Macau Business Daily December 23, 2015 by Business Daily

MOP 6.00

Page 4

ID-loss procedures for returning SARs residents simplified Page 4

Year IV

Number 946 Wednesday December 23, 2015

Publisher: Paulo A. Azevedo

Closing editor: Paulo A. Azevedo

China Aircraft Leasing Group delivers second plane to Air Macau

Imperial Pacific resolves high shareholding concentration Page 3

Shop Rentals A Buyer’s Market

Remember when? Exorbitant shop rentals are now a thing of the past. Comparatively speaking. And at least until the local economy recovers. And frenetic speculation revives. In prime locations, near tourist attractions, rents have plunged by as much as 20 to 30 pct. In the ZAPE district the drop can reach 40 pct, real estate gurus tell Business Daily Page

China plans stimulus

Supporting growth is the primary objective. With monetary policy increas‑ ingly flexible and fiscal policy more forceful. Struc‑ tural reforms are on the horizon

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Brought to you by

HSI - Movers December 22

Name

Destructive competition It’s a war. Of words, so far. Sales behaviour in some food souvenir shops is becoming increasingly aggressive. Intercepting the competitors’ customers. Badmouthing

rivals’ products. Legislator Ng Kuonk Cheong says enough is enough. And urges the government to act, fast.

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%Day

China Resources Beer H

+4.87

Tingyi Cayman Islands

+2.50

Wharf Holdings Ltd/Th

+1.30

Cathay Pacific Airways

+1.06

Henderson Land Devel

+1.05

China Merchants Holdi

-1.02

China Resources Powe

-1.32

China Life Insurance Co

-1.37

Sands China Ltd

-2.29

China Mengniu Dairy C

-2.49

Source: Bloomberg

www.macaubusinessdaily.com

Gaming

Scenario for 2016

I SSN 2226-8294

Stricter control. Definitely on the cards for the gaming industry next year. Assuming gov’t plans proceed accordingly. With new casinos opening and the mid-term review uppermost in operators’ minds 2016 promises to be interesting.

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December 23, 2015

Macau opinion

Loose reflections

José I. Duarte Economist

n some ways, the approval of a new budget by the Legislative Assembly marks the start of a new political cycle. Or, if not a really new one, at least what we might call a slightly renewed one. The main lines for the economic evolution of Macau are mostly set: further integration with the Mainland economy, restrained growth of gambling, and diversification. Nevertheless, some implicit issues that could possibly be considered fundamental are seldom addressed or even mentioned. Inevitably, the local economy is increasingly dependent upon the Mainland. In general terms, it is certainly true that whatever happens across the border is bound to have some impact here. When the Mainland sneezes, we get a cold. For those who might not be fully aware of that, the last year or so has helped to make the point. But even under more favourable circumstances, we would be well advised to look beyond our cocoon. As a matter of fact, there’s an almost absolute absence of reflection or public debate on the evolution of the Mainland economy and society in general, or even the neighbouring regions, just to focus on those closer to us. And yet, one might think that the ‘external’ context would shape most of the opportunities and alternative paths for development that are or will be open for Macau. The integration of the Pearl River Delta goes on but the issue is hardly mentioned. Except, rarely, to say that the new bridge will contribute to the integration of the region. Sure, few would dispute that. At the very least, we will be able to collect players directly from Hong Kong International Airport. But that raises even more questions than those being unanswered. Then, Zhuhai engages in a huge development programme - and nothing seems to stimulate a bit of curiosity on this side of the border. Just for starters: how does Macau fit - sees itself fitting, or wishes to fit - into the plans Zhuhai has for its western areas? It won’t do to mention that the university is now located in Hengqin, or to say that some businesses from Macau may be allowed to invest there. What’s happening outside the university enclave goes much beyond that – but how many will remember any statement of substance on the subject? Then comes economic diversification. Any policies willing to have a sporting chance of succeeding will need to move past spreading money. They will require credible aims and a neat understanding of what the administration can and cannot – or should not – do. Without clarity of purpose and transparency of procedures, efforts to promote any new activity may leave us with less of a vibrant new business area and more of a patronage network – ever more dependent upon a generous flow of gambling taxes. Repetition of purpose or intention alone is not enough to change a stubborn reality; and assorted measures, even if momentarily popular, cannot substitute for effective and coherent policies. And we are not even touching here on the issues of human resources or labour policies.

‘New’ rules for gaming in 2016 Stricter regulations, a universal smoking ban, the mid‑term review and the opening of more casinos - this is the scenario unfolding for the gaming sector in 2016 Fátima Valente

y all accounts, the Macau gaming sector should be under stricter control and inspection during the course of next year. Regarding 2016, uncertainties are expected to linger around the sector – following 18 consecutive months of declining revenues – that is bracing for the introduction of a full smoking ban. The implementation of stricter control measures in casinos was stressed at the beginning of the month by the new Director of the Gaming Inspection and Co-ordination Bureau (DICJ), Paulo Chan. This policy consolidates the tighter control on the junket sector, which is expected to come into effect next year. The new rules were defined during the last quarter of this year on the heels of a high profile case involving internal fraud in a junket company. The embezzled money relating to the Dore incident is believed to amount to some HK$2 billion (US$250 million). Although the importance of the VIP segment in terms of casino revenues has been declining, junket operators still generate around 60 per cent of total gaming revenues. In 2016, more casinos from existing operators are expected to open their doors in the territory, although the government has stressed that it is committed to capping the growth of the number of gaming tables to three per cent per year. Next year, it also kicks off the midterm gaming sector review, which will be a litmus test for the gaming operators’ licence review, slated to happen between 2020 and 2022. For the Head of the Department of Social Sciences of the Hong Kong

Institute of Education, Sonny Lo, it is expected that operators will request the adoption of “an approach to the development of non-gaming elements”. Sonny Lo forecasts that the government will favour the recruitment and on-job training of local workers as well as a “deeper development of family-oriented tourism”. The academic also considers that terrorism will “shake the global economy and, as a consequence, will impact the economy of the Pearl River Delta”. Regardless, Macau tourism and the gaming sector “will continue to rely heavily upon tourists from the Mainland”. For his part, economist Albano Martins predicts that the recession of Macau’s economy, driven by the gaming sector situation, will linger until the end of the first half of the year. “I believe that it was the Central Government that took the decision to cool down Macau’s economy. In the same way this decision was taken by the Central Government, it will also be their decision that Macau’s economy will be authorised to grow seven, eight or nine per cent, without interference”, he posited. In 2016, the effects caused by the cooling down of the gaming sector should persist, the economist projected, while noting that during the decline of gaming revenue “the property market will not stand a chance of expanding”. The other positive aspects of this trend are the cooling down of inflation and “less pressure on the search for human resources”.

The unemployment rate may go up to two or 2.1 per cent, “as there is no longer the constant search for labour by the casinos”, Albano Martins explained. He also said that “at this moment, many people prefer not to work in the gaming sector, even if they are paid less [as] they don’t want to change jobs from casino to casino and eventually lose their job”.

Smoking ban

Another burning question for 2016 is that of the universal smoking ban in casinos, which is being considered in Macau’s Legislative Assembly. While the gaming operators are lobbying for the policy to be rejected, they commissioned a study by consultant KPMG that concluded that a full smoking ban in casinos would cause a 16 per cent decline in GDP [Gross Domestic Product]. Economist Albano Martins also says that this measure will have a “strong impact” upon casinos because most gamblers from the Mainland are smokers. “I’m not questioning the decision of the government not wanting the gaming sector to grow more than four per cent per year. I would be satisfied with that but it has to be openly admitted”, he said. “This would be very good for the local economy because the request for labour and the climbing of prices and rentals would not be so steep. The local economy would finally [adhere to] a natural logic”, he said. He also said that the 20 per cent growth of recent years was a “harmful logic” for the local economy. Lusa

Business Daily | 3

December 23, 2015

Macau

High-street shop rentals plunge 20 pct Shop rentals in some of the city’s prime locations frequented by tourists have seen a decrease of 20 to 30 pct year-on-year, a downtrend that could last longer, estate agencies predict Stephanie Lai

sw.lai@macaubusinessdaily.com

ith the city’s retail sector experiencing a downtrend this year, the shop rental level in prime locations has already experienced a decrease of at least 20 per cent year-on-year so far – an adjustment phase that is likely to continue throughout the coming months, estate agencies and the Macau Association of Retailers and Tourism Services said. The overall high street rental level of Macau, covering areas near tourist attractions São Domingos Church and St. Paul’s Ruins, has decreased 20 per cent to 30 per cent compared to 2014, according to a rough count by retailer association director Frederick Yip Wing Fat and estate agencies. “In some prime locations such as the areas of São Domingos Church and St. Paul’s Ruins, we have even seen cases where the rental drop is 30 per cent or more,” associate director at Jones Lang LaSalle (Macau) Ltd. Oliver Tong told us, “Shop space transactions have also been largely silent: less than 10 transactions were completed in these areas in the second half of this year.” An even more radical drop in rent was observed in the ZAPE district on the Macau Peninsula, also a prime location near several casinos with streets lined with pawnshops and restaurants, according to Ricacorp (Macau) Properties Ltd. “The rent of some shops located near the casinos in the ZAPE district has gone down by some 40 per cent so far this year,” according to Ricacorp

