MOP 6.00 Closing editor: Oscar Guijarro
HK International Airport ferries reduced due to runway expansion
China’s bet on electric car to gain momentum
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Year IV
Number 943 Thursday December 17, 2015
Publisher: Paulo A. Azevedo
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Yuan and yen to deflect Fed hike
Hazard Ahead
A local motor traders’ chamber anticipates plunging sales. With 30 pct fewer new vehicle sales next year. This, following the enactment of a substantial increase in motor vehicle tax. Which the Legislative Assembly is to approve today. The swingeing increases could force small-scale companies out of business, says Patrick Tse Ka Ming, president of the Macau Motor Traders Association. And predicts that the luxury sector will be affected most Page
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Stabilising growth 2016 growth projected at 6.8 pct. According to China’s central bank’s baseline forecast yesterday. It expects positive factors to increase despite downward pressure on the economy. The rate is slightly lower than the central bank’s forecast for 2015, per the People’s Bank of China
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HSI - Movers December 16
Cultural heritage newcomers The gov’t has unveiled a list of 10 properties. All proposed as sites to be preserved. Only one is a private property. A Portuguese-style building situated on Rua Manuel de Arriaga on the Macau Peninsula
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Name
Power plot
The gov’t has approved construction of a new power substation. On a site near the Macau Peninsula reservoir. Formerly greenlighted by disgraced ex-Public Works Secretary Ao Man Long for businessman Pedro Chiang’s villa project
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Source: Bloomberg
Politics
Maritime zone demarcated
I SSN 2226-8294
The decision has been made. Beijing has approved the demarcation of 85 sq kms of MSAR’s territorial waters. Future reclamation plans will still have to be reported to Beijing. With gaming projects strictly off limits
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December 17, 2015
Macau
CEM is to pay the Macau Government over MOP6.15 million (US$770,975) in premium for the substation project, for which the site was granted with exemption of an open bid
TurboJET ordered to reduce Macau-Hong Kong airport ferry frequency Major rival for the Hong Kong-Macau ferry market, Cotai Water Jet, will also adjust the schedule for its route between Hong Kong International Airport and Taipa Temporary Ferry Terminal
Business Daily | 3
December 17, 2015
Macau
Alipay Barcode Payment service restricted from handling gaming-related payments
4 | Business Daily
December 17, 2015
Macau
85 sq km of territorial waters demarcated for city
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he central government of China has approved the demarcation of 85 square kilometres of territorial waters for the MSAR. However, for future
reclamation plans the local government will still need the nod from Beijing. The news was announced by Chief of the Office of the Chief Executive O Lam,
the Secretary for Security Wong Sio Chak and Marine and Water Bureau director Susana Wong Soi Man at a press conference last night. According to Ms. O,
the local government will still need to report to the central government if it wants to undertake further reclamation in the new territorial waters “as the
Government eases import requirements for US beef The policy to open the market further to beef products from the United States was revealed in a report by the Foreign Agricultural Service
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he Macau Government has decided to ease conditions for the importation of beef products from the United States and grant them full market access, according to the Foreign Agricultural Service (FAS), a body that is part of the American Department of Agriculture. ‘Prior to November 7, 2015, Macau only allowed market access for bone-in U.S. beef products originating from animals under 30 months of age and boneless beef from animals regardless of age. Following recent negotiations that opened the market to bone-in beef products derived from cattle over 30 months of age as well as ground beef and offal, regardless of age, Macau has granted full market
access for U.S. beef products’, FAS explained in a report. Usually the beef imported by Macau from the United States is shipped to the territory as transshipment through Hong Kong. However, some restrictions regarding some products still apply. ‘Mechanically separated meat, lean finely textured beef (LFTB), scrap meat, trimmings or other pieces (whether with or without bone) from skeletal muscle indistinguishable from beef trimmings, and product from advanced meat recovery systems remain ineligible for export to Macau’, it is noted. According to the FAS report, last year Macau imported US$8.66 million-worth (MOP69.13 million)
of beef and beef products from U.S., accounting for a market share of 27.8 per cent, and making the country the second largest supplier of beef products to the city. During 2014, the total value of imports of beef and beef products amounted to US$31.15 million, an increase of 35.1 per cent from US$23.05 million in 2013. However, Brazil is the largest exporter of beef and beef products to the territory, ahead of the United States, having exported US$9.95 million to Macau during the last year and a share of 31.9 per cent. In 2014, Japan was the third largest exporter in the amount of US$3.25 million, which means a share of 10.4 per cent. J.S.F.
geographic location of local waters is important to the whole Pearl River.” In addition, she said that future reclamation in territorial waters cannot be used for gaming projects as restricted by the Chinese State Council. The new demarcation will also grant local government the power to handle security and monitor sailing activities in local waters. Besides granting territorial waters, the Chinese authorities have also demarcated new land boundaries for the city, giving the local government administrative rights to the land plot of the Border Gate checkpoint. The city has rented the plot from the Chinese government since 2002. Both the new maritime and land demarcation for the Special Administrative Region will come into effect on December 20, at which time the State Council will release the new map showing the city’s new boundary lines. Last December, Chinese President Xi Jinping first gave the city approval to conduct a study on the jurisdiction of its own waters during his visit to the territory for the 15th anniversary of Macau’s handover. The local government, meanwhile, officially filed its request for administrative rights over its waters at the end of September. K.L.
Cheong U appointed advisor to Sonia Chan
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he former Secretary for Social Affairs and Culture Cheong U has been appointed advisor to the office of the Secretary of Administration and Justice, Sonia Chan, it was revealed yesterday in the Macau Official Gazette. Mr. Cheong U will assume his new position for one year starting 20 December, the day of the celebration of Macau’s handover. The dispatch was signed on 9 December by the Chief of the office of Sonia Chan, Iao Man Leng. Cheong U was appointed head of the Commission Against Corruption after the handover, a position he retained until 2009. In that year, he was appointed Secretary for Social Affairs and Culture and stayed in that position until 2014, before being succeeded by Alexis Tam.
Business Daily | 5
December 17, 2015
Macau
Gov’t identifies properties of “important cultural value” The Cultural Affairs Bureau has introduced 10 properties to be classified as having important cultural value, which will now go through public consultation João Santos Filipe
jsfilipe@macaubusinessdaily.com
Building number 28 at Rua Manuel de Arriaga
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he yellow building on the Rua Manuel de Arriaga is the only private property among a list of 10 properties suggested by the Cultural Affairs Bureau (IC) to be protected because of their cultural value, but will not be included on the Cultural Heritage List. The buildings are considered to be of “architectonic interest” IC president Guilherme Ung Vai Meng said yesterday during a press conference announcing the properties. From the selected buildings, seven are to be classified as monuments, according to the Cultural Heritage Protection Law. The
seven monuments include four temples all named Foc Tac Chi on the following streets: Bairro da Horta, Rua do Teatro, Rua do Patane, and Rua do Amirante Sérgio. The old walls built to protect the city by the Portuguese, the old Chong Sai pharmacy (where Sun Yat Sen worked while in Macau), and the old residence of Chinese General Ye Ting were the remaining properties to be classified as monuments of important cultural value. The list also includes three properties to be classified as having “architectonic interest”, which besides the building on Rua de Manuel
Arriaga include the Dog Kennel and Bovine Cattle Stable, and the Blue House, which is the headquarters of the Social Welfare Institute of Macau. “The decision to choose these properties was taken after considering both Western and Eastern cultural values and also the urgency of preserving these buildings”, said Ung Vai Meng.
to protect and classify as of “important cultural value”. Of the 70 properties, Ung Vai Meng said that half are controlled by private parties. According to the Cultural Heritage Protection Law, the private owners of classified properties are obliged to guarantee the preservation of the properties and have to finance the process by themselves. For its part, the government provides technical assistance for the preservation of the properties, and, when proved that the owners do not have the financial capacity to pay for the maintenance of properties, may provide financial assistance.
The process of the classification of these properties will go through public consultation from 28 December to 25 February,
totalling 60 days. This process - expected to be completed in 12 months - involves listening to the opinions not only of the public but the property owners and of the Cultural Heritage Council. The IC president also explained that in spite of listening to the different opinions, in the end the final decision belongs to the government, which means that the government is not obliged to follow the opinions of the various parties. The list presented yesterday to the general public is the first part of a longer list comprising around 70 properties that the IC wants
Blue House
Foc Tac Chi Temple at Rua do Teatro
Foc Tac Chi Temple at Rua do Almirante Sérgio
Old Residence of General Ye Ting
Old Walls of the City
Foc Tac Chi Temple at Bairro da Horta da Mitra
Foc Tac Chi Temple at Rua do Patane
70 properties to be suggested
Old Pharmacy Chong Sai
Municipal Dog Kennel
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December 17, 2015
Macau O Tin Lin assumes leadership of Economic and Trade Office in EU
O
Tin Lin has been appointed interim head of the Macau Economic and Trade Office in Lisbon and Brussels for one year. The latter represents the Special Administration Region in the European Union. The decision was revealed yesterday in the Official Gazette and takes effect on 20 December. O Tin Lin is assuming the position vacated by Maria Gabriela
dos Remédios César, who in 2014 was appointed to replace the current Secretary for Transport and Public Works, Raimundo Rosario. O Tin Lin has been a public servant since 1982 and during the Portuguese administration served in many positions as interpreter and translator. She has been working in the Macau Economic and Trade Office in Lisbon since 2000.
