MOP 6.00 Closing editor: Joanne Kuai Year IV
Number 918 Thursday November 12, 2015
Publisher: Paulo A. Azevedo
Casino operators want to keep smoking lounges Page 2
Factory output in China confirms downward trend of economy Pages 8 & 9
Macau Grand Prix Pivotal to City’s Aspirations
Macau Grand Prix is one of the city’s cornerstones. In the MSAR’s bid to become a World Centre of Tourism and Leisure. Secretary Alexis Tam said the established motorsport brand was hugely successful in attracting visitors. And contributing to the economy. To the extent that it had inspired both Singapore and Hong Kong to emulate its racing tradition. With one week to go, more than 30 pct of tickets are sold. At a faster rate than last year, said Organizing Committee President João Costa Antunes Page
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Faster weed-out Starting from 2017. All 8-year old vehicles or older will have to undergo compulsory inspection. Currently it is 10 years. Nearly 10,000 vehicles in the territory are expected to be scrapped. The Transport Bureau’s inspection centre has been constructed, and is now being fitted out
Open Sesame! Jack Ma goes from strength to strength. Taking half the time yesterday to sell the same amount of product he did a year ago. All via his online channels’ Singles’ Day shoppingfest. Alibaba Group Holdings’ transactions surpassed 57.1 billion yuan by midday
Poor report card Several flaws to be fixed. With judgement reserved for responsibility of scandal. Secretary Alexis Tam says he welcomes an inflammatory Audit Commission report. Revealing the Education and Youth Affairs Bureau (DSEJ) and Education Development Fund’s poor supervision of subsidies to private schools. Major changes will ensue, he promises
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HSI - Movers November 11
Mortgage moratorium Local banks granted MOP3.6 bln (US$451.8 mln) in residential mortgage loans in September. Down 35.3 pct from August, or 20.6 pct vis-a-vis the same month last year.
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Retail www.macaubusinessdaily.com
Chinese banks to begin adaptation of new Financial Stability Board rules Pages 8 & 9
Market savvy Change of tack. Clothing retailer Giordano increased sales in the SARs by four pct y-o-y in Q3. By re-positioning its product range to essential products. Given Mainland visitors are declining and changing their shopping habits
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New approvals of commercial real estate loans jumped 7.8 pct m-o-m to MOP10.5 bln in September, up y-o-y 116.9 pct
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Name
%Day
Cheung Kong Property
+2.08
China Resources Beer H
+1.90
Power Assets Holdings
+1.76
China Mengniu Dairy C
+1.19
CLP Holdings Ltd
+1.15
Wharf Holdings Ltd/Th
-1.68
China Shenhua Energy
-1.70
China Petroleum & Che
-1.88
CNOOC Ltd
-1.98
Tingyi Cayman Islands
-3.78
Source: Bloomberg
I SSN 2226-8294
2015-11-12
2015-11-13
2015-11-14
22˚ 25˚
23˚ 26˚
22˚ 26˚
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November 12, 2015
Macau
Alexis Tam demands stricter supervision of subsidies by DSEJ director The Secretary met yesterday with the Director of the Education and Youth Affairs Bureau to listen to her justification about the lack of proper supervision of MOP32.46 million in subsidies paid to private schools João Santos Filipe
jsfilipe@macaubusinessdaily.com
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he Secretary for Social Affairs and Culture, Alexis Tam Chon Weng (pictured), demanded stricter inspections from the Education and Youth Affairs Bureau (DSEJ) regarding public expenses and subsidies awarded. The call of the Secretary comes after a revelation from the Commission of Audit that the Education Development Fund (FDE) is unable to track if an amount of MOP32.46 million (US$4.07 million) awarded in subsidies to private schools was actually used to develop the proposed projects. “Our inspections can always be stronger, more focused and stricter. We can always do better. I’m
going to demand this from my colleagues at the DSEJ this afternoon in a meeting”, Alexis Tam said yesterday on the sidelines of the blessing ceremony of the Macau Grand Prix.
The report of the Commission of Audit slammed DSEJ for failing to act according to the law in relation to the supervision of overcharging by private schools subsidised by the government. However, the Secretary for Social Affairs and Culture said yesterday that he wasn’t considering any action to punish the Director of DSEJ, Leong Lai, before he listened to her version of the story. “I understand that some people may want the Director to be punished. But this is a very hardworking team and the Education System in Macau has achieved a very high level”, he said. “Of course, we need to improve our weak points. However, I haven’t considered yet any punishment measure.
First, I need to listen to the Director’s explanation”.
Report on subsidies welcomed
Alexis Tam constantly stressed what he considered the excellent work of the DSEJ in recent years during his conversation with the media. He also said that he had put his trust in Leong Lai and believed that these failures will be corrected. “Maybe there are some failings in DSEJ. However, from now on the subsidies to private schools will be properly monitored. I believe this situation will be changed”, he said. “Regarding the education system, the Director has worked very hard. In fact not only her but also the performance of
other chiefs of department related to this area have been excellent”. According to the report of the Commission of Audit published on Tuesday, the failure of FDE and DSEJ reveal ‘serious’ management shortcomings and that both departments had failed in their inspection duties. Nevertheless, Alexis Tam said, “I welcome this report. I have always asked not only for the Commission of Audit, but also the Commission Against Corruption and other government inspection bodies to pay close attention to the departments under my supervision. Public services have to set an example from the top. We need to have a tight control over our expenses and their purpose.”
Gaming industry urges government to loosen universal smoking ban
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he revision of the Tobacco Control Law is being discussed by the second standing committee of the Legislative Assembly. Legislators met with casino operators and gaming promoters yesterday to listen to their opinions on the issue. The president of the committee, Chan Chak Mo, told reporters after the meeting that the industry is against a universal smoking ban in casinos and wishes to at least maintain smoking lounges. Representatives of the Chamber of Macau Casino Gaming Concessionaires and Sub-concessionaires and the Association of Gaming and Entertainment Promoters of Macau attended the meeting with the legislators. Chan Chak Mo told reporters that the casino operators wish to maintain the smoking lounges and
focus on how to build higher-standard smoking rooms while the junket group also suggested continuing to allow smoking in the VIP areas, giving the freedom of choice to employees whether to work in smoking areas or not, whilst probably offering workers in smoking areas better salaries. The committee president quoted the industry representative as saying that Macau’s gaming industry is suffering increasingly fierce competition from the region, and that a universal smoking ban on casino floors would have a further negative impact on the industry. The legislator said the committee would continue meeting other groups and associations and expects to collect and summarise the opinions, which it will submit to the government within two months.
Business Daily | 3
November 12, 2015
Macau Gov’t approves new 2-star hotel project in northern district The government has approved developer Companhia de Predial Mei Tai Ji Ye Limitada’s plan to build a 2-star hotel near the Victoria Hotel Macau in the northern district of the city, the Official Gazette announced yesterday. The developer is allowed to build a 33-storey building, including three storeys of basement. The hotel project would occupy a total of 5,192 square metres of gross floor area. Meanwhile, some 148 and 452 square metres will be used for commercial purposes and a car park, respectively.
Home loans down 35.3 pct in September New approvals of residential mortgage loans registered a decrease from the previous month while those for commercial real estate loans posted a month-on-month increase Kam Leong
kamleong@macaubusinessdaily.com
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ocal banks granted a total of MOP3.6 billion (US$451.8 million) in residential mortgage loans in September, down 35.3 per cent from August, or a drop of 20.6 per cent compared to the same month last year, the latest data released by the Monetary Authority of Macau (AMCM) reveals. According to AMCM, 96.7 per cent of the approved residential mortgage loans of the month went to local residents, in the amount of MOP3.5 billion. The number represents a month-on-month fall of 2.6 per cent, as well as a year-on-year plunge of 20.4 per cent. In addition, local banks’ approvals of residential loans to non-residents dived 94.1 per cent month-on-month, sharply decreasing to only some MOP118 million from nearly MOP2 billion in August. On a year-on-year comparison, home loans to non-residents dropped 27.5 per cent.
Meanwhile, new approvals of equitable mortgage - which is home loans collateralised by uncompleted units also registered a monthon-month decrease of 12.1 per cent, or a year-on-year decline of 13.8 per cent, at MOP1.02 billion. Some 91.4 per cent of equitable mortgage was granted to local residents, amounting to MOP937 million compared to MOP1.08 billion in August. However, the value
these non-residents received from banks increased 9.2 per cent month-on-month, or 14.1 per cent year-on-year, totalling MOP88.5 million.
