MOP 6.00
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Closing editor: Joanne Kuai
Macau ‘Australia Day’ Cocktail Fri, 29 January 2016 | 6pm - 8pm | Terrazza, Galaxy Macau More information at www.austcham.com.hk
Novo Banco swaps payout sent for review following split vote
Chinese banks to increase liquidity after currency pressure Page 10
Year IV
Number 961 Thursday January 14, 2016
Publisher: Paulo A. Azevedo
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Hong Kong leader’s speech traces closer approach to Mainland Page 9
Licensed junket industry shrinks 23 pct
Some 35 junkets have been denied renewal of their licence. For failing to submit their accounting procedures for review, said the new head of the Gaming Inspection and Co-ordination Bureau. Gaming regulator Paulo Chan indicated that just 141 gaming promoters remain in the city. Representing a sizeable 23 pct down on a year ago. Meanwhile, a gaming analyst predicts stricter regulation of the junket industry. While the government vows to steer the gaming industry towards the goal of ‘integrity and quality’ Pages
4&5
‘Nobody dares be corrupt’ Second wind China reported better-than-expected trade data for December. Helping allay concerns about the state of the world’s second-largest economy. Yuan-denominated exports climbed 2.3 pct y-o-y in December, while imports declined 4 pct
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Another high-speed railway. Connecting neighbouring Zhuhai City to Beijing and Guilin at the end of last year. Zhuhai authorities say the future is promising. With frequency likely to be increased and lower prices dependent upon market reaction
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No let-up. China’s anti-corruption campaign continues unabated, says Xi Jinping. The president says all sectors will be targeted. With zero tolerance given to violators. Luxury retail goods and Macau gaming revenues are high profile collateral damage. As the 3-step campaign tightens the screws
HSI - Movers January 13
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Transport
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Rolling out the railway
Lai Ou triumphs in taxi bid
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China Unicom Hong Ko
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China Merchants Holdi
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CNOOC Ltd
+2.83
AIA Group Ltd
+2.62
China Mobile Ltd
+2.45
China Resources Beer H
-0.26
Lenovo Group Ltd
-0.44
Want Want China Hold
-0.58
Wharf Holdings Ltd/Th
-0.64
CITIC Ltd
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Source: Bloomberg
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Just three bids. With one accepted for a ‘special taxi licence’. Cast by Lai Ou company, chaired by casino boss David Chow. An investment of MOP70 mln in the company is mooted to launch the service. The first batch of 50 on-call taxis are expected to be operational in 2017. One of the failed bidding companies plans to appeal the gov’t decision
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January 14, 2016
Macau MGTO picks up tourism marketing awards
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Official: High-speed rail and Hengqin Chimelong boosting visitors to Zhuhai
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he high-speed rail connection with Beijing and Guilin and the ongoing expansion of the Chimelong resort and theme park on Hengqin Island are going to stimulate visitor arrivals to Zhuhai by a “doubledigit” percentage this year, a Zhuhai official remarked to media in a travel promotion seminar held in Macau on Tuesday. Speaking to local media,
vice-director of Zhuhai Tourism Development Centre Mr. Zhong Guohuai said Zhuhai, the neighbouring city of Macau, received a total of 34 million visitors last year. Zhuhai, whose intercity railway will connect to Macau's Cotai area via the Lotus Port in the future, witnessed the launch of the high-speed rail to Beijing and Guilin in November last year. The journey between Zhuhai and
Guilin via the high-speed train takes about four hours, while that to Beijing takes about 11 hours. Mr. Zhong – who believes there will be greater frequencies for the cross-province high-speed trains and lower fares, thus stimulating Zhuhai tourism - estimates that his city will see arrival figures grow to 50 million visitors after three years. S.L.
Government to extend SME Aid Scheme
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ocal small and medium enterprises (SMEs) that have repaid the loans granted under a special aid programme known as the SME Aid Scheme can apply for the loan a second time, the Director of Macao Economic Services (DSE) Sou Tim Peng, said in an interview with Chinese language newspaper Macao Daily News. The government is now drafting rules to allow SMEs that have benefited from the special loan programme to apply for a loan again, according to Mr. Sou. With the SME Aid Scheme, the government grants loans of up to MOP600,000 per applicant for different finance purposes such as the purchase of equipment, renovation, advertising, etc. These small and medium enterprises have as many as 8 years to repay the loan. The government has received 9,138 applications for special loans from local SMEs since the inception of the aid scheme in 2003. More than 8,000 of these cases were approved, involving MOP2.19 billion, Mr. Sou told the newspaper. The applicant SMEs were primarily from the retail and wholesale, construction works and catering services sectors, said Mr. Sou. S.L.
acao Government Tourism Office (MGTO) says it is dedicated to promoting the destination through a variety of multimedia and innovative strategies in a press release issued yesterday. The Office says that its destination promotion projects won a range of awards last year, including ‘Best Tourism Marketing Award’ in the 18th Busan International Travel Fair, the ‘Most Popular Emerging Destination’ in the India Outbound Travel Market 2015 as well as ‘Best National Tourism Organization’ in the 26th TTG Travel Awards 2015. MGTO vows to continue to work hard in all respects and will adopt a new theme this year to promote Macau to the world. The Office says it will also continue to design promotional projects in accord with the trends and performance of different visitor markets, striving to attract international visitors whilst enhancing the city’s attractiveness as a tourist destination, forging diversified tourism development in line with the goal of building the city into a World Centre of Tourism and Leisure.
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January 14, 2016
Macau Some 355 apply for casino exclusion According to the latest data provided by the Gaming Inspection and Coordination Bureau, 355 requests were made for exclusion of individuals entering casinos last year, with 328 applied for voluntarily and 27 filed by a third-party. The number represents a 26.8 per cent increase from a year ago. The law for people to apply to be excluded from entering all or just some casinos in Macau was first introduced in November 2012. The maximum exclusion period is two years with extension to be further applied.
Govt: Only one bid accepted for special taxi licence The bid that was accepted was cast by a company called Lai Ou, controlled by local casino boss David Chow Stephanie Lai
sw.lai@macaubusinessdaily.com
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he government has only accepted one of three bids made for the ‘special taxi licence’ - the licensed service by which taxis can only be hailed by telephone call, online order or mobile phone application, and expects this new taxi service to be operational by 2017. The accepted bidder - Lai Ou Taxi Service Company Ltd. - has suggested a base rate for ordering a ride of MOP15 (US$1.88), and a no-show charge of MOP5, according to the Transport Bureau after it had read the submitted bid documents yesterday. Co-chairman of Macau-based casino operator Macau Legend Development Ltd, David Chow Kam Fai, is also the chairman of Lai Ou, public broadcaster TDM Chinese Radio reported yesterday. Chow has said that about MOP70 million would be invested in launching the special taxi service. The Bureau, which is now assessing Lai Ou’s bid, expects to sign the contract with the successful bidder for providing the service by the second or third quarter of this year. The government plans to have no more than 100 taxis run under the ‘special taxi licence’, which carries a validity of eight years.
First batch in 2017
“We hope that it [the successful bidder] can provide the taxi service next year,” the chief of the Traffic
Management Division of the Transport Bureau, Mr. Chang Cheong Hin, informed media yesterday. The official noted that a first batch of 50 taxis to be run under the special licence have to be operational next year, with the remaining vehicles to be run within a year following the launch of this new taxi service. According to the Bureau’s requirement, 50 per cent of the scores for assessing the candidates’ bids
The accepted bid cast by Lai Ou intends to invest MOP70 million in launching the service, according to its chairman local casino boss David Chow
went to the way they intend to charge fares from the taxi passengers, while another 40 per cent was counted from the candidates’ service plans, which include the specifications of their fleet and the taxi dispatch system. Candidates’ experience in transport service only accounted for 10 per cent of the assessment scores. The government requires the bidding operator to provide no less than five bigger taxis accessible for disabled people, and to install a global positioning system (GPS) in all of their taxis to be run under the special licence. The failed bidders - Taxigo Company Ltd. and Radio Taxi Macau Taxi Service Ltd. - both said they have been engaged in travel agency services and have provided car leasing services for the city’s VIP gaming operators. The bids of these two companies were rejected due to their failure to comply with the bidding rules. Radio Taxi Macau said that they would appeal the government’s rejection of the company’s bid.
Combating Uber
While the city could only expect to see taxis run under the special licence next year, the government has pledged again that it is still combating the Uber car transport service. “Since Uber has entered Macau [in October] last year, the authorities have already declared that their
operation model is illegal,” Mr. Chang told media. “Until now we’re still in ongoing combat efforts against it [Uber service],” he added. “It is clearly stated in our laws that any transport service rendered for passengers has to be approved by the government.” The ride-sharing application Uber puts prospective passengers in touch with car drivers willing to take them where they wish to go for a fee. Despite the government calling the ride-sharing service illegal, Uber launched a new vehicle criterion for the city – uber X – last month offering cheaper rides for passengers than their uber black service. The minimum fare for a uber X trip is MOP20, which is MOP5 cheaper than the minimum fare for a uber black service; the cancellation fee for both types of services is MOP20. Billy Choi Wai Chan, the representative of bidder Taxigo for the special taxi licence, told Business Daily that Uber has had a “successful” reception from passengers here, indicating a strong demand for oncall taxi services. “But Uber’s legitimacy of business is challenged here,” Mr. Choi said, “That’s why we decided to make our bid.” The Transport Bureau has not indicated how many more special taxi licences it intends to issue in the future, saying that it would closely observe market demand.
