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
Year IV
Number 965 Wednesday January 20, 2016
Publisher: Paulo A. Azevedo
WeChat Payment mulls entry into Hong Kong, Macau Page 6
Venture capital investment in China challenges Silicon Valley Page 11
Chinese regulators press banks to curb capital outflows Page 8
Mass Gaming Market Moving Into Driving Seat
Not a good year for the VIP segment. Posting the smallest share of gross gaming revenue (GGR) since 2006, accounting for just 55 pct. Gaming revenue from the VIP segment declined 39.9 pct y-o-y in 2015 to MOP127.82 bln (US$15.89 billion) from MOP212.54 bln. The mass market segment, including slot machines, shrank 25.9 pct y-o-y to MOP103.02 bln. In line with many gaming analysts’ estimation that mass market is set to play an increasingly important role in the industry’s fortunes
HSI - Movers January 19
Name
%Day
China Mengniu Dairy C
+5.74
Ping An Insurance Gro
+5.33
PetroChina Co Ltd
+4.90
Lenovo Group Ltd
+4.75
Slowing down
China Overseas Land &
+4.55
Cheung Kong Property
+0.11
CK Hutchison Holdings
-0.21
Vang Iek Group has opened a new self-managed car maintenance centre in Hong Kong. The Mazda’s exclusive distributor in the SARs maintains a cautious outlook on car sales for 2016. In Macau, sales have gone south since the second half of last year amid the economic contraction
MTR Corp Ltd
-0.68
Hang Seng Bank Ltd
-0.69
Swire Pacific Ltd
-0.80
Page
7
Source: Bloomberg
I SSN 2226-8294
Page 2
Reshaping growth China's economy grew at its slowest pace for a quarter of a century. Last year, China’s economic expansion decelerated to 6.9 pct. Although economic restructuring made landmark progress. With the service sector comprising more than half of GDP for the first time ever, official data reveals
www.macaubusinessdaily.com
Pages 8&9
Festive fizzle
Locals’ appetite to travel overseas is on hold. Even for the festive Chinese New Year holiday. Sales of outbound package tours hover around the same level as last year, say travel agents. The outlook remains cautious for 2016 sales
Page 4
Tourism
Against the trend World Tourism Organization data shows an upsurge. With international tourist arrivals worldwide increasing 50 million in 2015. Representing a 4.4 pct y-o-y increase. Conversely, in the first eleven months of the year tourist arrivals to Macau declined 3.1 pct
Page 5
2016-1-20
2016-1-21
2016-1-22
14˚ 18˚
16˚ 18˚
10˚ 17˚
2 | Business Daily
January 20, 2016
Macau
Vang Iek opens new maintenance centre for Mazda cars in Hong Kong Mazda’s exclusive distributor in both Hong Kong and Macau has meanwhile maintained a cautious outlook on car sales this year Stephanie Lai
sw.lai@macaubusinessdaily.com
L
ocal Mazda distributor Vang Iek Group opened a new selfmanaged car maintenance centre for Japanese brand cars in Kwai Chung in Hong Kong yesterday, an additional stream of business to the group as car sales prospects dim here. Eugenio Cheng Wing Chiu, executive director of Vang Iek, told Business Daily that his company intended to set up a new car maintenance centre in Hong Kong two years ago when car sales picked up. Vang Iek is an authorised agent for maintenance works on Mazda cars with a maintenance centre in To Kwa Wan in Hong Kong and another one in Areia Preta in Macau. “The company has always been a distributor for different car brands, and at the same time with the goal that we want to improve our maintenance services for the cars sold,” Mr. Cheng told us. “We have this goal for Hong Kong, where the challenge has been the search for a big space and to fulfill its strict environmental requirements [for setting up a car maintenance centre].” “For this goal we want to have a long-term investment instead of just leasing a space. So, eventually the company bought a place with an area of 20,000 square feet in Kwai Chung last year for building the centre,” said the Vang Iek executive director, although
he declined to provide figures for the investment involved in the establishment of the new car maintenance centre. Speaking to Business Daily, the Vang Iek Group boss said that now his company is awaiting approval from the Hong Kong Government to be recognised as a designated car testing centre. In Hong Kong, all private cars manufactured not less than six years before licensing are required to receive annual examinations at designated car testing centres before they can be re-licensed. In Macau, the Transport Bureau (DSAT) requires
private cars manufactured not less than 10 years before licensing to receive annual examinations – although the authorities are mulling implementing a stricter threshold by 2017 by requiring cars manufactured not less than 8 years before licensing to undertake the annual car test.
Dim sales outlook
Vang Iek, which ran an on-call taxi service in Macau before, has been an exclusive agent for Mazda cars in both Hong Kong and Macau since 2012. Although the company’s dealership in Mazda cars in
Macau has a longer history of about five decades, Mr. Cheng told Business Daily. Like its peers, Vang Iek has seen sales decline since last year. City-wide, the value of retail motor vehicle sales in the first three quarters of last year was MOP2.54 billion (US$325 million), representing a fall of 17.1 per cent year-on-year. “In the first half of last year, we saw that the sales of Mazda here could still pretty much be maintained at a similar level to the previous year,” Mr. Cheng said. “But in the second half to early this year, sales have gone down.”
Local firms subsidised MOP283 mln for financing loan interest in 2015
T
he government granted MOP282.8 million (US$35.4 million) to local enterprises last year to subsidise their interest on financing loans, the latest data released by Macao Economic Services (DSE) reveals. In 2015, the bureau’s Enterprise Financing Loan Interest Subsidy scheme received a total of 108
applications, of which 79 were approved by the authorities. The approval rate, compared to 97 of 110 applications subsidised in 2014, dropped by 15.1 percentage points to 73.1 per cent. Compared to 2014, the sum of the government’s granted subsidies to local firms via the aid scheme decreased by 33.9 per cent from
MOP426.6 million. The usage for the subsidies fell to 47.1 per cent from 71.3 per cent one year ago. This subsidy scheme, established in 2009, is one of the financial incentive measures by the government to encourage private companies investing in the city to increase their investment for their operations. Each beneficiary enterprise is entitled to
The economic contraction seen in Macau and the imposition of increased vehicle tax since late February adds to a cautious outlook on car sales this year, Mr. Cheng remarked. “For this year, we’d be satisfied to see our car sales level to that of last year,” said the Vang Iek Group boss. Starting on December 24 last year, the rate of tax on newly imported four-wheelers has been increased to between 40 per cent and 72 per cent, depending on the price, while tax on newly imported twowheelers has been increased by 24 per cent to 50 per cent.
enjoy an interest subsidy rate of four per cent for up to four years. Meanwhile, the subsidy will be up to MOP10 million for each successful applicant per year. In terms of sector, the city’s real estate-related establishments and construction firms were the biggest beneficiaries of the scheme. The two sectors were given some MOP59.3 million and MOP57.6 million by the government, which accounted for 20.9 and 20.4 per cent of the total, respectively. In addition, the wholesale industry received some MOP46.5 million in interest subsidies from the authorities, accounting for 16.4 per cent of the total. K.L.
