MOP 6.00
Supported by
Closing editor: Joanne Kuai
Macau ‘Australia Day’ Cocktail Fri, 29 January 2016 | 6pm - 8pm | Terrazza, Galaxy Macau More information at www.austcham.com.hk
Pan Gongsheng to head State Administration of Foreign Exchange Page 9
Year IV
Number 959 Tuesday January 12, 2016
Publisher: Paulo A. Azevedo
Studies: Local majority support Hotel Estoril restoration Page 2
Beijing creates new financial department to tackle economic challenges Page 16
Gaming Volatility Vexes VIP Sector
Some 30 to 40 closures of VIP rooms in the past 6 months. According to the Association of Gaming and Entertainment Promoters of Macau. This, courtesy of Beijing’s anti-corruption crackdown, the Mainland’s economic slowdown, continuous decline in casino revenues. Plus a concerted push to develop the mass market, and other assorted problems. Observers and gaming insiders ask whether the junket industry can survive in a much regulated and less profitable environment Page
5
No brakes Chinese stock markets went into freefall yesterday. Despite strong support from the central bank. Both for the currency and by removal of the circuit breaker mechanism last Friday. Investors sold on weak inflation data
Crackdown bearing fruit Underground banking rampant. Guangdong authorities say they have busted 7 times the number of cases in the last nine months than in 2014. That’s 83 cases, involving 207.2 bln yuan. Gaming analysts cite junket illiquidity as a further risk to Macau’s gaming industry
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Brought to you by
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Collateral damage Tumbling turnover for cosmetics retailer Sa Sa. With SARs suffering a drop of 15.8 pct y-o-y to HK$1.74 billion (US$224 million) in Q4. Citing the depreciating yuan hurting overall consumer sentiment in Hong Kong and Macau
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HSI - Movers
All change!
January 11
Name
A new contract with Transmac is to be signed soon. The gov’t has drafted a new operational scheme. Increasing the operator’s responsibilities in the amended contract. The bus operator’s income will be correlated to evaluations of its public service performance
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www.macaubusinessdaily.com
Gaming
Resourcefulness in times of crisis
%Day
China Resources Beer H
+0.53
Want Want China Hold
-0.57
Cathay Pacific Airways
-0.92
MTR Corp Ltd
-1.09
Link REIT
-1.23
China Shenhua Energy
-4.86
PetroChina Co Ltd
-4.91
China Life Insurance Co
-5.10
China Resources Land L
-6.22
Kunlun Energy Co Ltd
-7.34
Source: Bloomberg
I SSN 2226-8294
‘First-of-its-kind junket-driven’ VIP slots room opens at Jimei Casino. Featuring 130 slot machines. Gaming analyst believes action indicates industry very much in need of revenue. And willing to try an idea ‘in a different era’
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January 12, 2016
Macau
Studies: Local majority support Hotel Estoril restoration A third-party organisation appointed by the government says its two studies show social opinions are primarily in line with the government’s intention to rebuild the defunct hotel Kam Leong
kamleong@macaubusinessdaily.com
T
wo studies conducted by a third-party organisation show that the majority of surveyed residents support the government’s intention to rebuild Hotel Estoril on the Peninsula, the Office for the Secretary for Social Affairs and Culture announced in a press briefing yesterday. According to the Secretary’s Office, the government-appointed ERS Solutions (Macao) Ltd. has analysed the public opinions that the government had received on revamping the hotel. In addition, it conducted a telephone survey, interviewing some 2,003 residents for the hotel revamp plan. The results indicate that
82.7 per cent of the 818 collected public opinions support the government’s intention to rebuild the whole hotel, while those objecting
or of uncertain opinion accounted for less than ten per cent of the total. The public opinions were collected from two public
consulting sessions, written opinions, online opinions and 16 private sessions consulting organisations, local associations and students, etc. Meanwhile, the telephone survey by the organisation reveals that nearly 70 per cent of interviewees back the government’s proposal to rebuild the defunct hotel, with more than 30 per cent even claiming that they support the plan “very much”. In addition, those holding a neutral attitude on the proposal accounted for 20.8 per cent of the total, while only some 7.6 per cent objected to the rebuilding plan. On the other hand, the researcher claimed more
opinions perceive that it is unnecessary to keep the façade of the hotel property, compared to those saying the government should keep the façade when revamping the hotel. Furthermore, most residents agree to turning the hotel into a centre for cultural and recreational activities for young people, as well as supporting building a car park inside the property, according to the research organisation. The Chief of the Secretary’s Office, Ip Peng Kin, claimed in the press briefing that the results of the two studies would serve as important references for the government in developing the revamp plan for Hotel Estoril.
Government urged to submit budget execution report in timely manner
T
he government should have advanced the time to the first half of the year to submit the budget execution report to the legislators from the previous year, the president of the third standing committee of the Legislative Assembly, Cheang Chi Keong, has remarked. The committee has finished deliberating upon the government’s budget execution report for 2014, signing the opinion letter yesterday. The deliberation will be part of the process of the Macau Government in deciding upon the final amount it is going to allot of its surplus to fiscal reserves. However, legislators say if the government could hand in the report in a timelier manner, their suggestions made after reviewing the report may serve as better reference for the current time.
“If the government can present the budget execution report on the previous year earlier, our analysis can be more meaningful and we can better supervise them. It will also be of more use and serve as a better reference for the review of the next year’s budget,” said Mr. Cheang. The city’s surplus slid by nearly 24 per cent year-on-year to MOP94.8 billion for 2014, as public expenditure has grown by 30.5 per cent in the year while the overall revenue of the government dipped 8 per cent. Much of the expenditure has been in supporting ‘regular expenses’ – the expenses on various allowances and subsidies, including its cash-share scheme and the government’s support of the Provident Fund. Nevertheless, the expenses incurred in 2014 did not exceed the MSAR’s budget plan, Mr. Cheang’s committee concluded.
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January 12, 2016
Macau Government amends EMS regulations The government has amended the public service regulations for Express Mail Service (EMS), the Official Gazette announced yesterday. According to the announcement, the amended regulations will allow the service provider to inform recipients of the arrival of express mail in electronic form. In addition, it will enable recipients to appoint a legal representative to claim mail for the recipient, as well as those living in the same housing units as the representative. Meanwhile, mail to offices, hospital and schools can be received by staff in those working venues. The new regulations become effective 30 days after yesterday’s official dispatch.
DSAT to sign new bus contract with Transmac The new proposal suggests the bus operators’ income would be correlated to evaluations of its public service
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he government expects to sign a new bus contract with public bus operator Transportes Urbanos de Macau SARL (Transmac) ‘shortly’ as the parties have concluded negotiations on amending their original contract - suggesting the operator’s service provider contract will be switched to a public concession contract. According to a press release from Transport Bureau (DSAT) yesterday, the government has drafted a new operational scheme for Transmac, increasing the operator’s responsibilities in the amended contract, which includes regulating that the operator should meet the supervision requirements as well as
that its income would be correlated to evaluations of its public service. Claiming that there are conditions for the parties to sign
the contract soon, the transport department said the details of the new contract will only be announced once appropriate.
Local authorities signed the new bus contract with the other two public bus operators - Macau New Era and TCM - in 2014 and last October. DSAT said the new contract with Transmac is basically similar to those of the other two bus operators. Meanwhile, yesterday’s Official Gazette reveals that Chief Executive Fernando Chui Sai On has already authorised Secretary for Transport and Public Works Raimundo do Rosario to sign the new contract with Transmac. The government’s original provider contract signed with local bus operators stipulates that the bus companies do not keep the bus fare they receive but a regular service charge from the government. But the Commission Against Corruption (CCAC) said in 2013 that this format of contract is a ‘poor use of public money’, prompting the government to amend this format of contract into a public concession contract. Currently, the city has a total of 73 bus routes, of which 32 are run by Macau New Era, 23 by Transmac and 18 by TCM, according to DSAT’s official website. K.L.
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January 12, 2016
Macau International Entertainment Corp’s gaming focus on Philippines
Weakened sales persist for Sa Sa in fiscal Q3 The cosmetics retailer blames weakened sales in both Hong Kong and Macau on the gaining of strength of the Hong Kong dollar
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ith fewer shoppers and less money spent on cosmetics, Hong Kong-listed retailer Sa Sa International Holdings Ltd. says its retail and wholesale turnover in Hong Kong and Macau suffered a drop of 15.8 per cent year-on-year to HK$1.74 billion (US$224 million) in the fiscal third quarter ended December 2015. Cosmetics retailer Sa Sa has seen same store sales in Hong Kong and Macau drop 12.2 per cent year-on-year in the fiscal third quarter, while its total number of transactions in the two cities was also down 7 per cent to 4.7 million, the company told the Hong Kong Stock Exchange yesterday of its unaudited operation data. Hong Kong and Macau is the core market for Sa Sa: of 292 shops and counters the
company ran by the end of December, 114 were located in the two cities. In the three months ended December, Sa Sa also saw its average sales per transaction drop 9.1 per cent to HK$366, according to the company filing. ‘For the third quarter, the overall consumer sentiment in Hong Kong and Macau markets continued to be adversely affected by the strength of the Hong Kong dollar,’ Sa Sa noted in its filing. ‘During the period, the impact of the ‘one-trip-perweek’ policy has gradually gained momentum, leading to a notable year-on-year decline in the number of same-day visitor arrivals. We expect the negative trend will continue to influence the local retail market,’ the retailer said of its sales performance in Hong Kong.