BlackRock substantial shareholder of Aristocrat Leisure
Suspended U.N. B diplomat cites immunity in U.S. bribe case
lackRock Group has become a substantial shareholder of slot machine maker Aristocrat Leisure, according to a filing sent to the Australian Securities Exchange by the Australian manufacturer. According to the document, BlackRock Group, an investment management corporation based in the United States, completed the process on December 10 and holds
Nate Raymond
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suspended deputy U.N. ambassador from the Dominican Republic has asked a U.S. judge to dismiss an indictment accusing him of participating in a bribery scheme, saying he has diplomatic immunity. A lawyer for Francis Lorenzo (pictured), 48, filed papers in federal court in Manhattan late on Monday, asking U.S. District Judge Vernon Broderick to dismiss charges including bribery and money laundering facing the diplomat. He is one of six individuals facing charges in connection with an alleged scheme to pay more than US$1.3 million in bribes to John Ashe, a former U.N. ambassador from Antigua and Barbuda and onetime General Assembly president. In the filing, Lorenzo’s lawyer, Brian Bieber, cited Lorenzo’s status as a deputy ambassador to the United Nations at the time of his Oct. 6 arrest and during the period of alleged wrongdoing in the indictment.
“As such, Lorenzo is protected from prosecution by virtue of his diplomatic agent immunity,” Bieber wrote. Lorenzo was suspended after the charges were announced. Broderick ordered prosecutors on Tuesday to respond by Jan. 5. A spokesman for Manhattan U.S. Attorney Preet Bharara, whose office is pursuing the charges, declined comment. Prosecutors alleged that Ashe, 61, took more than US$1.3 million in bribes from Chinese businessmen, including billionaire Macau real estate developer Ng Lap Seng. The prosecutors said Ng, through intermediaries, paid Ashe more than US$500,000 to seek U.N. support of a U.N.-sponsored conference center in Macau. Authorities said the intermediaries included Lorenzo, who prosecutors said also received bribes from Ng, and Jeff Yin, Ng’s assistant.
Ashe also received more than US$800,000 from Chinese businessmen to support their interests within the United Nations and Antigua, prosecutors said. The question of the extent Ashe and Lorenzo have diplomatic immunity and its effect on any charges has loomed over the case. Ashe, who was General Assembly president from 2013 to 2014, has to date only been charged with tax fraud, with prosecutors citing his possible diplomatic immunity as a potential obstacle to charging him with bribery. Assistant U.S. Attorney Janis Echenberg told a hearing on Oct. 26 that prosecutors were “looking carefully” at the immunity issue and would likely bring additional charges, a position she reiterated at a hearing last Thursday. Ashe’s lawyer, Herve Gouraige, told Thursday’s hearing his client does have immunity. Reuters
31,963,083 ordinary shares in Aristocrat Leisure, amounting to 5.01 per cent of the vote rights in the Australian company. According to the financial results of fiscal 2015, Aristocrat generated an EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) of AU$523.1 million (US$376 million), up 138.5 per cent from AU$219.3 million in 2014.
Success Dragon eyes 30 pct market share in Vietnam by 2017
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hairman and CEO of Hong Kong-listed Success Dragon International Holdings Ltd., Carlos Luis Salas Porras, said his company would like to see its share of the market for electronic gaming machines in Vietnam increase from the current 7 per cent to 30 per cent by 2017. Speaking at a press briefing yesterday, Mr. Porras said his company is still provisioning the management services for electronic gaming equipment in Macau. But Success Dragon will also look at developing its services in overseas markets,
notably in Cambodia, Sri Lanka and India. Having registered an interim loss, Mr. Porras said he expected the company’s financials would improve in the next financial year with expected returns on its investment in Vietnam. Last week, the company said it had entered into two agreements to manage electronic gaming machines in gaming clubs in two 5-star hotels in Vietnam. Success Dragon, which was known until last week as C Y Foundation Group Ltd, saw its stock short name change yesterday.
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December 17, 2015
Gaming opinion Crown Resorts shareholders should beware a stacked deck David Fickling Bloomberg
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rofessional gamblers know the house always wins, but markets are meant to be a bit more balanced. Minority shareholders in Crown Resorts, the casino company controlled by Australian billionaire James Packer, should resist any attempts to stack the deck. Packer is in talks to return some of his casino assets to private ownership, people with knowledge of the matter told Bloomberg’s Brett Foley, Dinesh Nair and Nabila Ahmed yesterday. Crown Resorts’ shares surged as much as 15 percent, presumably on expectations of a nice special dividend should the buyout eventuate. Longer-term investors should think hard about what they’ll be left with afterward. There are parts of Crown’s portfolio that would be well suited to a life out of the limelight. The company has a 34 percent stake in Melco Crown Entertainment, operator of Macau’s City of Dreams and Studio City resorts. Melco Crown should have staying potential as Macau continues to develop into China’s very own Las Vegas, but there’s no denying it’s struggling at the moment amid a 32 percent downturn in casino revenue. Then there are Crown’s plans to develop a A$2 billion (US$1.4 billion) casino targeting high-rollers on the shores of Sydney Harbour by 2019, and to contribute another US$400 million to US$500 million to a US$1.6 billion to US$1.9 billion resort on the dicier, less-trafficked northern fringes of the Las Vegas Strip. And let’s not forget the 20 percent stake in the Nobu luxury restaurant chain the company picked up for a cool US$100 million in October. These are the sorts of businesses -- potentially attractive in the long term but ugly in the short term -- that could shelter quite happily away from public markets. Cashflows from Melco Crown could be used to help fund the development projects, perhaps with some contribution from continuing equity stakes in the Melbourne and Perth casinos. What’s odd about Packer’s current plans is that he appears to have precisely the opposite idea. If he’s planning to take Crown’s casino assets private, he can only be thinking about the Melbourne and Perth resorts that contribute the overwhelming majority of group earnings. What would Crown Resorts look like without those two units? A fat sheaf of bills, and a more slender pile of invoices. Shareholders in the stub will continue to receive dividends equivalent to about 10 percent of Melco Crown’s net income, thanks to their 34 percent stake in the company and its 30 percent dividend pay-out policy. But the A$159 million that’s being spent on Crown Sydney in the current fiscal year alone represents a larger slice of cash than they’ll receive from Melco between now and 2019, based on analyst estimates of US$1.41 billion in net income over the period: The Melbourne and Perth casinos may be somewhat less exciting than Crown’s development projects, but dullness is a big part of their appeal. High-rollers bet a lot of money (Packer’s father Kerry was a legendary whale over four decades), but the margins on their wagers are thin and highly volatile. Much better to depend on the little guys: Australians are the world’s biggest gamblers with about A$1,000 of annual gambling losses per capita, and more than two-thirds of Crown’s revenue last year was provided by the main gaming floor and non-gambling activities such as restaurants and shows. Gambling is an addictive activity like smoking, so tends to be a highly defensive business. Bluntly, a Crown Resorts without its two main casinos would be so implausible as a business model that it’s probable Packer has something else up his sleeve, if only to protect the value of his own 50 percent shareholding against a wave of selling by irate minority shareholders. Credit investors are already forking out more to protect against non-payment of Crown’s debt, spooked by the slowdown in Macau and Packer’s decision to step down as group chairman in August. Packer is known for being somewhat media shy -- understandable, given the wide coverage of his brawl last year with a television executive outside his Bondi pad and a relationship with songstress Mariah Carey that’s regularly splashed across magazine covers. A take-private deal might be an attractive way for him to stay away from the paparazzi. Shareholders should make sure it doesn’t happen at their expense.
Packer purportedly in talks to take Crown Resorts assets private Billionaire’s closely held investment vehicle has been tightening its grip on Crown in recent weeks Brett Foley, Dinesh Nair and Nabila Ahmed
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ames Packer, Australia’s thirdrichest man, is in talks to return some of Crown Resorts Ltd.’s casino assets to private ownership, people with knowledge of the matter said. Crown Resorts shares surged the most in almost seven years. Packer’s Consolidated Press Holdings Pty has been speaking with private equity firms and pension funds about a possible joint bid for some assets of his publicly traded Crown Resorts, which has a market value of A$8.6 billion (US$6.2 billion), according to the people. A deal hasn’t been finalized, and the talks may still fall through, the people said, asking not to be identified because the information is private. Shares of Crown Resorts, which runs casinos in Melbourne and Perth, have fallen 33 percent from a February high in Sydney trading through Tuesday.