Commercial real estate loans
On the other hand, new approvals of commercial real estate loans jumped 7.8 per cent month-onmonth to MOP10.5 billion in September, a year-on-year lift of 116.9 per cent. Nearly
all such loans were given to local residents, accounting for 99.5 per cent of the total. In terms of value, commercial property loans to residents totalled MOP153.8 billion in the month, a month-on-month growth of 2.3 per cent, or an increase of 33 per cent yearon-year. By contrast, those to non-residents plunged 70 per cent from one year ago, amounting to MOP17.8 billion.
Eight arrested for pyramid scheme Police say criminal group consist of at least 100 members and don’t exclude the possibility of detaining more people
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he Pubic Security Police (PSP) have arrested eight women, seven local and one from Hong Kong, aged 40 to 64, who are suspected of conducting pyramid schemes selling beauty products, nutrition products and other goods, local media TDM Chinese radio reported. PSP said that the group has been operating for around a year and has recruited at least 100 members, with illicit gains involved in this case exceeding one million renminbi.
“There are two ways for the members to make illicit gains: one is to introduce new members to the group, for which they can receive one per cent of the membership fee as commission for bringing in each new member; the other way is through sales of the products, for which two per cent will be given,” said the PSP spokesperson. Police say they received a tip-off and launched an operation on a shop in Iao Han district on Tuesday,
where they arrested three people believed to be the core members or masterminds of the group. Another four people with other members below them were also arrested following investigation. The police added that the group dangle large discounts and bonuses as incentives to lure more members to join them and that their main targets are Macau residents. The police said they don’t exclude the possibility of arresting more individuals.
As at the end of September, the outstanding value of residential mortgage loans reached MOP170.2 billon, an increase of 0.7 per cent month-on-month or 15.8 per cent year-on-year, with residents making up 94.1 per cent of the total. In addition, commercial real estate loans registered a month-on-month increase of 2.3 per cent, or 33 per cent increase from one year ago, amounting to MOP153.8 billion. According to AMCM, residents accounted for 88.4 per cent of the loans. At the end of September, the delinquency ratio for residential mortgages was 0.08, down 0.01 percentage points from a month ago, and up 0.01 percentage points from endSeptember 2014. Meanwhile, the delinquency ratio for commercial property loans went down 0.03 percentage points month-on-month, or 0.07 percentage points yearon-year, standing at 0.01.
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November 12, 2015
Macau
Eight-year old vehicles to undergo inspection from 2017 Nearly ten thousand vehicles in the territory are expected to be scrapped following the introduction of the new regulation Kam Leong
kamleong@macaubusinessdaily.com
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irector of Transport Bureau (DSAT) Lam Hin San said yesterday that all eight-year old vehicles or
older in the city would have to undergo compulsory inspections from 2017 as opposed to the current 10 years.
The DSAT head told reporters yesterday that the tightened regulation on vehicle inspection would be implemented once the city’s new vehicle inspection centre in Cotai became operational in 2016. Construction of the new inspection centre has already been completed. The government is finishing the interior and installing inspection equipment, according to Mr. Lam. He added that the Transport Department would co-operate with the Environmental Protection Bureau to enhance environmental requirements for local vehicles, estimating that nearly 10,000 motorbikes and automobiles would be scrapped after the amendments. The measure of lowering the inspection time to vehicles 8 years old or older was first proposed by the Bureau’s former head, Wong Wan. The policy is designed to control the growth rate of local vehicle numbers. Secretary Raimundo Arrais do Rosário said in a recent exclusive
interview with our publication group that the required vehicle age for mandatory inspection is not likely to be lower than eight years due to the constraints caused by the shortage of land in the territory.
Unauthorised monthly parking pass
Meanwhile, Mr. Lam estimated that car park management company Macau Forehap Parking Management Ltd. may have generated revenues of some MOP8.7 million (US$108,750) for the 43 months that it has been issuing illegal monthly parking passes in Ho Yin Garden public car park. On Monday, DSAT claimed that the management company is suspected of having issued 390 illegal monthly parking passes since May 2012 in a parking lot where the government had not leased out any spaces for monthly rental. The estimation of the DSAT head indicated that the revenues for the period should have been MOP9.17 million if the company had issued hourly parking tickets based on the law. According to local broadcaster TDM Radio, Macau Forehap claimed it had been turning over 61 per cent of the revenues from the monthly parking passes to the government as regulated in the contract. But the DSAT Director said yesterday that the government did not see any item related to the revenues of monthly parking passes on the monthly financial reports that the management company had submitted to the authority. Mr. Lam added that the government would check whether the company had, in fact, given the government its portion of revenues.
AACM hosts Asia Pacific Flight Procedures Programme meeting
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osted by the Civil Aviation Authority of Macau SAR (AACM), the ‘7th Meeting of the ICAO Asia Pacific Flight Procedure Programme Steering Committee (7th FPP SCM)’ is being held from 11 to 13 November 2015 in Macau, in which delegates from seven states and administrations as well as the International Civil Aviation Organization will discuss issues of flight procedures design, while reviewing work implementation and deliberate on future plans. The ICAO Asia Pacific Flight Procedure Programme was developed in 2010 with the objective of gathering states and administrations to discuss how assistance can be offered to each other in ensuring the quality control of flight procedures while providing training to increase the professionalism of personnel. The Programme currently has a membership of 10 active participating countries and administrations as well as seven user states. Macao SAR has been a member
of the Programme since its inception. Throughout all these years, AACM and the Administration of Airports Ltd. have benefited from the Programme by participating in the training courses on flight procedures design. The Programme organises the steering committee meeting once every year in order that participating states and administrations can brief each other about the latest development of their flight procedures implementation. The Programme started the Phase II work in 2013 which will run for 5 years. The 7th FPP SCM will discuss the work for the remaining two years of Phase II and will also deliberate on the direction for Phase III. The 7th FPP SCM is being held in Macau Science Centre with the participation of more than 20 delegates from Australia, Mainland China, Hong Kong SAR, Macau SAR, France, the Philippines, Singapore, Thailand and the International Civil Aviation Organization.
Business Daily | 5
November 12, 2015
Macau
“Grand Prix promotes city as World Centre of Tourism and Leisure” The Secretary for Social Affairs and Culture has announced that public servants may adjust their working schedule during the Grand Prix days to avoid traffic jams João Santos Filipe
jsfilipe@macaubusinessdaily.com
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he Macau Grand Prix is one of the cornerstones of transforming the city into a World Centre of Tourism and Leisure, the Secretary for Social Affairs and Culture, Alexis Tam Chon Weng, explained yesterday during the blessing ceremony of the event, which will take place between 19th and 22nd November. “We want to make Macau a World Centre of Tourism and Leisure, and the Grand Prix is a product very important to achieving that. We have a lot of fans from neighbouring regions like Guangdong, Hong Kong, Taiwan and other places in Asia but also from Europe”, Alexis Tam said. “The Grand Prix has been held 62 years in a row and it is already a world brand associated with Macau”.
inevitably disturb the normal pattern of life of the city, he asked for the population to understand the importance of the event and announced new measures. “During the Grand Prix days, public servants will have more flexibility to arrive at their workplace. They are free to choose to start working from 8 a.m. to 10 a.m., according to what they consider better. This measure is designed to ease the traffic jams in the city”, he revealed. The Secretary focused on the importance of the races and how the model of the Macau Grand Prix has been copied by Singapore, which has a Formula 1 race, and Hong Kong, which next year will host a Formula E Championship round due to its success in attracting visitors.
“The Grand Prix has an important contribution for the economy. It attracts more visitors and increases visitors’ spending. The development of the economy speeds up during the racing period”, he explained. While Alexis Tam admitted that the races
Goal set at 850,000 visitors
For his part, the Co-ordinator of the Macau Grand Prix Committee, João Costa Antunes, explained that the goals of the organisers is to attract at least the same number of visitors as the past edition.
“We’re expecting to achieve 850,000 visitors during the race days, which is the same number as last year”, he said. “Regarding the sale of tickets, probably because last year the tickets were sold out, at this moment we have already sold more than 30 per cent than at the same time as last year. This means our revenue from tickets is already over MOP7 million. But this only means we are selling tickets at a faster rate than in the previous year, not that we are selling more tickets”. Costa Antunes also explained that the preparatory works for the track are on schedule and that in one week the technicians from FIA, the governing body for auto racing events, will come to Macau to inspect the track.