Macau’s chief associate director Franky Fong, “For instance, the owners used to lease shops in that area at about HK$500 (US$64.4) per square foot, and now it’s dropped to HK$300 or less per square foot.” The vacancy rate of shops in the ZAPE district is also high at around 13 per cent, Mr. Fong added. Macau’s retail sales, which saw much milder growth last year, saw a decline for the first three quarters of this year, data from Statistics and Census Service reveals. For the January to September period, the value of retail sales here is down 10.4 per cent year-on-year to MOP45.3 billion, where a double-digit decline is evident in the value of retail sales in watches, jewellery and leather

goods, according to the census service. Speaking to media at an event last week, Mr. Frederick Yip espoused a pessimistic outlook on the retail sector for the coming six months with the expectation that overall retail sales value is likely to decline further. Macau Government Tourist Office head Maria Helena de Senna Fernandes has also noted before that the city may record a slight drop in visitor arrivals for this year, when compared to the 31.5 million recorded in 2014.

Downward pressure

High street rentals here may see further room to drop next year given the weak retail trend, more sluggish growth in visitor arrivals and more supply of shop space available

Imperial Pacific resolves high shareholding concentration

nvestment company Imperial Pacific International Holdings Ltd. has indicated that the high concentration of its shareholding is no more present, as major shareholder Inventive Star Ltd. already decreased its holding shares from 75 per cent of the total to 64.6 per cent earlier this month, it informed Hong Kong Stock Exchange on Monday evening. According to its filing, Imperial Pacific had also completed a convertible note placing of HK$841.9 million (US$104.8 million) and a share placing of some 3.47 million shares to more than six independent places in August this year to divert its shareholding. In July this year, Hong Kong’s

Securities and Futures Commission warned investors that the company’s major shareholder, Inventive Star, with some other 18 shareholders, held 92.6 per cent of the issued shares of the company as at July 15, warning that ‘investors should be aware that the price of the shares of the company could fluctuate substantially.’ Meanwhile, another filing of Imperial Pacific on Monday evening announced that executive director Xia Yuki Yu had acquired 11,000,000 shares of the company on the open market for a total consideration of HK$1.94 million on Monday, representing 0.02 per cent of the total issued share capital of the company. K.L.

following the completion of more Cotai casino-resorts, Mr. Tong of Jones Lang LaSalle Macau reckons. “For the luxury or super luxury brands, for sure their very weakened sales have driven them to get much more cautious in their expansion plan here,” he said. “But some other international brands engaged in fast fashion, cosmetics and sports have still shown keen interest in exploring the Macau market to see if they can branch out or set up their first shop in the prime locations.” “These brands are considering the factors of whether the current shop rent level has further room to drop and whether the owners here, many of whom are individual landlords in the prime locations, can accept the bargain with a

more flexible dealing structure when charging rent,” Mr. Tong added. The Jones Lang LaSalle agent estimated that the shop rent of prime locations could drop a further 10 per cent to 20 per cent compared to current levels. Mr. Fong of Ricacorp Macau, on the other hand, estimated that the fall seen in high street shop rentals this year would begin to stabilise in the coming six months. “Now in the ZAPE district, we’ve seen more clients who are interested in moving their businesses there,” he said. “These businesses are mostly the smaller-scale retailers or restaurants from the residential neighbourhoods, and now they are looking to see if they can settle in this prime district.”

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December 23, 2015

Macau SARs to simplify IDloss procedures for returning residents

China Aircraft Leasing Group delivers second plane to Air Macau

ircraft lessor China Aircraft Leasing Group Holdings Ltd. has announced that it completed delivery of its second aircraft to Air Macau in Germany on Monday, with two remaining aircraft to be delivered to the Macau flag carrier by early next year. In a company statement released yesterday, Hong Kong-listed China Aircraft Leasing Group said the newly delivered aircraft to Air Macau, a A321 Airbus, had been financed by South Korea shipping and aviation house Korea Development

Bank (KDB), its Hong Kong arm KDB Asia Ltd. and KEB Hana Bank. The newly delivered Airbus is also the 61st aircraft to be delivered by China Aircraft Leasing Group’s fleet. In a filing dated May 29, the aircraft lessor said it has entered into agreements with Air Macau to lease one A320 Airbus and three A321 Airbuses. The lease deal agreed with the city’s flag carrier would give China Aircraft Leasing Group an expected average annual return on assets of 1.77 per cent, according to the filing.

The first delivery of the aircraft to Air Macau was completed in October, with the other to be delivered by early next year, the aircraft lessor noted in its statement. Air Macau, a subsidiary of state-owned Mainland China operator Air China Ltd, is currently replacing its older aircraft, replacing one to two each year – a replacement plan that will take it up to 2020, airline chairman Zheng Yan told reporters in March. Air Macau targets having 24 aircraft by 2018. S.L.

he authorities of Hong Kong and Macau are to implement simplified Customs arrangements for residents who lose their travel documents used to enter the other territory and having no other document for departure during the first quarter of next year. The new arrangement would allow Macau residents to proceed directly to the Macau Ferry Terminal in Sheung Wan or the China Ferry Terminal in Tsim Sha Tsui to report the loss and present for departure clearance in one go. Meanwhile, for those having enrolled for the automated clearance services, the Hong Kong Immigration

Department will speed up the process through the checking system to verify identity with the Macau resident’s consent, while further verification of identity with the local authorities will not be required. Likewise, Hong Kong residents who lose their travel documents in Macau can report to the city’s Outer Harbour Ferry Terminal or the Taipa Ferry Terminal for departure formalities directly rather than approaching the Immigration Department Office Building in Taipa to report the loss and apply for the Declaration of Loss of Document under the current arrangement.

Business Daily | 5

December 23, 2015

Macau gaming Lippo: ‘Uncertain if Korean casino project will proceed’

Food souvenir stores in ‘cutthroat’ competition Legislator Ng Kuok Cheong says some food souvenir stores in central Macau are trying to poach customers from competitors by conducting aggressive sales behaviour Kam Leong

kamleong@macaubusinessdaily.com

egislator António Ng Kuok Cheong claims that aggressive sales behaviour has been observed amongst local food souvenir shops in recent months, and urges the government to take appropriate measures to tackle such cutthroat competition in the industry. The directly-elected legislator filed a written interpellation yesterday, indicating that some of the food souvenir shops have recently been trying to intercept customers entering their competitors’ shops, as well as orally criticising the product qualities of other stores to customers. “This behaviour is found in the souvenir street near the Ruins of Saint Paul’s. According to the shop operators, this destructive competition started few months ago,” Mr. Ng told Business Daily in a phone interview yesterday. Nevertheless, the legislator does not believe that the negative competition is due to the city’s

economic downturn. “It is not because their businesses got worse,” he claimed. Declining to reveal the names of shops conducting the aggressive behaviour, the legislator told us that they are not “the two biggest food souvenir chain operators.” Business Daily understands that Choi Heong Yuen Bakery and Koi Kei Bakery are the city’s two biggest food souvenir brands, operating 14 and 21 stores in the city, respectively. Meanwhile, according to Mr. Ng, the affected stores are middlescale souvenir shops in the area. He indicated that one of the shops had already reported the case to the city’s Judiciary Police (PJ). In fact, the legislator alleged such behaviour violates the regulations on unfair competition in the city’s Commercial Code. He expressed his concerns that the tourism image of the Special Administrative Region would be affected if more shops

engage in such negative competition. Mr. Ng urged the government to communicate with the industry as soon as possible in order to correct such behaviour to protect the city’s economic development. Meanwhile, the president of the Macau Pastry Speciality Association, Lam Vai Hong, admitted that his Association had received letters reporting similar aggressive sales behaviour mentioned by the legislator. He told local broadcaster TDM Radio yesterday that the Association is working on the issue now, urging the industry to behave. The Association head also indicated that it is not necessary for the souvenir industry to conduct cutthroat competition as the business of the industry has only dropped by some 10 to 20 per cent year-on-year in general, which he perceives “is not that bad” as the city receives more than 30 million tourists a year.

