific Partnership negotiators with U.S. representative Michael Froman in the centre
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ast month, 12 countries on both sides of the Pacific finalized the historic Trans-Pacific Partnership trade agreement. The scope of the TPP is vast. If ratified and implemented, it will have a monumental impact on trade and capital flows along the Pacific Rim. Indeed, it will contribute to the on-going transformation of the international order. Unfortunately, whether this will happen remains uncertain. The economics of trade and finance that form the TPP’s foundations are rather simple, and have been known since the British political economist David Ricardo described them in the nineteenth century. By enabling countries to make the most of their comparative advantages, the liberalization of trade and investment provides net economic benefits, although it may hurt particular groups that previously benefitted from tariff protections. But the politics of trade liberalization – that is, the way in which countries proceed to accept free trade – is much more complex, largely because of those particular groups it hurts. For them, the overall economic benefits of trade liberalization matter little, if their own narrow interests are being undercut. Even if these groups are relatively small, the discipline and unity with which they fight trade liberalization can amplify their political influence considerably – especially if a powerful political figure takes up their cause. That is what is now happening in the United States. Former Secretary of State Hillary Clinton undoubtedly understands the economics of the TPP, which she once called the “gold standard”
It should be noted that liberalization does involve some economic tradeoffs, as protection can, in some areas, serve an important purpose
in trade agreements. But now that she is on the presidential campaign trail, she has changed her tune. The reason is apparent: she has judged that she cannot afford to lose the support of American trade unions such as the United Automobile Workers, whose members fear a reduction in tariffs on car and trucks. This shift may make sense politically, but it is abysmal economics. In reality, the TPP is a great bargain for the US. The concessions it contains on manufactured products like automobiles are much smaller than those on, say, agricultural products, which will involve profound sacrifices from other TPP countries, such as Japan. After all, existing tariff levels on manufactured goods are already much lower than those on agriculture or dairy products. In short, with the TPP, the US
is catching a big fish with small bait. But the increased trade and investment flows brought about by the TPP’s ratification and implementation will benefit even the countries that must make larger sacrifices. Japan, for example, will find that the TPP enhances “Abenomics,” the three-pronged economicrevitalization strategy introduced by Prime Minister Shinzo Abe in 2012. The third component, or “arrow,” of Abenomics – structural reforms – aims to restore growth by raising productivity. But increasing efficiency in a wide variety of sectors, as Japan must do, can be a long, difficult, and piecemeal process, as it involves the upgrading of virtually every technology and process. By connecting Japan’s industries more closely with those of other countries, the TPP can accelerate this process considerably. Moreover, it can spur faster administrative reform. Simply put, the TPP will amount to a powerful tailwind for Abenomics. It should be noted that liberalization does involve some economic trade-offs, as protection can, in some areas, serve an important purpose. As the economist Jagdish Bhagwati points out, maintaining increased protections for, say, intellectual property may encourage research and innovation. At the same time, however, excessive IP protections can deter the proliferation of existing knowledge and the development of high-tech products. In the case of pharmaceuticals, for example, this trade-off can be difficult to navigate. Nonetheless, Bhagwati maintains, when it comes to overall trade and capital movements, freer is better.
Given all of this, one hopes that opposition from political figures like Clinton amounts to naught – an entirely plausible outcome, in Clinton’s case, because the TPP should be enacted before the presidential election in November 2016. This would, to some extent, be in line with the TPP negotiation process, in which the political challenges associated with trade liberalization have been handled remarkably well. It seems that involving so many sectors in so many countries actually made it easier to overcome resistance, as it diffused the opposition and prevented any single specific interest from getting the upper hand. Of course, that does not mean that the negotiations were easy. On the contrary, trade representatives had to display impressive endurance and patience – for more than five years, for some countries. To enable progress, confidentiality was vital (despite US negotiators’ claims that the discussions were wholly transparent). Failure to ratify the TPP in all 12 countries would be a major disappointment, not just because of the tremendous amount of effort that has gone into it, but also – and more important – because of the vast economic benefits it would bring to all countries involved. In Japan, as long as most of the ruling Liberal Democratic Party stands firm in supporting the TPP, it should be ratified. But the situation in the US Congress is more dubious. One hopes that America’s leaders do not miss a golden opportunity to give US businesses – and thus the US economy – a significant boost. Project Syndicate
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November 6, 2015
Closing Non-auto companies may build new energy vehicles
Authorities target telecom reform, merger plans unconfirmed
China will allow companies that do not make autos to produce new energy vehicles (NEV), said Miao Wei, Minister of Industry and Information Technology yesterday. “Dozens of non-auto companies have applied for licenses to produce NEVs. The ministry is reviewing their qualifications,” said Miao. “I believe in the near future several companies will get NEV licenses,” Miao told a news briefing. As the world’s largest auto-making country, China is counting on NEVs to address its air pollution problems. Since September, NEV buyers can get license plates without having to apply through the usual lottery system.
Mainland’s industry regulator will continue studying reforms in the telecom sector to figure out the next step, but has not taken any action toward the reported consolidation of telecom companies, a Ministry of Industry and Information Technology spokesman said. “The development of a company is decided by the market,” spokesman Zheng Feng said during a press conference, refusing to elaborate on the topic. His remarks came after media reports that the government is considering pushing forward mergers for the country’s three state-owned telecom service providers to improve efficiency and accelerate modernization of the information sector.
