Macau Business Daily November 30, 2015

MOP 6.00 Closing editor: Joanne Kuai

Beijing supports move towards domestic medical drugs

Casino operator Imperial Pacific appoints veteran executive as COO Page 7

Year IV

Number 930 Monday November 30, 2015

Publisher: Paulo A. Azevedo

Page 12

HK authorities mull change in rules for short position trading Page 11

Leong Fleshes Out Sovereign Fund The MSAR Investment and Development Fund. Or Macau’s sovereign wealth fund. In the planning stages but discussed by Secretary Lionel Leong at the 2016 Policy Address review in the Legislative Assembly. A Monetary Authority of Macau study found that the public favour a government-run corporation to manage it, he said.

Adding the fund will be supported by an allocation from the city’s extraordinary fiscal reserve. “We’ll have international professionals to manage the fund,” the Secretary said. “It would be better that we only have the participation of private capital when the returns for the fund stabilise after it has been run for some time.”

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Tobacco stubs out exports

Revealing its strength and dynamism. The shadow banking sector has started its transition. From traditional niche to stock exchange trading floors.

Borrowers’ debts are finding their way into products targeting retail investors

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Brought to you by

The latest Statistics and Census Service data reveals local merchandise exports and imports were down in October.

The decline in domestic export value was largely laid at the door of the plunge in tobacco

HSI - Movers November 27

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Expanding reach

Name

%Day

Link REIT

+0.53

HSBC Holdings PLC

-0.40

A new trade agreement with the Mainland. Hopefully boosting the scope for local firms to provide services for the country. Effective January 1 next year, the pact will open up 62 new sectors to the city’s service providers

Hong Kong & China Gas

-0.77

CLP Holdings Ltd

-0.98

Hang Seng Bank Ltd

-0.98

Cathay Pacific Airways

-4.08

Sino Land Co Ltd

-4.22

China Petroleum & Che

-4.23

China Shenhua Energy

-4.56

China Resources Land L

-4.58

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Stable unemployment

The rate remained the same for August-October. With 402,000 workers as at end-October. The participation rate remained at the same level as the previous period

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Source: Bloomberg

Interview www.macaubusinessdaily.com

Casting a long shadow

Doyen of diversification

I SSN 2226-8294

A fledgling company, with its eye on SMEs. And the opportunities arising from the adjusting economy. Filipe Senna Fernandes, managing partner of Interface Consulting Asia, is digging in for the long haul. With the mass market the tool to diversification. A staunch defender of the gaming junket system, he believes it has been unfairly vilified. But recognises that the new order may be just what Macau needs. As it aspires to reach the right conditions to be a centre of world tourism and leisure

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2 | Business Daily

November 30, 2015

Macau

Leong: City’s sovereign wealth fund to be managed by government corporation The fund, to be purportedly managed by a government corporation, will not have the participation of private capital in its initial phase, the Secretary told the AL Stephanie Lai

sw.lai@macaubusinessdaily.com

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he planned sovereign wealth fund for Macau - named by the authorities as the MSAR Investment and Development Fund - will be supported by an allocation from the city’s extraordinary fiscal reserve and managed by a government corporation, Secretary for Economy and Finance Lionel Leong Vai Tac revealed during the Policy Address 2016 debate on Friday.

The proposal of having a government-run corporation to manage the sovereign wealth fund is based on the Monetary Authority of Macau’s (AMCM) study that surveyed public opinion, Mr. Leong told the Assembly.

The proposal has already been forwarded to the Chief Executive, the Secretary added.

“During the study, the Authority understood that people were inclined to have an individual company, a central bank or a monetary financial institution to run the fund,” the Secretary said.

“Most residents hope that this sovereign wealth fund can be established outside our administration so that it can be managed more flexibly and professionally.”

“Thus, having a government corporation run the sovereign wealth fund can better fulfil the wish expressed by the people,” Mr. Leong added, noting that the sovereign wealth fund will not have the participation of private

capital in the beginning phase once the fund is established.

“As we understand from the experiences of other places, the return of most [sovereign wealth] funds could be zero or even negative in the initial phase,” the Secretary said. “We’ll have international professionals to manage the fund. It would be better that we only have the participation of private capital when the returns for the fund stabilise after it has been run for some time.”

Chief Executive Fernando Chui Sai On mentioned establishing the MSAR Investment and Development Fund during his campaign for his second term of office in August last year. Prior to that, the Monetary Authority of Macau had also stated that it was looking into the International Monetary Authority’s suggestion to create a sovereign wealth fund to better manage its substantial fiscal reserves and buffer the city against external shocks.

Mr. Leong has not mentioned the size of the sovereign wealth fund to be established but he noted that part of it will be sourced from the city’s extraordinary fiscal reserves.

Macau’s fiscal reserves were created in February 2012, built on a basic reserve equivalent to 150 per cent of the latest total central services budget approved by the Legislative Assembly

plus an extraordinary reserve equivalent to remaining past balances minus contributions to the basic reserve. By law, the basic reserves are carved out from the fiscal reserves for emergencies, whereas the extraordinary or ‘excess’ reserve is meant to serve the capital needs from economic or social development or used to address deficits when arising.

As of September this year, the territory’s basic reserves stood at MOP131.88 billion, while the extraordinary reserve amounted to MOP211.38 billion, Mr. Leong told the Assembly on November 12.

At the Friday meeting with the legislators, the Secretary noted a change to be introduced in calculating the extraordinary reserve.

“The amount of the extraordinary reserve will not be simply calculated from the basis of public expenditure but from considering the city’s gross domestic product (GDP) as well,” Mr. Leong explained. “[Over the course of] the past 15 to 16 years, Macau has seen GDP slide by about 20 per cent for a cycle of two years when its economy stepped into the adjustment phase,” the Secretary added, noting that GDP will serve as a reference in future for defining the amount of extraordinary reserve so that it will suffice to deal with any economic downturn.

Government observing market for third-party payment companies The government will decide whether any major policy changes will be introduced after the local market has seen the establishment of two to three third-party payment companies, Secretary for Economy and Finance Lionel Leong told the Assembly. Local stored-value card issuer Macau Pass SA has recently joined hands with China’s major third-party payment firm Alipay as the payment gateway for e-commerce website MacauMarket.com. The Monetary Authority here is now screening the application of another third-party payment firm, the Secretary revealed.

Departments brace for further cuts The public administration will face further cuts in its expenses if the city’s gross gaming revenue drops below MOP20 billion for next year (an average of MOP16.6 billion per month), the Secretary explained when asked about likely “austerity measures” the government will adopt should casino earnings continue to slide. Cuts will be made in the areas of trips, receptions, promotional activities, office renovations and civil servants expenses, the Secretary said.

Gaming regulator to face structural changes Mr. Leong recognised the need that the city’s casino regulator Gaming Inspection and Co-ordination Bureau (DICJ) has to have structural changes, including the addition of more legal professionals and a strengthening of the audit works of the Bureau. The structural changes are also meant to respond to the mid-term review of the gaming industry here, the Secretary briefly noted.

Government to reconsider nature of Financial Intelligence Office The government will consider if the Financial Intelligence Office will become a permanent institution and run independently from the economy or security secretariat, Mr. Leong told the Assembly. But such fundamental changes will not happen in 2016 as the Office will be busy preparing for an international test of its anti-money laundering compliance, the Secretary explained. The Office, which is now directly under the Secretary for Economy and Finance, was established in 2006 as a special unit to collect, analyse and disseminate information about suspicious money laundering and terrorist financing transaction reports.

Secretary explains support for mass gaming Citing unidentified industry figures, Mr. Leong told the Assembly that the demand by mass gaming clients for accommodation is 2.4 times higher than that of a VIP gaming client, and 6.4 times higher for catering services than a VIP gambler. The Secretary was defending the government’s focus on promoting mass gaming, saying that it will have more input on job training for employees to provide better service for mass market customers.

Business Daily | 3

November 30, 2015

Macau

Unemployment stood at 1.9 per cent between August and October

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he unemployment rate remained stable at 1.9 per cent during the quarter from August to October in comparison to July to September, data released by the Statistics and Census Service (DSEC) revealed on Friday.

The unemployment rate recorded between August and October means an increase of 0.2 percentage points from 1.7 per cent between August and October of 2014.

For this period, the number of unemployed was 7,500, down 100 from July-September. Of these, fresh labour entrants searching for their first job accounted for 11.9 per cent of the total unemployed, down 2.7 percentage points in comparison to July to September.

As for the end of October, the total labour force amounted to 402,000, a decline of 500, and the participation rate stood at 72.3 per cent, exactly the same as the previous considered period.

During the period between July and September, employment in the hotel and restaurant industries increased 0.7 per cent to 29,700 and 2.2 per cent to 25,900, respectively.

By contrast, the number of people employed in the construction sector decreased 1.9 per cent to

51,900 from around 52,900. The same trend was recorded for gaming and junket activities, posting a decline of 0.7 per cent to 83,600 from 84,200, while the number of people employed in the wholesale

and retail trade dipped 1 per cent to 44,100 from 44,600.

In terms of industry, recreational, cultural, gaming and other services employ 24 per cent of the labour force in the market. Hotels,

THERE ARE THINGS WE DON’T DO BUT WE DO • Advertising • Branding & marketing consulting • Marketing strategy • Creativity • Design

restaurants and similar activities account for 14.1 per cent, while construction takes 13.2 per cent and wholesale and retail 11.2 per cent.

J.S.F.

