MOP 6.00 Closing editor: Paulo A. Azevedo
Inflation at its lowest since 2010
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Year IV
Number 947 Thursday December 24, 2015
Publisher: Paulo A. Azevedo
MGTO allocates MOP77 million to promote city abroad Page 3
A Merry Macanese Christmas
SMEs to bite the bullet on pay
The currently relentless challenging business environment of Macau. One of the consequences of which will force Small and Medium Enterprises to raise salaries next year. To remain competitive with casino resorts who still need people. And the gov’t, too. Estimated hikes for SME employees range from 3 to 5 pct. A more conservative approach due to the economic slowdown. But even so, not all sectors will be able to ante up Page
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HSI - Movers December 23
Name
%Day
China Petroleum & Che
+4.54
CNOOC Ltd
+3.95
PetroChina Co Ltd
+3.34
China Merchants Holdi
+3.31
China Shenhua Energy
+2.68
Henderson Land Devel
0.00
China Resources Land L
0.00
China Mobile Ltd
-0.06
AIA Group Ltd
-0.43
Sino Land Co Ltd
-0.70
Source: Bloomberg
Economy
I SSN 2226-8294
Adapt and be innovative The Chinese President believes Macau will adapt. In particular, to economic pressure - and urges its citizens to be innovative. Meeting with Chui Sai On in Beijing, Xi encouraged the local population to be more confident in the city’s future
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www.macaubusinessdaily.com
That X factor Heavy price for Light Rail No Light Rail Transit (LRT) yet. But costs are rising faster than a bullet train. The Macau Gov’t now needs to find another MOP700 mln
for Mitsubishi Heavy Industries. Increasing the rolling stock and Phase 1 systems bill to almost MOP5.4 bln
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Uber is in the news again. Announcing the launch of a new service in Macau. Uber X will offer cheaper rides than the current uber black. Despite being perceived as illegal by the local gov’t, the company claims to have already provided rides to thousands of people in the city
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Season’s Greetings! The management and staff of Business Daily wish all our readers and clients a very Merry Christmas. Be safe, be happy. We will return on Monday 28 December
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December 24, 2015
Macau Motor vehicle tax hikes from today The city’s motor vehicle tax officially increased from today, the Official Gazette announced yesterday. The average tax rate for a newly imported automobile has increased to 40 to 72 per cent depending upon the imported price, compared to the previous 30 to 55 per cent. Meanwhile, that on motorcycles and scooters now ranges from 24 to 50 per cent from 10 to 30 per cent. The increase in tax, approved by the Legislative Assembly last week, ultimately seeks to control the city’s growth of vehicle numbers. Yesterday’s dispatch also announced the de-listing of tourist vehicles from vehicle tax exemption.
A Macanese X’mas: Food and partying Christmas in Macau has pan, ‘lacassá’ soup and wafers (coscorões) in a whirlwind of socialising
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t Christmas, Macanese families enjoy “a lot of Portuguese tradition,” said the president of the Association of Macanese, Miguel Senna Fernandes, but it is on the ‘consoada’ table that the defining characteristic of this community the encounter between China and Portugal - is revealed. The Macanese - an ethnic group that results from the mixing of Chinese and Portuguese - celebrate most Portuguese traditions: meeting on the night of December 24 to ‘consoada’ and the 25th for sumptuous meals, exchanging gifts, decorating the
house and attending ‘Rooster Mass’ at midnight. However, it is through the glorious medium of food that the meeting of cultures is most revealing. The cod “can not miss”, even if it is not the main course as in Portugal, says Senna Fernandes. “There's always turkey - there was a time when capon was bought (a sterilised cock, bigger and tastier), while the luckiest eat pheasant - but all mean Christmas,” he says. In some homes, as in his, one of the stars is the pan (tacho), “a kind of substitute for Portuguese stew”,
which arrived at a time when in Macau all the necessary ingredients for the traditional dish could not be found. This is, incidentally, the main reason for the origin of many Macanese delicacies. “On Christmas Eve, families also prepare ‘chau chau-lacassá’, a very thin dough to which is added shrimp and pickles. A bittersweet, taste” he says. This dough is used to make lacassá soup, which is always present on the table of Senna Fernandes. Dessert is also of Portuguese inspiration, witness the cake-king, traditional ‘sonhos’ and a kind of
French toast (rabanadas). The wafers, however, “are completely different from Portugal”, he explains. “It has to do with the mass and the way it’s prepared. We use a stick that spins and the fried dessert has the appearance of a whirlwind. It takes a lot of time and housewives boast of having the best wafers”, he says. There’s also an English-inspired dessert, simply called ‘cake’- but one which is soaked in alcohol then burned. “Brandy on fire to bake ‘cake’ in live fire. It is served with butter and sugar. Some drizzle with port wine, with brandy, with rum. It is an absolutely delicious thing. Just talking about it I’m already salivating”, he jokes. On the 25th December the plates tumble out of the cabinets: “It's another racket, to eat until you drop”. Christmas is traditionally celebrated in Macau by the Catholic communities, like most Macanese families, but Senna Fernandes ensures that the spirit is about more than a “party and the spirit of sharing”, having lost its religious nature, which makes many Chinese also relish the season. “The Macanese community is very festive; Christmas is inconceivable without parties or dinners. People don’t skimp on the food, but it no longer evokes the religious spirit so much. It’s more about partying than anything else. And the Chinese also get into the spirit of Christmas, as we see them dressed in Santa’s clothes, for example. Turns out to be almost a pagan thing . . .” he concludes. Lusa
Provisional buffer zone set up for municipal kennels
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he Cultural Affairs Bureau has defined a provisional buffer zone for the city’s municipal kennels and the former site of the municipal stables, enabling the Bureau to provide binding opinions on construction in the area, according to yesterday’s Official Gazette. The two properties, located at the junction of Avenida do Almirante Lacerda and Avenida do Coronel Mesquita on the Peninsula, are two
of the ten properties listed by the Bureau for cultural value classification last week due to their architectonic interest. After setting up a provisional buffer zone for the two properties, the Cultural Affairs Bureau will have the power to present binding opinions to the city’s Land, Public Works and Transport Bureau (DSSOPT) before they grant any permit for construction in the area.
A buffer zone is always created for a World Heritage property in order to provide an additional layer of protection for the site. Based on the city’s Cultural Heritage Protection Law, authorities can define a provisional buffer zone for properties that are rated for their cultural value despite not being listed as World Heritage. The newly defined provisional buffer zone for the two properties does not cover nearby Kiang Wu
Funeral Home and the Canidrome, according to the dispatch. The cultural value classification for the two properties will go through public consultation from 28 December to 25 February. The whole classification process is expected to be completed within 12 months, and will involve gleaning opinions from property owners and the Cultural Heritage Council. K.L.
Business Daily | 3
December 24, 2015
Macau
City’s SMEs mull conservative pay hike Local small and medium enterprises (SMEs) are weighing a 3 to 5 pct pay rise for staff next year in the face of a relentlessly challenging economic environment, trade chambers say Stephanie Lai
sw.lai@macaubusinessdaily.com
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ompared to this year, the city’s small and medium businesses are mulling a more conservative salary rise for employees next year given the cautious outlook on the general state of Macau’s economy, especially in the retail and tourism services, trade chambers and a recruitment agency have confided in Business Daily. Daniel Iong Ieng Chun, vice-director of Macau Small and Medium Enterprises Association, told us that several of the Association’s member firms have considered a 3 to 4 per cent rise for their employees next year, given the bleak outlook on the city’s economy. There are currently 600 company members in the Association, who are primarily engaged in the retail, food and beverage business and construction. “It’s true that there are still some upcoming openings of the new casino-resorts in Cotai that demand many staff, and thus posing competition to us in human resources,” Mr. Iong remarked. “But many small and medium businesses here remain worried about the general economy, and are thinking that a salary rise of around 3 per cent to 4 per cent should be the affordable range.”
Despite a cautious outlook on the city’s economy for next year, another local trade chamber, Macau Small and Medium Enterprises Chamber of Commerce, has estimated that SMEs would have to offer a salary rise of from 4 to 5 per cent next year to retain staff in the face of still keen competition against casino operators as they are still expanding retail and restaurant services. Several Macau-based casino operators announced
a 5 per cent pay rise for their workers in 2015. For next year, SJM Holdings Ltd. is considering a pay hike based on the consideration of the company’s performance, the city’s economy as a whole and employees’ purchasing power, SJM chief executive Ambrose So Shu Fai told media earlier this month. Meanwhile, casino-resort Sands China’s president and chief operating officer, Wilfred Wong Ying
Make it a difference MGTO allocates MOP77 million to promoting city abroad
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acau Government Tourist Office (MGTO) is to splash more than MOP77 million (US$9.63 million) on promoting the Special Administrative Region in twelve tourist markets next year, in addition to publicity on overseas TV channels and in local publications. According to yesterday’s Official Gazette, the Tourist Office has appointed twelve foreign companies as representatives for MGTO in their own countries and regions to promote Macau in 2016. The value of their contracts with MGTO, ranging from MOP1.1 million to MOP4.8 million, totals MOP27.1 million. The twelve tourist markets that MGTO is targeting next year comprise Hong Kong, Japan, Thailand, Malaysia, Singapore, India and South Korea, the United Kingdom and Ireland, France, Russia, the United States and Australia and New Zealand.