Taiwan president: Meeting with Xi unrelated to elections Ma said he would not raise the situation in the South China Sea with Xi Faith Hung and J.R. Wu
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aiwan President Ma Ying-jeou said yesterday his upcoming meeting with President Xi Jinping was about further normalising ties with China and had nothing to do with the democratic island's elections in January. The talks in Singapore on Saturday, the first such meeting between the two political rivals since the Chinese civil war ended in 1949, would be transparent, with no private promises made, Ma told a news conference in Taipei. His discussions with Xi could help reduce hostilities in the short term, Ma said, adding he hoped future leaders of Taiwan would be able to hold such meetings. "This meeting is for the Republic of China's (Taiwan's) future, the future of cross-strait ties," Ma said in his first public remarks since the surprise news was announced at midnight on Tuesday. The meeting coincides with rising anti-China sentiment in Taiwan ahead of the presidential and parliamentary polls in January that Ma's pro-China Kuomintang (KMT) is likely to lose to the opposition Democratic Progressive Party (DPP), which traditionally favours independence from China.
Ma, who steps down next year due to term limits, has made improving economic links with China a key policy since he took office in 2008. He has signed landmark business and tourism deals, though there has been no progress in resolving their political differences. Communist China deems Taiwan a breakaway province to be taken back, by force if necessary, particularly if it makes moves towards formal independence.
First impressions
Ma said he would not raise the situation in the South China Sea with Xi. Both China and Taiwan have claims to most of the waterway, although Taipei has traditionally kept a low-profile in the dispute. Asked for his impression of Xi, Ma said: "I have not met him yet, so I don't have a first impression of him. Once I do, I will tell you." The DPP has asked why the announcement had come out of the blue and said the timing of the meeting was suspect, with elections 10 weeks away. Political experts said China could be trying to shape the result of the elections by signalling that ties would continue
This is not about an election, but is based on the consideration of the happiness of the next generation Ma Ying-jeou, Taiwan President
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Toyota says six-month net profit Beijing launches pilot scheme jumps to US$10.35 bln to ease drug approvals
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to improve if the KMT remained in power in Taiwan. Some said that could backfire given increasing anti-China protests in Taiwan, especially among the young. In what was seen as a backlash against creeping dependence on China, the KMT was trounced in local elections last year. America's top diplomat for Asia said on Wednesday it was hard to see which Taiwan political party would benefit most in the elections from the meeting. But Daniel Russel, the U.S. assistant secretary of state for East Asia, said he hoped the meeting would continue the positive momentum in China-Taiwan ties seen in the past several years. Ma said Washington had been informed of the meeting ahead of time. Sorting out protocol is proving tricky. A Taiwan official said Ma and Xi would split the bill when they have dinner. China's Taiwan Affairs Office said they would address each other as "mister", presumably to avoid calling each other "Mr. President", as neither officially recognises the other as head of state.
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Indian PM launches gold monetization scheme
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oyota yesterday reported a half-year jump in profits even as car sales declined in most regions, as it moves to cut costs and squeeze more productivity out of its plants worldwide. The world’s top automaker said its net profit rose nearly 12 percent to 1.258 trillion yen (US$10.35 billion) in the fiscal first half through September, with a weak yen also helping boost the bottom line. The Corolla sedan and Prius hybrid maker’s revenue for the period rose almost nine percent from a year ago to 14.09 trillion yen. Toyota, however, sold slightly fewer cars globally at 4.98 million units, and trimmed its full fiscal year sales target. North America stood out as the one key region where demand was strong, after rivals Honda and Nissan also cited the giant market as a bright spot that helped offset a sluggish Japanese market. Japanese automakers have benefited from healthy growth seen in the US market with low interest rates, although the Federal Reserve’s plans to raise rates, possibly next month, could dent consumers’ appetite for new cars. Meanwhile, the weaker yen has made them relatively more competitive overseas and inflated the value of repatriated overseas profits.
hina has launched a three-year pilot scheme to loosen approvals for new drugs, the country’s food and drug regulator said yesterday, as Beijing looks to help stimulate innovation in the country’s pharmaceutical sector. The trial, set to take place in 10 regions, will allow research and development bodies to seek drug approvals, which are currently restricted to drug manufacturers, the China Food and Drug Administration said in a statement on its website. China’s pharmaceutical market is a magnet for global drug makers, who are now facing increasing competition from local rivals for a slice of a medicine market that is estimated by IMS Health to hit US$185 billion by 2018. The current rules make it hard for smaller, research-based firms to bring new drugs to market, as they need to invest in expensive manufacturing plants before seeking approval. Long-term, the scheme could create stronger local firms to rival global drug makers like Pfizer Inc and AstraZeneca Plc. China is looking to reform its over-burdened healthcare system, which is blighted by crowded hospitals, corruption and tension between patients and staff.
ndian Prime Minister Narendra Modi yesterday launched three ambitious gold schemes -- gold monetization scheme, gold bonds and the first-ever gold coins. “Some 20,000 tonnes of gold is just lying unused. That is the reason we are poor. There’s no reason why India should be poor,” Modi said, after launching the schemes in the national capital. He added: “If we make some effort in the right direction, we can be free of the tag. Today a big step is being taken -- gold related schemes are being launched.” Stating that the schemes will empower women, the prime minister said that “women in India don’t have anything in their name but gold. Gold empowers women.” “This is unique to our culture, that there is such a system of women empowerment with the help of gold. We are preserving that giving our mothers, sisters, a sense of financial security,” he said. Modi added: “Through this scheme, we want to give this security, and women will be big factors in the success of this scheme.” Under the gold monetization scheme, people can deposit gold with the government and earn interest. Gold bonds will also fetch interest while the coins will bear the national emblem.
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