roperty developer Lippo Ltd. said it is unsure whether its joint gaming project with US-based gaming operator Caesars Entertainment Corp. in Incheon, South Korea would be able to proceed due to ‘a number of uncertainties’, according to its filing with the Hong Kong Stock Exchange on Monday evening. At the end of last year the consortium of the subsidiaries of Lippo and Caesars obtained a conditional deal to acquire a land plot occupying some 89,170 square metres for their gaming project with the vendor MIDAN City Development Co. Ltd, which is 55 per cent owned by Lippo. In Monday’s filing, Lippo, however, indicated the parties have not yet met consensus on all the conditions in their conditional land sale and purchase agreement which expires at the end of this year. ‘There is no certainty as to whether the project will or will not proceed,’ Lippo stated, saying ‘there remain a number of uncertainties.’ These ‘uncertainties’, according to Lippo, include whether the conditional land deal would eventually take place, and whether the members of the consortium are able to agree and finalise the investment in the project. The consortium for the Korean gaming project, named LOCZ Korea Corp., comprises Lippo’s wholly owned subsidiary Lippo Worldwide, partly-owned OUE International and Caesars Entertainment’s subsidiary Caesars Korea. Lippo added that the consortium has entered into discussions and negotiations with MIDAN in order to seek mutually acceptable solutions to progress certain of the outstanding conditions as well as the possibility of extending the deadline for the agreement. The Lippo-Caesars joint venture was given the green light by the Ministry of Culture, Sports and Tourism of the Republic of Korea to design, develop, construct and own the gaming project in Incheon in March last year. The consortium planned to invest 743.7 billion won (HK$4.92 billion/ US$61.3 million) in the first phase of the project by 2018 and a total of 2.3 trillion won for the whole project, which will include a foreigner-only casino, hotels, residential buildings, convention centres and shopping malls. K.L.

Business Daily | 7

December 23, 2015

Macau

Stanley Ho invests in Gold Coast Ho family has plans for A$120 mln residential complex on golf course it has owned for 20 years

aming mogul Stanley Ho Hung Sun is to invest A$120 million (HK$674 million/US$87 million) in developing a golf course on the Gold Coast of Australia which he has owned for 20 years into a residential apartment complex, Australian newspaper the Financial Review reported yesterday. The news outlet quoted Mr. Ho’s legal representative, Tony Hickey, as saying that the reason he is preceding with the development is due to the surging number of Chinese tourists visiting the Gold Coast, as well as the positive influence of the Australian city hosting the Commonwealth Games in 2018. “The Ho family is proceeding with the development because they see it as the right time…There is an upturn in tourism, particularly from China, and the family is very attuned to the opportunities, especially with new aeroplane flights from Asia into the city,” the Australian lawyer said. Mr. Ho’s new residential project called Eleve Residences - will feature one-bedroom apartments priced from A$279,900, two-bedroom units from A$399,900, and three bedroom units from A$544,900. According to the newspaper, the 94-year old gaming tycoon is planning to invest some A$3 billion in the Australian city over the coming three years, developing both residential and hotel projects. K.L.

Jimei International: HK$50 mln deferred bond issuance lapses

ong Kong-listed junket investor Jimei International Entertainment Group Ltd. has announced the lapse of the issue of a deferred bond in the amount of HK$50 million (US$6.45 million), which was originally meant to supplement the company’s issue of convertible bonds worth nearly HK$315 million. The issuing of the convertible bond was completed on December 2. ‘…the subscriber of the deferred bond has failed to perform certain of his completion obligations pursuant to the subscription agreement, [thus] the issue of the deferred bond in the aggregate principal amount of

HK$50 million lapsed on December 18, 2015,’ Jimei International told the Hong Kong Stock Exchange on Monday. Estimated net proceeds from the issue of the convertible bonds are intended to be used for general working capital of Jimei International and as funds for future development of the existing business, including ‘development of the entertainment and gaming business in Australia and Cambodia’, the junket investor said. The lapse of the issue of the deferred bond ‘will not materially affect the future development of the group,’ Jimei International stated. S.L.

8 | Business Daily

December 23, 2015

Greater China

Desperately searching for growth China’s leaders flag more stimulus following top economic meeting

hina’s leaders signaled they will take further steps to support growth, including widening the fiscal deficit and stimulating the housing market, to put a floor under the economy’s slowdown. Monetary policy must be more “flexible” and fiscal policy more “forceful” as leaders create “appropriate monetary conditions for structural reforms,” according to statements released at the end of the government’s Central Economic Work Conference by the official Xinhua News Agency on Monday. It said the fiscal deficit ratio should be raised gradually. While the leadership also endorsed structural reforms and reining in China’s increasing reliance on credit, the macroeconomic policy statements indicated concern about letting the economy’s expansion slow too much. "Although the overall cyclical policy stance is set to be ’steady’, the tone on fiscal, monetary and other policies was modestly dovish," economists at Goldman Sachs Group Inc. led by Song Yu wrote in a note. "The more positive cyclical policy tone from this conference makes us somewhat more comfortable with our forecast of only a moderate growth deceleration in 2016." The government’s annual growth target is typically set at the gathering, though not announced. President Xi Jinping has previously suggested the nation must meet a minimum annual average growth pace of 6.5 percent through 2020.

‘Concerted easing’

“They have a challenge to restore their own credibility, and to that end we’ll see concerted easing efforts in order to try to turn the economy around, at least in the short term,” said Mark Williams, the chief Asia economist at Capital Economics Ltd. in London. “It’s clear that policy in

a broad sense is still being eased, and it’s reasonable to expect looser fiscal policy next year and also looser monetary policy.” The growth target this year was for a rate of about 7 percent. Even meeting that, China would see its weakest expansion since 1990. Officials also pledged assistance for rural residents seeking to buy homes in urban areas and encouraged cheaper residential prices, which would help shrink a glut of unsold properties. The government will promote “consolidation of property developers” and encourage them to change marketing strategies, Xinhua reported. Outdated restrictions on home ownership will be removed, according to the report. Monetary policy flexibility has been a theme in recent months as China’s central bank moves toward creating what it calls an interest-rate corridor to guide borrowing costs, away from the old model of setting lending and deposit rates directly.

Monetary measures

People’s Bank of China officials including research bureau chief economist Ma Jun have mapped out such moves, including setting the seven-day Standing Lending Facility interest rate as the ceiling and interest on excess bank reserves as a floor for rates. The PBOC recently surveyed banks on the possibility and potential impact of removing its benchmark deposit and lending rates, people familiar with the matter said Monday. The survey won’t necessarily result in the immediate removal of benchmark rates, according to the people, who asked not to be identified as the matter hasn’t been made public yet. Communist Party officials in their look toward 2016 also affirmed they will step up supply-side reforms such as dealing with overcapacity,

Xinhua said. Top leaders explored such a major policy shift when they met in October to discuss a new fiveyear economic plan, according to an official familiar with the meeting. Cutting costs for businesses “will be a major task” next year and the government should streamline administrative procedures, cut taxes and fees, and reduce social security contributions to help lower expenses, according to the agency. Financial regulators should reduce financing costs for companies and help “normalize interest rates” to benefit the economy. Authorities also should consider lower value-added taxes on manufacturing, it said. The case for additional stimulus has been strengthened by capital outflows after an August currency devaluation, some weaker-thanforecast economic data and the

aftermath of a stock-market slide that started in June. Inflation data for November showed there’s scope for looser monetary policy, with consumer prices rising about half the government’s targeted pace and producer prices falling for a record 45th straight month. “Expanding the fiscal deficit ratio is the best choice available,” said Yao Wei, a Paris-based China economist at Societe Generale SA. “More flexibility in monetary policy means further easing, even as a supplement to fiscal policy.” China’s government spending surged in November at more than double the pace of gains for revenue, a signal the government has stepped up fiscal stimulus. Fiscal spending jumped 25.9 percent from a year earlier to 1.61 trillion yuan (US$249 billion), while revenue rose 11.4 percent to 1.11 trillion yuan, the Finance Ministry said in a statement last week.

Rebalancing economy Additional Central Economic Work Conference pledges: Further steps to “guard against and defuse financial risks” in 2016, and to effectively defuse local-government debt risks. Promote “mass entrepreneurship and innovation” and continue to implement an innovation-driven strategy. Reduce poverty by establishing a detailed register of the poor population and offering tailored assistance. Offer more support for companies to upgrade technology and equipment, and reduce debt with “innovative financial policies.” Beef up agricultural production to ensure food security and stable income growth for farmers by modernizing infrastructure and technology to boost capability and quality.