4 | Business Daily
January 20, 2016
Macau
Travel agencies: No CNY boost for outbound tours Sales of outbound package tours for the Chinese New Year holiday have not performed better than for last year, Business Daily has learnt Kam Leong
kamleong@macaubusinessdaily.com
G
iven the economic downturn, local travel agencies do not see outbound travel surging for the upcoming Chinese New Year holiday. In fact, they expect the downturn to continue, affecting the outbound interests of residents for the rest of the year. “The number of residents signing up for tours for Chinese New Year has dropped slightly by around five per cent compared to the same period of last year. Most of them have already travelled during the Christmas holiday so they may have decided not to travel again during the Chinese New Year,” Siu Chi Shing, general manager at
Hong Thai Travel Services (Macau) Ltd., told Business Daily in a phone interview yesterday. Local travel agency EGL Tours (Macau) Co. Ltd.’s general manager, Sabrina Iong Ut Iong, also told us that the agency saw the sales of package tours hover at the same level as last year. “That may be due to the holiday period as most of the local schools are shorter than that for last year,” the travel agent said. Chinese New Year falls on Monday February 7. According to the two travel agents, most outbound residents would depart on February 6 for a five-day tour with Japan, South
Korea, Taiwan and Thailand their major destinations.
Tour fee
The President of the Macau Travel Industry Council, Andy Wu Keng Kuong, told Chinese language newspaper Macao Daily on Monday that package tour fees decreased by between 5 and 10 per cent for Japan and South Korea during Chinese New Year as airlines will increase their flight frequency during the period. Both of the travel agents, however, denied that there are decreases in the fees for tours to Japan and South Korea. “South Korea and Japan are very popular amongst local residents. There is no
discount from hotels and airlines there. As such, there is no drop in the tour fees for the two countries,” Hong Thai’s general manager said. EGL’s Sabrina Iong indicated that tour fees for Japanese tours have even been raised as the country is a hot destination whilst Chinese New Year is a hot travel season. Nevertheless, Mr. Siu added that fees have decreased for tours to Thailand and Malaysia as those countries have recently been affected or threatened by terrorist attacks.
Cautious 2016
Wrapping up the outbound tourism in 2015, Ms. Iong said the agency’s performance was
still “acceptable” given the economic downturn, adding that the number of outbound tourists to Japan had grown. Hong Thai’s Mr. Siu, however, indicated that his agency’s sales of package tours had started to register year-on-year drops of some 10 per cent from the third quarter of last year. According to the official data of the Statistics and Census Service (DSEC), the total number of outbound residents using travel agency services reached 1.38 million during the first eleven months of last year, down 1.48 per cent compared to some 1.4 million for the same period in 2014. Given the downturn may continue, both of the agents claimed they would cautiously observe market development, hoping to maintain the same number of customers as in 2015 for the whole of 2016. “We will be more down to earth this year. We don’t hope there will be growth [in outbound package tour sales] this year but we would like to keep the number from dropping,” Mr. Siu told us. In addition, the two agents indicated that they would seek co-operation with hotels and airlines to release cheaper package tours in order to attract more customers during the ongoing economic adjustment phase. “We will start negotiating with hotels after Chinese New Year. We aim to decrease average package fees by between 5 and 10 per cent for 2016. However, this is not [solely] up to us as it needs the assistance of hotels and airlines,” Hong Thai’s general manager said.
Business Daily | 5
January 20, 2016
Macau MIECF promoted in Beijing Representatives from the Macao Trade and Investment Promotion Institute (IPIM) and Environmental Protection Bureau (DSPA) visited officials from the National Development and Reform Commission and Ministry of Environmental Protection in Beijing in order to promote and report the progress on preparing for the 2016 Macau International Environmental Co-operation Forum and Exhibition (MIECF) last month, according to a press release issued yesterday by the SAR Government. Hosted by the Macau SAR Government and co-ordinated by IPIM and DSPA, the 2016 MIECF will be held at The Venetian Macao-Resort-Hotel from 31st March to 2nd April 2016. 2016 MIECF has adopted the theme ‘Green Economy – Opportunities for Waste Management’, to disseminate the concept of ‘Thinking Green, Going Clean, Living Cool’.
International visitations increased 50 million last year In Macau, however, there was a decrease of 3.1 per cent, according to the latest data available from the government
T
he number of international tourist arrivals worldwide increased 50 million, a 4.4 per cent year-on-year increase during 2015 to reach 1,184 million from 1,138 million in the previous year, according to World Tourism Organization (UNWTO) data. The international trend differed from that in Macau, where according to the latest government data the number of visitor arrivals from January to November declined 3.1 per cent year-on-year to 28.08 million from 28.98 million. “International tourism reached new heights in 2015. The robust performance of the sector is contributing to economic growth
and job creation in many parts of the world. It is thus critical for countries to promote policies that foster the continued growth of tourism, including
travel facilitation, human resources development and sustainability”, UNWTO Secretary-General Taleb Rifai said in a note released yesterday.
According to the World Tourism Organization ‘demand was strong overall, although with mixed results across individual destinations’. This was explained by ‘unusually strong exchange rate fluctuations, the drop in oil prices and other commodities which increased disposable income in importing countries but weakened demand in exporters, as well as increased safety and security concerns.’ Mainly driven by the strong performance of European tourism, which increased 5 per cent, the advanced economy destinations growth (5 per cent) exceeded that of the emerging economies (4 per cent). By region, Europe, the Americas and Asia and the Pacific all recorded around 5 per cent growth. Arrivals in the Middle East increased by 3 per cent, while in Africa there was an estimated 3 per cent decrease. Regarding this year, WTO expects international tourist arrivals to grow by 4 per cent, while the Asia and Pacific region, which includes Macau, is expected to record a stronger growth rate, projected to be between 4 and 5 per cent year-on-year. J.S.F.
