MOP 6.00 Closing editor: Joanne Kuai
DSSOPT to reclaim 12 idle plots in Coloane & Ilha Verde Page 7
Year IV
Number 952 Friday January 1, 2016
Publisher: Paulo A. Azevedo
Beijing moves to prevent speculation on RMB Page 10
ASEAN Community starts a new era in South East Asian relations Page 11
New life to old theatres
Macau property investor and developer William Kuan Vai Lam, known as the developer of the residential project Windsor Arch, is splashing millions not only in the revamp of the defunct Cantonese opera house Cheng Peng Theatre, but also in the makeover of the decrepit cinema and mall complex Capitol Theatre, amid property occupation disputes from some of the vendors working in the property. Without disclosing the acquisition cost involved, Mr Kuan budgeted about MOP30 million (US$3.76 million) for the renovation works at Cheng Peng Theatre and another MOP20 million to MOP30 million at Capitol Theatre Pages
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Property
Double-digit problem
www.macaubusinessdaily.com
Page 7
The city saw the number of package-tour visitors plunge by 26.6 pct y-o-y in November to a total of 769,000, led by those from the Mainland China slumping by 28 pct to 622,000. While other major markets such as Taiwan, Hong Kong and South Korea all witness drops, the city welcomed more visitors from Japan, of which the number surged by 27.1 pct y-o-y to 17,000 during the month
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Shanghai stocks ended 2015 up nearly 10 pct, beating Wall Street and most other major markets, and shaking off a savage summer rout. The Shanghai Composite Index ended yesterday’s session 0.9 pct lower at 3,539.18 points, while China’s blue-chip CSI300 index declined 0.9 pct to 3,731.00 in thin volume on the last day of year
Page 8
In November, the city’s average housing prices fell by 18.4 pct y-o-y to MOP74,771 (US$9,346) per square metre. Home transactions, however, saw a rebound of 8.4 pct y-o-y to 515 in the residential sector
Smaller package
Shanghai beats Wall Street
HSI - Movers December 30
Job-hopping
Name
In a time when gaming revenues keeps slumping, casino workers tend to look elsewhere for a career change. DSEC data shows that the number of people working for gaming & junket activities between Sep and Nov is down around 3 pct to 81,200, while hotels and local wholesale and retail sectors both saw growth, but are still being far outnumbered. The city’s unemployment rate remained stable at 1.9 pct
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%Day
China Resources Beer H
+4.14
Bank of East Asia Ltd/T
+3.04
China Resources Land L
+2.73
China Overseas Land &
+1.87
Tencent Holdings Ltd
+1.19
Hang Lung Properties L
-1.12
PetroChina Co Ltd
-1.17
Cheung Kong Property
-1.18
Sino Land Co Ltd
-1.39
CNOOC Ltd
-1.59
Source: Bloomberg
I SSN 2226-8294
2016-1-1
2016-1-2
2016-1-3
14˚ 21˚
15˚ 22˚
16˚ 23˚
2 | Business Daily
January 1, 2016
Macau Gaming workers down nearly 3 pct in Sep-Nov
T
Package tour visitors shrank 27 pct in November Particularly, those from the Mainland China slumped by 28 per cent year-on-year Kam Leong
kamleong@macaubusinessdaily.com
T
he city saw the number of package-tour visitors plunge by 26.6 per cent year-on-year in November, in addition to a decrease of 5.7 percentage points in average hotel occupancy rate in the month. According to the latest official data released by the Statistics and Census Service (DSEC), the Special Administrative Region received a total of 769,000 visitors on package tours in November. On a month-on-month comparison, the number represents a decrease of 6.8 per cent. Of these total package-tour visitors, 42,000 joined local tours after they arrived at the territory, down by 74.8 per cent year-on-year. The other 727,000 who arrived on package tours also shows a decrease - 17.5 per cent year-on-year. The sharp drop in the number of package tour visitors is not only due to those from Mainland China declining by 28 per cent year-onyear to 622,000 in the month. According to DSEC, package-tour visitors from Taiwan shrank by 39.7 per cent year-on-year to 37,000, while those from Hong Kong and South Korea also dropped by 27.5
per cent and 19.2 per cent yearon-year, amounting to 18,000 and 29,000, respectively. However, the city welcomed more visitors from Japan, of which the number surged by 27.1 per cent yearon-year to 17,000 during the month.
Outbound
On the other hand, the number of local residents travelling by using services of travel agencies also registered a year-on-year decline of 9.6 per cent in November, totalling 119,000. In addition, those travelling outside the city on package tours fell 1.3 per cent year-on-year to 49,000. The major destinations for local outbound tourists were Mainland China, which accounted for 72.9 per cent of the total, followed by South Korea (4.5 per cent) and Taiwan (8 per cent). Particularly, the number of outbound residents travelling to Japan soared by 49.8 per cent year-on-year in November, totalling 3,100 overall. For the first eleven months of 2015, visitors on package tours reached 9.05 million, which is down by 10.2 per cent year-on-year, while outbound residents using services of
travel agencies decreased by 1.5 per cent year-on-year to 1.38 million. As at the end of November, there were a total of 104 hotels and guesthouses operating in the territory, offering a total of 32,000 hotel rooms. Of the total, 20,000 were 5-star hotel rooms, accounting for 63.1 per cent of the total. A total of 932,000 guests checked into local hotels and guesthouses in November, which is up by 3.3 per cent year-on-year. Nevertheless, the average hotel occupancy rate dropped by 5.7 percentage points year-on-year to 84.6 per cent. Local four-star hotel’s occupancy rate, 86.2 per cent, was the highest, among the hotels, despite such a rate, this still represents a decline of 5.8 percentage points year-on-year. Meanwhile, five-star hotels also saw occupancy drop by 5.8 percentage points to 85.3 per cent. For the first eleven months of 2015, the average hotel occupancy rate stood at 80.2 per cent, which is down by 6.4 percentage points yearon-year. Meanwhile, the number of hotel guests fell by 4 per cent yearon-year to some 9.43 million.
here were a total of 81,200 labourers working for gaming & junket activities in the city between September and November, which is down by 2.9 per cent compared to August-October, the latest employment survey released yesterday by the Statistics and Census Service (DSEC) reveals. During the three months, the city’s unemployment rate remained stable at 1.9 per cent as in the previous period, whilst the underemployment was at 0.6 per cent. Total labour force posted a slight decrease of 0.3 per cent period-onperiod to 400,900, of which total employment and total unemployed amounted to some 393,400 and 7,400, respectively. Meanwhile, labour force participation rate hovered at 73.2 per cent in the three months.
Career change
Despite employment in gaming & junket activities registering a decrease, there were more labourers working in the hotel field, the survey said. Between September and November, a total of 31,100 workers were employed in hotels & similar activities, up by 4.6 per cent compared to 29,700 in the previous period. In addition, local wholesale and retail trade industries saw their labour number jump by 1.3 per cent periodon-period to 44,700. In terms of proportion, most of the city’s manpower was in the field of recreational, cultural, gaming & other services during the three months, accounting for 23.4 per cent of the total. Meanwhile, another 14.5 per cent were working for the industries of hotels, restaurants & similar activities, followed by the fields of construction and wholesale & retail, which owned 13.2 per cent and 11.4 per cent of the city’s total labour force, respectively. In fact, 11.7 per cent of the total unemployed in the period were fresh labour force entrants searching for their first job, a decrease marginally by 0.2 percentage points period-on-period, according to DSEC. On a year-on-year comparison, both the unemployment rate and the underemployment rate increased by 0.2 percentage points, while the labour force participation rate decreased by 1.2 percentage points. K.L.
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4 | Business Daily
January 1, 2016
Macau Govt appoints CAM corporate bodies personnel The government has appointed Charles Lo Keng Chio as the President of the General Assembly of Macau International Airport Co. Ltd. (CAM), according to a dispatch signed by the Secretary for Transport and Public Works Raimundo Arrais do Rosário, published in yesterday’s official gazette. It’s also gazetted that Ma Iao Hang has been appointed as the Chairman of the Board of Directors of CAM; Deng Jun has been appointed as the Chairman of the Executive Committee. José Manuel de Oliveira Rodrigues has been appointed as a member of the Supervisory Committee of CAM. All appointments are valid for a period from 2016 to 2018. The list of Corporate Bodies was previously unanimously resolved in an Extraordinary General Assembly on 15th December, 2015.