Robust consumption and strength in services hasn’t proved enough to offset the drag from slumping oldeconomy sectors including steel, coal and cement. President Xi said last month that average annual growth must be no lower than 6.5 percent in the next five years to realize China’s goal of doubling 2010 output and per capita income by 2020. Growth will slow to 6.9 percent this year and 6.5 percent next year, according to the median of estimates Bloomberg surveys of economists. The latest round of economic data showed signs the economy is stabilizing after policy makers unleashed several rounds of monetary and fiscal stimulus. Industrial output climbed 6.2 percent in November from a year earlier, while retail sales gained 11.2 percent for the best reading of 2015. Bloomberg

Business Daily | 9

December 23, 2015

Greater China

Rescuers race to find survivors

lmost 3,000 rescuers have been dispatched to the southern Chinese city of Shenzhen to search for survivors of the Sunday landslide that’s left dozens missing at a local industrial park. One body was retrieved early yesterday morning, the official Xinhua News Agency reported. City officials had the night before revised the number of missing to 85 from 91, Xinhua reported. Rescuers, including those from the armed forces, were scouring the area with search dogs and equipment designed to detect signs of life, it said. About 900 people had been evacuated and at least 16 were hospitalized, according to the report. While authorities are still looking into the cause of the landslide, an initial government investigation showed it may have been the result of a man-made pile of earth and construction debris. That’s drawing further scrutiny to safety practices in China, which has experienced a spate of deadly incidents including an August explosion at a warehouse in the city of Tianjin that killed at least 114 people.

People stand in the mud of a landslide as they watch the rescue works going on at the collapsed factory buildings

Shenzhen officials have started a comprehensive safety overhaul of seven other construction waste dumps in the city. The State Council, China’s cabinet, also dispatched a team of senior officials and experts, led by State Councilor Wang

Yong, to oversee the rescue. A leak was also discovered in a branch of PetroChina Co.’s East West Gas Pipeline linking Shenzhen with Guangzhou following the accident, China Central Television said on its official microblog.

The pipeline supplies southern China and Hong Kong with natural gas from Turkmenistan. CLP Holdings Ltd., a Hong Kong electricity supplier, said it was informed by PetroChina that one natural gas pipeline was

damaged as a result of the landslide, according to an e-mailed statement. CLP is increasing generation capacity by using coalfired units at its Castle Peak Power Station, according to a statement Monday. Bloomberg

10 | Business Daily

December 23, 2015

Greater China

The price of safety Fearing pollution, Chinese families build “bubbles” at home Alexandra Harney

oshiba Corp. fell to the lowest in more than six years in Tokyo after forecasting a record 550 billion yen (US$4.5 billion) loss and announcing plans to cut more jobs as it restructures businesses. The shares finished down 12 percent at 223.5 yen, their lowest since March 2009. Including a decline of 9.8 percent on Monday, the Japanese company had lost about US$2 billion of market value over the past two days. Toshiba has been dogged by an accounting scandal, prompting the company to consider third-party alliances for some units and a restructure of the business that makes TVs and PCs. President Masashi Muromachi is considering options such as listing the memory chip division or selling a majority stake in a medical equipment unit after restating earnings across seven years. “Considering how bad things have gotten, this level of restructuring is the least they can do,” said Mitsushige Akino, Tokyo-based executive officer at Ichiyoshi Asset Management Co., which doesn’t hold Toshiba shares. “They need to do more, but it’s not as simple as cutting people and closing unprofitable businesses. The questions is what will the results be two years after the restructuring.”

The projected net loss for this fiscal year includes 260 billion yen in taxes because of a reversal of deferred income- tax assets, it said in a statement Monday. The forecast doesn’t include possible impairment of goodwill and fixed assets at the company’s nuclear power systems business because Toshiba is still checking that, it said.

New management

The company plans to sell a majority stake in Toshiba Medical Systems, a maker of diagnostic imaging systems such as MRI, X-ray and

ultrasound equipment, to outside investors. “At least 50 percent and as much as 100 percent,” Muromachi told reporters in Tokyo on Monday. “That will depend on the talk with a buyer, but we already have been approached by several companies.” Toshiba Medical, Japan’s largest medical equipment company, could fetch “several hundred billion yen,” Yukihiko Shimada, a senior analyst at SMBC Nikko Securities, wrote in a research note on Tuesday without giving a more specific estimate. The health care

Bloomberg

A man weares a mask in front of the China Central Television (CCTV) Tower during a hazy day in Beijing

Controversial law looks set to pass this month

division, which includes medical equipment and other businesses that it doesn’t plan to sell, had sales of 409.5 billion yen in the 12 months ended March and operating income of 23.9 billion yen, according to data compiled by Bloomberg. The company is also considering the sale of property and investments after earlier selling its holding in elevator maker Kone Oyj. Other plans include accounting training, corporate governance reviews, management seminars and an evaluation system for the president and chief executive officer.

Muromachi is working with new management after former presidents Hisao Tanaka, Norio Sasaki and Atsutoshi Nishida resigned in July to take responsibility for the accounting irregularities. The company said it would seek damages in a lawsuit against former executives, including the three and two former chief financial officers, over their role in the scandal. Toshiba itself still faces lawsuits from shareholders, while it has vowed to avoid recurrence by bringing in more outside directors and cut executive pay. Regulators have yet to announce the results of probes seeking evidence for possible criminal prosecutions of former executives. In addition to workforce cuts in the lifestyle business, the company will reduce its corporate division by 1,000 people and chip operations by 2,800 workers. Toshiba had about 198,700 employees as of March 31, the lowest since at least 2009.

hina’s controversial anti-terrorism law could be passed as soon as the end of this month, state news agency Xinhua said on Monday, legislation that has drawn concern in Western capitals for its cyber provisions. The draft law, which could require technology firms to install “backdoors” in products or to hand over sensitive information such as encryption keys to the government, has also been criticised by some Western business groups. U.S. President Barack Obama has said that he had raised concern about the law directly with Chinese President Xi Jinping. The White House and U.S. State Department did not immediately respond on Monday to requests for comment on the latest development regarding the anti-terrorism law. Xinhua said the law was having another reading at the latest session of the standing committee for China’s largely rubber stamp parliament, the National People’s Congress, which ends on Sunday. Officials at the meeting believe the draft for the law is “already quite mature” and have “suggested” it be put forward for approval, Xinhua said, without elaborating. The initial draft, published by

parliament late last year, requires companies to keep servers and user data within China, supply law enforcement authorities with communications records and censor terrorism-related Internet content. China has said many Western governments, including the United States, have made similar requests for encryption keys, and Chinese companies operating in the United States had been subject to intense security checks. Although the counter-terrorism provisions would apply to both domestic and foreign technologies, officials in Washington and Western business lobbies have argued the law, combined with new draft banking and insurance rules and a slew of anti-trust investigations, amount to unfair regulatory pressure targeting foreign companies. A new Chinese national security law, adopted in July, has as a core component a provision to make all key network infrastructure and information systems “secure and controllable”. China is drafting the anti-terrorism law at a time when officials say it faces a growing threat from militants and separatists, especially in its unruly far Western region of Xinjiang. Reuters

Six arrested over small blast outside Hong Kong legislature

ong Kong police confirmed yesterday that six men had been arrested in connection with a small blast outside the city’s Legislative Council earlier this month. Five men, aged 18 to 22, were arrested on suspicion of arson on Monday morning and a 24-yearold man was arrested later in the evening, a police spokeswoman said. The six, who included four college students, were under investigation but no charges had yet been laid. The small blast followed hours after a contentious copyright bill, which opponents say will restrict freedom of expression, had been listed for debate but was adjourned when not enough legislators turned up. No one was injured. The South China Morning Post said two of the six were members of a pro-Hong Kong independence group, Valiant Frontier, which had rallied online against the controversial copyright bill. The bill aims to amend the

city’s copyright laws by extending the protection of copyright owners to the Internet. Opponents of the copyright legislation worry it could restrict freedom of speech, creativity and political satire in a city chaffing at what many residents see as a gradual whittling away of civil liberties by the Beijing government. “Hong Kong residents have the right to express their opinion in a legal, peaceful, and rational way, but we can not accept any form of expression which is violent, against the law, and hurting others while causing damage to property,” Hong Kong leader Leung Chunying told reporters late on Monday. “The SAR government and police will seriously deal with any illegal matter,” Leung said as he left for Beijing. Last year, tens of thousands of protesters blocked major roads for weeks in a push for full democracy, presenting Beijing with one of its most serious challenges in years. Reuters