With sales dropping in Hong Kong and Macau, Sa Sa’s group-wide retail and wholesale turnover was also down 14.2 per cent year-on-year to HK$2.14 billion for the three months ended December 2015 as the company saw reduced sales in Mainland China, Singapore, Malaysia, Taiwan and its online sales portal sasa.com. For the nine months ended December, Sa Sa’s sales turnover in Hong Kong and Macau dropped 12.9 per cent to HK$4.79 billion, while group-wide turnover dropped by nearly 12 per cent to HK$5.9 billion.
Currency factor
In the company’s interim period ended September, the cosmetics retailer spoke of its sales decline and diminished average ticket size of Mainland Chinese visitors in Hong Kong and
Macau shops, partly due to the slowdown of growth of such visitors coming here. Sa Sa believes that the strong Hong Kong dollar and depreciating yuan have contributed to the more sluggish growth in Mainalnd visitors. Another Hong Kong-listed clothing retailer, I.T. Ltd., which also operates stores in Macau, cites the ongoing strength of the US dollar (and hence Hong Kong dollar), too, against major Asian currencies being a factor affecting the inbound visitor traffic in its interim report. The yuan has depreciated by just under 6% versus the US dollar since the Chinese authorities began to allow the unit to weaken in midAugust 2015. The Hong Kong dollar follows the trend of the US dollar as the currency is pegged to the greenback. S.L.
M
eeting with Hong Kong media yesterday, New World Development Co. Ltd. chairman Henry Cheng Kar Shun (pictured), who also heads International Entertainment Corporation (IEC), said the corporation would focus on its investment in a casino-hotel in the Philippines for the moment while exploring investment opportunities in Vietnam. IEC is currently leasing premises for gaming and office space for Philippine Amusement and Gaming Corporation. Mr. Cheng also noted that his family will remain in control of about 9 per cent stake in Sociedade de Turismo e Diversões de Macau SA (STDM), the parent of Macau casino operator SJM Holdings Ltd. founded by Stanley Ho Hung Sun.
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January 12, 2016
Macau
Junket Association: Just 100 VIP gaming rooms now The Association of Gaming and Entertainment Promoters of Macau says it has witnessed the closure of 30 to 40 VIP gaming rooms in the past six months Stephanie Lai
sw.lai@macaubusinessdaily.com
T
he number of VIP gaming rooms in the city has shrunk by at least 30 to 40 in the past six months to around 100 rooms as VIP play remains weak and junket operators continue to be distressed by bad debts, the Association of Gaming and Entertainment Promoters of Macau reveals. Kwok Chi Chung, president of the Association, told Business Daily that his association counted a total of about 146 VIP gaming rooms in operation six months ago. “But during the past six months around 30 or 40 VIP gaming rooms have closed,” he said. “For the past year and a half, the junket operators here still remain distressed by bad debts and tighter capital liquidity.” Business Daily asked the casino regulator Gaming Inspection and Co-ordination Bureau (DICJ) for an update on the latest number of licensed VIP gaming promoters working in the city but had not received a reply by the time the story went to press. As at the beginning of last year, Macau had 183 licensed gaming promoters, down from 218 the previous year, the online data from DICJ shows.
Junket woes
Events such as the alleged capital theft from local junket operator Dore Entertainment Co. Ltd. in
September has prompted some investors to withdraw funds from junkets, further weakening the junket operators' business here, Mr. Kwok conceded. “The Dore incident really imposed a negative image on the VIP gaming industry,” Mr. Kwok told us. “And that incident did spark more withdrawals of funds from the junket operators.” Dore said at the time that it had complained to the police about a former cage
manager having allegedly stolen over HK$100 million (US$12.9 million) from the cage, using her position to illegally pool capital by offering high interest rates without the company's knowledge. Local police said that more than HK$500 million had been stolen from the VIP gaming promoter following reports of Dore’s reported loss plus other individual investors’ reported losses of money deposited with Dore.
News of another theft of capital from a VIP gaming operation was reported last week as the city's Judiciary Police confirmed that Casino L'Arc Macau had reported that a ‘senior member of staff’ working in the junket operations of the casino had allegedly embezzled HK$99.7 million. These alleged cases of theft of capital were mentioned during the meeting between Mr. Kwok's Association and the Secretary for Economy and
Finance Lionel Leong Vai Tac last week, at which the new head of DICJ, Paulo Martins Chan, was also present. “During the meeting, Mr. Chan talked of the government's intention to improve the legal framework for the gaming sector here, and to enhance the monitoring of the sector,” Mr. Kwok said “... [with] one of the directions being to pursue the imposition of a stricter requirement of licensing junket operators.”
Union Gaming: VIP slots room launched at Jimei
A
VIP slots room was launched over the weekend at the Jimei casino, located next to Grand Lapa Macau on the Peninsula, Union Gaming Research has disclosed in a research note. “We believe the opening of this slot parlour could be indicative of a segment of the[junket] industry that is very much in need of revenue and willing to try an idea that in a different era would likely not have even been considered,” research house analyst
Grant Govertsen wrote in the report. According to the research house, the “first-of-its-kind junket-driven” VIP slots room features 130 slot machines. The Union Gaming analyst believes that the new room was primarily funded by traditional junket investors. “We would caution that slot players are exceptionally fickle and VIP slot players [are] probably even more so. They are very high maintenance from a customer service perspective
and are very particular about what games they want to play,” the research house perceives. Meanwhile, the analyst claimed in the report that he does not see the new VIP slots room easily attracting clients. “The location of this new VIP slot parlour is within an existing third party casino that offers few other amenities, and we believe it is one of the lower performing third party properties in Macau.
As such, it could be a tough sell to attract and retain players based solely on having VIP slots on offer,” the analyst indicated. Nevertheless, he believes that the new VIP slot parlour could still hold the potential to initiate “a price war” on the Peninsula, which may lead to the near-term disruption of the market as premium slot players may be interested in trying the new parlour. K.L.
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January 12, 2016
Macau
War on underground banking yielding results Guangdong authorities have announced that 83 cases were busted in the last 9 months, involving some 207.2 billion yuan
S
ince another round of tackling the illegal transfer of money out of China using underground banks and offshore accounts was launched in April last year, the Guangdong authorities have busted 83 cases involving as much as 207.2 billion yuan (US$31.51 billion) as at the end of 2015, the Guangdong Provincial Public Security Department announced at a press conference held yesterday. According to Chinese media outlets, the number of cases has jumped sevenfold since 2014. In addition, 79 criminal headquarters were uncovered and 231 suspects arrested. Cash in different currencies was seized, amounting to more than 37.15 million yuan, while 3,491 suspicious accounts were frozen, involving 665 million yuan.
members are usually family members or familiar countrymen from the same hometown. There is usually a clear division of responsibilities and a connection to Hong Kong, Macau or Taiwan, according to the bureau head. He added that underground banks usually charge 0.3 to 0.5 per cent of the cash flow to gain illegally. As the amounts involved are usually huge, it’s a highly profitable business.
Delta
Guangdong authorities say the underground banks are usually run by families or groups that have a clear division of responsibilities and a connection to Hong Kong, Macau or Taiwan
Underground banking is rampant in Guangdong as the neighbouring province serves as the frontier of ‘open and reform’. Foreign trade is more active, funds fluctuate frequently and it’s right next to Hong Kong and Macau, said the head of the Economic Crime Investigation Bureau, Huang Shouying. Mr. Huang added that the underground banks primarily sprung up in Shenzhen, Zhuhai, Guangdong, Dongguan, Foshan and other cities in the Pearl River Dealt and other costal cities, as well as some hometowns to overseas Chinese. The crimes are usually organized and run by families or groups and operate like a company. The core
Ongoing battle
China’s Ministry of Public Security has reiterated on several occasions its determination to crack down on
underground banking to curb money laundering and illegal funds transfers as unstable markets stoke fears of capital flight. The authorities have urged security units throughout the country to work closer with the People’s Bank of China and State Administration of Foreign Exchange on the investigation works for the crackdown. The main concern of the government lies in ‘grey funds’ being transferred through underground money shops across the border, which not only poses a serious risk to foreign exchange management but disturbs the order of financial and capital markets and threatens the country’s financial safety. Worries over China’s economic slowdown and possible interest rate rises by the U.S. Federal Reserve led to a wave of capital outflows last year. Chinese law prohibits individuals from transferring more than US$50,000 out of the country per year but the underground banking industry has thrived in recent years as a channel for sending money out of China. The Mainland’s central bank spoke in April last year of its intended efforts to act against underground banks, offshore company accounts and other means of moving money gained from corruption – measures that some analysts saw as increasing the cost of money transfer for some junkets here.