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January 14, 2016
Macau
Some 35 gaming promoters denied licence renewal DICJ head discloses that there are now 141 gaming promoters in town, with 20 individuals and the rest companies, representing 23 per cent plunge Joanne Kuai
joannekuai@macaubusinessdaily.com
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total of 35 junkets, also known as VIP room promoters, failed to submit documents explaining their accounting system or information on large transactions, and were consequently denied licence renewal by the Gaming Inspection and Co-ordination Bureau, Bureau head Paulo Martins Chan has disclosed. “Thirty-one of them failed to submit accounting system explanations, eight failed to provide data on big deals, of which four were overlapping, hence 35 of them were denied renewal,” said Mr. Paulo Chan yesterday on local broadcaster TDM’s Chinese radio talk show yesterday morning. “Their businesses represent 0.76 per cent of the total junket industry, which also shows that the weak ones get weeded out and the strong ones get to stay.” Junkets have been required to submit the information to authorities since the Dore Entertainment Co. Ltd. junket group operating out of Wynn Macau was purportedly the victim of a staff member absconding with some HK$520 million (US$64.7 million) in investor funds. According to DICJ, the city’s gaming regulator, there are now only 141 licensed gaming promoters registered in town, with 20 individuals and 121 companies. Such information is usually renewed and published by DICJ by the end of January each year. This also means that the number of licensed gaming promoter in Macau shrank by 22.95 per cent over the past 12 months. The data from 28 January 2015 shows that back then, there were 183 junket operators.
Possible clients’ data collection
Macau casino junket operators started 2016 on the wrong foot as another suspected theft involving at least HK$99.7 million (US$12.5 million) was recently reported from a VIP room in L’Arc Macau, a third-party managed casino operating under the licence of gaming concessionaire SJM Holdings Ltd. Newly inaugurated Bureau head Paulo Martins Chan, who took office in December last year, met with representatives from the Macau Junket Operators Association last Thursday along with Secretary for Economy and Finance Lionel Leong Vai Tac.
KEY POINTS Junket number shrank by 23 pct y-o-y A customers’ information database ‘feasible’ Dore junket licence renewed for another three months Junket management added to mid-term review criteria
Gaming Inspection and Co-ordination Bureau head Paulo Martins Chan
Mr. Chan disclosed that some local junket operators are keen on establishing a system to collect client data and the Bureau head said the scheme is feasible as some credit agencies have such a mechanism to transfer information unofficially. He said that a customers’ information database can be adopted provided the clients’ consent is obtained and its legality approved by the Office for Personal Data Protection. “We’re very willing to co-operate with all gaming industry operators to draft rules that can protect clients and promote a gaming industry of integrity and quality,” said Mr. Chan.
Dore licence renewed
When asked about the Dore case, the gaming regulator disclosed that the junket operator’s licence has been renewed for another three months “because of the hope that no bigger social events would occur”. Mr. Chan said that the Bureau has been following up with the junket operator’s lawyers, as well as persons in charge at Wynn Macau, on some accounts acknowledged by both, which he believes can be resolved soon. According to Mr. Chan, Dore has expressed willingness to improve its operation by optimising its facilities and better managing its accounts. He reiterated that the Bureau’s power is limited and could only act as mediator. He added that the criminality of the case has been under investigation by the judiciary departments and hence confidentiality has to be maintained; other civil procedures are in process and the courts would determine whether creditors’ rights were involved.
case “have made a financial sacrifice” to calm the issue.
Adjustment period
We’re very willing to co-operate with all gaming industry operators to draft rules that can protect clients and promote a gaming industry of integrity and quality Paulo Martins Chan, Director of Gaming Inspection and Co-ordination Bureau
The Bureau head also indicated that the authorities don’t have information on how common investment in junkets are in Macau. Whether such practice should be banned or regulated by legislation depends upon further discussion with the industry, added Mr. Chan. With regard to the L’Arc case, Mr. Chan clarified that no illegal fundraising was involved in the case, and it doesn’t involve the issue of the authorities’ supervision. To his knowledge, persons in charge of the
Paulo Chan added that the mass market has been playing an increasingly important role and that Macau’s gaming industry may come to a point where gaming revenues generated by the mass market surpass those from the VIP sector. He said that since the mass marketonly casino at Studio City had opened, gaming operator Melco Crown’s market share has increased to 16 per cent rather than the usual 13 to 14 per cent, which the gaming regulator described as ‘encouraging news’. However, he warned the public not to have any fantasies about the ongoing mid-term review of the gaming industry that the government is conducting, saying it would not result in some game changer leading to any V-shaped recovery. He indicated that the review will not be directly related to the gaming licence renewal but will serve as reference for a healthier development of the industry. One notable change to the criteria of the review is adding junket management to the original segments; namely, its impact on the local economy, co-operation with local SEMs, impact upon people’s livelihood, non-gaming elements, fulfilment of concession contracts, gaming operators’ operational status, legality issues, and social responsibility, making a total of 9 aspects rather than 8. Mr. Paulo Chan said that the review is being conducted in four phases, with the results of the first phase expected in the first half of this year.
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January 14, 2016
Macau
Union Gaming: Junket regulations will ‘most certainly be increased’ Analyst predicts that the imposition of further junket regulations - plus slack demand - will result in VIP grossing gaming revenues dipping 12 per cent this year Joanne Kuai
joannekuai@macaubusinessdaily.com
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he new Director of the Gaming Inspection and Co-ordination Bureau (DICJ), Paulo Martins Chan, has provided the latest update on the number of registered gaming promoters - 141 as of yesterday - when talking to reporters on the sidelines of an interview given to local public broadcaster TDM Chinese radio. The number represents 42 fewer operations or a 23 per cent plunge compared to a year ago. The list of licensed junkets is usually published annually in the last week of January. Official data on 28 January 2015 showed 183 junkets. The junket industry has been dealing with some major blows. Following the Dore incident late last year, the government now requires all licensed junkets to submit
their accounting procedures for review. A total of 35 licensed junkets did not comply with this request and thus their licences were not renewed, according to Mr. Paulo Chan. Union Gaming analyst Grant Govertsen sees these developments in line with their outlook for 2016 VIP gross gaming revenues (GGR). “We suspect most (if not all) of these 35 junkets were probably on their way out the door anyway due to weak demand,” Mr. Govertsen said in a note released following the DICJ head’s comment. “This is in line with our view that the junket industry will continue to see further closures and consolidation, and also in line with our current forecast for VIP GGR to decline 12 per cent in 2016.”
Many audience members phoned in to the programme yesterday morning, urging the government to better
regulate the junket industry. The DICJ head said one of the directions for future gaming law revision would
be to create “an industry of integrity” or “a trustworthy industry”. Mr. Govertsen said, “The key here is the use of the word ‘integrity’ to describe how the government will think about any new junket regulations. In other words, junket regulations are most certainly going to be increased (to what extent remains unclear) although via consultation with both casino operators and junkets”. Mr. Govertsen added that since the DICJ head has clarified that the recent L’Arc case is more like a theft of cash rather than the establishment of phoney investment, it should relieve investor anxiety over whether the situation would be as severe as Dore from a liquidity perspective.