6 | Business Daily
January 20, 2016
Macau opinion
World class
WeChat Payment mulls entry into Hong Kong, Macau
W José I. Duarte Economist
eChat Payment, a mobile payment service p r o v i ded b y C h i n a ’ s Tencent Holdings Ltd., is mulling the launch of its services in Hong Kong and Macau, Business Daily has learnt. WeChat Payment has an intended entry into Hong Kong before the Chinese New Year in
February in collaboration with CITIC Bank International and Bank of East Asia amongst the first batch of banks to provide its mobile payment service, Chinese language newspaper Hong Kong Economic Journal reported on Monday citing anonymous sources. The scope of services covered in Hong Kong would include shopping
T
he idea that Macau should develop as a world centre for tourism and leisure implies an ambition. That ambition requires that the supply of attractions and the convenience of the visit should be such that it encourages the arrival of a more diversified lot of tourists with a more diversified set of interests. Tourists who, hopefully, will stay longer, use local services and shops more extensively, and will be looking for more wide-ranging kinds of experience and involvement with the place and its people. Some kind of visitors’ ‘diversification’ is thus required. This is a lofty, if worthy, ambition. Grabbing the attention of diverse types of tourists and enticing them to come is a tall order - but without it the ‘world centre’ epithet has little meaning. A different kind of tourist is unlikely to enjoy a place where access to landmarks is usually overcrowded and unpleasant, and where most activities and tourist services are geared for shorttime visitors, focused on gambling or fast spending experiences linked to a limited array of types of goods. Macau does not have most of its services and attractions developed, organised or prepared enough to overcome the likely resistance – and unwillingness to repeat visits - that other types of tourist may have or develop. For starters, unless one is really interested in history and read extensively on the region’s history beforehand, or is lucky enough to find a local guide well-versed in such matters, it is almost sure that most tourists will leave Macau with little feeling or understanding about the singularity of the place. At best, betting winnings or losses aside, they will remember glitzy casinos and a few old facades, devoid of their historical or social context – that is, mostly meaningless. Making the place a first-class tourist destination, however, goes well beyond developing attractions, managing the major landmarks or distributing shiny leaflets and venerable doses of, at times over-hyped, tourist-oriented advertising. A culture of service and quality must also develop at all levels of the economic activities and must be especially ‘visible’ in those that relate more directly to the visitor experience. Does the service provided in our shops – all kinds of shops because a world destination must serve all kinds of visitors – provide, in general, an enjoyable shopping experience to those who visit us? Are they attentive to the specific needs of their customers, knowledgeable about their wares, focused on the quality of the service they provide? Are the public transportation services user-friendly, convenient and comfortable? We could go on. A world tourist centre is much more than diversifying attractions or subsidising new activities. It all starts with an unbreakable focus on the quality of the experience provided to our visitors. Are we going there yet?
payments and the payment of bills and credit card repayments, the publication reported. Business Daily has sought to confirm the report with WeChat Payment but did not receive a reply by the time the story went to press. The company also did not confirm if its mobile payment solutions will also be extended to Macau. But a source familiar with WeChat Payment’s international business has told Business Daily that the Chinese mobile payment giant has considered entering Macau. As required by local financial laws, outside third-payment or mobile payment firms can only conduct their activities here via a partnership with a local credit institution recognised by the Monetary Authority of Macau (AMCM). Currently, Mainland Chinese payment service company Alipay has been conducting third-party payment services here via a partnership with local stored-value card issuer Macau Pass SA, whereby Macau Pass acts as the acquirer for Alipay and provides clearing services for it. Macau Pass and Alipay are also both the accepted payment gateway for locally established e-shopping website MacauMarket.com. The format for WeChat Payment's intended entry into Macau would be largely similar to Alipay's, which is still pending approval by the Monetary Authority here, the source told Business Daily. S.L.
Food producer Beston Global enters local market in collaboration with Sunwah The joint venture is part of a wider strategy of the Australian food producer to grow the market in Greater China
A
ustralian food producer Beston Global Food is entering the Macau market via a joint venture with Hong Kong food distributor Sunwah Group. The agreement, revealed yesterday, includes a marketing and distribution agreement for food and beverages for the local market as well as Hong Kong, Guangdong and Jiangsu. “We are strong in China and ASEAN [Association of Southeast Asian Nations] region with our own on-the-ground marketing and distribution teams but we lacked a direct presence in Hong Kong and Macau”, the Chairman of Beston Global Food, Roger Sexton, said of the partnership.
According to the information of Beston Global Food, Sunwah Group will hold 51 per cent of the shares of the joint venture special company, while the Australian firm will control the remaining 49 per cent. “Beston has a wide variety of premium quality food and beverage products which are in high demand in Asia. Sunwah has a strong distribution business in Hong Kong and Macau, which has earned a reputation over a period of more than 50 years for the provenance of its products and the quality of service provided to its customers. We share a lot in common. It is a perfect marriage”, the Chairman of Sunwah, Jonathan Choi, said.
Under the agreement signed by the two companies, Sunwah is committed to utilising its existing distribution network to market and selling Beston-sourced food and beverage products. For its part, the Australian company will provide the food and beverage products. The chairman of Beston Global Food has also explained that the joint venture company will work closely with Beston’s branch in China, named BFC China, which is based in Dalian. The purpose of the collaboration between the two branches is to “maximize the outcomes from their respective efforts to grow market for BFC products in Hong Kong, Macau and Greater China”. J.S.F.
Business Daily | 7
January 20, 2016
Macau Alleged Dore depositors petition DICJ Around 30 alleged depositors involved in the Dore incident handed in a petition to the Gaming Inspection and Co-ordination Bureau yesterday demanding to meet with new Bureau director Paulo Martins Chan in order to learn about the progress of the incident, according to local broadcaster TDM radio’s report. The media co-ordinator of the Bureau indicated that the Bureau director would schedule such a meeting. The petitioners urged the government to improve the law and regulations in order to better safeguard their investments.
Gaming Revenue by segment Year
Mass/Slots VIP
2006
35%
65%
2007
33%
67%
2008
32%
68%
2009
33%
67%
2010
28%
72%
2011
27%
73%
2012
31%
69%
2013
34%
66%
2014
40%
60%
2015
45%
55%
Source: DICJ and Union Gaming
VIP revenues down 39.9 per cent in 2015 The mass market segment recorded a decline of 25.9 per cent, while the overall revenues of the market plummeted 34.3 per cent year-on-year João Santos Filipe
jsfilipe@macaubusinessdaily.com
G
aming revenue from the VIP segment declined 39.9 per cent year-on-year during 2015 to MOP127.82 billion (US$15.89 billion) from MOP212.54 billion, according to information released yesterday by the Gaming Inspection and Co-ordination Bureau (DICJ). The mass market segment, including slot machines, shrunk 25.9 per cent year-on-year in 2015 to MOP103.02 billion from MOP138.99
billion. Overall, gaming revenues in Macau declined 34.3 per cent yearon-year to MOP351.52 billion from MOP230.84 billion. In the last quarter of 2015, revenue from VIP baccarat dipped 35.8 per cent year-on-year to MOP29.59 billion from MOP46.06 billion. Meanwhile, the mass market and slot machines generated MOP25.24 billion, a decrease of 14.5 per cent year-on-year from MOP29.52 billion.