Impact on gaming
Gaming analysts indicated before that crackdowns on underground
banking is likely to impact the Macau gaming industry by tightening junket liquidity, as Macau junket agents often use the underground banking system to transfer money out of China to fund VIP players in Macau casinos. The heightening scrutiny of China’s underground banking system and cross-border money transfers are reckoned to have impacted junket agents’ ability to move money into and out of Macau. In addition, Beijing’s tightening of the financial screws could impact the growing trend of Macau junket operators signing deals with casinos in other Asian jurisdictions. As Macau’s VIP business has tumbled, junkets have increasingly steered their VIP clients to casinos in countries such as Australia, Cambodia and the Philippines. Brokerage Sanford C Bernstein Ltd. issued a note late last year warning that these international relationships could be at risk if Beijing turned a sharper eye on how junkets are getting money to these casinos. Junkets are reportedly using Macau’s banking system to facilitate transfers between their accounts and international casinos to fund VIP play, a process on which Beijing could exert significant pressure. Concerning the gaming operators in Macau, Deutsche Bank analysts stated previously that they believe Galaxy Entertainment Group and Wynn Macau will be more impacted by a crackdown on underground banking given their high exposure to VIPs. J.K.
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January 12, 2016
Gaming
Melco: Second-phase tender for Spanish casino licence probably delayed The government in Spain has not yet released any information on the process regarding the approval of the Urban Planning Master Plan Kam Leong
kamleong@macaubusinessdaily.com
H
ong Kong-listed Melco International Development Ltd., a company controlled by local gaming entrepreneur Lawrence Ho Yau Lung, said the second-phase tender process for its bid for a casino licence near Barcelona in Spain may face delay, according to its filing with Hong Kong Stock Exchange last week. The company said in a joint announcement with another Ho-controlled company – MelcoLot Ltd. that the possible delay is due to the Catalan Government’s uncertainty in announcing the conclusion of an urban planning master plan involving the reorganisation of the environment of the tourist recreational centre
of Vila-Seca and Salou. ‘The timeline of the tender process is dependent upon the approval of the Urban Planning Master Plan… there has been no public announcement by the Catalan Government as to when the definitive Master Plan will be concluded,’ the company said in the filing. It indicated that
the uncertainty on the definitive master plan ‘may subsequently delay the overall timetable of the tender process.’ According to the Melco International filing, the Catalan Government proposed the master plan in the third quarter of 2015 for public consultation until December 1 of that year.
It planned to publish a definitive master plan within 3 months of the end of the public consultation and bids for the casino licence within one month of the publication of the definitive master plan. The result of the secondphase tender for the Spanish casino licence was originally expected to be announced no sooner than the second quarter of 2016, according to another joint announcement released by Melco International and MelcoLot in October last year. In 2014, Melco International was involved in two different bids for a licence to develop a hotel and casino complex in BCN World, a recreation and tourism centre development in Spain near Barcelona. One of the bids was an individual one via its
subsidiary company Melco Property Development. The other bid was submitted via MelcoLot, presented in a joint venture with Spanish company Veremonte España SL. However, MelcoLot announced in October last year that its co-operation with its Spanish partner had been terminated. Bidding ‘solo’ for the Spanish casino licence, Melco International reached an agreement with MelcoLot last October that MelcoLot would purchase 99 per cent of the issued share capital of Melco Property for HK$502.92 million. One of the conditions for the deal is that Melco Property be granted a licence to run a casino in BCN World, according to the 2015 October filing.
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January 12, 2016
Greater China
Stocks extend world’s worst sell-off amid growth concerns The CSI 300 Index slid 5 per cent yesterday, while the Hang Seng Index dropped below the 20,000 level for the first time since 2013 Kyoungwha Kim
An electronic board shows stock prices at a securities brokerage house in Beijing yesterday
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hinese stocks tumbled, extending the world’s worst selloff this year, amid waning investor confidence in the government’s efforts to revive the economy and stabilize financial markets. The Shanghai gauge slid 5.3 percent at the close, extending last week’s 10 percent plunge. China
factory gate deflation extended into a 46th month in December, data over the weekend showed, while there was little evidence of the state-backed fund buying that helped shore up equities on several days last week. Shares declined even after the yuan gained on a stable fixing from the central bank. The stock market’s extreme
market swings this year and a sliding yuan have revived concern over the Communist Party’s ability to manage an economy set to grow at the weakest pace since 1990. Policy makers removed new market circuit breakers from Friday after blaming them for exacerbating declines that wiped out at least US$1 trillion this year. China’s producer price index slumped 5.9 percent in December from a year earlier. “Pessimism is the dominant sentiment,” said William Wong, head of sales trading at Shenwan Hongyuan Group Co. in Hong Kong. “The PPI figure confirms the economy is mired in a slump. Market conditions will remain challenging given weak growth, volatility in external markets and the yuan’s depreciation pressure.” China’s economic outlook has been dimmed by market volatility and slowing exports, which declined 6.8 percent in November from a year earlier. The official purchasing managers index signalled weakness for a fifth straight month in December, keeping the manufacturing gauge near a three-year low.
While the government helped boost stocks at least twice last week, according to people familiar with the matter, equities extended declines into the close yesterday. PetroChina Co., long suspected to be a target of state-backed fund buying because of its large weighting in the Shanghai Composite, sank 3.6 percent. “Sentiment is very poor,” said Castor Pang, head of research at Core Pacific Yamaichi Hong Kong. “I don’t see any clear signs of state buying in the mainland market. Policy makers have to be cautious in using intervention as they can’t rescue the market all the time.” The Shanghai Composite has tumbled 16 percent this year, the most among 93 global benchmark indexes tracked by Bloomberg, and more than twice the pace of the MSCI All-Country World Index. The CSI 300 Index slid 5 percent yesterday, while the Hang Seng Index dropped below the 20,000 level for the first time since 2013. The Hang Seng China Enterprises Index plunged 3.8 percent to trade at its cheapest levels in 14 years. Bloomberg News
PBOC put? Li signals no major stimulus whilst past suggests a cut Pressure on the currency, stocks, capital outflows and growth is intensifying as China’s policymakers wrestle with the transition towards a greater role for markets
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hen China’s main stock index plunged about 20 percent in the second half of June, the central bank stepped in with a quarter percentage point interest-rate reduction, then cut again in August after a similar rout. Both moves evoked comparisons with the strategy pursued by former U.S. Federal Reserve Chairman Alan Greenspan, who sought to underpin market meltdowns with monetary easing -- better known as the “Greenspan Put.” Now, with the Shanghai Composite Index down 15 percent already this year, will People’s Bank of China Governor Zhou Xiaochuan step in again with another defensive move? While the weekend’s inflation reading suggests there’s room to act, government signals give reason to pause: Policy makers wouldn’t seek strong stimulus or flood the economy with too much investment to boost demand, Beijing News cited Premier Li Keqiang as saying. The central government’s website republished that report Sunday, and the official Xinhua News Agency cited the comments on its online front page yesterday.
What’s not clear is whether that rules out near-term monetary stimulus, or just the extent of any upcoming move. “Li’s statement signals that this year the focus of economic work will shift to the ‘supply side’ compared to previous demand-side stimulus,” said Xia Le, a Hong Kong-based economist at Banco Bilbao Vizcaya Argentaria SA. One reason to delay further rate cuts is that such a move may exacerbate capital outflows, Xia said.
Policy transition
Pressure on the currency, stocks, capital outflows and growth is
intensifying as China’s policy makers wrestle with the transition towards a greater role for markets. Compounding the challenge, the ructions coincide with an overhaul of the central bank’s tool kit as monetary policy shifts to a pricebased mechanism and the main liquidity lever is set to be used to enforce financial stability instead. “We are not going to use ‘strong stimulus’ or ‘flood irrigation’ investment to expand domestic demand,” Li was cited as saying in the Beijing News report. Instead, policies will seek to develop new business models and create new drivers for the economy, Li said according to the report.
Policy conundrums
China could still lower the corn support price this year to reduce the reserve
Li and Zhou face a number of policy conundrums, such as how to support the slowest growth pace in a quarter century with a weaker yuan and lower interest rates when such conditions both risk accelerating destabilizing capital outflows. Or how to spur new lending with an evolving interest-rate system while keeping a lid on overall debt growth that looms over long-term prospects.
“The challenge in moving from one set of rules to another is keeping market expectations from becoming unhinged as they did last summer,” said David Loevinger, a former China specialist at the U.S. Treasury and now an analyst at fund manager TCW Group Inc. in Los Angeles. “There’s no risk-free road map.”