Property investor William Kuan bets millions on theatres revamp Cheng Peng Theatre and Capitol Theatre, both defunct for years, will see a total facelift with more cultural elements on offer after the coming year of renovation works, said local businessman William Kuan Vai Lam Stephanie Lai
sw.lai@macaubusinessdaily.com
M
acau property investor and developer William Kuan Vai Lam is splashing millions not only in the revamp of the defunct Cantonese opera house Cheng Peng Theatre, but also in the makeover of the decrepit cinema and mall complex Capitol Theatre, amid property occupation disputes from some of the vendors working in the property. William Kuan, known as the developer of the residential project Windsor Arch via his company Victory Real Estate Development Co Ltd, has begun acquiring the city’s defunct cinema complexes – the Cantonese opera house Cheng Peng Theatre and Capitol Theatre four years ago, both located in the downtown tourist spot in Macau peninsula. Cheng Peng Theatre, known as the first theatre opened in Macau during the late 19th century, had been a major centre for playing Cantonese operas. But the venue was shut down in 1992. In an interview with Business Daily, Mr Kuan told that he has leased the theatre from its owner Chap Seng Tong Company Ltd with a 30-year term – though the property boss was reticent about the cost of the lease. “It was in a Korean film that was shot beautifully of Macau’s casinos and also Cheng Peng Theatre that I noticed the venue,” Mr Kuan remarked, “It would be a waste if we could not use the theatre again. Then a chance came when Chap Seng
Macau businessman William Kuan Vai Lam
Tong agreed to lease me the theatre with a 30-year term.” Chap Seng Tong, which used to be a non-profit association which later turned into a company, holds ownership of several properties located
José Manuel Braz-Gomes
In loving memory of a life well lived This coming Wednesday, January 6th, when José Manuel Braz-Gomes would celebrate his 70th anniversary, a mass for the soul of our beloved friend will be celebrated at Macau Cathedral at 6pm.
at Rua da Felicidade where Cheng Peng Theatre is located nearby. Rua da Felicidade, now a street lined with eateries, inns and souvenir shops, was once a well-known hub for gambling, opium houses and prostitution.
Mr Kuan’s company Companhia do Centro Cultural de Ching Peng Lda has taken over the renovation works of the theatre, and will also be responsible to operate the theatre after the project comes online. “After we’ve acquired the theatre, we have started some coordinating efforts with the Cultural Affairs Bureau to renovate the space,” Mr Kuan said, noting that the bureau is now responsible for leading the architectural designs and conducting some preservation works of the historic relics uncovered at the theatre site. Mr Kuan budgeted about MOP30 million (US$3.76 million) for the renovation works for Cheng Peng Theatre, which would all be shouldered by his company. He expected the revamp process of the theatre will take about a year to complete. “Our agreed deal with the government is that we’ll have the performance space at the theatre prioritized for its cultural activities or festivals,” Mr Kuan told us. Cheng Peng Theatre, which totals a site area of 20,000 square feet, will have half of the space zoned as the theatre part designed with 600 to 700 seats, said Mr Kuan. “We would like to show films at the theatre, which at the same time can also serve as a space for Cantonese operas,” he said, “For the rest of the area of the Cheng Peng
Business Daily | 5
January 1, 2016
Macau Tax info exchange with Argentina in effect Agreement between Macau SAR and the Argentine Republic for the exchange of information relating to taxes has come into effect since 3 November 2015, according to the dispatch signed by the Chief Executive and released in yesterday’s government’s official gazette. The agreement signed on 5 September 2014, desiring to facilitate the exchange of information with respect to taxes, has agreed that both parties shall provide assistance through exchange of information that is foreseeably to the administration and enforcement of the internal laws of the contracting parties concerning taxes covered by this agreement. The agreement mandates that such information shall include data that is foreseeably relevant to the determination, assessment and collection of such taxes, the recovery and enforcement of tax claims, or the investigation or prosecution of tax matters.
Theatre, we would also like to set up a museum themed at Cantonese operas, and to zone out some studio spaces to be leased for the local associations to rehearse dramas or other performances, as well as an area for cafes.” The property investor described the revitalisation project of Cheng Peng Theatre as a “non-profit” one, which his company would only seek to cover the basic operation cost when the theatre starts. “We’ll also apply for the Cultural Industries Fund to support our operation,” Mr Kuan said, “Afterall our project can also be categorized as a ‘cultural and creative’ one.” Locally-registered company applications, which belong to the sectors of “creative design”, “cultural exposition and performance”, “art collection” and “digital media”, can seek to gain either a direct subsidy or interest-free loan from the Cultural Industries Fund, which was only launched in summer of 2014.
Decrepit cinema
Compared to the lease and revamp for Cheng Peng Theatre, the renovation project of mall and cinema complex Capitol Theatre (or known in Portuguese as Centro Comercial Teatro Capitol) is a more complicated case as the now decrepit property has suffered from poor management for years, according to Mr Kuan and the vendors at the mall. “We started the acquisition [of majority ownership] of Capitol Theatre some three to four years ago,” Mr Kuan told us, “Eventually our company [Pak Man Hong Kuok Wa Development Ltd] and a few other individual investors have bought up more than 80 per cent of the property rights of the theatre.” Inside Capitol Theatre, now with a defunct cinema on the fourth and highest floor, there are 100-plus shop spaces inside the property. But most of these shop spaces are now vacated, with only a few working on the ground floor as well as the first to the third floor. Inside Capitol Theatre
Cheng Peng Theatre under renovation
By a majority ownership of the theatre, Mr Kuan and his partners have acquired the 380-seat cinema, a video game arcade located in the basement of the property and other 25 shop spaces. Again the property boss declined to disclose the acquisition cost involved with the majority ownership of Capitol Theatre, but he told that the renovation works of the property would cost about MOP20 million to MOP30 million. He expected that the revamp, which is starting soon, will take about only a year’s time. “After the renovation works, the complex will be turned into just like any other mall – we would like to see a food court on the ground floor, clothing retailers on the rest and a cinema on the top floor,” Mr Kuan said, “The cinema will be playing popular Chinese-language films.” In Macau, there are now only four cinemas: the UA Cinema in Galaxy Macau casino-resort, a cinema in
Macau Tower, Cineteatro Macau and Cinema Alegria. Of these four cinemas, only the UA Cinema is located in Cotai – the rest are all situated in Macau peninsula. “We’ve signed a letter of intent with the estate agency Mcore Properties Investment Ltd to be our exclusive leasing agent for the shop spaces,” Mr Kuan said, “By that deal, we want to offer the tenants a rent level cheaper than the market rate.” Mr Kuan said his company has suggested Mcore to lease each shop space, of a size of around 100 – 200 square feet, at MOP2,000 to MOP3,000 a month. He added that his company is also looking to acquire more shop spaces inside Capitol Theatre.
Vendors’ disputes
But Mr Kuan’s revamp plan for Capitol Theatre was not welcomed by some of the snack vendors working on the ground floor of the complex. Upon a visit to the theatre, Business
Daily understood that there were four vendors embroiled in a lawsuit, filed by the property management committee of the theatre against these vendors’ “illegal occupation of space”. Mr Kuan’s company Pak Man Hong Kuok Wa Development Ltd is also a member of this property management committee. According to Mr Kuan, the lawsuit was filed over the cause that the vendors had been “illegally” using the common area of the theatre for their business. Ms Kou, one of the four vendors sued by the committee, told Business Daily that she would refute the case. All of these four vendors were working on the ground floor of the theatre. “We all have evidence of paying monthly rentals to the [former] property management company, and we have used the space to run the business here since 1998,” said Ms Kou, who declined to tell a full name. The former property management company Ms Kou referred to was Hang Kei Property Management. Hang Kei has already ceased managing the Capitol Theatre since late October this year. The property management committee, led by Mr Kuan’s company, is looking to recruit a new property management company this month. “We’ll settle the disputes [with the vendors] through lawsuit,” Mr Kuan said, “This would not impact our renovation works for the theatre.” Mr Kuan targeted to see the renovated theatre to start business by the end of 2016. The property boss also said that he was not worried of the retail prospect for Capitol Theatre, despite the neighbouring shopping malls Ginza Plaza and Sun Star Plaza are both seeing poor foot traffic from shoppers. “We did not only look at the revamp of Capitol Theatre in the aspect of profit for the short term,” said Mr Kuan. He added that he would like to see the renovated theatre to be a place not only playing commercial films, but to showcase and promote local productions during off-peak times as well.
Business Daily | 7
January 1, 2016
Macau
Home prices 2015 Year Review continue double-digit decline in November opinion
But the residential real estate market records notable increases in housing transactions Pedro Cortés
Lawyer cortes@macau.ctm.net
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here are great things about writing freely in a Special Administrative Region with freedom of speech and in a free newspaper. One of them is that you may choose the theme and even consider yourself good enough to give honours and remarks to whomever you want! Begging the pardon of those who could be also listed, here they are (in alphabetical order): Association of the Year Macau Special Olympics – in the World Games that took place in Los Angeles, the champions took many medals to the Region. Hopefully they will continue to be supported by society and the politicians. Thank you Champions! Decision of the Year Enlargement of Macau – Macau Special Administrative Region has seen its territory enlarged by a decision of the Central Government. We do hope that the administration of the granted 85 square kilometres will be effective and will have the residents’ needs and expectations in mind. International event of the Year The terrorist attacks around the world – the famous quote of Thomas Hobbes, Homo homini lupus, is, unfortunately very actual and present in our days. It seems that only those of Paris were important but we shall not forget what happened in other parts of the world. And the destruction of sites such as Palmyra should make the powers of this world think about the path the planet is taking.
