Macau Business Daily January 15, 2016

MOP 6.00

Supported by

Closing editor: Joanne Kuai

Macau ‘Australia Day’ Cocktail Fri, 29 January 2016 | 6pm - 8pm | Terrazza, Galaxy Macau More information at www.austcham.com.hk

Tech helps push up Foreign Direct Investment in China Page 16

Year IV

Number 962 Friday January 15, 2016

Publisher: Paulo A. Azevedo

Luk Fook same store sales down 26 pct in SARs for fiscal Q3 Page 5

Chinese retail investors retreat in search of safety Page 10

Tourism Price Index posts first annual drop The TPI dropped 0.86 pct in 2015. The first drop recorded since records began in 2001. And attributed primarily to the notable slump in accommodation costs in the SAR. Which fell 7.08 pct y-o-y. Meanwhile, for 4Q 2015, the city’s TPI decreased 3.03 pct y-o-y to 141.29. Again driven by lower hotel costs in the territory, coupled with the reduced price of clothing. Between October and December last year, charges for local accommodation fell 10.34 pct compared to the same period of 2014. Higher prices, however, were recorded for food and entertainment Page

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Economic priming on the way A private poll but revealing. Claiming China’s economic growth in 2016 will slow to 6.5 pct. According to the survey, Beijing will need to introduce further measures in order to foster improved performance

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Brought to you by

HSI - Movers January 14

Name

Burberry becalmed

Burberry has reported flat same-store sales growth for its 3Q. The British fashion house continues to feel the impact of lower luxury spending in the SARs. Results beat the estimates of analysts, however, who had anticipated a 2 pct decline in same-store sales for the quarter

www.macaubusinessdaily.com

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Property

Richemont sales slump Industrial power It represents some of the biggest brands in the world. But Swiss luxury goods group Richemont has been buffeted by headwinds in the Hong Kong and Macau markets, with political tensions, China’s slowing economy and a strong Hong Kong dollar discouraging Mainland tourists in the Fragrant Harbour in particular.

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The leasing business of the city’s industrial units. The only segment that saw an uptrend last year. whilst the leasing and transactions of other types of commercial properties experienced a downturn. Real estate broker Centaline (Macau) Property Agency Ltd. casts a critical eye on the territory in its property review

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%Day

China Shenhua Energy

+3.46

Power Assets Holdings

+3.00

Cathay Pacific Airways

+1.72

Belle International Ho

+1.12

PetroChina Co Ltd

+0.67

China Merchants Holdi

-2.25

New World Developme

-2.29

Li & Fung Ltd

-2.77

Tingyi Cayman Islands

-3.04

Want Want China Hold

-4.29

Source: Bloomberg

I SSN 2226-8294

2016-1-15

2016-1-16

2016-1-17

13˚ 16˚

14˚ 18˚

13˚ 18˚

2 | Business Daily

January 15, 2016

Macau

Centaline Macau: Industrial units up 20 pct in 2015 While most of the city’s commercial properties and homes post a downtrend, the leasing of industrial units has proved the exception, driven by demand from cultural businesses, says broker Stephanie Lai

sw.lai@macaubusinessdaily.com

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he leasing business of the city’s industrial units has been the only segment to see an uptrend last year when the leasing and transactions of other types of commercial properties saw a downturn, concluded estate broker Centaline (Macau) Property Agency Ltd. in its property review.

The average leasing cost for an industrial unit here amounted to around HK$9 (US$1.16) per square foot for the full year of 2015, up 20 per cent compared to the previous year, Centaline Macau’s director Roy Ho Siu Hang said in a review briefing held yesterday.

While the city experienced a downtrend in leasing and transaction cost for shops and offices last year, the

That has been an attractive advantage for tenants engaged in cultural businesses like art, photography and entertainment production Roy Ho Siu Hang, Director at Centaline Macau

leasing of industrial units has been an exception as a growing number of such units has been renovated and turned into offices for rent, Mr. Ho explained.

“Although industrial units have seen a higher leasing cost [last year], it is still cheaper by half than the cost of renting offices,” Mr. Ho said. “That has been an attractive advantage for tenants engaged in cultural businesses like art, photography and entertainment production.”

Transaction number fell

But unlike leasing, the transaction of industrial units was largely moribund last year: the estate agency estimated that only about 75 transactions of industrial units were completed in 2015, which would represent a staggering fall of about 75 per cent year-on-year. According to official data from the Statistics and Census Service (DSEC), only 55 industrial units were transacted for the first three quarters of last year, representing an annual fall of 80 per cent.

“The threshold for purchasing an industrial unit is still high, and the area of such units is usually very big,” Mr. Ho said. “So only very few people were interested in buying them for renovating and investment; there were more cases of people [wanting] to lease them only.”

The average transaction cost of an industrial unit here was around HK$3,300 per square foot by the fourth quarter of last year, down 28 per cent compared to the peak level of HK$4,600 per square foot in 2014, according to the estate broker.

The estate agency director believes that the cost of leasing industrial units would follow that of offices.

The average leasing cost of an office in Macau dropped 15 per cent last year; while the average transaction cost of an office throughout the city has dropped by 9 per cent to 24 per cent, according to Centaline Macau’s data.

For shops, which generally have a shorter lease period than offices, the average leasing cost has fallen 37 per cent to 58 per cent year-on-year in what the agency terms the ‘tourism area’ in Macau Peninsula last year, with the biggest fall seen in the west side of ZAPE district (near casino L’Arc and StarWorld); the average leasing cost of shops in residential areas in Macau Peninsula and Taipa has also seen a fall in the range of 23 per cent to 33 per cent.

Meanwhile, the average selling cost of shops in the tourism area in downtown Macau Peninsula fell 27 per cent to 30 per cent last year, while that in residential neighbourhoods dropped 3 per cent to 11 per cent, the agency said.

Downtrend for homes persists

Jacky Shek Po Tak, senior director of Centaline Macau, expressed a bearish outlook on home sales for 2016 after

the segment experienced a downtrend in price last year. The agency has observed an over 30 per cent year-onyear fall in some of the city’s high-end homes. As at November last year, the average home price had dropped 18 per cent year-on-year to MOP74,771 per square metre, latest available data from the Financial Services Bureau (DSF) shows.

The estate broker also estimated that less than 6,000 home transactions were completed last year, representing a fall of nearly 20 per cent.

“By mid-2015, we saw the decline in home prices here somewhat stabilise,” Mr. Shek remarked. “But then later, in December, we saw the Federal Reserve interest rate hike cycle has kick started, and then we have also seen the case of Pearl Horizon. These are the factors that affect buyers’ confidence and make them hesitate in purchasing flats.”

The Pearl Horzion case Mr. Shek refers to was the government’s action in taking back the 68,000 square metre site for the upscale residential project Pearl Horizon in Areia Preta last month, as the developer Polytex Corporation Ltd. had failed to complete the land use before the land concession expired on December 25. The government’s decision has culminated in a lawsuit filed by the developer, and bouts of protests from homebuyers who purchased the Pearl Horizon units off-plan.

Mr. Shek expects that the average home price here could drop by up to 20 per cent this year.

“In the local market for home sales, we cannot see any conditions for reversing the downtrend as the external economic factors we are facing this year are more complex than 2015 – for instance, this year has already begun with a rough start in the stock market,” he said, adding that his company was not confident in a major recovery in the city’s casino and tourism businesses.

Business Daily | 3

January 15, 2016

Macau Meanwhile, for the last quarter of 2015, the city’s TPI decreased 3.03 per cent year-on-year to 141.29.

The year-on-year decline was again driven by the lower hotel costs in the territory, coupled with the reduced prices of clothing.

Between October and December last year, charges for local accommodation fell 10.34 per cent compared to the same period of 2014. In addition, the price index for Clothing & Footwear, as well as that of Transport & Communication posted year-on-year declines of 4.18 per cent and 2.08 per cent, respectively.

Higher costs for food & entertainment

Tourist price index drops for first time in 2015 This is the first annual decline for the index in 15 years - since it was first published by DSEC in 2001 Kam Leong

kamleong@macaubusinessdaily.com

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he city’s tourist price index (TPI) for the whole year of 2015 registered its first annual decline for the past 15 years, down 0.86 per cent, driven by the notable decrease in accommodation costs in the territory.

According to the latest official data released yesterday by the Statistics and Census Service (DSEC), the TPI

reached 183.39 for the whole year of 2015, falling 1.21 percentage points compared to 2014. Despite this being the first annual drop since such data was published by DSEC in 2001, the index still represents the second highest in the previous 15 years.

In fact, the annual drop of the index is due to the year-on-year decrease of

7.08 per cent in the accommodation costs in the Special Administrative Region last year.

Nevertheless, the cost of Food, Alcoholic Drinks & Tobacco, Entertainment & Cultural Activities and Restaurant Services increased, respectively, by 4.53 per cent, 4.22 per cent and 4.02 per cent last year as compared to the whole of 2014.

The city’s tourists did not see all goods cheaper in the Special Administrative Region in the previous quarter.

During the three months, tourists saw prices for Food, Alcoholic Beverages & Tobacco increase by 3.86 per cent year-on-year. In addition, they experienced higher charges for Entertainment & Cultural Activities, for which prices went up by 2.89 per cent compared to the same period last year.

On the other hand, compared to the third quarter of 2015, the TPI for the fourth quarter of 2015 actually jumped 7.48 per cent. The hike was due to hotel costs in the three months surging 25.19 per cent quarter-toquarter, as average hotel room rates increased during the National Day holidays, the Macau Grand Prix and Christmas holidays in the three months.

