MOP 6.00 Closing editor: Joanne Kuai Publisher: Paulo A. Azevedo
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Agile Property generated RMB4.05 bln last month Page 6
Crossroads
Year IV
Number 915 Monday November 9, 2015
Richemont shares tumble following warning of tough H2
Credit cards receivables overdue increase 41.9 pct Page 5
Early next year. That’s the timeframe given for the public results of the interim gaming review. Secretary for Economy and Finance Lionel Leong Vai Tac said the administration is currently assessing a preliminary report submitted in September by the Institute for the Study of Commercial Gaming at the University of Macau. Adding the search continues for a replacement director of the Gaming Inspection and Co-ordination Bureau. And that the MSAR is likely to continue its cash handout scheme to local residents next year Page 2
Money-go-round September was good to the banks. The local sector accrued 2.2pct more total deposits M-o-M to MOP867.5 billion. Deposits of US Dollars rose 3.1 pct, while patacas and HK Dollars increased 2.8 pct and 1 pct, respectively. By contrast, residents’ renminbi deposits decreased 7.6 pct from August
President Xi Jinping and Taiwan’s counterpart met in Singapore. In hopes of healing the historic rift. The pow-wow presages an important step to normalising relations between both sides. And is the first face-to-face encounter since 1945 between leaders of the separate factions www.macaubusinessdaily.com
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A contract worth US$74.8 mln. China Harbour Engineering Co., Ltd. has won a bid for the structural steelworks of Lisboa Palace. Parent company China Communications Construction Company Ltd. has co-operated with gaming operator SJM Holdings Ltd. before. But the subsidiary only entered the local market in 2013 when building Studio City for Melco Crown
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The one-minute handshake
New structure
HSI - Movers November 6
“Macau has seen its worst”
Name
%Day
Tencent Holdings Ltd
+1.44
Hong Kong Exchanges
+1.24
China Life Insurance Co
+0.87
Ping An Insurance Gro
+0.44
China Mengniu Dairy C
+0.44
CNOOC Ltd
-2.39
China Petroleum & Che
-2.47
China Shenhua Energy
-2.53
Interview
China Resources Powe
-2.56
Better explanation, please
Belle International Ho
-3.17
Source: Bloomberg
Melco is betting the worst of Macau’s gaming slump has passed. And is preparing to ramp up operations at its new US$3.2 bln Studio City resort. Hong Kong-based Melco’s adjusted property earnings before interest, taxes, depreciation and amortization fell 22 pct to US$237.3 million in Q3
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Spell the message out clearly. Such is the advice proffered to the gov’t by Chan Kin Sun. The University of Macau assistant professor of public administration, and chairman of Macau Social Security Society, spoke to Business Daily about opportunities, obligations and potholes. With particular reference to the Social Security Fund. And what employers, employees and the retired can expect. The maths are complex, he said, but the gov’t can do better in publicising policy
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November 9, 2015
Macau Alexis Tam: Uber is illegal Secretary for Social Affairs and Culture Alexis Tam Chon Weng stressed on Saturday that the on-call service model of ride-sharing application Uber violates the current law and is thus illegal. Claiming he does not agree with the app radio taxi service, the Secretary urged the local tourist industry not to participate in providing unlicensed taxi services. On October 29, two Uber drivers were prosecuted by local police one week after its soft launch in the city. The application is currently co-operating with local travel agencies, which are providing drivers for its on-call service.
Leong: Interim gaming review to be completed this year
S
ecretary for Economy and Finance Lionel Leong Vai Tac said the government’s mid-term review of the local gaming industry would be completed by the end of this year. Meanwhile, he claimed that he was still considering candidates for the post of director of the Gaming Inspection and Co-ordination Bureau (DICJ). The Secretary told reporters on Friday that the results of the interim gaming review would be announced to the public by early next year once the government finishes assessing a preliminary report submitted in September by the Institute for the Study of Commercial Gaming at the University of Macau.
The mid-term review is examining what has been achieved by the city’s six major gaming operators since the liberalisation of the gaming industry in 2002. Their concessions will individually expire between 2020 and 2022. Meanwhile, Mr. Leong claimed that he had not decided upon a successor to replace the current director of DICJ, Manuel Joaquim das Neves, who is retiring on November 25. Last week, local broadcaster TDM Rádio Macau reported, quoting an unidentified source, that Assistant Prosecutor-General Paulo Martins Chan will replace Mr. Neves as the new DICJ director.
But the Secretary claimed on Friday that the gaming regulator’s vice head, Leong Man Ion, would temporarily lead the department if no replacement is appointed by the time Mr. Neves leaves. The Secretary also said that the government is likely to continue its cash handout scheme to local residents next year as the government has been posting a surplus in its account. Last Friday, Secretary Leong attended the inauguration of Cristina Morais as Co-ordinator of the Supporting Office to the Permanent Secretariat of the Forum for Economic and Trade Co-operation between China and Portuguese-speaking Countries (Macau). K.L.
Sin Fong Garden owners submit rebuild drawings to DSSOPT
T
he property management committee president of Sin Fong Garden, Wong Man Sang, said yesterday that unit owners had submitted drawings for reconstructing the building to the Land, Public Works and Transport Bureau (DSSOPT), local broadcaster TDM Radio reported. According to Mr. Wong, the new drawings for the rebuild are based on the original drawings of the building but increases the number of foundation piles from the current 100 to 139, in addition to improving the building’s fireproofing and ventilation facilities.
He claimed that the new drawings have been agreed by all the unit owners of the residence. However, the committee president also indicated that reconstruction costs could not be estimated at the current stage. In October 2012, some 140 homes in the residence in Patane on the Peninsula were evacuated after the building was found to have structural problems that could result in it collapsing. Local group The Macau Jiangmen Communal Society pledged to pay 60 per cent of the rebuilding cost for homeowners. K.L.
Business Daily | 3
November 9, 2015
Macau
4 | Business Daily
November 9, 2015
Macau
Richemont shares tumble after warning of tough second half Described as a ‘fading lantern’, Hong Kong, grouped with Macau, is experiencing continuing falling sales of luxury goods closing stores as the broader Chinese economy shudders. Shipments of Swiss watches to Hong Kong were down 20.5 per cent in the first nine months of 2015.
Falling SARs
W
eak demand for luxury watches in Hong Kong and Macau spoiled the picture for Cartier-owner Richemont in the six months through September, and the company warned on last Friday it
expected a challenging second half. Shares in the Genevabased group slumped 9 per cent by 1048 GMT to their lowest in a month, making them the biggest losers in the European personal and
household goods index, also dragging down peer Swatch Group. Watchmakers are grappling with weak demand in Hong Kong, their biggest market, where retailers are reducing inventories and
Hong Kong has also been hit by political uncertainty and falling numbers of tourists from Mainland China, while sales of luxury goods to Chinese buyers have been impacted by anti-corruption efforts. Richemont said margins fell in the first six months and demand for luxury watches slowed further in October. “Headline numbers in watches will take time to recover,” Chief Financial Officer Gary Saage said on a call. “Wholesale is still extremely challenging and we don’t know when that will get better, but we take comfort in that our retail networks in both watches and jewelry are performing.” Yet Richemont did detect an improvement in Mainland China, where Saage said growth had returned in October. “It’s been a long time coming ... Mainland China in total grew 1 per cent and, clearly, within that our own retail grew significantly,” Saage said, promising the company’s dividend would be increased in good and bad times.
Own stores
Richemont makes just over half of its sales via its own stores, whose retail sales were up 13 per cent in the first half at constant currencies, while wholesale fell 6 percent.
Watch sales represent about half of group sales, followed by jewelry at about a third and clothing, pens and leather goods. Vontobel analyst Rene Weber estimates the group makes 16 per cent of sales in Hong Kong and 8 per cent in Mainland China. The Cartier brand is meanwhile facing a change as Chief Executive Stanislas de Quercize, in the post since the end of 2012, will be replaced on Jan. 1 by Cyrille Vigneron, president of LVMH Japan. “Cyrille started with Cartier in 1988, he’s a good man and he’s a good leader,” Saage said, declining to comment on reports de Quercize had stepped down for health reasons. In the second half, Richemont will record a net gain of 623 million euros from the merger of its online fashion retail unit Net-APorter with YOOX. Saage said the valuation on the deal had ended up being higher than he’d expected. Half-year sales rose 3 per cent at constant currencies to 5.82 billion euros (US$6.3 billion), lagging a forecast 5.9 billion, and October sales fell 6 per cent. Net profit rose 22 per cent to 1.1 billion euros against a forecast 1.2 billion, mainly due to a negative one-off effect a year ago. Profitability deteriorated, hit by a stronger Swiss franc, but Saage said the gross margin should say stable for the full year. He also said the group was not planning further price increases and would open 50 to 60 stores this year. Reuters
Oriental Watch expects net profit to drop
L
uxury watch retailer Oriental Watch Holdings Ltd. said it expects the company’s interim profit would be ‘substantially lower’ for the six months ended September 30 compared to one year ago, it told the Hong Kong Stock Exchange on Friday. ‘[It is] mainly as a result of a drop in gross profit due to the slowdown of demand in the highend consumer goods market both in Hong Kong and on Mainland China, keen competition, and high
operating cost,’ the retailer wrote in the filing. Oriental Watch has one store in the Special Administrative Region, located in Macau Square. For the same period last year, the luxury watch retailer’s net profit totalled HK$11 million (US$1.37 million), plunging some 45 per cent year-on-year. Meanwhile, for the whole of the previous fiscal year, its net profit plummeted 78 per cent year-on-year to HK$5 million. K.L.