There are men and women who give human kind their perseverance, their genius, their generosity and, in some cases, their own life.

Those people and their actions are our inspiration.

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4 | Business Daily

November 30, 2015

Macau

Merchandise exports fall nearly 8 pct in October Of the total, exports of tobacco shrank some 40 per cent year-on-year in the month Kam Leong

kamleong@macaubusinessdaily.com

external merchandise trade reached MOP80.18 billion in the first ten months of 2015, down 1 per cent compared to MOP81 billion a year earlier.

To Hong Kong, from China

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he city saw its merchandise exports drop 7.8 per cent yearon-year in October, while total imports registered a year-on-year decrease of 4.8 per cent, the latest data released by the Statistics and Census Service (DSEC) reveals.

Last month, local merchandise exports totalled MOP764 million (US$95.5 million), of which the value of domestic exports and reexports amounted to MOP173 million and MOP4.2 million, down 21.4 per cent and 4.2 per cent year-onyear, respectively. Meanwhile, total merchandise imports for the month reached MOP7.64 billion, a yearon-year decrease of 4.8 per cent.

Merchandise trade deficit thus totalled MOP6.88 billion.

According to DSEC, the notable drop in domestic export value is due to exports of tobacco plunging 40.3 per cent year-on-year to MOP35 million.

Cumulatively, the total value of merchandise exports reached MOP8.91 billion for the first ten months of the year, a year-on-year growth of 9.9 per cent. Of the total, the value of exports jumped 15.2 per cent, accounting for MOP7.43 of the total. However, that of domestic exports fell 11 per cent year-on-year to MOP1.48 billion.

In addition, the total value of merchandise import decreased 2.2 per cent to MOP71.27 billion for the ten months, while merchandise trade deficit expanded to MOP62.35 billion during the period. In total,

Analysed by destination, most of the city’s merchandise exports went to Hong Kong for the first ten months, valued at MOP5.34 billion, up 12.2 per cent yearon-year. In addition, exports to Mainland China jumped 18.5 per cent year-on-year to MOP1.5 billion, although those to Europe and the United States fell 22.1 per cent and 36.9 per cent year-on-year to MOP185 million and MOP166 million, respectively.

On the other hand, the city’s merchandise imports were primarily from Mainland China during the ten months, growing 11 per cent year-onyear to MOP26.43 billion. However, imports from Europe dropped 7.2 per cent year-on-year to MOP42.67 billion.

In terms of goods, exports of non-textiles rose 10.6 per cent yearon-year to MOP8.24 billion in the ten months, driven by export values of clocks & watches and electronic components jumping 55.9 per cent and 41.7 per cent year-on-year, amounting to MOP1.1 billion and MOP780 million, respectively.

However, the export value of machines, apparatus & parts dropped 34.9 per cent year-on-year to MOP946 million. Meanwhile, the exports of textiles & garments grew 2.1 per cent year-on-year, at MOP674 million.

For imports, the value of gold jewellery plunged 25.9 per cent yearon-year to MOP5.97 billion, while that of consumer goods dropped 7.2 per cent year-on-year to MOP42.67 billion. That of food & beverages (MOP9.98 billion) and mobile phones (MOP6.5 billion) posted year-on-year increases of 4.3 per cent and 20.2 per cent, respectively.

Amax posts HK$17.7 mln loss for H1

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aming investor Amax International Holdings Ltd. announced on Friday that it had recorded a net loss of HK$17.7 million (US$2.2 million) for the six months ended September 30 despite turnover registering year-on-year growth of some 63.5 per cent.

According to the company’s filing with the Hong Kong Stock Exchange, its total turnover for the period reached HK$3.99 million. Most of the company’s revenue was from its VIP gaming tables and slot machinesrelated operations generated by its wholly-owned subsidiary.

The company said revenue generated by Macau amounted to some HK$2.4 million. The amount

was received from local casino operator Greek Mythology (Macau) Entertainment Group Corp. Ltd., of which Amax owns 24.8 per cent.

However, Amax said it cannot obtain any ‘valid’ financial information from the casino operator. According to the gaming investment company, Greek Mythology has refused to provide ‘valid’ financial information to Amax since the relationship of the two parties began to deteriorate in 2012.

‘As the financial accounts of Greek Mythology may have significant impact upon the Company’s financial performance, the Company will closely monitor the development of this matter and inform shareholders

if and when there is any significant progress,’ it claimed.

In fact, the growth of the company’s interim turnover is contributed to by revenues generated by Mainland China, which jumped to HK$1.59 million from some HK$43,000 one year ago.

‘In order to mitigate the challenges and combat stagnant growth in Macau, the Company has diversified its investment in the gaming and entertainment revenue streams by tapping high-growth gaming regions and other potential markets,’ the company said in the filing.

For the six months, the company said it was not considering distributing an interim dividend.

Government grants MOP2.18 bln in loans to SMEs as at Nov 24 The government says it has granted MOP2.18 billion (US$272.5 million) in loans via the SME Aid Scheme to local businesses since the establishment of the scheme in 2003 to November 24 this year. A total of MOP1.6 billion in loans has already been reimbursed while some MOP69.3 million in arrears was under compulsory collection.

Meanwhile, from 2013 to November 24, a total of MOP146 million in loans was disbursed via the Young Entrepreneurs Aid Scheme. Some MOP10.08 million has been repaid but some MOP2.6 million is under compulsory collection.

Fire breaks out in Lisboa Palace on Saturday morning The construction site of SJM’s Lisboa Palace in Cotai caught fire on Saturday morning, and listed by Judiciary Police (PJ) as an arson attack. The fire broke out on a truss platform on the construction site. Receiving the fire report at 6:00 am on Saturday, the fire department spent one and a half hours extinguishing the blaze. No-one was injured during the fire and some 10 construction workers evacuated the site themselves. The PJ found no self-igniting material on the platform and thus listed the case as an arson attack. Lisboa Palace, the construction of which was started in February 2014, is expected to open in 2017.

Centro Comercial Teatro Capitol to be renovated Businessman William Kwan Wai Lam revealed to reporters on Saturday that unit owners of Centro Comercial Teatro Capitol, known as ‘Kuok Wa Cinema’ in Rua de Pedro Nolasco da Silva, have agreed in principle to renovate the property into a mall and cinema complex.

The original cinema in the property has been abandoned for years. Mr. Kwan, who is one of the unit owners, claimed that he will co-operate with the property management committee to turn the cinema into a base for local culture and creative industry, by screening micro-films produced by local filmmakers.

The planned renovation is estimated to take one year.

Tourist Office clarifies no gaming-promotion text sent Macau Government Tourist Office (MGTO) said on Saturday that it had not sent any text messages promoting online gambling themed ‘Experience Macau[, saying in a press release that, ‘MGTO clarifies that the Office has not sent out any of the related messages’.

According to MGTO, the content of the messages involved inviting users to join certain online casinos settling in cash.

The government department said it had reported the case to the Gaming Inspection and Co-ordination Bureau, Judiciary Police and the Bureau of Telecommunications Regulation.

Business Daily | 5

November 30, 2015

Macau Giant panda Shu Xiang sent back for matching

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the two places.

As at the end of October, the total export value of CEPA goods from the city to China amounted to MOP76.4 million (US$9.55 million) for the first ten months of the year, or MOP642 million since 2004, according to official data released by the Economic Service Bureau (DSE).

Meanwhile, the government had granted a total of 591 certificates of ‘Macao Service Supplier’ as at the end of last month. The certificate enables local companies to operate their businesses throughout the country.

iant panda ‘Shu Xiang’, who has been in Macao since 2010 as a present from the Chinese central government, was sent back yesterday to the Mainland for a national breeding programme.

Macao held a ceremony yesterday morning to bid farewell to ‘Shu Xiang’, with the attendance of officials and hundreds of local residents.

Chan Hoi Fan, Secretary for Administration and Justice of the Macao Special Administrative Region Government said ‘Shu Xiang’ has been deeply loved by Macao people and expressed her reluctant farewell.

‘Shu Xiang’ has brought joy to her family, especially her offspring, a resident told the reporter, adding she hoped it would have a happy life.

Accompanied by a veterinarian and breeder, the giant panda was sent to his hometown by chartered plane.

A pair of giant pandas named ‘Kaikai’ and ‘Xinxin’ arrived in Macao on April 30 this year to replace a former pair, after the female died of kidney failure in June last year. The male panda was returned to the Mainland for breeding.

K.L.

Xinhua

SAR reaches CEPA service trade agreement with Mainland

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he city and Mainland China signed a new agreement on trade in services under the framework of the Closer Economic Partnership Arrangement (CEPA) on Saturday, expanding the scope for local firms to provide services in the country.

The agreement, effective from January 1 next year, was signed by Secretary for Economy and Finance Lionel Leong Vai Tac and Chinese Vice Minister of Commerce Wang Shouwen.

According to the agreement, the Mainland will open up 62 new sectors

to the city’s service providers, for a total of 153 sectors. The total number also represents coverage of 95.6 per cent of the 160 services recognised and classified by the World Trade Organization.

The newly opened sectors of the Special Administrative Region include veterinary services, passenger transportation, support services for the road transport network, and services for the sports sector.

The CEPA agreement between the two parties, initiated in 2004, aims to promote mutual economic prosperity and development between

6 | Business Daily

November 30, 2015

Macau

CY Foundation loses HK$140.3 mln due to gaming downturn

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Y Foundation Group Ltd., the parent company of Macau-based casino services provider CY Management Ltd., registered a widened loss

of HK$140.3 million (US$17.5 million) for the six months ended September 30, compared to HK$11.9 million one year ago.