In addition, the new arrival of winter clothing drove prices for Clothing & Footwear up by 9.5 per cent quarter-to-quarter between October and December last year.

Meanwhile, as airlines lowered their airfares for flights connecting the city to Southeast Asian destinations in the fourth quarter of 2015, the price index of Transport & Communications posted a quarter-to-quarter decline of 0.6 per cent between October and December last year.

Police prosecute 357 illegal taxi service cases in 2015

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ocal police prosecuted a total of 357 cases of drivers providing unlicensed taxi services in the Macau Special Administrative Region last year, of which nine involved drivers using taxi-hailing mobile applications, according to a press release by the Public Security Police Force (PSP) yesterday.

Business Daily asked PSP yesterday whether these nine cases involve the controversial taxi-hailing mobile application Uber. However, a PSP spokesperson told us that these nine cases involve “any mobile application providing illegal taxi services”, whilst declining to reveal their names.

During the Policy Address in early December last year, Secretary for Security Wong Sio Chak told legislators that local police had prosecuted seven cases of drivers

providing illegal taxi services via Uber as at December 1.

In yesterday’s announcement, PSP highlighted that the design and the profit model of the taxi-hailing mobile application(s) involved in the cases would not allow them to run legally in the city. It added that it would pay close attention to the development of taxi-hailing mobile applications, as well as continuing to combat illegal taxi services in the city.

The global ride-sharing application Uber, launched in the Macau Special Administrative Region in October last year, was deemed illegal by the city’s Transport Bureau (DSAT) and PSP just days following its launch.

Currently, local law mandates that drivers providing unlicensed taxi services in the territory are liable to a fine of MOP30,000 (US$3,750).

K.L.

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January 15, 2016

Macau

Bossini expects interim profits to shrink 90 pct

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lothing retailer Bossini International Holdings Ltd. says its net profit may plunge by as much as 90 per cent year-onyear for the first half of its 2015/16 fiscal year, it told the Hong Kong Stock Exchange yesterday.

‘The Group is expected to record a decrease in profit attributable to owners for the six months ended 31 December 2015 approximately in the range of 80 per cent to 90 per cent, as compared with the corresponding period for the six months ended 31 December 2014,’ the retailer wrote.

Burberry Christmas sales miss expectations in the SARs However, the British fashion house says the Mainland China luxury sales are rebounding

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ritish trenchcoat maker Burberry Group Plc reported Christmas revenue that trailed its own forecast, hurt by a slump in demand in Hong Kong and Macau.

Retail revenue fell to 603 million pounds (US$869 million) in the three months through December, London-based Burberry said Thursday in a statement.

Analysts predicted 606

million pounds, based on the median of estimates compiled

by Bloomberg. Sales were unchanged on a comparable basis, missing internal expectations, compared with a 4 per cent decline in the second quarter, Burberry said.

Hong Kong sales fell more than 20 per cent. The U.K.’s largest luxury-goods maker is scaling back stores, cutting bonuses and consolidating products under one label

Corporate CEM offers laisee envelopes With the Chinese New Year approaching, Companhia de Electricidade de Macau - CEM, S.A. (CEM) wishes all Macau citizens good health and prosperity in the coming Year of the Monkey. To celebrate the Chinese New Year, CEM offers complimentary Laisee envelopes to its customers. Each pack contains 20 Laisee envelopes featuring CEM’s mascots - Power Buddies. Customers who apply for any service or settle payment at CEM’s Macau Customer Service Centre at Estrada D. Maria II (office hours: 9:00am to 5:45pm from Monday to Friday) or Taipa Customer Service Centre at G/F, Lai Chun Kok, Supreme Flower City (office hours: 10:00am to 7:00pm from Monday to Friday) are entitled to a pack of Laisee envelopes. Each customer can get one pack for each patronage and the Laisee envelopes are available while stock lasts.

after forecasting earnings will probably fall for a second straight year. Richemont reported Christmas season sales declined for the first time since 2008.

China rebound

Howver, Burberry Group Plc and Richemont said the luxury-goods market returned to growth in Mainland China at the end of last year, a balm for the industry as sales in

Hong Kong kept slumping.

The British trenchcoat maker’s Asia Pacific sales excluding Hong Kong and Macau rose by a mid-single digit percentage in the three months through December, helped by China’s rebound, Burberry said.

Richemont, the maker of Cartier jewelry, said sales in the Asia Pacific region declined 9 per cent, compared with the 16 per cent drop analysts had expected.

“The improvement in Mainland China could be because the would-be tourists are buying more at home, but it could also be that the market there has finally bottomed out,” said Zuzanna Pusz, an analyst at Berenberg.

The reports may damp concern about that market as the country’s economic growth weakens to the slowest

Bossini claimed that such a notable drop in net profit is due to fewer tourists going to Hong Kong and Macau in the period, whilst the stronger Hong Kong dollar had caused visitors to spend less in the two Special Administrative Regions.

It added that its profit for the six months had also been affected by weak local consumer sentiment, unseasonably warm winter weather and intensified competition in some of its major markets.

For the same period of its previous fiscal year, Bossini’s net profit rose by 17 per cent to HK$87.47 million (US$10.89 million).

Nevertheless, the number shrank by 9.2 per cent yearon-year to HK$115.4 million for the whole year of the 2014/15 fiscal year.

K.L.

pace in two decades. The luxury industry has focused on consumption from rich consumers in that country, which has in past years accounted for as much as half the world’s spending on Swiss watches, according to Thomas Chauvet, an analyst at Citigroup.

Tourist bookings to Europe have declined following the terror attacks in Paris and an unseasonably warm winter has added to challenges facing luxury companies. Burberry is also more exposed than peers to spending by Chinese clients, which is cooling as that country’s stock market slumps.

The company anticipated in October a return to growth in last part of 2015, driven in part by new products such as lightweight cashmere trenchcoats and ponchos, and new styles of scarves.

Bloomberg

Business Daily | 5

January 15, 2016

Macau

Luk Fook same store sales down 26 pct in SARs for fiscal Q3

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ong Kong-listed jewellery retailer Luk Fook Holdings (International) Ltd. saw a 26 per cent year-on-year decrease in its same store sales from Hong Kong and Macau shops for the three months ended December 2015, the biggest decline since the final quarter of 2014.

During the third quarter fiscal, Luk Fook saw a decline of same store

sales of 26 per cent year-on-year in gold from its shops in both Hong Kong and Macau, while that of gem-set jewellery fell 27 per cent, the company told the Hong Kong Stock Exchange after trading hours on Wednesday.

The exact sales revenue figures were not disclosed in the retailer’s Wednesday filing, and the sales performance disclosed by the company only covered sales from

its self-operated shops, while the sales of licensed shops and e-commerce business was excluded.

The same store sales of Luk Fook’s group-wide retail business was down 25 per cent in the fiscal third quarter, as the retailer also saw a drop of 10 per cent in its shops in Mainland China.

According to the filing, Luk Fook blamed the sales decline in the third

quarter on ‘continuing overall sluggish retail sentiment’ and a relatively high base in sales figures.

As at the end of last year, Luk Fook ran 96 self-operated shops on the Mainland, 47 shops in Hong Kong, 10 in Macau and 6 overseas. The jewellery retailer ran another 1,261 licensed shops on the Mainland and in Korea.

S.L.

Richemont sees tough current quarter after Q3 sales decline The group says while Hong Kong and Macau both reported significantly lower sales, the rate of sales growth continued to improve in Mainland China

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artier owner Richemont said business was likely to remain challenging after sales fell 4 per cent in the latest quarter, as the Hong Kong market remains very weak and Islamist attacks hit tourist spending in Europe.

The situation in Hong Kong, the top market for Swiss watches, has been difficult for some time, as political tensions, China’s slowing economy and a strong Hong Kong dollar have discouraged mainland tourists. Swiss watch exports to Hong Kong were down 28 per cent in November.

Sales at Richemont fell 4 per cent at constant exchange rates to 2.9 billion euros (US$3.2 billion) in the three months to December, in line with forecasts in a Reuters poll. They were up 3 per cent in reported terms.

“The challenging trading environment is likely to prevail in the final quarter to 31 March 2016,” the world’s second biggest luxury goods group said in a statement.

Sales in Europe took a sudden turndown, falling 3 per cent in the latest quarter from the same period a year ago while sales in Asia Pacific declined 9 per cent. That compares with a climb of 24 per cent for Europe

KEY POINTS Q3 sales down 4 pct at constant exchange rates SARs markets drop, whereas Mainland continues to improve European sales fall 3 pct, Asia Pacific sales slide 9 pct

in the first half, and a steep 17 per cent drop for Asia Pacific in the same period.

But the maker of IWC and JaegerLeCoultre watches said that while Hong Kong and Macau both reported significantly lower sales, the rate of sales growth continued to improve in Mainland China.

“While clearly a fragile environment for luxury, Richemont says that Mainland China continues to improve - that is the clear positive for me today,” Kepler Cheuvreux analyst Jon Cox said.

He added that Richemont’s stock may stabilise after fears of a 5 per cent decline in local currency sales didn’t materialise.

The shares were indicated to open down 2.2 per cent in pre-market trading.