Corporate GEG Youth Achievement Programme in Zhuhai The fifth GEG Youth Achievement Programme, co-organised by Macau Management Association (‘MMA’) and Galaxy Entertainment Group (‘GEG’), commenced in November 2015. The first activity, a two-day teambuilding camp that was free of charge and attracted ninety participants, was held twice, once last December and then again last week, at Baiteng Lake Peasant Holiday Resort in Doumen District of Zhuhai. The two-day teambuilding camp sought to educate participants on the importance of communication and effectively leading a team to achieve their goals, which also helped promote friendship and mutual understanding among one another. Through a series of outdoor activities, participants were given the opportunity to not only
broaden their social network but also to exercise and relax, which underlined the GEG Youth Achievement Programme’s main goal – for local teenagers to ‘Reach out, Reach beyond’.
However, for Union Gaming gaming analyst Grant Govertsen the mass market has actually gone through an expansion period during the last quarter of the year. For this view, he takes into account the mass market tables that have been reclassified as VIP for the purpose of allowing gamblers to smoke while playing. “Importantly, combined mass market and slots Gross Gaming Revenue of MOP25.2 billion
(USD3.2 billion) was reported as flat sequentially from third quarter 2015. However, we would argue that the performance was better, and likely grew 3 per cent on a sequential basis relative to third quarter 2015 after we adjust for table games reclassifications”, a report published yesterday by Union Gaming noted. “This is cause for cautious optimism specifically as it relates to the mass market story (we continue to believe that VIP will decline in 2016) and supports our current forecast of 6 per cent to 7 per cent mass market growth this year”, it added.
Mass market on rise
In terms of share of revenue, according to data compiled by Union Gaming, based on DICJ information, in 2015 the VIP segment had the smallest share recorded of gross gaming revenue (GGR) since 2006, at 55 per cent. By comparison, the mass market segment, including slots machines’ revenue, grabbed a share of 45 per cent of total gross gaming revenues in Macau casinos. While recently Macau casino operators have been keen to target the mass market – Melco Crown’s Studio City opened without any VIP tables – the trend for the contribution of premium and grind mass for the GGR has been increasing at least since 2011. Back in 2011, the VIP market accounted for 73 per cent of total gaming revenue, while the mass market generated 27 per cent of casino revenues.
8 | Business Daily
January 20, 2016
Greater China
Quarterly data show weakest C growth since 2009 Full-year growth of 6.9 percent, enviable by Western standards, was China’s poorest showing in quarter of a century Kevin Yao and Xiaoyi Shao
A customer comes out of a personal accessories store at the shopping area of Qianmen district in Beijing, China, 19 January 2016. China's economy grew 6.9 percent in 2015, according to official figures released 19 January
hina’s economic growth in the fourth quarter slowed to the weakest since the financial crisis, adding pressure on a government that is struggling to restore the confidence of investors after perceived policy missteps jolted global markets. Concerns about China’s policy making ability have shot to the top of global investors’ risk lists for 2016 after a renewed plunge in its stock markets and yuan currency stoked worries that the economy may be rapidly deteriorating. After being a major locomotive of global growth in recent years, China is locked in the midst of a protracted slowdown. Weak exports, factory overcapacity, slowing investment, a soft property market and high debt levels are all compounding problems for the government as it tries to transition from a centrally planned economy to a more market-oriented model that will require leaders to cede a large degree of control. Growth in fourth-quarter gross domestic product (GDP) eased as expected to 6.8 percent from a year earlier, down from 6.9 percent in the third quarter and the weakest pace of expansion since the first quarter of 2009. Full-year growth of 6.9 percent, enviable by Western standards, was China’s poorest showing in quarter of a century. Other data yesterday suggested the world’s second-largest economy lost more steam in December, dashing hopes that a year-long flurry of government stimulus would finally kick in. That said, there were no signs of a meltdown that some traders have feared. Zhang Yiping, an economist at China Merchants Securities, said the struggling property market - a major driver of demand for materials from
Authorities presses banks to tighten capital outflows It is unclear whether the policy will be implemented nationwide or will remain targeted at coastal banks
KEY POINTS China seeks to impose limits on yuan outflows - sources Banks in coastal cities asked to tighten outflows sources Measures aimed at curbing bets on CNY decline
C
hinese regulators are tightening restrictions on crossborder outflows from banks, people with direct knowledge told Reuters, the latest in a series of steps by Beijing to stem speculation and slow capital flight as the currency weakens. Financial authorities have asked banks in coastal cities not to let outflows from yuan-denominated capital pools exceed the size
of those pools at any given time, the people said, which would lead to net negative positions. The regulators also ordered banks to conduct strict checks on corporate business and transactions affecting those yuan capital pools, the people said. The moves do not necessarily represent a closing of China’s already controlled capital account, as legal channels for outward
investment by companies and individuals remain open, but are more targeted at quickmoving speculative fund movements. “New requirements clearly state that cross-border renminbi (yuan) lending will be strictly investigated so as to prevent companies from making use of such lending to conduct cross-border arbitrage,” said one source close to the regulators. It is unclear whether the
policy will be implemented nationwide or will remain targeted at coastal banks, where much of the capital supporting the export trade is concentrated. The people declined to be identified because they are not allowed to speak to the media. The State Administration of Foreign Exchange declined to comment and the People’s Bank of China did not respond to Reuters’ request
for comment. Repeated calls to the central bank were unanswered. China’s central bank and commercial banks sold a net 629 billion yuan (US$95.61 billion) worth of foreign exchange in December, data showed on Monday, or nearly triple the amount in the previous month, as capital outflows grew. “While currency-related tightening steps reported so far may not individually have a huge impact on capital flows, their combined strength will be huge,” said a foreign exchange dealer at a Chinese commercial bank in Shanghai. “It’s clear that the government is now determined to choke widespread expectations of steep yuan depreciation.” Beijing is also planning to look into entrepot trade in the country’s port cities, and is possibly conducting major investigations into illegal cross-border capital flows masked as trade transactions. Some economists suspect China’s surprisingly positive December trade figures were artificially inflated by such activity. Regulators are also considering additional steps, the sources said, such as allowing direct cross-border yuan and foreign currency loans that could help narrow any gap between the offshore and onshore exchange rates, making arbitrage less profitable. Reuters
Business Daily | 9
January 20, 2016
Greater China Economic structure change China’s economic restructuring made landmark progress in 2015 as the service sector created more than half of GDP for the first time ever. The service sector contributed 50.5 percent to the country’s GDP in 2015, up from 48.1 percent in 2014, according to the National Bureau of Statistics (NBS). The percentage, which has continued to grow over the last two decades, exceeded 50 percent for the first time, while factories’ contribution to GDP was
cement to steel - was mostly to blame for the difficulties China is having boosting performance. “The policy to boost the property industry conducted in 2015 hasn’t taken effect yet. I see more downward risks for China’s economic growth in 2016, and they actually look fairly severe.” Property investment rose just 1 percent, a near 7-year-low, while new construction plunged 14 percent. The China statistics bureau told a news conference that the 2015 growth had been “hard won”, adding that the structural adjustment of the Chinese economy is at a crucial stage. That highlights the difficulties Beijing will face in getting policy - be it monetary easing, reforms, increased fiscal spending or cutting red tape - to translate into actual growth in 2016. Premier Li Keqiang said in December the government would “take a knife” to loss-making zombie companies as parts of efforts to reduce overcapacity in the system, but that would require tough political decisions such as allowing more bankruptcies and potential layoffs.