Business Daily | 5
November 9, 2015
Macau Consulate of China in Maldives issues travel alert The Consulate of China in the Maldives has issued a travel alert for citizens intending to travel to the country, the Government of Macau has announced. The alert was issued after the President of the Maldives, Abdulla Yameen, declared a 30-day state of emergency on Wednesday, citing a threat to citizens’ safety and national security following a suspected bomb blast and series of weapon finds. According to the Tourism Crisis Management Office (GGCT) through the travel industry there are currently no tour groups from Macau in the Maldives. However, the GGCT advises ‘residents who intend to travel to the Maldives to closely follow the situation, critically assess the security risks, and cautiously consider their travel plans’.
According to AMCM, most of the city’s deposits were HKD, which accounted for 41.1 per cent of the total, followed by USD, MOP and CNY, of which the shares were 25 per cent, 19.3 per cent and 11.2 per cent, respectively.
Domestic loans up, external down
Deposits in local banks up 2.2 pct in September Domestic loans granted by the bank sector also increased 1.1 per cent month-on-month Kam Leong
kamleong@macaubusinessdaily.com
T
he Local bank sector saw total deposits in the city grow 2.2 per cent from a month earlier to MOP867.5 billion (US$108.4 billion) in September, according to the latest monetary and financial statistics released by the Monetary Authority of Macau (AMCM) last Friday.
In the month, deposits by local residents reached MOP470.6 billion, a slight increase of 0.8 per cent monthon-month. Deposits of US Dollars (USD) rose 3.1 per cent month-onmonth, while those of patacas (MOP) and HK Dollars (HKD) increased 2.8 per cent and 1 per cent, respectively. However, residents’ deposits of
Credit cards receivables overdue increase 41.9 per cent
T
he amount of credit card receivables overdue for more than three months has increased 41.9 per cent year-on-year to MOP23.34 million from MOP16.45 million, according to the Credit Card Statistics published by the Monetary Authority of Macau on Friday. During the third quarter of the year, the total number of credit cards increased 9.7 per cent year-on-year to 899,763 from 819,930 from one year ago. Of the total number of credit cards, 649,151 were denominated in MOP, an increase of 11.2 per cent year-on-year from 583,754, while there were
79,793 Hong Kong dollar cards, a decrease of 6.8 per cent from 85,609. At the end of the third quarter there were 170,819 RMB credit cards in circulation in Macau, an increase of 13.5 per cent from 150,567. The large majority of these cards, 170,231, are MOP/RMB dual currency credit cards. At the end of September, credit card limits granted by banks in Macau reached MOP20.3 billion, up 22.9 per cent year-on-year from MOP16.5 billion. Credit card turnover grew 9.8 per cent year-on-year to MOP4.47 billion from MOP4.07 billion.
renminbi (CNY) decreased 7.6 per cent from August. Meanwhile, non-resident deposits jumped 5.4 per cent month-onmonth to MOP269.9 billion in September, with public sector deposits increasing 1.1 per cent to MOP127 billion from the previous month.
During September, the bank sector granted domestic loans of MOP390.3 billion, an increase of 1.1 per cent month-on-month. However, external loans for the period dropped 1.7 per cent month-to-month to MOP388.3 billion. Official data indicated MOP255.5 billion of the total domestic loans was denominated in HKD, accounting for 65.5 per cent of the total, while some other MOP105 billion was denominated in MOP, occupying 26.9 percent of the total. The remaining domestic loans were denominated primarily in CNY and USD. In terms of sector, AMCM said loans to the gaming industry had jumped 46.6 per cent during the third quarter from the second quarter of this year, without disclosing the exact figures. In addition, bank loans to the fields of manufacturing and hotels increased 20.6 per cent and 12.3 per cent quarter-on-quarter, respectively. At end-September, the loan-todeposit ratio for the resident sector grew 0.1 percentage points from the previous month to 65.3 per cent. The ratio for both resident and nonresident sectors fell 2.3 percentage points to 89.8 per cent, according to AMCM. Meanwhile, currency in circulation increased 2.1 per cent month-onmonth as at the end of the month. Money supply (M1) jumped 1.4 per cent month-on-month, while quasimonetary liabilities increased 0.7 per cent. The sum of these two items (i.e.) M2, totalled MOP482.3 billion, up 0.8 per cent from August.
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November 9, 2015
Macau Agile Property generated RMB4.05 billion last month
China Communications Construction wins contract for Lisboa Palace
S
tate-owned China Communications Construction Company Ltd. said its subsidiary China Harbour Engineering Co., Ltdu had won a bid for the structural steelworks of gaming operator SJM Holding Ltd.’s Lisboa Palace in Cotai, a contract worth US$74.8 million (MOP598.4 million). According to the company announcement last week, its subsidiary will be in charge of the main steel structure of the podium building of the new casino project, of which the gross floor area occupies some 57,600 square metres
and will be 71-metres high. Meanwhile, the construction period for the project is 470 days. In fact, the stateowned company has cooperated with the gaming operator before. In 2004, a subsidiary of Sociedade de Jogos de Macau S.A., SJM Investment Co. Ltd., became a shareholder of Macau-based construction firm Zhen Hwa Harbour Construction Co. Ltd., which is owned by China Harbour Engineering. The Macau-based company then took part in the construction of several
infrastructure projects and SJM-related projects including the Grand Lisboa Hotel, Ponte 16 Sofitel Hotel, the Oceanus casino and the foundation project for L’Arc Macau casino-hotel. But for China Harbour Engineering, it only entered the local market under its own name in 2013, when it won the bid for structural works of Melco Crown Entertainment’s Studio City for MOP140 million. The company claimed that was the first project it had received from a local firm. K.L.
G
uangzhou-based property developer Agile Property Holdings Ltd. generated 4.05 billion yuan (MOP5.09 billion/ US$638.2 million) last month from the pre-sales of its housing projects in Mainland China, according to its filing with the Hong Kong Stock Exchange last Thursday evening. The developer said the total gross floor area that it had pre-sold amounted to 511,000 square metres, at an average 7,908 yuan per square metre. For the first ten months of the year, its accumulated pre-sales value reached 33.63 billion yuan. A total of 3.86 million square metres of gross floor area had been sold, at an average of 8,725 per square metre.
Country Garden contracted sales totals 101 bln yuan
Meanwhile, the company’s major rival - Mainland Chinese developer Country Garden Holdings Company Ltd. - also announced its latest operating results to the
Hong Kong Stock Exchange last Friday, indicating its contracted sales were 100.5 billion yuan for the first ten months of the year. Both Agile Property and Country Garden are popular among local and Hong Kong investors for their residential projects on the Mainland. According to Country Garden’s filing, it had sold a total of 15.54 million square metres of gross floor area for the period. The developer said 89.89 billion yuan and 14.22 million square metres of the contracted sales and the corresponding gross floor area were attributable to the owners of the company for the period. For the full-year of 2014, Agile Property gained 44.16 billion yuan from housing presales, with gross floor area of 4.59 million square metres. Meanwhile, Country Garden saw its contracted sales total 128.8 billion yuan with gross floor area of 19.28 million square metres for the same twelve months. K.L.
Business Daily | 7
November 9, 2015
Macau Macau Property Opportunities secures HK$282 million loan The Sniper Capital managed fund, Macau Property Opportunities, entered into a HK$282 million five-year loan facility with Hang Seng Bank for its One Central Residences properties, it was announced on Friday. The new loan facility serves to finance the repayment of the first tranche of the original loan which matures on November 25, as well as all principal repayment installments up to the end of 2017, the company explained. According to the Macau Property Opportunities website, the fund has investments in Tower Six of One Central Residences, named the Waterside, plus individual units in One Central.