The group claimed that the loss is

driven by ‘the decline in the Macau gaming market’.

Of the total loss, that of the group’s electronic gaming business amounted to HK$96.5 million compared to

HK$4.7 million during the same period last year, according to its filing with the Hong Kong Stock Exchange last Friday.

The Hong Kong-listed company said that the loss is due to an impairment of goodwill of some HK$48.2 million driven by the local gaming downturn in addition to an impairment of intangible assets of approximately HK$34.8 million.

Meanwhile, the company’s revenue generated by the electronic gaming businesses also dropped 11.1 per cent year-on-year for the six months to HK$57 million from HK$64.1 million during the same period of last year. The revenues from the sector accounted for 71.6 per cent of the company’s total revenue.

‘The Group expects that the effects of the anti-corruption campaign and the economic downturn in the People’s Republic of China will continue to impact the performance of the electronic gaming business in Macau in the remaining [part] of the financial year ending 31 March 2016,’ the operator said in the filing.

‘Nevertheless, the Group is exploring new business opportunities in other Asian countries to diversify the risk which is expected to bring revenue to the Group,’ it added.

K.L.

Business Daily | 7

November 30, 2015

Macau

Imperial Pacific appoints new COO for Saipan casino project

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Mr Kwong developed his career working for prestigious venues such as Altira Macau (pictured)

Stelux falls into red in H1

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atch and optical retailer Stelux Holidings International Ltd. saw its interim results fall into the red as at September 30, posting a net loss of HK$33.1 million (US$4.12 million) from the profit of HK$105.2 million one year ago, it tinformed Hong Kong Stock Exchange last week.

During the six months, the company generated a total turnover of HK$1.77 million, down 10.7 per cent from one year ago due to turnover from its two major subsidiaries, City Chain and Optical 88, dropping 12.1 per cent and 10.5 per cent year-onyear to HK$957.9 million and HK$ 579.1 million, respectively.

The company explained that the notable decrease in the turnover of City Chain is attributable to the ‘sluggish turnover performance’ in Hong Kong, Macau and Southeast Asia.’

According to the filing, City Chain’s watch retail businesses in the two Special Administrative Regions posted a year-on-year decline of 14.2 per cent in turnover for the six months, amounting to HK$646.6 million, compared to HK$753.4 million one year ago.

The decrease is attributed ‘to reduced tourist spending, shop consolidation measures, and a high comparable base [from one year ago] when the Group achieved record breaking monthly sales,’ the retailer claimed.

Meanwhile, the company’s optical business under Optical 88 fell 8.9 per cent year-on-year in terms of turnover, raking in some HK$407.1 million. ‘The turnover performance was impacted by the softened demand from local customers and tourists but gross profit margin remained healthy and stable,’ Stelux said.

K.L.

ong Kong-listed casino operator Imperial Pacific international Holdings Ltd. has appointed veteran gaming executive Mr. Yiu Ling Kwong as chief operating officer of the firm’s casino resort project in Saipan island, the company has informed the Hong Kong Stock Exchange.

According to Imperial Pacific’s filing, Mr. Kwong has ‘over 40 years of experience in the Macau gaming industry overseeing and providing expert support on casino and gaming operations as well as staff training and development’.

Mr. Kwong’s most recent position was working as executive vice president of casino operations at Macaubased MGM Grand Paradise Ltd. Mr. Kwong helped established Pharaoh’s Palace Casino controlled by Macau Legend Development Ltd. He then assumed the position of chief operating officer of Altira Macau, a casino owned by Melco Crown Entertainment Ltd. Assuming the new position at Imperial Pacific, Mr.

Kwong has brought a team that includes Mr. Ho Ieng Kun, senior vice president of table games and Mr. Cheang Ka Hou, senior vice president of slot operations, the filing said.

Imperial Pacific had the official opening of its ‘temporary casino’ on Saipan on Friday. The company has been approved to have 40 gaming tables at the temporary casino.

In the same filing announcing Mr. Kwong’s appointment, Imperial Pacific also announced the appointment of Mr. Eugene Raymond Sullivan as an independent non-executive director of the company.

Mr. Sullivan is a retired federal judge from Washington DC in the United States. He is currently a partner in the Washington DC office of law firm Pepper Hamilton LLP. Mr. Sullivan has been appointed to take up the position for an initial term of one year starting from November 26, which is automatically renewable for successive terms of one year.

S.L.

8 | Business Daily

November 30, 2015

Macau

“This is the appropriate time to invest in the territory” The slowdown in the local economy and the strategy to rely more upon mass market gaming opens the door for new opportunities. Such is the view of Filipe Senna Fernandes, managing partner of Interface Consulting Asia João Santos Filipe

jsfilipe@macaubusinessdaily.com

The economic reality of Macau of the last year has been affected by the slowdown of the gaming industry, which in turn has dragged the territory into recession. As a Small and Medium Enterprise (SME), how have you been affected?

Filipe Senna Fernandes: The business has been slower. I don’t feel a steep drop but the economy is slowing and prices are becoming cheaper. For the past four months, people have adopted a ‘wait and see what happens’ approach. Now, especially in the past month, there has been a confirmation that the economy is not going to have a V-shaped recovery. People are not expecting a slow recovery to happen in only two or three years. For the people with cash at hand, this is the appropriate time to invest.

Why do you consider this is the right time to invest?

The prices of houses, rentals, and room rates are slowing down.

Also, the Macau gaming industry is becoming more oriented towards the mass market, which is for the most part [driven by] the government. I believe that the lesson to learn from this slowdown is that there is room in the local industries to cater for the mass market, while in the past everybody was more oriented towards VIP gaming and premium mass. At the same time, there is the opportunity to diversify services away from Mainland visitors. If we want

The lesson to learn from this slowdown is that there is room in the local industries to cater for the mass market

Macau to be that international, we need to have tourists other than from the organic markets such as Mainland China, Hong Kong and Taiwan. Diversifying the source of tourists and offering non-gaming attractions is something we should have done a long time ago.

In spite of this slowdown, you maintain a positive forecast for the local gaming sector…

I have to, and I hope the government will adopt the right policies to continue to support this sector. We don’t have other strong sectors, besides gaming, and nothing else significantly is produced in Macau. The territory has been gifted after the handover to be given the status of a Special Administrative Region. This is a blessing because we can report directly to the Central

Government, instead of going through the Provincial Government of Guangdong. We have to use this to our advantage. At the same time, we need to be realistic about who we are and what we can do with our resources.

is changing the market but in my view junkets will continue to be here.

In the services provided by Interface Consulting, there is a public relations service, with junket company Tak Chun among your clients. However, it is not very often gaming promoters advertise or publicise their activities…

It depends upon the nature of the company. Some of them are actually quite aggressive in terms of advertising their activities.

There are some companies that are always out there…

We organise some events. We write press releases and distribute them, as these companies want people to be aware of their activities. It is normal public relations work.

But still many of them prefer not to be mentioned…

True. But you also have companies that want to be talked about and known. I’m not sure if this is going to be a more popular trend in the future... At this moment, junkets are in conversation with the government and it seems they have the intention of creating a supervisory body to be more easily under the control of the government. I understand some junkets are backing this change.

They want to increase the transparency of the sector, which is a good thing. Junkets are helping Macau and the tourism industry; it’s not right to put them in a dark corner. It shouldn’t be that way. To be honest, this adjustment phase

When you develop this kind of activity for the gaming promoter companies, what kind of tasks do you have to develop?

As part of the services of Interface Consulting, you also provide advertising consulting.

What is your view regarding the advertising instructions of the government that ban gaming symbols, such as images of cards, dice, etc?

My personal view is that this is a big problem in Macau. It’s frustrating and people in the advertising area feel challenged.

I listen to the radio show in the morning, Macau Forum. One day a man working in the ad sector asked why the government through this policy stops the small junkets from advertising but then allows big companies to do it, and he named Suncity. This man’s view is that this is unfair because in the end these big companies are still junkets. A lot of people may say that Suncity is a big brand. For a long time now they have invested in the entertainment industry to promote themselves. Alvin Chau [CEO of Suncity] showed great vision of the whole picture. He did

Business Daily | 9

November 30, 2015

Macau Interface Consulting Interface Consulting was founded in 2013 and provides consultancy services ranging from business registration and establishment in Macau to business matching, recruitment and public relations services. Lately, the company has also engaged in media solutions for the Pearl Delta River area. Managing Partner Filipe Senna Fernandes decided to found the company after leaving his job with the Macau Government Tourist Office (MGTO).

it right. But the problem here is for other gaming promoters who cannot advertise their companies.

Why does the government adhere to this policy?

For the last two years, there were these advertisements for online gaming websites being placed in Macau. In the territory there is a monopoly for online gaming, and as such these websites were being illegally promoted in Macau.

On the other hand, there is the question of responsible gaming.

But is it really true that having the gaming promoters advertise their companies will result in people gaming more? I don’t think so. Some people are addicted to gaming but this problem is small and existed before the advertising by junkets… My view is that the government has not been reasonable and that this policy is not fair. Gaming promoters are legal companies and have the legal right to operate here; they pay taxes, bring VIP players to the territory… So why are they not allowed to advertise their activities? These companies are not selling weapons or drugs or involved in illegal activities…

Your company provides consultant services to Small and Medium Enterprises. What do you consider the main challenges for their operations in the territory?