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November 12, 2015
Macau
Giordano sales up 4 pct in SARs The company claimed the slight growth amid the ‘highly competitive retail market in Hong Kong’ is due to it adjusting the positioning of its products Kam Leong
kamleong@macaubusinessdaily.com
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lothing retailer Giordano International Ltd. saw its sales in Macau and Hong Kong register an increase of four per cent year-onyear for the third quarter of this year, following the company’s repositioning of its product range in the two cities. According to its filing with Hong Kong Stock Exchange yesterday, total
sales in the two Special Administrative Regions totalled HK$225 million (US$28 million) for the quarter, while comparable store sales in the cities jumped 12 per cent year-on-year. ‘As tourist visitors from the Mainland are declining and changing their shopping habits, we re-positioned the product range to focus on more
basic essential products. This has resulted in strong volume growth compared to the same period last year,’ the company observed of its sales in the two cities.
Slight increase
For the first nine months of the year, total sales in Macau and Hong Kong
Chow Tai Fook hits record low after warning of profit plunge Weak consumer sentiment in the SARs trigged the profit plunge
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how Tai Fook Jewellery Group Ltd. shares fell to a record low in Hong Kong after it warned that first- half profit will plunge by as much as 50 per cent due to weak consumer sentiment in Hong Kong and Macau amid a slowdown in China’s economy. The world’s largest publicly traded jewelry chain forecast its net income for the six months ending Sept. 30 to decrease by about 40 to 50 per cent compared with a year earlier, mainly due to weakness in the two cities, increased sales of lower-margin gold products and unrealized hedging losses, according to a statement late on Tuesday.
reached HK$704 million, a slight increase of two per cent year-on-year from HK$677 million one year ago. In addition, comparable sales in the months grew 11 per cent year-on-year during these months. In general, the company generated HK$1.24 billion from sales during the quarter, down three per cent year-on-year. Nevertheless, on a constant currency basis, the number represents a year-on-year growth of two per cent. ‘The depreciation of local currencies against the U.S. dollar in South East Asia, Taiwan and Australia is depressing reported sales growth at the Group level, and pushing costs up in those markets,’ the Hong Konglisted retailer claimed. For the first nine months of the year, Giordano generated a total sales volume of HK$3.98 billion, up one per cent year-on-year. However, its sales in the Mainland Chinese market plunged 12 per cent year-on-year to HK$299 million from HK$341 million between July and September this year, while for the first nine months total sales registered a decrease of 5 per cent to HK$1.06 billion. The international retailer, which owns 2,359 stores worldwide, posted a year-on-year growth of 20 per cent in its net profit during the first half of the year, taking in some HK$208 million, according to its previous interim report.
Chow Tai Fook fell by 7.2 per cent to HK$6.16 per share at the mid-day break in Hong Kong trading, headed for its lowest close since its debut in Dec. 2011. The benchmark Hang Seng Index was little changed. Chow Tai Fook is due to announce first-half results Nov. 24. “Even though we were expecting the profit to fall, such a big drop comes as a surprise,” said Hannah Li, a senior analyst at UOB Kay Hian Ltd. While Chow Tai Fook has tried to deal with China’s retail slowdown including by promoting higher-margin jewelry products and introducing more mid-priced products, those strategies haven’t worked, she said. The jeweler’s biggest hope for margin improvement is through rental cuts for its shops in Hong Kong next year, Li said via telephone. Chow Tai Fook is seeking a 20 per cent reduction in rent for some of its stores in Hong Kong when contracts come up for renewal this year, as sales of luxury items plunged in the city, Managing Director Kent Wong had said in an interview in May. Bloomberg
Business Daily | 7
November 12, 2015
Gaming
DraftKings, FanDuel told by New York to cease operations Nevada has told the companies they need casino licenses to do business there
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raftKings Inc. and FanDuel Inc. were ordered by New York Attorney General Eric Schneiderman to cease operations in the state, making it the biggest so far to seek a ban on the daily fantasy sports contests. The businesses are gambling and illegal under state law, Schneiderman said in cease-and-desist letters to both companies, according to a statement from the attorney general’s office. Both companies indicated they will continue to let customers play. “Daily fantasy sports companies are engaged in illegal gambling under New York law, causing the same kinds of social and economic harms as other forms of illegal gambling, and misleading New York consumers,” Schneiderman said in the statement.
Gaming licenses needed
The orders marks the biggest setback yet for the two companies, which have expanded rapidly and raised hundreds millions of dollars from investors including Time Warner Inc. and KKR & Co. on the premise that their contests are legal. Nevada has told the companies they need casino licenses to do business there.
DraftKings and FanDuel also don’t accept players from Arizona, Iowa, Louisiana, Montana and Washington, according to the Legal Sports Report, which monitors the industry. DraftKings, in a statement, disputed Schneiderman’s findings, saying it will “examine and vigorously pursue all legal options available to ensure our over half a million customers in New York State can continue to play the fantasy sports games they love.” FanDuel also issued a statement, asserting fantasy sports is legal and saying Schneiderman is “a politician telling hundreds of thousands of New
Yorkers they are not allowed to play a game they love and share with friends, family, coworkers and players across the country.” In daily fantasy sports, customers pay entry fees and pick rosters of real life athletes in the hopes of winning millions of dollar in prizes.
Chance or skill
The attorney general began his investigation on Oct. 6, according to the letter, which was signed by Kathleen McGee, chief of the Internet Bureau. After first looking into allegations that an employee of DraftKings made unfair use of
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proprietary information, the office began a review of the daily sports fantasy business. Customers of both companies “are clearly placing bets on events outside of their control or influence, specifically on the real-game performance of professional athletes,” the attorney general said. The wagers represent a “contest of chance” where winning or losing depends on numerous elements of chance to a “material degree.” DraftKings and FanDuel were told to answer within five days as to why the attorney general’s office shouldn’t begin legal proceedings. Bloomberg
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8 | Business Daily
November 12, 2015
Greater China
Rebalancing takes hold as output slows Retail sales beat the median economist projection of 10.9 percent in a pickup paced by an acceleration in auto sales
Industrial output rose 5.6 percent in October from a year earlier, matching January through March’s reading
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hina’s industrial output matched the weakest gain since the global credit crisis last month, while retail sales accelerated, underscoring a shift in the economy toward greater reliance on consumer spending as old growth engines falter. The good news is that signs of vibrancy in China’s swelling urban middle class abound: sales at retailers climbed by the most this year, and that was before yesterday’s Singles Day -- a record shopping extravaganza championed by Alibaba Group Holding Ltd. The bad news: China’s overall economy began the fourth quarter with little change in momentum as
Bloomberg’s monthly gross domestic product tracker clocked a 6.57 percent pace in October. That signals that monetary and fiscal easing have yet to spur any notable acceleration in growth, with Goldman Sachs Group Inc. analysts among those that predict the central bank will take further actions as a result. Industrial output rose 5.6 percent in October from a year earlier, matching January through March’s reading which was the weakest since 2008. Fixed-asset investment increased 10.2 percent in the first 10 months -- the slowest pace since 2000 -- while retail sales climbed 11 percent in October, the quickest gain this year.
The supply side hasn’t caught up yet. If demand keeps rebounding, and investment and consumption keep increasing, we will see a very mild rebound in activity this quarter Ding Shuang, chief China economist, Standard Chartered
“We have already seen improvement in the demand side,” said Ding Shuang, chief China economist at Standard Chartered Plc in Hong Kong. “The supply side hasn’t caught up yet. If demand keeps rebounding, and investment and consumption keep increasing,
we will see a very mild rebound in activity this quarter.” China’s leaders are seeking to transition from an investmentdriven, manufacturing-dominated economy to a more consumption and services-led one in the next five years while maintaining growth of at least 6.5 percent a year. With the real estate sector stalling, manufacturing deteriorating, and inflation muted, policy makers are under pressure to step up stimulus as new growth drivers aren’t picking up the slack quickly enough. The Shanghai Composite Index reversed losses to close 0.3 percent higher. The yuan was little changed. Retail sales beat the median economist projection of 10.9 percent in a pickup paced by an acceleration in auto sales. Singles’ Day transactions at this year’s event passed 57.1 billion yuan (US$9 billion) before midday, eclipsing the 2014 mark with another 12 hours still to go. By contrast, a detailed look at the output of China’s key products underscores the weakness facing heavy industry: - Crude steel output fell 3.1 percent from a year earlier - Cement dropped 3.5 percent - Coal output fell 1.2 percent while coking coal slumped 9.4 percent
“Too big to fail”
A reform requires the wo that can be written down Michelle Price and Lawrence White
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hina’s four biggest banks may have to raise up to US$400 billion to meet new global capital rules, an onerous task that could pressure them to slow down lending at a time when Beijing wants them to help prop up economic growth. The Financial Stability Board (FSB) this week finalised rules for ensuring banks do not become “too big to fail”, a pledge made by the G20 after governments spent more than US$1.5 trillion rescuing financial firms in the 2008 financial crisis. The rules will apply to China’s major state lenders, a coup for Western banks which had complained that a proposed exemption for emerging market institutions would give the Chinese banks an unfair competitive advantage as they expanded overseas. The reforms require the world’s 30 systemically important banks, known as GSIBs, to hold a buffer of capital that can be written down to protect taxpayers if the bank goes bust. This layer of Total Loss Absorbing Capacity, or TLAC, comprises a large chunk of debt and comes on top of banks’ core Basel capital requirements.