Business Daily | 11

December 23, 2015

Asia

Toshiba Corp’s headquarters (L) in Tokyo

Toshiba in deep trouble Plumbs six-year low after US$4.5 billion loss forecast Pavel Alpeyev and Grace Huang with Takashi Amano

to consider third-party alliances for some units and a restructure of the business that makes TVs and PCs. President Masashi Muromachi is considering options such as listing the memory chip division or selling a majority stake in a medical equipment unit after restating earnings across seven years. “Considering how bad things have gotten, this level of restructuring is the least they can do,” said Mitsushige Akino, Tokyobased executive officer at Ichiyoshi Asset Management Co., which doesn’t hold

Toshiba shares. “They need to do more, but it’s not as simple as cutting people and closing unprofitable businesses. The questions is what will the results be two years after the restructuring.” The projected net loss for this fiscal year includes 260 billion yen in taxes because of a reversal of deferred income- tax assets, it said in a statement Monday. The forecast doesn’t include possible impairment of goodwill and fixed assets at the company’s nuclear power systems business because

Invest to collect Japanese govt targets growth, fiscal reform in record budget spending plan Tetsushi Kajimoto

he Japanese government is planning nearly US$800 billion of record spending in the next fiscal year to shore up a fragile economy, with Tokyo also promising to rein in a bulging debt burden in an expansionary budget set to be unveiled this week. Finance Minister Taro Aso yesterday vowed to boost growth and achieve fiscal reform with government budget spending worth 96.7 trillion yen (US$797.53 billion) for the next fiscal year that starts in April. This is up a touch from the 96.3 billion yen spending set for the current year's initial budget. Confirming figures reported by Reuters last week, Aso said tax revenue is estimated at a 25-year high of 57.6 trillion yen in fiscal 2016.

Japanese Prime Minister Shinzo Abe

Toshiba is still checking that, it said.

New management

The company plans to sell a majority stake in Toshiba Medical Systems, a maker of diagnostic imaging systems such as MRI, X-ray and ultrasound equipment, to outside investors. “At least 50 percent and as much as 100 percent,” Muromachi told reporters in Tokyo on Monday. “That will depend on the talk with a buyer, but we already have been approached by several companies.”

That revenue assumption, based on an expected economic growth of nominal 3.1 percent and real 1.7 percent, will allow the government to slash new bond issuance by 2.4 trillion yen from this year to 34.4 trillion yen, he said. The budget plans signal a growing commitment by Prime Minister Shinzo Abe to rein in the industrial world's heaviest debt burden even as he continues to pump-prime the economy via a cocktail of expansionary policies. "This budget is appropriate for marking the first step towards our new fiscal plan while we aim for economic revival and fiscal consolidation at the same time," Aso told reporters after he presented the budget figures at a meeting between government officials and ruling party lawmakers. Aso said the government is making a progress towards achieving a primary budget surplus - excluding new bond sales and debt servicing - by the fiscal year ending March 2021. The decreasing level of new borrowing and rising tax income on the back of corporate profits will bring Japan's fiscal dependence on bond financing to 35.6 percent in fiscal 2016 - the lowest since fiscal 2008, just before the global financial crisis dealt a blow to the world's third largest economy.

Toshiba Medical, Japan’s largest medical equipment company, could fetch “several hundred billion yen,” Yukihiko Shimada, a senior analyst at SMBC Nikko Securities, wrote in a research note on Tuesday without giving a more specific estimate. The health care division, which includes medical equipment and other businesses that it doesn’t plan to sell, had sales of 409.5 billion yen in the 12 months ended March and operating income of 23.9 billion yen, according to data compiled by Bloomberg. The company is also considering the sale of property and investments after earlier selling its holding in elevator maker Kone Oyj. Other plans include accounting training, corporate governance reviews, management seminars and an evaluation system for the president and chief executive officer. Muromachi is working with new management after former presidents Hisao Tanaka, Norio Sasaki and Atsutoshi Nishida resigned in July to take responsibility for the accounting irregularities. The company said it would seek damages in a lawsuit against former executives, including the three and two former chief financial officers, over their role in the scandal. Toshiba itself still faces lawsuits from shareholders, while it has vowed to avoid recurrence by bringing in more outside directors and cut executive pay. Regulators have yet to announce the results of probes seeking evidence for possible criminal prosecutions of former executives. In addition to workforce cuts in the lifestyle business, the company will reduce its corporate division by 1,000 people and chip operations by 2,800 workers. Toshiba had about 198,700 employees as of March 31, the lowest since at least 2009. Bloomberg

KEY POINTS FY2016/17 budget spending at 96.7 trln yen Tax income at 25-yr high; new bond issue at 8-yr low Budget marks first step towards Japan’s fiscal goal

Still, the level of bond financing remains relatively high. "Abe administration has done the utmost to pursue both economic revival and fiscal reform," Abe told the meeting, noting that tax revenue has risen by 15 trillion yen and bond issue has fallen by 10 trillion yen since he took office in late 2012. "The results were clear. Together with everyone, I want to follow this path with confidence." The draft budget is expected to be endorsed by the cabinet tomorrow and sent to parliament for approval early next year. Reuters

12 | Business Daily

December 23, 2015

Asia opinion

Widodo in a tight spot

McDonald’s Japan is no Happy Meal for US parent

Rising Indonesian budget deficit puts President in trouble

David Fickling Bloomberg

cDonald’s Japanese subsidiary has had its share of problems in recent years -- potato shortages, expired Chinese meat, not to mention reports of a human tooth turning up in a serve of fries. Its U.S. parent looks to be following the example set by Yum! Brands and taking steps to quarantine itself from a struggling Asian business. It plans to sell as much as 33 percent of the outstanding shares to reduce its 50 percent stake and has held meetings with five or so potential buyers, the Nikkei newspaper reported yesterday. Investors who want to avoid indigestion should take their time before swallowing any shares. For all the stomach-churning news that’s emerged from the company over the last two years, there’s reason to think it’s on the mend. The business posted its first yearon-year increase in revenues since 2011 in the September quarter and should grow sales by 25 percent in the current quarter if it reaches its forecast of 200 billion yen (US$1.65 billion) in full-year revenues: It’s a similar picture when you look at sales from stores open at least 12 months. Sure, the numbers still have a minus sign in front of them, but by recent standards, it’s a glowing result: On top of that, you have the company’s exposure to one of the better-performing sectors of Japan’s economy. More Japanese are eating out as female workforce participation overtakes the U.S. and the weaker yen raises fresh food prices, making home- cooked meals less competitive. Three of the 10 most richly valued restaurant stocks globally at the moment are in Japan, according to data compiled by Bloomberg -- four if you include Australia’s Domino’s Pizza Enterprises, which counts Japan as its largest market with 45 percent of revenues. The only problem is that McDonald’s Japan is far from the cheapest item on the investment menu. Looking at its share price, you’d be hard pressed to spot the bits where the company announced 16 billion yen of one-time costs and forecast a 38 billion yen annual loss. Price-earnings data isn’t a very reliable yardstick for this business: Only one analyst is providing forward earnings estimates, Bloomberg data show, and there’s not been a positive net income figure in six quarters so retrospective measures don’t work either. Comparing the price of McDonald’s Japan to its sales or its net assets suggests shareholders would be better off buying Skylark, Colowide or Yoshinoya, which are all cheaper on most measures and have the virtue of being profitable. It’s understandable the U.S. parent company wants to take the opportunity of this mispricing to offload stock at a decent sum. But investors who start eating without waiting for the shares to drift lower may be left with a bad taste.