Cutting costs
Teaming up with private equity firms would help Packer strip out costs and ride out the tougher periods away from the glare of public markets, Lucas said. Crown shares rose 11 percent, the biggest gain since March 2009, to close at A$11.77 in Sydney yesterday. Consolidated Press, Packer’s closely held investment vehicle, owns a controlling stake in Melbournebased Crown Resorts, according to data compiled by Bloomberg. The billionaire stepped down as chairman of Crown Resorts in August to focus
on developing the company’s new projects, which include a casino under development in Las Vegas and a hotel for high rollers on the Sydney harbour. Packer remains a director of the company. Consolidated Press did not respond to an e-mail seeking comment. Crown Resorts Chief Financial Officer Ken Barton didn’t immediately respond
Macau has been a massive issue. Melco Crown has been part of the reason Crown has suffered so badly Evan Lucas, market strategist, IG Ltd., Melbourne
to an e-mail and a message left at his office seeking comment. Consolidated Press has been tightening its grip on Crown in recent weeks. According to a November filing, it bought about 22 million more shares to take its stake to 53 percent. Crown’s profit in the 12 months ended June slumped 41 percent to A$385 million, dragged down by slimmer contributions from Macau, which has seen casino revenue falling for the 18th straight month in November. In Sydney, Crown is building a luxury hotel and gaming resort at Barangaroo near the Sydney Harbour Bridge in a bid to attract the world’s richest travellers and gamblers. Crown has said it expects to spend about A$657 million on the project in the next three years. Days before Studio City opened, Crown said any focus on the slowdown in Macau was “short sighted” and the company had “great faith in its long-term development.” Bashed by investor concerns over Macau, Crown shares are now undervalued, said Brian Han, an analyst at Morningstar Inc. in Sydney. Any plan by Packer to buy them back would have “economic logic,” he said. “We are long-term believers,” Han said by phone. “Macau will be a big and very sustainable mass market. Right now, it’s dominated by VIPS -- and we all know why they’re not gambling these days. They just don’t want any attention.” Bloomberg News
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December 17, 2015
Greater China
2016 growth may slow to 6.6 percent, state academy says Property prices will become a “growth stabilizer” as real estate investment rebounds
This is very close to what the government would like to see… They’ve already made it clear that 6.5 percent is the minimum growth they will accept, and they’ll build some buffer President Xi Jinping said gross domestic product gains in the next five years should average at least 6.5 percent per year
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hina’s economic growth will slow next year to between 6.6 and 6.8 percent and the central bank should continue to apply “structurally loose” monetary policy, according to the country’s top government-backed research organization. The Chinese Academy of Social Sciences (CASS) forecast consumerprice inflation would accelerate to 2.1 percent next year, a level last seen in mid-2014, while factory-gate
deflation would extend its record stretch to more than four years, according to a statement released at a briefing yesterday in Beijing. The think tank last year projected 2015 growth of 7 percent, then cut the estimate to 6.9 percent in the middle of this year. Challenges are mounting for the Communist Party as it moves to an economy based more on services and less on infrastructure investment and exports. President Xi Jinping said
Ding Shuang, chief China economist, Standard Chartered
gross domestic product gains in the next five years should average at least 6.5 percent per year. Economists surveyed by Bloomberg see expansion slowing to 6.5 percent next year and see the deceleration continuing until at least 2018. “This is very close to what the government would like to see,” said Ding Shuang, chief China economist at Standard Chartered Plc in Hong
PBOC makes domestic junk bonds more resilient than U.S. peers Premier Li Keqiang has said he would allow more defaults while preventing systemic risks Lianting Tu
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hinese junk bonds are getting some help from the nation’s central bank, making them more resilient if not immune to the global swoon in the riskiest debt ahead of the Federal Reserve’s interest rate decision. While the average yield on Chinese firms’ speculative-grade notes in dollars has risen 30 basis points in the past 30 days to a two-month high of 8.84 percent, that’s less than the 79 basis point jump in similarly rated securities in the U.S. to 8.97 percent, according to Bank of America Merrill Lynch indexes. In China’s onshore market, the yield on fiveyear securities with local ratings of AA-, considered junk in the nation, has dropped 20 basis points in the period to a more than six-year low of 4.67 percent, according to ChinaBond data. The relief for Chinese borrowers comes as the People’s Bank of China seeks to get more money into an economy growing at the weakest pace in a quarter century, just as the Fed considers raising interest rates for the first time in almost a decade.
The PBOC has reduced interest rates six times since November 2014 by a total 1.65 percentage points to 4.35 percent, helping limit the impact of at least seven local note defaults this year. “China’s risky bonds are facing more pressure and investors are
worried,” said Liu Dongliang, a senior credit analyst at China Merchants Bank Co. in Shenzhen. “Yet China is in a different monetary policy cycle than the U.S. and the government has more room to cut rates and bank reserve ratios to counterbalance any potential risks.”
Kong. “They’ve already made it clear that 6.5 percent is the minimum growth they will accept, and they’ll build some buffer.” The CASS researchers predicted a “slow bull” market for the nation’s benchmark equity gauge, with the Shanghai Composite Index fluctuating between 3,200 and 4,000. Shares have advanced 8.7 percent this year through yesterday’s close at 3,516.19 after soaring as much as 60 percent then plunging from the peak in June. The CASS report also called for increasing the yuan’s exchange-rate flexibility and introducing a broader target range for the currency, also known as the renminbi. Property prices will become a “growth stabilizer” as real estate investment rebounds, the researchers said in their annual report. The research group also said the government should expand the fiscal deficit next year while avoiding largescale stimulus, and that 2016 tax revenue growth will be slower than the economic expansion. Earlier yesterday, Wang Baoan, head of the National Bureau of Statistics, wrote in an article published by the official Xinhua News Agency that the world’s second-largest economy faces challenges from falling potential growth and other structural problems. Bloomberg News
Premier Li Keqiang has said he would allow more defaults while preventing systemic risks. More companies are reneging on obligations after authorities allowed the first nonpayment in the onshore market last year, when Shanghai Chaori Solar Energy Science & Technology Co. missed payment on notes. Ordos City Huayan Investment Group Co., based in the northern region of Inner Mongolia, said last week that it was uncertain if it could repay investors who have opted to redeem 1.14 billion yuan (US$176 million) of notes on Dec. 17. Firms in China scrapped or delayed at least 12.7 billion yuan of bond sales this month as more companies flagged default risks, after some 60 billion yuan of cancelled offerings in November, according to a Dec. 15 report from Hua Chuang Securities Co. The government’s desire to maintain calm in the financial system has assuaged concerns about Chinese firms, which have the world’s biggest corporate borrowings. At the same time, investors in overseas markets have grown more nervous after Third Avenue Management froze withdrawals from a US$788 million credit mutual fund. The average yield on U.S. highyield debt rose above that for similar Chinese corporate securities in dollars for the first time since 2009 last month, the Bank of America indexes show. “Big scale defaults are unlikely because the excess capacity will be cleared out slowly,” China Merchants Bank’s Liu said. “Local governments have incentives to bail out firms in their regions to maintain economic growth.” Bloomberg News
Business Daily | 9
December 17, 2015
Greater China COFCO in talks to take full ownership of Noble’s agribusiness
Hon Hai formally offer to invest in Sharp
The expected deal would enable Noble’s chief executive Yusuf Alireza to follow through on his November commitment to raise US$500 million Anshuman Daga and Sarah McFarlane
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hina’s food giant COFCO is in advanced talks to take full ownership of Noble Group’s agribusiness, three sources said, a move which would cement its newfound strength in global agriculture markets and help bolster Noble’s balance sheet. The sources said COFCO was in talks to buy the remaining 49 percent of Singapore-listed Noble’s agribusiness for around US$700-US$750 million, having already acquired a 51 percent stake in April 2014 for US$1.5 billion. Noble confirmed in a Singapore Exchange (SGX) announcement that it was in advanced discussions with potential buyers on the sale of its 49 percent agribusiness stake and other strategic transactions. “No definitive or legally binding documents have yet been signed,” it added. For COFCO, a deal would reinforce its position among the world’s top global agricultural traders, rivalling the “ABCD” quartet of companies -- Archer Daniels Midland, Bunge, Cargill and Louis Dreyfus.
One source said that the big difference in the values between the first deal and a potential second deal showed COFCO had overpaid for the initial 51 percent stake, but could now mitigate that by paying a lower price for the remainder. The expected deal would enable Noble’s chief executive Yusuf Alireza to follow through on his November commitment to raise US$500 million, seeking to retain the company’s investment grade credit rating and repair investor confidence after a bruising accounting dispute. Shares in Asia’s biggest commodity trader have shed around two-thirds of their value since mid-February when blogger Iceberg Research alleged the company was inflating its assets by billions of dollars by not fairly representing the value of its commodity contracts. Noble rejected the claims and board-appointed consultant PricewaterhouseCoopers found no wrongdoing in a report published in August.