Richemont shares have fallen

more than 9 per cent so far this year, on top of a 19 per cent decline last year, underperforming the European sector index. They are trading at just over 21 times forward earnings, at a considerable premium to Swatch Group and LVMH. Reuters

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January 15, 2016

Macau opinion

Street artists are not delinquents

Pedro Cortés

Lawyer* cortes@macau.ctm.net

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e have read this week in the news that being a street artist in Macau may be a highway to being treated as a convicted delinquent by the authorities.

By professional defect, I, of course, respect the laws and law enforcement. But I cannot understand why an international city like Macau cannot have street artists amazing the millions of tourists that visit us. In all major cosmopolitan cities, we have musicians, magicians, entertainers and all specie of fauna making people laugh. They give colour to downtown areas. They make us stop and think that we live in a wonderful world. They are artists, for God’s sake! Those that make the human being different from other animals.

Isn’t this type of culture another kind of diversification? If the government doesn’t want to regulate, at least it should give instructions to the authorities to tolerate such signs of pop culture. Those authorities that do not enforce the laws against taxi drivers that extort tourists consider important and relevant to take into custody a Russian artist who saw an opportunity to express himself in the streets of Macau.

The government itself should be offering incentives for the cultural expression of street artists. Adopt a different approach towards the art. Make Senado Square a true Babylon with colourful artists and music from different parts of the world. Allow Macau to be a friendly place and not one where tourists are obliged to buy cookies and visit jewellery shops and other pinchbeck areas. Where tourists are treated by some agents as merchandising.

Situations like the one described by the newspapers may harm the intentions of the tourism policies.

The second system is or at least should be tolerant of those cases and allow our squares to be full of art and culture.

Macau needs art. All types of art. Macau could be one of the best art and cultural hubs in the world.

That seems to be the great idea of Mdm. Angela Leong who recently said in the Poly Macau Art Fair and Art Auction that “We hope that Macau will become an art hub in the future”. And that Poly Macau’s idea is to build a bridge that may connect local art and culture around the world.

It’s great to have people with this vision.

Macau has enormous potential to show the world that a tiny thirty-something square kilometre territory with mixed roots at the end of the Pearl River and the beginning of the South China Sea may present world class events that amaze their visitors and reflect gloriously on their residents.

This is the venture our politicians should have in mind in their day-to-day musings. With a strategic and helicopter view that would make every decision part of the gearbox accelerating us towards a better future for our city.

Yes, Dear Politicians: you need to put a smile on people’s faces! *Part-time Lecturer at the Chinese University of Hong Kong

Local businesses await helping hand from the government

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espite reassurances from the government that the economy remains sound and the professed confidence of casino bosses that the market has just about bottomed out, local businesses in other sectors paint a gloomy picture of 2016.

“We expect sales will slightly pick up from now until Chinese New Year [which falls on February 8], a traditional strong season for the jewellery industry,” said Lee Koi Ian, general manager of local jewellery chain Seng Fung Jewellery Co. Ltd. “But [after that] the business will cool down again as I don’t see the fundamentals getting better.”

Frederick Yip Wing Fat, president of the Macau Association of Retailers and Tourism Services, also noted that the high-end retail sector has taken a pounding in the past 12 months with the sale of jewellery and branded clothing valued at MOP500,000 or more falling by half. He expects that retail sales in the first half of this year will slip by at least 10 per cent year-on-year as the economic fundamentals remain unchanged.

The muted buying sentiment has also spread to the low-end retail segment. “We at first expected the decline [in sales] would start to narrow in October but it didn’t,” said Alan Wong Yeuk Lai, managing director of Choi Heong Yuen Bakery, one of the largest local food souvenir chains. He expects sales to fall another 20 per cent in 2016, the same extent as last year.

In addition, Wong I Mun, chairman of the Association of Advertising Agents of Macau, acknowledged that the spending cut by the authorities had dampened their business, as the government and gaming operators were the major sources of their income. He is “not optimistic” about this year’s outlook, expecting that the business volume of the industry would fall another 20 per cent having posted a 30 per cent decrease in 2015.

Facing a depressed outlook, companies across sectors are waiting for a helping hand from the government - doing more than supplying tax rebates and loans unveiled in the Policy Address for 2016. “I don’t have a crystal ball,”

said Mr. Wong of Choi Heong Yuen Bakery. “When we can bottom out depends upon the policies of the government.”

Mr. Lee of the jewellery chain believes the government should diversify the city’s tourist sources - with 90 per cent of tourists now coming from the Greater China region - and conduct more promotions in international markets. International tourists usually stay longer here and have relatively high spending power, he added.

The authorities should organise more events and festivals in the communities, like the Macau Light Festival that played light installations in the streets across the city’s downtown in December, drawing crowds and boosting the business of surrounding merchants, said Mr. Yip of the retailers’ group. He added that the local associations had also held events on their own to improve market sentiment.

The full story can be read in this month’s issue of Macau Business magazine, available at newsstands or online at www.magzter.com

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January 15, 2016

Greater China

Economic growth seen cooling to 6.5 pct in 2016 Chinese officials have reassured that China’s economy likely grew by around 7 percent in 2015

KEY POINTS China’s economy likely to grow 6.5 pct in 2016-poll China c.bank seen cutting rates by 25 bps in 2016 C.bank also seen lowering reserve requirement ratio by 200 bps

China's central bank has cut lending rates six times since November 2014

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hina’s economic growth is expected to slow to 6.5 percent in 2016 from a forecast 6.9 percent in 2015, prompting the

government to ease policy further, a Reuters poll showed.

Moderating growth will raise pressure on policymakers to do more

to boost activity, especially after a renewed plunge in Chinese stock markets and a sharp slide in the yuan currency have stoked concerns among global investors about the health of the world’s second-largest economy.

Additional policy support might include a 25-basis-point (bps) reduction in benchmark interest rates and another 200 bps of cuts in the amount of cash that banks must hold as reserves (RRR) by the end of 2016,

analysts surveyed by Reuters said.

In a bid to avert a sharper slowdown, China’s central bank has cut lending rates six times since November 2014 to 4.35 percent, and lowered the amount the cash that the biggest banks must hold as reserves to 17.5 percent.

“With the government policy gradually gaining traction in the first half of 2016, we expect GDP to grow 6.8 percent this year,” said Shen Lan, an economist at Standard Charted in Beijing.

“We think economic growth will continue to be propelled by investment in short term while fiscal policies will play a bigger role in putting a floor under the economic growth.”

The highest GDP forecast in the poll was 7.0 percent and the lowest was 5.5 percent. The medium forecast of 6.5 percent for 2016 would be the slowest in China since 1990.

China is set to release 2015 fourth quarter and full-year GDP data on January 19, which is expected to show the economic growth cooled to its weakest rate since the global financial crisis.

Chinese officials have reassured that China’s economy likely grew by around 7 percent in 2015, in line with the government’s plan.

Still, growth of 7 percent would be the slowest in a quarter of a century, and down from 7.3 percent in 2014 as weak demand at home and abroad, industrial overcapacity and faltering investment weigh on the economy.

Some China watchers fear real growth levels could be much lower than official data suggest.

Reflecting sluggish economic performance, annual inflation is forecast to average 1.7 percent this year, before quickening a touch to 2.0 percent in 2017.

Reuters

Mainland may slow Fed’s interest rate rises When the Fed raised rates by a quarter point in December, policymakers in general forecast four further rate hikes this year Svea Herbst-Bayliss and Ann Saphir

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eadwinds from China and the world’s commodity markets may once again be upending the U.S. Federal Reserve’s plans less than a month into its first-in-a-decade tightening cycle.

The rout in China’s stock market, weak oil prices and other factors are “furthering the concern that global growth has slowed significantly,” Boston Fed President Eric Rosengren said on Wednesday.

Rosengren, who votes on the Fed’s rate-setting committee this year, also said a second hike will face a strict test as the Fed looks for tangible evidence that U.S. growth will be “at or above potential” and inflation is moving back up toward the Fed’s 2 percent target.

Chicago Fed chief Charles Evans, who like Rosengren

is one of the central bank’s most dovish policymakers, expressed similar concerns.

“It’s something that’s got to make you nervous,” he said of the drag slower growth in China could have on economies like the United States that don’t do much direct trade.

Evans also said he was nervous about inflation expectations not being as firmly anchored as a year ago, and added it could be midyear before the Fed has a good picture of the inflation outlook.

When the Fed raised rates by a quarter point in December, policymakers in general forecast four further rate hikes this year.

But since then a marked drop in China’s stock market and the yuan, a stubbornly strong dollar and a further decline in oil prices to near

12-year lows have presented a recurrence of challenges the Fed hoped it had left behind last autumn.

The Fed delayed an initial interest rate rise last September when a market sell-off in China triggered a fall in U.S. stocks.

U.S. equity markets, buffeted by renewed volatility, largely looked past last Friday’s stellar jobs report. The Commerce Department will also likely report later this month that domestic growth in the fourth quarter slowed, which could further add to jitters.

Investors currently think the Fed will raise rates again in April, according to an analysis of fed funds futures contracts compiled by the CME Group.

On Monday, Atlanta Fed president Dennis Lockhart

said he did not think there would be enough new data to make a decision on a second hike until at least April, in part because of China’s effect on U.S. equity markets.

Lockhart also said he wanted “hard evidence” on a rise in inflation.

Robert Kaplan, the Dallas Fed’s new president, on Monday cautioned that four interest-rate hikes are “not baked into the cake” given global stock market volatility set off by fears over a cooling Chinese economy.