Melco Crown Entertainment net profit sinks 75 per cent Melco Crown Entertainment net profit dropped to US$33 million during the third quarter but Lawrence Ho says the worst in Macau is over João Santos Filipe
jsfilipe@macaubusinessdaily.com
Melco Crown wins first round in Taiwanese court
M
elco Crown Entertainment net profit dropped 74.9 per cent year-on-year during the third quarter to US$33.2 million (MOP265.1 million) from US$132.2 million, the company announced on Thursday night. Meanwhile, net revenue during the third quarter of 2015 declined 16 per cent to US$945.7 million (MOP7.55 billion) from US$1,124.1 million, while adjusted property EBITDA of the company founded by billionaires Lawrence Ho and James Packer decreased 22 per cent year-on-year to US$237.3 million from US$305.7 million. According to the company, the decline in net revenue was due to ‘lower rolling chip revenues and mass market table games revenues in Macau’. However, the gaming operator also highlights that the decline was ‘partially offset by net revenue from City of Dreams Manila’. In terms of the properties of the group, the largest adjusted EBITDA was
generated by City of Dreams, at US$191.5 million, a decline of 31 per cent year-onyear from US$276.0 million. At the same time, Altira generated adjusted EBITDA of US$13.3 million, a decrease of 34.5 per cent from US$20.3 million. City of Dreams Manila generated adjusted EBITDA of US$24.4 million.
Macau market “very, very weak”
During the presentation of the results, company CEO Lawrence Ho said that the government has realised that the market has reached a low point never seen before. However, he also acknowledged that recovery will arrive anytime now. “The policy outlook today is very different from let’s say the end of last year or at the even beginning of this year because the Macau Government has realised that the market is actually very, very weak. It’s not in a shape they have ever seen before”, Lawrence Ho said. “I think we’ve seen the worst in Macau but it’s really a matter of when does the real recovery starts”.
The anti-corruption crackdown in Mainland China has been one of the reasons driving gamblers, mainly VIPs, away from Macau since June last year. This year alone, revenue has dropped 35.5 per cent to MOP196.1 billion as at October from MOP304.0 billion. However, the son of Stanley Ho says that players should not be afraid, unless they really have committed some wrongdoing. “China’s positioning about the whole anti-corruption crackdown has been pretty consistent, which is if you’re a decent human being and you haven’t committed anything wrong, you shouldn’t be afraid”, he said. “I think for high spending individuals, these messages are key. “The VIP segment will never go back to the heydays. In July, when the transit visa was first relaxed, we did see some of our premium mass players come back as well. So I think for high spending individuals, these messages are key”, he added.
According to Melco Crown Entertainment, the first instance court of Taiwan considered the company not guilty over the alleged illegal channelling of hundreds of millions of dollars between the island and Macau. However, this legal battle will continues in the following months. During the summer of last year, the Taipei District Prosecutor’s Office indictment said the Taipei branch of Hong Kong-based MCE International transferred more than NT$5.4 billion (US$194 million) in deliberate violation of foreign exchange controls and financial oversight. At that time, the court also confiscated around NT$3 billion from the company, now unfrozen. ‘With respect to the frozen bank account with a balance of approximately NT$2.98 billion at the time it was frozen, the court ordered the cancellation of the prosecutor’s freeze order. The prosecutor filed a notice of appeal against the ‘not guilty’ verdict but did not oppose the unfreezing order’ the company explained.
The Hong Kong billionaire also said that he believes Macau can accommodate more tourists from different Mainland China cities, who are not currently allowed to visit Macau. Even if the infrastructure that the government is building is not ready on time. “The Government in Macau has been pragmatic and wise. They will understand the message of opening up access to further cities, even if the infrastructure isn’t there. This will help the operating environment in Macau, which trickles down to all stakeholders, small and medium enterprises, and all the employees, as well”, he said.
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November 9, 2015
Macau
UM scholar: Gov’t should better explain goal for sustaining Social Security Fund The government ought to clearly spell out the target it plans to lower its input to for the Social Security Fund (FSS) an academic says. University of Macau assistant professor of public administration Chan Kin Sun says the city’s basic pension benefits and several allowances have traditionally been too reliant upon government income. Employer and employee parties should seek to better understand each other’s position, the chairman of Macau Social Security Society added Stephanie Lai
sw.lai@macaubusinessdaily.com Photos: Cheong Kam Ka
What is your view of the government’s current financial support of Social Security Fund income, which mainly relies on appropriation from gaming income, one per cent of a yearly fiscal budget, and a special injection of MOP37 billion for 2013 – 2016?
When talking about the system for pension benefits and social security, the International Monetary Fund (IMF) always stresses that it can be built through five tiers: tier zero can be defined as social assistance. In Macau, this would be our minimum subsistence index that supports the government’s aid to the poverty groups. For giving this aid, there is asset screening for an individual. Tier one is what we define as a basic retirement plan or pension benefits supported by a pay-as-you-go scheme. Tier two, meanwhile, means that pension benefits are supported by occupational savings, which are usually compulsory. Tier three is the reliance upon personal savings of which the pattern varies for each individual, while tier four is what we say a family and societal support for retirement needs. In this context, Macau’s Social Security Fund is playing a role similar to tier one. But here, there is still not yet a smooth transition from a voluntary occupational saving contribution to our Social
Security Fund to a compulsory scheme. According to what the government said in an actuarial report in 2013, the fund could last for 50 years with the existing operation mode of Social Security Fund. This is actually quite okay: imagine a person of 20 to 30 years old now, his or her pension payout is still well covered when reaching 70 – 80 years old. As a citywide pension protection [scheme] I can’t see the system needs a change very urgently. But now the government wants to change people’s impression that the fund is offering a low pension benefit with very low contribution from employers and employees. An individual here, who contributes to the fund for thirty years, can pretty much get back what he has contributed in two years’ time when he retires – from this we have excluded the calculation of interest. The government has really allocated a lot to the fund, where some 90 per cent comes from its input. And looking at the fund, another hidden risk is that aside from the expenses of the fund in supporting the pension, the whole fund is also supporting the disabilities allowance, unemployment allowance, and even birth allowance. In the past decade or so, we’ve had a good economy and much
For the potential increase in expenses for the unemployment allowance and for disabilities there is still not much discussion within government or society of this aspect
attention has been on the support of the pension. But when the economy worsens and there is a higher unemployment rate, and there are more industrial accidents resulting from the large amount of infrastructure projects going on, I will be concerned about the respective increase in allowances for unemployment and disabilities.
So you’re saying that you’re concerned that the existing Social Security Fund system may not be able to cope with the possible rises in future unemployment?
I’d say that the discussions the community here has had are all concentrated on pension coverage. Looking at pension benefits, with the government’s actuarial report having pointed out that the fund can support them for 50 years, I don’t think there is a big problem there. But for the potential increase in expenses for the unemployment allowance and for disabilities, there is still not much discussion within government or society on this aspect, which has to be explored more.
Do you think that the government has done enough in supporting the living of the elderly here, including the pension, other allowance coverage and the social services for them?
There are several [social welfare] systems that have not seen a longterm mechanism yet: for instance, the government’s instalment of the Social Security Fund, and its support for the special living allowance for the elderly, aside from paying them a pension. Using what mechanism does the government decide the amount of pension payout and the allowance paid to the elderly? When the beneficiaries do not understand this mechanism very well and how the amount is being adjusted, they will not trust the fund.
Business Daily | 9
November 9, 2015
Macau I agree with some public opinions doubting whether the current pension level at three thousand something patacas can suffice the needs of the elderly. But we also have to consider the issue from another angle – one that is not only limited to the pension system but the other supporting services for the living of the elderly. I think the government ought to consider how to empower or facilitate the families here in building up a more comprehensive care service for the elderly. The provident fund system that the government is trying to build up now is also a pivot for supporting the elderly – although it is more of a basic protection for them. And on top of that, a mainstream investment tool for the older people here is in property, as most Chinese do. So, another direction we can consider is for those who lack cash but have assets how we can turn the assets into money for the elderly to alleviate their living expenses. A few years ago, the Hong Kong Government introduced the Reverse Mortgage Programme, which incorporates the mortgage into a payout for the elderly. That allows them to cash in their assets to deal with their living expenses. This is actually a viable option we can consider, although that will also involve the co-ordination of the Monetary Authority of Macau because the nature of the programme is beyond the governing scope of the Social Security Fund.
Should the government change the current mechanism or structure of the Standing Committee for the Co-ordination of Social Affairs as the employer and employee parties are deadlocked over the contribution issue?
I would say the committee is still an important communication platform for forming policy. But both the employer and the employee party should seek to better understand each other’s position and pressures. The employer party has the consideration that aside from the contribution to the Social Security Fund they have to pay more to the provident fund system in future as well. And the provident fund system will turn compulsory one day. When all of these translate into higher staff costs it will impose a significant impact upon the employers’ company operations. I think this is a consideration that the employee party is still not very well aware of. And for the employer party, they also need to consider the employees’ pressure of living costs. Now, a bad situation is that our contribution to the Social Security Fund is not in reasonable proportion to the payout of the pension. The government has had many actuarial reports pointing that out, too. As of now, about 90 per cent of the expenses of the Social Security Fund come from the government, so can it tell at which level the government’s existing support of the fund should be lowered? They have to decide upon a direction for controlling its appropriation for the fund. Another important income source for the Social Security Fund is the tax on non-resident workers, which even exceeds the contribution from local employers and employees. The tax is now levied on the employer at MOP200 per non-resident worker employed. So this is also an aspect society
The government can definitely do better in publicising their policy
can consider in resolving the contribution issue for the fund.