The biggest and most common problem is human resources because of the shortage of labour and qualified employees. The government is not being very realistic in this area and this problem ends up affecting the big companies, too, such as hotels and casinos. Before the gaming sector was liberalised, there was only one operator. Then the government liberalises the industry and creates six licences. From 2002 to around 2008 or 2009, the number of rooms went up from a small industry to 20,000 rooms. In the next few years, we’re going to have another 30,000 rooms. How are we going to prepare the people for this increase? If we’re going to position ourselves as a world centre for tourism [and leisure], we cannot be too protective. We have already opened the doors and people have a lot of expectations of Macau…

We cannot afford to have a low quality service in these industries because of the lack of people.

At the same time, this problem inflates prices, which means it affects the reputation of Macau, because we are talking about a pricy destination…

How do SMEs feel the impact of the lack of labour and qualified workers?

The people working in these companies want to work for the big

So you are in favour of the government accepting more non‑resident workers?

Gaming promoters are legal companies and have the legal right to operate here; they pay taxes, bring VIP players to the territory… So why are they not allowed to advertise their activities?

casino corporations. There is this idea that hotels and casinos offer a better future for a career, which is not necessarily true. Local people do not have equal opportunities in the big corporations because they compete with blue card holders that in order to have the blue card approved are required to have a lot of experience. Local people are competing against more experienced people, which makes it difficult for them. Eventually, the SMEs do not have enough people, because they need to offer higher salaries to retain staff. Are SMEs able to pay MOP30,000 or MOP40,000 per month? Realistically, not everybody can do it.

Yes, just like it happens, for example, in Singapore. They welcome foreign workers and it is very easy for an expat to work there. I’m not saying for the government to offer the same rights as locals. However, they should make it easier for nonresidents to work in Macau because we need this.

How do you help SMEs deal with human resources problems?

It is very rare for us to work in the process of helping companies bring non-residents to the territory. We usually work with local talent. The reason for this is because the companies coming to Macau from outside already know the non-residents they want to bring and usually these are workers that the bosses outside can trust. So we look for local talent for them. Another solution we offer is suggesting outsourcing companies for them to replace this lack of qualified workers for certain positions. Sometimes, there are good solutions that can be implemented and are more effective. So we are an interface that helps companies adapt to the local market. Regarding companies coming to Macau we help make things smoother for them.

The companies you work with more frequently are SMEs but do you have big clients for your consultancy services?

In terms of the consultancy services, we saw a niche among the SMEs two years ago when the economy was booming in the territory and there were many companies interested in coming to Macau. The SMEs among these companies are our target. The big companies are difficult for us to target because we would not be able to handle them, as we are an SME. Also, because they already have the money and power and networks required to enter the market. We can say they are untouched land. Later, from consultancy services we spin off to different things. At this moment we’re like a ‘one-stop shop’, offering legal consulting and accounting to renovation services.

Another service you’re providing is the possibility of companies advertising their brands and products in Mainland train stations…

We help companies to advertise on the Mainland. At first sight, train stations may not sound a very nice place to advertise but they are one of the biggest hubs in China. In Macau, people tend not to see this potential but the people traffic there is huge. In this process, we are also educating local companies and explaining the need to advertise Macau, even when people are already visiting. Our proposal is to advertise the place of origin to our tourists. The increase in the mass market in Macau gives us good prospects for this part of our business.

10 | Business Daily

November 30, 2015

Greater China

Shadow banking risk shifts to booming bond market Data from a research firm shows that 60 percent of new bank wealth-management products were linked to debt and money market instruments Nathaniel Taplin and Engen Tham

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year after China’s financial regulators squared up to the systemic perils of “shadow banking”, the threat is shifting to a booming corporate bond market, and risky borrowers’ debt is finding its way into products aimed at retail investors.

An opaque network of trust companies and non-bank lenders had grown their annual market to a hefty 2.9 trillion yuan (US$450 billion) in loans before regulators stepped in, spooked by rising defaults on wealth-management products (WMPs) backed by such high-interest shadow lending.

Now the high-risk borrowers who took those loans, such as unlisted real-estate firms struggling with a stagnant property market and financing companies backing shoddy local government investment, are finding a new avenue of funding after regulators began allowing unlisted companies to issue bonds on public exchanges.

New corporate bond issuance leaped to 914 billion yuan in the third quarter, accounting for 29 percent of

all new credit, up from 381 billion yuan and just 8 percent in the first.

And the profile of new borrowers looks strikingly like the patrons of the shadow banking set.

Of the 57 firms posting bond listing announcements in Shanghai in October, 23 were local-governmentowned project or infrastructure investment firms.

Beijing engineered the freeing up of the bond markets as a transparent alternative funding route, and the credit crunch that followed its clampdown on shadow banking

Beijing considers bailout for stricken aluminium industry Estimates on the world glut range between 8 million and 12 million tonnes Polly Yam

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hina’s state stockpiler is considering buying more than 1 million tonnes of aluminium from local smelters, sources said on Friday, an initial sign that Beijing could agree to the first major bailout in its embattled metals industry since 2009.

News that the central government might scoop up a sizeable portion of domestic inventory in a bid to shore up struggling smelters stunned some traders, who said the strategy to increase state reserves would offer

only short-term support to prices as the demand would be artificial.

Shifting metal into storage would do little to get rid of the structural overcapacity that has pushed international prices to decade lows and helped create global oversupply, the traders said.

Estimates on the world glut range between 8 million and 12 million tonnes.

The potential purchase, worth over US$1.5 billion at current prices, would be part of a broader plea for

help by aluminium, zinc and nickel producers and statecontrolled metals industry body, China Nonferrous Metals Industry Association (CNIA), earlier this week. It equates to about 40 percent of China’s output in October.

The State Reserves Bureau (SRB) did not immediately respond to a request for comment.

The discussions centred on tonnage and pricing, two Chinese industry sources familiar with the possible move said on Friday.

“The amount would be bigger than the market has estimated,” said an industry official who has direct knowledge of the discussions, adding that the volume could be about 1.5 million tonnes.

Some market participants had expected an amount around 900,000 tonnes.

The official said the government wants to ensure the deal provides cash to help operating smelters stay open, while also making sure the offer doesn’t prompt smelters to reopen idled capacity.

One option was to pay prices based on state-owned smelters’ cash production costs, an executive at a medium-sized smelter said, adding that the state stockpiler would most likely buy the metal from state-owned firms.

Prices on the Shanghai Futures Exchange have surged over 5 percent this week in their best weekly performance in almost a decade amid hopes that statebuying would remove excess inventory from the market.

While the move in percentage terms was big,

prices were recovering from their weakest in a decade hit earlier this week and are still close to or below the cost of production for many smelters.

The second source said the state could buy more next year after an initial purchase.

Both sources declined to be identified due to the sensitivity of the matter.

China’s state stockpiler has in recent years bought thousands of tonnes of surplus aluminium, zinc and nickel to support prices, but this deal would mark the first major government move to shore up the metals industry since 2009.

Six years ago, SRB went on an aggressive buying spree in copper, lifting the market out of one of its worst-ever slumps.

It is not clear whether the SRB is considering throwing a similar lifeline to the zinc and nickel sectors.

Aluminium smelters have shut about 3.5 million tonnes of annual capacity so far this year, a CNIA report released on Friday said. Idle cap.

Reuters

Business Daily | 11

November 30, 2015

Greater China guaranteed a high take-up.

But wealth managers are now turning these bonds into leveraged high-yielding products and selling them to investors desperate for returns after a real-estate slump and summer stock-market crash.

Data from CN Benefit, a research firm tracking wealth management sales, shows that 60 percent of new bank wealth-management products (WMPs) were linked to debt and money market instruments in September, up from less than half in the first quarter.

High yield, hot demand

Demand is hot for these products, and the higher the yield, the higher the risk, which is amplified if the fund’s assets are partly bought on credit, or leveraged.

Colight Asset Management, a private fund offering bond-backed

WMPs, raised more than 40 million yuan in just four days in November from an 8.7 percent yielding, 400 percent leveraged bond-based product, according to customer service staff member Chen Xun. Much bigger companies such as Pacific Asset Management Co. and the Agricultural Bank of China also offer similar high-yielding leveraged products.

Investors, however, assume that products offered by big names are relatively safe.

“The risk of default is very slim,” said a 45 year-old business manager in Shanghai surnamed Pan who invests in WMPs on an exchange backed by China’s second-largest insurer, Ping An Group. “I’m sure such a big company as Ping An will make sure investors can get their money back.”

Inflows to bond mutual funds have also risen.

Typical of such funds is the Great Wall Long Term Profit Gradated Debt Fund, whose top three holdings are

KEY POINTS Risky shadow banking borrowers moving into bond markets Property, local govt finance firms’ private placements up Leveraged bond investment products selling briskly Bond leverage sharply up, yield spreads down

all sub-AAA-rated local government fundraising company bonds. The firm adds leverage by borrowing cheaply in the bond repurchase (repo) market, fund documents show.

“So for instance you can take 2 billion yuan of government debt as collateral and receive 750 to 800 million of cash, and use that to buy more debt,” said an underwriter at an international bank in Shanghai who asked not to be named.

About half the Great Wall fund’s 19 percent return since late 2014 has accrued since July, a period when repo transactions in Shanghai soared, and the spread of AA corporate debt yields over Chinese treasuries fell 60 basis points to four-year lows.

Analysts say the narrowing corporate risk premium combined with weakening profits is a red flag for speculative activity.