40.5 percent, as the government tried to shift from investment-powered growth to cleaner and more sustainable expansion. The value added in the service sector increased 8.3 percent year on year to 34.2 trillion yuan (US$5.3 trillion), while growth was 3.9 percent for the primary sector and 6 percent for the secondary. End-user consumption accounted for 66.4 percent of China’s full-year GDP of 67.7 trillion yuan, which expanded 6.9 percent in 2015. Xinhua
Other top priorities Beijing has announced for 2016 include shrinking a glut of unsold homes, deleveraging balance sheets, reducing costs for businesses and encouraging new technology. And analysts say policymakers will need to improve their communication with markets, after the People’s Bank of China sowed confusion globally this month by allowing the yuan to weaken sharply then intervening to stop the fall. Its intent is still not clear. Even if Beijing hikes spending and cuts interest rates again as widely expected, analysts expect growth will cool further this year to 6.5 percent. Some China watchers believe real growth levels are already much lower. Some analysts argue that Beijing has been too cautious in lowering rates and freeing up cash in the banking system, keeping real interest rates too high given low returns on investment. After six rate cuts since November 2014, China’s main policy rate is still fairly high at 4.35 percent.
Weak end to 2015
Other data yesterday suggested China’s economy continued to lose
Beijing to create a plane‑engine powerhouse The plan to merge engine assets is part of the government’s efforts to streamline the state-owned sector while creating companies that are globally competitive
C
hina plans to merge more than 40 entities working on plane engines into a group with 145 billion yuan (US$22 billion) in assets as part of a broader push into advanced industries that can propel growth in the world’s second-largest economy, people familiar with the proposal said. The entities have combined assets of about 110 billion yuan, the people said, asking not to be identified because the discussions are private. The Chinese government and companies including Aviation Industry Corp. of China, known as AVIC, will invest an additional 35 billion yuan, they said. China is eager to develop its own engine to power its planes, and is also keen to push its economy from labour-intensive work into more sophisticated sectors. The Made in China 2025 blueprint, released last March, cited aerospace as one sector the leadership hopes will help make China into an advanced economy along the lines of Japan and Germany. Shanghai-based Commercial Aircraft Corp. of China, known as Comac, is developing the C919
single-aisle jet, which is expected to make its first test flight this year. CFM International, a joint venture between GE Aviation and a division of France’s Safran SA, will supply a version of its LEAP engine for the initial C919s.
Shares jump
Shares of AviChina Industry & Technology Co. climbed by as much as 4.9 percent yesterday in
momentum late in the year, which will keep pressure on the local stock market and feed expectations of further weakness in the yuan as more capital flows out of the country. On a quarter-on-quarter basis, economic growth eased to 1.6 percent in the fourth-quarter from 1.8 percent in the third. Industrial output rose 5.9 percent in December from a year earlier, missing forecasts of 6.0 percent and down from November’s 6.2 percent. Growth in retail sales - one of the few bright spots in 2015 - eased to 11.1 percent in December, less than an 11.3 percent rise expected by the market and November’s 11.2 percent. Fixed-asset investment growth, a crucial driver of the economy, grew 10.0 percent in 2015 from the previous year, also missing market expectations. To be sure, there are some parts of the more than US$10 trillion economy that are looking better as 2016 begins. China’s house sales and prices continued to rise in December, though a full-blown property recovery is not expected any time soon. On the factory side, vehicle sales are seen growing 6 percent in 2016, accelerating from last year on demand for more green cars and sport-utility vehicles, good news for the likes of General Motors. “Sluggish prices and efforts to reduce capacity in some industries have dragged on industrial performance,” analyst Guo Lei at Founder Securities said in a note. “In 2016, due to a possible bottoming out of commodities, and easing deflation, an expected stabilisation in cyclical sectors could give some support to the economy. We expect to see some recovery after the second quarter of this year.” Reuters
Hong Kong, while Avic Aero-Engine Controls Co. rose by as much as 3.5 percent in Shenzhen and Avic Aviation Engine Corp. gained by as much as 3.5 percent in Shanghai. The new company will contain almost all assets related to aerospace engines in China, the people said. China’s State-owned Assets Supervision and Administration Commission, the Ministry of Industry and Information Technology, and AVIC didn’t immediately respond to requests for comment by fax and phone. The plan to merge engine assets, which Bloomberg first reported in October, is part of the government’s efforts to streamline the state-owned sector while creating companies that are globally competitive. The government merged two leading railequipment companies last June, and announced a plan in December to reorganize two major shipping groups. China also plans to combine some assets of its three biggest airlines, a person familiar with the proposal said in October. Bloomberg News
Tokyo, Beijing contemplate economic dialogue Japan and China are negotiating a resumption of a ministerial meeting focusing on economic affairs in Tokyo this month, which would be the first such meeting in five-and-half-years, the Sankei newspaper reported yesterday. Taro Aso, Japan’s finance minister and deputy prime minister, and his Chinese counterpart as well as the foreign ministers of both countries will participate, the paper reported without citing sources. The expected meeting comes as worries over China’s economic slowdown roil global financial markets. The agenda is likely to include bilateral coordination on economic, environmental and trade affairs, according to the paper.
Lufax sees H2 2016 IPO at earliest A planned initial public offering for Chinese online lending platform Lufax, backed by Ping An Insurance Group Co of China Ltd , may take place in the second half of 2016 at the earliest, its chairman said yesterday. Timing details have yet to be decided, however, and the IPO may also take place in 2017, Lufax Chairman Gregory Gibb told reporters on the side-lines of the Asian Financial Forum conference. The IPO could be worth as much as US$5 billion, according to IFR, a Thomson Reuters publication.