What incentives do you think the government should offer to fasttrack the consensus amongst employers and employees over an increased contribution to the fund? What should be considered is how the pension payout can be better supported by the contribution [from employers and employees]. In a study that we [Macau Social Security Society] did, we found that residents here are supportive of the concept of gaining more returns from the fund by making more contributions. On the other hand, the government can also think of extending the age for getting the pension, while encouraging them [the elderly] to continue to contribute more to the fund. There are some positions in here that are restricted to residents only, such as taxi drivers. And these drivers are usually older people. While the government does not
plan to import labour for the driver jobs, they can consider extending their age for getting a pension while offering them incentives to continue to contribute to the Social Security Fund. In that way it also helps to release the labour pool.
I think it can be further adjusted. However, the argument in society over the contribution issue has been too much narrowed on the contribution ratio by the employer and employee parties, and the amount.
Do you think a contribution lump-sum amount of 45 patacas per month from the employer and employee parties for all industries to support the fund is a better way than a multi-tier contribution amount set according to the type of industry?
What is your view on the current advance withdrawal system for pensions, which says residents aged 60 to 64 can have the payout but will have their pension discounted by 25 per cent and can get the remaining full amount of the pension when they turn 80 years old? There have been some saying before that this group getting the advance payout has lost a lot compared to the 65-year olds or the older group.
A multi-tier system can induce more inequality issues. For instance, Taiwan’s case is that the proportion of civil servants, military officers and teachers contributing to labour insurance is lower than other labour, but the government is shouldering more of the insurance coverage for the civil servants, military and teachers. And that incites criticisms that the government has been tilting too many resources to the civil service system. In Mainland China, there has also been discussion about whether the pension system for civil servants should be on a par with private companies. The government there has largely sponsored the civil servants. The rest of the public question the gap of the pension coverage they have when compared to the civil servants. I think that the contribution lumpsum that the local government imposes is reasonable, but how well this contribution system can be sustained is another issue and
The news last year citing an actuarial report [conducted by Towers Watson] said that the proportion of 60-year olds getting the advance withdrawal of pension should be 72 per cent, but in the city the proportion has been 75 per cent. For a pension fund, we always emphasise the actuarial equivalency – that we have to protect those that get the pension at the age the law stipulates [which is 65 year old in Macau] or else we are just encouraging early retirement. On issues like this advance withdrawal of pension, I think the government can explain more effectively the calculations involved, which of course involve complex mathematics. The government can definitely do better in publicising their policy.
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November 9, 2015
Greater China
Imports fall in sign of battered domestic demand The October trade surplus rose to US$61.64 billion, driven by the continued drop in imports
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hina’s imports fell nearly 19 percent in October from a year ago, official data showed yesterday, underlining battered domestic demand in the world’s secondlargest economy where downward pressures on economic growth persist. A key driver of world growth and the planet’s biggest trader in goods, the slowdown in China’s economic expansion has sent jitters across global stock markets and taken a great toll on resource-rich countries for whom the Asian country is a crucial client.
Imports fell 18.8 percent to US$130.77 billion, the 12th consecutive monthly drop in imports, following a 20.4 decrease in September. Exports, too, continued their losing streak from July, dropping by 6.9 percent year-on-year in October to US$192.41 billion as foreign demand languished, according to figures from the General Administration of Customs. The decrease in exports was larger than a median forecast of a 3.2 percent decline in a Bloomberg News survey of economists.
The October trade surplus rose to US$61.64 billion, driven by the continued drop in imports, the data showed, suggesting that the Asian giant continues to struggle with improving domestic demand. Doldrums in China’s property market, overcapacity in the manufacturing sector and slowed government spending in infrastructure have contributed to the country’s economic slowdown and contribute to decreasing demand for commodities, like coal and iron, used in heavy industry.
While falling prices have been a major factor in driving China’s import numbers down, the data also show decreasing demand for major industrial commodities. Coal imports have dropped almost 30 percent in volume and 45 percent in value over the first 10 months of the year, measured in the local currency, the data showed. Beijing aims to rebalance the economy to a sustainable model where expansion is predominantly driven by domestic consumer demand, but the transition is proving bumpy. Botched stock exchange interventions and a sudden currency devaluation in August have rattled confidence in the country’s leadership, whose legitimacy rests on maintaining an aura of economic infallibility. Last week, Chinese equities entered a bull market, with the Shanghai Composite Index rising over 20 percent since the end of August, a hopeful signal that investor confidence is on the upswing and could drive increasing consumer confidence. Chinese President Xi Jinping this month said annual expansion should be no less than 6.5 percent in 20162020 if the country is to double GDP and incomes compared to 2010 levels by the end of the decade. The comments are the clearest indication yet that Beijing will reduce its target growth rate from the current “around seven percent”, after expansion slowed in the JulySeptember period to 6.9 percent, its slowest pace in six years. Gross domestic product increased 7.0 percent in each of the first two quarters this year following growth of 7.3 percent for the full year of 2014, which was the weakest in nearly a quarter of a century.
Alibaba buys Youku in deal said to be valued at US$4.8 billion The firm has averaged more than two purchases a month in 2015, announcing more than US$13 billion of transactions, according to data compiled by Bloomberg Lulu Yilun Chen and Lily Katz
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libaba Group Holding Ltd. agreed to buy video service Youku Tudou Inc. in a deal said to be valued at US$4.8 billion in total, as billionaire Jack Ma seeks to stream more content to Chinese Internet users through control of the YouTube-like site. Net of Youku’s cash, the price is about US$3.7 billion, said a person familiar with
the transaction who asked not to be identified because the details aren’t public. Alibaba, China’s biggest online shopping company, raised its offer to US$27.60 in cash from US$26.60 last month. The new price is 35 percent above Youku’s stock price the day before the initial bid was disclosed. Youku’s board has approved the merger agreement,
Alibaba, which already owned a minority stake in the company, said Friday in a statement. Full ownership of Youku will help Ma deliver U.S. films and drama series to more than a third of China’s population as Alibaba competes with Baidu Inc. and Tencent Holdings Ltd. for the attentions of Internet users. The deal comes after he toured Hollywood to meet
with studio executives, took control of a Chinese movie studio and invested in the latest “Mission: Impossible” film. “The move into digital media makes a lot of sense,” said Rob Sanderson, an analyst at MKM Partners in Stamford, Connecticut, who recommends buying Alibaba’s shares. “The rise of Internet video is really undeniable around the world, so I think it’s a strategy that could produce quite a bit of leverage given the size of their communities.” Youku and Tencent’s video sites both had about 286 million unique visitors in August, yet viewers spent more time watching content on Youku, according to data compiled by Bloomberg. Baidu’s IQiyi had 273 million visitors. More than 461 million people in China consumed
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video online as of June, with 354 million users accessing from mobile phones, according to the China Internet Network Information Centre. That’s larger than the entire population of the U.S. Alibaba’s shares fell 2.1 percent to US$83.61 at the close in New York, reversing earlier gains after CNBC reported that Kynikos Associates LP founder Jim Chanos said investors should be bearish on the stock and recommended it as a shortsale trade. Youku jumped 7.3 percent to $26.14.
‘YouTube of China’
Victor Koo will remain as chairman and chief executive officer of Youku. The company, which has never posted a profit since its 2010 initial public offering, is zeroing in on U.S. studios for programming. The company, which mostly streams professionally produced content rather than amateur videos, plans to collaborate with U.S. entertainment producers to create content for its website, Koo said in an October 2014 interview. Youku fits into Alibaba’s so-called multiscreen strategy -- making sure that users stay engaged in every screen, being their smartphones or desktops, said Gil Luria, an analyst at Wedbush Securities Inc. in Los Angeles. Morgan Stanley is Alibaba’s financial adviser, while Simpson Thacher & Bartlett is providing legal assistance. Bloomberg News
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November 9, 2015
Greater China Investors float alternative debt plan for Kaisa The developer has struggled to service its debt after cashflows were constrained by a blockage in its project sales imposed by authorities last year Umesh Desai and Clare Jim
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consortium of investors in debt-laden Chinese developer Kaisa Group Holding led by Farallon Capital has drafted a proposal that would inject US$650 million into the company and result in higher recovery for bondholders, documents seen by Reuters showed. Under the proposal, the consortium would inject US$150 million into the company with the rest coming from existing shareholders exercising warrants to buy heavily discounted shares. That purchase would result in the consortium owning a 20 percent stake, with existing shareholders getting an additional US$5 million in cash on a pro-rata basis. The company on Friday unveiled its own proposal to restructure its debt. The investors’ plan would also imply that owners of existing bonds have their securities exchanged into four tranches of new senior notes maturing in 2017, 2019, 2020
and 2021, the documents showed. Under this swap, each existing note holders would get bonds of the new maturities at a ratio of 5 percent, 20 percent, 35 percent and 40 percent respectively. The consortium holds a “significant value of senior notes” and also counts among its members an undisclosed state-owned enterprise, a source close to the proposal said. Kaisa, which became the first Chinese property developer to default on its offshore debt payments, re-negotiated the terms to restructure its offshore debt after an initial proposal was rejected by the offshore bondholders. Under the investor-led proposal, the bondholders would get a recovery of 85 cents, based on a 15 percent discount rate and par at an 11.5 discount rate, a source close to the new proposal said. This compares with a recovery rate in the mid70 percent range implied by the
Gold reserves likely rose by 14 tonnes in October China is the world’s sixth largest official sector gold holder after the United States, Germany, the International Monetary Fund, Italy and France A. Ananthalakshmi
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hina likely added about 14 tonnes of gold to its reserves in October, according to Reuters calculations from central bank data on Saturday. The value of China’s gold reserves stood at US$63.261 billion at the end of October, compared with US$61.189 billion at the end of September, the
People’s Bank of China (PBOC) said on its website. Based on the London Bullion Market Association afternoon gold price on the last trading session of October, China’s reserves likely totalled 55.378 million troy ounces or 1,722.5 tonnes at the end of last month, Reuters calculations show.