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January 14, 2016
Macau
Xi calls for a China in 2016 where “nobody dares to be corrupt” The campaign started in 2012 has affected everything from luxury good prices in Hong Kong to gambling revenue in Macau as wealthy Chinese cut back on conspicuous spending to avoid attracting suspicion
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resident Xi Jinping said his signature anti- corruption campaign will not be eased and he’s determined to make China this year a place where “nobody dares to be corrupt.” The anti-graft effort in 2016 will expand efforts to hunt down so-called “economic fugitives” who have fled overseas, the official Xinhua News Agency said, citing Xi’s speech at the beginning of a three-day meeting of the Central Commission for Discipline Inspection. After snaring about 100 high-ranking “tigers” and thousands of other mid-level officials, the campaign will also focus more on corruption at the local level in 2016, he said. “The Communist Party central leadership’s firm determination to fight corruption has not changed; the goal of preventing corruption from spreading has not changed,” Xi was quoted as saying by Xinhua, adding the campaign should continue to “cover all sectors” in a “zerotolerance” manner. Xi warned soon after taking power in late 2012 that corruption
threatened the legitimacy of the ruling Communist Party and pledged a relentless effort to stamp out graft at all level of Chinese society. The campaign has targeted government officials, state-owned enterprises and the military, and the fallout has affected everything from luxury good prices in Hong Kong to gambling revenue in Macau as wealthy Chinese cut back on conspicuous spending to avoid attracting suspicion. Among the so-called tigers felled by the campaign were Zhou Yongkang, the former security chief who was sentenced to life in prison last June; Ling Jihua, former top aide of Xi’s predecessor; and two former deputy commander-in-chief of the People’s Liberation Army, Xu Caihou and Guo Boxiong. Last year 26 “tigers,” meaning officials at the vice- ministerial level or above, were put under investigation for alleged corruption, according to Xinhua. The CCDI, the Communist Party’s top disciplinary body, has said there are three phases in its fight against graft: the first stage is to ensure
officials don’t dare to be corrupt, then institutionalizing the drive and perfecting the legal framework so officials aren’t able to be corrupt, and lastly, instilling ethics and morality so that officials won’t want to be corrupt. In the overseas hunt for corruption suspects, an initiative dubbed “Skynet” that was launched in April of last year, more than 1,000 economic fugitives residing in 68 countries have been brought back to China, Xinhua said. A new round of Skynet will be launched this year that will rely on increased judicial cooperation with other countries, according to the CCDI. In an interview with Bloomberg News last year, Fu Kui, the then top official in charge of Skynet, said all the three phases of the corruption campaign are being carried out in parallel but the emphasis is the first one: scaring officials so much that they don’t dare to be corrupt. “You want officials to not dare, then to not be able to and then to not want to and right now we’re still in this first phase of scaring everybody,” said Fu. Bloomberg
Business Daily | 7
January 14, 2016
Macau
Novo Banco swaps You can’t hide from payout sent for review junk-debt slump following split vote opinion
by shunning energy
The parent company of Macau-based Novo Banco Asia is facing an outside panel to decide whether a governmental intervention credit event had taken place
Lisa Abramowicz Bloomberg
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any investors blame the escalating weakness in corporate credit on falling commodity prices. But that’s only one piece of the story, one that ignores a collapsing credit cycle amid a much broader global slowdown. Standard & Poor’s said on Tuesday that the outlook for corporate borrowers worldwide was the worst since the global financial crisis, with potential corporate downgrades outpacing possible upgrades by the most since 2009. This has been attributed largely to slower growth in China and a commodity rout that’s cut prices to the lowest since 1999. In reality, the pain goes well beyond that. Industry sectors representing about 70 per cent of the high-yield bond market have more than 10 per cent of bonds trading at distressed levels, Deutsche Bank analysts Oleg Melentyev and Daniel Sorid said in a Jan. 8 report. That includes technology, media, consumer products and casinooperating companies, not just oil drillers and miners. The ratio of deeply distressed bonds, or those yielding 20 percentage points more than benchmark rates, has continued to increase, reaching 8.8 per cent for all high yield and 4.2 per cent for the market excluding energy companies, the analysts wrote. This ratio is tightly correlated to default rates and points to an escalating number of insolvencies across a variety of industries. But here’s the catch: Investors largely seem to think that they’re insulated from losses if they stick with higher-rated junk bonds of companies, especially those outside commodities- related industries. Evidence of this can be found in the fact that the lowestrated junk bonds are yielding the most since 2009 relative to higher-rated speculativegrade bonds. This logic is faulty. Last year’s 4.6 per cent loss on U.S. highyield debt was not due entirely to falling oil prices. Yes, crude values have plunged to the lowest since 2003. And yes, Wall Street analysts forecast more losses ahead. This, however, is not the sole cause of the debt-market turmoil. Over the past eight years, companies have borrowed trillions of dollars from investors who were eager to fork over their money for record-low coupon payments. That time has come to an end as the Federal Reserve starts tightening monetary policies, and debt buyers are demanding higher yields and more concessions from companies. The US$1.3 trillion U.S. high-yield market has started shrinking. Companies sold US$284.8 billion of the debt last year, the lowest annual issuance since 2011 and down from US$363.6 billion in 2014, according to data compiled by Bloomberg. If companies can’t demonstrate success in a new world of less-forgiving lending standards, than it’s going to be harder and harder for them to survive. This goes for companies from Claire’s Stores to Sears to iHeartCommunications, not just all those energy companies that went on a borrowing binge on the heels of easy-money policies, only to have that backfire along with declining oil prices. It’s not a good idea for debt investors to dismiss credit weakness purely as fallout from a busted commodities bubble. It’s more than that. It’s the end of a cycle and the beginning of a normalization of markets that are still bloated relative to history.
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n industry group failed to reach a decision on whether credit-default swaps insuring Novo Banco SA debt should pay out, triggering an external review. A committee of 15 dealers and money managers was unable to agree on whether a governmental intervention credit event had taken place at the Portuguese lender, the International Swaps & Derivatives Association said in a statement on Tuesday. Eleven committee members voted to say no event occurred, one short of the 12 needed for a ruling. The other four members said an event had taken place. An outside panel will now make a decision, marking only the third time that an ISDA committee has been unable to agree on whether derivatives insuring debt should be triggered. The arbitrators will determine the fate of contracts covering a net US$428 million of Novo Banco debt, and decide the first test of rules introduced in 2014 that were intended to boost protection against losses imposed by governments or regulators. “For users of credit-default swaps, this is exactly what they bought them for,” said Roger Francis, a credit analyst at Mizuho International Plc in London. “If it doesn’t cover this, then what is the point of the product?” The decision centers on the Bank of Portugal’s transfer of about 2
The decision centers on the Bank of Portugal’s transfer of about 2 billion euros (US$2.2 billion) of Novo Banco senior bonds to a bad bank last month. The move caused prices for the five bonds to plunge to around 10 cents on the euro from more than 90 cents
billion euros (US$2.2 billion) of Novo Banco senior bonds to a bad bank last month. The move caused prices for the five bonds to plunge to around 10 cents on the euro from more than 90 cents. The central bank ordered the transfer after European Central Bank stress tests showed a 1.4 billion-euro capital shortfall at Novo Banco under an adverse scenario. The ISDA committee will reconvene on Wednesday at noon, London time, to discuss a separate question regarding whether a succession event has occurred at Novo Banco, the group said. There were 2,372 outstanding contracts tied to Novo Banco debt as of Jan. 1, according to Depository Trust & Clearing Corp. The two questions previously referred to external panels by ISDA committees were about casino company Caesars Entertainment Corp. last year and cement maker Cemex SAB in 2009. The panels comprise of at least three people. ISDA is introducing new rules for its Determinations Committees, which make decisions in the US$12 trillion credit derivatives market, to ease conflicts of interest, according to a statement on Monday. The committees have come under scrutiny because they include the biggest traders of default swaps, such as JPMorgan Chase & Co., Goldman Sachs Group Inc. and Pacific Investment Management Co. Bloomberg
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January 14, 2016
Greater China
December trade performs better than expected China’s crude oil imports hit a record high, while copper imports were the second highest on record Xiaoyi Shao and Sue-Lin Wong
Developers in rush to refinance costly bonds Most developers lack a “natural” hedge in the form of dollar assets or revenues, and hedging is prohibitively costly Umesh Desai
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hinese property developers, among the heaviest borrowers in the Asian high-yield sector, are scrabbling to take
advantage of cheaper funding costs at home, after a foray into offshore debt markets that has become a growing headache.
Tighter conditions in China in the last few years pushed developers to increasingly borrow overseas, and they did so at record pace
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hina’s total trade fell in December but far less than expected, with exports outperforming many of its regional peers after the country let the yuan depreciate sharply, highlighting fears of a currency war among Asia’s trade-reliant economies. “The trade data support our view that, despite turmoil in Chinese financial markets, there has not been a major deterioration in its economy in recent months,” Daniel Martin, senior Asia economist at Capital Economics, said in a note. Exports from the world’s largest trading nation fell 1.4 percent from a year earlier, data from the General Administration of Customs showed on Wednesday, much less than a Reuters poll forecast for an 8 percent drop and moderating from November’s 6.8 percent decline. They also sharply outperformed exports from neighboring countries such as Taiwan and South Korea, analysts noted, and came in the face of entrenched weakness in overseas demand. December imports fell 7.6 percent, receding for the 14th straight month but not as sharply as feared, possibly due to factories stocking up on crude oil, iron ore and other materials as global resource and commodity prices continued to fall. Indeed, China’s crude oil imports hit a record high, while copper imports were the second highest on record. Economists had forecast an 11.5 percent import slide, after an 8.7 percent drop in November. The combination produced a US$60.09 billion trade surplus for December, compared with economists’ expectations of US$53 billion and November’s US$54.1 billion.
in 2013 and 2014 - despite a domestic real estate market that was already cooling. In 2015 though, they shifted to domestic markets, raising more than 200 billion yuan (US$30 billion) - four times greater than in overseas markets. Now with the yuan weakening and relatively cheaper borrowing rates, analysts estimate most of the issuers of the roughly US$9 billion of bonds callable by property firms in 2016 will take up the option. Nomura says 60 percent of the callable debt is “likely” or “very likely” to be called, even if few firms say they have yet to make up their minds. A further US$7 billion of dollar bonds are callable in the first quarter of next year, CreditSights said. “It will be compelling for most developers to refinance dollar bonds that become callable during 2016,” said Mark Reade, credit analyst at Mizuho Securities in Hong Kong. Powerlong Real Estate called its 11.25 percent 2018 bonds in December to save costs. A company official told Reuters that investors were willing to lend at rates as low as 7.2 percent, which would cut interest costs by a third, but the developer had sufficient cash and declined. “At present, the focus is on issuing debt locally,” said Lai Naixing, investor relations manager at Xinyuan Real Estate , which has an
outstanding bond with a call option but has yet to decide its position. Most developers lack a “natural” hedge in the form of dollar assets or revenues, and hedging is prohibitively costly. But dollar debt will still have its space for some, especially larger developers or those with overseas revenue. CIFI Holdings, another real estate borrower with callable bonds, says it plans to redeem the bonds and issue fresh dollar debt - at a lower coupon. But even then, it has an eye on home. “The ratio of domesticdenominated bonds to foreign-denominated bonds is (currently) 45:55, we plan to adjust this to 55:45,” a CIFI official said. Evergrande Real Estate Group, which sold 20 billion yuan in local bonds last October, returned to tap the dollar bond markets to take advantage of lower yields this week. It raised US$700 million at a yield of 7.8 percent. “Overall, onshore refinancing is a beneficial trend for offshore investors,” said Jim Veneau, fund manager at AXA Investment Managers. “Interest coverage should improve as would overall FX risk of the issuer and onshore refinancing makes dollar debt relatively scarcer, so it’s a positive technical or at least an offset to the negative technical new dollar debt issuance would otherwise be.” Reuters
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January 14, 2016
Greater China KEY POINTS Dec exports, imports fall less than expected, but more pain seen ahead for economy Exports -1.4 pct y/y vs forecast -8.0 pct, Nov -6.8 pct Imports -7.6 pct y/y vs forecast -11.5 pct, Nov -8.7 pct Trade surplus US$60.09 bln vs Nov’s US$54.1 bln Some suspect trade jump with HK is disguised capital flight
The situation in the first quarter still be relatively severe.” Some economists also raised concerns that the better-thanexpected export data could be partly due to currency speculators using false or exaggerated trade invoices to get capital out of China and evade further declines in the yuan. “As both imports and exports to Hong Kong broke with trends in a major way, it suggests the figures are likely driven by capital flight,” Oliver Barron of NSBO said in a research note. For the full-year, total trade was US$3.96 trillion, down 8 percent from 2014 and China’s worst performance since the global financial crisis. The government had started the year with a target for 6 percent growth.