While Kaplan thought there might be enough

economic data to hand by March to decide whether to raise rates again, “there’s no substitute for time in assessing economic data as it unfolds,” he said.

The Fed upgraded language in its December policy statement to reflect its desire to see more certainty inflation would trend upwards. Any slowing in domestic growth would hamper this.

The Fed holds the first of its scheduled eight policy meetings this year on January 26-27.

Reuters

Business Daily | 9

January 15, 2016

Greater China New rules for botched IPOs spooking underwriters The rule change comes as China is preparing to allow market forces to play a greater role in IPOs Elzio Barreto and Yikun Wang

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ewly approved Chinese rules for IPOs are rattling investment banks as investors can seek compensation immediately if they suffer losses due to false or misleading information in the listing material, bankers and lawyers have told Reuters.

Previously, disgruntled investors could only file claims for a botched IPO after China’s securities regulator had taken action against the banks sponsoring the share offerings, issuers or other intermediaries involved.

The measures, aimed at protecting investors after a string of accounting scandals, are set to have a chilling effect on underwriters because potential liabilities are hard to quantify, putting into question whether revenues from IPO underwriting will be worth the risks involved.

The rules, which went into effect on January 1, do not offer any clarity on how much the banks would be liable for and how much evidence would be necessary before a sponsor

KEY POINTS New rules follow string of accounting scandals Banks liable for botched IPOs even ahead of regulator action Rules lack clarity on evidence needed, potential liabilities

would have to make a payment, the sources said.

“Taking it at face value, there are some serious concerns,” said an investment banker who declined to be identified as he was not authorised to discuss regulatory issues.

“If this is indeed what the regulators are intending to do, it’ll change the risk-reward analysis for doing any sort of underwriting in China. It would also make China very different from any other jurisdictions.”

The rule change, which shifts more responsibility for vetting potential IPO candidates to the banks, comes as China is preparing to allow market forces to play a greater role in IPOs, moving from an approval-based system to a U.S.style registration process.

The tougher measures would, however, force banks to boost vetting standards which should help ease concerns about poor corporate governance at Chinese companies after a series of accounting scandals in past years.

“This is part of Xi Jinping’s effort to combat bribery and market deficiency,” said a person at a Chinese broker who was not authorised to speak publicly on the matter.

“It will increase the costs of doing business among all sponsors and eventually they will be more careful in performing their due diligence, which in the long run is good for all market participants.”

The China Securities Regulatory Commission has penalised brokers such as Ping An Securities and Everbright Securities for shoddy work in the past.

In addition to a 51.1 million yuan (US$7.8 million) fine for its work on Wanfu Biotechnology (Hunan) Agricultural Development’s IPO, Ping An had its sponsorship license suspended for three months, and it set up a voluntary 300 million yuan fund to compensate investors. Wanfu was later convicted of securities fraud.

Reuters

State Councillor warns world could face new economic crisis

SAFE says not limiting FX sales to individuals China’s foreign exchange regulator has said it is not placing limits on foreign currency sales to individuals beyond the usual annual cap of US$50,000, the state news agency Xinhua reported, in the government’s latest response to concerns about capital outflows. The State Administration of Foreign Exchange (SAFE) denied reports that Chinese banks had placed restrictions on foreign currency sales due to a surge in the number of people buying the U.S. dollar, which has appreciated against the yuan, Xinhua said. China’s foreign exchange reserves posted their biggest annual drop on record in 2015.

Fitch: Noble Group credit rating stable Fitch Ratings affirmed Noble Group’s BBB-minus rating with a stable outlook yesterday, remaining the only agency to assign the coveted investment-grade rating on Asia’s biggest commodities trader. The decision followed Noble’s improved balance sheet and sufficient liquidity position on the back of its stake sale in Noble Agri Limited, its pledge to cut working capital needs for its metals unit, and continued cash flow generation from its operations, Fitch said. Both S&P and Moody’s have cut Noble’s rating to junk, sending its bonds and stocks tumbling. Its stock is trading at the lowest since October 2008.

China Post Group sued by investors A group of New York investors sued China Post Group Corporation for US$500 million on Wednesday, claiming the government postal service failed to live up to its end of a deal to launch a chain of mini-markets in rural China. In a summons filed in Manhattan Supreme Court, New York-based China Horizon Investments Group, hedge fund firm Platinum Partners and other investors accused China Post of fraud and breach of contract relating to their Post Mart joint venture.

Remarks came a day after official data showed 2015 two-way TSMC says 2016 capex 10 pct higher trade had fallen eight percent year-on-year Taiwan Semiconductor Manufacturing Co Ltd (TSMC) yesterday estimated capital expenditure for this year of US$9 billion to US$10 billion, at least 10 percent more than the four-year low of 2015. Last year’s total of US$8.12 billion came as a slump in the global technology sector and slowing economic growth in China, the world’s largest smartphone market, forced many technology companies to scale back spending plans. The latest estimate comes as the world’s largest contract chipmaker reported net profit of T$72.84 billion (US$2.18 billion) for the final quarter of 2015.

C

hina’s top diplomat warned yesterday that a new global financial crisis was possible as markets suffer a painful rout at the start of the year, partly over fears of turmoil in the world’s second largest economy.

“It is not possible to completely discard the possibility that an economic crisis could once again take place, and the problem should not be neglected,” said State Councillor Yang Jiechi (pictured). “The opportunities are unprecedented, and so are the challenges,” he added.

Speaking at a meeting of G20 representatives in Beijing in the run-up to September’s summit in the eastern city of Hangzhou, Yang recalled how the forum’s members had worked together to bolster confidence following the global crisis of 2008.

“Preventing or reducing negative effects from countries’ domestic policy measures,” was a “pressing task”, Yang said, in a possible reference to rising US interest rates.

The G20 “resolutely opposes” protectionism, he added.

Yang’s remarks came a day after official data showed China’s 2015 two-way trade, a pillar of the world economy, had fallen eight percent year-on-year to US$3.96 trillion. The

Ex-Capital One analyst liable in insider trading case

figure was far below the government’s target of six percent growth.

Gyrations and interventions in the domestic stock market, along with unexpected depreciations in the yuan, have undermined confidence in Chinese authorities’ ability to follow through on reforms needed to shift the economy away from reliance on exports and investments towards consumer spending.

But Yang insisted: “China’s economy will maintain an overall trend of sustainable and stable growth.”

China logged its worst economic performance since the global financial crisis in the third quarter of 2015, with gross domestic product (GDP) rising just 6.9 percent -- its lowest rate in six years.

AFP

A former Capital One Financial Corp analyst was found liable on Wednesday on civil charges that he engaged in insider trading by using non-public sales data from the credit card issuer to buy and sell stocks. A federal jury in Philadelphia agreed with the U.S. Securities and Exchange Commission (SEC) that information used by the Capital One ex-employee, Nan Huang, to trade in shares of consumer retail companies ahead of sales and earnings reports was “material.” The data gave Huang, who earned nearly US$1.5 million from the trades, a “significant advantage” over the investing public, SEC lawyers said.

10 | Business Daily

January 15, 2016

Greater China

Giving up on stocks: retail investors seek safety first Some investors said they were focusing instead on Chinese New Year celebrations next month Samuel Shen and Kazunori Takada

A

s China’s legions of retail investors flee the country’s tumultuous equity markets, pushing stock prices down around 15 percent so far this year, money is flowing into perceived safe-haven assets such as domestic bonds, gold and the dollar.

Unlike Western markets where institutional investors dominate, individuals account for 80 percent of transactions on Chinese exchanges.

Nearly 100 million people have trading accounts.

Their enthusiasm for stocks drove China’s main indexes to record highs in the first half of 2015, but after enduring a summer bust that saw prices plunge around 40 percent, the January sell-off has been the final straw for many.

“I just have a small amount of money in the stock market. I had planned to sell when indexes got a little bit higher, but soon it dropped to this situation,” said Zhou Junan, a 22-year-old retail investor in Guangdong.

“I don’t have faith in the stock market any more. I think it’s better to buy dollars.”

Weekly data from the Shanghai Stock Exchange shows money shifting into exchange traded funds (ETFs) tracking bonds, gold and money markets at the start of January.

Funds that provide a vehicle for Chinese individuals to invest in overseas stocks and bonds through the Qualified Domestic Institutional Investor (QDII) scheme were also popular, continuing a trend that began late last year.

Yesterday, the official Securities Times newspaper reported that 10 mutual funds under QDII had suspended or restricted taking subscriptions after strong demand led to quota shortages. The measures followed a nearly 10 percent jump in assets of such funds in December alone.

“Except for gold, all other assets are just bubbles to me,” said a 24-yearold female investor in Beijing. “I guess I am a pessimist. If there are really some global conflicts, even dollars and bonds could not buy a meal.”

In just seven trading days at the start of this year, assets under management at HuaAn Gold ETF, China’s biggest gold ETF, jumped 8 percent, after doubling during the previous six months.

“We notice a rise in gold investment whenever there’s concern over yuan depreciation,” said Richard Xu, the fund’s manager. “Buying gold also helps investors avoid risks in equities.

It serves double purposes.”

“In a mess”

Selling up

Alongside the renewed slide in stocks, ordinary Chinese investors have been shaken by last week’s acceleration in the decline of the yuan, which has fallen nearly 5 percent since August.

“The stock market is in a mess,” said a 48-year-old woman from Kunshan, a city near Shanghai, working in the accounting department of a bank, who said she had bought 500,000 yuan (US$76,000) worth of U.S. currency. “Dollar is far less risky.”