company’s proposal disclosed on Friday. For par recovery under the company’s proposal, the discount rate was estimated at below 10 percent. “This is not a hostile proposal but one in which everyone has a role to play,” said the source. “The warrants will be immediately exercised as it is deep in the money and there will be 2-punch recapitalisation which will bring in cash into the company,” he added referring to the initial cash and the funds injected subsequently on the exercise of the warrants. A Kaisa spokesman declined comment on the new proposal. The developer has struggled to service its debt after cashflows were constrained by a blockage in its project sales imposed by authorities last year. Matters were compounded when most of its assets were frozen by court orders on lender requests since January. Since June, sales on some of these projects have been allowed, although sales at its home base Shenzhen have not resumed. Fresh questions were raised about its ability to repay the debt after smaller rival Sunac China scrapped a US$600 million takeover proposal. In recent weeks, credit markets have turned positive about a possible debt restructuring proposal at Kaisa, expecting a much better outcome than at the start of the year when bonds traded as low as 30 cents on the dollar, indicating a low recovery. Its bonds are now trading in the high 60s range after talk emerged that significant progress was made in negotiations with offshore bondholders which could yield a net present value in the low 70s range. Reuters
That would be an increase of about 14 tonnes from September. The PBOC reveals the dollar value of its gold reserves early in the month, before revealing the volume numbers later on. The October addition is the slowest pace of purchase since China started reporting its gold reserves on a monthly basis from July. Gold prices rose 2.5 percent in October. Gold still makes up less than 2 percent of China’s total foreign exchange reserves, a factor the market believes will drive the PBOC to continue buying. The United States, the top holder of gold with more than 8,000 tonnes of bullion, has 73 percent of its total foreign reserves in gold, according to the World Gold Council (WGC). China should increase its gold holdings to about 5 percent of its total reserves to help diversify currency risks, a WGC official had said this year. China previously considered its gold holdings a state secret and did not report its holdings on a monthly basis to the IMF like most other countries. It has begun doing so in a bid to increase transparency as it campaigns to include the yuan in the IMF’s special drawing rights basket. Before the June update, China had last revealed its gold holdings in April 2009. Reuters
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Tonnes of gold purchased by China in July
Think-tank: CPI likely to rise 1.4 pct next year China’s consumer price index is expected to rise by about 1.4 percent next year, a think-tank expert said in a report in the official Shanghai Securities News on Saturday, a reflection of deflationary pressure. Reflecting lacklustre demand and over capacity, September inflation was cooler than expected, prompting fears of deflation as the world’s second-largest economy cools. “In the round, over the next period, due to greater pressure from the economic downturn, overall stable consumer demand, deflationary pressures will continue to exist,” said Sheng Xuping, an expert at the government think-tank the State Information Centre.
Lew and Wang discuss yuan joining IMF currency basket
The Obama administration told Beijing on Friday that the United States still supports including the yuan in the IMF’s benchmark currency basket, provided China meets the existing criteria of the international lender. U.S. Treasury Secretary Jack Lew talked by phone to Chinese Vice Premier Wang Yang, a Treasury spokesperson said in a statement. “The conversation reflected the importance of China moving more rapidly towards a market-determined exchange rate in an orderly manner,” the spokesperson said. Speaking ahead of the G20 Leaders Summit this week in Antalya, Turkey, Lew also urged China to implement fiscal policies to boost consumption.
Crackdown on online retail sales China plans to crackdown on the sale of fake goods online by using cloud computing, big data and tighter rules on user identity in its latest moves to quash counterfeiting. China has been trying to reign in its counterfeiters, who have copied everything from Apple iPhones to Louis Vuitton handbags, since it joined the World Trade Organization in 2001 and was required to adhere to global standards on intellectual property rights. The country plans to eradicate intellectual property rights infringement on the internet within 3 years.
FX reserves rise in October China’s foreign exchange reserves, the world’s largest, rose by US$11.5 billion in October to US$3.5255 trillion, central bank data showed on Saturday. The value of China’s gold reserves stood at US$63.261 billion at the end of October, up from US$61.2 billion at the end of September, the People’s Bank of China said on its website. China’s International Monetary Fund (IMF) reserve position stood at US$4.638 billion, down from US$4.69 billion the previous month. It held US$10.36 billion of IMF Special Drawing Rights at the end of last month, down from US$10.47 billion at the end of September.
12 | Business Daily
November 9, 2015
Greater China
A long handshake with Taiwan signals better ties Xi agreed with Ma on the benefits of establishing cross-strait hotlines between government agencies and said that China understood Taiwan’s desire to have a bigger international presence Sharon Chen, Adela Lin and Charlie Zhu
Given the state of relations, the fact that we haven’t met is weird. We should make it frequent and not something unusual Ma Ying-jeou, President of Taiwan
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t was the 80 seconds China and Taiwan had waited almost 70 years for. Chinese President Xi Jinping and his Taiwanese counterpart, Ma Ying-jeou, smiled in dark suits --Xi wearing a Communist red tie, Ma, a Nationalist blue one-- as they shook hands for more than a minute before hundreds of reporters in Singapore. The first face-to-face encounter since 1945 between leaders of China’s civil war foes provided a new highwater mark in efforts to resolve one of the last century’s biggest unsettled conflicts. The handshake and the 50-minute closed door meeting that followed cap a seven-year effort by Ma to strengthen economic ties across the 180-kilometer Taiwan Strait before he leaves office next year. It brings Xi one step closer to realizing China’s dream of reunification. While investment, tourism and trade have flourished between the two sides under Ma, they remain politically distant, one democratic, the other ruled by the Communist Party. Saturday’s handshake is the closest they’ve come to bridging that divide.
Creating precedent
“It’s a major breakthrough because the real impact of this meeting is that it creates a precedent,” said Hoo Tiang Boon, an assistant professor at the S. Rajaratnam School of International Studies in Singapore. “The real substantial thing is that
they met and had a handshake. It’s the first time. And when you have a first time you always have a possibility of a second time.” A resolution to the dispute would remake the regional security landscape, given Taiwan’s strategic position along some of the world’s busiest shipping lanes and the U.S.’s legal obligation to defend the island. But the impact of Saturday’s meeting was largely seen as symbolic, while it raised hackles among Ma’s political opposition in Taiwan as the surprise meeting was called about two months before general elections. Ma is a lame duck and the nominee of his Kuomintang, or Nationalist Party, is trailing far behind opposition leader Tsai Ingwen, whose Democratic Progressive Party officially supports independence from China. At a press conference in Taipei, as protesters demonstrated outside the parliament, Tsai criticized Ma for failing to emphasize to Xi the importance of democracy or assert the existence of the Republic of China, Taiwan’s formal name. “Instead the only result was to create on the international stage a political framework limiting the choices of the Taiwan people,” Tsai said.
Grip-and-grin
After Ma and Xi’s grip-and-grin at the Shangri-La hotel Saturday, the two men convened a brief public meeting carefully choreographed
to avoid conferring legitimacy on either side. Xi and Ma sat directly across from each other at a long table flanked by officials from their respective governments. No national flags were present, nor titles on their name tags. They addressed each other as “mister,” rather than “president.” Before retiring behind closed doors, each leader addressed the significance of the occasion in brief remarks. Both reaffirmed the idea that they belonged to the same country, the so-called one-China policy that has served as the foundation for their cross-strait dialogues since 1992. Xi, who spoke first, delivered a high-toned speech rich with metaphor and cast the China-Taiwan dispute as a family feud.