The talks with COFCO may or may not result in a deal, however, two sources said they expected a deal to be announced imminently. One said it could be wrapped up by the end of the year and could include an earn out clause based on sugar prices. The final value of any deal is also subject to change. The deal would take COFCO’s investments in international grain trading in the past two years to around US$3.5 billion, including its 51 percent stake in Dutch grain trader Nidera. COFCO is expected to raise its stake in Nidera by a further 15 percent in 2016 as part of an earn out clause after Nidera missed targets in its results following the deal. The investments give COFCO assets in some of the world’s top grain and vegetable oil producing regions, including Brazil, Argentina, Indonesia and the Black Sea area, whilst enabling it to bring food supply to China independently of the dominant ABCD operators. Reuters
State Power to buy IFM Australia’s wind portfolio
Byron Kaye
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The sale comes at a sensitive time for the Australian government
Rakuten to open online flagship store in mainland Rakuten, Japan’s e-commerce market leader, and JD.com, China’s leading direct online sales company, on Wednesday announced the signing of an agreement to establish a Rakuten online flagship store on JD Worldwide, JD.com’s cross-border platform. Rakuten launched a beta version of a new online marketplace on JD Worldwide this month. Plans are underway to expand the merchandise range over time, with an initial focus on categories such as cosmetics, snacks and health food products, said Rakuten in a release. Expansion of the product line-up will continue over the coming months, said Rakuten.
Sinosteel to extend bond redemption period for 3rd time Sinosteel, a state-owned steelmaker, said yesterday it will extend the registration period for early redemption on a putable bond that investors could originally elect to redeem in mid-October until December 30. The statement posted on the website of one of China’s main bond clearinghouses marked the third time Sinosteel has extended the redemption period. The latest extension comes after Sinosteel had asked bondholders of its 2 billion yuan (US$309 million) October 2017 bond not to exercise a put option on Oct. 20, because the company would not be able to make a full payment, according to a letter seen by Reuters.
The wind farm sale also marks a major downgrade of Australian investment in wind energy, just days after Canberra signed up to a United Nations climate pact to scale back fossil fuels and boost renewables
hina’s State Power Investment Corp will buy several wind farms from Australia’s largest pension fund investor, IFM Investors, a source told Reuters on Wednesday, in a sale that media had said would raise about A$1.5 billion (US$1 billion). The Chinese government investment body won a months-long auction for the wind farms in Australia and South America from a pool of 10 bidders because it made the only offer to buy the entire portfolio, the source said, without giving a sale price. IFM and State Power representatives were not immediately available for comment. The source, who had direct knowledge of the deal, declined to be identified because it had not been made public. The sale comes at a sensitive time for the Australian government and its handling of Chinese governmentlinked buyouts of infrastructure. In October, the A$506 million privatisation sale of Port of Darwin to China-owned Landbridge earned
Taiwan’s Hon Hai Precision Industry Co offered last week to invest in struggling Japanese display maker Sharp Corp, a source with direct knowledge of the matter said yesterday. Sharp is still trying to turn around its business despite a US$1.7 billion rescue in May, its second major bailout in three years. Sharp and its main lenders are now considering multiple proposals from Hon Hai, also known as Foxconn, including financing for its display operations and an investment in the overall business, the source said.
rebukes from opposition politicians and even U.S. lawmakers, who warned the deal could threaten national security. The federal government has since said it is reviewing the approval process for asset sales to offshore firms, while a senate inquiry is calling on bureaucrats to explain why the Port of Darwin sale was allowed to go through. The wind farm sale also marks a major downgrade of Australian investment in wind energy, just days after Canberra signed up to a United Nations climate pact to scale back fossil fuels and boost renewables. In September, energy retailer AGL Energy Ltd said it sold a half-stake in Australia’s largest wind farm for A$532 million. The IFM portfolio, Pacific Hydro, has wind farms in Australia, Brazil and Chile, according to its website. Australian media has reported that the bidding pool included parties from Australia, France, Spain and Japan. Reuters
China Postal Airlines orders ten 737-800s says Boeing U.S. aircraft maker Boeing Co has signed a deal to supply 10 737-800 passengers jets converted into freighters to cargo carrier China Postal Airlines. Boeing said in a statement that the Chinese airline also agreed to buy seven Boeing 757200 passenger jets, which it will convert into freighters, as part of a deal signed on Tuesday. Financial terms weren’t disclosed. The U.S. aerospace firm has yet to launch a formal programme to convert older 737-800 passenger jets into freighters. But China Postal joins Hangzhou-based YTO Airlines as a launch customer for the converted aircraft.
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December 17, 2015
Greater China
Beijing placing US$15 billion bet on electric vehicles The central government released a plan yesterday detailing funding for local governments to construct charging facilities
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hina has found electric cars a tough sell even after lavishing consumers with subsidies and privileges. After almost certainly failing to meet a target to have half a million of such vehicles on its roads by year end, its next act is to achieve a 10-fold increase by the end of the decade. The electric vehicles in service will fall about 26 percent short of its year-end target, according to estimates from the science ministry and state-backed auto association. To meet its 2020 goal of five million EVs, the government will speed up the construction of charging stations, reducing a major inconvenience for urban residents who don’t have personal garages to charge their cars. “China will be the epicentre for electrification of the auto industry globally,” said Bill Russo, Shanghai-
There is really no choice for the automakers, if they are required to meet the more stringent emission standards by 2020 Steve Man, analyst, Bloomberg Intelligence
based managing director at Gao Feng Advisory Co., who estimates that China would have invested 100 billion yuan (US$15.5 billion) by 2020 on new-energy vehicles. President Xi Jinping has designated electric vehicles as a strategic initiative in a bid to upgrade the auto industry and create challengers to Toyota Motor Corp. and General Motors Co. The government is increasing spending after signs that the combination of research grants, consumer subsidies and infrastructure investments is starting to yield results. New- energy vehicle production surged fourfold to 279,200 units in the first 11 months, even as oil traded near levels last seen during the global financial crisis.
Local winners
That has benefited automakers like BYD Co., Zoyte Auto and BAIC Motor Corp., which have led sales of electric cars. BYD, backed by Warren Buffett’s Berkshire Hathaway Inc., would have turned a loss in 2014 and this year if not for EV subsidies from the central government, according to Barclays Plc. Geely Automobile Holdings Ltd. said last month that it would target new-energy vehicles to make up 90 percent of sales by 2020. The government incentives have lured consumers like Zhang Peng, 30, who decided to buy BAIC’s EV200 electric car after trying without success for two years to win a license plate in the bimonthly lottery held by the Beijing government. EVs are exempt from the ballot, which has worse odds than roulette. Zhang also received 90,000 yuan in matching grants from the central and local governments, or almost half
of the 208,922 yuan sticker price for BAIC’s EV200 electric car. The model costs about 7.5 yuan to run every 100 kilometres, compared with an estimated 39 yuan for an equivalent gasoline- powered 1.6-liter Toyota Corolla, according to calculations based on the published fuel-economy rating and Beijing pump prices.
Battery suppliers
The burgeoning demand has also helped battery suppliers such as South Korea’s Samsung SDI Co. and LG Chem Ltd., which supplies SAIC Motor Corp. and Chongqing Changan Automobile Co. Panasonic Corp. said it is considering building a car-battery factory in China to supply lithium-ion batteries. Among local component makers, Wanxiang Qianchao Co. and Hunan Corun New Energy Co. have more than doubled in Shanghai trading this year as investors bet the surge in electric vehicle demand will boost demand. BYD has climbed 34 percent this year and Geely Automobile has surged 79 percent in Hong Kong trading, compared with the 8.4 percent decline in the benchmark Hang Seng Index. Global automakers are beginning to get into the act. Volkswagen AG, the largest foreign carmaker by sales, has said it will introduce 15 locally produced new-energy vehicles in the next three to five years in the country. Ford Motor Co. said this month it’s investing US$4.5 billion globally in electrified vehicles.
‘Foreigners coming’
“In the initial stage it was mainly local automakers competing with
each other in the electric-car segment, but now the foreign players are coming,” said Ouyang Minggao, director of the Tsinghua New Energy Vehicle Centre. “All kinds of electric cars will be here soon, including plug-in hybrids, which will lead to very big challenges to local automakers.” The Chinese government is not alone in setting aggressive targets for alternative-energy transportation. President Barack Obama in 2011 called for one million electrified vehicles in the U.S. by 2015, a target that the administration scaled back in March after low gasoline prices reduced the cost advantage of plugin and hybrid vehicles. China, though, has stood out in terms of the scale of the state’s financial support. The country has invested about 37 billion yuan into the new-energy vehicle segment over the past five years, according to Gao Feng’s Russo, who estimates the government will devote another 63 billion yuan by 2020.