Nicholas Owen and Gayatri Suroyo

legislated cap on Indonesia’s budget deficit has created a headache for President Joko Widodo and could leave his agenda at the mercy of a parliament he does not control. With growth at a six year-low, the currency not too far from its weakest since the Asian financial crisis and investors wanting more reforms to go ahead, a political stalemate would further weaken confidence. If the deficit tops 3 percent of gross domestic product, thus breaking a 2003 law, some opposition politicians say this could spark a bid to impeach the president - though that’s a remote possibility. The ceiling might be breached when 2015 accounts are eventually completed, as tax collection has been far below ambitious targets. With resource revenue tumbling, the 2015 deficit will be the largest for at least 25 years. It’s now forecast at 2.78 percent, from an initial 1.9 percent estimate, excluding deficits run by local governments. “If the law is broken, we can impeach the government,” said Fadel Muhammad, a member from opposition party Golkar who heads parliament’s finance commission. “We suggest (the government) does not let it happen.” One reason impeachment is highly unlikely is that to start the process, two-thirds of the 560 legislators or 374 - would have to ask a court if there are grounds to remove the

president, and the opposition has only 204 seats. The deficit-cap law does not mention impeachment, or specify any sanctions for an offending government, so no one knows what might happen if the 3 percent cap is broken. “For laws that don’t have clear sanctions, what happens depends on the political constellation,” said Refly Harun, a constitutional lawyer. Willgo Zainar, a member of parliament from the opposition Gerindra party, said breaking a law would have consequences and Parliament “will question the president’s accountability”. Indonesia, Southeast Asia’s largest economy, has taken a hit from slowing growth and sinking commodity exports. In January-October, the government collected 1,100 trillion rupiah (US$80 billion) in revenue, just 62 percent of the year’s targeted total, as receipts dropped by 9.8 percent. While tax takings have fallen, the government has aimed to step up spending, particularly for infrastructure, to boost slack growth, which has contributed to a rising budget deficit. At the same, Widodo has pledged tax breaks to companies in a bid to draw more investment, especially in manufacturing. But with the deficit getting near 3 percent, any foregone revenue would likely require spending cuts. This is the first time there’s a significant chance the cap will be breached.

The Asian link EU to start trade talks with Philippines in bid for faster growth Robin Emmott

he European Union and the Philippines agreed yesterday to start free-trade talks next year in Europe's latest effort to tap into Asia's faster economic growth. In contrast to weakness in Europe, the Philippine economy has outpaced most of its Asian neighbours in the past two years and has proven resilient to China's slowdown. "We need to make sure our companies enjoy the right conditions to seize the great potential of that market of 100 million consumers," the EU's trade chief Cecilia Malmstrom said of the nation of islands, following the

agreement with Philippine Secretary of Trade and Industry Gregory Domingo. A deal would follow the EU's accords with Singapore, Vietnam and South Korea, part of a plan by the world's biggest trading bloc to sign deals with the 10-member Association of South East Asia (ASEAN), strongly supported by Britain and Germany. After years of stalemate, confirmed by the split at the weekend over world trade talks in Nairobi, countries are seeking bilateral trade deals, rather than a global agreement. While the Philippines ranks just 44th of the EU's many trade partners,

“We are being vigilant,” said Darmin Nasution, the chief economy minister, when asked if he was worried by the deficit. “It is already near 3 percent.” Last week, the finance ministry said it would assume local governments would run budget deficits equal to 0.1 percent of gross domestic product this year. The previous assumption was 0.3 percent.

Getting more leeway

That revision gives the central government a bit more leeway. Finance Minister Bambang Brodjonegoro said the government could safely run a deficit of 2.9 percent, though it would still seek to limit the shortfall to 2.5-2.7 percent. Even if the deficit does not breach the limit in 2015, the years when Indonesia ran small deficits are over, economists say, so it seems only a matter of time before it does. “We think it’s become a 2-3 percent of GDP fiscal deficit economy,” ING Bank analysts wrote in a report. When parliament passed the deficit law in 2003, Indonesia was struggling to restore confidence with its creditors after the Asian crisis. More than a decade later, however, the case for strict deficit controls is less obvious. Some economists are calling for them to be relaxed, so that spending to build roads, ports and power stations can be maintained. But Nasution said revoking the cap was not under consideration. Reuters

commerce with Southeast Asia's fifthlargest economy has been growing at a double-digit rate, taking it to over 12 billion euros (US$13 billion) last year. Just as the United States has sought to shift its focus to Asia, the European Union is also trying for a trade deal with Japan and is in talks to deepen investment ties with China, potentially a precursor to a free-trade accord. For the Philippines, the EU is its fourth-largest trading partner and an accord should provide access to the EU's 500 million consumers, particularly for the country's agricultural sector that accounts for more than a tenth of economic output. However, as in the EU's other trade negotiations, the proposed accord will seek to go well beyond the import and export of goods to include protection of intellectual property rights, environmental protection and social issues. That could mean negotiations take time and following the failure of world trade talks, the European Union is wary of timetables. The first round of negotiations is set for the first half of 2016 in the Philippines. Reuters

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Business Daily | 13

December 23, 2015

International

Qatar National Bank to buy Turkey’s Finansbank Isobel Finkel and Arif Sharif

atar National Bank SAQ, the Gulf country’s biggest lender, agreed to buy National Bank of Greece SA’s stake in its Turkish unit for 2.7 billion euros (US$2.95 billion). The deal to buy NBG’s 99.8 percent holding in Finansbank AS is subject to regulatory approvals and expected to close in the first half of 2016, the Doha-based lender said in an e-mailed statement yesterday. Statecontrolled QNB will finance the purchase with its own funds and will remain "strongly capitalized" after the acquisition, according to the statement. “This transaction is a significant milestone in QNB’s vision to becoming a Middle East and Africa icon by 2017 and a leading global bank by 2030," Group Chief Executive Officer Ali Ahmed Al-Kuwari said in the statement.

Qatar National Bank

Poor rich Mexican Carlos Slim is biggest loser in world’s top 400 richest people Patricia Laya with Jack Witzig

arlos Slim had a tough year, the worst among the wealthiest people of the world. Since the start of 2015, the Mexican executive lost almost $20 billion, or about the size of Honduras’s economy, according to the Bloomberg Billionaires Index. The shares of his America Movil SAB telecommunications giant are heading for their biggest decline since 2008. The company has suffered under regulatory pressures in Mexico, where it’s now forced to share the infrastructure that allowed it to dominate the mobile and fixed- line market for more than a decade. Among conditions working against Mexico City-based America Movil are: a dismal outlook for Brazil’s economy, its second- biggest market; stronger competitors at home; and limited opportunities to expand in Europe. Slim, now the fifth-richest person in the world -- down from third earlier this year -- owns 57 percent of the company. The stock, down 18 percent this year, lost its long-held position as the most-weighted stock on Mexico’s benchmark index, making Slim the biggest loser among the world’s 400 wealthiest individuals. “There really isn’t anything nearteam to get investors excited so the focus has turned to the deteriorating profitability in the Mexican market,” Kevin Smithen, an analyst with Macquarie Securities USA Inc., said in an interview from New York. “You really need to see a more credible

expansion strategy in Europe or evidence of a financial turnaround in Brazil” to boost stock prices. An America Movil press official declined to comment. The telecommunications company has relied on Brazil, Austria and the U.S. to expand, as regulation weakens the competitive advantage America Movil has enjoyed in Mexico, where it controls about 70 percent of all mobile phones and 62 percent of fixed lines. On top of that, AT&T Inc. bought two rival businesses in Mexico -- NII Holdings Inc.’s Nextel Mexico business and Grupo Iusacell SA -- pressuring prices and increasing the battle for users in its home market. Mexico’s profit margin shrank to 40.3 percent in the last quarter from 44.8 percent a year earlier, based on earnings before interest, taxes, amortization and depreciation, and is estimated to fall again next year, according to a Credit Suisse Group AG report in December. While America Movil’s decision to spin off about 11,000 wireless towers for rent earlier this year is likely to lower debt, it’s small relative to the company’s size, according to the report. “The change in telecom regulations in Mexico attracted competition, and now AT&T is investing heavily to create a strong mobile player in the country,” Credit Suisse analyst Daniel Federle said in the note. “Competition will get tougher in the following years.” Bloomberg

NBG bought Finansbank for the equivalent of US$5 billion in 2006 in what was then Turkey’s biggestever banking deal. While Finansbank has been responsible for driving NBG’s profits, the Greek lender agreed to sell its stake to comply with conditions of a European Union bailout. NBG’s initial plan to reduce its holding through a share offering faced repeated delays amid a turbulent series of elections that shook capital markets in both Turkey and Greece. It said last month it would sell the entire stake following a change in management earlier this year. Finansbank’s share price has doubled over the last 12 months. The transaction has been approved by the board of directors of both banks and the General Council of the Hellenic Financial Stability Fund. Bloomberg

14 | Business Daily

December 23, 2015

International

The protesters Putin is reluctant to crush Leonid Ragozin

Russian President Vladimir Putin

n a recent Sunday the parking lot outside Mega, a giant shopping mall on the outskirts of Moscow, was packed with the cars of Christmas shoppers in their annual commercial frenzy. Towering above them, and looking somewhat out of place, were 14 large trucks decorated with protest banners. “We want to feed our families, not oligarchs,” “Allow us to work,” and “Legitimized robbery,” the banners read. The truckers, hailing from Russia’s northwest, had set up camp three weeks earlier. They’re protesting a new road tax that they say benefits a family close to President Vladimir Putin. On the other side of the city there’s another protest, run by drivers from the southeast, and across the country there are a dozen more sites of trucker dissent.