Business Daily | 9
January 12, 2016
Greater China PBOC Deputy Governor Pan named head of currency regulator
Tough to achieve over 6.5 pct growth
Regulator SAFE is China’s top currency entity and operates under the State Council
P
eople’s Bank of China Deputy Governor Pan Gongsheng will replace Yi Gang as head of the State Administration of Foreign Exchange, while also maintaining his post at the central bank, the currency regulator said in a statement. Pan “recently” held his first meeting to review the regulator’s work in 2015 and outline goals for 2016, the statement said, adding that the regulator will proceed with plans to make the yuan convertible “in an orderly fashion” and will tackle “violations” of foreign-currency regulations. China has “relatively abundant foreign-exchange reserves,” the regulator said. China’s foreign reserves fell for the first time last year since 1992, slumping US$513 billion, or 13 percent, to US$3.33 trillion as of December 31, the PBOC said last week. SAFE is China’s top currency regulator and operates under the State Council, or cabinet. A deputy central bank governor traditionally serves concurrently as the agency director. Pan replacing Yi doesn’t signal a big shift on the yuan, also known as the renminbi or RMB, Larry Hu, head of China economics at Macquarie Securities Ltd. in Hong Kong said after the appointment was
Another key challenge is how to loosen state reins on the yuan and allow enough weakness to spur exports without triggering a depreciation that again roils global markets. “The policy of gradual appreciation against the dollar provided an anchor in the past, but that’s gone now,” said
China will face great difficulty in achieving economic growth above 6.5 percent over the 2016-2020 period due to slowing global demand and rising labour costs at home, the China Securities Journal quotes a top state adviser as saying. Li Wei, president of the State Council’s Development Research Centre, made the comments at a conference over the weekend, the newspaper reported yesterday. President Xi Jinping has said that China must keep annual average growth at no less than 6.5 percent over the next five years.
Beijing says to impose quota on local debt
Pan replacing Yi Gang (pictured) doesn’t signal a big shift on the yuan
initially reported by Caixin magazine in December. SAFE’s function includes studying and proposing policies on the reform of the foreign exchange administration system, and the gradual advancement of yuan convertibility under the capital account, according to its website. Yi is also a deputy governor at the central bank and will retain his post at the PBOC, the regulator said. The central bank, led by Governor
David Dollar, a senior fellow at the Brookings Institution in Washington who previously worked for the U.S. Treasury in Beijing. “PBOC must convince investors, especially domestic ones, that it can allow more flexibility in the exchange rate but still maintain overall confidence in the currency.”
Zhou Xiaochuan since 2002, has six deputy governors. Pan previously worked at the Agricultural Bank of China and before that held a number of positions at Industrial & Commercial Bank of China Ltd., the nation’s largest lender, including general manager of financial planning and secretary of the board of directors, according to his PBOC biography. He earned a Ph.D in economics at Renmin University of China. Bloomberg News
The central bank said in December it will use a basket of currencies to value the currency instead of linking it directly to the U.S. dollar. For some, that gave the green light to further weakness. The yuan is overvalued by around 15 percent and should be guided lower as quickly as possible “without triggering a stampede in outflows,” says Stephen Jen, co-founder of London- based hedge fund SLJ Macro Partners LLP. The central bank is seen cutting the one-year lending rate to 3.85 percent this year from the current 4.35 percent, according to the median estimate of a Bloomberg survey last month. The PBOC is also moving away from that benchmark as it seeks a new monetary mechanism pegged off short-term rates. In past episodes of capital outflows, the central bank responded by reducing the required proportion of deposits banks must set aside. But clouding the outlook, the required reserve ratio will be increasingly used instead as a lever for enforcing financial stability under a new Macro Prudential Assessment system announced Dec. 29. The RRR rate will this year fall to 15 percent from 17.5 percent for major banks, according to the median estimate in a Bloomberg survey before that statement. With the Fed in tightening mode, further PBOC easing could prove tricky, said Zhou Hao, a senior economist in Singapore at Commerzbank AG. Still, he is forecasting the PBOC will cut the policy rate by 25 basis points in the first quarter, while multiple RRR cuts will help to loosen monetary conditions due to possible capital outflows. Bloomberg News
China will cap the amount of debt local governments can issue and adjust the quota based on economic performance, the finance ministry said yesterday. China will appropriately expand local government quotas if there is increasing downward pressure in the economy while cutting down the quota when the economy improves, the ministry said in a statement on its website. China will also comprehensively evaluate the risks of local government debt and give early warnings to local governments who have high debt burdens.
Taiwan’s govt fund “actively” buying local stocks Taiwan’s National Stability Fund is actively buying local stocks and urged investors to stay calm amid global market routs, its chief said yesterday. The fund, which has about T$500 billion (US$15 billion) under management, sees local stocks have been oversold, Wu Tangchieh told reporters on the side-lines of a business event. Wu has said the fund, which was set up to prevent plunges amid market turmoil at unexpected time, will step into the stock market through January 15, the last trading day before Taiwan’s presidential vote. Taiwan is widely expect to elect an independence-leaning president.
Wanda says revenue surged in 2015 Chinese conglomerate Wanda Group, owned by the country’s richest man, said revenue surged nearly 20 percent in 2015, despite worsening economic conditions in its home market. Wanda, founded by Wang Jianlin, has its origins in commercial property but is diversifying into areas ranging from entertainment to e-commerce. Reports say the company might soon take a stake in US film studio Legendary and Wanda is scheduled to hold a news conference in Beijing on Tuesday regarding an overseas acquisition. The company said revenue was 290.16 billion yuan (US$44 billion) last year, up 19.1 percent from 2014.
Financial backing keeps Cuban port’s expansion on track The expansion and renovation of the port of Santiago de Cuba is on track thanks to a US$100-million line of credit from the Chinese government. Construction will be underway in the second half of 2016, following preparatory work that began in 2015, said Juan Carlos Gonzalez, an official at the Cuban Transport Ministry, who was quoted by local TV.
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January 12, 2016
Greater China
Stiglitz says Mainland economic slowdown not “cataclysmic” He said the tumultuous start to 2016 supports his belief there’s no reason to expect the global economy will be any stronger this year than in 2015
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hina isn’t facing a “cataclysmic” economic slowdown and last week’s market turmoil was more about badly designed stock market circuit breakers, said Nobelprize-winning economist Joseph Stiglitz. The circuit breakers, which caused local exchanges to close early on two days last week after stocks plunged to a 7 percent limit, weren’t as well designed as they could be, Stiglitz, a professor at Columbia University in New York, said in a Bloomberg Television interview in Shanghai. The market closures and lower daily fixing rates for the nation’s currency against the dollar roiled global markets, heightening anxiety that it could presage a deeper slump with growth already at a 25-year low in 2015. “There’s always been a gap between what’s happening in the real economy and financial markets,” said Stiglitz. “What’s happening in China is a slowdown by all accounts. It’s a slow process of slowing down. But it’s not a cataclysmic” slowdown. Regulators said last week the circuit breakers rule exacerbated rather than calmed the stock-market panic and scrapped it on Thursday.
Economist Joseph Stiglitz
The events show that market rules matter and they can either diminish volatility or increase it, Stiglitz said.
Trading halted
The short-lived circuit breakers, which halted exchanges for 15 minutes after a 5 percent drop in the CSI 300 Index and for the rest of the day after a 7 percent retreat, were criticized by analysts for exacerbating losses as investors scrambled to exit positions before getting locked in.
Stiglitz said the government’s new focus on supply-side economic reforms could precipitate a deeper downturn if not accompanied by measures to boost demand. Policy makers plan supply-side reforms to deal with issues including overcapacity and excess labour in state-owned industries.
‘Immersed itself’
“The focus just on supply measures doesn’t pick up what’s happening in the global economy,” said Stiglitz.
EU starts on tricky path towards relaxing Mainland trade defence European Union could lose up to 3.5 million jobs if it removes its trade defences against China Philip Blenkinsop and Robin Emmott
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he European Union will take the first step on Wednesday towards refashioning its trade ties with Beijing, torn over how to lower its defences to avert Chinese retaliation while protecting key industries against a damaging flood of cheap imports. Commissioners from the bloc’s 28 members will debate for the first time the politically sensitive issue of granting China “market economy status” from December, which Beijing says is its right 15 years after it joined the World Trade Organisation. The coveted status would make it much harder for Europe to impose anti-dumping duties on Chinese goods sold at knock-down prices, changing the criteria for determining a fair price. A study by a group of 25 European manufacturing federations estimates the European Union could lose up to 3.5 million jobs if it removes its trade defences against China. The bloc’s final decision, taken
together with EU governments and the European Parliament, will set it on a collision course either with Beijing or with its own manufacturers and with Washington, which sees no obligation to treat China’s heavily state-shaped economy as a market economy. “My opinion is that China is not a market economy. But it is a major
KEY POINTS China’s status at WTO up for change, could limit EU defences EU executive likely to favour China and avoid retaliation EU governments divided, Germany’s role to be crucial
trade player and we have to take that into account,” said one senior EU official. The Commission must take the initiative and all signs point to it accepting China as a market economy while seeking to keep trade defence measures for a transition period, which could appeal to sectors such as steel, chemicals or textile makers. This could take the form of maintaining existing duties until their natural expiry - typically five years - and potentially raising duties imposed for illegal subsidies. Chinese officials have said they could show flexibility in allowing a transition period for particular European industries. A 2013 deal to end an EU investigation into Chinese dumping of solar panels showed Beijing and Brussels can find agreement. The Commission’s legal experts have advised it to grant China market economy status. A report prepared with two outside economists is
“What’s going on is a shortfall in global demand. China has immersed itself in this global economy. There are domestic things that are affecting it and exacerbating it, but if they don’t have enough demand-side measures there could be a deeper downturn.” China’s leaders signalled last month at the end of the Central Economic Work Conference that they will take further steps to support growth, including widening the fiscal deficit and stimulating the housing market, to put a floor under the economy’s slowdown. Monetary policy must be more “flexible” and fiscal policy more “forceful” as leaders create “appropriate monetary conditions for structural reforms,” according to statements released at the end of the meeting by the official Xinhua News Agency. It said the fiscal deficit ratio should be raised gradually. Stiglitz said the tumultuous start to 2016 supports his belief there’s no reason to expect the global economy will be any stronger this year than in 2015. Even before the market turmoil erupted last week, the U.S. Federal Reserve was set to pause on further interest rates rises anyway because the “American economy is not back to health,” he said. Bloomberg News
expected to conclude this can be done, together with certain extra measures, without harming the EU economy. The Commission has indicated no final decision should be expected before the summer, but an exchange of views with EU governments could come as early as February 2 when EU trade ministers meet in Amsterdam. They seem divided, with freetraders like Britain, Nordic countries and the Netherlands likely to be in favour but with nations such as Italy, which compete with Chinese goods, and France being against granting market economy status. Germany’s position could sway the decision, which diplomats say is likely to need the support of all governments and not just a qualified majority. It is the EU’s biggest exporter to China, but there is friction as China seeks
Business Daily | 11
January 12, 2016
Greater China Former FX regulator downplays foreigners ‘talking down’ yuan
Need to address dropping productivity
The yuan depreciated 4.7 per cent against the dollar in 2015, and has lost 1.5 per cent since the start of 2016
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former Chinese foreign exchange regulator urged the country’s investors not to be alarmed by foreign institutions “talking down” the yuan, saying the currency remained relatively stable. The official Economic Daily reported yesterday. Despite a 4-5 percent depreciation in 2015, the yuan, or renminbi, currency has still appreciated against a basket of currencies, Guan Tao, once head of the department of international payments at the State Administration of Foreign Exchange (SAFE), now senior researcher with another organization, said in an interview with the newspaper. Chinese regulators have argued that the yuan has remained stronger than it should given significant depreciation of neighbouring currencies against the dollar. “The market should not be worried by loud noises talking down the renminbi by some overseas institutions,” Guan said. “While these institutions are talking down the yuan, they do not necessarily short the yuan,” he added. “Rational Chinese institutions and families are willing to become other people’s scissors for shearing.”