Business Daily | 9
November 12, 2015
Greater China “While mining and heavy industry languish amid continued weakness in real estate construction, solid consumption continues to cushion the impact on overall growth and support healthier trends in light industry, services and, again, the car industry,” said Louis Kuijs, head of Asia economics at Oxford Economics in Hong Kong. Meantime, China’s property development investment growth slowed to 2 percent from a year earlier in the ten months through October, while growth in the value of property sales also slowed. “The adjustment in the property market is still going on,” a statistician at NBS wrote in a statement. In a separate release, foreign direct investment rose 4.2 percent to US$8.77 billion in October, the official Xinhua News Agency reported, citing the Ministry of Commerce. Yesterday’s readings follow data that showed consumer inflation waned in October while factory-gate deflation extended a record streak of negative readings, highlighting room for further monetary easing. That followed a tepid trade report suggesting the world’s second-biggest economy isn’t likely to get a near-term boost from global demand as overseas shipments dropped 6.9 percent in October in dollar terms from a year earlier. “With the stabilization in credit expansion yet to pass through to firmer growth data, the stage is set for further easing into year end,” Bloomberg Intelligence economists Tom Orlik and Fielding Chen wrote in a note. “Recent signals from the government suggest increased fiscal support, infrastructure investment and rate cuts are all on the agenda.” Bloomberg News
Rabobank sees recovery in mainland offshore food and agri deals Dominique Patton
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hina’s appetite for offshore investment in food and agriculture is expected to rebound from a lull that has delayed some deals, given strong interest to meet growing domestic demand, a leading banker said. Confidence had stalled due to slower economic growth and ahead of the release of the government’s new five-year plan but should recover quickly, Wilco Hendriks, Rabobank’s chief executive for China, told Reuters. “There is a lot of appetite for our Chinese clients to make foreign acquisitions or partnerships,” Hendriks said. Chinese interest in overseas food deals has grown rapidly in recent years, driven by demand for commodities, technology and quality brands to feed the country’s 1.4 billion people. China’s outbound investment in food and agriculture hit US$8.8 billion dollars in 2014, according to Mergermarket, but has fallen to US$1.9 billion so far this year, although the number of deals has risen. China’s slowing economy and stock market turmoil had dented investor confidence, Hendriks said. “But if you look through that cycle, the fundamentals in our business
remain solid. Maybe it will delay some acquisitions by six to 12 months but we are confident they will still happen.” State-owned agriculture companies and others with “indirect” state backing were also holding back while the government draws up its policy priorities for 2016-2020, but should resume buying once the 13th five-year plan is approved early next year, Hendriks said. The China-Australia Free Trade Agreement had boosted interest in Australian dairy, beef and sugar farms, while some investors were looking as far as Brazil for assets, he said. Hendriks said Dutch-based Rabobank, which has a global food and agricultural loan portfolio worth 92.3 billion euros (US$99.3 billion), also aimed to expand lending to China’s smaller farms. These often struggle to get financing because government-owned land cannot be used as collateral. “This is at an early stage but is one thing we are planning to do more,” he said. The bank was also still working closely with Agricultural Bank of China, despite selling off most of its stake earlier this year to reduce capital costs, he said. Reuters
national banks face US$400 bln capital call
orld’s 30 systemically important banks to hold a buffer of capital n to protect taxpayers if the bank goes bust
Shanshui Cement debt default certain China Shanshui Cement said it has decided to apply for provisional liquidation after determining that it will default on onshore debt payments due today, a sign that Chinese authorities have become willing to allow weak firms to fail. The privately owned company had been struggling to raise funds as its operations have been hit by overcapacity in the sector. “It’s a sign that bailouts are not for everybody and that the slowing economy is taking its toll on the non-investment grade sector,” said Warut Promboon, chief rating officer at Dagong Global Credit Rating.
Lottery sales down 9.8 pct in September Lottery sales dropped to 29.08 billion yuan (US$4.47 billion) in September, down 9.8 percent year on year, official data showed yesterday. Welfare lottery sales decreased by 11.3 percent to reach 15.5 billion yuan, while the sports lottery slipped 8.1 percent to 13.58 billion yuan, the Ministry of Finance (MOF) announced. From January to September, 271.9 billion yuan in lottery tickets were sold, a year-on-year decrease of 2.7 percent. Under lottery management rules, money from ticket sales must cover administrative fees and public welfare projects as well as the jackpot.
Hong Kong buyer snaps up rare pink diamond A Hong Kong-based buyer has snapped up a large diamond of a rare pink hue, paying 28.725 million Swiss francs (US$28.55 million) at the Christie’ s semi-annual jewellery sale in Geneva, local media reported yesterday. The cushion-shaped pink diamond weighing 16.08 carats and graded vivid fancy pink, is set in a platinum and gold ring surrounded by a double row of paveset white diamonds, the auction house said. Its pre-sale estimate was 23 million to US$28 million. The seller was not identified and the buyer, who has named the pink diamond “The Sweet Josephine.”
Beijing willing to establish friendly relations with Philippines China has four GSIBs: Bank of China, Agricultural Bank of China, Industrial and Commercial Bank of China, and China Construction Bank which was added to the GSIB list only last week. Industry insiders and analysts said the Big Four would need to raise a total of between US$350 billion and US$400 billion to comply with the rules, but they were unlikely to do this until after 2020. In a note published ahead of Monday’s announcement, James Antos, an analyst at Mizuho Securities in Hong Kong, said China’s banks would suffer the “greatest burden” in meeting the requirements because they currently held minimal senior debt. “Since these banks are majority owned by central government agencies, we are not convinced that adding debt is entirely appropriate. We think TLAC will boost costs for China’s Big Four banks without adding much in the way of depositor protection.” China’s regulators lobbied hard for an open-ended exemption from TLAC, arguing its capital markets were not deep enough to absorb so much issuance, leading the FSB to
propose an exemption for emerging markets banks in February.
Big window
On Monday, the FSB scrapped the emerging markets waiver in favour of a much longer phase-in period. “At face value, this final version looks a lot fairer,” said Royce Miller, a partner at law firm Freshfields in Hong Kong. “There were powerful voices at the table and valid arguments on both sides and this is a compromise which means the Chinese banks have to comply by fixed deadlines, but they have a very long window.” GSIBs from developed markets will be required to meet a minimum TLAC requirement of at least 16 percent of the group’s risk-weighted assets (RWAs) from January 2019, and at least 18 percent from January 2022, while this time frame is 2025 and 2028 respectively for emerging markets banks. Shares in China’s Big Four banks fell an average of 1.7 percent in Hong Kong trading on Tuesday, slightly underperforming the benchmark Hang Seng index. ICBC declined to comment. The other three banks did not respond to requests for comment.
Although Chinese banks’ raised record levels of capital last year and boast healthy average core equity ratios of around 12-15 percent, this buffer is under growing pressure as lending growth outstrips these firms’ ability to retain earnings. The capital requirements are, however, unlikely to cause a shock to the system, said Matthew Smith, China banks analyst at Macquarie, citing the banks’ generous deadline. “By then, the capital market in China should be more developed to accommodate these sizable fundraising activities.” But the new requirements are likely to spur a change in Chinese banks’ behaviour as they look to rely more on wholesale funding, potentially pare down risk-weighted assets, and become more familiar with TLAC debt instruments such as subordinated bonds, said bankers. “The Chinese banks have won a stay of execution,” said one Hong Kong banker who has helped Chinese banks raise capital. “But they are going to have to become extremely active in the capital markets.” Reuters
Visiting Chinese Foreign Minister Wang Yi said that China attaches great importance to its relations with the Philippines, and is willing to work together with the country to establish a normal, stable, healthy and friendly bilateral relationship. Wang made the remarks during his meeting with Philippine President Benigno Aquino III in Malacanang, the Philippine presidential palace in Metro Manila, the country’s capital. “China wishes to appropriately settle problems that affect bilateral relations through dialogue and negotiation, including maritime disputes,” said Wang, who paid a working visit to the Philippines at the invitation of his Philippine counterpart Albert Del Rosario.