That has also fuelled demand for gold.

A number of retail investors who spoke to Reuters were also switching money out of stocks and into wealth management products (WMPs) and principal-protected funds.

“I have bought different kinds of WMPs from banks. The majority of them are backed by bonds, which are less risky,” said a 50-year-old woman surnamed Wang, from Guangzhou, who said she lost 30 percent of her stock market investment in the summer meltdown before selling out in August.

KEY POINTS Money flowing into gold, bonds, dollar Overseas stocks and bonds also popular Follows market slump last summer, fresh drop this month Some plan to spend their money on Lunar New Year celebrations

Capturing such a trend, latest data from the Asset Management Association of China showed that both bond and money market funds nearly doubled in size as of end-December from end-June, while equity funds tumbled almost 90 percent in assets under management during the same period.

China’s banking regulator and main bond clearing house have recently moved to reduce the appeal of high-yielding WMPs relative to equities, asking commercial banks to reduce rates offered on such products.

Some retail investors said they were giving up on making a return on their savings altogether, focusing instead on Chinese New Year celebrations next month, also known as the Spring Festival.

“I don’t have confidence in China’s stock market anymore,” said Ivy Li, from Shenzhen, who had invested 100,000 yuan in stocks but sold of all her holdings on Tuesday.

“I don’t plan to invest in any other assets either. I am planning to spend the money perhaps on travelling around the Spring Festival. I think China’s economy will not be so good in 2016.”

A few optimists remained convinced the market would eventually turn around after the latest bout of turbulence.

“I have pulled out all my money from the stock market, but I’m not intending to use that to buy WMPs,” said Wen Zhihong, a 50-year-old employee at a university from Chengdu.

“I’m still waiting for another chance to get back into the stock market.”

Reuters

Business Daily | 11

January 15, 2016

Asia

Bank of Korea holds rates and lowers outlook A growing number of analysts now see the central bank taking time and holding rates steady for the rest of the year Christine Kim and Choonsik Yoo

S

outh Korea’s central bank kept monetary policy unchanged yesterday, signalling it would stay put for some time, but then went on to cut this year’s economic growth forecast.

“I do not agree that the lowered GDP forecast warrants monetary policy easing,” Governor Lee Juyeol told a news conference, disclosing his bank reduced its growth forecast to 3.0 percent from the 3.2 percent predicted three months ago.

Uncertainty over the Ch i n es e economy and markets, global oil prices and U.S. policy prospects all posed a risk to South Korea’s economy, Lee said, but savings from low oil prices and a likely improvement in exports would provide a floor.

Governor Lee noted central bankers from emergingmarket economies had been in close contact, adding that they had held a separate gathering on the side-lines of the Bank for International Settlements meeting last week, possibly reflecting concerns for global financial stability following the U.S. rate hike and China’s market gyrations.

Lee gave no details from the meeting.

The head of Mexico’s central bank said on Tuesday that emerging economies may need to resort to radical

Bank of Korea Governor Lee Ju-yeol arrives at a meeting of the Monetary Policy Board in Seoul yesterday

interventions in financial markets, similar to the sweeping measures taken by rich countries during the financial crisis, to cope with sharp capital outflows.

The Bank of Korea’s seven-member board kept the base rate steady at record-low 1.50 percent in a unanimous vote - a seventh consecutive month of no change in the policy interest rate after two cuts last year.

Lee said last year’s economic growth was estimated at 2.6 percent, compared to 2.7 percent predicted in its October 2015 forecasts, and actual 3.3 percent growth in 2014.

“I felt the governor’s comments as a whole were neutral,” said Yoon Yeo-sam, a fixed-income analyst at KDB Daewoo Securities. “I still see room for policy easing later because the inflation forecast was set at 1.4 percent.”

Japanese machinery orders fall most in 18 months Uncertainty over the outlook could lead Japanese firms to further delay implementing their spending plans Tetsushi Kajimoto

J

apan’s core machinery orders tumbled the most in 18 months in November after solid gains in prior months, adding to uncertainty over the outlook as domestic demand stays subdued and China’s slowdown dims global growth prospects.

The 14.4 percent fall in core orders, a highly volatile data series regarded as a leading indicator of capital spending in the coming six to nine months, fell short of economists’ median estimate for a 7.9 percent month-on-month drop, Cabinet Office data showed yesterday.

The data comes as the economy got the new year off to a rough start as China’s slowing growth and tumbling oil prices rattled global markets, raising fears of deepening slowdown in the world economy and potentially eroding confidence at Japanese firms.

Uncertainty over the outlook could lead Japanese firms to further delay implementing their spending plans, further diminishing policymakers’ hopes of generating a virtuous growth cycle of higher incomes and investment by the private sector.

Prime Minister Shinzo Abe has

The Bank of Korea revised its 2016 inflation forecast to 1.4 percent from the 1.7 percent set three months ago versus its medium-term target of 2.0 percent.

Lee said the increased purchasing power of South Korean consumers as a result of low oil prices would boost private consumption this year and exports would also do better than last year, citing an expected rise in global trade volume.

heaped pressure on companies to raise wages and boost spending, but many firms are resisting and labour unions have been cautious when demanding pay rises, a further sign of trouble for Abe’s campaign to spur growth.

“It’s becoming harder for virtuous growth to materialise,” said Hiroshi Shiraishi, senior economist at BNP Paribas Securities.

Slowdown in emerging economies that had led the global recovery from the last financial crisis, and the ongoing collapse in commodity prices, are dampening Japanese firms’ growth expectations and curbing inflation, Shiraishi said.

Against this backdrop, even the union at Toyota Motor Corp. is set to lower its pay demands versus last year’s at the annual “shunto” spring wage negotiations, underscoring the degree of difficulty in getting wage growth to accelerate, he added.

Yesterday’s data showed machinery orders from manufacturers fell 10.2 percent in November, the biggest decline since June 2015, and those from non-manufacturers dropped a record 18.0 percent, after items such as railway cars boosted orders in the previous month. Orders from abroad also fell 25.0 percent.

The Bank of Japan’s key tankan survey in December showed big firms planned to boost capital spending

All but one of the 30 analysts surveyed in a Reuters poll before the decision had projected a steady policy rate.

A growing number of analysts now see the central bank taking time and holding rates steady for the rest of the year to monitor the effects of the U.S. Federal Reserve’s December rate hike and additional policy moves that may follow.

Reuters

KEY POINTS November core orders -14.4 pct m/m vs forecast -7.9 pct Core orders +1.2 pct yr/yr vs forecast +6.3 pct Cabinet Office sees machinery orders in pickup trend Capex, wages slow to rise, bad omen for virtuous growth

by 10.8 percent this fiscal year to March, but companies have so far been slow to implement their spending plans because of uncertainty over the outlook.

Japan’s economy narrowly dodged a recession in the third quarter of 2015. It is expected to continue moderate growth in the last quarter, but some economists flagged the risk of a contraction due to weak consumption and slack capital spending.

Reuters

12 | Business Daily

January 15, 2016

Asia

Indonesia’s central bank cuts key rate to help weak economy The central bank has said 2016 growth is expected at 5.2-5.6 percent Hidayat Setiaji and Gayatri Suroyo

I

ndonesia’s central bank, which resisted cutting its benchmark interest rate for months, did so yesterday in a bid to lift an economy growing at its slowest rate in six years.

The benchmark policy rate was lowered by 25 basis points to 7.25 percent, while the overnight deposit facility rate and lending facility rate were also cut by the same amount to 5.25 percent and 7.75 percent respectively.

The last time the benchmark rate was changed was in February, when it was reduced by 25 basis points to 7.50 percent.

The decision was announced hours after explosions and gunfire in central Jakarta less than two kilometres from where Bank Indonesia (BI) was holding its first policy meeting of 2016.

Ten of 16 analysts in a Reuters poll had predicted a rate cut yesterday.

Some analysts expect yesterday’s cut will be the first in an easing cycle.

BI said it will assess the need for further monetary policy loosening in future.

The rupiah, whose stability has been a prime concern for BI, weakened after the Jakarta attacks

KEY POINTS Benchmark rate cut 25 bps to 7.25 pct Policy had been on hold since February C.bank decision comes hours after Jakarta blasts and strengthened slightly after the rate cut announcement.

Economists welcomed the rate cut.

The move “should provide a long-overdue boost to the struggling economy,” said Daniel Martin at Capital Economics in Singapore.

Widening room

At policy meetings since October, Bank Indonesia (BI) has said it saw widening room to loosen monetary policy, but it had refrained from cutting its benchmark rate ahead of the Federal Reserve’s first U.S. rate hike in nearly a decade. BI was

concerned lower domestic rates could spark capital outflows and weaken the fragile rupiah.

In 2015, the rupiah was Asia’s second-worst performing currency, falling by 10 percent against the dollar and touching 17-year lows.

But in the fourth quarter, it was best performing one with a 6.2 percent jump. It has not been as badly hit as many other currencies by the early 2016 emerging market rout.

The easing of annual inflation to a six-year low of 3.35 percent in December has provided room for the rate cut.

Growth in Southeast Asia’s largest economy is expected at the bottom of BI’s target range of 4.7-5.1 percent in 2015, making it the slowest since 2009.

The central bank has said 2016 growth is expected at 5.2-5.6 percent.