Kam Leong
Kamleong@macaubusinessdaily.com
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ocal property market saw home transactions rebound in November following housing prices plunging by double digits in the month, the latest official data released yesterday by the Financial Services Bureau (DSF) shows. In November, the city’s average housing prices fell by 18.4 per cent yearon-year to MOP74,771 (US$9,346) per square metre , compared to MOP91,731 per square metre one year ago. On a month-on-month basis, home prices also dropped by some 5.8 per cent from MOP79,344 in October. The decrease in the home prices drove a total of 515 transactions completed in the residential sector in November, which is up by 8.4 per cent year-on-year, or 34.5 per cent
month-on-month. Of the total, 381 or 74 per cent were made for housing units on the Peninsula, while the other 79 and 55 were for houses in Taipa and Coloane, respectively. Average housing prices in Taipa registered the most notable decrease in November. During the month, a unit there cost around MOP76,189 per square metre, shrinking by 37.3 per cent compared to MOP121,607 per square metre one year ago. In addition, such prices declined by some 13.9 per cent from October’s MOP88,555. Asset values of residential units on the Peninsula also recorded a yearon-year decrease of 16.5 per cent, or a month-on-month drop of 8.9 per cent, costing approximately MOP67,898 per square metre on average. However,
Joke of the Year The influence of humidity in the speed of Internet – “The fixed network of telecommunications may be affected by, for instance, the humidity”, by the Director of the Regulation of Telecommunications Bureau. Local event of the Year Downturn in the gaming industry – I tend to continue to not call it a crisis, but the fact is that the figures are raw. Operators will need to adapt themselves to the “new normal”. As the Governments shall, once and for all, start supporting the true diversification, without creating the barriers that are installed. Mistake of the Year Portugal calling magistrates to return – it seems that the Portuguese politicians do not understand what Macau represents in terms of judicial cooperation, and what can be good for those that make the justice their lives. It is an irreparable mistake that only small minds can support. Politician of Year Mr. Raimundo do Rosário – changed the way of acting as Secretary in Macau and finally started to give answers to the city’s problems. We have seen the light railway conclusively moving forward. Despite we may not agree with what happened in the recent years, Mr. Rosário has decided to decide according to the law in the land grants that have expired. Up and coming of the Year Uber in Macau – finally, we have in Macau one of the greatest inventions of our times that can change the way we live and we behave with our mobility. Hopefully, the Macau Government can see that this can be the solution for several problems, including the traffic jams and the price of the parking spaces and the pollution and many other problems we currently have. We wish you a great 2016 with only great events to be mentioned! *Part-time lecturer at the Chinese University of Hong Kong
housing prices for property in Coloane were slightly up by 0.3 per cent yearon-year to MOP108,999 per square metre, which is a month-on-month decrease of 9.85 per cent. In terms of unit type, 443 of the total housing transactions were made on completed units, while the other 72 were off-plan sales. On average, home prices for completed units were cheaper than those that are still under construction. According to the DSF data, prices for completed units amounted to MOP68,605 in the month, which is down by 13.5 per cent compared to MOP79,355 one year ago. Those in Macau, accounting for most of the total, cost even below the average, at some MOP65,510 per square metre, which is a year-on-year decrease of 15.1 per cent. In addition, home prices for completed flats in Taipa dropped by some 16.3 per cent year-on-year to MOP75,205 per square metre. For off-plan sales, each square metre was sold at MOP106,944 in November, which is down by 22.5 per cent compared to MOP137,948 during the same period of last year. 53 transactions of the total off-plan sales were made for units in Coloane, where prices reached MOP107,481 per square metre. Meanwhile, uncompleted units in Macau Peninsula cost MOP104,122 per square metre, which is down by 16.1 per cent year-on-year.
DSSOPT: to reclaim 12 idle plots in Coloane & Ilha Verde
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he Land, Public Works and Transport Bureau (DSSOPT) said it is gradually initiating procedures to declare the invalidity of land concessions for twelve idle plots located in Seac Pai Van, Ka-Ho of Coloane and Ilha Verde of Macau peninsula. These twelve land plots are of the city’s 65 idle plots - of which landholders were perceived not the liable party for the delay in land use by the authorities in 2011. However, according to the DSSOPT’s official data, the conditional land concessions
of these twelve plots have expired in 2013 and 2014. ‘According to the Land Law, temporary land concession cannot be renewed. The government will thus reclaim these plots based on the law,’ the Bureau said in an e-mail to Business Daily’s enquiry on whether the government is in the process of taking back these plots. The Bureau added that the twelve land plots would be considered using for building public housing if their conditions are appropriate.
Currently, the city’s Land Law regulates that a temporary or conditional land concession, which carries a validity of 25 years, can only become effective when the property project of a site is completed and is issued an occupation permit. Otherwise, they will have to be taken back by the government. These 12 plots, carrying a combined size of over 64,000 square metres, were first granted to landholders by the Portuguese administration of Macau in 1988 and 1989. K.L. with S.L.
8 | Business Daily
January 1, 2016
Greater China
Shanghai stocks end year higher as H shares sink most in Asia For Chinese stocks, 2015 was a year of turbulence and divergence Kyoungwha Kim
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he Shanghai Com posit e Index gained 9.4 percent, a second annual advance, after government intervention to end a US$5 trillion summer rout helped stabilize the world’s second-largest equity market. A gauge of Chinese shares traded in Hong Kong tumbled 19 percent, the most in Asia, as foreign investors turned bearish on the nation’s earnings prospects amid a deepening economic slowdown. The decoupling, the first for any year in a decade, underscores the widening price gap between the stocks traded in the two cities even after the start of an exchange link made it easier for investors to buy shares across the border. Dual- listed stocks are 40 percent more expensive on the mainland than in Hong Kong, according to the Hang Seng China AH Premium Index. “China’s stock markets
The Hang Seng Index rose 0.2 percent, paring its annual decline to 7.2 percent
went through a turbulent ride this year, with its incredible rally in the first half of 2015 coming to a dramatic end in the second half,” said Bernard Aw, a strategist at IG Asia Pte. in Singapore. “The government remains committed to restructuring the economy to achieve sustainable and stable growth. From that perspective, we
should see some volatility in equity markets, but the magnitude may be smaller than in 2015.” The Shanghai Composite dropped 0.9 percent to 3,539.18 at the close, while the Hang Seng China Enterprises Index was little changed at 9,661.03. The Hang Seng Index rose 0.2 percent, paring its annual decline to 7.2 percent. China’s markets are closed on Friday and will reopen on January 4. In Shanghai, a sense of normality is returning after the biggest-ever destruction of China’s stock-market value. A gauge of 50-day price swings has fallen to the lowest level in seven months, while the Shanghai Composite capped the best performance among major global indexes this quarter. Regulators have removed some support measures implemented at the height of the market turmoil, while
a ban on selling by major shareholders is due to expire next week. Still, other curbs remain. Trading in the country’s CSI 300 Index futures has fallen 99 percent from this year’s highs after policy makers raised margin requirements, tightened position limits and targeted short sellers. Top executives have also fallen victim to a widening probe into the finance industry.
Falling currency
The intervention and volatility of mainland equities were a turn-off for foreign investors, while a weakening yuan hurt the earnings outlook for H shares, which are priced in Hong Kong dollars. The offshore yuan, which is freely traded overseas, touched a five-year low on Wednesday and the spot rate in Shanghai tumbled 4.5 percent this year to 6.4935 a dollar, the biggest annual decline in more than two decades.
Shenzhen to challenge Shanghai’s dominance in blue-chip listings The exchange plans to launch options products based on certain indexes, and is studying the launch of cross-border fixed-income products
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he Shenzhen Stock Exchange, home to China’s smaller listed companies, said it aims to resume initial public offerings by blue-chip firms in 2016 after a 12year gap, potentially heating up competition with its bigger rival in Shanghai. Under the current arrangements by the Chinese government, the Shanghai Stock Exchange is the bourse for blue-chips, while the
Shenzhen exchange is positioned as the marketplace for mainly smaller firms and start-ups, having halted large-cap listings since 2004 to avoid direct competition with Shanghai. But as Beijing accelerates its capital market reforms to give companies easier access to funding, the demarcation lines are being blurred. Last week, China’s State Council, or cabinet, said China plans to
launch a strategic industries board on the Shanghai Stock Exchange, which would potentially compete with Shenzhen for smaller listing candidates. The Shenzhen exchange said in a statement yesterday that it plans to “resume IPOs on the main board, in a bid to aid restructuring in stateowned enterprises, and cultivate more blue-chip firms”. It was not clear whether such a
Plunging valuations also proved to be no incentive for investors to return to Chinese stocks in Hong Kong. The Hang Seng gauge trades at 7.2 times reported earnings, the same level as shares in Beirut, and the biggest discount to the MSCI AllCountry World Index since 2003, according to data compiled by Bloomberg. Global money managers also cut their holdings of mainland shares by about 5 percent in the first nine months of 2015, even after authorities made it easier than ever to bring money into the country. “Investors will likely repeat the same trading pattern as this year,” said William Wong, head of sales trading at Shenwan Hongyuan Group Co. in Hong Kong. While valuations of Chinese shares across the border have fallen from their highs, they aren’t cheap. The median stock on mainland exchanges trades at 74 times earnings, the most expensive among the world’s 10 biggest markets. The Shanghai Composite, which has a heavy weighting in lowpriced banks, has a ratio of 19. That compares with its five-year average of 13.