Funding plan
The central government released a plan yesterday detailing funding for local governments to construct charging facilities, tied to the number of new-energy vehicles they sell. Automakers will have to play by China’s rules if they want a piece of the market, even if they don’t believe in electric cars. The government has mandated the lowering of average fuel consumption to 5 litres by 2020, from 6.9 litres per 100 km this year. Bloomberg News
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December 17, 2015
Asia
S.Korea sets lower inflation, growth targets on economic risks Before the current inflation target, South Korea used a midpoint of 3.0 percent within a range of 2.0 to 4.0 percent Christine Kim
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outh Korean authorities set a new consumer price target and cut economic growth estimates yesterday, as falling oil prices and weak global growth pose greater risks for the economy. The Bank of Korea (BOK) said it was setting its new three-year inflation target at 2 percent, scrapping its current policy of using a targeted band for consumer prices, currently at 2.5 to 3.5 percent, to lift the economy from low inflation. The Ministry of Strategy and Finance separately cut its growth estimates for 2015 and 2016, with exports expected to remain stagnant while high household debt and an ageing workforce undermine improvements in consumer spending. It forecast the economy would grow by a real 3.1 percent next year, down from 3.3 percent estimated earlier and also revised this year’s growth to 2.7 percent from 3.1 percent. “The takeaway from the government and central bank’s announcements today is that they will maintain their stance to keep the economy buoyed while continuing structural reform,” said Yoon Yeosam, a fixed-income analyst at Daewoo Securities, who sees rates being cut early next year. Before the current inflation target, South Korea used a midpoint of 3.0 percent within a range of 2.0 to 4.0 percent. Economists at Australia and New Zealand Banking Group said the central bank was “serious about combating deflation,” while
KEY POINTS New inflation target for 2016-2018 set at 2 pct S.Korea sees 2016 growth at 3.1 pct, CPI at 1.5 pct New target, govt outlook reinforces some rate cut views BOK says new target does not mean rate cuts forecasting two interest rate cuts next year. Finance Minister Choi Kyunghwan said he expected the BOK to manage monetary policy at the level at which it would work to keep inflation near the central bank’s new target. South Korea’s current policy rate is at a record-low of 1.50 percent after the central bank lowered it in four 25-basis-point steps from 2014, cutting them most recently in June. Analysts are split between no change for a prolonged period of time and another rate cut in early 2016. A BOK official told a news conference the new target did not mean interest rates were going to be synched with inflation.
New year, same risks
Headline inflation has remained far
below the bottom end of the current band for most of the target’s existence, sparking criticism from lawmakers and local media. The 2-percent target number was set as underlying inflation had eased to around 2 percent since 2012 due to structural economic changes. The headline consumer price index (CPI), which the central bank’s current and next target is based upon, is expected to remain below the new target next year but rise to around 2 percent in 2017 through 2018, the BOK said. The finance ministry sees consumption sending inflation to 1.5 percent next year, up from 1.3 percent estimated earlier. Consumer sentiment may continue to pick up, but South Korea faces risks from a shrinking workforce that is also
ageing rapidly. The economicallyactive population is expected to peak next year and start falling in 2017. South Korean households’ real average propensity to consume, a measure of how much of their income they spend on goods and services, last year fell to its lowest percentage since 1998, according to Statistics Korea. Growing household debt may also restrict spending power next year, especially if interest rates start creeping up when U.S. rates start to rise. Exports, which have traditionally driven South Korea’s economic expansion, are expected to fall 7.3 percent this year as global demand cools and growth slows in China, its biggest trade partner, the finance ministry said. Reuters
Japan govt expects higher nominal GDP growth Last fiscal year the economy grew a nominal 1.5 percent Takashi Umekawa and Stanley White
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apan’s government is on course to raise its economic growth forecast for next fiscal year on the assumption consumers will step up on spending, but some economists worry the figures rely on unrealistic expectations for wage gains. The government is likely to project nominal economic growth of 3.1 percent for the fiscal year ending in March 2017, government sources told Reuters yesterday. That would be an increase from its previous growth forecast of 2.9 percent issued in July. The government will leave next fiscal year’s real economic growth forecast unchanged at 1.7 percent, the sources said. The projections are used to calculate next fiscal year’s
budget, but the government could be setting itself up for disappointment as wages and consumer spending look set to rise at a more subdued pace than it expects. “The government forecasts look awfully optimistic,” said Hiroshi Shiraishi, senior economist at BNP Paribas Securities. “We expect more moderate gains in consumption. The real key is wages, but labour unions don’t seem to have much momentum heading into annual wage negotiations next year.” Last fiscal year the economy grew a nominal 1.5 percent, which Shiraishi believes is a more realistic forecast for next fiscal year. Prime Minister Shinzo
Abe’s government is pressuring companies into raising wages to bolster consumer spending and make it easier for the Bank of Japan to meet its 2 percent inflation target. However, this approach has had limited success as small companies, which employ the majority of Japan’s workforce, have remained reluctant to pay higher salaries due to worries about hurting profit margins. Last month the government drew up measures to raise the minimum wage, increase benefits for low-income households and spend more money on childcare, but many economists say these steps will have little benefit, a Reuters poll last week showed. Reuters
Prime Minister Shinzo Abe’s government is pressuring companies into raising wages to bolster consumer spending and make it easier for the Bank of Japan to meet its 2 percent inflation target
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December 17, 2015
Asia
Thai central bank holds rates, says it is hiking 2015 growth forecast Thailand’s Monetary Policy Committee voted 7-0 to leave the one-day repurchase rate at 1.50 percent - where it’s been since April Orathai Sriring and Kitiphong Thaichareon
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hailand’s central bank kept its key interest rate unchanged on yesterday, as expected, leaving fiscal stimulus and government spending to support the weak domestic economy, which it now expects to perform slightly better than forecast. The Bank of Thailand (BOT) said the current rate still supported economic recovery and that monetary policy would stay “accommodative”. The BOT said higher public expenditure and strong tourism has led it revise up slightly its 2015 growth forecast from 2.7 percent, but it won’t release the new number until December 25. It said its 2016 projection will stay close to 3.7 percent. At its meeting just hours before a pivotal Federal Reserve session ends in Washington, Thailand’s Monetary Policy Committee (MPC) voted 7-0 to leave the one-day repurchase rate at 1.50 percent - where it’s been since April. “The Committee assessed that monetary conditions and exchange rate remain supportive to the economic recovery. Moreover, given financial stability considerations and a potential
rise in financial market volatility due to monetary policy divergence among advanced economies, the policy interest rate should be kept unchanged,” the MPC said yesterday’s meeting. All but one of 20 economists polled by Reuters had predicted the rate would be held. One expected a 25 basis point cut.
KEY POINTS Committee votes 7-0 to keep policy rate at 1.50 pct BOT says monetary policy to stay accommodative
A closed window
Capital Economics said that with price pressures still very weak and only a gradual economic recovery likely, “we can safely rule out interest rate hikes for the foreseeable future, even if the Fed starts to raise rates this week.” Tim Leelahaphan, economist of Maybank Kim Eng Securities in Bangkok, said the window for Thai rates cuts “has already closed” with the expected Fed hike and how government spending is a better tool to boost growth. He said he expects a 25 basis point hike in 2016 that “could be for stemming portfolio outflows in search of higher yields”. The Thai army seized power in May 2014 to end prolonged political
Says 2015 GDP growth slightly higher than 2.7 pct forecast
unrest but has since struggled to pull Southeast Asia’s second-largest economy out of a rut, with exports and domestic demand persistently weak. Growth was just 0.9 percent last year. In a bid to boost activity, the junta approved stimulus measures aimed at helping rural areas, small firms and the property sector. It has also focused on driving big public investment projects.
Says sees 2016 growth close to previous estimate’s 3.7 pct Thailand will hike rate 25 bps in 2016 – economist
Policymakers are hoping stimulus will lift activity and a weak baht will boost exports. The baht has depreciated about 8.8 percent against the dollar this year. Reuters
Australian banks agree Android Pay deal Apple remains locked in talks with big banks in search of a deal to accept Apple Pay Swati Pandey
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ig Australian banks have agreed to accept payments made on mobile devices using Google Inc’s Android Pay, leaving Apple Inc’s rival Apple Pay system out in the cold as the tech giant struggles to coax lenders to accept its terms. Banks including Westpac Banking Corp, ANZ Banking Group and Macquarie will accept contactless payments via Android smartphones when Google rolls out the service in first-half 2016, the tech giant said on Wednesday. Westpac and Commonwealth Bank of Australia already operate their own mobile payment systems. In contrast, Apple remains locked in talks with big banks
in search of a deal to accept Apple Pay. The iPhone maker’s system launched in Australia last month, with support for American Express Co cards, but remains adrift from 80 percent of consumers using other credit cards in a market Westpac sees as worth more than US$2 billion this year.