Meanwhile, the Office will spend MOP44.1 million on placing ads on four non-local TV channels next year; namely, a MOP30.9 million contract with Hong Kong’s Television Broadcasts Limited (TVB), a MOP8.3 million contract with Star China Media Limited, as well as some MOP2.1 million and MOP2.9 million for adverting on the US-based Cable News Network (CNN) and FOX international Channels, respectively. The other MOP6.42 million, meanwhile, will be used for advertising in three print media groups, namely Chinese language magazine Macau Monthly and Hou Kong Daily newspaper in Macau, plus Hong Kong’s Oriental Press Group Limited. The budget, as stated in the official dispatch, will be drawn from the city’s Tourism Fund, which has allocated some MOP870 million for expenses next year, according to the government’s 2016 budget. K.L.
Wai, recently remarked to Chinese-language newspaper Macao Daily News that he hoped the company’s staff would see a “reasonable adjustment” in wages. “In the past year, despite a gap in base salary as offered by casino operators, many of the SMEs here did make a pay rise to the extent of the casinos’ hike,” said managing director of MSS Recruitment and hello-jobs.com Ms Jiji Tu. The recruitment agency
head said she also believed that SMEs would grant a more conservative pay hike for workers next year, as the city may still experience economic contraction. Apart from casino operators’ pay hike schemes, many SMEs would also look to the government’s pay hike plan for reference, Ms. Tu and the trade chambers reflected. During the announcement of the Policy Address last month, Chief Executive Fernando Chui Sai On mentioned that civil servants would receive a pay rise of nearly 3 per cent next year; civil servants have already received a 6.75 per cent pay hike this year. “Some small companies that are facing the tight supply of labour, especially those working in the transportation and construction sector, may still follow a 4 to 5 per cent pay hike for staff next year with the aim of stabilising their team,” the vice-president of Macao Chamber of Commerce, Vong Kok Seng, remarked to us. “But the companies [SMEs] running retail, restaurants and other tourism services may not be able to afford that range in the coming year, as they have not been performing too well so far this year.”
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December 24, 2015
Macau QuickPass cards accepted by 10 local car parks Some 10 parking lots in the city will accept UnionPay’s QuickPass cards that allow contactless payment from the beginning of next year, UnionPay International has announced. Currently, the public car park in Rua da Ponte Negra in Taipa and that in the Building of the Transport Bureau has already accepted contactless payment via QuickPass. The company claims QuickPass covers 90 per cent of local merchants who accept contactless payment, including convenience stores, restaurants, clinics, drugstores and buses as well as governmental services and public utilities such as tax offices, police stations and post offices.
Inflation at its lowest since 2010 It is also the first time that inflation has slowed to below four per cent since 2011 Kam Leong
kamleong@macaubusinessdaily.com
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ast month, the city’s composite consumer price index (CPI) increased some 3.77 per cent to 107.04 from one year ago, which is the lowest year-onyear growth since September 2010, the latest data released yesterday by the Statistics and Census Service (DSEC) reveals. According to official data, the city’s inflation, on a year-on-year comparison, has hovered at between 4 per cent and no higher than 7 per cent since 2011. But from the
beginning of this year, inflation has been slowing down following the city’s economic downturn – from 5.3 per cent in February, 4.93 per cent in May and consecutively fell to 4.16 per cent in October before dipping below 4 per cent in November. Local prices may not be surging as before but higher rentals for housing and rising charges for eating out, which jumped by 4.76 per cent and 5.36 per cent year-on-year, continued to be the major components for inflation.
Price increases were also observed in Education and Household Goods & Furnishing, up 8.99 per cent and 6.54 per cent year-on-year last month, driven by higher tuition fees and the rising wages of domestic helpers. Meanwhile, the prices of Alcoholic Beverages and Tobacco registered the most notable hike of 39.43 per cent in November, due to the price of tobacco soaring 65.95 per cent year-on-year. However, the price index of Clothing & Footwear and
Communication posted a year-on-year decrease of 2.1 per cent and 0.43 per cent in the month, respectively. On a month-on-month basis, inflation is up 0.1 per cent. DSEC said the higher prices of alcoholic beverages had boosted the price index of alcoholic beverages and tobacco by 2.48 per cent month-on-month, while the price index of Clothing & Footwear was driven up 1.98 per cent. On the other hand, the price index of Miscellaneous
Goods & Services and Transport declined 0.47 per cent and 0.40 per cent monthon-month, respectively, as jewellery, clocks and watches were cheaper than before, in addition to lower prices for gasoline and airfares. For the first eleven months of the year, the average composite CPI represents a year-on-year increase of 4.64 per cent, with the price index of Alcoholic Beverages & Tobacco and Housing & Fuels rising 15.5 per cent and 8.43 per cent, respectively.
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December 24, 2015
Macau
Runaway costs The cost of rolling stock and systems for Phase I of the LRT has escalated to nearly MOP5.4 billion
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he Macau Government now has to pay Mitsubishi Heavy Industries, Ltd. a total of nearly MOP5.4 billion (US$675 million) for the rolling stock and systems for Phase 1 of the Light Rail Transit (LRT), which is some MOP700 million more than the original amount agreed with Mitsubishi, according to the latest government dispatch. As published in the Official Gazette yesterday, the cross-year payment
for the rolling stock and systems for LRT Phase 1, covering 11 stations in Taipa and 10 stations in Macau, now totals MOP5.388 billion. The new gazetted amount has resulted from changes in the contract the government agreed with LRT cabin supplier Mitsubishi, following a delay in the depot construction in Taipa, the head of the Transportation Infrastructure Office (GIT), Mr. Ho Cheong Kei, explained to legislators during the
Policy Address debate session earlier this month. Owing to the delay, an extra MOP700 million has to be paid to Mitsubishi for the design changes that have to be introduced to the rolling stock and systems, the storage and maintenance of the cabins as well as the extension of the warranty period, Mr. Ho said at the time. The LRT Taipa section, with 11 stations covering the Cotai area and
Uber launches new, cheaper service Perceived as illegal by the local government, ride-sharing application Uber has not stopped its expansion path in the MSAR market. Yesterday, it launched its cheaper uber X service Kam Leong*
kamleong@macaubusinessdaily.com
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axi hailing mobile application service Uber claims it has provided “thousands in the city with rides” during its twomonth operation in the territory from October 22, despite the fact that it is lambasted as illegal by local authorities. Yesterday, the mobile application service launched new vehicle criteria for the local market - uber X offering cheaper rides for passengers than the currently running uber black. The general manager of Uber
Macau, Trasy Lou Walsh, said in an announcement that the introduction of uber X follows “countless requests by riders and drivers.” Even though the company said in the announcement that 70 per cent of its passengers are local residents, its operation in the city is not as smooth as it seems. Two Uber drivers were prosecuted by local police for providing unlicensed taxi services after the first week of its soft launch. At the end of last month, Secretary for Security
Wong Sio Chak said in a debate session of the Policy Address that the number of Uber drivers being prosecuted had increased to seven. Meanwhile, Uber filed complaints with the city’s graft watchdog Commission Against Corruption (CCAC) in the middle of last month, alleging local police had conducted “numerous irregularities” whilst conducting enforcement procedures against Uber drivers. Asked by Business Daily yesterday whether the company has received a
the Lotus Border checkpoint, has had its operational date pushed back from the original intended 2016 to 2019 as the construction of the superstructure of the LRT depot has encountered serious delays. The government has already revoked its contract with the original builders of the depot, and is relaunching an open tender to build the depot in the second quarter of next year. S.L.
response from CCAC, Uber’s North Asia spokesman Harold Li said they did not have any updates available. In addition, he declined to comment on whether the local authorities had issued further warnings or further investigated the company’s local operation. Nevertheless, the legal controversy between the company and the government has not stopped Uber from expanding in the city. Recently, it has started to recruit individual drivers providing services with their privately-owned cars, rather than solely co-operating with travel agencies here. “We’re still working with travel agencies, and there are individual drivers that have joined us to provide the service. But we cannot release the number of these individuals,” Mr. Li told us. In tandem with the launch of uber X, the mobile application company is offering promotional discounts for passengers during Christmas whereby passengers can take up to two rides anywhere in the city for MOP8 from yesterday to tomorrow. *With S.L.