Vice president of Academy of Governance expelled from CPC A ministerial-level official He Jiacheng has been expelled from the Communist Party of China (CPC) and dismissed from public office for multiple offenses including graft and hindering an official investigation. He, former executive vice president of Chinese Academy of Governance (CAG), “severely violated political discipline, and interfered with and hindered investigations,” the CPC Central Commission for Discipline Inspection (CCDI) said in a statement yesterday.
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Asia
Japan’s business mood dips as economy slides into recession The poor poll results will be followed by government data out on Monday Tetsushi Kajimoto and Izumi Nakagawa
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onfidence among Japanese manufacturers fell in November for a third straight month to levels unseen in about 2-1/2 years, a Reuters poll showed yesterday, reflecting fears that a China-led slowdown in overseas demand may have pushed the economy into recession. The service sector mood also soured as sectors such as retail
took a hit from weakness in private consumption, which accounts for about 60 percent of the economy, underscoring just how tepid economic recovery is in the absence of a growth engine. The monthly Reuters Tankan, which closely tracks the Bank of Japan’s tankan quarterly survey, showed both manufacturers’ and
service-sector sentiment is seen largely steady over the next three months, reflecting uncertainty about the outlook. The poor poll results will be followed by government data out on Monday, which is expected to show the economy slipped back into recession through September due to a drop in capital spending in the face of weak foreign and domestic demand. “The possibility is high that Japan has fallen into a recession. The economy will likely return to growth in the current quarter but any rebound won’t be strong,” said Yuichiro Nagai, economist at Barclays Securities. The Reuters Tankan polled 514 big and mid-sized Japanese companies between October 26 and November 6, of which 260 responded. “Chinese and ASEAN markets remain stagnant, and our domestic business related to private consumption is not performing well either,” a manager at a chemicals firm said in the survey, which companies answer anonymously.
“Orders we receive from clients are mostly linked to refurbishing old facilities and subsidy-related investment,” said a maker of electric machinery. “We hardly see the kind of production increase that is seen when the economy is booming. As such, the economy is stalling.” The Reuters Tankan sentiment index for manufacturers fell to 3 in November from 7 in October, posting the lowest reading since minus 4 in April 2013, when the central bank embarked on its quantitative and qualitative easing drive. Materials industries such as steel took a hit from China’s slowdown. The index is seen unchanged in February. The service sector index fell to 22 from 27 in October, the lowest since March, dragged down by wholesalers and retailers. The index is expected to slip further to 21 in February. The Bank of Japan last month cut its economic growth and inflation projections but held off on expanding stimulus, hoping that the economy recovers well enough to accelerate inflation to central bank’s ambitious 2 percent target.
Modi’s U.K. trip to mirror Xi’s His trip will include an address to British lawmakers in parliament, lunch with Queen Elizabeth II at Buckingham Palace and a roundtable with CEOs
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hen Indian Prime Minister Narendra Modi visits the U.K. for the first time this week, he’ll get almost all the same honours bestowed upon China’s Xi Jinping three weeks earlier: lunch with the Queen, a speech to parliament and dinner at a 16th-century gothic mansion. That’s where most of the similarities end. The U.K.’s trade with India has lagged that of China over the past decade. And Modi lacks the economic clout to deliver anything like the 30 billion pounds (US$45 billion) that Xi put on the table, including a one-third stake in the world’s costliest nuclear power station.
Instead, Modi will be looking to lure more British cash to India. “Both sides will be seeking to boost investment,” said Neelam Deo, a former Indian ambassador and director of Mumbai-based Gateway House. Modi starts his visit today with a visit to U.K. Prime Minister David Cameron at 10 Downing Street. His trip will include an address to British lawmakers at parliament, lunch with Queen Elizabeth II at Buckingham Palace and a roundtable with CEOs to “explore avenues of more effective economic cooperation,” Modi said in a Facebook post. Potential
announcements to watch for are: - An expansion of BAE Systems Plc’s Hawk advanced jet trainer program made under license in India by Hindustan Aeronautics Ltd. The two companies were discussing the development of a combat version of the trainer jet, India’s largest defense contractor said in May. - Agreements for greater collaboration between the financial capitals of London and Mumbai, including development of a deeper bond market in India and ways to make it easier for Indian companies
to issue bonds overseas as recommended by a panel set up by the two governments. - A civil nuclear cooperation agreement. Following a 2010 joint nuclear declaration, the two nations began negotiating ways to allow the U.K. to provide both civil and military technology to India and to support India’s ambitions to join the major nuclear export control regimes. - A total 10 billion pounds worth of deals are expected to be signed, the Hindustan Times newspaper reported yesterday, without saying where it got the information.
Reuters
While Modi’s visit may be less economically significant than Xi’s, it won’t be any less colourful. At Wembley Stadium on Friday evening, Modi will seek to rally tens of thousands of overseas Indians in what has become a staple of his foreign trips. He’s been greeted like a rock star at splashy events from New York to Sydney to seek funding for pet projects like building more toilets and cleaning up India. The Wembley event will celebrate India’s biggest festival, Diwali. Special “Modi Express Coaches” emblazoned with Modi logos will cart people from nearby towns to the 90,000-capacity arena, according to the organizers’ website. The U.K. is home to one of the largest populations of overseas Indians and shares a long history with India, which it ruled as a colony until 1947. Cameron has ditched a foreign policy that earlier tended to deal with India in relation to its arch-rival Pakistan, and instead focused on India as a rising economic power. Bloomberg News
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November 12, 2015
Asia New Zealand central bank sees debt risks in primary sector parts
Australian consumer sentiment at 6-month high
The Reserve Bank has asked the country’s largest dairy lenders to undertake stress tests of their dairy portfolios and the results are expected before the end of the year Swati Pandey and Charlotte Greenfield
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truggling farmers facing a second season of weak dairy prices and a regional spillovers from the soaring Auckland property market are a growing risk to the New Zealand economy, the country’s central bank said yesterday. The danger of a substantial rise in bad loans in the dairy sector has increased over the past two years due to high debt levels and falling milk prices, the Reserve Bank of New Zealand (RBNZ) said in its sixmonthly financial stability report. “We think dairy debt has increased by about NZ$3 billion (US$1.96 billion) over the past 12 months and about half the dairy farmers are experiencing the second consecutive season of negative cash flows,” RBNZ governor Graeme Wheeler (pictured) told reporters. The Reserve Bank has asked the country’s largest dairy lenders to undertake stress tests of their dairy portfolios and the results are expected before the end of the year. After rising steadily since 2008 to scale record highs in 2013, global
dairy prices sharply dropped because of slowing economic growth in New Zealand’s top export market, China, and a global oversupply of milk products. Prices bounced back slightly in August as slowing supply pushed up prices, offering hope the dairy market was stabilising, but have declined again in two most recent global dairy auctions. The RBNZ was also increasingly concerned about rising Auckland house prices spilling over into neighbouring regions. “For the first time the RBNZ acknowledged recent strength in some
regional markets,” ANZ analysts said in a research note. “While we don’t believe a change is pending, it is clear that if strength in those markets were to persist, the RBNZ wouldn’t hesitate to re-tighten lending restrictions in those markets,” they added. The RBNZ has already tightened lending rules to curb soaring house prices in Auckland. The central bank said it was too early to tell whether they were effective, but new investor restrictions were expected to cool Auckland house prices by 2 to 4 percent over the next year. The RBNZ also said the recent fall in the New Zealand dollar was a significant buffer for the economy and for financial systems. At its last meeting in October, the RBNZ voiced concern about the rising New Zealand dollar. The bank kept rates on hold at 2.75 percent after three consecutive cuts but suggested the bank may cut rates again at its next meeting in December. Reuters
Japan’s average LNG spot price rises
Liquefied natural gas (LNG) spot prices for delivery in October to Japan, the world’s biggest buyer, rose from the lowest level since Japan’s government started publishing figures last year, official data released yesterday showed. The average spot LNG price rose to US$7.60 per million British thermal units (mmBtu) last month from US$7.40 per mmBtu in September, the lowest since March last year, the trade ministry said in a release. Prices remained well below those in early 2014 as a supply glut has pushed prices steadily lower during the last year and a half.