Biggest winners
Technology stocks led gains this year in mainland markets on bets China will succeed in transitioning to a consumer-led economy from one dependent on investment. Wangsu Science & Technology Co. and Iflytek Co. more than doubled this year. A gauge of health-care companies was the secondbest performer among the 10 industry groups on the CSI 300 Index, led by drugmaker Beijing Tongrentang Co. In Hong Kong, PetroChina Co. plunged 41 percent this year and China Petroleum & Chemical Corp. fell 25 percent as crude prices headed for a second annual decline amid a global glut. China National Building Material Co. was the worst performer, sinking 51 percent, while BYD Co., the maker of batteries for newenergy vehicles, advanced the most with a 41 percent rally. Bloomberg News
plan has been submitted to the central government, or whether approval has been obtained. The Shenzhen Exchange could not be immediately contacted for comment. The bourse, which hosts a board for small- and mediumsized enterprises and Nasdaqstyle start-up board ChiNext, said it also plans to lower the listing threshold, so that loss-making firms and overseas-listed Chinese firms can float there. The exchange also said it will seek to launch the Shenzhen-Hong Kong Stock Connect “as soon as possible”. Rival Shanghai Stock Exchange launched a similar crossborder equities investment scheme, the Shanghai-Hong Kong Stock Connect, more than a year ago. The Shenzhen exchange also plans to launch options products based on certain indexes, and is studying the launch of cross-broader fixed-income products, it said. Reuters
Business Daily | 9
January 1, 2016
Greater China HKEx says to delist China Metal Recycling Hong Kong’s stock exchange operator said yesterday it will delist China Metal Recycling Holdings Ltd, following a move in February by the city’s financial regulator to force the company into provisional liquidation alleging accounting fraud. The company, China’s self-styled biggest recycler of scrap metal, had obtained its listing by fraudulent means, according to a high court ruling in Hong Kong in March. The case against China Metal Recycling by Hong Kong’s Securities and Futures Commission was widely seen as a test of the watchdog’s ability to pursue firms based abroad but listed in the financial hub.
State-owned carriers sweep nation’s first airport slot auction In 2013, China began to allow couples to have a second child if either parent was an only child
New laws, regulations make difference for China in 2016 Several laws and regulations will take effect in 2016, and change the day-to-day lives of the Chinese people
F
rom allowing a second child and making it easier for migrant workers to settle down in big cities, to measures that make the stock market more stable and marketoriented, these new rules touch on the deeper problems facing the Chinese and will go down in history.
A FAMILY AFFAIR
From the first day of 2016 the lives of tens of millions of Chinese couples will change when the amended family planning law takes effect, allowing all couples to have two children. This historic move is part of efforts to balance the population structure. China’s family planning policy was first introduced in the 1970s to rein in the surging population. For decades, most urban couples were limited to one child, while rural couples were allowed to have two children if the first was a girl. The policy gradually relaxed as a number of social problems arose. In 2013, China began to allow couples to have a second child if either parent was an only child.
daily trading limit for individual stocks to ward off major swings in the country’s stock market. Market gyrations during the summer this year ended a bull-run of Chinese stocks since late 2014 and wiped out trillions in market value. The circuit breaker will force trading at exchanges in Shanghai and Shenzhen to suspend for 15 minutes if the Hushen 300 index falls five percent. Trading will halt for the rest of the day if the index plunges more than seven percent. There were 25 days when the index fell over five percent between the beginning of 2014 and the end of October this year, including 11 days when the decline exceeded 7 percent, data compiled by Ping An Securities shows. Meanwhile, new stock offerings on the domestic market will see less bureaucratic meddling as registrationbased IPO rules will replace the approval-based listing process. The supply of new stocks will gradually
CITY LIFE
The new year also brings good news for the 250 million migrant workers in cities, mainly from rural areas. They will be able to apply for residence permits that will give them better access to local public services from today. According to the new regulation, applicants must have lived in the city in which they are applying for residency for at least six months and either have a stable job, stable place to live or be studying. Those granted the new residence permits will gain access to more basic public services, including nine years of compulsory education for children and basic health care. The new permits will also bring conveniences such as passport issuance and automobile registration.
A STABLE MARKET
China will introduce a circuit breaker next year in addition to the existing
The new law (second child policy) will help balance the decreasing labour force and aging population Guo Zhigang, sociologist, Peking University
increase and more companies can access fundraising through the stock market under more flexible listing requirements. Under the registration-based IPO rules, regulators will only need to ensure thorough information disclosure for IPOs and let the market determine the value of new stocks rather than hand-pick companies for listing, a practice that has bred corruption among officials who get to decide on which company goes to market.
IT’S EASY TO BE GREEN
A new law on air pollution control will become effective on the first day of 2016. This new legislation was amended and passed this year amid worsening air pollution across China. Beijing and its surrounding region in northern China were among the regions worst hit by smog containing hazardous air-borne particles measuring less than 2.5 microns in diameter, known commonly as PM 2.5. China has made similar legislation in the past, but existing regulation has been seen as increasingly out of date and less effective in reducing pollution. The new law metes out tougher punishments to industries and seeks to curb air pollution at its root. In the past, companies and organizations that failed to comply with legal requirements on air pollution faced fines of up to 500,000 yuan (around US$80,600). That limit is gone in the new law, in the hope that reckless polluters will no longer be able to afford to pollute. The new law also mandates that gasoline be produced at a higher quality and alternative energy used to reduce coal consumption. Local governments will also be assessed and monitored over what they do to improve air quality. They have largely ignored environmental protection in the past in their growthat-all-cost approach to economic development. Xinhua
China’s state-owned airlines were the biggest winners in the country’s first auction for coveted airport landing slots, state media reported yesterday, casting doubt over the effectiveness of efforts to reform the slot-assignment process. China earlier this month said it would put slots for additional 2016 domestic flights at the Guangzhou Baiyun International Airport up for sale, in a new move predicted to give smaller private airlines a fairer opportunity to prise some desired slots from dominant state-owned carriers. China Daily said nine airport slots were sold on Wednesday to the country’s four largest airlines and their affiliates.
Hong Kong Exchange Fund assets lower Assets at the Exchange Fund, which is used to back the Hong Kong dollar, totalled HK$3,454.7 billion ($445.76 billion) at the end of November, the Hong Kong Monetary Authority (HKMA) said yesterday. The figure was HK$16.2 billion lower than the total at the end of October, with foreign currency assets falling HK$28.4 billion and Hong Kong dollar assets rising HK$12.2 billion, the city’s de facto central bank said in a statement. The HKMA said the drop in foreign currency assets was due to a decrease in unsettled purchases of securities and mark-to-market losses on foreign currency portfolios.
Cross-strait flight safety pact goes into effect A pact on cross-strait cooperation on civil flight safety and airworthiness certification went into effect yesterday. The agreement was signed by the mainland-based Association for Relations Across the Taiwan Straits (ARATS) President Chen Deming and Taiwan-based Straits Exchange Foundation (SEF) Chairman Lin Join-sane during their talks in August. “The pact will help civil aviation industries on the two sides of the Taiwan Straits to establish a platform for exchanges and cooperation, optimize flight safety management and reduce operating costs,” said the ARATS in a statement.
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Greater China
Beijing fires a warning shot at yuan speculators with bank bans By closing loopholes in its regulations, China is trying to stabilize the yuan Ye Xie and Lillian Chen
By imposing the ban, China is seeking to prevent speculators from bringing money in illegally to arbitrage, even though it helps narrow the difference.
Currency policy
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hina has a message for currency speculators: the free lunch is over. As informed yesterday, the People’s Bank of China suspended at least two foreign banks from conducting some cross-border yuan business until late March, according to people with direct knowledge of the matter. The clampdown comes as the growing offshore-onshore spread makes it profitable for those who skirt capital controls to buy the currency at a discount in Hong Kong and sell it in Shanghai. By closing loopholes in its regulations, China is trying to stabilize the yuan after a surprising revamp of its currency valuation system in August led to capital outflows and prompted policy makers to tap US$213 billion of foreign reserves to support the yuan. The risk is that discouraging arbitrage will cause the exchange rates to diverge further, undermining the goal of unifying the two markets. “The market should see this as a warning shot across the bow,” said Douglas Borthwick, the New York-based head of currencies at Chapdelaine & Co., a unit of the British inter- dealer brokerage Tullet Prebon Plc. Chinese regulators don’t
want onshore trades to be speculative in nature and “in the short term this will likely lead to further widening of the spread,” he said. A three-month ban on settling offshore clients’ yuan transactions in the onshore market was imposed Tuesday, the people said, asking not to be identified because they aren’t authorized to speak publicly on the matter. The central bank didn’t immediately respond to questions on the matter, and it was unclear how widely the ban has applied among foreign banks or which institutions are suspended. Spokespeople for Citigroup Inc., HSBC Holdings Plc. and Standard Chartered Plc., which are among the largest foreign dealers allowed in China’s interbank foreign-exchange markets, declined to comment on the ban and whether their operations were affected. The offshore yuan, which is freely traded overseas, touched a five-year low on Wednesday before erasing losses on speculation the government was intervening to support the currency. The gap between two rates has widened since August when China’s devaluation, part of the move to a more market-determined currency regime,
“Some banks were supposed to be penalized for engaging in arbitrage between the offshore and onshore markets,” said Suan Teck Kin, an economist at United Overseas Bank Ltd. in Singapore. “If the PBOC sees it’s a genuine trade, they’ll probably let you proceed. If they suspect you are manipulating, they want to clamp down. What they want to see is a natural convergence of the two yuan rates.” Chinese authorities, who won their case to make the yuan part of the reserve-currency basket at the International Monetary Fund last month, are walking a fine line between opening capital markets and cracking down on shoddy transactions. The new currency policy aims to give markets more sway in determining its exchange rate and interest rates, while retaining certain controls to ensure stability. Since August, regulators have limited some banks’ capacities for foreign-currency transactions and raised costs for lenders to settle trades. The State Administration of Foreign Exchange said Wednesday it will prevent risks associated with abnormal cross-border capital flows.