“Similar to what happened in China’s stock market earlier this year, the rally of bonds is largely driven by liquidity conditions and speculation that government will provide support when necessary,” said Zhou Hao, Senior Emerging Markets Economist at Commerzbank in Singapore.

Some industry professionals worry that these trends, enabled by regulatory reform, will create forces that regulators can’t handle when market sentiment turns, in an echo of the stock market boom that preceded the summer crash and a frantic series of heavy-handed interventions by Beijing.

“If, as seems likely, the government has succeeded in getting funding to higher risk sectors by relaxing bond approvals,” wrote Christopher Wood of brokerage CLSA in a recent note, “it is all rather scary, given the regulatory failures exposed by the A share boom-bust cycle.”

Reuters

Hong Kong securities regulator proposes expanded short position rules Under the current rules, a short position that is 0.02 percent or more of a stock’s market capitalisation must be disclosed on the SFC’s public reporting system Michelle Price

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ong Kong’s securities regulator has proposed to expand the financial centre’s rules on reporting short positions as the watchdog steps up scrutiny of the Hong Kong market.

The Securities and Futures Commission (SFC) published a consultation on Friday outlining plans to extend short-position disclosure requirements to a broader range of securities, in a bid to improve monitoring and aid regulatory investigations.

The proposal comes just weeks after SFC chief executive Ashley Alder signalled an overhaul of the way the watchdog monitors the market and pledged to go after insider trading and market manipulation highlighted by solar technology firm Hanergy Thin Film.

Short-selling involves borrowing stock in order to sell it, with the aim of buying it back more cheaply and thereby make a profit. The practice attracted intense scrutiny during the global financial crisis prompting watchdogs across the world to

introduce short-position disclosure requirements.

Regulators in China have also blamed “malicious” trading practices including short-selling for a sell-off that wiped around 40 percent off the value of mainland shares between July and August.

The SFC’s current disclosure rules, introduced in 2012, apply to constituents of the Hang Seng Index, the Hang Seng China Enterprises Index and other financial stocks deemed systemically important. In total, 127 stocks or 14 percent of all securities that can be short-sold are subject to the rules as of October, according to the SFC. The watchdog proposes to expand the disclosure requirements to include all securities that can be short sold under the exchange rules, including smaller stocks such as Hanergy. Many smaller stocks are actively short-sold at a higher rate than those covered by the disclosure rules, the SFC said.

“As short selling may exacerbate selling pressure, there is a general concern that the use of short selling

Regulator targets illegal margin finance China’s securities regulator, the China Securities and Regulatory Commission, told its local branches to resolutely clean up illegal margin financing in wealth management products, a commission spokesman said in a press conference Friday. Illegal margin finance offered by non-bank lenders magnified the size the of China’s equity bull-run and subsequent crash this summer, and was the subject of a severe crackdown in late summer and early fall. Official measures of margin borrowing also declined sharply as the equity bubbled deflated, but have recently rebounded, although not to levels most analysts consider dangerous.

Taiwan cbank to hold meeting Dec. 17 Taiwan’s central bank said on Saturday its board will meet on December 17 to decide its policy interest rate. The central bank cut its benchmark rate in September for the first time since 2009, lowering it to 1.75 percent as the trade-reliant economy faces headwinds from a slowdown in China and weaker global demand for its tech exports.

Some economists are expecting the central bank to cut the rate again next month, subject to the U.S. Federal Reserve’s next rate decision on Dec. 16.

China Mobile to acquire sister firm’s business China’s largest wireless carrier China Mobile said on Friday it planned to acquire its sister company’s fixed line telecom business for 31.88 billion yuan (US$4.99 billion) to help boost its presence in that business in China. CM TieTong, a wholly-owned subsidiary of China Mobile, said it has agreed to acquire the fixed-line telecommunications business from TieTong, which has over 10 million fixed broadband and fixed line customers across China, according to a China Mobile filing to the Hong Kong stock exchange. The payment will be funded by China Mobile’s internal resources, it said.

Copper smelters agree to cut production Nine large copper producers in China have agreed an initial plan to cut refined metal production by more than 200,000 tonnes in 2016 or around 5 percent from this year’s level, an executive at one of the producers said on Saturday. The agreement followed a meeting by the producers on Saturday in Shanghai to discuss coordinated output cuts to support the market after prices in Shanghai and the London Metal Exchange plunged to their lowest in more than 6 years.

KEY POINTS To expand short position rules to broader range of securities Part of efforts to steps up scrutiny of HK market in combination with abusive trading strategies will increase the risk of a disorderly market,” the SFC said in the consultation.

Under the current rules, a short position that is 0.02 percent or more of a stock’s market capitalisation must be disclosed on the SFC’s public reporting system. This threshold will remain unchanged, the SFC said.

The disclosure requirements will also be extended to mutual funds, trusts and REITS. The consultation closes on December 31.

Reuters

Smog persists in northern China Smog persisted in north China for a second day yesterday and the meteorological centre renewed its yellow alert.

Beijing, Tianjin, Hebei, Henan, Shandong, Shanxi and Shaanxi will all continue to experience smog until today, according to the National Meteorological Centre (NMC). South Beijing, central and south Hebei Province and north Henan Province will be especially affected, it said.

The public have been warned to take protective measures when engaging in outdoor activities and those that suffer from respiratory diseases are advised to stay indoors, it said.

12 | Business Daily

November 30, 2015

Greater China

Beijing aims to refill medicine chest with "Made in China" drugs The watchdog has promised to speed up approval of innovative new drugs, which can take 5-7 years, while cracking down on substandard local generics Ben Hirschler and Adam Jourdan

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hina, already a global powerhouse in high-tech areas from solar panels to bullet trains, is turning its industrial might to the challenge of making more of its own drugs for a vast and ageing population.

Given the 10 years or more it typically takes to bring a new medicine to market, original "Made in China" treatments won't arrive overnight, but multinationals are already encountering more competition from local generic drugs that look set for a quantum leap in quality.

The stakes are high. China is the world's second biggest drugs market behind the United States, and fast food, smoking and pollution have fuelled a rise in cancers and chronic heart and lung diseases.

The country also has more diabetics than any other in the world, with numbers expected to hit 151 million by 2040 from 110 million today, according to the International Diabetes Federation.

That has made China a sweet spot for Denmark's Novo Nordisk ; the world's biggest insulin producer has mined a rich seam in the country since opening production facilities here in 1995.

By 2010, it dominated 63 percent of China's insulin market. But it has recently been losing ground to local competitors cheered on by Beijing.

"China is going to be tough for us for the next couple of years," said Chief Science Officer Mads Krogsgaard Thomsen. "Right now, the country is very focused on building domestic production."

Local rivals are selling both cutprice basic insulin and sophisticated

modern versions, including a biosimilar copy of Sanofi's Lantus made by Chinese biotech specialist Gan & Lee Pharmaceuticals.

End of branded generics?

Greater local competition is also evident in other areas, helping the top 10 Chinese drug makers grow sales 12 percent on average this year, according to IMS Consulting - twice the rate of multinationals, which suffered a setback from a bribery scandal at GlaxoSmithKline two years ago.

GSK itself has seen its drug sales slump.

Increasing local competition is part of a structural upheaval in China's hospital-dominated prescription drug market.

Selling drugs to patients at a hefty mark-up - especially offpatent Western "branded generics" - often accounts for 40-50 percent of Chinese hospitals' revenues. But the authorities are now pushing a policy of zero mark-ups, initially in smaller county hospitals.

"Branded generics are something that exist today, but the need for them in 10 years time is not going to be there," said Luke Miels, AstraZeneca's global portfolio head.

That means foreign firms will be more reliant on new, patented medicines, although the scale of demand for such expensive products is uncertain in a country with only basic health insurance cover.

At the other end of the spectrum, multinationals aim to build up volume, often in partnership with local players, in the big markets

outside China's top cities, where distribution costs are high and prices low.

"It's the right thing to do, even if profit margins shrink," said the head of one big multinational.

Regulator reform

Pivotal to the transformation of the market is the China Food and Drug Administration, led by reformist boss Bi Jingquan since January.

The watchdog has promised to speed up approval of innovative new drugs, which can take 5-7 years, while cracking down on substandard local generics.

"This creates lots of opportunities for local Chinese companies that have a strong focus on innovation," said a spokesman for China's Fosun Pharma, which sees itself among the winners.

It is not alone. A cluster of drug research labs in eastern Shanghai highlights the promise of China's life sciences sector. The area brings together multinational and local firms, alongside contract research businesses and small biotech operations.

Among the latter is Hua Medicine, led by Chinese-born, Westerneducated Chief Executive Li Chen, who used to run Roche's China R&D centre. Now he is developing a novel diabetes treatment, licensed from Roche, while working on Hua's own promising leads.

Another standard-bearer for Chinese biotech is Beijing-based cancer specialist BeiGene, which last month announced plans for a $100 million initial public offering on Nasdaq.

KEY POINTS Local drugs intensify competition as China squeezes prices Raised quality bar threatens “branded generics” cash cow China R&D on long road to developing new innovative drugs At a time when China's academic researchers have grabbed headlines by editing the genes of human embryos, such start-ups highlight the commercial potential of China's biotech know-how.

The history of failure in drug development suggests they won't have an easy ride, but GSK's China R&D head Min Li, a returnee from America, believes "there is a real chance for China to leap ahead in life sciences".

Dennis Gillings, executive chairman of leading contract research organisation Quintiles, said the number of Chinese-developed drugs in the pipeline was rising fast.