Postal Savings Bank seeking IPO sponsors Postal Savings Bank of China (PSBC) has invited banks to pitch for its planned Hong Kong IPO, which with an estimated value of up to US$15 billion may be the world’s biggest listing this year, IFR reported, citing people familiar with the deal. The move puts the initial public offering on track to take place in the second half of the year, said IFR, a Thomson Reuters publication. It added that banks have until January 22 to submit their pitches to become sponsors of the listing.
Counterfeit shoes seized in east China Xiamen Customs in east China’s Fujian Province seized more than 14,000 pairs of fake Adidas, Nike and Puma shoes with a street value of US$150,000. Customs officers said the shoes were declared by a local trading company, which failed to provide the required certificates for using the trademarks of Adidas on 8,728 pairs of shoes, Nike on 5,400 pairs and Puma on 696 pairs. Customs contacted the three trademark holders who confirmed the infringement on Monday and applied for customs protection of intellectual property rights. The goods have been detained for further investigation.
Tibet earmarks 200 bln yuan to build roads Tibet Autonomous Region in southwest China will spend 238.8 billion yuan (about US$37 billion) to build roads in order to improve transportation by 2020. The money will be used to build 32,000 kilometres of roads in Tibet over the next five years, 3,500 kilometres of which will be high-grade highways, said Yongje, deputy director of the transportation department of Tibet. Tibet’s far-flung villages and border areas will be accessible through these roads, he said. “By 2020, we will eliminate the bottleneck effect of transportation on social and economic development,” he added.
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January 20, 2016
Greater China
Mainland hits record in venture capital deals China is narrowing the gap with the U.S., the birthplace of modern venture capital Shai Oster
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enture capitalists poured a record US$37 billion into China start-ups last year, more than double the previous year’s tally, as the country emerges as a legitimate challenger to the U.S. for leadership of the technology industry. The surge came as venture firms invested in 1,555 China deals, according to London consultancy Preqin Ltd. The pace of deals slowed in the fourth quarter, with the value of investments dropping about 40 percent amid a shakeout in Internet services. China’s venture boom created some of the world’s most valuable start-ups, including smartphone manufacturer Xiaomi Corp., ride-hailing service Didi Kuaidi and peer-to-peer lender Lu.com, officially called Shanghai Lujiazui International Financial Asset Exchange Co. The doubling of venture deals last year came after a tripling in deal value the year before, suggesting there may be more breakout companies on the way. “The annual shift from US$4.5 billion to US$15 billion to US$37 billion demonstrates the immense
appetite that the VC (venture capital) industry in China is currently experiencing,” Felice Egidio, head of venture capital for Preqin, said in an e-mail. Last year was a banner year globally: Venture funding rose 45 percent to a record US$135.8 billion, according to Preqin. Still, exits declined for the first time since the financial crisis in 2008 with fewer initial public offerings or sales of start-ups. The decline in the number of U.S. and European VC deals was offset by a rise in Asia, especially China, Egidio said. China is narrowing the gap with the U.S., the birthplace of modern venture capital. The value of U.S. deals hit US$68 billion last year, up from US$56 billion,
according to Preqin. “In the next five years, there will be more innovation, more invention, more entrepreneurship happening in China, happening in Beijing than in Silicon Valley,” Travis Kalanick, founder of San Franciscobased Uber Technologies Inc., the world’s most valuable start-up, said last week at a Beijing conference. “We gotta play our A-game in order to compete with the best.” Still, there are concerns that too many start-ups have been set up in certain sectors in China, triggering costly price wars to win customers. Venture investors pulled back in the fourth quarter, cutting US$7.8 billion in deals, compared with about US$13 billion in the third quarter.
The annual shift from US$4.5 billion to US$15 billion to US$37 billion demonstrates the immense appetite that the VC industry in China is currently experiencing Felice Egidio, head of venture capital, Preqin
“Venture and private equity investors, who aggressively invested over the last two years, are getting very cautious,” Hong Chuan Thor, managing director Highland Capital Partners, said in an e-mail. “First half
Stocks regulator denies report chairman offers to resign The report is “not factual,” the regulator said on its official microblog, saying it has asked for a correction
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hina’s securities regulator denied a Reuters report that its Chairman Xiao Gang offered to resign. Reuters reported Monday that the chairman of the China Securities Regulatory Commission submitted his resignation last week, citing unidentified people. It wasn’t clear whether the government had accepted his offer, the news agency said. The report is “not factual,” the regulator said on its official microblog, saying it has asked for a correction.
Xiao, 57, a former head of Bank of China Ltd., assumed his post as chairman of the CSRC in March 2013, and has overseen a period of rapid boom-to-bust cycles in the nation’s stock market since mid-2014. In an internal meeting held on January 16, Xiao acknowledged loopholes and ineptitude within the regulatory system following a review of the turmoil in China’s markets, according to a transcript posted on the agency’s website. It was on Xiao’s watch that unchecked leverage drove a jump
in Chinese equities from late 2014, before a collapse in June last year that triggered government stock purchases, restrictions on stake sales and a temporary ban on initial public offerings. The nation’s stock market entered a bear market last week. Authorities introduced a circuit-breaker system in the first week of January and scrapped it within four days after finding that it spurred investors to rush for the exits on big down days. Bloomberg News
of this year doesn’t look good for entrepreneurs who are raising capital.” There has been a wave of mergers pushed by investors looking to build more profitable businesses. Didi Kuaidi was born out of a combination of competing app makers. Now, Meilishuo. com, a fashion retailer backed by Tencent Holdings Ltd., is combining with rival Mogujie. com to form a company with US$3 billion in sales. It was a similar arc across Asia. After peaking at US$18 billion in the third quarter, nearly matching the US$18.5 billion in the U.S., venture investments fell by nearly half to US$9.4 billion in the last quarter, according to Preqin. It fell at a slower pace in the U.S. to US$12.7 billion. Xiaomi, the world’s second-most valuable startup, has faced scrutiny about whether it can live up to its US$45 billion valuation. The hardware maker stumbled in its goal of selling 80 million smartphones last year as rivals copy its youthful style and online sales strategy. Cofounder Lin Bin revealed last week the company sold more than 70 million phones. “I wouldn’t say the VC boom has come to an end,” said Mingchen Xia, a principal at private-equity firm Hamilton Lane Advisors. “But, in general, the activity will be more rational than in the last two years.” Egidio said the spike of about US$13 billion in the third quarter was a blip caused by a handful of monster-sized deals, and despite the fourth-quarter drop, he expects continued strength this year. “There is no reason why the industry cannot continue to grow in China.” Bloomberg News