Bones ‘broken’
“We are brothers connected by flesh even if our bones are broken, we are a family whose blood is thicker than water,” Xi said. “History has left some bad memories but the strait cannot prevent relatives and friends from missing each other,” he said. “Chinese people on the two sides of the strait have the ability and wisdom to solve their own problems.” Ma told Xi that both sides should respect each other’s values and way of life. “Mr. Xi, right now ties between us are the best we’ve seen since 1949,” he said. In a subsequent private session, Xi agreed with Ma on the benefits
of establishing cross-strait hotlines between government agencies and said that China understood Taiwan’s desire to have a bigger international presence, Zhang Zhijun, head of China’s Taiwan Affairs Office, told reporters afterwards. China has managed to block the island’s participation in many international forums, including the United Nations. Zhang said Xi reiterated that Taiwan would be welcome to take part in the Chinaled Asian Infrastructure Investment Bank that was established this year.
Dinner menu
Afterwards, Xi and Ma had a meal that featured dishes meant to highlight their shared mainland roots like spicy Sichuan noodles, Hunan-style fried lobster and Hangzhou-style braised pork belly. They split the bill and Ma promptly flew out to let Xi continue his state visit to Singapore. Ma, for his own part, said he found Xi to be “pragmatic and very straightforward.” He stressed the need to continue such dialogues and denied any attempt to build his own legacy at the expense of Taiwan’s autonomy. “This is not for my political legacy, this is for the future of Taiwan,” Ma said.
January vote
The meeting comes amid the campaign for Taiwan’s presidential election on January 16 and threatens to shake up the race to choose Ma’s successor. Public opinion polls show most Taiwanese favour the current state of relations with China and are opposed to reunification. Ma’s policy of courting China contributed to the slide in support for the KMT, which is at risk of losing both the presidency and control of the legislature. In his private meeting with Ma, Xi reaffirmed the mainland’s opposition to Taiwan’s independence, which he described as the biggest threat to peace, according to Zhang. While such debates ensure Taiwan’s political future will remain uncertain, Ma achieved a diplomatic victory by getting Xi to agree to Saturday’s meeting, said Zhang Baohui, director of the Center for Asian Pacific Studies at Lingnan University in Hong Kong. “We have a very big symbolic outcome,” Zhang Baohu said. “For the first time, the two sides sat in the same room as political equals. That is important. Bloomberg News
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 9, 2015
Asia
Japanese economy likely fell into technical recession in Q3 The GDP data is expected to show private consumption, which accounts for about 60 percent of the economy, grew 0.4 percent in July-September Tetsushi Kajimoto
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apan's economy probably slipped into technical recession in JulySeptember due to a drop in capital spending and soft external demand and private consumption, a Reuters poll showed. The world's third largest economy is seen to have contracted at an annualised rate of 0.2 percent in the third quarter, following a 1.2 percent contraction in April-June, the poll of 19 economists showed. A technical recession is defined as two consecutive quarters of economic contraction. This would translate into a quarterly contraction of 0.1 percent, keeping policymakers under pressure to deploy monetary and fiscal stimulus in the coming months to firms up the flagging economy. Despite slowing growth and inflation, the Bank of Japan (BOJ) is in no mood to ease policy further anytime soon, arguing that the economy remains on track for a moderate recovery although a China-led global slowdown poses large risks to the economy. Analysts are closely watching the third-quarter gross domestic product (GDP) data for clues on the possible size of any additional fiscal stimulus. Prime Minister Shinzo Abe's government is considering compiling an extra
Prime Minister Shinzo Abe’s government is considering compiling an extra budget for the current fiscal year to shore up demand
budget for the current fiscal year to shore up demand. The GDP data is due to be released by the Cabinet Office on November 16. "The economy continued to stall in July-September as business investment weakened while companies tried to shed a pile of inventory," said Yusuke Shimoda, an economist at Japan Research Institute. "We expect a return to
growth in the current quarter on improving corporate profits and household income. But the pace of recovery will be modest as China's slowdown weighs on business and consumer sentiment." The GDP data is expected to show private consumption, which accounts for about 60 percent of the economy, grew 0.4 percent in July-September, after a 0.7 percent decline in the previous quarter.
External demand contribution to GDP likely came to zero, after it shaved 0.3 percentage point off the second-quarter GDP. Capital spending probably fell 0.4 percent quarter-onquarter in July-September, marking two straight quarters of declines. Despite strong business investment plans shown by the BOJ's tankan quarterly survey, companies have been
Australia plans Asian ‘dining boom’ as food exports surge Recent free trade agreements signed with China, Japan and South Korea also promise to improve access to Asian markets and reduce tariffs on Australian foods Cecile Lefort
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falling currency and a dry spell in the United States have helped Australian food exports jump by a quarter to an annual A$26 billion (US$19 billion), an outcome likely to please policymakers eager to find signs of life in non-mining sectors. Australia has entered its 25th year of uninterrupted growth, but its A$1.6 trillion economy has slowed as it shifts from exporting natural resources to other areas such as construction, manufacturing and tourism. Now the talk is of a "dining boom" for Australian farmers as Asian
consumers move up the food chain to more expensive meat and dairy products. "The Chinese are transitioning from a carbohydrate-based diet to a protein-based one; at present that protein is mainly coming from pigs and chickens, but beef will become increasingly important," agribusiness bankers at National Australia Bank said in a note. "Dairy also looks set to be a winner, especially if we can replicate the kind of success New Zealand dairy has had in China."
Meat exports alone jumped 43 percent to A$14 billion in the year to June, helped by U.S. production falling because of drought, the Australian Food and Grocery Council said in a report. The export surge allowed the Australian Agricultural Company, the nation's biggest listed beef producer, to flag a return to profit. The company will post half-year results this month. The Reserve Bank of Australia kept interest rates steady earlier this month after cutting them to an all-time low of 2.0 percent in May, reducing the foreign exchange value of the Australian dollar.
slow to spend their record cash piles to boost capital expenditures as China's slowdown clouds the outlook. Separate data by the Cabinet Office out on November is likely to show core machinery orders, a leading indicator of capital spending, grew 3.3 percent month-on-month in September, marking the first gain in four months. Reuters
The steep 15 cent fall in the Australian dollar over the past 12 months has made local producers much more competitive in the global food market.
A glass of wine with your steak?
Australian wine too has been in demand with annual exports up 18 percent, according to the Australian Food and Grocery Council report. Australia's Treasury Wine Estates, the world's biggest standalone wine maker, forecasts the Asian market will be the largest single contributor to its profits by June 2017. In the soft sector, Bundaberg Brewed Drinks International's export sales of ginger beer have risen nearly 20 percent in the past two years, now accounting for a third of its business. With an annual turnover of A$100 million and 200 employees, the family-owned bottler hopes exports will eventually outpace domestic sales. Chief Executive John McLean said the adoption of invoicing in export clients' home currencies had underpinned its growth. McLean noted the Aussie dollar's fall of between 6 and 18 percent against major currencies had added to the company's profitability - just as the Reserve Bank intended. Reuters
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November 9, 2015
International White House may have to renegotiate TPP A key U.S. senator said on Friday the Obama administration may have to renegotiate parts of a Pacific trade pact, heralding a tough battle to win support in Congress. U.S. Senate Finance Committee Chairman Orrin Hatch, a Republican whose support will be crucial to passing the deal, said that although he reserved judgment on the fine print, negotiators might have to go back to the table. Some of President Barack Obama’s Democrats have also suggested renegotiating the deal, which must be ratified by Congress.
Moody’s raises outlook on Hungary Moody’s Investors Service raised the outlook on Hungary’s Ba1 rating to “positive” from “stable”, bringing the country within a whisker of regaining the investment-grade status it lost four years ago. Moody’s, which affirmed Hungary’s Ba1 rating, said on Friday that it believed the downward trend in the government debt stock was likely to be sustained in the coming years. The ratings agency expects Hungary’s government debt to fall to 74.3 percent of gross domestic product this year and further to below 73 percent in 2016 from a peak of 81 percent in 2011.
OPEC ready to make needed investments Secretary General Abdullah al-Badri said that despite uncertainties, OPEC members were ready to make the necessary investments to respond to the world’s future energy needs. Badri also said that a wave of project cancellations and deferrals in the industry was a “clear demonstration that wide price fluctuations have a detrimental effect on investments and can sow the seeds of future instability”, in a statement on the International Energy Forum’s website. The secretary general said he saw Asia oil demand rising to almost 46 million barrels per day by 2040, an increase of nearly 16 million barrels per day from 2015.
Telmex says request for injunction on fine denied Mexican phone company Telmex said on Friday it has knowledge of a supreme court decision that denies its request for an injunction on a 638.1 million peso (US$38.0 million) anti-trust penalty from 2013, the company said in a statement. Telmex, the fixed-line phone company controlled by billionaire Carlos Slim, said it has yet to be formally notified of the decision by Mexico’s Supreme Court. The statement said the fine, assessed by the country’s competition commission in a case alleging monopolistic practices, has since grown to 694.9 million pesos (US$41.4 million).