Troubled waters
“Another large trade surplus provides a cushion for the People’s Bank of China in the face of soaring capital outflows,” Capital Economics’ Martin said. While Asian stock markets cheered the China data surprise, economists and the customs department said exports will face further pressure in 2016 due to sluggish global demand. “Companies tend to have to fulfil their contracts by the year end ... and they’ll increase the amount they’re exporting in December,” customs spokesman Huang Songping said. “This doesn’t represent a trend (for 2016). In previous years we’ve seen exports improve in December.
China last week allowed the biggest fall in its yuan currency in five months and stock prices plunged, sparking concerns about the health of the world’s second-largest economy, though there has been little evidence so far that conditions have deteriorated sharply in recent weeks. While risks abound, most economists believe the outlook for China’s economy hasn’t changed, with most sticking to long-held predictions that it is facing a prolonged and gradual loss of momentum rather than a dramatic slowdown. The central bank has allowed the yuan to weaken more than 5 percent against the dollar since August and sources told Reuters there is some pressure from policy advisers to allow an even sharper fall of as much as 10-15 percent, which would add to fears of competitive devaluations
around the world. But economists aren’t sure if even a 10 percent depreciation in the yuan would provide much of a boost to China’s exports given persistently weak global demand. Also, while the yuan has softened considerably against the dollar, it hasn’t weakened as much against other currencies in trade-weighted terms. Despite the more modest drop in imports in December, China’s actual consumption still appears sluggish, which is boomeranging on already depressed global commodity markets. While its crude oil imports in 2015 hit a record 6.71 mln barrels per day, its fuel exports also hit an all-time high of 693,300 bpd as refiners had to look abroad to clinch sales. Likewise, even as its iron ore imports rose, China’s steel exports surged nearly 20 percent on the year. China’s economy likely grew by around 7 percent in 2015, in line with the government’s official target, the top economic planning agency said on Tuesday. Still, such a level would be the slowest pace of expansion in a quarter of a century, and down from 7.3 percent in 2014 as weak exports, industrial overcapacity and faltering investment drag. Some China watchers believe real growth levels are already much weaker than official data suggest, reinforcing expectations that the government will have to roll out more stimulus measures this year to avert the risk of a hard landing. China will release fourth-quarter and full-year 2015 economic growth data on January 19. Reuters
China’s top Internet regulator has released draft regulations for online news services, requiring permission for releasing news on the Internet or through apps. Websites, apps, instant messaging services or search engines should first obtain permission before disseminating news, according to the draft regulations, which was publicized Monday by the State Council’s Legislative Affairs Office to solicit public opinions. News releasers are ordered to provide real name identification to online news releasing platforms, according to the draft regulations from the Cyberspace Administration of China.
Vice premier stresses innovation-driven development Vice Premier Liu Yandong has called for more scientific and technological innovation to support economic and social development. Liu made the remarks during her stay in the Chinese Academy of Sciences’ National Space Science Centre in the Beijing suburb of Huairou on Tuesday, where she inspected the Dark Matter Particle Explorer (DAMPE) Satellite project. While hailing major achievements in fields including quantum physics, ironbased superconductors, aerospace satellites and elementary particle in the past years, Liu said DAMPE had ushered in a new phase of aerospace science.
Cosco sole bidder in Piraeus Port sale Greece only received a bid from China’s Cosco Group for a majority stake in Piraeus Port Authority, the operator of the country’s biggest port, the privatisation agency said on Tuesday. The leftist government of Alexis Tsipras halted the port privatisation after winning elections in January last year but resumed the process under the 86 billion-euro bailout deal it agreed with its euro zone partners in August. Privatisations, a key element of Greece’s bailouts since 2010, have produced revenue of only 3.5 billion euros so far.
Hong Kong leader pushes integration with Mainland in policy speech Leung, who pledged in 2012 to make housing more affordable, said Hong Kong's lack of affordable property remained a serious problem
Yum says same-store sales rise
Clare Baldwin and Donny Kwok
Yum Brands Inc, which is spinning off its China business, said December samestore sales increased 1 percent in the country, helped by a 5 percent rise at KFC. The company said same-store sales fell 11 percent at Pizza Hut in China. Shares of the company, which also owns Taco Bell, rose 3.2 percent in extended trading on Tuesday. Yum also estimated a 2 percent rise in same-store sales for the fourth quarter ended December, including an estimated 6 percent growth at KFC and an 8 percent decline at Pizza Hut.
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ong Kong’s leader, in an annual policy address that lacked sweeping new programmes, announced steps to boost integration with China, pinning the city’s future on the success of Beijing’s international “One Belt, One Road” initiative. Leung Chun-ying (pictured), who started a five-year term as chief executive in 2012, said yesterday Hong Kong would play a significant role in promoting the new “silk road” spreading from Western China to Central Asia and Europe. “Hong Kong is well-positioned to capture the wealth of the Belt and Road,” Leung said, adding the financial hub would create a committee to formulate policies on the initiative. He pledged spending of HK$1.2 billion (US$154.65 million) to support the push, most of that for scholarships for students from countries targeted by the programme. He mentioned “One Belt, One Road” 40 times in his speech. The policy address has previously
Regulator mulls rules for online news service
been a platform for leaders in the Chinese-controlled city to hand out billions to the less-advantaged or to signal shifts in economic and other political policies. Many Hong Kong residents are dissatisfied with Leung’s administration. Four lawmakers were removed from the chamber for heckling during yesterday’s speech. Leung, who pledged in 2012 to make housing more affordable, said Hong Kong’s lack of affordable property remained a serious problem. Prices and rents “are still beyond what people can afford, and have
distorted the values of the younger generation,” he said. “We should continue to tackle the housing problem head-on and must not concede.” He said about 97,100 public housing units will be built over the next five years. Now the city’s economy - whose growth is closely tied to mainland China’s - is slowing. The Hong Kong dollar’s peg to the U.S. dollar has made it an increasingly expensive destination for mainland Chinese who come to shop and buy property. Reuters
Shanghai Disneyland set to open in June Walt Disney Co’s theme park in Shanghai is slated to open on June 16, the company said on Tuesday. The US$5.5 billion resort in Shanghai’s Pudong district is a joint venture between Disney and state-backed consortium Shanghai Shendi Group. The resort will feature characters with new stories tailored for the Chinese people, with attractions such as Gardens of Imagination, Tomorrowland, Treasure Cove and Fantasyland. As many as 10,000 people have been working on the project, which Disney said was one of the largest foreign investments in the history of China.
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Greater China
Bank funding rush shows caution over outflows Pressure on China’s currency, stocks, capital outflows and economic growth is intensifying as policy makers wrestle with the transition toward giving markets a greater role
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ow serious is the risk of a sudden exit of funds from China’s banking system? The nation’s banks aren’t waiting to find out. Ninety-nine lenders announced plans for 5.8 trillion yuan (US$885 billion) in certificate of deposit (CDs) sales this year, data from the National Interbank Funding Centre show, exceeding the full-year total of 5.4 trillion yuan in 2015. That echoes record issuance of CDs by Chinese banks offshore in December before a shortage of yuan caused overnight interbank interest rates to jump to 67 percent in Hong Kong this week. Chinese banks have three good reasons to be raising cash now. First, capital is flowing out of the country and foreign-exchange reserves declined by a record US$108 billion in December to US$3.33 trillion, making it wise to have more short-term funds available. Second, a decline in the yuan has limited the People’s Bank of China’s room for interest-rate cuts, encouraging lenders to lock in low borrowing costs while they can. And third, savings will be a less dependable source of funding as deposit rates are liberalized. “If the currency remains under pressure, it will affect liquidity and funding costs,” said Chen Long, an analyst at Bank of Dongguan Co. in Guangdong province. “Issuance will certainly climb further this year. Yuan volatility has made the interest-rate prospect more complicated as the central bank may now be more cautious in easing. If outflows worsen, lenders will have to replenish liquidity.” Pressure on China’s currency, stocks, capital outflows and economic growth is intensifying as policy makers wrestle with the transition toward
giving markets a greater role. The yuan has dropped 5.6 percent in six months and the Shanghai Composite Index of equities lost 23 percent, while reserves are down almost US$670 billion from their 2014 high. Declines in the yuan have encouraged the central bank to pause after cutting rates to record levels in October, despite the slowest growth in a quarter of a century. The speed of capital outflows is worrisome and reserves need to hold above US$3 trillion in 2016, Li Daokui, former academic adviser to the PBOC and a professor at Tsinghua University, said on January 9. The appeal of the currency is fading as the premium of China’s 10-year sovereign yield over U.S. debt has narrowed to 50 basis points, the least since 2011. Household deposits in foreign currencies climbed to US$85.2 billion in November from US$73 billion in January last year, PBOC data show. Individuals have also become increasingly attracted to higher-yielding wealth management products.