to produce the kind of sophisticated products that compete directly with Germany. Free trade advocates say Europeans gain from cheaper Chinese imports and that companies such as Alstom or Siemens will gain easier access to China’s vast market in return. Rebuffing Beijing also risks retaliation. The EU is China’s largest trading partner, while China ranks second after the United States for the EU and was the source of some 302 billion euros (US$330 billion) of imports in 2014, more than triple their level at the start of the century.
Market economy status
Market economy status is important because it determines the way in which dumping - selling at unfairly low prices - is assessed. With market
The basis of our country’s balance of international payments is still solid, with both civilian usage or official foreign debt payments guaranteed Guan Tao, former head of the department of international payments, State Administration of Foreign Exchange
Thanks to market-oriented reforms, the flexibility of the currency market has increased, but its overall volatility has been relatively low, Guan said. The yuan depreciated 4.7 percent against the dollar in 2015, and has lost 1.5 percent since the start if 2016, with economists forecasting a further depreciation in the order of around 5 percent or more this year. While permitting the yuan to depreciate against the dollar over time, Beijing has played down the impact. It launched an index on the yuan’s exchange rate weighted against a basket of trade-related currencies last month, a move that will eventually loosen the currency’s link to the greenback. Guan also said that some capital outflows from China were normal and should not be regarded as capital flight, and that China was closely watching its cross-border capital flows. A depreciating yuan and intervention by Chinese central bank in foreign exchange markets to support the currency have seen a steep fall in China’s foreign exchange reserves, sparking widespread worries of large-scale capital outflows from China. Reuters
economies, the test of dumping is to see if the export price of a product is below the domestic price. In China’s case, as a non-market economy, domestic prices are not considered a suitable benchmark. So its exports prices are compared with domestic prices of another country - in a recent stainless steel case, the United States was chosen. Critics of such a system say it is unfairly stacked against China, with labour costs clearly higher in the United States and U.S. producers, also facing Chinese competitors, are inclined to inflate price estimates. The European Commission had 28 anti-dumping investigations underway at the start of January, 16 of them involving China, albeit some together with other countries. Of 69 anti-dumping duties in
force, only 17 are not targeted against China. Duties of up to 65 percent have been imposed on a range of products from steel to solar panels. Swedish centre-right lawmaker Christofer Fjellner, a member of the European Parliament’s influential trade committee, said there was concern among members about yielding to Beijing’s demand, but also fear of retaliation if Europe did not. “The Commission is between a rock and a hard place... I expect the Commission to be creative,” he said, adding he expected a proposal for parliament in February or March.
Risk to U.S. free-trade deal
Those opposed to opening up to China say Europe’s decision will have knock-on effects on trade with other major partners. United Steelworkers, North America’s largest industrial union, warned Washington last year that if the EU granted China preferential status, EU companies using imported Chinese goods would have an unfair advantage over U.S. counterparts. This, it said, should be considered as the EU and U.S. negotiate for a third year a transatlantic free-trade deal. Those who feel the time is right to relax trade defences against China say Russia’s status as a market economy since 2001 has not harmed the EU’s ability to impose dumping duties, such as a 29 percent levy on electrical steel from Russia last year. They also say the change would not inhibit the European Union’s right to impose duties if illegal subsidies are found. “I don’t agree with this alarmist view. You can still apply safeguards against dumping and it’s not true that you can’t fight dumping,” said one EU trade source. Reuters
China should take actions to cope with its falling total factor productivity (TFP), a senior expert with a government think tank said. China’s TFP growth slowed from an annual 3.9 percent between 1995 and 2009 to 3.1 percent in the 2011-2015 period, according to Cai Fang, vice president of the Chinese Academy of Social Sciences. He predicted that China’s TFP growth will further drop to 2.7 percent in the next five years. China should reform its household registration system to help farmers settle down in cities, according to him.
More railway passenger services China Railway Corporation (CRC), the country’s rail carrier, updated its service planning diagram Sunday, adding 285.5 pairs of passenger trains nationwide. According to the new diagram, the CRC now operates 3,142 pairs of passenger trains across the country, with 1980.5 pairs being bullet trains. The new services came after China over fulfilled its railway construction targets in 2015 as part of government efforts to improve transport infrastructure and stabilize growth. China put 9,531 kilometres of new rail lines into operation in 2015, while its annual target was 8,000 kilometres.
Rice imports from Laos start The first shipment of rice imports from Laos have passed through inspection and quarantine procedures at south China’s Shenzhen port, according to local authorities. The shipment weighed 87.8 tonnes and was valued at US$746 million, said the Shenzhen Entry-Exit Inspection And Quarantine Bureau. China mainly imports rice from Vietnam, Thailand and Pakistan. It recently added Laos to the list. Chinese appetite for grain imports has been growing fast, as the increasingly wealthy population seek more choices of staple food. Shenzhen handled over 1 million tonnes of rice imports in 2015.
Local Uber unit gets investment from HNA Group Uber Technologies Inc said yesterday its China unit will get an undisclosed amount of investment from Chinese firm HNA Group as part of a new partnership with the aviation and shipping conglomerate, giving the U.S. ride-hailing firm fresh cash as it competes with larger domestic rival Didi Kuaidi. In a statement, Uber’s Chief Executive Travis Kalanick said the alliance aims to “make global and local travel even simpler and more convenient”. Uber’s partnership with HNA Group comes as it and rival Didi Kuaidi vie to forge ties with influential Chinese companies.
Family size to be limited for up to 30 years China will stick to family planning restrictions for up to 30 years, a senior Chinese official said yesterday, rejecting concern that limits on the number of children had shrunk the pool of workers needed to support an aging population. Last year, the ruling Chinese Communist Party announced it would relax its long-standing and controversial “one-child policy”, allowing all couples to have two children. But critics say the policy change comes too late to avert a dangerous population imbalance as many couples are now not keen on having more children.
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January 12, 2016
Asia
Malaysia’s industrial output growth slips A private manufacturing purchasing managers’ index showed factory activity in Malaysia contracted for the ninth straight month in November Rozanna Latiff
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The ringgit was Asia's worst performer last year
alaysia’s November industrial production slowed to its weakest pace in 16 months, hurt by weaker global demand and a decline in mining production. Government data yesterday showed factory output in November grew 1.8 percent from a year earlier, its slowest since July 2014 and well below the median forecast of 4.0 percent from a Reuters poll of economists. Southeast Asia’s third-largest economy, a gas and commodities exporter, has been hit by falling oil prices and a slowdown in China. The ringgit was Asia’s worst performer last year, slumping more than 18 percent against the dollar. It fell to 4.4000 per dollar from 4.3950 before the output data. Economists said weaker growth in production stemmed mainly from poor external demand, which also resulted in unexpectedly weak growth in exports in November, and a contraction in the mining sector for the second consecutive month. “The mining sector is facing headwinds from lower energy prices, while the implementation of a Goods
and Services Tax in April has affected production since the third quarter of last year,” said Jeff Ng, an economist at Standard Chartered in Singapore. “What we’re seeing is weakened external demand while domestic demand has remained subdued.” Malaysia’s exports in November rose 6.3 percent from a year earlier, well below market expectations, due to lower liquefied natural gas exports and a marginal rise in demand for electrical and electronic products. DBS Group Research said the sharp depreciation in the ringgit should have seen higher export figures. “For export growth to come in at half the past two months’ pace despite the undervalued currency, demand must have been really weak,” it said in its daily report ahead of output data. A private manufacturing purchasing managers’ index (PMI) showed factory activity in Malaysia contracted for the ninth straight month in November. The index averaged just 47.7 in the last quarter of 2015, the joint-weakest in the survey’s history.