“It’s a big bargaining chip for (Australian) banks to use to force a better deal with Apple,” said Foad Fadaghi, managing director of technology research firm Telsyte. An Apple spokeswoman declined to comment. Android Pay will support both MasterCard and Visa credit and debit cards, Pali Bhat, director of product management at Google wrote in a blog post Wednesday. Consumer favourites like McDonald’s Corp and Domino’s Pizza have also signed up, Google said, enhancing Android Pay’s appeal. The absence of a deal on Apple Pay hinges on
banks’ unwillingness to give up a slice of a market for contactless payments they have cultivated that is now much bigger than in many other countries. More than 60 percent of all card transactions in Australia are now contactless, ANZ bank said in a statement on Wednesday, announcing the Android Pay tie-up. In the United States, meanwhile, a survey by Verifone and Wakefield Research released in January 2015 found mobile wallets accounted for just about 4 percent of the overall payments market for instore retail transactions.
Fees in Australia’s lucrative mobile payments market remain a bone of contention in Apple’s talks with the main banks. Apple is demanding 15 basis points in interchange fees that banks have refused to share, people familiar with such negotiations say. Android Pay has no such charges, the sources said. “The four Australian banks aren’t prepared to give up the amount of interchange fees that the U.S., Canadian and UK banks have done,” said Grant Halverson, a payments consultant from McLean Roche. Reuters
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December 17, 2015
Asia Japan’s 2016/17 crude steel output flat Japan’s crude steel production has been in a downtrend since late last year
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apan’s crude steel output in the fiscal year that starts next April is likely to be flat from this year at around 105 million tonnes, with growing local demand offsetting faltering exports, an industry body said yesterday. That tepid outlook from the Japan Iron and Steel Federation follows a string of weak signals on the country’s economy that have raised doubts about government efforts to reignite growth and end decades of deflation. It also comes as steelmakers
around the world grapple with the fallout of massive exports of cheap steel from China, with producers there turning overseas as the local appetite wavers. “Domestic demand will certainly increase next fiscal year thanks to higher capital expenditure and consumer spending ahead of the planned sales tax hike in 2017, on top of Olympic-related construction demand,” Koji Kakigi, chairman of the steel industry body, told a news conference.
Japan plans to raise its sales tax to 10 percent from 8 percent in April 2017. The country is also gearing up to host the Olympics in 2020. “The problem is overseas demand ... It’s difficult to make a forecast now, but we expect a slight drop in steel exports next fiscal year,” Kakigi said, without giving further detail. Kakigi, also president of JFE Steel, a unit of JFE Holdings Inc, said appetite for the country’s exports would be hit by increased shipments of Chinese steel. Japan’s crude steel production has been in a downtrend since late last year, pressured by slack consumption of cars and houses after a sales tax hike in April 2014. Tumbling steel prices in Asia, hit by China’s exports and weaker demand for energy-related steel products such as drill pipes because of plunging oil prices, forced steelmakers like Nippon Steel & Sumitomo Metal and JFE Steel to trim output. Japan’s industry ministry has predicted the country’s crude steel output would fall 3.7 percent in October-December from a year earlier. Reuters
KEY POINTS Steel output seen steady at around 105 mln tonnes Local demand strong, exports expected to falter Difficult for steelmakers to compete with cheap China exports
Philippines set to resume sugar imports for first time in 6 years
Abe, Gates promote global healthcare Japan’s Prime Minister Shinzo Abe alongside other dignitaries including Microsoft Corp. founder Bill Gates and World Health Organization Director General Margaret Chan were in attendance at an international symposium in Tokyo yesterday centred on the creation of a global healthcare framework. The global health system, or “universal health coverage” is part of Japan’s basic global health policy vision and is being pushed by Abe as a means to tackle diseases and infections in developing countries, alongside the UN Sustainable Development Goals, with yesterday’s colloquium seen as a prequel to the Group of Seven summit next May.
New Zealand ready for negotiations on EU trade deal The New Zealand government yesterday called for public submissions on the proposed free trade agreement (FTA) with the European Union before negotiations are expected to officially begin in 2017. “New Zealand enjoys a close and long-standing relationship with the EU and last year concluded a Partnership Agreement on Relations and Cooperation,” Trade Minister Todd McClay said in a statement. The agreement reached in Brussels at the end of October between New Zealand Prime Minister John Key and European Commission President Jean-Claude Juncker and European Council President Donald Tusk was the first step toward a comprehensive and high-quality FTA, he said.
ASEAN ministers meet on disaster management
The Philippines is the world’s eighth-largest sugarcane producer Enrico Dela Cruz
T
he Philippines expects to import sugar for the first time in six years in 2016, the industry regulator told Reuters, seeking to shore up domestic supplies because of declining output due to dry weather linked to an El Niño weather pattern. Raw sugar imports in 2016 may reach as much as 169,385 tonnes, Regina Bautista-Martin, the administrator of the Sugar Regulatory Administration (SRA) said in a telephone interview. The move to import by the Southeast Asian country could provide support for world sugar prices, with the market projected to see a supply deficit in the current 2015/16 crop year. The imports will partly replace planned exports, with the Philippines committed to ship as much as 135,508 tonnes of raw sugar next year to the United States, BautistaMartin said. The U.S. purchases are under so-called tariff rate quotas, which permits a certain amount of imports at a favourable tariff level from countries such as top producer Brazil, Thailand and others.
The Philippines is the world’s eighth-largest sugarcane producer and the third-largest U.S. quota recipient, with a regular annual allocation of 135,508 tonnes. “We would like to assure the U.S. that we are still interested in this quota that they have given us,” Bautista-Martin said. “We would like to maintain that relationship.” In August, the SRA said all locallyproduced raw sugar in 2015/16 crop year would be allocated to the domestic market, leaving nothing for the U.S. quota commitment. The SRA cut its forecast for domestic raw sugar output for the 2015/16 crop year beginning Sept 1 to 2.228 million tonnes from 2.27 million tonnes, just enough to cover annual local consumption estimated at 2.25 million tonnes. This forecast could be revised down further after initial estimates showed a 30 percent drop in September to November output over the same period last year. Bautista-Martin said production figures would be reviewed again in the first quarter of 2016 to determine if additional imports will be required. Reuters
KEY POINTS Purchases may reach up to 169,385 T Imports to replace U.S.-bound sugar Dry weather has damaged sugar crop
The 3rd ASEAN Ministerial Meeting on Disaster Management kicked off yesterday, aiming to further strengthen the bloc’s cooperation in disaster control. Speaking at the opening ceremony, Cambodian Prime Minister Hun Sen said disaster management has become a topic for the world, specifically for the ASEAN region that is vulnerable to natural disasters such as flood, drought, storm, and so forth.
India’s top court slaps temporary ban on luxury car India’s top court has ordered a temporary ban on the sale of large diesel cars in New Delhi and hiked a levy on trucks entering the city, as the country’s highly polluted capital seeks ways to tackle one of its worst-ever bouts of toxic smog. An order passed by the Supreme Court on Wednesday bans the registration of sport-utility vehicles and other diesel cars with an engine capacity of 2,000 cc or more in Delhi and the surrounding region until March 31. The court stopped short of banning smaller cars, but did prohibit trucks from transiting through the city to reach other states.
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December 17, 2015
International South Africa addressing Moody’s concerns South Africa’s Treasury said on Wednesday concern from ratings agency Moody’s of rising risk of fiscal slippage are being addressed and the government will focus on fiscal consolidation and debt stabilisation in the medium term. Moody’s Investors Service cut its outlook on South Africa to “negative” from “stable” late on Tuesday, citing structural challenges in the country’s mining industry and increasing political pressures.
Euro zone marks solid Q4 but with slight loss of momentum Growth was driven by new orders coming in at their fastest rate since early 2014 Jonathan Cable
OPEC producers bearish on oil in 2016 OPEC producers see little chance of significantly higher oil prices in 2016 as extra Iranian production could add to surplus supplies and the prospect of voluntary output restraint remains remote. OPEC delegates, including those from Gulf OPEC members, say higher oil prices are not around the corner yet, despite further growth in global demand and as a rise in non-OPEC supply is tempered by prices that have more than halved in 18 months. Some see a more balanced market by 2017 even though they expect further pressure on oil which could send prices to test the mid-$30 a barrel.
British pay growth slows Workers’ pay in Britain grew at a slower than expected pace in the three months to October, suggesting the Bank of England will take even longer to raise interest rates from the record low in place for nearly seven years. The Office for National Statistics said regular earnings of workers - excluding bonuses - rose by 2.0 percent in the three months to October, its slowest since the three months to February. It was weaker than a median forecast of 2.3 percent in a Reuters poll of economists.