‘Right thing’
If the PBOC sees it’s a genuine trade, they’ll probably let you proceed. If they suspect you are manipulating, they want to clamp down Suan Teck Kin, economist, United Overseas Bank
fuelled expectations among overseas investors for further yuan weakness. The divergence is undesirable because it means companies cannot use hedging tools tied to overseas rates to protect their onshore exposure.
The central bank last week said it would allow more foreign institutions with significant volumes to trade in the onshore foreign-exchange market and extend onshore trading hours. It said the moves will help narrow the onshore and offshore difference. “They are doing the right thing,” former Morgan Stanley Chief Executive Officer John Mack said in an interview on Bloomberg Television Wednesday. “The Chinese want to minimize volatility. When you have the arbitrage set up where it’s an absolute money maker and more people come into that trade, it creates a lot of volatility.” David Loevinger, a former China specialist at the U.S. Treasury, doubts the ban will be enough to discourage speculators. Chinese companies with overseas affiliates, for example, often find ways to circumvent capital controls, he said. “It’s a bit like sticking your fingers in two holes of a leaky dam,” said Loevinger, now an analyst at fund manager TCW Group Inc. in Los Angeles. Bloomberg News
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January 1, 2016
Asia
ASEAN launches economic bloc but analysts sceptical Leaders signed a declaration to establish the AEC at the group's annual summit in November but there was no official ceremony yesterday ASEAN Economic Community signing ceremony
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outheast Asian nations officially launched an EU-inspired economic bloc yesterday aimed at boosting the region's trading clout and attracting more investment, but analysts said a true single market was still a long way off. The ten-member Association of Southeast Asian Nations (ASEAN) hailed the project as a "milestone" in combining the economic force of a resource-rich and growing market of more than 600 million people. The vision for the ASEAN Economic Community (AEC) is a single market with a free flow of goods, capital and skilled labour, which should help the region compete with the likes of China for foreign investment. The new bloc "will contribute significantly to the region’s growth and create developmental opportunities for all," said Vivian Balakrishnan, the
foreign minister of ASEAN member Singapore. But experts say such an idea is difficult, if not impossible, to achieve in a region marked by extremes in development levels, democratisation, and institutional capability. The official launch of the AEC has no practical effect, and diplomats have said ASEAN -- regularly criticised for a lack of concrete achievements -- was keen not to miss its own deadline of 2015, set several years ago. Research group Capital Economics said in a note the establishment of the AEC was "no game changer", and it was likely to fall short in tackling major challenges such as reducing non-tariff barriers and improving infrastructure. "ASEAN, with its tradition of noninterference into the affairs of member countries, an absence of penalties for non-compliance, and a lack of a
The new bloc “will contribute significantly to the region’s growth and create developmental opportunities for all Vivian Balakrishnan, foreign minister, Singapore
powerful central bureaucracy, is illequipped to tackle these obstacles," it said. John Pang, a senior fellow at Singapore's S. Rajaratnam School of International Studies, said there would be only "slow and incremental progress" in integrating the economies of Southeast Asia. "The AEC will not be raising the curtain on any radical change," he wrote in a commentary. Diplomats have conceded the single market vision is many years away, but insist the project will help change mind-sets and provide momentum. ASEAN leaders signed a declaration to establish the AEC at the group's annual summit in November but there was no official ceremony yesterday to mark the new bloc's establishment. Southeast Asia has already made progress on lower-hanging fruit like cutting tariffs and removing other hurdles such as clashing customs systems but significant non-tariff and other barriers remain. ASEAN includes wealthy Singapore, one of the world's most developed countries, oil-rich Brunei, developing states such as Malaysia, Indonesia, Thailand, the Philippines and Vietnam, and poorer nations like Cambodia, Laos and Myanmar. Its members range from freewheeling to controlled democracies, communist-ruled states and an absolute Islamic monarchy. Although ASEAN's plans were inspired by the developed single market of the 28-member European Union, officials insist they want to pursue integration in a way suitable to the region's circumstances, and have ruled out a common currency. AFP
South Korea inflation accelerates above expectations The Bank of Korea’s new annual inflation target, which will be valid for three years starting today, is 2.0 percent Christine Kim
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outh Korea’s annual inflation rate accelerated above expectations in December to its highest in 16 months as demand for services rose amid a recovery in consumption, government data showed yesterday. The consumer price index rose 1.3 percent in December from a year earlier, Statistics Korea said, up from a 1.0 percent increase in November. It was the fastest rise since a 1.4 percent gain in August 2014. The CPI increase was higher than the median 1.1 percent projected in a Reuters survey. “Services inflation is steadily rising. Demand-side pressures seem to be recovering but we still need more time to determine the trend,” said a finance ministry official to Reuters. Yesterday’s data showed the consumer index for services rose 2.3
KEY POINTS Dec CPI rises 1.3 pct y/y (Reuters poll +1.1 pct) 2015 inflation at 0.7 pct vs 1.3 pct in 2014 Services inflation highest in nearly 4 yrs Too early to say if data to affect c.bank policy – economist
percent in December on-year, the fastest gain since February 2012. The ministry official also said inflation had risen on higher agricultural product prices due to heavy rains and the fading effects of low global oil prices. The Bank of Korea (BOK) has a policy meeting on January 14. The current base rate is 1.50 percent after the BOK cut interest rates four times between August 2014 and June 2015. A slim majority of analysts see no change for a prolonged period. Some analysts expect another interest rate cut soon, and Park Sang-hyun, chief economist at HI Investment & Securities, said the higher inflation is unlikely to change those views. “It’s too early to say whether the Bank of Korea will act on today’s data alone,” Park added. “However, there
are chances of further easing after industrial output data out Wednesday was weaker than expected.” Government data showed November industrial output was weaker than expected as exports hobbled factory activity, while services remained the only bright spot in the data. On a monthly basis, overall inflation rose 0.3 percent in December, compared with a 0.1 percent decline in November. Core inflation, which strips out volatile food and fuel prices, rose 2.4 percent in December in annual terms, as it did in November. For the whole year, inflation was 0.7 percent, easing considerably from a 1.3 percent rate in 2014 and matching the central bank’s forecast made in October. Reuters
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Asia
1MDB in property project stake sale to Malaysia-China group The multi-billion dollar purchases are expected to boost Beijing’s chances of securing contracts to build other major projects in the country Rozanna Latiff
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alaysia’s troubled state fund 1MDB said yesterday it had agreed to a US$1.7 billion property deal with a MalaysianChinese group, wrapping up major asset sales to cut debt. This will help Prime Minister Najib Razak, who chairs 1MDB’s advisory board and who has faced calls to resign amid international probes and public outrage over allegations of graft and financial mismanagement at the fund. 1MDB will sell its 60 percent stake in Bandar Malaysia Berhad to Iskandar Waterfront Holdings and its partner, state-run China Railway Engineering Corp, for 7.41 billion ringgit (US$1.7 billion), the fund said in a statement. Bandar Malaysia is developing a 486-acre air force base in Kuala Lumpur into the capital’s public transport hub. The deal represents the second major asset purchase from the fund involving Chinese state-run companies. China General Nuclear Power Corporation bought 1MDB’s energy assets for US$2.3 billion last month.
KEY POINTS Deal is last of major 1MDB asset sales Iskandar Waterfront and China Railway Engineering the buyers PM Najib under pressure to resolve 1MDB scandal
Malaysia’s Prime Minister Najib Razak
Malaysia’s Iskandar Waterfront Holdings will hold 60 percent of the venture buying the 1MDB stake, while China Railway Engineering will hold the rest, 1MDB said, adding that the sale should be completed by the end of June 2016. The multi-billion dollar purchases are expected to boost Beijing’s chances of securing contracts to build other
major projects in the country as China seeks to extend its influence in Southeast Asia. China Railway Engineering is now likely to be in pole position for work on a high-speed rail link from Kuala Lumpur to Singapore that terminates in Bandar Malaysia. Japanese firms are also competing for that deal. The stakes have been high for Najib
India IPOs: 2016 promises to be best year in 6 on profit growth Sumeet Chatterjee and Denny Thomas
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ndian IPOs are set to raise more than US$5 billion in 2016, a six-year high, as corporate profit growth and a pickup in the economy drive investor demand for equities and lure firms such as Vodafone’s local unit to list. India has been a bright spot in an otherwise dull Asian initial public offering (IPO) market in 2015, with companies in the country raising a combined US$2.1 billion, a seven-fold jump over the previous year. In contrast, sums raised by bigger markets such as Hong Kong and Australia, have fallen. Investment bankers, who forecast the IPO proceeds topping US$5 billion in 2016,
say besides the Vodafone unit listing, there will be several financial and technology sector companies going public next year. “There is a healthy pipeline of deals waiting to hit the market over the next 12 to 18 months and an equally strong investor interest to buy into these deals,” said Sunil Sanghai, head of banking at HSBC in India, adding companies would need equity capital as new projects take off. Volatile markets and slowing economic growth had dampened IPO launches in India in the past few years, and led to sluggish revenue growth and rising debt at companies in
Asia’s third-largest economy. But Prime Minister Narendra Modi’s push to cut bureaucratic red tape to improve ease of doing business, bolster the country’s manufacturing sector and attract more foreign capital is now set to give a boost to the IPO momentum. And corporate earnings growth is set to quicken. India’s listed large and midcap companies are expected to post an average net income growth of 21.6 percent in the next fiscal year beginning in April, up from 9.2 percent in this fiscal, according to Thomson Reuters Starmine data.
to make progress in resolving the 1MDB scandal after the Wall Street Journal reported in July that investigators looking into the fund had found nearly $700 million was deposited into Najib’s private bank account. Reuters has not verified the report. Najib has denied taking any money for personal gain.