Business Daily | 7
December 24, 2015
Macau
Xi expresses faith in MSAR economy Chinese President Xi Jinping believes that the city can adapt to economic challenges and urged the local community to be more confident in its development Stephanie Lai
sw.lai@macaubusinessdaily.com
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ith the capacity for Macau’s economy to “adapt to pressure” and a stable social development, the local community should be more confident in the city’s future, said Chinese President Xi Jinping yesterday when meeting Chief Executive Fernando Chui Sai On during his annual duty visit to Beijing. The top political leaders in Beijing met both Mr. Chui and the Chief Executive of Hong Kong, Leung Chun Ying, yesterday during their annual duty visit, whereby the SARs’ executives are obliged to brief Beijing on the territories’ latest social and
economic developments and their governance plan for the coming year. Speaking with Chui, Chinese President Xi Jiping conceded that Macau’s economy had encountered “some problems” but believed that the city is able to adapt to pressure when faced with economic challenges, public broadcaster TDM Chinese radio reported. Macau Secretary for Economy and Finance Lionel Leong Vai Tac told media at the beginning of this month that the city could see its gross domestic product (GDP) slide by more than 20 per cent for the
A matter of morals Editor of Las Vegas newspaper quits after Sheldon Adelson takes over Anthony Palazzo
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he editor of the Las Vegas Review-Journal is leaving Nevada’s biggest newspaper after its purchase by billionaire casino executive Sheldon Adelson and his family. Michael Hengel led the newspaper through an unusual turn of events this month as its reporters identified Adelson as its mystery buyer and wrote about an odd assignment to tail the judge in a court case involving Adelson, the 82-year-old founder of the world’s biggest casino company, Las Vegas Sands Corp. The editor accepted a buyout offer, the new owners said in an e- mailed statement late Tuesday. It was prepared to run yesterday (US time) run in the Review-Journal, according to Mark Fabiani, a spokesman for the new owners. Adelson acknowledged last week that he bought the newspaper through an intermediary. That ended speculation about the identity of the unknown entity that paid US$140
million (1.12 billion patacas) for the Review-Journal. He said in a statement then that he intended to disclose his ownership but didn’t want to distract from Republican presidential debates taking place in Nevada. In the statement on Tuesday, Adelson pledged to invest in the Review-Journal, and publish a “fair, unbiased and accurate” newspaper. “We regard ourselves as stewards of this essential community institution, and we promise that the ReviewJournal will serve the people of Las Vegas for many years to come,” the statement read. The new owners will begin a search for Hengel’s replacement, they said. Reporters at the Review-Journal posted reactions on Twitter after Hengel addressed the newsroom. “Announcement from newsroom in Las Vegas makes my stomach hurt,” wrote Howard Stutz, who has covered the casino industry including Sands for many years. Bloomberg
whole of 2015 given the continuous gaming downturn. The slowdown has been linked by investment analysts to Beijing’s anti-graft campaign as it stretches into its third year under Xi’s presidency.
During the meeting yesterday, Xi said he hoped the local community could be more confident in Macau’s future and urged it to be innovative in pushing their businesses forward, the public broadcaster cited the president as saying. Beijing will also fully consider Macau’s role when making the state’s five year plan for 2016 to 2020, implementing the ‘One Belt, One Road’ policy – the nationwide initiative that is used to refer to China’s aim of enhancing trade relations across Asia, the Middle East, Europe and Africa, Xi said. The Chinese president also believed that Macau can see a “positive influence” in diversifying its economy with its new jurisdiction of 85 square kilometres of coastal waters, following Beijing’s approval of the demarcation of the sea lanes. While the MSAR is given power to monitor sailing activities in local waters and initiate its own reclamation plans, any future reclamation in the territorial waters cannot be used for gaming projects, the Chinese State Council said.
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December 24, 2015
Greater China
Troubled times Three more firms face trouble in bond payments Lianting Tu
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hree Chinese companies have said they lack funds to repay bonds due in coming days, flagging risks defaults may spread as manufacturers grapple with a cash crunch amid a weakening economy. Henan Sanli Carbon Products Co., based in the northeast province of Henan, doesn’t have the funds to repay notes due this Sunday, it said in a filing to the Chinamoney website Tuesday. Huaian Jiacheng Hi-Tech Chemical Industry Co., based in the eastern province of Jiangsu, said on the same website it hasn’t deposited the required amount of principal and interest for bonds due coming Monday into the payment account because of a cash shortage. Huaian Farun Chemical Co., also based in Jiangsu, cited overcapacity and operating losses as reasons why it hasn’t deposited required funds for securities due also on Monday.
More firms in China are struggling to repay debt amid the worst economic slowdown in a quarter century. Earlier this month, pig iron producer Sichuan Shengda Group Ltd. became at least the seventh Chinese firm to renege on local debt obligations this year. Sinosteel Co., a stateowned steel trader, last week postponed a bond payment a third time. China’s government this week pledged to offer more support for companies to upgrade technology and equipment, and reduce debt with “innovative financial policies.” “Preventing financial risk will likely be a very important policy goal in 2016,” according to a Tuesday report from China Securities Co. “Yet as the government works to reduce overcapacity, there will inevitably be rising risk for the financial market. Therefore we will see more defaults among both the
private sector and stateowned enterprises.”
Collective bonds
Henan Sanli Carbon is one of three issuers of 270 million yuan (US$41.7 million) of 5.9 percent collective notes, which typically are sold by several small- and medium-sized companies that don’t have
the ability to sell securities on their own. The filing didn’t say how much the company needs to repay. Huaian Jiacheng Hi-Tech Chemical and Huaian Farun Chemical are both co-issuers of a 350 million yuan 5.8 percent three-year debenture. The former is responsible for the repayment of 95.2 million
yuan including principal and interest while the latter is responsible for 169.3 million yuan, according to the statement. China Bond Insurance Co. is guarantor for all three and will fulfill the obligation in the case of a default, the companies said in their filings. Bloomberg
Business Daily | 9
December 24, 2015
Greater China
Wild, wild year Hong Kong bourse frenzy fades as US$16 billion value erased Kana Nishizawa
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he outlook for Hong Kong’s exchange operator is dimming after the wildest year for its investors since 2008. So say analysts at Haitong International Securities Group Ltd. and Morgan Stanley who have sell calls on Hong Kong Exchanges & Clearing Ltd. They’re not alone, with the proportion of analysts making similar recommendations rising this month to the highest since November 2013. HKEx soared 80 percent this year through a May peak before a 35 percent drop erased US$16 billion in market capitalization, more than the entire value of London Stock Exchange Group Plc. The conditions that drove HKEx to a record seven months ago -a surge in turnover through the Shanghai bourse partnership and global investor appetite for companies with business in China -- are working against it now. Trading volumes have dwindled along with excitement about a planned extension of the mainland link to Shenzhen. Valuations on the benchmark Hang Seng Index are at similar levels to shares in Pakistan as China’s economic slowdown and higher borrowing costs in the city weigh on the outlook for earnings. “It’s definitely more likely that turnover will go back to historical
levels and the HKEx will see earnings decline," said Tony Tanaka, an analyst at Haitong International, a unit of China’s third-largest broker by market value. “In 2016, even if the multiple stays where it is right now, earnings will decrease so share prices will have to drop, unless the multiple expands further which I don’t think is very likely." Many of his peers have also turned downbeat. Goldman Sachs Group Inc., which was among the most bullish in April on the stock among brokerages tracked by Bloomberg, says the shares will fall 13 percent over the next 12 months. Morgan Stanley cut its rating to underperform in a note on November 30, saying HKEx was expensive. The stock rose 1.4 percent to HK$202.80 at yesterday’s midday trading break in Hong Kong. The operator of the world’s fourthlargest stock market trades at 29 times estimated earnings, about three times the level of the Hang Seng Index and a 61 percent premium to a measure of equal-weighted security and commodity exchanges around the world. Average daily turnover on the bourse this quarter has slumped to HK$75 billion, less than half the average of the three months
through June and the lowest since the third quarter of last year, before the Shanghai link began. About 70 percent of HKEx’s revenue is related to trading volumes, China International Capital Corp. said earlier this year. Turnover surged to a record on April 9 after mainland investors maxed out a quota for buying Hong Kong stocks for the first time, spurring speculation the city’s stocks would be buoyed by a flood of money from across the border. The Hang Seng Index climbed the most in six years that month, while HKEx jumped 56 percent.
Market proxy
"Expectations were too high," said Steven Leung, an executive director for institutional sales at UOB Kay Hian (Hong Kong) Ltd. in Hong Kong. "HKEx has been the proxy for the overall Hong Kong market." HKEx is diversifying its earnings through its commodities unit London Metal Exchange, and that should help support the shares, according to Daniel So, a strategist with CMB International Securities Ltd. in Hong Kong. LME’s contribution accounted for 19 percent of revenue and other income in the first half. Half of the 24 analysts tracked by Bloomberg have a buy rating on the
High demand for funds Hong Kong yuan interbank rate surges to record before year-end Fion Li
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stock, down from 65 percent in April, while six advise selling and another six have a neutral recommendation. Shares will gain 12 percent over the next 12 months, according to the consensus of analyst targets.