Petrobras says labour strike cut oil output Brazil’s state-run oil company Petroleo Brasileiro said it reduced the lost oil output from a labour strike to 115,000 barrels on Friday, as contingency plans continued to weaken the impact of the stoppage. On Thursday, Petrobras said it had reduced the drop in oil production to 127,000 barrels from 178,000 barrels on Tuesday. Petrobras said in a statement that it has scheduled meeting with union representatives for Monday to seek a resolution to the labour dispute that began on Sunday in which the unions are protesting against the sale of company assets.
Mexico targets business boom in Cuba as Castro visits Mexican president noted that the two nations had vowed to bring order to migrant flows after a recent jump in Cubans reaching Mexico, but he did not provide details of the accord Dave Graham
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fter standing by Communist Cuba in its years of international isolation, Mexico welcomed Cuban President Raul Castro on Friday as it seeks to turn Havana’s thawing relations with the United States into a major business opportunity on the island. For the first time since Washington and Havana announced an historic rapprochement last December, Castro visited Mexico, where he met President Enrique Peña Nieto in the picturesque colonial-era city of Merida on the Yucatan peninsula. Mexico is eager to stake its claim as Cuba’s principal bridge to Latin America and the leaders signed accords on tourism, agriculture, education and migration before scheduled talks with a delegation of Mexican businessmen. Following Peña Nieto’s words closely, Castro praised Mexico for its solidarity during the Cold War, and looked forward to still closer ties, saying: “I’m also pleased about the interest among Mexican companies to do business and invest in Cuba.” The traffic is a nuisance to Cuba, going in the opposite direction from the route Raul, Fidel Castro and Ernesto “Che” Guevara took 59 years ago when they and their band of revolutionaries left the Mexican port of Tuxpan to oust Cuban dictator Fulgencio Batista. Boasting that it is lining up more investment projects there than any other nation in Latin America, Mexico
Both governments have agreed to set about creating conditions for more Mexican companies to invest in Cuba Enrique Peña Nieto, President of Mexico
could reap major rewards from helping to reverse the effects of more than half a century of U.S. trade embargoes and animosity toward Cuba. “Cuba needs lots of infrastructure: highway infrastructure, communications infrastructure, hydraulic infrastructure and there will be many opportunities for companies,” said Federico Martinez, president of Mexican construction firm Tradeco. Spanish hotels and Brazilian conglomerate Odebrecht are among foreign players already in Cuba, but entrepreneurs like Martinez note that
Fed rate hike ‘makes sense’, says U.S. central banker Raising rates will send a positive signal about the economy and could spur some home-buying that had been deferred, central banker said Ann Saphir
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ow that the United States is closing in on full employment and inflation is likely to rise to target levels, the “next step” should be to start gradually increasing rates, San Francisco Federal Reserve Bank President John Williams told the Arizona Council on Economic Education said on Saturday. The comments suggest that Williams, a centrist policymaker who was Fed Chair Janet Yellen’s chief researcher when she had his
job before moving to Washington, is leaning toward support of a December rate hike. Asked afterward by a reporter whether that is so, Williams declined to say, adding that he expects “a lot of data” between now and then. “I am going to wait and see on that,” he said. The Fed has kept interest rates near zero for almost seven years, and the central bank last month said it would consider a rate increase at its
Mexico’s proximity and historic ties put them in a strong position to capitalize on new business. International development loans to Cuba would likely set that in motion soon, Martinez added. Mexican retailer and bottling company Femsa said in September it was considering expanding its business to Cuba and cement maker Cemex is making similar noises. Mexico’s richest businessman, telecoms tycoon Carlos Slim, has so far given little away on what plans he has for Cuba, where his flagship firm America Movil has a roaming agreement. Yet despite possessing a fortune that has made him a symbol of the massive inequality in Mexico, Slim has been praised for his intelligence by Fidel Castro, who in 2010 announced the billionaire had given him a television. Mindful of the socialist revolution that took control of the island just 225 km off Mexico’s Caribbean coast in 1959, Mexican leaders resisted U.S. pressure to break with Cuba throughout the biggest diplomatic freezes of the Cold War. Ties later frayed but under Peña Nieto, Mexico has sought to revive past solidarity, and in November 2013, his government said it would waive most of US$487 million in debt Cuba owed it. Reuters
December 15-16 meeting, the last of the year. The explicit nod to the Fed’s next meeting sent traders scrambling to boost bets on a December move, bets that only got bigger after a government report on Friday showed the economy added many more jobs than expected in October. A Reuters poll of top bond dealers also showed a growing number expected borrowing costs to go up next month, with 15 of 17 looking for an increase. Inflation has languished below the Fed’s goal for years, prompting a few Fed policymakers to still favour waiting on a rate increase until there is better evidence that prices are indeed firming. On Saturday, Williams said he believes that factors holding inflation down, including weak oil prices and a strong dollar, should soon ebb and allow inflation to bounce back. Beginning rate hikes sooner than later would allow a “smoother, more gradual process of policy normalization,” Williams said. The Fed will likely need to raise rates more slowly than the last time it tightened policy in 2004-2006, because of persistent headwinds holding back growth, he told reporters afterward. Asked how slowly, Williams said investors could draw inferences from the Fed’s quarterly economic projections. Reuters
Business Daily | 15
November 9, 2015
Opinion
Economy can handle rate rise, wires but can markets? Business
Leading reports from Asia’s best business newspapers
James Saft
Reuters columnist
THE KOREA HERALD Korean banks’ lending to self-employed people have hit a record high this year, central bank data showed yesterday, prompting financial authorities to move to tighten loan screening procedures. Outstanding bank loans to the self-employed reached 232.6 trillion won (US$203.7 billion) as of end-September, accounting for 42 percent of total bank lending to small and medium enterprises, according to the data by the Bank of Korea (BOK). In the first nine months of the year, such loans rose 23.3 trillion won, marking the highest on-year gain since 2009, when the BOK started to compile the data.
PHILSTAR Agriculture trade deficit widened 113.02 percent in the first half of the year as imports continued to outpace exports, the Philippine Statistics Authority (PSA) reported. The trade deficit in the farm sector rose to US$2.3 billion from January to June from US$1.08 billion in the same period last year. Total export earnings generated from Philippine agricultural exports fell 22.62 percent year-on-year to US$2.6 billion. The sector comprised nine percent of the country’s total export earnings of US$28.89 billion during the period. The total value of the country’s agricultural imports, meanwhile, rose 10.36 percent year-on-year to US$4.9 billion.
TAIPEI TIMES Political pundits and legal experts criticized prosecutors over their decision to close the probe into possible breaches of election laws by the Chinese Nationalist Party (KMT) during the withdrawal of Deputy Legislative Speaker Hung Hsiu-chu from the presidential race. Political pundit Hu Chunghsin said the investigation by the Special Investigation Division (SID) of the Supreme Prosecutors’ Office revealed that three NT$30 million (US$916,590) checks were made out to Hung, in addition to another NT$30 million check issued by the KMT.
THE STRAITS TIMES Singapore’s confidence in the future of China is best reflected in the continuous flow of its investments into China, President Tony Tan Keng Yam said as he voiced confidence in its continued success under President Xi Jinping’s leadership. Speaking at a state banquet held in honour of Mr Xi, Dr Tan noted that Singapore has been China’s largest foreign investor for the past two years while China has been Singapore’s largest trading partner since 2013. He also noted that Singapore was the first country in Asia to launch negotiations with China for a bilateral free trade agreement, which came into force in January 2009.
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he economy can handle a rate rise. It remains to be seen if financial markets can. Following on from Friday’s robust U.S. jobs report, an interest rate hike from the Federal Reserve in December is looking highly likely. That’s the easy part; much more difficult is foreseeing the reaction of a financial system with the accumulated build-up of risks from seven years of zero rates and a Fed balance sheet equal to 25 percent of annual output. The jobs report had something for everyone. Not only did the economy create 271,000 jobs in October, taking the unemployment rate down to a flat 5.0 percent, but wages showed surprising signs of strength. They are now rising at a 2.5 percent annual rate, up from the 2 percent area we’ve typically seen during a long and tepid recovery. So this report is not only red meat to the hawks, who already advocate getting rates up off of the floor, but it answers most of the questions posed by centrists like Fed Chair Janet Yellen and even some of the concerns of doves. Financial markets immediately moved to raise expectations of a December rate hike, to more than 70 percent from 58 percent yesterday and only about 5 percent a month ago. Stocks fell, not violently, with the S&P 500 down about 0.3 percent while two-year U.S. Treasury yields spiked nearly 10 percent higher, touching levels not seen in 5-1/2 years.