Business Daily | 11
January 20, 2016
Asia
Shoppers pay 0%, retailers 10% in strained Asean credit market On average, the shares of Southeast Asia’s listed department and electronics stores shed 21 percent of their value over the last year Christopher Langner and David Yong
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amilies buying televisions are getting lower borrowing costs than the stores selling them, a reflection of the toll taken on Southeast Asia retailers by flagging consumer demand and e-commerce rivalry. Courts Asia Ltd., which offers shoppers zero percent long- term credit on higher-end products, has seen its Singapore dollar bond yields rise 26 basis points to 4.32 percent in the past six months and is trying to refinance the note ahead of its May repayment. The yield on U.S. currency bonds of Parkson Retail Group Ltd., part of a Malaysian retailer which operates across Southeast Asia, has soared 321 basis points to 10.23 percent. Flagging global growth and rising household debt is knocking consumer demand across Southeast Asia, with Indonesian phone seller PT Trikomsel Oke in November becoming the first company to default on Singapore dollar bonds since 2009. Retailers that borrowed to finance growth are also losing ground to online market places like Alibaba Group Holding Ltd. The median debt load of the region’s retailers rose to 1.75 times operating profit in latest filings compared with 1.3 at the end of fiscal 2014. “I have been very careful about some local currency corporate bonds,” said Singapore-based Desmond Soon, co-head of investment management for Asia at Western Asset Management Co., which had US$446 billion under management at Sept. 30 and held Courts Asia bonds as of November 30, according to Bloomberg-compiled
data. “Bricks and mortar retailers do have an issue,” Soon said, adding the money manager isn’t likely to buy Courts’ potential new offering. Retail store sales in Singapore dropped for a third month in November, falling 2 percent from a year earlier, Department of Statistics data show. Meanwhile, online transactions in the region are growing. Singapore Post Ltd.’s domestic e-commerce orders in Southeast Asia and Australia rose 384 percent in the twelve months through November, according to a company presentation. Courts Asia, which sells goods from electronics to home furniture in Singapore, Malaysia and Indonesia, began meeting investors last week ahead of its scheduled S$125 million (US$86.9 million) repayment of notes in May. It’s looking to raise funds to help refinance and repay the bond, Courts’s Singapore-based spokeswoman Tammy Teo said by phone. The company had S$107 million of cash and S$263 million of shortterm liabilities at September 30, according to its latest quarterly report.
Prospects
“Everyone recognizes that the retail sector for Southeast Asia markets will continue to be a bit challenging in the short- term,” said Teo. “But if investors look across the medium and long-term, the prospects are still there.” The financial position of Hong Kong-listed Parkson Retail, which is majority-owned by Kuala Lumpurbased Parkson Group, remains “strong”
Retail store sales in Singapore dropped for a third month in November. Pictured Singaporean shopping mall Paragon
with cash balances of 3.7 billion yuan (US$562 million), said the group’s external press representatives at Bell Pottinger LLP. While it has no plans for fund-raising this year, the firm will be “more than happy” to seize any opportunities to lower the group’s borrowing costs. Potential debt investors may not be encouraged by 24 year-old student Samuel Ng, who says that young Singaporeans rarely visit physical outlets. “No one buys at the store, unless it’s urgent,” he said via a Samsung S4 phone that was bought on shopping app Carousell.com. “Generally, mobile phones are cheaper online.” The changing habits are reflected in stock and bond prices. On average,
the shares of Southeast Asia’s listed department and electronics stores shed 21 percent of their value over the last year, and the prices of all bonds issued by the companies are down. Courts is building up its online presence as it looks to explore all avenues to boost sales, said spokeswoman Teo. For now, less than 3 percent of its revenue comes from the web. “A key emerging risk, especially for Singapore, is the advent of e-commerce,” said Hasira de Silva, a Singapore-based analyst at Fitch Ratings. That’s “likely to have an impact on the long-term profitability of retailers that don’t have a strong online sales platform.”
Japan's Cosmo Oil buys U.S. crude cargo Traders in Asia were also running the numbers on importing Alaska North Slope crude after the export ban was lifted Osamu Tsukimori and Florence Tan
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apan’s Cosmo Oil Co has purchased a U.S. crude oil cargo, the first by a buyer in the country since the ending of a four-decade ban on most U.S. crude exports and potentially the first in Asia, two sources familiar with the matter said yesterday. Cosmo Oil, a unit of Cosmo Energy Holdings, has bought about 300,000 barrels of U.S. crude, to be shipped from the United States in mid- to late-February, one of the sources said. While exports of U.S. crude have already set sail to Europe, the deal could mark the first shipment to Asia. Chinese oil refiner Sinopec Corp has also bought U.S. crude for export,
to be loaded from a Gulf Coast port in March. Traders in Asia were also running the numbers
on importing Alaska North Slope crude after the export ban was lifted. Japan, which relies on the
Middle East for around 80 percent of its crude imports, has been trying to diversify its energy sources.
Bloomberg News
The cargo is currently slated to arrive at Cosmo’s 220,000 barrels-per-day (bpd) Chiba refinery and 132,000 bpd Yokkaichi refinery around the middle of April, one of the sources added. Industry sources said the arbitrage window for importing U.S. crude is closed with West Texas Intermediate prices higher than Brent. But Cosmo will make the transaction competitive by co-loading U.S. condensate from the Eagle Ford shale in Texas in the same vessel, the source added. Cosmo bought about 300,000 barrels each of U.S. condensate and U.S. light crude to be loaded on a Suezmax vessel, a second source said. The company “regards it as a replacement of Middle East crude such as Murban or Das,” he said. Cosmo is aggressive in trying new oil that becomes available and was the first Japanese company to buy U.S. condensate from booming shale production in 2014. Reuters
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January 20, 2016
Asia
A US$59 trillion tailwind spurs governance changes Asian investors and managers who have signed the United Nations Principles for Responsible Investing climbed to 70 in 2015 from seven in 2006 Nichola Saminather and Viparat Jantraprap
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surge in socially responsible investments to US$59 trillion globally over the past decade is nudging Asian firms to change a notoriously insular management style to one that actively addresses corporate governance concerns. As earnings growth and China’s economy slow, corporate executives are becoming more receptive to the investment messages from funds committed to Environmental, Social and Governance (ESG) principles. That commitment can be measured in trillions of investment dollars global investors who have signed the United Nations Principles for Responsible Investing (PRI) now own or manage US$59 trillion, a surge from a mere US$4 trillion in 2006, reflecting growing evidence that responsible investments translate to higher long-term returns. Companies in Asia are beginning to take heed as boardroom indifference to issues like minority shareholder rights and the environment is giving way to stronger corporate governance that seeks to satisfy all stakeholders.