"It's probably been taking everyone a little by surprise, the sheer scale of that," he said. "As we hit the next decade in the 2020s, I'd be very surprised if there wasn't at least a top 20, if not top 10, global pharma player that was headquartered in China."

Reuters

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Business Daily | 13

November 30, 2015

Asia

India's Modi meets Sonia Gandhi to discuss new indirect tax

Singapore c.bank warns of credit risks Singapore’s central bank warned that subdued regional economic growth is posing increased credit risks for the city state’s banks, but it said the financial system remains resilient in the face of external headwinds. Highlighting growing challenges facing global policymakers, the Monetary Authority of Singapore also cautioned that divergent monetary policies across the United States, Japan and Europe could stoke financial excesses as traders search for higher returns. It said sub-par growth in Asia could pressure profits and debt servicing capacity of businesses.

Analysts cautioned that while the outlines of a compromise on GST were taking shape, there was no guarantee that a bargain would be struck Rupam Jain Nair

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ndian Prime Minister Narendra Modi hosted opposition Congress party leader Sonia Gandhi for talks on Friday to try and break a deadlock over launching a new indirect tax, in a bid to put his economic recovery agenda back on track.

The face-to-face meeting between the rivals was the first since Modi rose to power 18 months ago, and could herald a long-awaited compromise on the proposed goods and services tax (GST), billed as the biggest tax reform since independence.

While there was no immediate breakthrough after the 30-minute meeting, Finance Minister Arun Jaitley told reporters that the Congress party has raised its concerns, and both parties were expected to meet again soon.

Gandhi and former prime minister Manmohan Singh left Modi’s official residence by car without talking to reporters.

Modi, 65, has raised India’s global profile with a series of trips abroad but suffered his biggest setback as prime minister when his nationalist party crashed to defeat in a big state election this month.

That loss, aides and analysts said earlier, means Modi will have to show more willingness to compromise on the GST after Congress - which

first proposed the tax when it was in government - set a series of nonnegotiable demands.

“The government is under tremendous pressure to get GST cleared,” said Rakesh Sinha, director of the India Policy Foundation, a think tank with close ties to the government.

“Modi’s engagement with the opposition is only way to prove that every effort is being made to accelerate the pace of economic growth. He is willing to discuss, debate and negotiate now.”

Financial markets ticked higher on Friday as TV channels flashed news that Modi had for the first time reached out to Gandhi. Her son and heir-apparent Rahul, the target of a series of public attacks by the BJP, did not attend the talks.

Analysts cautioned that while the outlines of a compromise on GST were taking shape, there was no guarantee that a bargain would be struck.

“Clearly it is not given that today’s talks will be a blanket ‘yes’ or ‘no’ to what the government wants,” said Ashish Vaidya, head of trading and asset liability management at DBS India.

The GST would create a common market in Asia’s third-largest economy and, the government estimates, add 2 percentage points to economic output.

Yet horse trading has threatened to wreck efforts to simplify taxes: BJP-ruled states have called for an extra state levy and a GST rate of over 20 percent, raising concerns of yet more red tape and tax evasion.

Bottom line

Congress wants to cap the GST at below 20 percent, scrap the state levy and create an independent mechanism to resolve disputes on revenue sharing between states.

“We will discuss every aspect of GST with the prime minister and they will have to accept our demands,” a senior aide to Sonia Gandhi said before the meeting.

Complicating matters for the government is the need for a two-thirds majority in the upper house to pass a constitutional enabling amendment that would make it possible to implement the GST as soon as next April.

The government’s strategy has been to try and win the backing of smaller, regional opposition parties for the GST, thereby isolating Congress.

Parliamentary Affairs Minister Venkaiah Naidu said that 30 out of 32 parties now backed GST. Still, to be sure of guaranteeing passage the votes of Congress would be needed.

Reuters

South Korea grants local firms permits for online banks Cynthia Kim

S

Services Commission and Financial Supervisory Service.

Establishing Internet-only banks “should inject healthy competition in the local financial market and improve the financial industry,” Yim Jong Yong, chairman of FSC, said in the statement.

Korea’s government is offering the online-banking permits in a bid to drive innovation and deregulation in a sector that’s crucial for financing the country’s economic expansion.

Online- only banks will be able to offer a wider range of customer services from existing commercial banks and offer easier access to credit for start-ups and small businesses, the statement said. Korea is lagging behind China, Japan and the U.S.

Thailand’s industrial output fell more than expected in October and at the sharpest pace in nearly a year as the trade-dependent economy continues to struggle to grow in the face of weak demand at home and abroad. Southeast Asia’s second-largest economy is still not firing on all cylinders more than a year after the military seized power in May 2014 to end months of political unrest. Export and domestic demand have remained sluggish and weaker commodity prices are weighing on the agriculture sector.

Japan govt to cut corp tax to below 30 pct The Japanese government is likely to cut the effective corporate tax rate to below 30 percent in fiscal 2016 from April, a year earlier than planned, people in the government and coalition parties told Reuters Saturday. Relevant ministries and agencies are now in talks to slash the rate to a level between 29.5 percent and 30 percent in April, aiming to spur capital spending and boost wages, the people said. The government initially planned to slash the rate to below 30 percent in fiscal 2017 after reducing it to 31.33 percent from the current 32.11 percent in fiscal 2016.

HSBC to close India private banking unit

Korea’s government is offering the online-banking permits in a bid to drive innovation and deregulation in a sector that’s crucial for financing the country’s economic expansion

outh Korea gave preliminary approval for two groups -- one from the new economy and another from the old -- to set up the nation’s first Internet-only banks as the government seeks to reinvigorate a sector suffering from slow growth and slim margins.

Kakao Corp., operator of Korea’s leading messaging app KakaoTalk, and KT Corp., the former government phone monopoly, were chosen from a field of three applications. A group headed by online retail operator Interpark Corp. was unsuccessful.

The approvals will be finalized after the National Assembly passes legislation allowing Web-only banks to operate, according to a joint statement from the Financial

Thai Oct industrial output adds to economic gloom

in the development of web-based financial services.

Kakao’s group includes a 50 percent stake from Korea Investment Holdings Co. and a 10 percent holding from Kookmin Bank, the regulators said. KT Corp.’s partners include Woori Bank, GS Retail, Hanwha Life Insurance and Danal Co., all of which have 10 percent holdings.

KT said in an e-mailed statement that it is looking forward to facilitating the growth of Korea’s financial industry.

The regulator said it evaluated the bidders’ business plans, capital structure, investors and capabilities when deciding which would receive licenses.

Bloomberg News

HSBC Holdings Plc is closing its private banking unit in India as part of its group strategy, the bank said, marking the exit of another foreign bank from the cut-throat wealth management business in Asia’s third-largest economy. The bank would offer private banking clients the choice to move to HSBC Premier, the bank’s global retail banking and wealth management platform, a Mumbai-based spokesman said. The process is likely to be completed in the first quarter of 2016. “After a strategic review of the global private banking operations in India, we have decided to close the business,” the spokesman said.

Toshiba considers splitting off chip business The company said it was considering splitting off part of its chip business, with listing it an option, in a move that would help it raise capital needed to fund restructuring following a US$1.3 billion accounting scandal. Toshiba is in urgent need of restructuring after revealing a number unprofitable businesses. It agreed in October to sell its image sensor business to Sony Corp. Having been placed on a Tokyo Stock Exchange watch list, the conglomerate faces difficulty raising funds through the sale of shares or bonds.

14 | Business Daily

November 30, 2015

International Brazil to sue BHP, Vale for damages Brazil’s federal and state governments plan to sue the owners of the Samarco iron ore miner for 20 billion reais (US$5.24 billion) in damages caused by the burst of a tailings dam, Environment Minister Izabella Teixeira told reporters on Friday. Samarco is a joint venture between the world’s largest mining company, BHP Billiton Ltd , and the biggest iron ore miner, Vale SA. The dam burst earlier this month unleashed 60 million cubic meters of mud and mine waste that devastated a village, killed at least 13 people and polluted a major river valley.

Rate cut, more stimulus in store at ECB meet The quantitative easing programme to buy sovereign bonds at a rate of 60 billion euros a month runs until at least September 2016, but inflation came in at zero in October Hui Min Neo

T OPEC officials question upbeat outlook

OPEC officials questioned an upbeat forecast from the group’s researchers in a meeting ahead of next week’s gathering of oil ministers, with some sceptical there will be a quick easing of the supply glut in 2016. The comments point to a less jubilant mood in the Organization of the Petroleum Exporting Countries, whose oil ministers meet to set policy on Dec. 4, than during their last meeting in June. Oil has fallen to US$45 a barrel on oversupply concerns compared to US$65 last time. “Market data is showing loads of uncertainties,” said one source.

Greek PM fails to get backing on pension reform

Prime Minister Alexis Tsipras failed to secure the backing of Greek opposition parties on Saturday for tough pension reforms the country has promised to submit by December under its international bailout. The leftist government has already raised the retirement age and health care contributions and scrapped most early retirement benefits to get part of the financial aid promised by its European lenders. But Athens needs to introduce deeper reforms by the end of the year to make its ailing pension system viable, including merging several pension funds into one and cutting back supplementary pensions.