Vietnam approves plan to issue $3 bln-worth sovereign bonds
US returns US$1 million stolen by former South Korean leader Last year, art works belonging to his family were sold off but he is still a long way short of repaying his debt to the nation
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he United States has returned more than a million dollars to South Korea that were embezzled by a former dictator and hidden abroad, officials said Tuesday. South Korea’s former president Chun Doo Hwan was convicted of corruption in 1996 in his own country, but it took US agents years to track down the assets. The money was returned on Monday and, on Tuesday, US Homeland Security Secretary Jeh Johnson met Korean Justice Minister Kim HyunWoong to congratulate him. US officials said the return of the funds, US$1.13 million in today’s dollars, demonstrated Washington’s commitment to rooting out the profits of theft by foreign leaders. Attorney General Loretta Lynch called the seizure “a powerful vindication of the rule of law and an important victory for the people of the Republic of Korea.” The Department of Justice said FBI investigators had traced US$726,951 to a California account linked to the sale of Orange County real estate by Chun’s son. A second US$500,000 was traced to a Pennsylvania company found to be linked to Chun’s “corruption scheme.” The former leader, now 84, seized power after the 1979 assassination of
A measure of Australian consumer sentiment jumped to a six-month high in November as people became markedly more optimistic on the economic outlook, another sign that further cuts in interest rates might not be needed. The survey of 1,200 people by the Melbourne Institute and Westpac Bank showed its index of consumer sentiment rose a seasonally adjusted 3.9 percent in November. The index reading of 101.7 was 5.3 percent higher than in November last year and showed optimists finally outnumbering pessimists.
Vietnam’s lawmakers have on Wednesday approved a government plan to raise US$3 billion via the issue of sovereign bonds during 2015-2016, with proceeds to be used for restructuring domestic debts. Legislators voted 392 to 34 in favour of the overseas bonds, which would have maturity of between 10-30 years, while coupons will be fixed based on actual market situation at the time of the issue.
Thai CP All Q3 profit up CP All Pcl, Thailand’s largest convenience store chain, reported a 21 percent rise in quarterly profit, the highest growth among Thai retailers, as an increase in store openings helped offset weak domestic consumption. CP All, run by Thailand’s richest man Dhanin Chearavanont, operates 7-Eleven stores in Thailand. Same-store sales grew 1.6 percent, rising for the third consecutive quarter to a two year high. In the previous quarter, sales rose 1.1 percent and fell 2.6 percent for the whole of 2014,
President Park Geun-Hye has chided her predecessors for not pushing Chun hard enough to pay the rest of his fines
BOJ’s Harada says no immediate need to ease policy
long-time military ruler Park ChungHee. He led South Korea for eight turbulent years marred by extensive corruption. In a judgment confirmed by South Korea’s Supreme Court in 1997, he was convicted of insurrection and corruption and ordered to repay 220 billion won (US$212 million). Last year, art works belong to his family were sold off but he is still a
Bank of Japan board member Yutaka Harada said yesterday he saw no need to deploy additional monetary stimulus now as improvements in the job market will eventually push up wages and underpin private consumption. “I don’t think we need to deploy stimulus immediately just to quicken the pace of inflation, because we know the current slowdown in price growth is mainly due to falling oil costs,” Harada told a news conference after meeting business leaders in Utsunomiya, eastern Japan.
long way short of repaying his debt to the nation. President Park Geun-Hye, the daughter of the late Park Chung-Hee, has chided her predecessors for not pushing Chun hard enough to pay the rest of his fines. Chun’s son and his brother-inlaw were both given suspended jail sentences last year after being convicted of tax evasion. AFP
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November 12, 2015
International Russia to draft antirecession plan for 2016 Russian Prime Minister Dmitry Medvedev has said that the government will have to draft an anti-recession plan in case the economy deteriorates in 2016. “If conditions deteriorate -- and as reasonable people who are responsible for the national economy, we must consider all scenarios, even worst-case ones -we’ll have to draft an anti-recession plan for 2016,” said Medvedev in an interview with Rossiyskaya Gazeta newspaper recently. He also noted that one of the main objectives of the plan was supporting small companies and reducing taxes for small- and medium-sized ones.
German advisers say ECB policy a threat to financial stability The German government’s panel of economic advisers warned yesterday that the low interest rate policies of the European Central Bank (ECB) were creating substantial risks for financial stability and could ultimately threaten the solvency of banks and insurers. In its annual report on the state of the German economy, the panel of experts known as the “wise men”, although it now includes one woman, forecast growth of 1.7 percent this year and 1.6 percent in 2016. The group of five economists described the costs of the refugee crisis as “manageable” for the German government.
Tullett to buy ICAP’s global broking arm Interdealer broker Tullett Prebon Plc said it would acquire ICAP Plc’s global hybrid voice broking and information business for about 1.11 billion pounds (US$1.68 billion) in stock in a reverse takeover deal. The two companies said last week they were in talks regarding combining their voice broking businesses as they seek to combat falling profits in a sector struggling with shrinking trading volumes. Tullett said it expected to issue about 309.9 million new shares to ICAP and ICAP shareholders. On completion of the deal, Tullett shareholders would own about 44 percent of the enlarged group.
Brewer AB InBev swallows rival SABMiller The agreement marks the world’s third biggest takeover in corporate history Roland Jackson
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he world’s top brewer AnheuserBusch InBev clinched yesterday a gigantic formal US$121-billion deal for its nearest rival SABMiller, in the third biggest takeover in global corporate history. The blockbuster transaction, worth the equivalent of 112 billion euros including debt, will bring together InBev’s top lagers like Beck’s, Budweiser and Stella Artois, with SABMiller brands Foster’s, Grolsch and Peroni. Belgian-Brazilian behemoth InBev is eager to tap into booming developing markets in Africa and China, where SABMiller’s joint venture produces Snow -- the world’s best selling beer by volume. InBev will pay £44 per share in cash for SABMiller, which has also agreed to sell its 58-percent stake in US unit MillerCoors for US$12 billion to Molson Coors to help win regulatory approval, its said in a joint statement. “The boards of AnheuserBusch InBev and SABMiller are pleased to announce that they have reached agreement on the terms of a recommended acquisition of the entire issued and to be issued share capital of SABMiller by AB InBev,” the pair said. The transaction is set to complete in the second half of 2016, subject to
shareholder and regulatory approvals -- otherwise InBev will face a US$3billion break fee. The agreement marks the world’s third biggest takeover in corporate history, according to financial information provider Dealogic, and is also the largest ever takeover of a British company. InBev, which also brews Hoegaarden and Leffe beers, added that the takeover will “strengthen AB InBev’s position in key emerging regions with strong growth prospects such as Asia, Central and South America, and Africa”. The transaction will also “create a truly global brewer, drawing on a similar heritage and shared passion for brewing and commitment to quality”, it said. The group will target annual efficiency savings of “at least” US$1.4 billion by the end of the fourth year following completion, sparking fears of job losses. “We believe this combination will generate significant growth opportunities and create enhanced value to the benefit of all stakeholders,” said AB InBev chief executive Carlos Brito in the statement. “It has long been our dream to build the best beer company bringing people
together for a better world and we believe this combination represents a step change for our business and our journey towards that goal.” SABMiller chairman Jan du Plessis added that the British group benefited from its presence across the developing world -- and the takeover price had won the board’s unanimous backing. “However, AB InBev’s offer represents an attractive premium and cash return for our shareholders, and secures earlier delivery of our longterm value potential, which is why the board of SABMiller has unanimously recommended AB InBev’s offer,” du Plessis said The two brewing giants had already agreed in principle last month on the £44-per-share deal. The pair added yesterday that the sale of SABMiller’s holding in US business MillerCoors, which makes Coors Light, was designed to “promptly and proactively address regulatory considerations”. The brewing industry meanwhile faces pressure to consolidate amid increasing demand for so-called craft beers that are brewed by smaller independent firms. AFP
U.S. trade body cannot block Internet transmissions
Technology companies and the entertainment industry have followed the case closely because it could affect Internet Cruz says would not bail out big U.S. banks transmissions and the fight against piracy Republican presidential candidate Senator Ted Cruz said he would not bail out a U.S. bank if it were on the verge of collapsing. “I would not bail them out,” Cruz said, speaking at Tuesday night’s Republican primary debate in Milwaukee hosted by Fox Business Network. Cruz said that instead of bailing out a bank, he would change monetary policy at the U.S. Federal Reserve, including instituting a gold standard.