Valuation gap
HKEx declined to comment on analyst ratings. The Shenzhen link is expected to start next year, while there’s been increased buying of Hong Kong equities by Chinese investors since October as the valuation gap between the city’s stocks and mainland peers widened. The bourse operator’s share price already factors in all the positive news, says Ben Kwong, a director at brokerage KGI Asia Ltd. in Hong Kong, who predicts shares may fall a further 15 percent if turnover stays at similar levels and new share sales lose momentum. At a market value of US$31 billion, HKEx is just behind CME Group Inc. in the rankings of the world’s largest exchange operators. “2015 was an exceptionally great year," said Haitong’s Tanaka. “When turnover recovered the profit just grew, so earnings per share was growing every year. It’s certain that 2016 will be a decline from 2015."
he cost of borrowing yuan in Hong Kong jumped to a record amid rising year-end demand for funds at a time when supply of the Chinese currency is shrinking. The overnight Hong Kong Interbank Offered Rate surged 304 basis points to 9.45 percent yesterday, the highest since the Treasury Markets Association started compiling fixings in June 2013. That’s also the biggest one-day increase in almost three months. “It’s a seasonal factor in play as we are heading into the year-end and demand for cash is rising,” said Terry Siu, treasurer at Wing Lung Bank Ltd. in Hong Kong. “That happens as Hong Kong’s yuan pool is getting smaller and investors remain bearish on the currency outlook.” Hong Kong’s yuan interbank rates have been at higher-than- average levels since mid-November after the People’s Bank of China was said to have ordered a halt on borrowing from the mainland via bond repurchases. A surprise devaluation in August also prompted some
Bloomberg
investors to switch out of yuan assets and contributed to a decline in the amount of savings denominated in the currency in Hong Kong to the least in almost two years. The city’s yuan savings fell 149.3 billion yuan (US$23 billion) in the first 10 months of 2015 and posted a record monthly drop in September, according to the Hong Kong Monetary Authority. The contraction in yuan supply eased in November, HKMA Chief Norman Chan said last month, citing preliminary figures from banks. The one-week yuan interbank rate in Hong Kong climbed 223 basis points to 8.28 percent on Wednesday, according to the Treasury Markets Association fixing. The yuan in Shanghai will drop 1.9 percent to 6.6 per dollar by the end of 2016, according to the median estimate in a Bloomberg survey of analysts. The offshore yuan has dropped 4.8 percent against the greenback this year, heading for its biggest annual loss since trading in Hong Kong started in 2010. Bloomberg
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December 24, 2015
Greater China Chinese criticism
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hina said the landmark climatechange agreement signed in Paris was “imperfect” in the areas of funding and technology transfer from developed countries to developing nations. The world’s countries should finalize details of technology innovation, cooperation and transfer in followup negotiations, Xie Zhenhua, China’s special representative on climate change, said in a briefing in Beijing yesterday. There’s no timetable on the funding support the developed world will provide, he said. China expects 15 percent of its energy use to be derived from nonfossil fuels, including renewable energy and nuclear, by 2020 from a target of 12 percent this year, said Xie. The share will climb to 20 percent by 2030, by which time the nation also aims to hit peak carbon emissions.
100 million smartphones
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uawei Technologies Co. shipped more than 100 million smartphones this year as a drive to attract higher- end customers helped defy an industry slowdown that hit rival Chinese vendors. China’s largest mobile brand boosted shipments by 33 percent and moved into the top three globally, the Shenzhen-based company said in a statement on its website. Samsung Electronics Co. and Apple Inc. are the world’s two biggest producers. Huawei, which debuted its first Android device in 2009 to complement its main business of making networking equipment, is pushing into markets from the U.S. to Europe to take on Apple and Samsung. Expanding beyond China, where slowing market growth has hurt Xiaomi Corp. and Lenovo Group Ltd., is part of a goal to sell 60 percent of smartphones overseas and generate about US$16 billion of revenue from phones this year.
Change in private equity licences
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hina’s banking regulator told 17 banks that their licenses to manage private-equity funds will be revoked because any such investment activities should be handled by independent subsidiaries, Caixin magazine reported on its website, citing unidentified people. China’s commercial banking laws forbid banks from investing directly in non-bank institutions unless they get special approval from the State Council, according to the Caixin report. The 17 banks, which include China Everbright Bank Co. and China Minsheng Banking Corp., had applied for or received private equity licenses either in the name of the parent bank or of their asset-management divisions, the report said. Instead, the banks should apply in the name of an independent subsidiary, Caixin said. None of the banks has so far issued any privateequity products since receiving the licenses, according to the report.
Gold loses sparkle James Pomfret and A. Ananthalakshmi
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s Chinese consumers cut back on gold purchases for a second year in a row, nowhere is the slowdown being felt more than in the country's once-bustling jewellery manufacturing and retail hub of Shuibei. Gold demand has taken a hit from a slowing economy and Beijing's anti-corruption drive, which has cut demand for luxury products, but there are fears of a more protracted loss of confidence among buyers in the world's top consumer of the precious metal. With buying in No.2 consumer India also soft, another year of weak Chinese demand would help pile more pressure on global gold prices languishing near six-year lows. The hundreds of jewellery stores in Shuibei, a district of Shenzhen only a short hop over the border from Hong Kong, have seen business take a downturn since a buying boom peaked in 2013 as once-voracious Chinese consumers turn cautious. "They don't have confidence in gold now given the weak prices, so demand won't pick up anytime soon," said Wang Zhichang, regional manager of the Glory Gold store, adding revenue was likely to fall a further 10 percent next year on top of a drop of 10-20 percent this year. Wang, who was among 30 staff in the store at a time when there were no customers, said that a number of jewellery factories had closed in the past year in the area. Big retail chains, including Chow Tai Fook, the top jeweller by market value, are also closing branches and cutting back store openings in the mainland and Hong Kong. Chow Tai Fook last month reported a 42 percent drop in net profit in the April-September period and said it would open only a net of 60 stores in China in its current financial year ending March, from a previous target of 150. "Customers have become more rational with their purchases," a company spokesperson said by email. Illustrating the strains in the industry, Chinese banks have begun
to see loan defaults by jewellery manufacturers, hurt by weak sales, Reuters reported last month.
Bargain hunting “dama” pull back
From just 200 tonnes in 2003, Chinese demand for gold jewellery, bars and coins hit an all-time high of more than 1,000 tonnes in 2013, when prices of the metal snapped a 12-year rally. Demand has since fallen back and with prices now down by more than a third since 2012 Chinese confidence has weakened in gold as an investment. One of the biggest blows to China's gold consumption has been the pullback of "dama" buying, a Chinese term for middle-aged women known for their love of hunting out a bargain. They were at the forefront of the 2013 gold rush but many have had their fingers burnt as gold has repeatedly hit multi-year lows. "The golden period of China's dama demand has passed," said Shu Jiang, chief analyst at Shandong Gold Group, the parent of Shandong Gold Mining Co Ltd. Shu said unless there was a drastic price drop over a short period of time, the dama were unlikely to return, though others argued that what is really required is a rebound in prices. "Ironically, what you actually need to see for physical demand to pick up is for prices to rally," said Victor Thianpiriya, commodity strategist at ANZ, who expects Chinese demand to decline next year. "The confidence in gold as a supposed safe haven or as an investment has been battered over the last few years," said Thianpiriya. Indian demand has also taken a hit and in the December quarter is likely to fall to the lowest in eight years, hurt by poor investment demand and droughts that have slashed earnings for millions of farmers. A slump in demand in the two biggest consumers could further pressure miners, such as Barrick Gold Corp, which has been forced to sell
assets and cut costs to trim debt amid a slide in profits from three years of falling global gold prices. Though a fall in the value of local currencies in big producers such as Australia and South Africa has partly shielded miners' exposure to weaker demand.