Rate liberalization
The central bank removed a ceiling on deposit rates in October, a move it called the “riskiest” part in freeing up interest rates. To make it easier for smaller banks with fewer branches to raise funds, the PBOC allowed lenders to sell negotiable certificates of deposit to their peers in 2013. Sales were just 34 billion yuan in the first year, before climbing to 906 billion yuan in the following year, data compiled by Bloomberg show. Most of the securities have terms of between three and six months. Monthly CD sales soared to a record 918 billion yuan by December
Issuance will certainly climb further this year... If outflows worsen, lenders will have to replenish liquidity Chen Long, analyst, Bank of Dongguan
2015 and lenders are still announcing new issuance plans for 2016 every day. More than 100 banks have joined a self-discipline committee to issue the short-term financing instruments so far. They are required to disclose the annual plans three days before the first offering every year. “CDs have increasingly become an important channel for banks to obtain a relatively low cost of funds,” said Xu Yuehong, an analyst at Bank of Communications Co. in Shanghai. “Interest-rate liberalization may lead to bigger swings of savings, and CDs can help secure a stable source of funds.”
Shibor rising
While short-term borrowing costs are attractive inside China, they are rising. The overnight Shanghai
Interbank Offered Rate (Shibor) was at 1.95 percent yesterday, compared with an average 1.83 percent in the fourth quarter. The PBOC drained funds in open-market operations and via the Medium-term Lending Facility in December after flagging concerns over pumping in too much liquidity. Banks may be bracing for higher rates. Chinese lenders’ offshore units from Hong Kong to London raised a record 70 billion yuan offshore selling CDs in December. That came after Hong Kong’s pool of yuan savings shrank to the smallest in two years, and just before the overnight Hong Kong Interbank Offered Rate climbed 53 percentage points to a record 66.82 percent on Tuesday. The State Administration of Foreign Exchange has verbally instructed some banks to limit yuan outflows and reduce offshore yuan positions and liquidity, according to people with knowledge of the matter. While not all analysts agree that banks need to be hoarding funds at this time, those betting on a dovish PBOC have been disappointed. The median forecast in a December survey was for a cut in the benchmark oneyear lending rate to 3.85 percent this year from 4.35 percent and to lowering of major banks’ reserve required ratio to 15 percent from 17.5 percent. “The reserve-requirement ratio cuts didn’t come as many people had expected, reflecting a cautious attitude adopted by the PBOC,” said Sun Binbin, a Shanghai-based bond analyst at China Merchants Securities Co. “In the short-term, there’s limited room for interest rates to go down further, while volatility is likely to increase.” Bloomberg News
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Asia
Foreign investment plummets in junta ruled Thailand Particularly worrying for Prime Minister Prayut is a significant drop off in investment from Japan -- historically the largest investor in Thailand
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oreign investment in Thailand plummeted last year, official data showed, the latest sign that the kingdom’s once-vibrant economy continues to falter
under prolonged military rule. Total investment applied for by foreign companies between January and November 2015 plunged 78 percent from a year earlier to
93.8 billion baht (US$2.62 billion), according to figures from Thailand’s state-run Board of Investment (BoI) sent to AFP late Tuesday. The figures will do little
to cheer junta leader Prayut Chan-O-Cha, who seized power in a May 2014 coup vowing to restore stability but who has struggled to kickstart the country’s lacklustre economy. After years of impressive growth, Thailand’s economy is struggling, mired in high household debt, stuttering exports and low consumer confidence. It also faces stiff competition from increasingly attractive neighbours like Vietnam, Cambodia and Myanmar. Particularly worrying for Prime Minister Prayut is a significant drop off in investment from Japan -historically the largest investor in Thailand by far -- which slumped 81 percent. EU investment also plunged from 86.7 billion baht in 2014 to just 2 billion baht last year. Investment from the United States was also heavily down, while Chinese investment was only down slightly. Krystal Tan, an Asia economist with Capital Economics, said the trend was indicative of deeper fissures within the Thai economy, which was among the slowest growing in the region last year. “The 2015 [FDI] figures are very weak, indicating foreign investor confidence in the economy remains fragile,” she told AFP. “More broadly, Thailand’s economic competitiveness is on the decline,” she added. “The country continues to
As India reservoirs run low, farmers slash sugar cane planting Cane cultivation is mostly done from October to March, but many farmers have already switched to other crops
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ndian farmers in the country’s top sugar growing state of Maharashtra are being forced to replace cane with less water intensive crops, as a scorching drought drives authorities to hold back water from dams. The drop in plantings for the 2016/17 season - which one official estimated means acreage could fall by about a third - comes after a faltering monsoon has damaged thousands of hectares of cane in the world’s second-biggest producer. India’s sugar output risks dropping below consumption for the first time in seven years, threatening to cut exports and boost global prices, particularly if imports are needed for the first time since 2008/09. Shankar Tiwari, a farmer in Maharashtra, has for the first time in nearly a decade planted sorghum
on his two acres of land instead of sugar cane due to the drought. Maharashtra, the southern state of Karnataka and Uttar Pradesh account for nearly 80 percent of India’s sugar production. After a series of bumper harvests, the states have been hit by the first back-to-back drought in nearly three decades, prompting authorities to divert water from agriculture. India’s main reservoirs are at 44 percent of capacity, compared with a ten-year average of 58 percent. Some reservoirs in Maharashtra are holding just 8 percent of capacity, compared with a ten-year average of 50 percent.
Global prices
India’s annual sugar demand is around 26 million tonnes, but B.B. Thombre, president of the Western
India Sugar Mills Association, said the country could struggle to produce 24 million tonnes next year. This could provide a boost to global prices. March ICE raw sugar futures hit a two-month low at 13.93 cents a lb this week on stronger Brazilian production. But in 2008/09, when monsoon rains also failed, fluctuations in Maharashtra’s sugar output forced India to become a net importer, triggering a rally in global prices to 30-year highs. Thombre said Maharashtra could surprise the market in the same way in the upcoming season starting in October, estimating production of just 5.5 million tonnes, down from this season’s estimate of 7.5 million tonnes. Last season, the state produced a record 10.5 million tonnes.
face significant challenges on the political front that have negative repercussions for business and investor confidence.” But Somprawin Manprasert, an economics professor at Chulalongkorn University, said the drop-off was down to new investment incentives, which became effective in 2015, favouring high-tech industries. “The current flow of FDI represents ‘quality’ investment rather than ‘quantity,’” he told AFP. “All in all, this policy should help propel Thailand to the next stage of development.” Thailand has historically been a top choice for investors in Southeast Asia, offering liberal economic policies, a skilled workforce and a strategic location as the gateway to the greater Mekong region. But analysts say years of political instability, including two military coups, have hampered the country’s economic potential -- often referred to locally as the “lost decade”. Earlier this month the World Bank forecast that Thailand’s GDP growth rate would slip from 2.5 percent in 2015 to just 2 percent this year, by far the gloomiest regional prediction. Nearby Vietnam, on the other hand, reported a record number of foreign investment in 2015 and the fastest growth rate in five years at 6.68 percent. AFP
KEY POINTS Water scarcity trims cane planting for 2016/17 crushing season Sugar demand could outstrip output for the first time in 7 years Exports likely to halt next season, traders see risk of imports Indian mills have been exporting sugar as the government has made it mandatory to trim stockpiles built up in the last five years. But exports are likely to become uncompetitive from March onwards once local prices rise, said Ashwini Bansod, a senior analyst at Phillip Commodities India Pvt Ltd. While India will not need to import in the current season ending on September 30, due to carry forward stocks of 9.1 million tonnes from the last season, imports may be required next season to meet domestic requirements and control prices, said a Mumbai-based dealer with a global trading firm. Reuters
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Asia
India’s central bank governor gives tips to improve staff performance Rajan called on his colleagues to break down silos in the workplace and meet lower-level staff more regularly to explain decisions Sandrine Rastello
R
ead more magazines, don’t be afraid of your boss, use less jargon and send press releases before 5:30 p.m. That’s some of the advice Indian central bank Governor Raghuram Rajan shared with the regulator’s 17,000 employees in a memo that gives a glimpse into his efforts to change the culture at the 80-yearold institution. The 2,500-word New Year e-mail, obtained by Bloomberg, came about eight months before his three- year term is set to expire. The wide-ranging comments from Rajan, once the International Monetary Fund’s chief economist and a professor at the University of Chicago, show steps he’s taking to modernize the central bank apart from overhauling monetary policy. He appeared to draw upon past speeches where he’s railed against oligarchs and corrupt politicians, urging staff to get tougher on companies that don’t comply with regulations. “If we are to have strong sustainable growth, this culture of impunity should stop,” Rajan wrote in the memo, which was first reported on by the Economic Times newspaper. “We cannot be seen as a paper tiger.”