In what could be 2016’s top India listing, Vodafone is expected to float its India unit to raise more than US$2 billion, according to several bankers, in the biggest private-sector debut since utility Reliance Power raised US$2.9 billion in 2008. A Vodafone spokesman in London said the mobile operator was “positively inclined” towards an IPO and that preparations had started, but a final decision on the offering would depend on factors including market and industry dynamics in India. HDFC Life, in which British insurer Standard Life owns a stake, is expected to raise more than US$300 million via an IPO next year, bankers said, making it the first insurer to list on the Indian bourses. Other possible listings include a roughly US$150 million IPO by private-equity backed Ujjivan Financial Services, which makes small loans to businesses and farmers, and IT services firm L&T Infotech’s about US$300 million floatation, they said. A spokesman for L&T
Reuters
Infotech parent Larsen & Toubro said the unit had filed the prospectus for an IPO, but declined to comment further. HDFC Life and Ujjivan did not respond to a Reuters request for comment. India’s benchmark BSE index is down 5.3 percent so far this year, but Deutsche Bank in a report this month said the index should rise more than 11 percent to touch 29,000 by end-2016 helped by a jump in corporate earnings. The IPO momentum, however, could stall if the government fails to implement key reforms, including a new law to harmonise all state taxes to give a fillip to economic growth, some bankers said. “There are some concerns about delay in pushing through reforms, which if not addressed would have an impact on the corporate as well as investor sentiment, which would in turn have an impact on demand for Indian papers,” said the equity capital market banker at a U.S. bank. Reuters
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January 1, 2016
Asia Bank Indonesia tells banks to create buffers for bad times
Sri Lanka central bank chief warns on rate hike
Banks will be given 6-to-12 months to raise their capital buffers
KEY POINTS Central bank to set countercyclical capital buffer requirements Adjustable buffers range at 0-2.5 pct of risk-weighted assets
S.Korea house prices rise but pace slows
Initial buffer requirement of 0 percent effective Jan. 1
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ndonesia’s central bank issued a new regulation requiring banks to increase their capital during economic boom periods to protect against possible future losses coming from excessive loan growth. In a statement issued yesterday, Bank Indonesia (BI) said it will set the adjustable countercyclical capital buffers requirement within a 0-2.5 percent range of risk-weighted assets, which would be additional to banks’ existing capital adequacy ratio (CAR) requirements. The central bank will evaluate the required capital buffer levels at least every six months and make adjustments based on prevailing economic conditions. The new buffer requirement will be set
at zero percent as of January 1. BI said banks tend to lend more during periods of strong economic growth, which may lead to an increase in systemic risks and that countercyclical buffers would help to mitigate these risks. Banks will be given 6-to-12 months to raise their capital buffers when BI increases the requirements, however, cuts in capital requirements will apply immediately. Sigit Pramono, chairman of Indonesia’s banks association, told Reuters banks have already prepared for such rules as they were stipulated in Basel III, a global, voluntary regulatory framework on banks’ capital adequacy norms.
Softer loans won’t quicken Vietnam coffee replanting Few coffee growers have so far accessed the cheaper credit due to loan conditions Ho Binh Minh
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heaper credit extended to Vietnamese coffee growers for replanting part of the world’s biggest robusta production will not accelerate the process that has already been hindered by lengthy paperwork, traders and analysts said yesterday. Vietnam aims to replace old coffee trees, now accounting for a third of its acreage, to boost yields by 2020, but the government-backed credit worth 12.5 trillion dong (US$556 million) in place since May 2013 has attracted few growers. From January 2016, the lending rate offered by state-run Agribank
will be cut to 6.5 percent per annum during the grace period, from 7 percent now, the central bank said on Wednesday. But few coffee growers have so far accessed the cheaper credit due to loan conditions. Agribank said it has disbursed just 800 billion dong under the package since 2013, or 6 percent of the total credit. “The rate becomes more attractive, but the issue rests not with interest rates, but the conditions to access the loans,” said Bach Thanh Tuan, head of the Daklak-based Community
Sri Lanka central bank governor Arjuna Mahendran yesterday said raising the key monetary policy rates will damage the island nation’s economic growth as they are already high compared to inflation. Mahendran comments come a day after the central bank held the policy rates steady at their record lows for an eighth successive month, but raised commercial banks’ statutory reserve ratio (SRR) by 150 basis points to reduce excess liquidity in the market. “The interest rates are higher compared to inflation. Raising interest rate will be a damage to the growth of the economy,” Mahendran told reporters in Colombo.
“Big banks have anticipated this - so if it is applied starting next year, banks are ready and we have no problem,” he said. Indonesian banks have sound capital with average CAR in October reaching 20.8 percent. Yearly loan growth in October was 10.4 percent, which was relatively slow compared with more than 20 percent during the commodity boom years. The slow credit growth reflects weak economic growth with this year set to be the slowest since 2009. Banks’ profits have been under pressure this year as they sharply hiked bad loan provisions and non-performing loans grew. Reuters
Development Center, which helps farmers maintain sustainable production. Daklak province produces a third of Vietnam’s coffee. Most farmers have been avoiding the loans as they find it hard to obtain local government’s certificates on the replanting area and on the land-use right in order to qualify for the credit, traders said. “Farmers simply don’t borrow, while they replant trees slowly, bit by bit,” a Vietnamese trader based in Daklak said. The replanting programme, coupled with adverse weather leading to early blossoms and low prices, has been expected to trim the country’s coffee output in coming years, Vietnam Coffee and Cocoa Association Chairman Luong Van Tu said. Price falls have already prompted many Vietnamese coffee farmers to switch to growing pepper and other cash crops, traders said. Robusta futures, closely tracked by Vietnamese coffee prices, have been falling in line with lower crude prices, Vietnam’s harvest and a weak currency in top producer Brazil in recent months. ICE January robusta contract hit a two-year low on November 30. Yesterday robusta stood at 32,90033,500 dong (US$1.46-US$1.49) per kg in Daklak, down around 7 percent so far in the October 2015/September 2016 crop year and also a decline of 16 percent from December 31, 2014, based on Reuters data. Vietnam’s coffee exports in calendar year 2015 dropped 24.3 percent from last year to an estimated 1.28 million tonnes, while earnings fell 27.8 percent to US$2.57 billion, the government said. Reuters
South Korean house prices rose for a 28th consecutive month in December from November, taking the annual gain for 2015 to the fastest in four years, data from a top local mortgage lender showed yesterday. The data from Kookmin Bank showed its composite house transactions price index rose 0.18 percent in December from November and by 4.42 percent from a year earlier. The gain for the year was the most since a 6.86 percent rise in 2011. But the monthly growth slowed from 0.43 percent in November and marked the slowest since January this year.
Singapore bank lending edges up Singapore’s total bank lending in November increased from the previous month, helped by a rise in loans to financial institutions, central bank data showed yesterday. Loans and advances by domestic banks in the city-state amounted to S$603.9 billion last month, according to data from the Monetary Authority of Singapore. That compared with S$601.7 billion in October. November bank lending was 0.7 percent smaller than the year-earlier level of S$608.2 billion. Housing and bridging loans in November rose to S$184.3 billion from S$183.6 billion in October.
Australia shares disappoint for a second year Australian shares ended the year more than 2 percent down, disappointing investors for the second year in a row as slumping iron ore and metal prices hit bluechip mining stocks while onerous capital rules hurt the heavyweight banking sector. The S&P/ASX 200 index slipped 0.5 percent on the last trading day of the year yesterday to 5,295.9 points, staying near a 2-month high hit in the previous session. The benchmark rose 1 percent in the previous session.
S.Korea central bank chief stresses financial stability for 2016 Central bank chief repeatedly stressed the need to ensure financial stability in his New Year’s address yesterday, saying high debt levels in the country and rising U.S. interest rates could pose risks. “Debt that has piled up in households and businesses could hurt the stability of our financial system by shrinking consumption and investment sentiment following the normalisation of interest rates in the U.S.,” Bank of Korea Governor Lee Ju-yeol said. Lee said as a part of efforts to achieve further financial stability, the central bank would cooperate with government and watchdog authorities to curb household debt growth.
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International U.K. financial regulator drops review of banking culture A U.K. regulator dropped a review of banking culture, signalling that the Financial Conduct Authority (FCA) is continuing to shelve projects initiated by former Chief Executive Officer Martin Wheatley. The FCA said yesterday that it won’t deliver the overarching report on the industry and will instead work with banks on an individual basis. “The best way to support these efforts is to engage individually with firms to encourage their delivery of cultural change as well as supporting the other initiatives outside the FCA,” the London-based regulator said in a statement.