Younger buyers
To prop up demand, retailers are trying increase their online presence to attract younger buyers, who prefer more fashionable lower purity 18 karat jewellery over the higher purity and more pricey pieces often favoured by older women. With the gold price outlook still bearish, some in the industry fear they might have to wait longer for a rebound. "We're expecting another 20 percent fall in business (next year)," said Zhang Fengming, the owner of another gold store in Shuibei, as he chain-smoked in his upstairs office. "The Chinese will get back into gold when it becomes more of an attractive investment. I think in three to five years time there will be a rebound," said Zhang, a 30-year veteran of the jewellery business. Reuters
KEY POINTS China’s gold demand poised to dip for a second year in 2015 Retailers in China’s jewellery hub warn of more declines Chinese consumers lose confidence in gold as an investment Weakness comes as demand in No.2 consumer India also soft
Business Daily | 11
December 24, 2015
Asia
Citizen X Philippines bars frontrunner Poe from 2016 presidential contest Norman P. Aquino
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hilippine election officials disqualified Grace Poe, a frontrunner in the May presidential race, from seeking the office over questions about her citizenship, a decision that risks creating chaos in the contest. The seven-member Commission on Elections ruled that Poe, the adopted daughter of a popular movie icon and first-term senator, failed to prove she’s a natural-born Filipino citizen - - a legal requirement for the office, Chairman Andres Bautista said at a televised briefing in Manila yesterday. The decision comes after the Senate Electoral Tribunal affirmed her citizenship last month and rejected a lawsuit seeking to oust her from the senate. That case is on appeal at the Supreme Court, which may end up having to rule on her disqualification.
Grace Poe
Poe, 47, was abandoned as a baby on the steps of a church in Iloilo city and raised by the late actor Fernando Poe Jr. Little is known about the nationality of her birth parents. While Poe renounced her citizenship in 2001 to reside in the U.S.
with her husband, she later returned and became a dual Philippine-U.S. citizen.
‘Electoral mayhem’
“A scenario in which people end up voting for Poe just to see her irreversibly disqualified is bound to
Democracy can wait Thai Junta’s Prayuth says reforms must come first Chris Blake and Suttinee Yuvejwattana
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hailand’s junta leader Prayuth Chan-Ocha used his yearend speech to remind his countrymen that he seized power in order to reform the nation and that a return to democracy will have to wait until that’s accomplished and won’t come before 2017. “Everybody wants to ask for a return to normal, to democracy with full freedom,” Prayuth said in a nationwide television address Wednesday. “I want to ask whether this is possible. If we want to create change from the past, it’s not. We have tried for 83 years with many coups. Now I want the real reform to take place. This is for our children’s future.” Prayuth, who toppled the elected government in a May 2014 coup, has repeatedly pushed back potential dates for new elections. The latest timeline, which Prayuth reiterated in his speech Wednesday, has the junta stepping aside and allowing for elections in mid-2017. In order for that date to be met, however, a new constitution must be written and
Prayuth Chan-Ocha
create more commotion, if not electoral mayhem,” said Richard Javad Heydarian, an assistant political science professor at De La Salle University in Manila. “Given her popularity, there’s bound to be a backlash.”
approved by voters and Prayuth has said the nation must be at peace with no dissent. Global funds have pulled a net US$4.9 billion from Thai stocks and bonds this year as fallout from the coup aggravated a selloff in emerging markets. The Thai economy is expected to grow 3 percent this year, recovering from 0.9 percent in 2014, when political unrest and the coup slammed growth. That’s still well below the Thai central bank’s estimated potential expansion rate of 4 percent to 5 percent. The junta has banned political gatherings and outlawed opposition to its rule. It has regularly summoned academics, activists, journalists and politicians for what it terms “attitude adjustment” - temporary detention at military bases where detainees are required to sign pledges to not oppose the junta or else risk jail time and asset seizure. In his hour-long speech, Prayuth urged people to stop trying to stir up trouble and reminded them that democracy doesn’t mean “unlimited freedom.” He also warned people to stop trying to get foreigners involved in Thailand’s internal affairs. The junta has come under fire from Western governments and international rights groups for its limits on personal freedom as well as its increased pursuit of those accused of violating a law prohibiting criticism of the monarchy. That has coincided with increased scrutiny of Thailand’s record on human trafficking and forced labor, particularly in its fishing industry. Bloomberg
The commission’s decision came out on the same day that a new poll showed her tied for the lead. Poe and Vice President Jejomar Binay each had 26 percent support in a poll by the Social Weather Stations conducted between this month. They were followed by Mar Roxas, President Benigno Aquino’s preferred successor, with 22 percent and Davao City Mayor Rodrigo Duterte with 20 percent. Senator Miriam Defensor-Santiago, who’s making a third bid for the presidency, trailed with 4 percent. The presidential bid by the 70-year-old Duterte, a crime- busting mayor and a self-confessed womanizer, is also being reviewed by the commission. Duterte managed to enter the race last month, after the filing deadline, by replacing a registered contender from his party. Duterte placed second in a poll by Pulse Asia Research early this month, with 23 percent, followed by Poe with 21 percent. Binay, 73, regained his lead in that poll with 33 percent. “Disqualifying Duterte, the newly minted frontrunner, is also bound to enrage his legion of highly charged supporters,” he said. Bloomberg
Life line Philippines gets US$500 million World Bank credit line to reduce disaster risk
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he Philippines has secured a $500 million credit line from the World Bank to support efforts to manage risks posed by natural disasters. The Southeast Asian country can get access to the credit line if its president declares a state of calamity, the bank said in a statement. It is the second such financing option the bank has provided the Philippines, which is the first country in the AsiaPacific region to use such a credit line. “If not managed well, disasters can roll back years of development gains and plunge millions of people into poverty,” World Bank Country Director Motoo Konishi said. The Philippines is frequently hit by natural disasters such as typhoons, earthquakes and volcanic eruptions, with on average more than 1,000 people killed every year, most of them by the 20 or more typhoons that hit annually. In 2013, typhoon Haiyan killed more than 6,300 people and left 1.4 million homeless in the central Philippines. Reuters
12 | Business Daily
December 24, 2015
Asia
India upgrades its arsenal Narendra Modi seeks Russian crown jewel in decade’s biggest arms deal Natalie Obiko Pearson and N. C. Bipindra with Debjit Chakraborty, Rajesh Kumar Singh and Ilya Arkhipov
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ndian Prime Minister Narendra Modi heads to Moscow after approving what’s set to be his nation’s biggest weapons deal with Russia since 2001, reaffirming a military partnership that newer suppliers like the U.S. will find difficult to dislodge. The S-400 air defense missile systems, which India plans to buy, are among the “crown jewels” of Russia’s defense capability, according to Jon Grevatt, Asia-Pacific defenseindustry analyst for IHS Jane’s. The two-day visit that started yesterday will also include a private dinner with Russian President Vladimir Putin and an event at the Kremlin with Russian and Indian chief executives. “Russia and India have a very strong partnership that the U.S. can only aspire to,” said Grevatt. “Sales from America may ebb and flow, but the sales from Russia will remain strong because there are so many ongoing programs between the two countries.” The US$150 billion that Modi plans to spend to upgrade his military could be a welcome diversion for Putin, who’s bracing for a second year of recession amid Western sanctions. Although the U.S. emerged as India’s biggest defense supplier last fiscal year, the Asian nation’s links with Russia stretch back to their Sovietera ties. Putin hosts Modi in Moscow for the annual bilateral summit after visiting New Delhi last year. The leaders have also displayed a friendly
rapport: Putin, who holds a black belt in judo, promised Modi he’d try yoga at a meeting earlier this year. “The best thing is that he knows how to maintain relations,” Modi said of Putin in an interview with Russia’s state-run TASS news service published yesterday. “He has a special strength to sacrifice for the relations. It is rarely found,” he said, predicting Russia’s global stature would grow and foster world peace. Modi arrived last night in time for dinner with Putin. The two leaders hold their summit today before meeting with business leaders. Modi is also scheduled to visit Russia’s emergencies ministry and speak at a Friends-of- India event expected to draw 3,000 people before departing this evening. On the way home, he may stop by Kabul to inaugurate Afghanistan’s new parliament built by India, the Press Trust of India reported, citing people it didn’t identify.
Missile shield
India’s defense acquisition panel last week approved the purchase of five S-400 systems. While the price is still to be negotiated, it’s likely to cost about US$4.5 billion, a defense ministry official said, asking not to be identified because the detail isn’t public yet. That would make it the biggest deal by value since 2001, when India agreed to buy 140 Su-30MK Sukhoi fighter jets, which the Stockholm International Peace Research Institute
estimates to be worth as much as US$5.4 billion. “Beyond speed, it will also increase the ability of the Indian forces to engage multiple targets and at a long range,” Anurag Garg, a director at PwC’s strategy consulting group, said of the S-400. “This is important to restore the strategic balance of power with China in the region and to have a credible defense against Pakistan’s fighters and ballistic missiles.”