Exchange operator BATS Global files to go public BATS Global Markets Inc filed for an initial public offering with U.S. regulators yesterday, in what would be the exchange operator’s second attempt at going public. The Kansas City, Missouri-based company told the U.S Securities and Exchange Commission in a preliminary prospectus that Morgan Stanley, Citigroup, BofA Merrill Lynch and J.P. Morgan were among those underwriting the IPO. The company intends to list its common stock on the BATS Exchange under the symbol “BATS”.
EU adopts tougher rules on tracking jetliners The European Union yesterday adopted new rules to make it easier to track jetliners, stepping up international efforts to prevent a repeat of the disappearance of a Malaysia Airlines jet with 239 people on board. The move is the first change in core legislation by a major regulator since last year’s unresolved disappearance of Flight MH370 and is expected to provide impetus to efforts by the United Nations’ aviation agency to set new global standards. It also incorporates recommendations from French investigators into the crash of an Air France jet in the Atlantic in 2009, whose wreckage took two years to locate.
E
uro zone businesses are about to mark their best quarter in 4-1/2 years but those in core economies reported a slight loss of momentum running into year-end with still no sign of inflation picking up, surveys showed yesterday. The data, compiled by Markit, leave open the debate over whether the European Central Bank’s loose monetary policy will have to be made even looser still in the coming year to meet its inflation goal of close to, but just below, 2 percent. Businesses in the euro zone’s smaller economies made up for what the core members lost, Markit said. Growth in Germany’s private sector slowed and in France, the euro zone’s second largest economy, activity fell to near-stagnation with the services sector decelerating sharply following the Nov. 13 attacks on Paris. But that did not spread to the wider euro zone data. “Euro zone PMIs showed good resilience in December, remaining at healthy levels even in the wake of the headwinds from the Paris terrorist attacks,” said Marco Valli, economist at UniCredit. “Low (and falling) energy prices, stimulus from past euro depreciation and improving domestic fundamentals continue to shield the euro zone economy from a persistently weak global trade environment.” Markit’s Composite Flash Purchasing Managers’ Index (PMI) for the euro zone, based on surveys of thousands of companies and seen as a good guide to growth, slipped to 54.0 from November’s 54.2. While a Reuters poll had suggested it would hold steady at November’s level, it has been above the 50 mark that separates growth from contraction since July 2013.
Markit said the PMI pointed to fourth quarter economic growth of 0.4 percent, in line with predictions from economists in a Reuters poll published last week. The ECB eased policy again earlier this month, cutting its deposit rate and extending its asset-buying programme. ECB President Mario Draghi said on Monday inflation should reach its 2 percent target ceiling “without undue delay”. But that easing fell short of market expectations, leaving many speculating that larger monthly asset purchases may still be required. The latest PMIs showed firms cut prices for a third month as they struggled to generate meaningful growth. “Growth is not strong enough to generate inflationary pressure and we suspect that it will slow further as the effects of falling inflation and the earlier depreciation of the euro fade,” said Jennifer McKeown at Capital Economics. “As such, pressure is likely to mount on the ECB to offer bolder policy support after its disappointingly timid action earlier this month.” The likelihood the ECB tops up the 60 billion euros a month it is currently spending on buying government bonds is just 40 percent, a Reuters poll found, as Draghi faces opposition from more conservative policymakers on the ECB’s Governing Council. As investors debate whether the ECB does loosen policy again, most are convinced the United States Federal Reserve will increase borrowing costs for the world’s largest economy later on Wednesday. Britain’s Bank of England is expected to follow the Fed’s path albeit not until the second quarter of 2016 - although the pay of workers in Britain grew at its slowest in pace since early 2015 in the three months
KEY POINTS December flash euro zone composite PMI at 54.0 PMI points to Q4 GDP growth of 0.4 pct - Markit Firms cut prices for third month in a row to October, underscoring one of the reasons why the BoE is in no rush.
Factory strength
Prices rose just 0.2 percent in the euro zone last month on a year ago, official data showed on Wednesday. Perhaps worryingly for policymakers, the composite output price index was below 50 for a third month, holding steady at 49.5. Despite that, a PMI covering the bloc’s dominant service industry fell to 53.9 from November’s 54.2. But firms were more optimistic about the coming year. The business expectations sub-index climbed to a four-month high of 63.0 from 62.4. Manufacturers had a better end to the year than expected. Their PMI rose to a 20-month high of 53.1, confounding forecasts for it to hold steady at November’s 52.8. The output index, which feeds into the composite PMI, jumped to 54.4 from 54.0, also a 20 month high. Growth was driven by new orders coming in at their fastest rate since early 2014 - the sub-index rose to 54.0 from 53.5 - with demand picking up as a weaker euro made manufactured goods cheaper abroad. Reuters
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December 17, 2015
Opinion Business
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Why economists put health first
Leading reports from Asia’s best business newspapers
THE STAR (Malaysian) Tariff hikes in electricity are here to stay for the next few years, if what the top officials of Tenaga Nasional Bhd (TNB) say is anything to go by. The Government announced a reduction in the subsidy for the fuel component of electricity supplied to Peninsular Malaysia last week. This is in-line with the subsidy rationalisation programme to close the gap between the price of piped gas supplied to TNB and the market rate. “At the moment, it’s still heavily subsidised,” TNB’s chairman Tan Sri Leo Moggie said.
THE KOREA HERALD Samsung Electronics yesterday started its annual global strategy meeting, with some 600 executives and heads of regional operations around the world in attendance. Samsung Electronics vice chairman Lee Jae-yong is also scheduled to join the meeting --the first this year. The one planned in the first half of this year was cancelled due to the outbreak of Middle East respiratory syndrome. Executives will discuss ways to strengthen its global online distribution channels. While Samsung has expanded its offline sales network around the world, its Chinese rivals like Xiaomi have poured resources into online sales with lower costs.
Kenneth Arrow
Nobel laureate in economics
THANH NIEN NEWS A group of foreign businesses are in talks with the operator of a US$2-billion expressway recently opened to traffic in the north to buy its operating rights, media reports said. VIDIFI, which built and operates the Hanoi - Hai Phong expressway, expects to finish the unprecedented negotiations by the end of the first quarter next year, news website Bao Dau Tu quoted a company representative as saying. They plan to establish a joint-venture to operate the highway, according to the website. VIDIFI, a joint-venture between state construction firm Vinaconex and some local banks, will retain a 30 percent stake.
THE JAKARTA POST Despite a 0.17 percent increase in the national farm workers’ nominal wage to Rp 46,881 per day as of November (month on month/ MoM), the Central Statistics Agency (BPS) has recorded a 0.25 percent decrease in the real wage of national farm workers in rural areas to Rp 37,822. Although farm workers in Indonesia have received a higher wage, on average, their purchasing power has in fact weakened when compared to the previous month, according to Suryamin, head of BPS. “The decrease of the real wage in rural areas is caused by higher rural inflation”, he said.