Russia’s Finance Ministry may issue bonds in yuan Russia’s Finance Ministry may issue 6 billion Chinese yuan (US$938 million) worth of OFZ treasury bonds in 2016, Deputy Finance Minister Maxim Oreshkin said. The bonds would be issued at the Moscow Exchange, making it the ministry’s first foreign currency raising on the domestic market. “The key target of this deal, if it happens in the end, is the development of the domestic financial market and its ties with China’s financial market,” Oreshkin told reporters late on Friday. TASS news agency reported that Russia’s central bank had decided to include the Chinese yuan in its foreign exchange reserves.

he ECB will roll out its big guns at its monetary policy meeting this week, ramping up its trillion-euro asset purchases and cutting key rates to hike weak inflation, analysts said.

Fed up with an inflation rate that is stubbornly far below the target of close to 2.0 percent, European Central Bank chief Mario Draghi has in recent weeks multiplied pledges to “do what we must” to lift consumer prices in the 19-member eurozone.

In what was viewed as an attempt to lay out his case for more stimulus, Draghi also presented a morose state of the economy at a banking conference earlier this month.

“We cannot yet say with confidence that the process of economic repair in the euro area is complete,” he said, noting that global growth is expected to be the weakest since 2009, while the rebound in the eurozone is the lowest since 1998.

For Jonathan Loynes, an analyst at Capital Economics: “The question is not whether the ECB’s governing council will loosen monetary policy at its meeting on December 3rd, but rather whether it will do so decisively enough to meet the very strong expectations stoked up by its own dovish signals.”

“Anything less than a marked acceleration in the pace of its monthly asset purchases and a significant cut in its deposit rate would now come as a severe disappointment,” he said.

The ECB launched in March a 1.1-trillion-euro (US$1.2 trillion) scheme to help lift consumer prices.

At the ECB board’s last meeting on

October 22, the question of whether to cut interest rates again surfaced as a potential tool to boost consumer prices.

The ECB had cut the rate on its deposit facility -- that is, for funds placed by banks at the central bank, to negative 0.2 percent in June 2014.

That means banks have to actually pay the central bank to hold their cash, thus encouraging them to lend.

The rate has remained at that level since.

Dissenters shrugged off

Draghi’s expansionist stance is not without detractors, with Bundesbank president Jens Weidmann warning against hastily boosting stimulus rather than letting the current package do its work.

But the dissenters “appear to have had little influence on their colleagues,” said Loynes.

Berenberg analyst Holger Schmieding also said that “experience tells us that the ECB council usually follows Draghi’s lead in such contentious discussions”.

“With no inflation risks whatsoever, a further stimulus would certainly do no damage even if the benefits may not be very pronounced either,” he said.

The current bout of weak inflation is underpinned by persistently low petrol prices.

Central bankers of the 19-member eurozone are keen to fight falling prices because they can be poisonous for the economy, creating a vicious circle of falling demand and fewer jobs.

The ECB’s main objective is probably to achieve the strongest possible effect on the markets. To do so, the markets must be convinced that the ECB is doing all it can to achieve its inflation objective Joerg Kraemer, chief economist, Commerzbank

While falling prices might appear to be good for consumers, deflation can become entrenched if consumers delay purchases in the hope of lower prices later, which in turn prompts companies to hold off investment.

For Commerzbank’s chief economist Joerg Kraemer, the ECB may simply “make a decision in principle... and defer the clarification of further details to a later meeting”.

The bank is therefore likely to meet market expectations of more stimulus, as well as “announce further steps in the case that its objectives run the risk of not being achieved”.

AFP

U.S. store sales down slightly for Thanksgiving and Black Friday Last year Black Friday and Thanksgiving sales were disappointing, forcing retailers to double down on discounts which led to a last-minute shopping frenzy

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ales at U.S. brick-and-mortar stores on Thanksgiving Day and Black Friday were down slightly from last year, but the performance was still seen as strong in a holiday shopping season where discounts spread well beyond the weekend and many shoppers moved to the web.

Online sales were up by double digits, according to data released on Saturday.

Data from analytics firm RetailNext showed overall sales for both days fell 1.5 percent on flat customer traffic, while average spending per shopper dropped 1.4 percent.

Preliminary data from ShopperTrak showed sales at stores totaled about US$12.1 billion on

Thursday and Friday. The company said it is an “estimated decrease from last year” but did not give the percentage decline due to an internal change in the way it calculates data. Last year, it reported sales of US$12.29 billion for the same period.

ShopperTrak will release its final sales numbers on Tuesday. It stuck by its forecast of a 2.4 percent increase for November and December sales.

The data highlights the waning importance of Black Friday, which until a few years ago kicked off the holiday shopping season, as more retailers start discounting earlier in the month and open their doors on Thanksgiving Day.

Both firms said that despite the fall in sales over the two days, the performance must be interpreted as a good one for retail stores because sales held up amid rising competition from online shopping and were better than expected due to pent-up consumer demand and lower gas prices.

Customer traffic remained flat on Thanksgiving Day from a year earlier while traffic fell 1.8 percent on Black Friday, RetailNext said. Their estimate last year showed overall traffic for both days fell 14 percent.

Electronics and toys, which were better promotions did well, both firms said. Apparel sales struggled despite better promotions, Kohan said.

Reuters

Business Daily | 15

November 30, 2015

Opinion Business

wires

The import of exports

Leading reports from Asia’s best business newspapers

Ricardo Hausmann

Professor of the Practice of Economic Development at Harvard University

THE KOREA HERALD South Korean marginal companies are finding it more difficult to cope with their debt as the economic slowdown makes it harder for them to meet interest payments and other financial obligations, a local think tank said yesterday.

The corporate debt and restructure report released by the Korea Institute of Finance showed debt accrued by private sector companies hit 1,253 trillion won (US$1.08 trillion) as of late June. This is equivalent to 82.8 percent of the country’s nominal gross domestic product, up slightly from 83.6 percent in 2009.

PHILSTAR The Hong Kong and Shanghai Banking Corp. Ltd. (HSBC) expects the integration of Southeast Asian economies would help sustain the 67 consecutive quarters of economic expansion in the Philippines. “We see more trade and investment opportunities for Philippines with the integration of Asean, as the dynamic growth of the region and the rising affluence in this economy will fuel demand,” said Jayant Rikhye, the bank’s Asia Pacific head of international markets.

“The creation of the Asean Economic Community is a milestone for the 10 nations it unites,” he said.

BANGKOK POST Deputy Prime Minister Somkid Jatusripitak said Thailand is highly likely to join the Trans-Pacific Partnership (TPP) agreement signed by 12 Pacific Rim countries last month. At a meeting with Japanese Prime Minister Shinzo Abe on Friday, Mr Somkid said Japan had pledged to support Thailand joining the much-touted new trade bloc. Mr Somkid said Japan has offered to help Thailand study the impacts of TPP membership including its benefits, and the challenges Thailand needs to prepare for.

“Thailand is very curious about the TPP which potentially offers vast opportunities,” Mr Somkid said.

TAIPEI TIMES The pan-green and pan-blue camps shared a rare moment of solidarity yesterday, with politicians from both sides attacking the not guilty verdicts handed down on Friday by the Changhua District Court to Ting Hsin International Group executives accused of being criminally culpable over 2013’s tainted cooking oil scandal. The court found the six defendants, among them former Ting Hsin executive Wei Ying-chun, not guilty of breaching the Act Governing Food Safety and Sanitation.

KMT presidential campaign office spokesperson said that Ting Hsin has not only harmed the health of Taiwanese, but also damaged the reputation of the nation’s food.

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hould a country’s development strategy pay special attention to exports? After all, exports have nothing to do with satisfying their people’s basic needs, such as education, health care, housing, power, water, telecoms, security, the rule of law, and recreation. So why give precedence to satisfying the needs of distant foreign consumers?

That, in a nutshell, is what many opponents of free trade and economic globalization – as well as many on the right who believe that all industries should be treated equally – want to know. But there are no right answers to wrong questions. It is precisely because governments care about their own people that they should focus on exports.

To see this, consider what a market economy is all about.

Some, including Pope Francis, would say that it is about greed – a system in which everybody cares only about herself.

But a market economy should be understood as a system in which we are supposed to earn our keep by doing things for other people; how much we earn depends on how others value what we do for them.

The market economy forces us to be concerned about the needs of others, because it is their need that constitutes the source of our livelihood. In some sense, a market economy is a gift-exchange system; money merely tracks the value of the gifts we give one another.

As a result, a market economy encourages specialization: We become very good in a narrow set of skills or products, and exchange them for millions of other things we have no clue how to do or make. As a consequence, we end up doing remarkably few things and buying everything else from others.

This observation is as true about an individual as it is about a place, whether the place is a neighbourhood, a town, a state or province, or a country.

Every town has grocery stores,

beauty parlours, gas stations, and movie theatres that serve the local community. Economists call these “non-tradable activities,” because they are not undertaken with distant customers in mind.

But the town’s people would also want access to things that nobody in the city even knows how to make. For example, most towns and cities do not produce food, cars, gasoline, medicines, TVs, or films. So they need to “import” these goods from elsewhere. To pay for what they want from out-of-towners, they must sell them some of the things that they do know how to make.

Of course, the out-of-towners have the option of buying from somewhere else. This is why the goods and services that a place can sell to non-residents have a disproportionate impact on its quality of life – and even its viability. A mining town becomes a ghost town when the mine closes, because the grocery store, the pharmacy, and the movie theatre no longer have the capacity to buy the “imported” food, medicine, and films they need.

In contrast to non-tradable activities, a place’s export activities need to be pretty good to convince out-of-town customers – who have ample other options – to buy from local producers. That means that exports must have an attractive quality/cost ratio.