Japan’s MUFG buying 20 percent of Philippines’ Security Bank The price being paid for the common shares represents a premium of 81 percent over the stock’s closing price on Wednesday Neil Jerome Morales

J

apan’s biggest bank Mitsubishi UFJ Financial Group is buying a fifth of mid-sized Philippine lender Security Bank Corp for US$774 million, in what will be the biggest foreign financial sector equity investment in the Southeast Asian nation.

Mitsubishi UFJ’s investment, being made through its core banking unit, Bank of Tokyo-Mitsubishi

UFJ Ltd (BTMU), is the latest in a string of cross-border tieups that Japanese financial firms are seeking to tap fastgrowing Asian markets as domestic growth remains weak.

Under the agreement, BTMU will acquire newly issued primary shares of Security Bank, consisting of 150.7 million common shares at 245 pesos per share and 200 million

preferred shares at 0.10 pesos per share.

The price being paid for the common shares represents a premium of 81 percent over the stock’s closing price on Wednesday. Security Bank shares rose as much as 16 percent yesterday, but then gave up some of the gains to trade 6.7 percent higher by 0620 GMT. Security Bank said the transaction is subject to local

regulatory approvals and is expected to be completed within the first half of 2016.

With a 20 percent stake, BTMU becomes the second largest shareholder in the bank after the local Dy group which has majority voting control.

Go Watanabe, BTMU CEO for Asia and Oceana, said the Japanese lender may “seriously” consider raising its stake in Security Bank

Reuters

if opportunities arise in the future, and is also looking at investment opportunities in Indonesia and India.

“We are making headway in our effort of becoming a Tier 1 global financial institution in the Asia market by 2020,” he told journalists in Manila after signing the deal.

BTMU’s entry should accelerate Security Bank’s growth in a highly competitive market, executives of the Philippine lender said yesterday after signing the strategic partnership agreement.

“We will leverage BTMU’s relationships to access Japan-related business opportunities,” said Security Bank President and CEO Alfonso Salcedo, citing BTMU’s “very robust” Japanese client base in the country.

Security Bank will use the additional capital to beef up its retail banking business, he said.

Reuters

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Business Daily | 13

January 15, 2016

Asia Australian employment dips in December But the jobless rate held at a 19-month low of 5.8 percent Wayne Cole

South Korea’s top financial regulator said yesterday it sees a slight slowing in household debt growth in 2016 thanks to government steps set to be enforced this year as well from an expected rise in borrowing costs stemming from higher U.S. rates. The Financial Services Commission (FSC) said in a statement the quality of new and existing borrowing is expected to improve alongside an easing in debt growth. The FSC noted the government’s decision to tighten bank guidelines when screening applicants for loans, announced in mid-December, would help ease debt growth.

A

ustralian employment dipped just a fraction in December, a surprisingly robust result given the exceptional growth over the previous two months and a promising omen for consumer confidence and spending.

Yesterday’s data from the Australian Bureau of Statistics showed a net 1,000 jobs were lost in December, when analysts had looked for a drop of around 12,500. The dip was minor given a huge 130,000 jobs were created in October and November.

The jobless rate held at a 19-month low of 5.8 percent, when analysts had expected a tick higher, while fulltime employment increased a healthy 17,600.

“Undoubtedly this December print was very good,” said Peter Jolly, global head of research at National Australia Bank.

“The big point to make is, yes the labour market has improved and the economy is on a more sure footing.

We created jobs through 2015 and a range of indicators backed that up.”

The ABS has had trouble with its jobs survey in the past that resulted in large revisions in both directions.

Yet other measures of labour demand have also been upbeat, with vacancies at their highest in over three years.

The Reserve Bank of Australia

(RBA) has been encouraged enough to resist pressure for a further cut in the 2 percent cash rate, and that should not change with these figures.

Interbank futures lost early gains on the data and now imply less than a 50 percent chance of a cut by April.

Service please

A separate series of quarterly figures for the three months to November clearly show where all the jobs are coming from - services.

While miners have been retrenching, the sector at its peak only ever accounted for around 2 percent of all jobs. In all, employment in goods sectors including manufacturing and utilities fell 59,000 in the year to November.

Yet that has been dwarfed by hiring in the services sector which surged by more than 350,000 in the same period.

An aging population is fuelling demand for healthcare, which generated no less than 151,000 jobs in the year to November to be the single biggest employer.

A lower local dollar and the rise of the Asian middle class has been a boon for tourism. Visitors from mainland China rose by a quarter in the year to November to top a million for the first time. They are also big spenders, forking over an estimated A$7.7 billion.

Growth in architectural, engineering and technical services has been concentrated in the populous states of New South Wales and Victoria and owe much to booming home building and a bevy of infrastructure projects.

In all, services to business created 152,000 net new jobs.

Reuters

Faster growth is needed to generate millions of new jobs Krishna Eluri and Siddharth Iyer

H

India is likely to comfortably maintain a faster growth rate than China over the next few years. The most pessimistic forecast for growth next year in India matches the most optimistic figure for China - 7 percent.

India’s economy is expected to expand 7.5 percent in 2015/16 and at a slightly faster 7.8 percent in 2016/17, the same as forecast in a poll three months ago.

Whereas the headline growth rate appears very respectable, India needs faster growth to generate jobs for millions of young people joining the workforce each year, and the economy remains hobbled by weak private sector investment.

Retail inflation has averaged 4.8 percent this fiscal year so far, but the poll predicted it would rise to average 5 percent for 2015/16, and 5.3 percent for 2016/17.

The RBI’s 5 percent target for inflation by March 2017 is at risk with annual price rises of 5.61 percent in December - the fifth straight month inflation has gone up.

But even with rising inflation threatening to breach that target, 11 of 19 economists polled this week still expect the repo rate to be cut to 6.50 percent by June.

The RBI cut interest rates four times last year, by a cumulative 125

Hyundai targets 77,000 IONIQ hybrid car sales Hyundai Motor yesterday said it aims to sell 77,000 of its first dedicated gasoline-electric car globally next year, 80 percent more than their total hybrid car sales in 2015, as it tries to meet emissions regulations in key markets. The South Korean automaker also expected the IONIQ to achieve a fuel efficiency of an estimated 57 miles per gallon in the United States, edging out an estimated 52 mpg for Toyota Motor’s redesigned Prius, the world’s top-selling gasoline hybrid which goes on sale in the U.S. market this month.

Indonesia sets up peatland restoration agency after fires Indonesia’s President Joko Widodo has set up an agency to restore about 2 million hectares (5 million acres) of carbon-rich peatland damaged by fires that sent smoke across the region last year angering neighbouring countries. The region suffers every dry season from so-called haze caused by smouldering fires, often set deliberately to clear land for palm oil plantations on Sumatra and Borneo islands. The agency will work until 2020 in seven provinces on Sumatra, Kalimantan, and Papua islands.

The fires and pollution were particularly bad last year because of dry weather.

India’s economic growth steadies

aving made four reductions in 2015, the Reserve Bank of India will likely cut interest rates once more in the coming year, despite expectations that inflation will rise slightly above its medium-term target, a Reuters poll found.

The survey of 28 economists taken this week showed expectations haven’t changed much in the past three months, reflecting how India’s steady, if unspectacular, economic performance looks relatively solid compared with peers.

Economic growth picked up only modestly last year, despite high hopes for a wave of long-awaited economic reforms from Narendra Modi’s government. Many analysts now say modest growth is likely to remain for some more time.

“India continues to experience moderate inflation and only a gradual uptick in economic activity,” wrote Siddhartha Sanyal at Barclays, one of the two analysts calling for a more than 25 basis point cut in the RBI’s repo rate, currently 6.75 percent.

Still, this is a better outlook than for some fellow emerging market economies, like China, where growth forecasts have been reduced modestly but financial market turmoil since the start of the year suggests greater problems.

S.Korea household debt growth slowing

basis points, surprising the market with a few of its early moves.

Analysts also expect the government to pick up the slack in terms of providing a fillip to economic growth by passing soon at least one reform through parliament.

Thirteen of 15 analysts said it was either ‘very likely’ or ‘likely’ that the government would pass the land acquisition bill, which would make it easier for businesses to buy land, or a goods and services tax, which would transform the economy into a single market, by the end of this year.

Weak global demand, along with deflationary pressures abroad, and any reforms announced at the Indian parliament’s budget session in February will be key to the economic outlook over the next year, said Rishi Shah, economist at Deloitte.

In November, a government panel recommended hiking the wages of about 10 million current and former government employees by nearly 25 percent. Pay rises could boost economic growth through higher demand.

“There will be a pay commission in effect in the next fiscal, so you’re going to get demand, at least an urban boost to demand,” Shah said.

Reuters

Infosys Q3 net profit up Infosys Ltd, India’s second-largest software services exporter by revenue, reported a bigger-than-expected 6.6 percent increase in quarterly net profit as it won more clients and as a weaker rupee helped. Consolidated net profit rose to 34.65 billion rupees (US$516.5 million) in its fiscal third quarter to Dec. 31, from 32.5 billion rupees a year earlier, the Bengaluru-headquartered company, which counts Apple Inc, Volkswagen AG and Wal-mart Stores Inc among its clients, said in a statement. Analysts on average had expected a net profit of 33.53 billion rupees, according to data compiled by Thomson Reuters.

Hynix plans capital expenditure South Korean memory chip maker SK Hynix Inc said yesterday it plans at least 6 trillion won (US$5 billion) in capital expenditure in 2016, a level similar to last year’s, to improve its production technologies and add capacity. The firm announced plans last year to spend 31 trillion won to build two new chip plants in South Korea by 2024.