to use under license, according to Siemon Wezeman, a senior researcher at the Stockholm International Peace Research Institute. “Russia was the leader in India’s market, now it is one of the leaders,” Makienko said by phone. “Modi’s visit can give a significant boost for Russian exports to India, because Russia is in some way an exclusive supplier, which offers joint production.” Bloomberg
Russian ties
Modi and Putin will discuss defense and nuclear cooperation, as well as ways to work together in oil and coal, India’s Foreign Secretary S. Jaishankar told reporters on Tuesday. Indian Oil Chairman B. Ashok and Oil India Chairman U. P. Singh will accompany Modi, the companies’ spokesmen said on Tuesday. About US$7 billion worth of deals will be agreed during the visit, according to Konstantin Makienko, deputy director of the Center for Analysis of Strategies and Technologies, which advises Russia’s defense ministry. India would need to purchase the S-400s directly from the Russian government if it wants delivery by 2018, he added. The U.S. surpassed Russia as India’s top supplier of defense equipment in the three years to March 2014, followed by France and Israel, according to the Indian government, which hasn’t provided more recent figures. However, this doesn’t capture Russian components that India imports
Other potential deals from the trip include: Kamov OAO may name an Indian partner to build 200 Ka-226T light military cargo helicopters in India; the deal may be valued at US$1 billion, India TV reported Lease of a second nuclear-powered attack submarine from Russia. First submarine was leased in 2012 for US$1 billion over 10 years Indian navy order for three Russian frigate warships. India paid about US$1 billion for three Talwar-class frigates in 1997 Agreement to re-start joint development of a fifth-generation fighter aircraft, stalled for two years over cost differences. Estimated project value: US$10 billion
editorial council Paulo A. Azevedo, José I. Duarte, Mandy Kuok Founder & Publisher Paulo A. Azevedo | pazevedo@macaubusinessdaily.com Newsdesk João Santos Filipe, Michael Armstrong, Stephanie Lai, Óscar Guijarro, Kam Leong, Joanne Kuai GROUP SENIOR ANALYST José I. Duarte Designer Francisco Cordeiro WEB & IT Janne Louhikari Contributors James Chu, João Francisco Pinto, José Carlos Matias, Larry So, Pedro Cortés, Ricardo Siu, Rose N. Lai, Zen Udani Photography Carmo Correia Assistant to the publisher Lu Yang | lu.yang@projectasiacorp.com office manager Elsa Vong | elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd.
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Business Daily | 13
December 24, 2015
International
Oil slumps to 11-year low If oil’s slump to an 11-year low stung traders, it’s just a taste of what the industry felt Grant Smith
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rent’s plunge to US$35.98 a barrel on Tuesday, its weakest intraday level since 2004, was probably painful enough for any remaining oil bulls. But that move was just playing catch-up with the annual average price, already at the lowest in 11 years -- a measure more important than intraday fluctuations to those that pump crude from the ground. “Short-term swings are not necessarily something that matters a lot at the corporate level or at the country level,” said Antoine Halff, a senior fellow at the Center on Global Energy Policy at Columbia University in New York. “For countries it’s the average, because that’s the basis of their revenue.” Crude’s slump, the result of the Organization of Petroleum Exporting Countries’ decision to keep pumping and defend market share against rivals,
is having a profound impact. Members of the group will forgo US$500 billion in revenue this year, according to the International Energy Agency, putting intense pressure on national budgets. About US$1.3 trillion has been wiped off the value of oil companies around the world over the same period, forcing them to lay off workers or cut dividends.
Broad changes
The world was a very different place the last time oil prices were so low for a sustained period. China was just embarking on a decade-long binge on commodities that would turn it into the world’s second-biggest oil user, while U.S. production was in longterm decline and nobody had heard of shale. The severity of the current downturn is also triggering significant changes across the industry. Ironically, the immediate
effect has been to swell, rather than reduce, global production as OPEC and competitors such as Russia jostle for market share and try to offset the price drop by maximizing output. “What’s been remarkable has been the very high level of production from a great variety of producers, against all odds,” said Halff, who was previously head of the IEA’s oil-market division. Russia, Iraq and Brazil have all beaten expectations this year, he said. “What unites them is they need the money in the face of low prices.”
No limits
OPEC effectively abandoned any limits on its production on Dec. 4, potentially unleashing millions of barrels of additional supply. The group will increase output next year by 640,000 barrels a day to about 32 million as Iran, Saudi Arabia, Kuwait
U.S. taxes Chinese steel Sonja Elmquist
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orrosion-resistant steel imports from China were sold at unfairly low prices and will be taxed at 256 percent, according to a preliminary finding of the U.S. Department of Commerce. Imports from India, South Korea and Italy will be taxed at lower rates, the agency said in a statement. Imports from Taiwan and Italy’s Marcegaglia SpA will not face anti-dumping tariffs. The government found dumping margins of 3.25 percent for most South Korean steel imports, with Hyundai Steel Co.’s shipments subject to duties of 3.5 percent. Imports from Italian
Bloomberg
industry consultant Graves & Co.
Falling investment
Production from nations outside OPEC will contract by 600,000 barrels a day next year, the steepest decline since 1992, the IEA predicts. While non-0PEC output will still grow in the longer term, the projected expansion of 1.3 million barrels a day from 2015 to 2020 will be less than a third of the total growth in the preceding five years. This stagnation in supply will help restore prices to US$80 by 2020, the agency estimates. “Supply adjustments are already under way,” said Giovanni Staunovo, an analyst at UBS Group AG in Zurich. “Non-OPEC production growth slowed almost to a standstill, from 2.2 million barrels a day at the beginning of the year, and should decline next year for the first time since 2008.” Bloomberg
Euro drops versus dollar
T companies excluding Marcegaglia will be taxed at 3.1 percent. Indian imports are subject to duties from 6.6 percent to 6.9 percent. U.S. producers including Nucor, U.S. Steel Corp. and Steel Dynamics Inc. filed cases in June alleging that some products from China, India, Italy, South Korea and Taiwan had been dumped in the U.S., harming domestic companies. In November, the government found that all those countries, except Taiwan, subsidized their domestic production by as much as 236 percent of its price.
and the United Arab Emirates pump more to counter the impact of lower crude prices, according to Goldman Sachs Group Inc. estimates. As the supply surplus persists there are “high risks” that oil could fall as low as US$20 a barrel next year if storage tanks start to fill up, the bank said in a report last week. Brent yesterday rose 1.4 percent to US$36.62 a barrel, while West Texas Intermediate crude, the U.S. benchmark, gained 1.5 percent. The surge in output in response to low prices probably isn’t sustainable. Producers are making the biggest investment cuts since the 1980s, with a reduction of 20 percent this year and more to follow in 2016, according to the Paris-based IEA. The number of job losses at oil and gas companies around the world has now passed the 250,000 mark, with still more to come, according to
he euro fell versus the dollar for the first time in four days, re-establishing a trend that has put the currency on course for its second year of losses, as policies at two of the world’s major central banks diverged and continue to drive moves in foreign-exchange markets. The shared currency weakened against most of its 16 major peers yesterday as trading was seen ebbing before the holiday season in Europe and the Americas. The Federal Reserve tightened policy for the first time in almost a decade in December while the European Central Bank said its asset-purchase program, currently at 60 billion euros (US$66 billion) per month, would run for at least another half-year, to March 2017. With a recovery in the global
economy still looking patchy and the slump in commodity prices fuelling deflationary fears, markets are pricing in a very gradual pace of interest-rate increases by the Fed. Even then, it’s the only major central bank currently on a policy-tightening path, the opposite of where the ECB is headed. “We are still bullish on the dollar and negative on the euro,” said Richard Falkenhall, a trading strategist at SEB AB in Stockholm. “We expect further rate hikes from the Fed but the key driver is that we expect the ECB to continue to ease monetary policy. They are not done yet.” He added that “relative monetary policy” will be “a very important driver for FX markets going into next year.” Bloomberg
14 | Business Daily
December 24, 2015
International
Flying high Embraer’s regional-jet redo moves ahead as 2016 public debut set Fabiola Moura with Frederic Tomesco
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mbraer SA is nearing a milestone in its push to update the regional-jet family that vaulted the Brazilian planemaker into global prominence two decades ago. The rollout of the upgraded version of the E190 jetliner, known as the E190-E2, has been set for late February, according to Embraer. The first flight of the plane is projected to be in next year’s second half, Embraer said by e-mail, ahead of a planned commercial debut in 2018. Setting the timetable for the plane’s public debut signals Embraer’s progress in overhauling the E-jet lineup with new wings, engines and landing gear. Airlines typically use smaller E-Jet models, such as the 76seat E175, to ferry travelers to and from hub airports while deploying the 100-seaters, such as the E190, on longer routes. “This is a company that launches the right products and executes well on them,” said Richard Aboulafia, vice president of consultant Teal Group in Fairfax, Virginia. Embraer’s chief competitor in the regional-jet market is Bombardier Inc., which has been de-emphasizing those planes in favor of developing the larger C Series to compete with singleaisle jets made by Boeing Co. and Airbus Group SE. Embraer’s regionaljet backlog totaled 530 planes at the end of last quarter, including 267 E2 aircraft, according to data compiled by Bloomberg. Bombardier’s tally for its CRJ aircraft stood at 70. Isabelle Gauthier, a spokeswoman
for Montreal-based Bombardier, said the company had no comment.