Indian central bank Governor Raghuram
Sri Lanka to allow Chinese port city project after delay Environmentalists and fishermen have opposed the project Shihar Aneez and Ranga Sirilal
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ri Lanka is to go ahead with a US$1.4 billion Chinese-backed real estate project after some changes to its terms, a minister said on Tuesday, signalling readiness to accept more Chinese investment in the face of a balance-of-payment crisis. President Maithripala Sirisena’s new government suspended the project, which includes apartments, shopping malls, a water sports area, a golf course, hotels and marinas next to Colombo’s
main port, in March last year citing various irregularities including a lack of proper permits and approvals. “The port city will be started. We will down-size the proposed land. We have to sign the deal again for the better future of the country,” Sujeewa Senasinghe, junior international trade minister, told reporters. He said the irregularities were being addressed in a review of the project. The new government is
trying to speed up procedures for foreign direct investment and liberalising foreign exchange market to attract more dollar inflows to face a balance-of-payments crisis. It is also seeking an IMF loan. The Sri Lankan company CHEC Port City Colombo (Pvt) Ltd, which is handling the project for Chinese investor, China Communications Construction Co Ltd (CCCC), signed the original deal under the then government of the China-friendly former leader
Mahinda Rajapaksa. The project was initiated by Chinese President Xi Jinping in 2014 and was emblematic of China’s strategy of developing a maritime Silk Road from Asia to Europe. But it has alarmed Sri Lanka’s big neighbour, India, which is wary of China’s growing influence in the Indian Ocean, especially after visits to Sri Lanka by two Chinese submarines in 2014. India sees the project as a threat in its backyard and has
been sympathetic to Sirisena’s reformist rule. Liang Thow Ming, chief sales and marketing officer of CHEC Port City Colombo confirmed that discussions were going on with the government to get the project back on track. “We’re both keen to come to a resolution,” he told Reuters. The Sri Lankan government said in September it would be exposed to the risk of claims from the Chinese investor if the government failed to obtain approvals needed by the project within two months. CCCC had estimated when the project was suspended in March that the shutdown would result in losses of more than US$380,000 a day. The project plot is a fencedoff tract of boulders dumped by what used to be a sandy beach. Environmentalists and fishermen have opposed the project, saying it would damage the environment. Reuters
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January 14, 2016
Asia Rajan and Prime Minister Narendra Modi have adopted a tough-love approach to state banks, insisting on more management discipline in return for capital injections. In its quest to clean up bad loans, the government has pledged to tighten bankruptcy laws that it says favour debtors.
Employee evaluations
Most of the memo focused on procedures within the central bank, and suggested more change is coming to things like employee evaluations that heap praise on most people. “If we demand more of the regulated, we should not be found wanting
ourselves,” Rajan wrote. “Unfortunately, our performance evaluation system did not help us identify who needed motivation and improvement, and how they could be helped to do so. Almost everyone was deemed excellent, ranging from those who gave their heart and soul for the Bank to those who shirked all responsibility or duty.” Alpana Killawala, the central bank’s spokeswoman, didn’t immediately respond to an e-mailed query on Tuesday night.
No silos
“Rajan thinks out of the box,” said Arvind Mayaram, a former Finance Ministry official who has worked closely with Rajan, referring to the memo. “It only shows his impatience the manner in which things have happened.” Rajan called on his colleagues to break down silos in the workplace and meet lower-level staff more regularly to explain decisions. Customers should be given clear answers, he said, urging employees to avoid “hiding behind opaque rules.”
Rajan thinks out of the box… It only shows his impatience the manner in which things have happened Arvind Mayaram, former India’s Finance Ministry official
“It means fast responses to the queries that come to your desk, recognizing that cooperation will be amply repaid,” he wrote. He coaxed staff to be more curious about the world and pledged to improve career planning support. The institution must develop the skills to monitor new trends, he said. “If we do not expand our responsibilities, others will fill them,” Rajan said. Rajan didn’t shy away from controversial topics. He made the case that the central bank should be willing to hire outside experts if the required skills aren’t available in-house, a touchy topic among rankand-file staff who went on strike in November for the first time since 2009 to protest institutional reform and demand better pensions.
Media strategy
“This is one area where I feel protectionist attitudes in the organization are strong and require to be debated,” Rajan said. Rajan wrote about the need to improve communication with the wider world, referring to an instance when the central bank was branded as “anti-technology” for seeking to close a loophole that allowed ridehailing application Uber to permit simpler payments. Press releases should get to the point quickly and reach journalists before 5:30 p.m. to get into the newspapers the next day, Rajan said. “Some in the Bank disdain communication. ‘Why not let our achievements speak for themselves?’, they might say,” Rajan wrote. “Unfortunately, in this world where the press is more attentive and the public more hungry for news, we either should shape news or we will be shaped by it.” Bloomberg News
Hotel Lotte could become S.Korea’s largest-ever IPO The deal will likely take place in March or April
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otel Lotte Co Ltd could raise up to US$5 billion in what would be South Korea’s biggest initial public offering, IFR reported on Wednesday citing people close to the deal. The listing could reach US$3 billion to US$5 billion, potentially surpassing the US$4.04 billion record set in 2010 by Samsung Life Insurance Co Ltd, said IFR, a Thomson Reuters publication.
Korea Exchange forecasts about 20 new listings this year as Hotel Lotte and other large companies bring volume to the IPO market after listing rules were eased. None of last year’s 16 listings exceeded 1 trillion won (US$830.43 million), compared with two in 2014 The Hotel Lotte deal will likely take place in March or April, subject to regulatory approval for the preliminary IPO application, IFR reported.
KEY POINTS None of S.Korea’s IPOs exceeded 1 trln won in 2015 Hotel Lotte key to Lotte Group ownership in S.Korea Hotel Lotte owns world’s 3rd-largest duty free business
Hotel Lotte, a company key to Lotte Group’s control of its South Korean affiliates, filed the application in December. Lotte Group declined to comment on the size of the IPO, but said it could take place at the end of the first quarter or early in the second, a spokesperson told IFR. Hotel Lotte Co Ltd has the world’s third-largest duty free business in terms of sales, and operated 10 five-star hotels and 7 business hotels in South Korea and abroad as of September 2015. It also has an indoor amusement park and 2 holiday resorts. The company, wholly-owned by Lotte Group affiliates in Japan and South Korea, has substantial stakes in units such as South Korea’s largest retailer, Lotte Shopping Co Ltd, and Lotte Chemical Corp. It reported sales of 3.6 trillion won between January-September of 2015, up from 3.4 trillion won during the same period in 2014. Reuters
Sherritt, Sumitomo take hit on nickel mine Canada’s Sherritt International Corp and Japan’s Sumitomo Corp said yesterday they would book more than US$1.7 billion of losses on their Ambatovy nickel mine in Madagascar, as prices at 12year lows wreak havoc among miners. The companies had been ramping up production at the 60,000 tonne a year nickel mine, but the prolonged slump in commodities is taking an ever greater toll on miners and traders, forcing losses, asset sales and write-downs, with no end in sight as the new year starts. Sumitomo said it would take a write-down of 77 billion yen (US$652 million).
New app to pay tax for travellers to Singapore Travellers to Singapore can now declare and pay duty and Goods and Services Tax (GST) via a new app before they arrive at the checkpoint in Singapore, said Singapore Customs yesterday. The Customs@SG mobile app is designed to provide travellers with greater convenience, according to Singapore Customs. With the Customs@SG mobile app, travellers no longer need to make a stop at the Customs office or kiosk to make payment. They can use the app to make an advance declaration and pay the duty and/or GST before they arrive in Singapore.
HDFC’s new fund plans logistics foray A new private equity fund of Indian mortgage lender Housing Development Finance Corp will target raising US$500 million from offshore investors for domestic property projects, including in warehousing and logistics, a senior company executive said. Asset manager HDFC Property Fund has mainly invested in housing projects through earlier funds but, for the first time, plans to invest in logistics and warehousing with the new fund, becoming the latest investor seeking to cash in on India’s e-commerce boom. With more consumers shopping online, India’s $110 billion logistics and warehousing sector is stretched.
Singapore’s public housing rental prices fall The rental prices for public housing units dropped while rents for non-landed private housing units rose marginally in December, according to flash estimates reported yesterday. The Singapore Real Estate Exchange (SRX) said in a report that rentals for homes built by private developers rose 0.1 percent month on month in December. Year on year, rents for non-landed private properties dropped 5.4 percent. Meanwhile, the rental prices for public housing flats built by the Housing and Development Board dipped marginally by 0.6 percent onmonth in December.
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International Orange buys telecom operators in Africa French telecoms giant Orange said yesterday it has agreed to buy two of Airtel subsidiaries in Burkina Faso and Sierra Leone as part of its strategy of investing in emerging markets. The two units of the Indian telecommunications group have combined annual sales of around 275 million euros (US$298 million). No purchase price was given, but Orange said it would be around eight times both companies’ annual operating profits before taxes and charges. The deal, still subject to regulatory approval, will add 5.5 million mobile phone customers to Orange’s portfolio, it said.
Telefonica buys soccer rights Telefonica SA, Spain’s biggest telecommunications operator, agreed to pay 2.4 billion euros (US$2.61 billion) for rights to Spanish soccer and Champions League matches, a move that gives the company’s pay-TV service sports telecasts its competitors already have. Telefonica will pay Mediaproduccion SLU for rights to the Spanish first division and two other tournaments for three seasons starting in 2016-2017, according to a regulatory filing in Madrid. It will also broadcast the European Champions and UEFA leagues, starting immediately and continuing through the 2017-2018 season.