U.S. preparing more sanctions on Iran U.S. President Barack Obama’s administration is preparing new sanctions on international companies and individuals over Iran’s ballistic missile program, sources familiar with the situation said on Wednesday. The Wall Street Journal reported earlier that the potential sanctions would target about 12 companies and individuals in Iran, Hong Kong and the United Arab Emirates (UAE) for their suspected role in developing Iran’s ballistic-missile program. U.S. officials have said the Treasury Department retains a right under July’s landmark nuclear agreement between Iran and six world powers, including Washington, to blacklist Iranian entities.
Merkel tells Germans refugee influx ‘an opportunity’ Chancellor Angela Merkel in her New Year’s address yesterday asked Germans to see a record refugee influx as “an opportunity for tomorrow” and urged doubters not to follow racist hate-mongers. The past year -- when the top EU economy took in over one million asylum seekers -- had been unusually challenging, she said in a pre-released text of the speech, also bracing Germans for more hardships ahead. But she stressed that in the end it would all be worth it because “countries have always benefitted from successful immigration, both economically and socially”.
GE separates renewable energy from power unit General Electric Co said it would separate its renewable energy business from its power unit, following the acquisition of Alstom’s energy business. The new unit, called renewable energy, will include wind- and hydro-power businesses acquired from Alstom, the company said. GE will also move a part of its distributed power business, which makes turbines, to its oil and gas unit from its power unit. GE’s shares were little changed at US$31.18 on the New York Stock Exchange in afternoon trading on Wednesday.
Abengoa seeks to sell stalled Brazil projects Spain’s multinational Abengoa SA said on Wednesday it is seeking buyers to revive transmission-line and other construction projects in Brazil that the company had suspended after filing for creditor protection in Spanish courts. The company, which owns energy, telecommunications, transportation and environment businesses, is looking for “a market solution” for projects it has been contracted to build and operate in Brazil, it said in response to questions from Reuters. Abengoa is trying to reach an agreement with creditors before a March 28 legal deadline to avoid becoming the country’s biggest-ever bankruptcy.
Oil ends 2015 in downbeat mood; hangover to be long Russia and OPEC showing few signs of reining in production Henning Gloystein
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il prices remained in a downbeat mood during their final Asian-hours trading session of 2015 after record U.S. crude inventories reinforced concerns about a global supply glut that has pulled down prices by a third over the past year. Crude inventories in the United States rose 2.6 million barrels last week, the U.S. Energy Information Administration said. Analysts polled by Reuters had expected a draw of 2.5 million barrels. Crude prices held losses after falling more than 3 percent in the previous session, with U.S. West Texas Intermediate (WTI) crude futures trading around US$36.70 per barrel at 0740GMT yesterday and Brent around US$36.66 per barrel. Both benchmarks are down by around a third over 2015. The immediate outlook for oil prices remains bleak, with some analysts like Goldman Sachs saying prices as low as US$20 per barrel might be necessary to push enough production out of business and allow a rebalancing of the market. U.S. bank Morgan Stanley said in its outlook for next year that “headwinds (are) growing for 2016 oil.” The bank cites on-going increases in available global supplies, despite some cuts by U.S. shale drillers in particular, as well as a slowdown in demand as the main reasons. “The imbalance in the global oil market has been diminishing in 2H15, but the hope for a rebalancing in 2016 continues to suffer serious setbacks,” the bank said, reflecting a market consensus that meaningfully higher prices are not expected before late 2016.
Traders expect some U.S. oil to be taken out of America and supplied into global markets, following the surprise lifting of a decades-old U.S. crude export ban in December, which ended a years-old discount in U.S. crude prices to international Brent. “At a time when U.S. shale is facing headwinds due to the collapse in crude oil prices... U.S. crude oil exports are likely to help reduce congestion concerns in the U.S.,” ING bank said.
Industry pain
Oil prices began falling in mid2014 as ballooning output from the Organization of the Petroleum Exporting Countries (OPEC), Russia and U.S. shale drillers started to outpace demand. The downturn gained pace at the end of 2014 after a Saudi-led OPEC decided to keep production high to defend global market share rather than cut output to prop up prices.
A year on and the oil downturn has turned into a rout with Brent prices briefly falling below US$36 per barrel to levels last seen in over a decade, effectively wiping out the gains from a decade-long commodity super-cycle sparked by China’s unprecedented energy demand boom. The downturn has caused pain across the energy supply chain, including shippers, private oil drillers and oil-dependent countries from Venezuela and Russia to the Middle East. Analysts estimate global crude production exceeds demand by anywhere between half a million and 2 million barrels every day. This means that even the most aggressive estimates of expected U.S. production cuts of 500,000 bpd for 2016 would be unlikely to fully rebalance the market. Reuters
Argentina declares ‘national statistical emergency’ The International Monetary Fund censured Argentina in 2013 for the large gap between its official economic data and independent estimates
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rgentina declared a “national statistical emergency” Wednesday, saying it will stop releasing data on the economy until the government statistics agency is overhauled and its numbers can be trusted. The move is conservative President Mauricio Macri’s latest assault on the economic policies of his left-wing predecessor Cristina Kirchner, whose administration he says practised dodgy number-crunching for years. The National Statistics and Census Institute (INDEC) will suspend publication of official data on gross domestic product, inflation and poverty, said Jorge Todesca, its new director. Macri’s government said the
problem has become so bad that it amounts to a national emergency. Todesca had said two weeks ago that publication of GDP, inflation and poverty statistics would be suspended, but Wednesday’s government decree makes the decision official. The country unveiled a new IMFapproved methodology for calculating inflation the following year, but the gap persisted. Todesca himself came up with numbers that differed wildly from the government’s when he was head of a private consulting firm. For example, he calculated 2014 inflation at 25 percent, versus the 14.3 percent claimed by INDEC. Other independent analysts arrived at similar figures.
The government also announced the end of a policy that encouraged Argentines to repatriate overseas savings by offering them real estate and energy bonds. The policy aimed to shore up plunging foreign exchange reserves, but raised concerns it could be used to launder money and dodge taxes. Macri, who has vowed to get Argentina’s slumping economy back on track with business-friendly government, has steadily hacked away at Kirchner’s legacy since taking office on December 10. In his first week, he scrapped the official exchange rate, prompting a sharp devaluation of the peso, as well as axing heavy export taxes. AFP
Business Daily | 15
January 1, 2016
Opinion Business
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Leading reports from Asia’s best business newspapers
With corporate profits down, can recession be far behind? James Saft
TAIPEI TIMES
Reuters columnist
Several members of the Chinese Nationalist Party’s (KMT) Hsinchu City chapter were summoned for questioning by prosecutors on Wednesday, as a judicial probe got under way to investigate allegations of vote-buying and other prohibited campaign activities at a year-end “thanksgiving” party hosted by the chapter on Saturday. The Hsinchu District Prosecutors’ Office initiated the judicial probe after examining video footage and other evidence and 19 people were brought in to conduct the inquiry.
THE KOREA HERALD The number of South Korean business groups’ affiliates subject to restrictions on mutual investments and loan guarantees declined in December from the previous month, the antitrust watchdog said yesterday. The Fair Trade Commission said the number of firms on its watch list came in at 1,658 as yesterday, down 10 from the previous month. Such affiliates are owned by the country’s 61 largest business groups. Samsung, CJ, Doosan and nine other groups reduced the number of their affiliates through stake sales and mergers.
THE ASAHI SHIMBUN Carl Icahn is acquiring Pep Boys for US$1 billion, ending his weeks-long bidding war with the Japanese tire company Bridgestone Corp. The deal announced on December 30 is expected to close in the first quarter of 2016. Icahn Enterprises offered US$18.50 in cash for each share of Pep Boys, US$1.50 more per share than the most-recent offer from Bridgestone. With the contest becoming too rich, Bridgestone bowed out on December 29. Because Pep Boys had already agreed to a deal with Bridgestone, Icahn Enterprises will pay it a US$39.5 million breakup fee.
THE TIMES OF INDIA The revision in the (India’s) National List of Essential Medicines (NLEM) by the government last week is expected to translate into savings of 10-20% for patients at the therapy level on widely used antibiotics, anti-infectives, cardiac and respiratory medicines. The overall coverage of new medicines being added to the NLEM will be nearly Rs 8,000 crore in the organized pharma retail market, valued at Rs 95,000 crore (moving annual total), say initial estimates shared exclusively with TOI by market research firm AIOCD. The revision in the list will lead to a loss of around Rs 600 crore for companies.