Challenging schedules
The E190-E2 will be the first of the updated Embraer planes to
enter commercial service, to be followed later by larger and smaller versions. Staying on schedule in the aerospace industry can be a challenge: Bombardier is running late with the C Series, Boeing faced delays on its
new 787 Dreamliner and the 747-8, and Japan’s Mitsubishi Aircraft Corp. has delayed the initial delivery of its MRJ90 regional aircraft three times. Embraer also showcased its execution ability with the first delivery of the Legacy 450 business jet on Monday. The São José dos Campos-based planemaker will meet its forecast target for handing over 115 to 130 corporate aircraft this year, said Marco Tulio Pellegrini, who runs Embraer’s executive-jets unit. The company’s market share expanded about 20 percent annually on average since 2001, when the company released its first executive jet, and will continue growing at the same rate, Pellegrini said in an interview in Sao Paulo. Bloomberg
Brazil to miss Uber judge puts brakes on inflation goal in 2017 California drivers’ suit outcome Mario Sergio Lima
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razil’s inflation will remain above the central bank’s 4.5 percent target over the next two years even if policy makers resume interest rate increases amid a deeperthan-forecast recession. Inflation will slow to 4.9 percent by the end of 2017 from 10.8 percent this year if policy makers increase the benchmark interest rate to 14.75 percent from 14.25 percent, the central bank said in its quarterly inflation report yesterday. Policy makers in their previous report in September forecast inflation would slow to 4.6 percent by the third quarter of 2017. The central bank is struggling to curb the biggest consumer price increases in more than a decade without exacerbating a deepening recession. The downturn, coupled with political turbulence and last week’s change of finance
Joel Rosenblatt and Pamela MacLean
minister, has prompted a selloff of Brazilian assets and a worsening of inflation expectations as traders question the government’s ability and willingness to contain spending. Policy makers “will adopt the necessary measures to ensure” inflation will slow to 4.5 percent in 2017, according to the report. They see “clear and significant signs” that the balance of risks to the economy has deteriorated as the inflation outlook worsens. The economy also has slipped deeper into recession, with gross domestic product shrinking 1.7 percent in the third quarter. The central bank forecasts GDP will fall 3.6 percent this year, compared to their estimate for a 2.7 percent drop in September’s report. The economy will contract an additional 1.9 percent in 2016, according to the central bank. Bloomberg
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ber Technologies Inc. won a ruling that may put off the outcome of a bid by California drivers to be treated as employees in a lawsuit that has grown dramatically both in size and potential liability. U.S. District Judge Edward Chen in San Francisco on Tuesday said he won’t issue a final ruling following a June trial if his decision to add more than 100,000 drivers to the class action hasn’t been resolved on appeal. In his December 9 ruling, the judge allowed all drivers covered by the case to seek expense reimbursement, including as much as 57 1/2 cents for every mile driven. Chen had previously allowed the drivers to seek tips in the case. A victory for the drivers seeking the pay and benefits of employees rather than
independent contractors threatens to upend the ride share company’s business model and cut into its more than US$60 billion valuation. Experts have said the stakes in the lawsuit grew by hundreds of millions of dollars as a result of the ruling. Chen concluded then that the company’s contract with its drivers improperly required them to resolve disputes through arbitration, preventing them from suing. Uber then sought to put the case on hold when it asked an appeals court to review the contract’s arbitration provision. In Tuesday’s order, Chen said there’s a public interest in not delaying trial in the lead case in the nation on the status of Uber drivers. He also said “a serious legal question has been raised by Uber” that justifies waiting
for the company’s appeal on the arbitration issue to play out before the final outcome of the case is decided. Jessica Santillo, a spokeswoman for Uber, said the company will ask the U.S. Court of Appeals in San Francisco to halt all proceedings in the case until the judge’s order is reviewed on appeal.
Drivers’ lawyer
Shannon Liss-Riordan, the lawyer for the drivers, said she’s pleased the June 20 trial date remains intact. “Uber had attempted to avoid this trial altogether while its appeal proceeds,” she said in an e-mail. “Judge Chen agreed with our argument that the trial must go forward in any event, with or without Uber’s appeal and so there is no reason for the trial be delayed. ” Bloomberg
Business Daily | 15
December 24, 2015
Opinion Business
wires
China’s Planning Addiction
Leading reports from Asia’s best business newspapers
South China Morning Post Mainland scientists are developing the world’s most powerful supercapacitor that could make Star Wars weapons a reality. Prototypes of directed-energy weapons such as laser cannons and railguns have been developed in many countries, but few have made it out of their laboratories due to their size and weight. If the new technology really works and wins a nod from military, a Star Wars weapon may not be very far from us.
The Jakarta Post President Joko “Jokowi” Widodo continues to monitor all input related to the work performance of his Cabinet ministers, from all aspects, including political parties outside his administration, according to Cabinet Secretary
Pramono
Anung.
“[Jokowi] monitors input from society, observers and political parties, both those who support and those who do not support his administration,” said Pramono as quoted by kompas. com at the Presidential Palace in Jakarta on Wednesday. In response to rumors circulating with regard to the Jokowi’s second Cabinet reshuffle plan, in which State Owned Enterprises Minister Rini Soemarno was touted as one of ministers included, Pramono could not confirm when Jokowi would announce the second Cabinet reshuffle and said that reshuffling the Cabinet was the prerogative right of the President.
Vietnam News The Vietnamese Government will continue creating all possible conditions for the world’s major IT groups, including Google, to expand operations in the country, Prime Minister Nguyen Tan Dung promised. The Government leader called on Google to support and expand its co-operation with Vietnamese partners while receiving Google CEO Sundar Pichai in Ha Noi yesterday. At the meeting, the Prime Minister lauded Google’s global fame and brand, especially its contributions to popularising knowledge and increasing information and education access for people worldwide.
The Brunei Times THE local food and beverage industry has been booming this year with new global franchises entering Brunei, while existing ones are opening up more outlets. International food brands are optimistic that despite its small size, Brunei’s affluent consumers will keep these restaurants in the black and fuel its growth in the next few years. “To see the (franchise) trend taking off across Brunei, not just in the capital but also to other districts like Belait, is really a reflection of the growing marketplace here, where local businessmen have identified the demand for these products and services which they are seeking to fill,” Acting US Ambassador to Brunei Fausto DeGuzman said at the opening of Burger King’s second outlet in Belait district early this month.
Koichi Hamada
Special Economic Adviser to Japanese Prime Minister Shinzo Abe
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n early September, I visited China for the first time in nearly ten years. With so much time having passed since my last visit, it was easy to see where China has prospered – and where it continues to struggle. China’s major cities embody the extraordinary success of the development policies that Deng Xiaoping initiated in the 1980s. They are home to most of the hundreds of millions of Chinese who have been lifted out of extreme poverty in just a few decades. Beijing and Shanghai are almost overwhelming in their scale and energy, lined with shimmering skyscrapers, adorned with bright neon lights, and teeming with increasingly cosmopolitan citizens. Standing on the streets of one of these vibrant cities, one gains a deeper appreciation of recent data on China’s rising domestic consumption. People are using the latest technologies and toting shopping bags bearing the names of international luxury brands. Their rising prosperity is also reflected in the retail sectors of Tokyo and Seoul, where increasingly wealthy Chinese tourists engage in “binge shopping.” But the impression I had of a modern, capitalist economy was soon tarnished by an improperly working phone in a first-class Beijing hotel. An American friend suspected that it was tapped, probably because of my role as an adviser to the Japanese government. Such claims are, of course, difficult to confirm, to say the least. What is not open to dispute is that a week after my trip ended, the number of the credit card that I had used for shopping in Beijing was used to make purchases at a Chinese
China should continue along this path, pursuing the kind of monetary-policy approach – aimed at securing the right combination of prices and employment – that prevails in freemarket economies
supermarket in New York City. While identity theft is by no means exclusively a Chinese problem, such experiences create the impression that technological modernization in China may be outpacing regulation and data-security infrastructure. Then there is the air quality. This year, Beijing has experienced repeated bouts of severe air pollution, with two smog “red alerts” having been issued this month. When I visited Beijing in 2005, immediately after the commemorations of the 60th anniversary of the end of World War II, the sky was clear.