Goldman Sachs sees governments coming to ECB rescue on stimulus Draghi has called on governments to use “fiscal space” to support monetary policy in stabilizing the economy Maria Tadeo and Jana Randow
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ario Draghi may soon find that when it comes to supporting the euro area, the European Central Bank is no longer acting alone. As the ECB president goes allin on monetary easing to nurture growth and inflation in the 19-nation currency bloc, governments are now heeding his call for more stimulative fiscal policies, according to Goldman Sachs Group Inc. Francesco Garzarelli, London-based co-head of fixed-income strategy at the bank, predicts the measures will boost gross domestic product by 0.4 percentage point this year. “There is some relaxation of the fiscal stance -- nothing to the extent
that would warrant problems, nothing to the extent that would crowd out the private sector,” Garzarelli said in an interview in Madrid on Tuesday. “It’s accompanied by structural reforms. You loosen the belt, but you’re also engaging in a lifestyle change.” A shift toward more government spending and recovery- supportive strategies would mark a change from the austerity preached by European institutions at the height of the region’s debt crisis. While the justifications for looser policy differ, including spending on migrants in Germany and tighter security in France after terror attacks, the expenditures add stimulus on top of the ECB’s record-
Brazil sees worst retail figures for 12 years Retail sales in Brazil fell 1.3 percent in 2015, marking the worst performance in the past 12 years, credit consulting company Serasa Experian said on Tuesday. According to the company’s report, the result showed a significant drop compared to 2014, when retail sales were up 3.7 percent despite weak economic performance. Serasa Experian attributed the poor result to a combination of factors, such as rising inflation, a fall in consumer confidence levels and increasing interest rates. The sales decrease was widespread, with the sharpest fall of 19 percent recorded in the automotive sector.
Statkraft pulls out of Nepal hydro project Norwegian energy giant Statkraft has withdrawn its plan to build a hydropower project in Nepal, officials said yesterday, in a blow to the Himalayan nation’s efforts to woo foreign investment and lift its struggling economy. The company was to invest US$1.5 billion in the Tamakoshi III plant to generate 650 megawatts for export to energy-hungry India, which has an agreement with Nepal to buy electricity to help cover its own supply shortages. Ghanashyam Ojha, external affairs chief with the Investment Board Nepal, said the firm withdrew because it was not sure it could send the power to India.
Google creates virtual reality arm Alphabet Inc’s Google has created a virtual reality (VR) computing division and said Clay Bavor, the executive running its product management team, will run the new arm. A spokesman for Google, Joshua Cruz, confirmed Bavor’s new role on the team, but declined to provide any further details. According to Bavor’s Twitter profile, he is the vice president of Virtual Reality at Google. As vice president of product management, Bavor oversaw some of Google’s key apps, including Gmail, Google Drive and Google Docs, his LinkedIn profile showed.
low interest rates and 1.5 trillion-euro (US$1.6 trillion) quantitative-easing program.
‘Fiscal space’
Draghi has called on governments to use “fiscal space” to support monetary policy in stabilizing the economy, alongside structural reforms that focus on reducing the debt overhang. That doesn’t mean the central bank won’t act again, Garzarelli said. “The ECB is probably in the direction of more QE rather than more negative rates,” he said. “The deposit rate gets you a weaker euro and a boost to inflation quicker, but it has a political cost domestically and internationally.” On the other hand, asset purchases address the “bigger problem of Europe” by freeing governments to follow through with structural reforms, Garzarelli said. “The more of that debt gets onto the central-bank balance sheet, the more of it becomes sustainable,” he said. “That’s a more targeted policy for the euro area, and that’s where we think that if they deliver more, it would come through that way.” While an extension of QE beyond the current end-date of March 2017 is “probable” should there be further action, the ECB could also explicitly target longer-term maturities in the program or purchase more debt from peripheral euro-area nations, Garzarelli said. Bloomberg News
Canadian finance minister says growth a concern The currency has been dropping in parallel with the price of oil, a major Canadian export Allison Lampert
C
anadian Finance Minister Bill Morneau said on Tuesday the public is concerned about the economy, but declined to indicate whether the Liberal government will stick to their budget deficit pledge or boost spending. The minister, speaking to reporters during a week-long consultation on his upcoming budget, acknowledged that Canadians were concerned about the slide in the country’s currency, which like oil hit a 12-year low on Tuesday. The currency has been dropping
in parallel with the price of oil, a major Canadian export, and a Bank of Canada survey released on Monday said the effects of lower commodity prices had begun spreading beyond the resource sector. “We respect the fact that Canadians have a concern around the economy, we are paying attention. We will be working in our budget to make sure that our initiatives help to grow the economy,” he said. “We think the initiatives we already outlined are the appropriate initiatives to make a difference,” he added,
when asked if the new government would boost infrastructure spending even beyond the increases promised in last year’s campaign. The Liberal platform promised three deficits of up to C$10 billion (US$7 billion) a year for three years and said they would only exceed that if there were a major new shock to the economy. Asked on Tuesday if he would go over that deficit cap, he declined to answer, referring instead again to Canadians’ looking closely at the price of oil and the Canadian dollar. “I have not yet written the budget,” he said. He said that in hindsight it looked like a prudent decision in December’s fiscal update to have made an adjustment to private-sector forecasts to allow for disappointing oil prices or global growth. Asked whether he would have to imitate former Prime Minister Jean Chretien and former Finance Minister Paul Martin, who talked up the Canadian dollar during its last major bout of weakness, Morneau noted the public was keeping a close eye. “I know Canadians are concerned about the changes in the value of the Canadian dollar. It’s important for all Canadians,” he said. Reuters
Business Daily | 15
January 14, 2016
Opinion Business
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Leading reports from Asia’s best business newspapers
Shaping the fourth industrial revolution Klaus Schwab
PHILSTAR
Founder and Executive Chairman of the World Economic Forum
Philippine exports recorded a slight drop of 1.1 percent to US$5.1 billion in November 2015 from US$5.2 billion in the same period in 2014, an improvement from double-digit declines recorded in September and October, the Philippine Statistics Authority (PSA) reported. The latest figures brought the January to November exports to US$54 billion, down 5.8 percent from the previous year’s US$57.3 billion. Socio-Economic Planning Secretary Arsenio Balisacan said meeting the country’s export targets has been very challenging as the global economy remains weak, which in turn translates into weak demand for Philippine export products.
TAIPEI TIMES
Taiwan’s economy is currently in a U-shaped turnaround and is likely to slowly recover this year, National Development Council (NDC) Deputy Minister Kao Shien-quey said yesterday, rejecting a Bloomberg News forecast that the nation is headed toward a recession. She said recent leading indicators and purchasing manager’s indexes have shown that the economy is likely to bottom out in the first and second quarters of this year and begin to recover in the second half of the year. Taiwan’s recovery would be gradual, she said, adding that she was not sure what criteria Bloomberg used.
THE KOREA HERALD
South Korea’s M2 money supply grew at a faster rate from a month earlier in November, central bank data showed yesterday. The M2 gained 0.4 percent from a month earlier to reach 2,244.3 trillion won in November, quickening from a 0.1 percent on-month growth in the previous month, according to preliminary data from the Bank of Korea. From a year earlier, the November figure marks a 7.7 percent increase. The M2 refers to currency in circulation including bank debentures and deposits with a maturity of less than two years, as well as stock investments.
BANGKOK POST
The Revenue Department may renew the 15,000-baht tax break on domestic tour packages and hotel accommodation that expired last month. The tax-collecting agency will also decide whether to extend the deduction for one year or two, director-general Prasong Poontaneat said. Businesses and individual taxpayers were eligible to deduct purchases of domestic tour packages and hotel accommodation, up to 15,000 baht from taxable income, from Dec 15, 2014 to the end of 2015. The government wants to increase tourism’s GDP contribution in order to serve as a buffer against heightened external headwinds, particularly China’s cooling economy.