For long months financial markets have disregarded Fed future projections of interest rates, the “dot chart,” preferring instead to bet that rates will rise much more slowly. Until now, those bets have been justified. “What is happening today is that investors for the first time in months are thinking that there is a risk that the complacency on the Fed rates path needs to be re-examined,” Citigroup strategist Steven Englander wrote to clients. “However, if the data keep coming in on the strong side, investors will assume that hikes will come quicker. Ironically, the market ‘dots’ will converge to the FOMC dots.” The Fed will doubtless do what it can to ensure a “dovish liftoff,” talking down the rate of ascent. Despite the central bank’s track record of being pushed about by movements in financial markets, and usually pushed towards being more accommodative, there may be a limit to this should more signs of wage and inflation pressures emerge in coming months. That’s not entirely likely in the few weeks before the Fed meeting on December 15-16, though we will see one more jobs report.
Phillips curve resurrection? Potentially the most important implication of the data is the idea that perhaps the Phillips curve, the traditionally assumed relationship between employment and inflation, may actually be coming back into
As rates rise, as they now look like doing, insurance and finance will come back down to earth
force. Two Fed officials, Lael Brainard and Daniel Tarullo, both advanced arguments recently to the effect that its effects seem no longer to hold in current circumstances, a conclusion which would support waiting longer to hike. If wage pressure is taking hold, then the only issue becomes how much “catch up” - overshooting on inflation to the upside - the Fed might tolerate. That’s an idea that is profoundly scary, rightly or not, to many in financial markets, especially given the sheer weight of money now sitting in
very low-yielding instruments, or in strategies which depend on low yields to make their own mechanics work. If rates do need to rise more rapidly than the market has thought, perhaps even more rapidly than the Fed itself has predicted, then there is a good deal of re-pricing needed across financial markets. While total credit market debt to GDP in the U.S. has fallen gently since the financial crisis, at 331 percent it is still at extremely high levels historically. That’s part of the plan of zero rates: investment and speculation as a means to goose growth. The problem is that interest rates look likely to rise much more rapidly than the cashflows which must service the debts. This is probably true even if the economy shrugs off global weakness and carries on strongly. The finance and insurance sector has done well under these conditions. Those industries contributed real value added growth of 12 percent in the second quarter, or about a quarter of real output. In nominal terms banking and insurance is now bigger than it was in 2007. If we accept that little innovation of true value has come from the sector since the invention of the cash machine, it is hard to see this growth as anything but artificial. As rates rise, as they now look like doing, insurance and finance will come back down to earth. The Fed put, the idea that it stands guarantor against sharp market falls, may be tested. Reuters
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November 9, 2015
Closing Record auctions bring sparkle to diamond market
Modi suffers setback with big loss in key India election
A 12.03-carat blue diamond could fetch a record US$55 million when it goes under the hammer at Sotheby’s auction house in Geneva on Wednesday. The “fancy vivid blue diamond” Blue Moon, discovered in South Africa in January last year, is the largest cushion-shaped stone in that category to ever appear at auction. Sotheby’s put its estimated sale price between US$35-US$55 million which, at the higher end, would mark an all-time record for the sale of a diamond at auction. “Fancy vivid” is the highest category for coloured diamonds.
A family show voter slips and ID as they queue to cast their votes at a polling station in Bahan Township, Yangon
Myanmar voters head to polls in freest election in 25 years The NLD is banking on Suu Kyi’s personal popularity to sweep the party to power
Indian Prime Minister Narendra Modi suffered one of his biggest setbacks since taking office with a defeat in a crucial state election, dealing a blow to his push for economic reforms. His opponents led by incumbent Bihar Chief Minister Nitish Kumar were leading in about 63 percent of seats in Bihar’s 243- member state assembly, with the Modi-led National Democratic Alliance taking about 32 percent. Modi said on Twitter that he called Kumar and congratulated him on his victory. It hurts Modi’s longer term goal of taking power in the opposition-controlled upper house.
the country’s biggest city. Dressed in red, the colour of her National League for Democracy party, she emerged minutes later with a finger dyed by purple ink, before being ushered through a crush of reporters without making any comments. President Thein Sein said before the vote that the military and the government will accept the outcome and work with opposition parties to ensure a stable transition. The poll comes 25 years after the junta ignored a landslide victory by Suu Kyi’s NLD, eight years after it violently crushed pro-democracy protests, and five years after it handed power to its political arm in an election tainted by allegations of fraud. About 100 voters queued in front of the gate of a school near Suu Kyi’s home in Yangon an hour before the polls opened, a scene that was repeated at almost 50,000 polling stations across the nation. Polls closed at 4 p.m. Initial results aren’t expected for several days and a complete count may take weeks, according to the election commission.
Stability or change
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obel laureate Aung San Suu Kyi joined more than 30 million Myanmar citizens voting yesterday in the nation’s most important election in 25 years. What comes
next may test the military’s willingness to share power with the democracy campaigner who missed the past two national polls because she was under house arrest.
Scores of countries and organisations to attend Malta summit
Suu Kyi, who is barred by the constitution from becoming president, was greeted by hundreds of cheering supporters when she arrived to vote before 9 a.m. at a school in Yangon,
Though more than 90 parties are competing to represent the Southeast Asian nation’s 52 million people in parliament, the vote boils down to two key choices: Suu Kyi’s party and its mantra of change, or Thein Sein’s
China boosts maritime co-op with southern Europe
military-backed party and its promise of stability. Should neither win a majority, ethnic parties which are expected to do well in border areas might determine who leads the next government. Since taking power in 2011, Thein Sein’s quasicivilian government opened industries such as energy exploration, banking and telecommunications to foreign participation in a bid to bring Myanmar out of more than 50 years of economic isolation. Annual economic growth has averaged more than 7 percent since the 2010 election, helped by foreign investment in infrastructure and low-cost manufacturing. The NLD is banking on Suu Kyi’s personal popularity to sweep the party to power, though even if it wins she’s barred from the presidency because her children hold foreign passports. No matter who wins, the military will maintain a key role in politics because it is guaranteed 25 percent of seats in parliament as well as control of key ministries. Human Rights Watch, which sent election observers to several states, is investigating allegations that anti-NLD hate-speech pamphlets were distributed in the central city of Mandalay, though polling stations were “fairly professionally run,” Robertson said. Bloomberg News
Dubai Airshow opens amid drop in new jetliner orders
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he heads of state and government from most of the EU member countries and more than 30 African nations are due in the Maltese capital Valletta on Wednesday for talks on tackling Europe’s migration crisis. The two-day summit ending Thursday will be followed immediately by an informal gathering of EU leaders who will take stock of their quest for a unified response to the continent’s biggest movement of people since World War II. Out of the 28 European Union member states, 24 will be represented in Malta at the heads of state or government level, while ministers will stand in for the others, according to a list of participants provided by a diplomat. The countries are Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Somalia, South Sudan, Sudan, Tunisia, Benin, Burkina Faso, Cameroon, Cape Verde, Central African Republic, Chad, Democratic Republic of Congo, Ivory Coast, Gabon, Ghana, Guinea, Equatorial Guinea, Guinea-Bissau, Liberia, Libya, Mali, Mauritania, Morocco, Niger, Nigeria, Republic of Congo, Senegal, Sierra Leone, Gambia and Togo.
hina is closely working with southern European countries in maritime development, part of the country’s endeavour to develop the 21st-Century Maritime Silk Road, said an oceanic official on Sunday. Over the past year, China and Greece reached nearly 30 cooperative agreements, paving the way for more collaboration between China and other southern European countries, said Wang Hong, head of State Oceanic Administration, on the sidelines of the on-going International Oceanic Week in Xiamen, southeast China’s Fujian Province. China and Greece have closely worked on maritime infrastructure building, technology, transportation, ship-building, tourism and culture, Wang said, adding the two sides complement each other on maritime development. He said the cooperation between the two is the European extension of the 21st-Century Maritime Silk Road. China has also enhanced overall maritime cooperation with Italy, Spain, Portugal, Cyprus and Malta, he said, adding these southern European countries are strengthening port construction, industrial parks nearby, transportation, tourism and fishery.
fter three years of record jetliner orders, planemakers are bracing for a slowdown in new commitments at the Dubai Airshow which opens on Sunday under the shadow of recently falling oil prices and conflicts in the Middle East. Barring traditional show surprises, delegates attending the biennial November 8-12 event predicted a drop in major commercial order announcements as Gulf airlines take stock after expansion. The aerospace industry is putting a brave face on the slowdown, saying the tally of more than 400 orders at the 2013 edition was never going to be repeatable. But analysts will be scanning the announcements for any evidence that the dip is more than a return to normality. Aerospace investors are concerned that a glut of wide-body jets rolling off production lines towards the end of this decade could put pressure on aviation, just as doubts gather over the pace of economic activity. “A lot of airlines have bought aircraft to capture the same growth,” said Ben Moores, senior analyst at IHS Aerospace, Defence & Security.
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