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orporate profit margins are falling, an event that has occurred before every recession since World War Two. What’s more, they are falling from record territory, which might imply either a rapid and bumpy descent or a long and slow one. In terms of the outcome, this time probably won’t be different, but the lead time - how long from the start of the decline to economic contraction - is far more uncertain. By its preferred measure, Deutsche Bank says U.S. corporate profit margins are down 7.3 percent from their peak in the third quarter of 2014. Since the average time from peak to recession, at least since 1946, is eight quarters, that might put the United States in line for a downturn in the second half of 2016. It may be the U.S. economy that catches a cold from the rest of the world, with a deepening and broadening downturn in emerging markets giving force to the usual downturn in investment that follows a fall in profits. “The fall in profits in 2015 will tend to undermine domestic investment in 2016,” economists at The Jerome Levy Forecasting Center write in a report to clients. “Moreover, the export decline is likely to accelerate as recession spreads throughout emerging market economies. As global deterioration worsens, not only will the U.S. current account gap expand significantly, but markets will
plunge, fixed investment will fall and the U.S. economy will follow the rest of the world into recession.” The slowing in China and its transition from an investment-based economy that sucks up natural resources to something more domestically focused is already dealing substantial pain to emerging markets, from Brazil, which is in recession, to South Africa, which is widely tipped as a candidate for one early next year. On the positive side, it is just possible that the current drop in profits is a bit of a head fake, courtesy of the energy industry, where a fall in prices has eviscerated profit margins, not to mention investment. Something similar happened to the energy industry and profits in 1985 and we didn’t see a recession until 1990. After all, cheaper energy is, on balance, positive for growth and consumer spending.
Credit spreads and wages
Noises from the credit market are an eerie echo of the groans from corporate profit ledgers. Spreads are widening, again led by the energy sector, indicating that investors are pricing in a higher probability of less-certain cash flows and less-sure repayment. While much of the noise has come from the high-yield bond market, spreads have widened considerably among safer investment grade credits as well in the past year, albeit from historically low levels.
One thing is clear: 2016 will not be a re-run of the last two recessions
Some suggest that this reflects in part a growth in liquidity premiums - the extra a bond yields to compensate for the risk it could be hard to sell. Banks are, indeed, less willing to step in as shortterm holders and prices can be expected to be choppier. But given the other signal from profits, it would be unwise to put too much faith in this idea. Credit spreads are wider because they ought to be. One thing is clear: 2016 will not be a re-run of the last two recessions. In both 2001 and 2007, bubbles were popped and margins crashed,
with the peak preceding the onset of recession by just months, rather than quarters. The angle of descent is nowhere near that now. One key factor to watch is wage pressures. Thus far, wage rises have been muted, though steady. But with wages comprising more than 60 percent of corporate costs, pay rises are what usually brings corporate margins back to earth. There simply isn’t very good evidence of that happening this time, and though job creation has been reasonably brisk, it has generally been at the lowerskilled service end of the spectrum, perhaps capping the potential for a wage spiral. All of this makes 2016 likely a difficult year for riskier assets like equities. The best-case scenario is gently rising wages and declining margins buffered by revenue growth as those higher wages are spent. But consumers still seem unwilling to use much leverage to expand their buying power, a factor that could blunt the positive impact of stronger wage gains if they come. The negative scenario is quite a bit worse. If we were to get the beginning signs of a recession late next year, perhaps touched off by some debacle in China or emerging markets, the Federal Reserve would find itself with perhaps only 75 basis points of interest rates to cut. That would be a unique set of circumstances and not likely one investors will enjoy. Reuters
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January 1, 2016
Closing Mainland firm invests in future transport hub of Malaysian capital
S.Korean president says door open to dialogue with DPRK
China Railway Engineering Corporation (CREC) yesterday signed an agreement to invest in Bandar Malaysia, a strategic location that will be the future transport hub of the Malaysian capital of Kuala Lumpur. CREC entered a Purchase Agreement with its local partner to buy 60 percent equity in Bandar Malaysia from state investment firm 1MDB for 7.41 billion Ringgit (US$1.72 billion). The company will own 24 present of the project equity after the deal. Statically located about 7 km from the Kuala Lumpur city centre, Bandar Malaysia will serve as the terminal of the proposed high speed railway between the Malaysian capital and Singapore.
South Korean President Park Geun-hye said yesterday that door is open to dialogue with the Democratic People’s Republic of Korea (DPRK) for peaceful reunification on the Korean peninsula. Park said in her New Year’s speech that her country will always open a door to dialogue with the DPRK and go toward the era of peaceful reunification on the peninsula while dealing sternly with provocations with a watertight security. The president noted that the watertight security is the basic foundation for national development. The inter-Korean relations soured after vice ministers’ talks, held earlier this month, failed to reach any agreement.
Yuan in biggest yearly loss on record after volatile 2015 The PBOC permitted the yuan’s fall, making its currency to be more market-oriented and internationalised
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hina’s yuan weakened against the dollar yesterday, finishing the year with a record yearly loss of 4.7 percent after volatile trading in last five months. A big question in global currency trade for 2016 is how much further the yuan might depreciate. Still, the Chinese currency has posted comparatively smaller losses against the dollar than other global currencies. Some traders forecast that it could slip as far as 6.80 to the dollar at the end of 2016, based on the slowing growth of the world’s second-largest economy and divergence in the value of the yuan onshore and offshore. “We think China and the United States will continue their (different) tone in monetary policy in 2016, which would boost the dollar and exert downward pressure on the yuan,” said a dealer at an Asian bank in Shanghai. Prior to yesterday’s market opening, the People’s Bank of China (PBOC) set
the midpoint rate at 6.4936 per U.S. dollar, its weakest level since May 2011 and 0.1 percent weaker than the previous fix of 6.4895. The spot market closed at 6.4936 per dollar, 0.05 percent weaker than the previous close. The Chinese currency shed 1.5 percent just for December, and saw its biggest yearly loss since 1994, when
China established its foreign exchange market. The International Monetary Fund (IMF) announced on November 30 that it decided to admit the yuan into its Special Drawing Rights (SDR) basket, an important milestone for the Chinese currency’s integration into global finances. After the announcement, the onshore yuan lost 1.35
percent against the dollar in a 10-day consecutive depreciation, the longest weakening streak on record. Intervention by stateowned banks on behalf of the PBOC has eased since October, traders said, in contrast to August and September. China has cut its interest rates for six times since November 2014 in its latest
easing cycle to boost its economic growth, while the U.S. Federal Reserve hiked its interest rates for the first time since 2006 in December, narrowing the interest spreads of the two nations in favour of the greenback. Yesterday, the offshore yuan was trading 1.18 percent weaker than the onshore spot at 6.5710 per dollar. It struck 6.6100 on Wednesday, its weakest level since September 2011, and is set for a 6 percent loss through 2015. “Beijing is trying to converge the yuan’s offshore value with the onshore market,” said a trader at a foreign bank in Shanghai. “I think the onshore yuan will go down and close up to the offshore market in 2016.” Reuters
We believe yuan depreciation is likely to continue through 2016 Craig Chan, FX strategist, Nomura
Russian inflation slows in December
CITIC wins projects to develop Myanmar economic zone
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India hits one billion mobile phone subscribers
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ussia’s inflation decelerated to its slowest pace this year, even as the weakening ruble and an embargo on Turkish products temper both the slowdown and arguments for the central bank to continue easing monetary policy. Consumer-price growth slowed to 12.9 percent from a year earlier in December, compared with 15 percent in November, the Federal Statistics Service in Moscow said in a statement yesterday, citing preliminary data. The median of 14 estimates in a Bloomberg survey was for 13 percent. Prices increased 0.8 percent from the previous month. “Annual inflation is slowing significantly due to the base effect, although better year-end results were expected several month ago,” Oleg Kouzmin, a former central bank adviser who’s now an economist at Renaissance Capital in Moscow, said before the statement. A Russian ban on the import of a range of products from Turkey and Ukraine and a new highway toll are threatening to fuel price growth, which still remains more than three times higher than the regulator’s target of 4 percent in the mid-term.
onsortia led by China’s CITIC Group Corporation have won bids for two projects to develop a special economic zone in Myanmar’s western Rakhine State, underlining Beijing’s intent to expand its foothold in a country now on the radar of Western investors. One consortium won a tender to build a deep sea port on the Bay of Bengal, while another consortium won a contract to develop an industrial area, managers of the economic zone said yesterday. Both projects are part of Myanmar’s plan to boost the region’s economy with the Kyaukphyu Special Economic Zone, and they add to China’s portfolio in one of Myanmar’s poorest states. China already has oil and gas pipelines from Kyaukphyu, across Myanmar to China’s Yunnan province, bypassing a potential shipping chokepoint of the Malacca Strait. CITIC’s consortia include China Harbor Engineering Company Ltd., China Merchants Holdings, TEDA Investment Holding and Yunnan Construction Engineering Group. Myanmar’s parliament approved development of the economic zone on Tuesday despite opposition from activists and lawmakers who criticised the tender process and said the development would have a negative impact on the people.
ndia notched up its billionth mobile phone subscriber in October, the country’s telecoms regulator said, underscoring the importance of its fast-growing mobile market, the world’s second-largest after China. Mobile phone subscriptions have boomed in India in recent years as aggressive cost-cutting by telecoms providers has driven down prices, leading to some of the cheapest tariffs in the world. The number of mobile subscribers rose by nearly 7 million in October from the previous month to surpass one billion, the Telecom Regulatory Authority of India said Wednesday, hitting a milestone that China reached in 2012. “It is a matter of great pride for us. It shows an empowered India and an engaged India and a tech-savvy India,” Communications and IT minister Ravi Shankar Prasad told the Times of India newspaper. “It will mean more data, more governmentto-government connectivity, more broadband,” he said. The figures do not indicate that India has one billion individual mobile phone users, however, as many people have more than one connection.
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