The truckers have threatened to block access roads to Moscow, but so far they’ve been too few and too cautious to do so. Yet the authorities are reluctant to crush the protests in the same way they did when middleclass urbanites staged rallies in 2012. Truck drivers, like other blue-collar workers, are ostensibly Putin’s people, having fed the increase in his approval ratings after he annexed Crimea. Commercial truckers are loosely organized around the radio frequencies they use. With no real trade union, it’s hard for government authorities to handicap just what kind of threat they face. “For the moment, we are just making our presence known,” said one protest coordinator, Andrey Bazhutin. “We can rally several hundred thousand trucks if necessary.”

Oil scandal US$1 billion linked to Venezuelan energy corruption scheme Nate Raymond and Julia Harte

The one-two punch of plummeting oil prices and Western sanctions has left a gaping a hole in Russia’s budget, covered in part by a rainy-day fund of accumulated revenue from when energy prices were higher. Finance Minister Anton Siluanov warned in October that the money will be exhausted by the end of 2016, likely triggering spending cuts and higher taxes unless oil prices rebound. One of the protesters, Sergey Gorodeshenin, said he was earning around 65,000 rubles a month last year, or US$912, but falling demand cut his monthly pay to about US$420. Gorodeshenin, from Vologda, about 250 miles north of Moscow, said he spends half of his earnings to feed his wife and two children. The rest is barely enough to make loan payments and keep his two large vans running. The truck drivers say the new tax, collected through the Platon payment system, will strip them of what little income they have left. Platon is operated by a company co-owned by Igor Rotenberg, whose father attended judo classes with Putin in the 1960s. Gorodeshenin said if he’s forced to pay the new tax, “my children will be left with nothing at all.” The truckers, largely political novices, visibly struggle with the fact that they’ve risen up against the government. While they are mostly Putin supporters, their politics aren’t homogeneous—ultranationalists mix with democratic reformers outside Mega. “We are not against the government, we are for the government,” said Alexey Ulyanov, another protest coordinator, adding that he was fined for staging a demonstration in his native Orenburg, in the Ural Mountains. “We are simply against this particular measure,” he said.

New management

Bazhutin said politics is a new field for the truckers: “We are not idiots, but we need time to comprehend things we’ve never dealt with before.” In a lengthy monologue during his annual press conference last week, Putin offered the truckers a few concessions while defending the Rotenberg family’s connection to the tax plan. He called on truckers to “get out of the gray economy.” His comments didn’t go over well. Truck drivers in the city of Yekaterinburg recorded a video address to Putin expressing indignation at being labeled tax dodgers. Gorodeshenin, who said he supported the 2012 rallies and “understood” the Maidan revolution in Ukraine, claimed it was only after the trucker protests began that “many of our guys realized what our political system is like and that our media, controlled by Putin, is lying blatantly.” The protests in Moscow three years ago were over Putin’s reelection to a third term and the perception that corruption was rampant. That movement, which became known as Bolotnaya, after the main venue of the rallies, was eventually suppressed, and dozens of activists were imprisoned. Now, the truckers outside Mega say, Moscow residents are coming to the parking lot to show support or bring food, perhaps reflecting a poll by the Levada Centre showing that almost 71 percent of Muscovites who know about the protests support them. Although real trade unionism is largely nonexistent in Russia, smallscale demonstrations have flared up recently. During the last 10 days alone, teachers at a school in Eastern Siberia and employees of a Sbarro pizza outlet in Moscow went on strike over payment arrears, while cashin-transit guards and bus drivers demanded better conditions in two central regions. Still, observers of the protests, and Putin’s cautious reaction to them, differ on what the standoff may bring. The “truckers protest is just the first thunder of the coming storm,” Aleksandr Auzan, who heads the economics department at Moscow State University, proclaimed on the Dozhd TV network. But another prominent economist, Yevgeny Gontmakher, predicted they “will sink in the Russian swamp.”

buyer, but we already have been approached by several companies.” Toshiba Medical, Japan’s largest medical equipment company, could fetch “several hundred billion yen,” Yukihiko Shimada, a senior analyst at SMBC Nikko Securities, wrote in a research note on Tuesday without giving a more specific estimate. The health care division, which includes medical equipment and other businesses that it doesn’t plan to sell, had sales of 409.5 billion yen in the 12 months ended March and operating income of 23.9 billion yen, according to data compiled by Bloomberg. The company is also considering the sale of property and investments after earlier selling its holding in elevator maker Kone Oyj. Other plans include accounting training, corporate governance reviews, management seminars and an evaluation system for the president and chief executive officer.

Bloomberg

Business Daily | 15

December 23, 2015

Opinion Business

wires

China’s Institutional Challenge

Leading reports from Asia’s best business newspapers

Japan Times The government on Tuesday picked a design by architect Kengo Kuma for the new National Stadium, a building that is expected to become the centerpiece of the 2020 Tokyo Olympics. On Saturday, the Olympic stadium review panel finished evaluating two proposals with 90-minute hearings for each group. The Japan Sport Council’s seven-member panel specializing in architecture and landscape assessed each bid by weighting a range of factors: Cost and expected construction time accounted for up to 70 points and attention toward “Japanese-ness” for 50, out of a possible total of 140 points.

China Daily Forty cities in north China, including Beijing and Tianjin, have issued alerts for air pollution, according to Beijing air pollution emergency management headquarters. Beijing, together with the cities of Baoding, Handan, Langfang and Xingtai in the neighbouring Hebei Province, have issued red alerts, the most serious. Beijing was hit with severe air pollution on Tuesday, with pollution levels expecting to reach grade six on a six-grade pollution gauging system in the southern part of the city later in the day, according to Beijing Municipal Environmental Monitoring Center (BMEMC).

Andrew Sheng

Distinguished Fellow of the Asia Global Institute at the University of Hong Kong

The Straits Times Online recruitment saw no recovery in November, registering an 8 per cent year-on-year fall, according to the latest Monster Employment Index Singapore. Compiled monthly by Monster.com, the index MEI is a gauge of online job posting activities, culled from a large representative of career websites and online job listings across Singapore. Hiring declined 7 per cent year-on-year in October, according to the index. In terms of industries, the healthcare sector experienced the least decline in hiring activity, falling 2 per cent year-over-year, though bigger than October’s 1 per cent year-over-year dip.

The Standard Hong Kong tops this year’s global initial public offering market, with HK$260.3 billion raised from 123 new listings, Deloitte China said. H-share offerings provided a strong boost to the local IPO market. Nine “mega IPOs,” each of which raised more than HK$10 billion, accounted for nearly 65 percent of the funds raised in the primary market this year. The offerings were all made by mainland firms, including GF Securities (1776), HTSC (6886) and bad debts manager China Huarong Asset Management (2799). A total of 31 new H shares were listed on the local bourse this year, a record high since their launch in 1994. Deloitte China said Hong Kong remains the most favorable place for state-owned mainland firms to list next year.

Xiao Geng

Director of the IFF Institute, professor at the University of Hong Kong

ast month, the Nobel laureate economist Douglass North, who applied economic theory to history to gain insight into institutional and social change, died at his home in Michigan. But his ideas will live on, particularly in China. Though North never focused explicitly on China’s institutional development, his theoretical framework could prove invaluable to the country’s leaders as they navigate the next phase of institutional change. In his Nobel lecture in 1993, North identified three lessons that policymakers should draw from his research. First, what determines economic performance is the mix of “formal rules, informal norms, and enforcement characteristics.” Second, polities have a major impact on economic performance, because they “define and enforce the economic rules.” And, finally, adaptive efficiency (how the rules are changed), not allocative efficiency (the most effective rules right now), is the key to long-term growth. These lessons are reflected in North’s assessment of Western Europe’s institutional and economic development, in which he attributed the Industrial Revolution to