Five-year corporate leadership ban for Brazil magnate Batista Eike Batista, once Brazil’s wealthiest man, was banned by market regulators on Tuesday from serving as an officer of a publicly traded company for five years. Brazil’s securities and exchange commission CVM ruled that Batista broke conflict of interest rules by voting as a shareholder to approve the 2013 financial results of his OGX Petroleo e Gas SA oil company (now Ogpar) while also serving as company chairman. The announcement was made on CVM’s website. Defence attorneys for the flamboyant tycoon said they would appeal the ruling.
Andrew Chung
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U.S. trade agency does not have power to regulate digital data, a federal appeals court ruled on Tuesday in a case involving a dental brace company’s effort to block a rival’s electronic transmissions from entering the country. The appeals court decision negates a U.S. International Trade Commission (ITC) ruling last year in favour of Align Technology, Inc, the San Jose, California-based maker of the popular Invisalign plastic braces. Align Technology shares slid 2 percent. Align had accused competitor ClearCorrect Operating LLC of infringing several patents. The ITC, which can block products from entering the United States, ordered ClearCorrect to stop transmitting digital models produced by technicians in Pakistan to its Texas manufacturing facility. Technology companies and the entertainment industry have followed
the case closely because it could affect Internet transmissions and the fight against piracy. The U.S. Court of Appeals for the Federal Circuit in Washington, D.C. said data is not a tangible good over which the ITC has authority. Common sense “dictates that there is a fundamental difference between electronic transmissions and ‘material things,’” the court said in a 2-1 decision. Critics said the ITC overstepped its authority when it ordered the company to cease transmission of digital models, because U.S. law gives the commission authority over unfair practices “in the importation of articles.” The ITC expanded its jurisdiction to say digital data is included in the definition of “articles.” High-tech companies like Google Inc and other Internet-related groups said global Internet transmissions should flow unimpeded and the ITC
should not be authorized to regulate them. But associations for recording artists and Hollywood film studios saw the ITC’s decision as an effective tool to fight piracy, most of which happens through electronic downloads and streaming. On Tuesday, the appeals court majority said articles are material things and thus the commission has no jurisdiction over the case. ClearCorrect’s lawyer Michael Myers said in an interview this was the “correct result because the ITC was never intended to be the policeman of Internet or TV transmissions or radio signals.” A representative for Align could not immediately be reached for comment. Circuit Judge Pauline Newman dissented from the opinion, saying that the commission must have the power to block the latest forms of infringing technology. Reuters
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November 12, 2015
Opinion Business
wires
A step forward for sovereign debt
Leading reports from Asia’s best business newspapers
THE KOREA HERALD Household loans extended by local lenders increased at the fastest clip last month, central bank data showed yesterday, amid the rising possibility of a looming U.S. rate hike. Outstanding household loans extended by local banks reached 624.8 trillion won (US$539.3 billion) as of the end of October, up 9 trillion won from the previous month, according to data from the Bank of Korea. The on-month gain is the largest-ever since January 2008 when the central bank started to compile related data, breaking the previous record gain of 8.5 trillion won tallied in April.
All six countries that voted against the UN resolution (the US, Canada, Germany, Israel, Japan, and the United Kingdom) have domestic bankruptcy legislation, because they recognize that CACs are not enough
PHILSTAR Philippine exports shrank 24.7 percent in September, the steepest drop in four years. The Philippine Statistics Authority (PSA) said this was the largest decline in export revenues since September 2011 when the supply-chain disruption in key Asian countries then caused a sharp decline in demand for electronics. Export sales amounted to US$4.405 billion in September, lower than the US$5.846 billion recorded value in the same month in 2014. In the first nine months this year, merchandise exports registered a 6.9-percent drop from US$46.976 billion in 2014 to US$43.746 billion.
THE AGE Chinese millionaires, who happily invested in Australian bonds and property to get residency visas, are turning up their noses at small-cap stocks. Just 19 people have sought permits since Australia overhauled requirements for its investor visas in July by forcing applicants to put at least US$1.5 million of the US$5 million they need to spend in the country into smaller equities and another chunk into venture capital. The old system, which was in place since 2012 and drew more than 1600 applicants primarily from China, let them choose low-risk government debt or popular property investments.
THE JAPAN NEWS New international bank capital rules set by the Financial Stability Board are unlikely to affect Japan’s three megabank groups very much, informed sources said. Based on data as of the end of March this year, the three Japanese groups will be required to raise an estimated ¥6 trillion. But the rules allow the Japanese groups to take into account the country’s deposit insurance system, the industry’s safety net. Thanks to the system, the three groups will be allowed to calculate the proportions of their capital and designated debts to the risk assets 2.5 percentage points higher in January 2019 and 3.5 points higher in January 2022.
Martin Guzman
Co-chair of the Columbia Initiative for Policy Dialogue Taskforce on Debt Restructuring and Sovereign Bankruptcy
Joseph E. Stiglitz
Nobel laureate in economics, is University Professor at Columbia University and Chief Economist at the Roosevelt Institute
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very advanced country has a bankruptcy law, but there is no equivalent framework for sovereign borrowers. That legal vacuum matters, because, as we now see in Greece and Puerto Rico, it can suck the life out of economies. In September, the United Nations took a big step toward filling the void, approving a set of principles for sovereign-debt restructuring. The nine precepts – namely, a sovereign’s right to initiate a debt restructuring, sovereign immunity, equitable treatment of creditors, (super) majority restructuring, transparency, impartiality, legitimacy, sustainability, and good faith in negotiations – form the rudiments of an effective international rule of law. The overwhelming support for these principles, with 136 UN members voting in favour and only six against (led by the United States), shows the extent of global consensus on the need to resolve debt crises in a timely manner. But the next step – an international treaty establishing a global bankruptcy regime to which all countries are bound – may prove more difficult. Recent events underscore the enormous risks posed by the lack of a framework for sovereign debt restructuring. Puerto Rico’s debt crisis cannot be resolved. Notably, US courts invalidated the domestic bankruptcy law, ruling that because the island is, in effect,
a US colony, its government had no authority to enact its own legislation. In the case of Argentina, another US court allowed a small minority of so-called vulture funds to jeopardize a restructuring process to which 92.4% of the country’s creditors had agreed. Similarly, in Greece, the absence of an international legal framework was an important reason why its creditors – the troika of the European Commission, the European Central Bank, and the International Monetary Fund – could impose policies that inflicted enormous harm. But some powerful actors would stop well short of establishing an international legal framework. The International Capital Market Association (ICMA), supported by the IMF and the US Treasury, suggests changing the language of debt contracts. The cornerstone of such proposals is the implementation of better collective action clauses (CACs), which would make restructuring proposals approved by a supermajority of creditors binding on all others. But while better CACs certainly would complicate life for vulture funds, they are not a comprehensive solution. In fact, the focus on fine-tuning debt contracts leaves many critical issues unresolved, and in some ways bakes in the current system’s deficiencies – or even makes matters worse. For example, one serious question that remains unaddressed by the ICMA proposal is how to settle conflicts that arise when bonds are issued in different jurisdictions with different legal frameworks. Contract law might work well when there is only one class of bondholders; but when it comes to bonds issued in different jurisdictions and currencies, the ICMA proposal fails to solve the difficult “aggregation” problem (how does one weight the votes of different claimants?). Moreover, the ICMA’s proposal promotes collusive behaviour among the major financial centres: The only creditors whose votes would count for
The market for credit default swaps has led to non-transparent processes of debt restructuring that create no incentive for parties to bargain in good faith
the activation of CACs would be those who owned bonds issued under a restricted set of jurisdictions. And it does nothing to address the severe inequity between formal creditors and implicit ones (namely, the pensioners and workers to whom sovereign debtors also have obligations) who would have no say in a restructuring proposal. All six countries that voted against the UN resolution (the US, Canada, Germany, Israel, Japan, and the United Kingdom) have domestic bankruptcy legislation, because they recognize that CACs are not enough. Yet all refuse to accept that the rationale for a domestic rule of law – including provisions to protect weak borrowers from powerful and abusive creditors – applies at the international level as well. Perhaps that is because all are leading creditor countries, with no desire to embrace restrictions on their powers. Respect for the nine principles approved by the UN is precisely what’s been missing in recent decades. The 2012 Greek debt restructuring, for example,
did not restore sustainability, as the desperate need for a new restructuring only three years later demonstrated. And it has become almost the norm to violate the principles of sovereign immunity and equitable treatment of creditors, evidenced so clearly in the New York court’s decision on Argentine debt. The market for credit default swaps has led to non-transparent processes of debt restructuring that create no incentive for parties to bargain in good faith. The irony is that countries like the US object to an international legal framework because it interferes with their national sovereignty. Yet the most important principle to which the international community has given its assent is respect for sovereign immunity: There are limits beyond which markets – and governments – cannot go. Incumbent governments may be tempted to exchange sovereign immunity for better financing conditions in the short run, at the expense of larger costs that will be paid by their successors. No government should have the right to give up sovereign immunity, just as no person can sell himself into slavery. Debt restructuring is not a zerosum game. The frameworks that govern it determine not just how the pie is divided among formal creditors and between formal and informal claimants, but also the size of the pie. Domestic bankruptcy frameworks evolved because punishing insolvent debtors with prison was counterproductive – a prisoner cannot repay his debts. Likewise, kicking debtor countries when they’re down only makes their problems worse: Countries in economic free-fall can’t repay their debts, either. A system that actually resolves sovereign-debt crises must be based on principles that maximize the size of the pie and ensure that it is distributed fairly. We now have the international community’s commitment to the principles; we just have to build the system. Project Syndicate
16 | Business Daily
November 12, 2015
Closing Beijing to deepen energy reform in the next five years
Government to increase policy support to drive consumption
China aims to innovate and upgrade the energy system in the next five years to make it greener and more integrated with the Internet, the country’s energy watchdog said in a statement yesterday. The readjustment of the energy system should implement the key proposals from the 13th Five-year Plan (20162020), said Nur Bekri, head of the National Energy Administration (NEA), at a seminar in Beijing. The administration pledged to adopt measures to develop core energy technologies, as well as to promote the industrialization of more developed technology.