Of course, air pollution was already a problem for China a decade ago. But, before the commemorations, the government had prohibited many cars from driving (based on their license-plate numbers), stopped selected factories from operating, and forced some firms to move out of the city temporarily. This approach – which could be pursued only within a centrally planned economy like China’s – provided temporary relief. But ultimately it did little good; in fact, by obscuring the problem, it might have delayed effective action. This was hardly the first or only time that China has used central planning to implement short-term solutions that fail to bring about – or, in some cases, even impede – longterm progress. For example, this summer’s stock-market crash was widely viewed as a natural correction, because equity prices – driven largely by government interventions – had risen over the previous year far above what economic fundamentals merited. Nonetheless, when prices collapsed, the government moved fast, suspending trading of a substantial number of stocks and pursuing pricekeeping operations that resembled those pursued by Japan in the 1990s. In this manner, China’s government managed to stop a rout, seemingly reinforcing the Marxist view that economic and financial crises do not occur in controlled economies. Indeed, China’s leaders seem convinced that price-keeping operations amount to an effective mechanism for manipulating stock prices in whatever way they see fit. As an adviser to the Chinese government said on
my recent trip, “movements in the stock-price index are totally unrelated to the real state of the economy.” What Chinese policymakers don’t seem to recognize is that such interventions carry serious long-term costs. Few want to invest in a market where the government can change the rules at any moment. China’s recent intervention in the currency market also sent mixed signals. For years, the authorities tended to support the renminbi, as they pursued renminbi internationalization – an effort that culminated in the International Monetary Fund’s recent decision to add the renminbi to the basket of currencies that compose its reserve asset, so-called Special Drawing Rights. Not long after the stockmarket crash, however, the authorities allowed the currency to depreciate. China should continue along this path, pursuing the kind of monetary-policy approach – aimed at securing the right combination of prices and employment – that prevails in free-market economies. Continued currency depreciation would provide a much-needed boost to the slowing economy, just as depreciation of the yen through Abenomics has helped to lift Japan out of a protracted recession. As 2015 closes, China’s leaders find themselves at a crossroads. They must decide whether to continue trying to control the economy or to follow through on their promise to build a genuinely market-oriented system. For China’s sake, and that of its neighbors, one hopes they stick to the freemarket plan. Project Syndicate
16 | Business Daily
December 24, 2015
Closing Google developing new messaging app
China Southern to buy Airbus aircraft
Google, part of Alphabet Inc, is building a new mobile messaging application to better compete with rival services such as those offered by Facebook Inc., The Wall Street Journal reported. The new service would tap into Google’s artificial intelligence know-how, integrating chatbots, or software programs that answer questions, inside a messaging app, the Journal said, citing people familiar with the matter. The new app will enable users to text friends or a chatbot, which will search the web and other sources for information to answer a question.
China Southern Airlines Co has signed deals worth about US$2.3 billion to buy 10 aircrafts from Airbus Group SE, the carrier said yesterday. The country’s largest airline by fleet size, has agreed to purchase 10 Airbus A330-300 airplanes, each with a list price of US$227.36 million, it said in a stock exchange filing. The planes will be delivered between 2017 and 2019 and increase the airline’s capacity by 4 percent. The purchase will be funded by cash and financing arrangements with banks, the filing added.
The warmer the better In Greenland, hopes for climate change to boost economy Mads Nyvold
as the subsidy from former colonial master Denmark that currently accounts for about half of the annual budget is now fixed and its value slowly erodes along with inflation.
From Nuuk to Nairobi
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s the world struggles to limit climate change, some people in Greenland hope to cash in on rising temperatures with new species to fish, innovative exports and advances in farming. While the North Atlantic island remains highly dependent on shrimp as its main export -- it is known locally as “the pink gold” -warming waters are attracting new types of fish. “It’s very nice to be able to offer freshly caught tuna and mackerel even if we are right here in Greenland,” said Bjorn Johansen, a chef at Hotel Hans Egede, the largest hotel in capital Nuuk, which has a population of 22,000. In summer, fishermen in east Greenland are now catching mackerel and Atlantic bluefin tuna that
have swum far from their spawning grounds in the Mediterranean and the Gulf of Mexico. For Johansen they are a break from the monotony of Greenland’s traditional staples. For Nuuk’s home rule government, which is seeking more sources of income as the economy has to support an ageing population, they are an export opportunity. Falling commodity prices have put a damper on hopes that the territory’s mineral riches -- buried beneath the ice -- could spark an an imminent mining boom. Instead fisheries continue to dominate the economy, accounting for about 90 percent of exports, and mackerel and Atlantic bluefin tuna have ready markets. That is welcome news for the local government,
China to double onshore yuan’s trading hours
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“If summer temperatures continue to increase during this century ... it is likely that bluefin tuna could become a regular summer visitor in east Greenland waters,” said Brian MacKenzie, a marine ecology professor at the Technical University of Denmark. Satellite images show the Arctic territory’s vast ice sheet, which holds between six and seven percent of the world’s fresh water and covers four-fifths of its land, shrinking by nearly 50 cubic miles (208 cubic kilometres) per year. The ice sheet, a potentially massive contributor to a rise in sea levels, lost mass twice as fast between 2003 and 2010 as during the entire 20th century, researchers said last week in the journal Nature. For many Greenlanders, climate change is already posing challenges and changing the traditional lifestyle: some hunters and fishermen have had to put down their huskies as thinner winter sea ice makes the use of dog sleds for ice fishing too dangerous.
Tourism, one of the industries the government wants to grow to diversify the economy, is also facing obstacles in the thawing Arctic. During some parts of the year the ice floes in the Ilulissat icefjord, Greenland’s largest tourism attraction, have been so massive that cruise ships have had problems getting tourists ashore. They has also made it harder for local fishermen to navigate into open waters. But with the melting ice sheet comes rock that has been naturally crushed by the ice. This “rock flour” contains nutrients that can be used in countries with poor farmland. “It is completely ready for shipping. A man and a shovel and then just off with the nutrient-rich dirt,” said Minik Rosing, a geology professor who heads the think tank Greenland Perspective.
Potato protection
The substance is a nuisance for Greenlanders when it clogs up the fjords and “may as well do good elsewhere in the world”, he added. The idea is to export the rock flour to places with barren and arid land such as Africa and South America. The nutrients in the crushed rocks from Greenland can make the farmland arable again, Rosing said.
As the minerals are absorbed by the plants through the soil, more vegetation pulls carbon dioxide out of the atmosphere. One tonne can be shipped up to 12,000 kilometres (7,500 miles) before having a negative impact on the climate, meaning the rock flour can be transported from Nuuk to Nairobi. “We can therefore easily move it to South America or Africa without a negative impact,” said Rosing. Another export idea rooted in microbiology has come from south Greenland’s potato crops, which have grown more plentiful as summers have become warmer. While the cost of farming in the island is high compared to other places, higher temperatures could see it being done on a larger scale in the future. The warming climate is not the only thing working in farmers’ favour: researchers have found that the soil is also providing them with a unique advantage. While potato growers around the world face the threat of disease-causing microbes such as blight wiping out entire harvests, south Greenland’s soil contains microorganisms that inhibit the growth of harmful fungi. These “have a major biotechnological potential if the molecules can be successfully synthesized into chemical compounds or if the organisms can be used as an organic alternative to pesticides”, said microbiologist Peter Stougaard, an associate professor at the University of Copenhagen.
Mainland to cut on-grid power tariffs
Uber partners with major Chinese auto maker
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hina will double the yuan’s onshore trading hours from January as it prepares for the currency’s addition to the IMF’s reserves basket in October next year. Trading will be extended to 11:30 p.m. Beijing time starting January 4, according to a statement posted on the central bank’s website. The currency’s spot rate at 4:30 p.m., the current closing time, will still be considered the day’s last price, the People’s Bank of China said. It added that it will allow more foreign institutions with significant yuan trading volumes to participate in the onshore foreign-exchange market. China aims to provide more channels for trading of the yuan, which will help converge the currency’s onshore and offshore rates, the PBOC said. Liquidity outside of regular Asia hours can be relatively poor, heightening the risk of unrepresentative exchange rates and manipulation, it said.
hina said yesterday it would cut on-grid prices for thermal electricity by 0.03 yuan per kilowatt-hour, the second cut since April 2015, in a move that tracks the downward trend in coal prices. Effective from Jan. 1, wholesale prices would be cut, the State Council said in a statement on its microblog The government will continue to institute differential, punitive and tiered pricing for heavy users, the statement added. The price cut will ease the financial pressure on industries such as the metallurgy and chemical sectors, but adds further stress on struggling coal mines, nearly three quarters of which have suffered losses in the first half of the year. China last lowered on-grid thermal power rates by 0.02 yuan/kwh. Coal still fires more than 70 percent of China’s power generation, the world’s largest.
Bloomberg
Reuters
AFP
ber announced a partnership with a major Chinese auto maker as the controversial ridesharing service revved its efforts in the country. Uber and Guangzhou Automobile Group will work together in areas including investment, sales, marketing, and promoting new energy vehicles such as hybrid or electric cars, the San Franciscobased company said in a release. Terms of the strategic partnership included Uber China promoting GAC automobiles and the group’s used-car trading platform to ride-sharing service drivers and partners. “I believe we can unlock new opportunities to evolve how China moves, and open up even more transportation possibilities for riders across China,” Uber China head of strategy Zhen Liu said of the alliance. Uber launched in China in February of last year and is active in 21 cities in that country, with plans to be in 100 cities within a year. AFP