Why Singapore is unlikely to make another off-cycle policy move The monetary authority surprised investors last January, when it eased its exchange-rate based policy in an unscheduled statement Masayuki Kitano and Jongwoo Cheon
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ingapore’s central bank may ease monetary policy outside its half yearly reviews if oil prices fall more sharply or China’s economy takes a turn for the worse, but economists say a repeat of last January’s surprise easing is unlikely for now. Eight of nine analysts surveyed by Reuters from January 6 to January 11 said the Monetary Authority of Singapore (MAS) was not expected to change policy before its next review in April. The MAS surprised investors last January, when it eased its exchange-rate based
policy in an unscheduled statement, saying declining global oil prices had significantly changed the city-state’s inflation outlook. This time, the deflationary impact from sliding oil prices is expected to be less severe. Brent crude oil prices slid about 23 percent in the fourth quarter of 2015 compared
with a 39 percent slide in the same period of 2014. “ Th er e h a s n ’ t b een that big shock that kind of requires the MAS to act,” said Daniel Martin, an economist for Capital Economics. That could change if there are clear signs of a further deterioration in China’s economic growth momentum, he said. “Our view is that the most recent hard data out of China shows signs of stabilisation, but if we do start to see the opposite...then that would make the MAS much more nervous,” Martin said. The yuan’s recent slide
has stirred renewed concern about the health of the world’s second-largest economy and triggered turmoil in financial markets, but economists do not see this prompting any immediate MAS policy change. Indeed, the MAS had held off from any off-cycle policy change after China’s surprise yuan devaluation in August. “I think they will try to hold out,” said Selena Ling, head of treasury and research strategy for OCBC Bank. “We will see. With each bout of volatility, obviously we are testing a little bit on the downside for the (Singapore dollar) NEER.”
Reuters
Against a backdrop of low inflation and tepid global growth the MAS also eased policy at a scheduled review in October. The central bank manages monetary policy by letting the Singapore dollar rise or fall against the currencies of its main trading partners within an undisclosed trading band based on its nominal effective exchange rate (NEER). It can adjust the slope, mid-point or width of the band. One potential complication for the central bank is that the Singapore dollar NEER may have dropped close to the bottom of the policy band this month, according to some estimates. The possibility of another off-cycle policy easing seems high, given that the Singapore dollar NEER seems to have slipped close to the bottom of the policy band, said Hirofumi Suzuki, an economist for Sumitomo Mitsui Banking Corporation in Singapore. “In that case, I think they might shift to a policy of zero appreciation,” Suzuki said, referring to a possible reduction in the slope of the Singapore dollar NEER policy band. Reuters
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Business Daily | 13
January 12, 2016
Asia Minister says Thai tourism revenue to hit US$66 billion in 2016
Indonesian retail sales grow 10.2 pct y/y Indonesia’s retail sales in November grew 10.2 percent from a year earlier, a Bank Indonesia survey showed yesterday. October annual retail sales growth was revised to 8.7 percent from the previously reported 8.8 percent. The 700 retailers in 10 major cities surveyed said sales of food, beverages and tobacco bolstered November’s retail sales. The survey also predicted that December retail sales growth would be weaker, slowing to 6.7 percent, even though sales for vehicle fuel, cultural and recreational goods as well as spare parts and accessories, would grow stronger.
The tourism ministry says it expects 32 million visitors this year, a record high, up from 29.88 million last year Pracha Hariraksapitak
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hai tourism revenue is forecast to grow nearly 9 percent in 2016 to touch 2.4 trillion baht (US$66.12 billion), the country’s tourism minister said on Monday, on the back of increased focus on visitors from the ASEAN region and domestic travellers. The revenue forecast is higher than the earlier projection of 2.3 trillion baht for this year, and up from last year’s 2.21 trillion baht. Tourism accounts for about 10 percent of the country’s GDP and has been one of the few bright spots for Southeast Asia’s second-largest economy which has struggled since a 2014 coup by the military. “We will focus on domestic and ASEAN markets. We will need to work out ways for visitors to stay here longer and spend more,” Tourism Minister Kobkarn Wattanavrangkul told reporters, referring to the 10-member Association of Southeast Asian Nations.
Kobkarn said Thailand would add new tourist attractions, increase flights and organise more conventions this year to boost numbers. The central bank has forecast the economy would grow 3.5 percent in 2016, down from its earlier estimate of a 3.7 percent growth, but expects the economy to continue recovering due to government stimulus measures and tourism. It expects zero export growth this year partly due to a slowdown in China’s economy. “We have to find ways to make tourism revenue exceed our target to make up for exports that will be largely affected this year due to the global economic conditions,” Deputy Prime Minister Somkid Jatusripitak told reporters. Somkid said the Board of Investment of Thailand, a state investment agency, would focus on attracting private investment in domestic tourism this year.
S.Korea FX bank deposits hit 20-month low
The Tourism Authority of Thailand said it expects revenue of 1.56 trillion baht from international arrivals this year, an 8.3 percent increase from 2015. The tourism ministry says it expects 32 million visitors this year, a record high, up from 29.88 million last year. Reuters
ADB says global carbon trade could help Southeast Asia
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Under cap-and-trade schemes, companies or countries face a carbon limit. If they exceed the limit they can buy allowances from others. The ADB also reiterated that the region’s GDP could decline by up to 11 percent by 2100 if no steps are taken to curb climate change. That was up from a 2009 report, which put the decline at 7 percent. Meanwhile, Raitzer said that countries in the region would need to push harder to comply with the deal forged in Paris to rein in
Australian job advertisements steady Australian job advertisements in newspapers and on the Internet were barely changed in December after four straight months of growth, held back in part by the timing of the Christmas Day holiday. A monthly survey by Australia and New Zealand Banking Group showed total job advertisements dipped 0.1 percent to 155,704 per week on average in December, from November when they rose 1.1 percent. Ads were still 10.0 percent higher on December last year. Internet ads eased 0.1 percent in December, while newspaper ads fell 1.2 percent.
Southeast Asia’s five largest economies account for 90 percent of the region’s emissions global carbon trading market could boost Southeast Asia’s efforts to combat climate change, the Asian Development Bank said yesterday. The region had the fastest growth in carbon dioxide emissions in the world from 1990 to 2010, and will continue to rely mainly on coal-fired plants for its power needs, making it one of the top contributors to global greenhouse gas emissions, the ADB said in a report. Southeast Asia’s five largest economies - Indonesia, Malaysia, the Philippines, Thailand, and Vietnam - account for 90 percent of the region’s emissions, the Manilabased development bank said in the report, which comes in the wake of a landmark international agreement on fighting climate change reached in Paris in December. “A global market greenhouse gas emissions could benefit countries in the region, as Southeast Asia is a net exporter of emissions allowances,” the report said. “Naturally the most efficient way to achieve mitigation is generally to have a carbon market,” added David Raitzer, an economist who led the ADB study team that produced the report. A global carbon market has remained elusive, but schemes in places such as Europe and China have been gathering momentum.
South Korea’s foreign exchange bank deposits slipped to their lowest level in 20 months in December last year, the central bank said yesterday, as businesses withdrew funds for year-end settlements. Foreign exchange bank deposits declined for a second straight month, dropping US$3.78 billion to US$58.53 billion at the end of December, which was the lowest level since end-April 2014, Bank of Korea data showed. Dollar deposits fell US$1.37 billion in December to US$47.25 billion, a three-month low, while bank deposits denominated in Chinese yuan slipped US$1.88 billion to US$4.68 billion over the same period.
rising global temperatures to “well below” 2 degrees Celsius (3.6 degrees Fahrenheit) above pre-industrial levels, a mark scientists fear could be a tipping point for the climate. “Basically that means you would have minimal deforestation by 2030. It also means that you need to have a much faster rate of energy efficiency improvements, a rate that’s double what is targeted in the energy sector plans for countries in the region,” he said. Reuters
Philippine bond to fund military modernisation Congress yesterday asked the Philippine government to study a proposal to issue a 150 billion peso (US$3.2 billion) retail bond to fund a long-term military modernization plan to secure its strategic reserves in the South China Sea. Ariel Try, deputy minority leader at the lower house of Congress, said Congress will ask the Treasury to consider a bond issue to enable Filipinos to save and at the same time help secure the Philippines’ maritime borders against China’s rapid expansion in the South China Sea.