China will increase financial, fiscal and taxation policy support to drive consumption, the government said yesterday. The authorities will further develop the consumer credit market and widen pilot program testing new forms of consumer financing, it said on its website. The government will also support an increase in imports of popular consumer goods and implement tax rebate policies for foreign tourists, it said. It will improve the subsidy policy for corn and soybeans and continue adopting lowest purchasing prices for rice and wheat next year to support grain production, it added.
The world’s biggest online shopping spree “Singles day” got US$10 billion in the first 14 hours of the sale Fran Wang
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hinese Internet users spent billions of dollars in the planet’s biggest online shopping splurge yesterday, as “Singles Day” hit new heights, despite slowing growth in the world’s second-largest economy. The cumulative national bill for the day-long orgy of commerce dwarfed what Americans spent online over the five-day frenzy from Thanksgiving to Cyber Monday last year. Singles Day is not a traditional Chinese festival, but e-commerce giant Alibaba has been pushing November 11 -- a date heavy on ones -- since 2009 as it looks to tap the country’s huge, and expanding, army of Internet shoppers. At first it was marketed as an “anti-Valentine’s Day”, featuring hefty discounts to lure singletons and pricesensitive buyers. But with sales hitting new highs year after year, it has become a massive -- and highly lucrative -- business
A hand-out photograph released by Alibaba Group shows Jack Ma (C), Chairman of Alibaba Group, giving the thumbs up in front of a screen showing transactions totalling 10 billion yuan in the first 12 minutes of the Tmall 11.11 Global Shopping Festival in Beijing
opportunity embraced by the nation’s digital retailers. Competition for a slice of China’s online population of 668 million is turning increasingly fierce. Alibaba kicked off this year’s mammoth event with a television spectacular at Beijing’s Water Cube Olympic swimming venue. James Bond actor Daniel
Craig, and Hollywood star Kevin Spacey -- in his role as President Frank Underwood from the Netflix series “House of Cards” -- were just two of the galaxy of foreign and domestic stars involved. And the company’s efforts were paying off in spades, with shoppers splashing out more than US$10 billion in the first 14 hours of the sale.
This year’s tally had already outstripped last year’s gangbusters effort, with the 2014 total of US$9.3 billion matched a little more than 12 hours after the promotion’s midnight start. In comparison, desktop sales for the five days from Thanksgiving through Cyber Monday in the United States last year stood at $6.56 billion, according to Internet analytics firm comScore. “The 2015 sale has eclipsed last year’s final results in a little over half the time,” the company said. Another one of China’s main online retailers, JD.com, said it had completed more than 10 million transactions by 10 am. That was almost twice as many as last year’s total.
Milking it
The task of putting customers’ purchases into their hands is huge. Alibaba said its logistical arm and its partners would use more than 1.7 million personnel, 400,000 vehicles, 5,000 warehouses
Indonesia details tax amnesty plan Hong Kong exchanges’ profit soars
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ndonesia will not require taxpayers to repatriate wealth back home as part of a tax amnesty initiative expected to be implemented by the end of this year, a senior cabinet minister said yesterday. The comments by Coordinating Minister for Political, Legal, and Security Affairs Luhut Panjaitan come after private bankers in Singapore, where the Indonesian tax office estimates around 3,000 trillion rupiah (US$220.83 billion) of Indonesian assets are parked, said their clients were worried about the amnesty plan. “This one is not only about collecting money from outside, but the very important one is to strengthen our database on tax so by next year we can see much more tax revenue,” Panjaitan told reporters. Taxpayers disclosing their wealth in the first three months of the amnesty will be taxed at 2 percent, Panjaitan said, adding that the rate would rise to 4 percent in the following three months and go up to 6 percent at the end of 2016, when the amnesty programme finishes. That compares to the current tax rate for individual income at 5-30 percent, and for company profits at 20-25 percent. Panjaitan said those set rates would be lowered after the tax amnesty period ends. Reuters
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and 200 airplanes to handle deliveries. But the scale of the buying also has repercussions. Australian company Bellamy’s had to apologise to customers Down Under after supermarket shelves there were stripped bare. In a Facebook post it blamed Chinese demand for milk powder for shortages at Australian stores. The event has received vocal support from the government at a time when China’s economic expansion is slowing and Beijing is trying to transform its growth model into a more sustainable one driven by consumption. Chinese Premier Li Keqiang’s office phoned Alibaba chairman Jack Ma hours ahead of the promotion, “congratulating and encouraging the creation and achievement of the 11.11 event”, said a posting on a social media account of Tmall, the group’s businessto-consumer arm. AFP
Singapore’s non-landed private home resale prices down
ong Kong Exchanges & Clearing Ltd. said third-quarter profit soared on higher trading turnover and a one-time gain from a property sale. Net income jumped 81 percent to HK$2.33 billion (US$301 million) in the three months to Sept. 30, up from HK$1.29 billion a year earlier, the exchange said in a statement yesterday. It booked a gain of HK$445 million during the quarter from the property sale. The bourse, which is expanding its equity link with markets in China, saw its average daily stock trading turnover rise 45 percent to HK$102 billion during the quarter, according to Bloomberg data. Operating expenses rose 17 percent to HK$881 million, mainly driven by higher staff costs. Third-quarter revenue rose 52 percent to HK$3.75 billion, taking sales in the first nine months to a record HK$10.6 billion, the company said. The shares fell 1 percent to close at HK$209.80. HKEx separately announced plans to introduce Shenzhen securities market interface specifications from November 23 as part of its clearing operations enhancements. The official launch of the planned link with the Shenzhen Stock Exchange will still have to be announced by Hong Kong and Chinese regulators.
esale prices of Singapore’s non-landed private residential units decreased 0.6 percent in October compared with the previous month, according to latest data from Singapore Real Estate Exchange (SRX Property) released yesterday. On a year-on-year basis, overall resale prices also went down 2. 6 percent. Prices of units in downtown area, city fringe and suburban area all declined, posting a drop of 1.1 percent, 0.5 percent and 0.4 percent respectively. Resale volume of non-landed private residential units increased 9.8 percent in October compared with the previous month. SRX Property said an estimated 505 units were resold in October. However, resale volume was flat year-on-year as a total of 504 units were resold in October last year. The median Transaction Over X-Value (TOX) for private property, which measures whether people are overpaying or underpaying SRX Property’s estimated market value, was down by 3,000 Singapore dollars in October. About 80 percent of the resident population in Singapore live in units built by the Housing and Development Board and sold to eligible households.
Bloomberg News
Xinhua
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