14 | Business Daily

January 15, 2016

International Germany launches 2,000 tax cases against UBS clients Prosecutors investigating tax fraud in Germany by clients of Swiss bank UBS have launched around 2,000 proceedings, German paper WAZ quoted a state prosecutor as saying. UBS is one of several Swiss banks that got caught up in investigations into personal tax evasion as cash-strapped governments chased accounts hidden in Zurich, Geneva and Ticino, where wealthy Europeans had taken advantage of Switzerland’s banking secrecy rules. Investigations into tax dodging began after the state of North Rhine-Westphalia bought a CD containing details of UBS customers in 2012, which related to assets worth 3.5 billion Swiss francs (US$3.5 billion).

France improves on budget deficit target in 2015 France managed to reduce its budget deficit by more than forecast in 2015, Finance Minister Michel Sapin said yesterday. The deficit came in at 70 billion euros (US$76 billion), four billion less than forecast which, Sapin told Europe 1 radio, takes it to levels last seen before the financial crisis. “The government budget will see its deficit drop by much more than we expected. We expected a deficit of 74 billion... and what we will have is a 70 billion government deficit,” he said.

Argentina’s new government gives first inflation stats

Argentina predicted Wednesday it will face inflation of around 20 percent this year, its first official inflation statistics under conservative President Mauricio Macri (pictured), who accuses his predecessor of cooking the books. The slumping South American economy will register inflation of between 20 and 25 percent in 2016, said Economy Minister Alfonso Prat-Gay. He said inflation came in at 30 percent last year -- more than twice the level reported by the official statistics agency under former president Cristina Kirchner, whose term ended last month.

Brazil indicts firms for environmental disaster Brazil’s federal police announced that mining companies Samarco and Vale, consulting company VogBR and seven Samarco’s employees will be indicted for the collapse of two tailings dams last November, which caused casualties and colossal environmental damages.

Located in Mariana, Minas Gerais state, the two dams were owned by Samarco.

Vale is one of Samarco’s owners, while VogBR was the company responsible for a report assuring that the dams were stable and not at risk of collapse. The seven indicted executives and technicians include Samarco’s CEO Ricardo Vascovi.

Danger ahead: migration, climate top risks for Davos leaders North Korea’s invitation has been revoked after it conducted a nuclear test Ben Hirschler

W

e live in an increasingly dangerous world, with political, economic and environmental threats piling up, according to experts polled by the World Economic Forum.

Ahead of its annual meeting in Davos next week, the group’s 2016 Global Risks report yesterday ranked the migrant crisis as the biggest single risk in terms of likelihood, while climate change was seen as having the greatest potential impact.

Around 60 million people have been displaced by conflicts from Syria to South Sudan, pushing refugee flows to record levels that are some 50 percent higher than during World War II. Coupled with attacks such as those on Paris last year and geopolitical fault lines stretching from the Middle East to the South China Sea, the world is today arguably less politically stable than at any time since the end of the Cold War. Economic fears, particularly for Chinese growth, and increasingly frequent extreme weather events are further red flags, resulting in a greater breadth of risks than at any time in the survey’s 11-year history.

“Almost every risk is now up over the last couple of years and it paints an overall environment of unrest,” said John Drzik, head of global risk at insurance broker Marsh, who helped compile the report.

“Economic risks have come back reasonably strongly, with China, energy prices and asset bubbles all seen as significant problems in many countries.”

Last year, the threat of conflict between states topped the list of

KEY POINTS Broadest range of risks in 11-year history of survey Rising political, economic and environmental threats

The January 20-23 Davos meeting will bring the biggest ever U.S. delegation, including Vice President Joe Biden

risks for the first time, after previous editions mostly highlighted economic threats.

British finance minister George Osborne, one of those heading to the Alpine ski resort set the mood last week, warning that 2016 opened “with a dangerous cocktail of new threats”.

The January 20-23 Davos meeting will bring together players from geopolitical hot spots such as the foreign ministers of arch-rivals Iran and Saudi Arabia, as well as the biggest ever U.S. delegation, including Vice President Joe Biden.

North Korea’s invitation, however, has been revoked, after it conducted a nuclear test, defying a United Nations ban.

Cyber risk a wild card

The immediate problems of Middle East tensions, China’s turbulent markets and a tumbling oil price are likely to dominate corridor conversations at Davos.

German economy defied 2015 global slowdown The central bank predicts German GDP will increase 1.8 percent this year and 1.7 percent in 2017

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erman economic growth accelerated in 2015 as record employment and expansionary monetary policy fuelled domestic consumption at a time of weakening global trade.

Gross domestic product rose 1.7 percent after a gain of 1.6 percent in 2014, the Federal Statistics Office said at a press conference in Berlin yesterday. That’s in line with the median of 21 estimates in a Bloomberg

survey of economists. The government had a fiscal surplus of 0.5 percent of GDP last year.

Germany, the euro area’s biggest economy, is benefiting like no other member of the 19-nation currency bloc from unprecedented stimulus by the European Central Bank. With unemployment at a record low, wages rising and oil more than 37 percent cheaper than last year, domestic spending has become the driver of

Global Risks report comes ahead of Jan. 20-23 Davos forum

But long-term concerns identified in the report centre more on physical and societal trends, especially the impact of climate change and the danger of attendant water and food shortages.

While last month’s climate deal in Paris may act as a signal to investors to spend trillions of dollars to replace coal-fired power with solar panels and windmills, it is only a first step.

For businesses, the transition from fossil fuels remains uncertain, especially as political instability increases the risk of disrupted and cancelled projects.

One wild card is cyber attack, which business leaders in several developed countries, including the United States, Japan and Germany, rank as a major risk to operations, although it does not make the top threat list overall.

The report analysed 29 global risks for both likelihood and impact over a 10-year horizon by surveying nearly 750 experts and decision makers.

Reuters

economic growth and exporters are shifting their attention from slowing emerging markets to recovering developed nations.

“Germany performed well, with growth exceeding potential, but the economy also had sublime help from a weak euro, declining energy prices and record-low interest rates,” said Andreas Scheuerle, an economist at Dekabank in Frankfurt.

The statistics office may provide an indication about output in the last three months of 2015 during the press conference. It will publish a flash estimate on February 12. Economists surveyed by Bloomberg forecast fourth-quarter growth of 0.4 percent.

Growth in the euro area is gradually strengthening as loose monetary policy reaches companies and consumers. The ECB increased its quantitative-easing program in December to at least 1.5 trillion euros (US$1.6 trillion) and cut one of its key interest rates further below zero, with President Mario Draghi saying the decisions will reinforce the recovery and strengthen the region’s resilience.

Bloomberg News

Business Daily | 15

January 15, 2016

Opinion Business

wires

Reforming or deforming the Fed?

Leading reports from Asia’s best business newspapers

Barry Eichengreen

Professor at the University of California, Berkeley, and the University of Cambridge

THE JAPAN NEWS The Health, Labour and Welfare Ministry has decided to require food makers and other food-related companies to incrementally implement the hazard analysis and critical control point system, which is the international standard for food safety controls. As early as next month, the ministry’s expert panel will begin making plans for the coverage of products and timing to begin introduction of the measures. As early as next year, the ministry aims to revise the Food Sanitation Law and other related laws.

Among small and midsize companies in the industry, only about 30 percent have introduced the HACCP system.

VIETNAM NEWS The 11th Party Central Committee wrapped up its 14th meeting in Ha Noi yesterday. Party General Secretary Nguyen Phu Trong said the three-day event took place in a serious and democratic manner, as delegates had a high level of responsibility and duty to the country.

Delegates reached a consensus on the signing and ratification of the Trans-Pacific Partnership Agreement in accordance with domestic laws on international treaties.

They agreed that the opportunities stemming from the TPP were enormous, though challenges lay ahead, he said.

JAKARTA GLOBE Antigraft officials arrested a member of the House of Representatives in a sting late on Wednesday, following a tip about a bribery transaction.

The Corruption Eradication Commission has not made any official statement about the bust, but local media reports have identified the legislator in question as Damayanti Wisnu Putranti of the Indonesian Democratic Party of Struggle, or PDI-P. Beritasatu TV, with which the Jakarta Globe is affiliated, reported that the alleged bribe may have been linked to the road projects being administered by the Public Works and Housing Ministry.

THE PHNOM PENH POST Importers can expect a substantial increase in the “specific tax” component of certain products, especially automobiles and auto spare parts, according to a sub-decree by the Customs and Excise Department released on Wednesday. The directive, effective on April 1, introduces changes to the import tax structure. While keeping value-added tax unchanged at 10 per cent, it brings down customs duty on products, such as toys and the production of books, while increasing the specific tax on import products and services, in some cases to 65 per cent.

T

he silly season that is a presidential election campaign in the United States has taken a particularly absurd turn as the candidates offer their proposals for monetary-policy reform. This is not the first time, of course, that presidential candidates have proposed changing how US monetary policy is conducted.

But the radical, sometimes harebrained, nature of the current crop of schemes is exceptional by historical standards.

Why such proposals appeal to the candidates and potential voters is no mystery. Since the financial crisis, the US Federal Reserve has taken a series of unprecedented steps, cutting interest rates to zero, massively expanding its balance sheet, and bailing out troubled financial institutions. Those measures were intended to treat the economy’s ills, but their very association with those ills encourages the belief that they are somehow the underlying cause.