Indian Oil to spend US$600 mln on refinery upgrade State-run Indian Oil Corp aims to invest 40 billion rupees (US$600 million) in upgrading its newest refinery in the eastern part of the country after the federal government decided to bring forward by four years the introduction of road vehicle fuels which are compliant with Euro VI emission standards to April 2020, a senior company executive said. The 300,000 barrels per day refinery, which was commissioned last year, was designed to produce Euro IV and Euro V-compliant fuels. But the decision to bring forward the introduction of Euro VI fuels requires installation of some new units.
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January 12, 2016
International Euro zone economic growth stable Economic conditions are stabilising in China and the outlook is for steady growth in the euro zone, while the U.S. and UK economies are losing steam, the Organisation for Economic Co-operation and Development said yesterday. The Paris-based OECD said that its monthly leading economic indicator, supposed to capture economic turning points, showed signs of stabilisation in both China and Brazil. “In the United Kingdom and the United States, the CLIs (Composite Leading Indicators) point to easing growth, albeit from relative high levels,” it said in a statement.
Former German chancellor on Iran business visit Former German chancellor Gerhard Schroeder was to hold talks with top officials in Tehran yesterday and today as he heads up a trade delegation seeking to enhance business links with Iran. The visit comes ahead of the expected implementation of a nuclear deal with Iran that will open its economy to Western investment after years of sanctions on its banks and key industries. Schroeder arrived in Tehran on Sunday, a German embassy official said, and was yesterday to meet former president Akbar Hashemi Rafsanjani and Abbas Ahmad Akhoundi, Iran’s transport minister.
Global air freight demand may have bottomed out The decline in global demand for air freight may be bottoming out, with cargo volumes growing month-on-month in November, the International Air Transport Association said yesterday. Air freight volumes were down 1.2 percent in November compared with a year earlier, but total cargo volumes were up when compared with October 2015, IATA said. “Although the headline growth rate fell again, and the global economic outlook remains fragile, it appears that parts of Asia-Pacific are growing again and globally, export orders are looking better,” IATA director general Tony Tyler said in a statement.
UK losing shine as base for manufacturers Britain is becoming less competitive as a base for manufacturers, according to a group representing the factory sector which warned the government against laying further costs on firms which make cars, chemicals and other goods in the UK. EEF, which represents 5,000 firms engaged in manufacturing, engineering and technology, said 56 percent of respondents in a survey it commissioned viewed Britain as a competitive location for making goods, down from last year’s 70 percent level. Britain’s economy has grown faster but growth has been driven by the services sector.
S. African president denies 3rd term bid Jacob Zuma, President of the ruling African National Congress (ANC), yesterday denied speculation that he would seek a third term. Zuma, also president of South Africa, was reacting to speculation that some ANC provincial leaders were trying to persuade him to seek a third term. Zuma said he had no ambition to seek a third term of office. The ANC reportedly has worked out a secret plan to get Zuma a third term as the ruling party’s president.
Sweden’s banks caught in cash burn as deposits swell to record While Swedish deposit accounts pay virtually nothing, these days that’s still better than the equity market Niklas Magnusson and Frances Schwartzkopff
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n the back-to-front world of negative interest rates, Swedish banks are grappling with yet another odd development. Deposits -- coveted as stable funding during normal economic cycles -- are growing at an uncomfortable pace for Sweden’s four biggest banks: Swedbank, Handelsbanken, SEB and Nordea. The lenders pay to place money with the central bank, which has had a negative policy rate since February, but aren’t passing on that cost to retail customers for fear of losing them. “The banks really just don’t want more deposits,” said Karl Morris, an analyst at Keefe, Bruyette & Woods in London. After dipping briefly in March, deposits at Sweden’s banks have risen every month, growing 9.4 percent to a record 1.48 trillion kronor (US$173 billion) in November, the latest data from Statistics Sweden and state lender SBAB show. While Swedish deposit accounts pay virtually nothing, these days that’s still better than the equity market. Benchmark Swedish stocks have plunged more than 20 percent since the end of February. At SEB, storing those deposits is costing more than 1.2 billion kronor a year, according to Anna Helsen, a spokeswoman at the Stockholm-based lender. “We will, as long as possible, avoid charging private clients for savings,” she said. Handelsbanken estimates negative central bank rates cost it 1.42 billion kronor in the first nine months of 2015, said spokesman Johan Wallqvist. And given the continued market
There is “significant uncertainty and caution among many households Tor Borg, chief economist, SBAB
turmoil, Swedes are unlikely to ditch their deposits for riskier investments. There is “significant uncertainty and caution among many households,” said Tor Borg, chief economist at SBAB.
Egyptian central bank outlines plan to help small firms President had pledged to reduce joblessness to 10 percent over the next five years
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gypt’s central bank on Sunday issued guidelines on how it will incentivise banks to participate in a “comprehensive programme” to help finance smalland medium-sized enterprises in the latest move to try and create jobs and support its battered economy. President Abdel Fattah al-Sisi announced the SME initiative on Saturday, saying that Egypt’s banks would inject 200 billion Egyptian pounds (US$25 billion) into supporting businesses over the next four years.
Egypt’s economy has been struggling to recover since the popular uprising in 2011 drove foreign investors and tourists away. The uprising was partly fuelled by anger over the lack of job prospects for young Egyptians. Sisi had pledged to reduce joblessness to 10 percent over the next five years. The unemployment level reached 12.8 percent in December. The central bank said on Sunday that under the new programme
Banks may try to cover their costs by adding fees, according to Borg. They’re also trying to offload excess liquidity via the money market. Last month, the banks were “falling over themselves to get rid of deposits,” driving the one-week money-market rate down at one point to about minus 1.8 percent, Morris said. Given the latest disruptions to the stock market, there’s little point in predicting cash will start flowing out of deposits and into equities any time soon. At Swedbank, which sits on Sweden’s biggest pile of household deposits, negative rates are costing “several hundred million kronor” every quarter, said spokesman Claes Warren. “Savings in the bank are, to a large extent, an alternative to saving in stocks,” he said. “As we all know, zero is still more than minus.” Bloomberg News
interest rates on loans offered to SMEs would not exceed 5 percent. In return for issuing the loans, participating banks will be permitted to reduce their level of required reserves held at the central bank by an amount equivalent to what they lend. In December the central bank raised its overnight deposit rate and lending rate by 0.50 percentage points to 9.25 percent and 10.25 respectively. The SME programme aims to finance 350,000 companies and create 4 million new job opportunities over a period of four years, a central bank statement said. It aims to push the percentage of loans awarded to SMEs in the Egyptian economy up to at least 20 percent, the statement added. Egypt’s economy grew by about 4.2 percent in the last fiscal year and the government forecasts growth of around 5 percent in the current 2015/16 year. However, the World Bank on Sunday cut its projected growth rate for Egypt in 2015/16 to 3.8 percent from 4.2 percent on the back of weaker global growth. Reuters
Business Daily | 15
January 12, 2016
Opinion Business
wires
Taming India’s elite
Leading reports from Asia’s best business newspapers
Sanjeev Sanyal
Economist and urban theorist, was Deutsche Bank’s global strategist until October 2015
THE KOREA HERALD South Korea’s home sales reached an all-time high in 2015, the government said yesterday, apparently buoyed by a series of government measures to boost the local property market. The number of home transactions surged 18.8 percent on-year to 1,193,691 last year, marking the largest annual tally since 2006, when the government started to compile the data, according to the Ministry of Land, Infrastructure and Transport. It also rose for a third consecutive year to hit a fresh record high after plunging to 735,000 cases in 2012.
THE JAKARTA POST Amid slow economic growth in Indonesia’s main export markets, the Trade Ministry has announced plans to specifically approach alternative markets, especially in the Middle East, with increased promotion events and improved export services. The Trade Ministry’s director general for national export development, Nus Nuzulia Ishak, said in 2016 the focus in the Middle East would be on countries that President Joko Widodo had visited, such as Kuwait and Saudi Arabia. Products that could be shipped to the new destinations, Nus said, included automotive products, crude palm oil and textile goods.
BANGKOK POST About 3-4 million people are expected to be added to the personal income tax system after the full-scale implementation of national e-payments, the Revenue Department’s head says. The higher number of taxpayers will boost state coffers without raising tax rates, director-general Prasong Poontaneat said. About 10.9 million people submit tax filings but 6.4 million are exempted because their incomes are too low. The department reported for 2014 the largest taxpayer group of 1.63 million was those earning 150,001 to 300,000 baht a year. Only 24,700 declared income of more than 4 million baht.
THANH NIEN NEWS Economists are scratching their heads over a discrepancy of nearly VND300 trillion (US$13.18 billion) between the estimates of Vietnam’s 2015 gross domestic product released by two government agencies, warning that the issue could result in mismanagement. Economist Vu Dinh Anh said in a report published on December 12 the General Statistics Office of Vietnam estimated the country’s GDP will be nearly VND4,193 trillion, compared to the finance ministry’s estimate of VND4,484 trillion. Such a huge gap could distort other statistics measured in proportion to GDP, including budget deficit and state revenue figures, Anh said.