One way to increase this ratio is to improve quality and productivity. Another is to lower wages. The higher the productivity and the quality of export activities, the higher the wages they can pay and still remain competitive. If employment in the export industry is significant, as is true in most places that do not rely on oil revenues, the wages that the export sector can afford will affect the wages of everybody in town. Everyone thus has an interest in improving their export sector.

Because they are subject to greater competition, export activities tend to undergo

Because they are subject to greater competition, export activities tend to undergo faster technological and productivity improvements than other parts of the economy

faster technological and productivity improvements than other parts of the economy.

They are constantly under threat from innovation and new competitors that could disrupt their business. Consider the iPhone’s devastating impact on Finland’s once-dominant national champion Nokia, or the effect of the shale-oil revolution on OPEC. Successful places tend to move from a few technologically simple industries that are competitive enough to export their products to a greater number of industries that are increasingly complex.

For example, in 1963, 97% of Thailand’s export basket was composed of agricultural and mineral products such as rice, rubber, tin, and jute. By 2013, these represented less than 20% of the total, while machinery and chemicals accounted for 56%.

A similar transformation can be seen in every successful non-OPEC developing country.

The success of a place is very much related to its people’s ability to accomplish this transformation, as exemplified by places such as Singapore, Turkey, and Israel.

So what should countries, provinces, and cities do? Skeptics might say that they should just focus on fixing the things that locals care about, such as education or infrastructure, or improve everybody’s “business environment.” Exports will take care of themselves.

But life is more complicated than this. The needs of export activities are often quite distinct. The specific rules, infrastructure, skills, and technological mastery that export activities require tend to be different from those needed for the non-tradable activities that usually generate the bulk of a place’s employment. While diversification into new areas is always challenging, it is particularly difficult for tradable activities, which have to face foreign competition from the start. By contrast, pioneers in non-tradable activities start with a captive market. Moreover, exporters need particularly strong connections to knowhow found elsewhere on the planet, thus making them more sensitive to foreign investment, migration, and international professional links.

To survive and thrive, societies need to pay special attention to those activities that produce goods and services they can sell to non-residents. Indeed, the need to act on new export opportunities and remove obstacles to success is probably the central lesson from the East Asian and Irish growth miracles.

Non-tradable activities are akin to a country’s sports leagues: different people like different teams. Those engaged in tradable activities are like the national team: we should all root for them – and organize ourselves to make sure they succeed.

Project Syndicate

16 | Business Daily

November 30, 2015

Closing Yangtze’s tributary works starts for hydro development

SpiceJet says it’s received interest from Gulf airlines

Work began yesterday on the world’s second tallest earth-filled dam on the Yalong River in southwest China’s Sichuan Province. A 295-meter embankment dam, which is on a tributary of China’s longest river, the Yangtze, will support a 3,000 MW power station. Chen Yunhua, chair of Yalong River Hydro-Power Development, said 43 million cubic meters of earth would be needed for the project.

Work on the 66.4 billion yuan (about US$10 billion) Lianghekou dam started in October last year.

Chen said that the reservoir project would reduce the amount of silt collected at the Three Gorges Reservoir, the world’s largest hydro-power plant.

Indian budget carrier SpiceJet Ltd., which has surged more than 280 percent this year, said it’s received interest from Gulf airlines looking to acquire a stake. “Some of the Gulf airlines have expressed an interest in SpiceJet as we have come back into the market, but this is not the right time to be diluting the equity,” Chairman Ajay Singh said in Dubai Sunday, without naming the companies. “There is some dialogue which is on-going and we continue to explore other types of relationships we could have,” he said, adding now isn’t the right time to sell a stake as the shares remain undervalued.

Africa to focus on China debt at Johannesburg summit China is Africa’s largest trading partner and the trade volume between them amounted to US$220 billion in 2014

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ome African countries may seek to renegotiate repayment of existing debts to China as a way of helping their economies hit by lower crude and commodity prices, but will not turn down offers of new loans by the Asian giant at a summit this week.

African countries will also seek more Chinese investment in factories manufacturing goods for export in addition to roads and railways on a continent long seen as a major commodities and energy source for China.

Chinese state-owned firms in Africa face criticism for using Chinese labour to build government-funded projects like roads and hospitals, while pumping out resources and leaving little for local economies, an image Beijing wants to change at the Forum on China-Africa Cooperation in Johannesburg (pictured) on December 3-4.

China President Xi Jinping visits Zimbabwe on December

1-2 and South Africa on Dec. 2-3, before co-chairing the conference in Africa’s most industrialised economy which several African heads of state are expected to attend.

Experts are confidently expecting China to push ahead with new loan and trade proposals for the continent despite its own slowing economy.

China is Africa’s largest trading partner and the trade volume between them amounted to US$220

First regional jet developed in China delivered

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of African students and increase technology transfer.

Zhang Ming, a Chinese vice foreign minister, said last week that Beijing would continue to provide support and loans to the continent which supplies oil and raw materials such as copper and uranium to the world’s second-largest economy.

Africans broadly see China as a healthy counterbalance to Western influence though Western governments charge China of turning a blind eye to

billion in 2014, according to China state news agency Xinhua. Its investments in Africa amounted to US$32.4 billion at the end of 2014, according to London-based BMI Research.

It has offered loans totalling US$32 billion to African nations in the past two years but there is concern that the continent is not benefiting from developing skills or technology from the Asian economic giant, despite its pledges to train thousands

conflicts and rights abuses on the continent as they pursue trade and aid policies there.

Deeper into debt

Martyn Davies, Managing Director for Emerging Markets & Africa at Deloitte, said African countries could push for loan moratoriums following weak metal and crude prices that have weakened their currencies.

From Nigeria in the west to Zambia in the south, currencies have all fallen sharply to the dollar.

Some also see China’s future investment tone changing.

Its investments on the continent range from Zambian power plants, Egyptian trade deals, cobalt mines in Congo, rail links in East Africa and infrastructure in Equatorial Guinea.

But China’s direct investment in Africa has fallen roughly 40 percent in the first half of 2015 to US$1.19 billion, China’s commerce ministry said on November 17.

“China is reaching a mature phase of its investment cycle in Africa,” Francesca Beausang, head of Africa Research at BMI Research said in a note. “Our infrastructure team’s longstanding view is that China will refocus infrastructure investment away from Africa toward developed markets.”

Brokerage firms probed on alleged margin breach

Australia’s gold miners encouraged to dig deeper

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hina’s first commercial regional aircraft, the ARJ21, was delivered yesterday.

The passenger plane, produced by the Shanghai-headquartered Commercial Aircraft Corp. of China (COMAC), was bought by Chengdu Airlines.

Xiangfeng (Flying Phoenix) is a 90-passenger capacity twin-engine jet, with a standard range of 2,220 kilometres. It is expected to fly busy routes such as Chengdu-Beijing and ChengduShanghai.

COMAC has received more than 300 orders from 19 airlines, including three from the Republic of Congo.

The plane is China’s first regional jet to be manufactured according to international standards.

Following its maiden flight in 2008, it was put through six years of gruelling tests before being awarded airworthiness certificates from the Civil Aviation Administration of China, and U.S. Federal Aviation Agency.

The jet will also inform the development of China’s first large passenger aircraft the C919.

“The [airplane programs] show that China’s aviation industry is taking shape to compete with its western counterparts,” said Luo Ronghuai, chief commander of the ARJ21 development project.

hina’s securities regulator is investigating Citic Securities Co., Haitong Securities Co. and Guosen Securities Co. over alleged breaches of rules on margin and short-selling contracts.

The China Securities Regulatory Commission probes involve contracts the three brokerages signed with clients on margin finances and short-selling, according to exchange filings by the companies yesterday. The firms said their operations will remain normal and they will cooperate with the regulator.

Shares of Chinese brokerages led a decline in China stocks on Friday, with Citic down by the 10 percent daily limit in Shanghai. Haitong shares dropped 3.8 percent before trading was suspended in Hong Kong. Both companies said they received notices from the CSRC on Nov. 26 about the probes. Guosen Securities closed 10 percent lower on Friday in Shenzhen.

The Chinese government has stepped up its clampdown on malpractice in the securities industry after a US$5 trillion stock-market rout this summer. The crackdown since the sell-off has ensnared executives and regulators. The Securities Association of China on Friday banned brokerages from entering into new client contracts that use derivatives to provide financing in stock trading.

Xinhua

Bloomberg News

Reuters

old miners in Australia, emboldened by a weakening currency, have been increasing production in the face of a global rout in the precious metal, figures released yesterday showed.

Output by the world’s no. 2 producer behind China climbed to 72 tonnes in the third quarter, up 1 percent up on the previous quarter and 2 percent higher than the same period a year ago, according to a survey by sector consultants Surbiton Associates.

“The declining value of the Australian dollar has once again been the great saviour of our gold sector and of the local resources industry in general,” Surbiton director Sandra Close said.

The value of Australian dollar over the third quarter declined from around 77 U.S. cents to around 70 U.S. cents.

The weaker currency translated into a A$20 lift in the average gold price over the quarter for Australian producers versus the previous period to A$1,550 per ounce, Close said.

At the current exchange rate of about 72 U.S. cents, the local gold price sits at A$1,468.99 per ounce.

U.S.-dollar spot gold fell nearly 2 percent to a near six-year low of US$1,052.46 an ounce on Friday, which analysts attributed to a strong U.S. dollar and prospects of a U.S. interest rate rise in December.

Reuters