two key factors: varying belief systems and intense competition between and within the emerging sovereign powers. Specifically, the English and the Dutch created diverse political/economic units that evolved institutions nurturing specialization and division of labor. These institutions delivered superior economic and political outcomes through lower transaction costs, clear and enforceable property rights, and other shared rules and norms. North observed that institutional change is extremely difficult, as it requires overcoming not only vested interests, but also outdated belief systems and mental models. The breakthrough, he noted, comes when institutions go beyond trade within local communities to permit anonymous and impersonal exchange across time and space. Sustainable institutions are those that learn and adapt, overcoming their own biases and limitations. North’s work goes a long way toward explaining the dramatic institutional and economic changes that have occurred in China over the last three decades, as well as illuminating the challenges that it will face over the next decade. In fact, it should temper the pessimism that pervades most current discussion of China’s prospects. For starters, intense competition is alive and well in China. Its major cities (including Shanghai, Guangdong, Tianjin, and Xiamen) are still competing vigorously with one another, and a new breed of technologically innovative companies (such as Huawei, Tencent, and Alibaba) are battling to open up new markets in goods, services, talent, capital, and knowledge. The ruling Chinese Communist Party (CCP) has dedicated itself to creating a more efficient, services-driven economy, subject to the market and the rule of law. For example, it

has committed to ease market access by loosening entry requirements for both domestic and foreign investors. It has also strengthened property rights relating to land, labor, capital, and knowledge; this, together with advances in digital and robot technology, has brought down Chinese transaction costs. Moreover, having built the needed physical infrastructure in the last decade (perhaps to excess), China is now emphasizing the software infrastructure needed to sustain the growth of its burgeoning services sector. In 2014, services’ share of GDP already exceeded 50%, more than the manufacturing and primary sectors combined. While the government has not pursued adequate reform of state-owned enterprises, it has deliberately allowed new, largely private-owned technology giants to compete against state-owned banks and financial institutions. And no one predicted the intensity of the CCP’s campaign to root out corruption, including in the military, the financial sector, and the highest levels of the party itself. China’s market-oriented shift will be reinforced by the commitments that its leaders made to the International Monetary Fund when the renminbi was added to the basket of currencies that determine the value of the Fund’s unit of account, Special Drawing Rights. The need to cope with trade pressures after the Trans-Pacific Partnership encompasses most of China’s neighbors will have a similar disciplining effect. The CCP is judging itself not against the Western benchmark of liberal democratic governance, but against the ancient Chinese legalist tradition of strong, central authority that maintains legitimacy by upholding meritocratic

standards of accountability. Perhaps more important, it has relied on seasoned intellectuals and policymakers – not Party ideologues – to design its development roadmap. This approach was fortified last summer, when despite serious market turmoil, the CCP upheld its commitment to allow the market to play a “decisive role in resource allocation.” There could be no clearer indication that China is willing to upgrade its belief systems and mental models in order to achieve high-income status. Nonetheless, China still has rivers to cross, particularly when it comes to adaptive efficiency. Here, it is important to note that whereas formal rules can be altered quickly, informal cultural norms are difficult to change in the short run. New formal rules can conflict with established norms, causing bureaucratic incentives to become distorted, with adverse effects on institutional behavior and performance. China’s leaders must cope with an asymmetry between what they can deliver and what consumers demand. According to North, institutional under-capacity is a short-term allocative problem, or sunk cost, for which the state can compensate with greater adaptive efficiency, or better mechanisms for bringing about the exit of less efficient institutions. North’s theoretical legacy could prove vital for China’s policymakers in the coming years, because it gives them specific guidance about how to cross the river of rapid institutional change. The alternative is to continue relying on what Deng Xiaoping, the father of China’s institutional breakthrough more than three decades ago, called “feeling the stones.” That, as North would put it, may not be the most efficient way to get to the other side. Project Syndicate

16 | Business Daily

December 23, 2015

Closing China approves 71.1 bln yuan in road projects

Chinese broker Haitong cites liquidity risk

China’s top economic planner approved 71.1 billion yuan ($10.98 billion) of road projects, according to a statement published on the National Development and Reform Commission website yesterday. The projects are in provinces including northwestern Gansu, northern Hebei, eastern Shandong and Hainan, an island province on the southernmost point of China.

Haitong Securities Co., one of China’s biggest brokerages, scrapped a share buyback that it announced during the nation’s stock-market crisis in July, citing potential risks to its operations, liquidity and credit ratings. Some of the company’s bond holders had asked for additional guarantees if Haitong went ahead with the buyback, the brokerage told Shanghai’s stock exchange yesterday.

‘Star Wars’ sets record Weekend rings up US$529 million in global debut Lucas Shaw and Christopher Palmeri

“S

tar Wars: The Force Awakens” rang up $529 million in worldwide boxoffice sales in its record weekend debut -- more than Walt Disney Co. anticipated, according to Chief Executive Officer Bob Iger. That’s before the movie reaches China, the second largest market in the world. With domestic sales coming in way higher than expected at US$248 million, the first live-action “Star Wars” film in a decade already beats the previous global record by about US$4 million -- “Jurassic World” reached US$524.9 million earlier this year. “It’s bigger than big -it’s bigger than we thought it would be yesterday,” Iger said Monday in an interview with Bloomberg TV’s Stephanie Ruhle and David Westin. “And China has yet to open.” The new “Star Wars” film will nourish Disney’s studio, theme-park and merchandise businesses for years. Since acquiring creator Lucasfilm for US$4 billion in 2012, Burbank, California- based Disney has expanded the merchandise lines, produced new TV shows and mapped plans for themed lands at parks in California and Florida. The studio has as many as five more “Star Wars” films in the works. While “Star Wars” has broken records, other parts

of Disney’s businesses have raised concerns among investors. Recent subscriber losses at ESPN, which remains the dominant sports outlet in America and is Disney’s most profitable channel, have contributed to two meltdowns in media stocks since August, because they cast light on the magnitude of the number of consumers who are dropping traditional TV packages for cheaper online alternatives. “I thought it was an overreaction,” Iger said of the August selloff, which was triggered by his comments about subscriber losses at ESPN.

“It’s clear that television is experiencing some disruptive forces,” the CEO said, adding there’s more disruption ahead with more and more ways to watch video than just TV. Still, “ESPN is something of great value in a disrupted market.” On Jan. 9, the movie will debut in China, the site of Disney’s next big theme park: The Shanghai Disney Resort. That park will open next spring. The exact opening date will be announced after the first of the new year, Iger said Monday. The company previously said it would

Ford in talks with Google to build self-driving cars

BMW hit with US$40 million penalty for safety lapses

oogle is said to be in talks with automaker Ford Motor Co to help build the Internet search company’s autonomous cars, Automotive News reported, citing a person with knowledge of the project. The contract manufacturing deal, if finalised, is expected to come during the annual International Consumer Electronics Show in Las Vegas during the first week of January, Automotive News said. A Google spokesman told Automotive News that the company would not comment on speculation, although Google officials confirmed that the company is talking to automakers. Earlier this year, Google began discussions with most of the world’s top automakers and assembled a team of traditional and non-traditional suppliers to speed efforts to bring self-driving cars to the market by 2020.

set the date by the end of this month. “In China you know we’ve had a number of challenges,” Iger said. “We’re bringing a product to market, meaning what we’re actually constructing, that’s very unique. The structures that we build in a theme park are extremely complex. They’re not just buildings but they’re shows and they’re rides. And there aren’t that many examples of the Chinese construction industry building things that are as a complex as what we’re building.” Disney has already announced plans for “Star

.S. auto safety regulators fined BMW US$10 million, part of a US$40 million civil settlement over the German automaker’s safety lapses. The fine is the second paid by BMW since 2012 and the latest in a series of civil penalties imposed on major automakers by the National Highway Traffic Safety Administration (NHTSA). Under the settlement, BMW admitted it did not comply with minimum crash protection standards, failed to notify owners of recalls in a timely fashion and failed to provide accurate information about its recalls to NHTSA. The settlement ends an investigation into whether the company failed to issue a recall within five days of learning that its 2014 and 2015 Mini Cooper models failed to meet regulatory minimums for side-impact crash protection.

Wars” sections of its theme parks in California and Florida, and will likely add “Star Wars” lands at other parks around the world, Iger said. “It’s a huge bet for Disney and a huge bet on China,” Jonathan Golub, chief U.S. market strategist at RBC Capital Markets, said Monday on Bloomberg TV. “No one milks the value of these kinds of things the way Disney does.” The company will also introduce technology in the Chinese park that hasn’t been used elsewhere. Bloomberg

China central bank unveils rules on green bond issues

hina’s central bank published yesterday rules on issuing green bonds by policy banks, commercial banks and other financial institutions, a step towards addressing environmental problems. Authorities would use preferential policies to encourage green bond issues, the central bank said, adding that it aimed for “rapid development” of the green bond market. Proceeds from such issues could only be invested in green projects, according to the rules that took. Green bond issuers would be allowed to invest in high-grade, liquid money market instruments, and some green bonds would be included in collateral for the central bank’s policy operations, the rules stated China would offer policy support, including relending and interest subsidies, to help banks boost green loans. Reuters