O
f the myriad challenges the world faces today, perhaps the most overwhelming is how to shape the Fourth Industrial Revolution that began at the turn of the century. New technologies and approaches are merging the physical, digital, and biological worlds in ways that will fundamentally transform humankind. The extent to which that transformation is positive will depend on how we navigate the risks and opportunities that arise along the way. The Fourth Industrial Revolution builds on the Third Industrial Revolution, also known as the Digital Revolution, which entailed the proliferation of computers and the automation of record keeping; but the new wave of transformation differs from its predecessors in a few key ways. First, innovations can be developed and diffused faster than ever. Second, falling marginal production costs and the rise of platforms that aggregate and concentrate activity in multiple sectors augment returns to scale. Third, this global revolution will affect – and be shaped by – all countries, and have a systems-level impact in many areas. The Fourth Industrial Revolution has the potential to empower individuals and communities, as it creates new opportunities for economic, social, and personal development. But it also could lead to the marginalization of some groups, exacerbate inequality, create new security risks, and undermine human relationships. If we are to seize the opportunities, and avoid the pitfalls, of the Fourth Industrial Revolution, we must consider carefully the questions that it raises. We must rethink our
ideas about economic and social development, value creation, privacy and ownership, and even individual identity. We must address, individually and collectively, moral and ethical issues raised by cutting-edge research in artificial intelligence and biotechnology, which will enable significant life extension, designer babies, and memory extraction. And we must adapt to new approaches to meeting people and nurturing relationships. The scale of the challenge should not be underestimated. The Fourth Industrial Revolution could lead to forms of human augmentation that cause us to question the very nature of human existence – and even sooner than one might imagine. Consider the impact that mobile technology has already made on our lives and relationships. As the novelty of wearable tech gives way to necessity – and, later, as wearable tech becomes embedded tech – will we be deprived of the chance to pause, reflect, and engage in meaningful, substantive conversations? How will our inner lives and ties to those around us change? These are weighty questions, about which debate will probably intensify in the coming years. Of course, technology is not an exogenous force over which humans have no control. We are not constrained by a binary choice between acceptance and rejection. Rather, the decisions we make every day as citizens, consumers, and investors guide technological progress. The more we think about those decisions, the more we examine ourselves and the social models on which we depend, the better our chances are of shaping the revolution
We must rethink our ideas about economic and social development, value creation, privacy and ownership, and even individual identity
in a way that advances our common objectives and upholds our values. In this effort, new forms of collaboration and governance, accompanied by a positive shared narrative, will be essential. To this end, three key steps are needed. First, we must continue to raise awareness and understanding of the issues at stake. Decisionmaking cannot occur in isolation. We need an inclusive approach that brings together top minds from all over the world, from both the public and private sectors. Second, we must develop comprehensive, constructive narratives about how the Fourth Industrial Revolution should develop. For example, we should ensure that values and ethics are at the heart of our individual and collective behaviours, including in
capital and financial markets. We must move beyond tolerance and respect to genuine care and compassion, with empowerment and inclusiveness becoming guiding principles of our actions. Third, we must move to restructure our economic, social, and political systems. It is clear that our current governance structures and dominant models of wealth creation are not equipped to meet current or, more important, future needs. What is needed now is not smallscale adjustments or marginal reforms, but comprehensive and innovative systemic transformation. How the Fourth Industrial Revolution progresses will come down to people, culture, and values. New technologies, however remarkable they might seem, are fundamentally just tools made by people for people. We must keep this in mind, and ensure that innovation and technology continue to put people first, propelling us toward sustainable and inclusive development. Once we get there, we can go even further. I firmly believe that the new technology age, if shaped in a responsive and responsible way, could catalyse a new cultural renaissance that will create the sense that we are part of something much larger than ourselves – a true global civilization. The Fourth Industrial Revolution can compromise humanity’s traditional sources of meaning – work, community, family, and identity – or it can lift humanity into a new collective and moral consciousness based on a sense of shared destiny. The choice is ours. Project Syndicate
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January 14, 2016
Closing Nissan to adapt crash prevention for Mainland driving habits
HK to implement free, quality kindergarten-education policy
The company has signed an agreement to work with the China Automotive Technology and Research Centre to adapt safety features such as lane keeping and collision avoidance to suit the country’s driving habits and road conditions. This class of safety features, commonly referred to in the industry as advanced driver assistance systems, are seen as an intermediate step toward the ultimate goal of autonomous vehicles. By using sensors and computer programs to anticipate, warn and take preventive measures, carmakers like Nissan are seeking to reduce traffic accidents caused by human error.
Hong Kong Chief Executive Leung Chun-ying said yesterday that a free, quality kindergarteneducation policy will be implemented from the 2017-18 school year. In his annual policy address at the Legislative Council, Leung said the new education policy will provide local non-profitmaking kindergartens with a basic subsidy to offer a three-year, quality half-day service for all eligible children. It is estimated that 70 to 80 percent of the places in half-day kindergartens will become free places. The government will also provide an additional subsidy for eligible whole-day and long whole-day kindergartens.
South Korea calls for painful sanctions response to North’s nuclear test China is the North’s main ally and trade partner but it has made clear it opposes its bombs, while ties with South Korea have grown increasingly close in recent years
S
outh Korea warned North Korea yesterday that the United States and its allies were working on sanctions to inflict “bonenumbing pain” after its latest nuclear test, and called on China to do its part to rein in its isolated neighbour. With tension high on the border between North and South Korea after the North’s fourth nuclear test on Wednesday last week, South Korean forces fired shots towards a flying object that Yonhap News Agency said was a suspected North Korean drone. It returned to the North after the shots, South Korean military officials told Reuters. The North’s nuclear test has angered both China and the United States and again raised questions about what can be done to stop its development of nuclear weapons. North Korea said it had tested a powerful hydrogen bomb but the United States and various experts doubt that, as the blast was roughly the same size as that from its previous test, of an atomic bomb, in 2013.
a U.N. Security Council resolution on North Korea, noting that China has stated repeatedly that it would not tolerate the North’s nuclear programme. “I am certain that China is very well aware if such a strong will isn’t followed by necessary steps, we will not be able to stop the North’s fifth and sixth nuclear tests and we cannot guarantee true peace and stability,” Park said. South Korea's Chief Nuclear envoy, Hwang Joon-Kook (C) sits with other delegates during a trilateral meeting of South Korea, USA and Japan at a hotel in Seoul
The U.S. House of Representatives voted nearly unanimously on Tuesday to pass legislation to broaden sanctions on the North. But apparently unperturbed by the prospect of further international isolation, North Korean leader Kim Jong Un called for an expansion of the size and power of his country’s nuclear arsenal, urging the “detonation of more powerful H-bombs”, the North’s state media reported. South Korean President Park Geun-hye said more
“provocations” by the North including “cyber-terrorism” were possible, and new sanctions should be tougher than previous ones. She did not give specifics. “We are cooperating closely with the United States and allies to come up with effective sanctions that will make North Korea feel bone-numbing pain, not only at the Security Council but also bilaterally and multilaterally,” she said in a speech. Park said South Korea and China were discussing
‘Financial pressure’
Last week, U.S. Secretary of State John Kerry said he had told his Chinese counterpart that China’s approach to North Korea had not succeeded and he called on it to do more. China rejects complaints it is not doing enough on North Korea. In Beijing, Foreign Ministry spokesman Hong Lei said China’s efforts towards a denuclearised Korean peninsula would continue. “This is in everyone’s interests and is everyone’s responsibility, including China and South Korea,” he said. The U.S. House sanctions
Indian PM to reshuffle Cabinet after S.Korea’s new finance minister re-election of ruling BJP chief says structural reform needed
I
ndian Prime Minister Narendra Modi is likely to reshuffle his Cabinet after his confidante Amit Shah’s re-election as ruling party chief, sources said yesterday. “The election schedule for Bharatiya Janata Party (BJP)’s President will be out Friday and with no other contender for the post, Shah is likely to get re-elected by consensus,” the sources said. The re-election of Shah, credited for helping the BJP win 72 of 80 seats in the northern state of Uttar Pradesh in 2014 parliamentary elections, is crucial as polls are due in five states this year. “Once Shah gets the top post in the party again, Modi will go for a Cabinet reshuffle. The four ministries -- home, finance, defence and foreign -- are unlikely to be touched,” the sources said. However, some new faces may be inducted into the Cabinet and some non-performing ministers are likely to be dropped given Modi is looking to firm up delivery on the governance front, they said. Several key reforms bills are stuck in the Parliament and winning polls in some of the five states are crucial for the government which doesn’t have a majority in the Upper House (Rajya Sabha). Xinhua
S
outh Korea’s new finance minister Yoo Il-ho stressed the importance of structural reform as he took office yesterday, saying structural problems needed to be resolved in order for the country’s potential GDP growth to rise. “As structural problems have piled up, our potential growth which was well over 4 percent in the 2000s now has reached just over 3 percent, falling at an unprecedented speed,” said Yoo in his inauguration speech. Yoo added that household debt and businesses that have lost their competitiveness should be managed “firmly” so they do not become a burden on the local economy. The new finance minister said in a parliamentary hearing on Monday that the country’s slowing potential GDP growth, brought on by structural issues, was South Korea’s biggest problem. The Bank of Korea estimates the country’s potential GDP growth to be around 3.0 to 3.2 percent. Yoo was officially appointed by President Park Geun-hye at the presidential Blue House earlier yesterday. Reuters
measure passed by 418-2 and Senate leaders expect to consider a similar bill shortly. The House bill had been introduced in 2015 but was not brought up for a vote until after North Korea’s latest test. To become law, it must be passed by the U.S. Senate and signed by President Barack Obama. The 28,500 U.S. troops in South Korea have been put on high alert as a noisy propaganda battle is played out across the heavily fortified border with the North. South Korea has for days been blaring propaganda through loudspeakers into the North. South Korea’s military said it had found antiSouth leaflets in the Seoul area, which it suspects were dropped by North Korean hot air balloons. South Korean financial regulators met computer security officials at 16 banks and financial institutions and urged vigilance in the face of possible cyber attacks by North Korea, although none has been detected. Reuters
Germany overshoots budget surplus target in 2015
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ermany clocked up a bigger-thanexpected budget surplus of 12.1 billion euros (US$13 billion) in 2015, which it plans to use to cover the costs of taking in so many refugees, the finance ministry said yesterday. “Thanks to the favourable economic trend and our forward-looking budget policy, the government has set aside a provision of 12.1 billion euros,” said Finance Minister Wolfgang Schaeuble. “We will urgently need this provision to finance the additional costs of accommodating and integrating the refugees,” Schaeuble said. Originally, Berlin had said it would set aside 5.0 billion euros to cover the costs of the refugee crisis. “This year, too, we don’t want take up any new debt, if possible,” Schaeuble said. Germany registered 1.1 million asylum seekers in 2015, with refugees from war-torn Syria making up almost 40 percent of arrivals. It was the second year in a row that Europe’s biggest economy has achieved a balanced budget, or what it terms a “black zero” in its public finances. AFP