Apurva Sanghi
World Bank’s lead economist for Kenya
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n an ideal world, everyone, everywhere, would access the health services they need without having to pay more than they could afford. But is “health for all” – also known as universal health coverage – really possible, not just in rich countries, but in the poorest countries, too? In short, yes. That’s why we joined hundreds of fellow economists in almost 50 countries to urge leaders to prioritize investments in universal health coverage. And the broader impetus behind this Economists’ Declaration, convened by The Rockefeller Foundation and now with more than 300 signatures, has placed global health and development at a historic crossroads. In September, the United Nations General Assembly adopted a new set of 15-year global goals to guide the world’s efforts to end poverty, foster inclusive prosperity, and secure a healthy planet by 2030. As world leaders prepare to enact the most ambitious global todo list yet – the Sustainable Development Goals will be launched on January 1 – deciding where to begin may seem a daunting task. For economists, however, the answer is clear: The next chapter of development strategy should assign a high priority to
better health – and must leave no one behind. Reaching everyone with highquality, essential health services without the threat of financial ruin is, first and foremost, the right thing to do. Health and survival are basic values to virtually every individual. Furthermore, unlike other valuable goods, such as food, they cannot be supplied without deliberate social policy. The fact that “preventable deaths” remain common in lowand middle-income countries is a symptom of broken or under-resourced health-care delivery systems, not a lack of medical know-how. If we increase investments in health now, by 2030 we can be that much closer to a world in which no parent loses a child – and no child loses a parent – to preventable causes. Universal health coverage is also smart. When people are healthy and financially stable, their economies are stronger and more prosperous. And, with benefits ten times greater than initial costs, investing in health first may ultimately pay for the rest of the new global development agenda. So the question is not whether universal health coverage is valuable, but how to make it a reality. More than a hundred countries have taken steps down this path; in the process, they have revealed important opportunities and strategies to accelerate progress toward the goal of health for all. In particular, we believe that three areas – technology, incentives, and seemingly “non-health” investments – have the potential to advance universal health coverage dramatically. First, technology is fast becoming a game changer, especially in developing countries, where the gap in access to health care is the widest. In Kenya, which already leads the world in mobile
Reaching everyone with high-quality, essential health services without the threat of financial ruin is, first and foremost, the right thing to do
money through “m-PESA,” an upsurge in telemedicine is enabling rural patients and health practitioners to interact, through video conferencing, with staff in Kenya’s main hospitals – thereby increasing quality of care at very little cost. The m-PESA Foundation, in partnership with the African Medical Research Foundation, has also begun implementing online training of community health volunteers and complementing these trainings with bulk SMS/WhatsApp group messages to keep the group connected and share important updates. Investments in highvalue, low-cost technologies will help us achieve more with every dollar. Harnessing the power of incentives is another way to accelerate health reforms. This can and should be done
without forcing the poor to pay for health-care services at the point of delivery. For example, when the state pays the private sector based on outcomes (for example, the number or share of vaccinated children), both accountability and results have been known to improve. Voucher programs for reproductive health care in Uganda and Kenya are now providing access to quality services from the private sector. Finally, building resilient healthcare systems – flexible enough to bend, but not break, in the face of shocks – means improving other public goods that are closely linked to human health. These include clean water and sanitation, and roads and infrastructure that enable emergency care and delivery of services. Health systems do not exist in a vacuum, and if we are serious about sustainable development, it is time to understand that investments in complementary systems are “trade-ons” not trade-offs. We should be wary of viewing medicine as the only path to better health. The success of the world’s development goals hinges on our ability to reach the poorest and most marginalized populations, who continue to bear the brunt of death and disability worldwide. A natural progression of the status quo will not be enough to reach them. Instead, we must push public health systems beyond their usual boundaries by investing in and promoting new technologies, sharpening incentives, and recognizing that health systems do not exist in a vacuum. Universal health coverage is right, smart, and overdue. To achieve a world where everyone’s health needs are met and nobody is trapped in poverty, our leaders must heed this message and act on it. Project Syndicate
16 | Business Daily
December 17, 2015
Closing
Emerging Asia to lean on US$255 bln China-Japan liquidity wall against Fed fallout China has more and larger swap lines with emerging Asian markets than it does with countries in other emerging markets blocs, such as Eastern Europe and Latin America Vidya Ranganathan
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s investors brace for this week’s historic U.S. interest rate decision, central banks in Asia’s emerging markets will be standing by a quarter of a trillion dollars in emergency liquidity lines with China and Japan to prevent routs in their currencies. For vulnerable Asian countries with heavy dollar borrowings and modest foreign reserves, central bank swap agreements with the region’s two largest economies are a key defence against the kinds of market swings that have created past liquidity crises. Central banks across Asia have on tap US$215 billion in yuan swap lines with the People’s Bank of China and US$40 billion in lines with the Bank of Japan. Most of these agreements were established after the global financial crisis of 2008. “Policymakers need the big bazooka when investors get jittery and any official complementary measures they can draw on will be very beneficial,” says Frederic Neumann, co-head of Asian economics research at HSBC in Hong Kong. “I would expect China and even Japan to be much more proactive should financial uncertainty revisit Southeast Asia,” said Neumann.
Asian economies have US$6.75 trillion in combined foreign exchange reserves, though China and Japan account for about 70 percent of these assets. Other economies, particularly the emerging markets of South and Southeast Asia, have thinner currency reserve cushions and central bank lines provide an additional layer of protection. Malaysia’s 180 billion yuan swap line, for example, could bolster its meagre US$94.6 billion in reserves by almost a third, while Indonesia’s US$100.2 billion reserves will rise by a further US$38 billion if it draws down on
China securities regulator investigation finds 103 problems
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swaps with China and Japan. China has more and larger swap lines with emerging Asian markets than it does with countries in other emerging markets blocs, such as Eastern Europe and Latin America. A d d i ti o n a l l y , A s i a ’ s network of swap lines to the region’s two largest central banks is more extensive than the liquidity backstops countries in other emerging market blocs have with the Federal Reserve of European Central Bank. “Asian emerging markets might be in a better position relative to other emerging markets due to the larger swap agreements in place,”
said Bernard Aw, market strategist at IG in Singapore. “Bilateral swap lines are seldom used, but they prove useful in the event of financial turmoil.” While Japan’s swap lines are unequivocally earmarked for use in a crisis only, there are questions over what circumstances swap lines with China could be used. The yuan bilateral swap agreements stipulate the funds can be used to facilitate trade payments and direct investments, or anything else the two parties agree on. “But when push comes to shove, is this money really available? That’s going to be
the question,” said HSBC’s Neumann.
Outflow risks
The key concerns for markets about a widely expected Fed rate hike this week - the first in almost a decade - is the possibility that hundreds of billions of dollars in Asian investments could move to higher-yielding U.S. markets. That risk is magnified by the fragile external balance-sheet positions of Asia’s smaller economies. Their currencies are weak, foreign exchange reserves have shrunk over the past couple of years and current account surpluses have been deflated by feeble global demand and a collapse in commodity prices. “The risk of some reversal is certainly a real prospect,” ANZ’s Asia strategist, Khoon Goh, wrote in a recent note. He estimates about US$700 billion in portfolio inflows have moved into emerging Asian markets over the past decade. In addition to the central bank swap lines, the region is also backstopped by the US$240 billion Chiang Mai Initiative Multilateralisation emergency fund, which can be used by countries that have signed up to a reform and loan program with the International Monetary Fund. So far, it looks like none of these facilities will need to be tapped. While markets may take a hit if the Fed lifts rates as widely expected, most analysts expect the pain will be short-lived, particularly if the central bank flags a gradual approach to policy tightening. And recent history also provides investors with some confidence - although Asian markets were hit during the 2011 eurozone debt crisis, the Fed’s 2013 “taper tantrum”, and heavy emerging market selloffs in September, they were able to get through the routs without requiring too much additional liquidity support.
Mainland VAT reform expected to complete in H1 2016
Hong Kong revises down export forecast
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n internal investigation conducted over the past two years by China Securities Regulatory Commission (CSRC) has uncovered 103 problems at the agency’s individual offices, a statement released by China’s anticorruption watchdog said Wednesday. The statement posted on the website of the Central Commission for Discipline Inspection cited honesty, cash management and overpayment problems among the issues uncovered in the CSRC’s internal affairs probe, without providing further details. China’s financial regulators have been under heavy pressure since stock markets collapsed in mid-June following a long bull run. A wide crackdown on suspected stock manipulation has since put the spot line on a number of senior officials at top Chinese brokerages and the CSRC. Yao Gang, vice chairman of the CSRC, was removed from his post following an inquiry into “serious breaches of discipline,” the state news agency Xinhua reported on December 10. Reports that the chairman of Hong Kong listed Fosun International, one of China’s largest private conglomerates, was assisting Chinese authorities with an investigation earlier this week have also sparked fears that the crackdown is spreading into the private sector.
hanges to China’s value-added tax (VAT) policy are expected to be complete by the first half of 2016, ending industry’s dual tax system, a report said yesterday. The two systems are business tax, which refers to a levy on the gross revenue of a business. While VAT refers to a tax levied on the difference between a commodity’s price before taxes and its cost of production. Manufacturing entities have been subject to VAT since 1994. Other businesses continued to pay the business tax until a pilot scheme on business tax-to-VAT was tested in 2012 in Shanghai, and found to be successful. It was a success, and by August 2013 the policy was rolled out across the country. However, four service industries -- construction, real estate, finance and consumer services -- are still subject to business tax, according to a report by China International Capital Corp. Ltd. (CICC), the country’s first joint venture investment bank. One main objective of VAT reform is to alleviate the corporate tax burden. From 2012 to the first half of 2015, the measure has resulted in tax savings of over 484.8 billion yuan (US$75 billion), accounting for 0.2 percent of GDP in the period.
Reuters
Xinhua
Reuters
he value of Hong Kong’s exports are forecast to fall 1.5 percent in 2015, the first decline since the global financial crisis, as a weak world economy sapped demand, the Hong Kong Trade Development Council said yesterday. It had earlier revised down its 2015 export forecast to flat growth from an initial 3 percent higher as the global trade environment remained sluggish. In 2009, it had projected a 6 percent drop in the value of the city’s exports. Barring any jolts arising from a renewed global downturn and adverse geopolitical developments, the council expects growth in the value of exports to pick up slightly next year to zero growth, with 2 percent growth forecast in volume terms. “2016 should not be too painful a year for Hong Kong exporters,” said Daniel Poon, principal economist of the council. “It should instead see a more stable but still unspectacular external trade environment pushing against continued headwinds.” Hong Kong’s merchandise exports saw a yearon-year decline of 1.7 percent for the first 10 months of 2015, after expanding by 3.2 percent in 2014. Reuters