What remains to be seen is whether Modi is able to cement these victories against the elite
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t has been more than a year and a half since Indian Prime Minister Narendra Modi came to power on a promise to build a new India, one founded on a radical break with the past. It is still too early to gauge the impact of his economic and foreign policies, but there is one area where his government is making palpable progress: taming India’s entrenched elite. India has a population of 1.2 billion people, but it has long been dominated by a tiny elite: a couple of hundred extended families, totalling perhaps 4,000-5,000 people. Many countries have powerful elites with outsize influence, but in India, dynastic elites control the top echelons in every sphere of public life: politics, business, the media, and even Bollywood. Many of these dynasties have roots that stretch back to the colonial era, implying at least seven decades of dominance. Every point of leverage – from government contracts and industrial licenses to national awards – is used to maintain this ecosystem of power. Over time, ties of patronage and marriage have fused these dynasties into a discernable class, concentrated in central New Delhi, with a few pockets in Mumbai and a small presence in other parts of the country. Exclusive English-language schools, holiday homes in Goa, and summers in London or Switzerland have given them a shared world-view. Occasionally, new faces are admitted, but only if they do not interfere with the system’s perpetuation.
Unsurprisingly, the result has been the creation of a class of people with a strong sense of entitlement, who react to even minor challenges by closing ranks. They flaunt their power so often (usually with some variant of the phrase, “Do you not know who I am?”) that even those who do not “belong” sometimes use similar lines to try to bluff their way out of trouble. One of Modi’s more symbolic blows to the old establishment has been his government’s success in evicting high-status squatters from hundreds of government bungalows in central Delhi. Few of the occupants of these sprawling official residences had the right to live in them. In some cases, they had been there for generations; when faced with eviction notices, some families argued that the bungalows had effectively become memorials to their famous ancestors and that they should thus be allowed to remain. An even more visible change is the sudden increase in criminal charges – ranging from corruption to sexual offenses – being filed against members of the old elite. The homes of several senior civil servants have been raided recently as part of corruption investigations, and serious accusations of sexual harassment have been levelled against India’s top environmentalist, Rajendra Pachauri, who headed the United Nations Intergovernmental Panel on Climate Change when it received the Nobel Peace Prize.
One of Modi’s more symbolic blows to the old establishment has been his government’s success in evicting highstatus squatters from hundreds of government bungalows in central Delhi
Meanwhile, banks have begun to demand repayment from large borrowers accustomed to having their loans rolled over. Vijay Mallya, a businessman famous for his colourful lifestyle and string of failed ventures, is being investigated as a wilful defaulter. Much of this would have been unthinkable until a few months ago. And, inevitably, many accuse the government of carrying out political vendettas. On December 19, Sonia Gandhi, President of the Congress party, and her son, Rahul Gandhi, the party’s vice president, were forced to appear in court on corruption charges. In response, their party’s MPs brought legislative activity to a halt for days. The two were quickly released on bail. The case against the Gandhis – as well as many other highprofile investigations – is likely to drag on for years. And, of course, in some cases the accused will be exonerated. But the very fact that members of the old elite can be investigated and questioned is undeniable progress in a country where they have long enjoyed impunity. What remains to be seen is whether Modi is able to cement these gains. The elite can be remarkably resilient, retaining the power to strike back at the first sign of weakness. History – from post-revolutionary France to modern Thailand – has repeatedly shown that it is a mistake to write off the old establishment. Project Syndicate
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January 12, 2016
Closing HK Customs seizes suspected counterfeit goods
Moody’s downgrades Malaysia outlook
Hong Kong Customs announced yesterday that a syndicate in Central suspected of supplying and selling counterfeit goods was smashed on January 10, with suspected fake goods valued at about HK$480,000 (about US$61,935) seized. Hong Kong Customs cracked down on a storehouse keeping suspected counterfeit goods and raided a mobile hawker stall operated by the syndicate on Sunday when conducting a strikeand-search operation in Central. A total of about 9,400 items of suspected counterfeit apparel. Three men, aged between 30 and 65, were arrested. The case is still under investigation, according to Hong Kong Customs.
Moody’s Investors Service yesterday downgraded Malaysia’s sovereign outlook from “positive” to “stable”, citing deepening economic woes from falling oil prices and global economic uncertainty. In a statement, the ratings agency said the country faced slowing growth and world market factors that have “undermined Malaysia’s external position, with large capital outflows, a falling current account surplus, sharp exchange rate depreciation and falling reserves.” Malaysia’s economic outlook has been a source of major concern since oil prices plunged in 2014. Exports of oil and natural gas are a major source of earnings.
Beijing to create new office coordinating finance and economy The move signals a broader recognition among Communist Party leaders that the government’s current structure must be revamped to properly manage the gyrations of China’s markets and its economic slowdown
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hina’s Cabinet has created a new department to coordinate financial and economic affairs, according to a person familiar with the matter, as the country’s leaders seek to restore investor confidence in the government’s regulation of markets. The department under the State Council’s general office is tasked with coordinating between China’s financial and economic regulators and gathering data from local offices, according the person, who asked not to be identified because the move hasn’t been publicly announced. Agricultural Bank of China Vice President Li Zhenjiang was tapped as deputy director responsible for its daily operations and took the new post last week, the person said. The move signals a broader recognition among Communist Party leaders that the government’s current
structure must be revamped to properly manage the gyrations of China’s markets and its economic slowdown. Investors have voiced renewed concern about the government’s credibility following a series of interventions since this summer to arrest a market slide that led equities to fall globally.
Previously, State Council oversight of finance and securities fell to a State Council department that handles myriad other issues including land, environmental protection, forestry and tourism. It’s unclear how much power the new department will have given that President Xi
Jinping manages a separate body that steers financial policy, the Central Leading Group on Financial and Economic Affairs. In the meantime, leaders are planning a broader streamlining of China’s complex regulatory structure. The government is considering a plan to combine the three regulators that oversee securities, insurance and banking, according to other people familiar with the plan. Those discussions gained pace following the market turmoil and the government’s decision to devalue the yuan. The currency has lost nearly 9 percent of its value against the dollar in the last two years. China’s bond market is a typical example of the country’s conflicting regulatory scheme. The central bank governs bond sales in the inter-bank market, the China Securities Regulatory Commission
oversees bonds issued by listed companies and the National Development and Reform Commission approves bond issuance by non-public firms. The State Council didn’t respond to a faxed request for comment, while a press officer at Agricultural Bank of China declined to comment on Li’s status. A China Insurance Regulatory Commission spokesman declined to comment, and the securities and banking regulators also didn’t respond to faxed requests for comment. Liu He, an economic policy adviser to President Xi Jinping, wrote a preface of a recently published book saying that China should speed up “the establishment of financial regulation mechanisms that fit the profile of modern finance, to be able to enhance coordination and advance cooperation, and have effective and efficient functions.” Bloomberg News
PBOC to expand relending scheme to support economy
Online financing faces tighter regulation in China
Thai junta orders ministries to buy rubber from squeezed farmers
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hina’s central bank said yesterday it will push forward a pilot scheme on relending in a bid to support the country’s farming sector and small firms - the most vulnerable part of the economy. The scheme, which allows banks to refinance high quality credit assets rated by the central bank, was first introduced in Guangdong and Shandong provinces in 2014. The People’s Bank of China relent 4.97 billion yuan (US$755.74 million) to 31 institutions from the start of the programme through to the end of 2015. The central bank said it would expand the relending scheme, which has been expanded to 11 provinces and cities to help lower borrowing costs for the real economy. The central bank had rated bank loans made to 3,022 companies, allowing banks to use their high-quality credit assets to secure relending, it said without giving specific details. The central bank has taken a raft of policy measures, including cutting interest rates and banks’ reserve requirement ratios, in a bid to support the world’s second-biggest economy. Further policy easing steps are widely expected this year. Reuters
hanghai and some other local governments have tightened the rules on registration of Internet finance companies to combat the risks of online lending and borrowing, industry insiders said. “It is now very difficult to register an Internet finance company in Shanghai,” said an executive of a Shanghai company that specializes in registering new businesses. Sources with Shanghai Administration for Industry and Commerce said the authority had not issued an exact ruling banning the registration, but district regulators may have introduced their own risk control measures. The sources said regulators would conduct risk evaluations before allowing Internet finance companies to register in Shanghai. China Banking Regulatory Commission last month issued a draft proposing stringent restrictions on online lenders, prohibiting them from accepting public deposits, pooling investors’ money to fund their own projects, or providing any kind of guarantee for lenders. Shenzhen, China’s booming heartland of hi-tech companies, has also temporarily halted registration of new Internet financiers. Xinhua
hailand’s junta chief has ordered eight ministries to buy rubber to help struggling farmers, reneging on a vow to end the country’s long history of costly agricultural subsidies. The kingdom’s rubber farmers largely hail from the kingdom’s southern provinces and were a key part of the anti-government protest movement which cheered a May 2014 coup that brought the military to power. Global rubber prices have since collapsed and the Thai product currently fetches around 29 baht (79 cents) per kilogramme, nearly half what it was going for over the summer. Farmers are calling on the junta to buy up rubber at 60 baht per kilogramme, something junta leader Prayut Chan-O-Cha has so far resisted. The army toppled the democratically elected administration of Yingluck Shinawatra, in part railing against her family for courting votes among rice farmers in the north and northeast with heavy subsidies. It was not immediately clear how much the efforts to prop up the industry will cost. AFP