Likewise, the Fed’s participation in rescues of troubled financial institutions is criticized for favouring Wall Street over Main Street. And, separately, the Fed is slammed for creating inequality, first by keeping interest rates low, which hurts those on fixed incomes, and now by raising rates, which keeps a lid on wage growth.

Clearly, the Fed just can’t win – and for reasons that have nothing to do with current monetary policy. Two of the most deep-seated features of American political culture – with roots extending back to the eighteenth century – are suspicion of powerful

government and distrust of concentrated financial power.

The Fed is the single institution that best encapsulates those fears.

Thus, we have proposals by Republican candidates Ted Cruz, Rand Paul, and Mike Huckabee to require the Fed to maintain a fixed dollar price of gold. To call these actual proposals is a bit generous. The proponents do not specify whether the Fed would be obliged to provide gold at this price to all comers, as before 1933, or only to foreign governments, as between 1945 and 1971. Nor do they explain whether that obligation could be suspended in an emergency, as in those earlier eras.

More fundamentally, they fail to explain what is special about gold aside from its talismanic quality. They do not clarify why the Fed should focus on stabilizing the price of this particular metal, rather than on the price of a representative basket of goods and services.

Indeed, if the critics focused on the latter, they could give their proposal a name. They could call it “inflation targeting.”

Proposals for a “Taylor rule” are more serious, if only because such a rule, first described by Stanford University economist John Taylor, links the policy interest rate to just such a representative basket of goods and services, namely the consumer price index, while adjusting for the rate of unemployment. But the rule is merely a formula purporting to explain why the Fed set its policy interest rate as it did in the 1980s and early 1990s, the period Taylor considered in his original study.

The Fed is slammed for creating inequality, first by keeping interest rates low, which hurts those on fixed incomes, and now by raising rates, which keeps a lid on wage growth

Indeed, a Taylor rule is a guide for desirable policy only if one thinks that the policies followed in that period were desirable, or, more to the point, that similar policies will be desirable in the future. It provides no direct way to address other concerns, such as financial stability, which most people will agree should, in light of recent events, figure more prominently in monetarypolicy decisions.

Some of the reform proposals

by Bernie Sanders, a contender for the Democratic nomination, also deserve to be taken seriously. The fact that three

of the nine directors of the Fed’s regional reserve banks are private bankers is an anachronism that creates the appearance, and potentially the reality, of a conflict of interest.

Sanders’ suggestion that the US president, rather than their own directors, nominate the regional reserve banks’ presidents is also worthy of consideration.

It is important to recall that the peculiar arrangements prevailing today were designed to overcome the financial sector’s opposition to the establishment of a central bank when the Federal Reserve Act was passed in 1913. This, clearly, is no longer the problem; on the contrary, the financial sector today is one of the Fed’s last staunch defenders.

Other proposals by Sanders are more dubious. For example, to release full transcripts six months after Fed meetings would guarantee a scripted debate. Meaningful discussion would simply move to the anteroom. The result, perversely, would be a decline in policy transparency.

Above all, Sanders’ recent statements betray a disturbing inclination to interfere in the conduct of monetary policy.

The Fed, he argues, should not have raised interest rates in December in response to “phantom inflation.” He may be right. But it is not the role of the US president to tell the Fed how to manage its policy rate.

The independence of the central bank is an essential cornerstone of effective monetary policy.

Even – or especially – an aspiring president should be sensitive to this fact.

Project Syndicate

16 | Business Daily

January 15, 2016

Closing CNPC completes construction of first shale gas pilot zone

Japan’s lower house approves extra budget for 2015

China National Petroleum Corporation (CNPC), the country’s largest oil and gas producer and supplier, has completed construction of its first national-level shale gas pilot zone. The daily production capacity of Changning-Weiyuan national-level shale gas pilot zone in southwest China’s Sichuan Province, exceeded the target of 7 million cubic meters on Wednesday, marking the completion of the zone, according to PetroChina Southwest Oil and Gasfield Company, a CNPC affiliate, yesterday. The zone currently has 83 wells in the province’s Yibin and Neijiang cities with an annual production of 2 billion cubic meters.

Japan’s lower house of parliament yesterday approved a draft extra budget of 3.50 trillion yen (US$29.6 billion) for fiscal 2015 through March. The extra budget passed the lower house with the majority support from the ruling Liberal Democratic Party and its Komeito junior ally to underpin the economy and make necessary welfare provisions, help farmers and ensure enough financing is available for disaster and relief efforts. The supplementary budget was initially approved by the Cabinet of Prime Minister Shinzo Abe on December 18 last year and has been drafted to realize some of Abe’s own economic-based policies.

Hi-tech, coffee and cabs help push China 2015 FDI up The ministry has yet to release December FDI figures and outbound investment figures

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hina attracted US$126.3 billion, or 781.4 billion yuan, in non-financial foreign direct investment (FDI) in 2015, up 6.4 percent from 2014, despite its cooling economy.

With traditional heavy industries facing persistent weakness, foreign investors favoured the more robust services sector and higher-value, hi-tech manufacturing last year, data from commerce ministry showed yesterday.

The services sector has utilised US$77.2 billion, or 477.1 billion yuan of foreign investment, up 17.3 percent from 2014.

United States ride-hailing firm Uber has committed to invest 6.3 billion yuan (US$956.33 million) in China as it aims to break into its huge tourism industry with businesses ranging from transportation services to automotive financing.

The world’s largest coffee chain, Starbucks Corp, said on Tuesday it aims to open 500 stores in China this year, its largest market outside of the U.S, and aims to create 10,000 jobs in China every year through 2019.

Almost no FDI was approved for industries suffering from overcapacity such as steel, cement and ship-building

High-tech manufacturing accounted for US$9.41 billion

At present, investment from overseas companies contributes to half of all foreign trade in China, one-quarter of industrial output, one-seventh of urban employment and one-fifth of tax income, the ministry statement said.

While FDI is a key measure of general overseas investment interest in China, it is a small factor within overall capital

Mainland stocks pull back from bear-market brink

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flows and when compared to the huge export sector.

The ministry has yet to release December FDI figures and outbound investment figures, but according to Reuters calculations, China attracted US$12.23 billion, or 77.02 billion yuan, in nonfinancial FDI in December.

High-tech manufacturing accounted for US$9.41 billion, or 58.35 billion yuan,

of foreign direct investment in 2015, up 9.5 percent from 2014 and accounting for 23.8 percent of investment in China’s manufacturing sector, according to the commerce ministry’s statement.

Almost no FDI was approved for industries suffering from overcapacity such as steel, cement and ship-building, the statement said.

China considers cotton reserve sale

Free trade zones in Guangdong, Tianjin and Fujian attracted investment of 445.81 billion yuan from 6,040 overseas companies between January and November 2015, according to the statement.

The government has encouraged firms recently to expand investment abroad to gain global competitiveness.

Reuters

Cambodian parliament passes draft law on accounting

C

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hinese stocks rebounded from the brink of a bear market in a late-day swing as the lowest valuations in four months lured bargain hunters and a group of smaller companies pledged to support their share prices.

The Shanghai Composite Index gained 2 percent to 3,007.65 at the close, reversing a loss of as much as 2.8 percent and sending a gauge of volatility to the highest levels since September. The ChiNext small-caps index surged the most in two months after 28 listed companies vowed to take action to stabilize the market, with some pledging not to sell shares over the next six months. State funds may have entered to buy stocks after the Shanghai index fell below the lowest levels reached in last year’s rout, according to Galaxy Securities Co. The Shanghai gauge earlier dropped below the low of 2,927.29 set in August, when a summer rout wiped out US$5 trillion and spurred the government to impose emergency rescue measures.

The index, the worst performer among 93 global benchmark measures tracked by Bloomberg this year, fell as much as 20 percent from the December high before paring losses.

hina’s government is consulting with the textile and cotton industry on plans to sell some of its bulging cotton stockpile, according to sources, a move that may drive domestic prices lower and further reduce import demand.

Beijing is estimated to hold around 11 million tonnes of cotton stocks, about half of the global total, after a three-year stockpiling programme aimed at supporting farmers.

The government is under pressure to sell its ageing stockpile, which degrades over time and is racking up storage costs. An auction last year sold less than 64,000 tonnes, much less than a target of 1 million tonnes, as the government-set prices did not attract bids.

Cotton ginners and textile firms shared views on the plans with government officials at a closeddoor meeting in late December organised by statebacked industry researcher Cncotton.com, said a person who attended the meeting but was not authorised to talk to media.

Zhu Beina, president of the China Cotton Textile Association, said her organisation had also been consulted regarding the plans.

ambodia’s National Assembly yesterday approved a draft law on accounting and audits with the aim of improving transparency and accountability in corporate finances.

Ninety-seven lawmakers, who were present during the parliamentary session, unanimously passed the draft law, said a National Assembly’s statement.

Cheam Yeap, chairman of the National Assembly’s Commission on Economy, Banking, Finance and Audit, said quality accounting and audits are an essential and indispensable factor to ensure transparency, accountability, and good governance in both private and public sectors.

“This draft law will become a catalyst to develop business, to facilitate investment, and to boost economic growth,” he said.

The legislation will have its implementation scope on public institutions, corporations, nonprofit organizations, accountants and auditors.

Prime Minister Hun Sen said the government considered accounting and audits as an important element to develop the nation’s financial sector.

Bloomberg News

Reuters

Xinhua