Asian firms now make up more than half of the Dow Jones Sustainability Emerging Markets Index, a benchmark for environmental, social and governance performance. Seven of the 13 additions to the index last year were from Asia. “A company’s willingness and ability to address ESG issues relevant to its business can be a material driver of the company’s performance and valuation,” said Arthur Lau, head of Asia ex-Japan fixed income at PineBridge Investments, a signatory to the U.N. PRI. Indeed, even as profit growth remains a focus for managers, an increasing number of Asian businesses and regulators are linking this growth to moves they are making to improve corporate responsibility such as tracking carbon footprints and creating indices of sustainable businesses. Asian investors and managers who have signed the PRI climbed to 70 in 2015 from seven in 2006. Malaysia and Japan introduced
their own responsible investment indices in 2014. In a sign that such investments are growing in importance to investors, Japan’s trillion-dollar Government Pension Investment Fund, the world’s biggest, now benchmarks its performance against the JPX-Nikkei index 400, instead of the traditional Nikkei 225 or the Topix. The trend is being driven by research showing that responsible corporate behaviour pays off. For instance, an analysis of more than 200 academic papers conducted by Arabesque Asset Management and Oxford University found that between 80-90 percent of studies show good sustainability standards lower companies’ costs, improve performance and boost share prices.
Progress, challenges
This probably explains why places such as Thailand, where historically corporate responsibility has taken a back seat, have begun to embrace change. “Investors are increasingly looking
for values beyond the common capital gains and dividends,” said Bordin Unakul, executive vice president of the Stock Exchange of Thailand, the country with the most additions in Asia to the Dow Jones index last year. Take the case of Thailand’s Advanced Info Service, which entered the Dow Jones sustainability index in 2015. The company has created a whistle-blower hotline to identify misconduct and fraud, and has begun tracking carbon emissions to reduce its environmental impact. In Taiwan, Cathay Securities Investment Trust - a subsidiary of Cathay Financial Holdings, which was also a DJSI entrant in 2015 - has developed an ethical exclusion list and is publishing corporate social responsibility reports. “Good ESG performance naturally secures confidence of long-term investors,” the company said in an e-mailed statement. Still, given the longer timeframe for ESG measures to bear fruit, the pace of change remains slow. Less than 5 percent of the 1,454 signatories to the U.N. PRI are in Asia. “There are a number of systemic issues in the region, as well as individual companies where governance frameworks aren’t as well developed,” said Andrew Gray, investment governance manager at pension fund AustralianSuper, which has US$92 billion of assets under management and is a signatory to the U.N. PRI. Gray said that applying ESG criteria is a resource-intensive process. “It takes a lot of time and effort to do it (but) as investors in the region, it’s really important to us in the context of the long-term investment outcomes.”
Japan forecasts to show fiscal discipline targets more distant The Cabinet Office will submit its forecasts to the government’s top advisory panel on Thursday
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apan’s Cabinet Office will issue forecasts this week showing Prime Minister Shinzo Abe’s (pictured) administration is falling behind its fiscal discipline targets, a document viewed by Reuters showed. The forecasts could deal a blow to the credibility of Abe’s fiscal policy and fuel lingering concerns that Japan is not using a recent increase in tax revenue to pare its debt burden, which is the largest among industrialised nations. The Cabinet Office, which helps coordinate economic policy, expects a primary
budget deficit of 6.5 trillion yen (US$55.20 billion) in fiscal 2020, the document showed. That is worse than the previous forecast of a 6.2 trillion yen deficit, which means the government is getting further from its goal of returning to a primary budget surplus in fiscal 2020. The primary budget, which is an important measure of a country’s fiscal health, excludes debt servicing costs and income from bond sales. Abe’s government also has a target of reducing the primary budget deficit to 1
percent of gross domestic product in fiscal 2018, which was intended to reassure investors that it will stick
with fiscal discipline. However, the Cabinet Office will say this week that the primary budget deficit
Reuters
will be 1.7 percent of GDP in fiscal 2018, unchanged from its previous forecast in July, the document also showed. The Cabinet Office will submit its forecasts to the government’s top advisory panel on Thursday. Since Abe took office in late 2012 tax revenue has increased as economic growth improved. In fiscal 2016, which starts in April, the government expects tax revenue to rise to a 25year high, which will allow the government to cut new borrowing to the lowest in eight years. Still, some economists are worried because tax revenue gains depend partly on a jump in corporate profits due to a weak yen, which may not be sustainable. The government also plans to increase cash handouts to pensioners and exempt food from further increases in the sales tax, which will reduce money flowing into government coffers. Reuters
editorial council Paulo A. Azevedo, José I. Duarte, Mandy Kuok Founder & Publisher Paulo A. Azevedo | pazevedo@macaubusinessdaily.com Newsdesk João Santos Filipe, Michael Armstrong, Stephanie Lai, Óscar Guijarro, Kam Leong, Joanne Kuai GROUP SENIOR ANALYST José I. Duarte Designer Francisco Cordeiro WEB & IT Janne Louhikari Contributors James Chu, João Francisco Pinto, José Carlos Matias, Larry So, Pedro Cortés, Ricardo Siu, Rose N. Lai, Zen Udani Photography Carmo Correia Assistant to the publisher Lu Yang | lu.yang@projectasiacorp.com office manager Elsa Vong | elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd.
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January 20, 2016
Asia Cambodia lacks funds to meet 2020 power target Cambodia needs almost US$1 billion to provide electricity nationwide but lacks the funds to accomplish this, local newspaper reported yesterday. The government does not have the ability to finance expansion of electricity nationwide and that assistance from others and the private is necessary, Ty Norin, chairman of the Electricity Authority of Cambodia (EAC), was quoted by the Khmer Times as saying. Perhaps the government could invest 400 or 500 million U.S. dollars, he said, adding that the rest of the funding would need to come from other countries.
India would be very concerned by big yuan devaluation
Thai prosecutor charges Philip Morris
Figures this week showed that India’s merchandise exports fell in December for the 13th month in a row Manoj Kumar and Douglas Busvine
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ndia would be very concerned if China were to allow a major devaluation in the yuan currency, its Group of 20 summit negotiator told Reuters, adding that he doubted Beijing would allow this to happen. Arvind Panagariya, who also heads the government’s main economic advisory body, also said that the strength of the Indian rupee against many currencies had contributed to the weak export performance of Asia’s third-largest economy. “India has to be certainly very concerned if a massive or very large devaluation of the yuan happens,” Panagariya said in an interview after
returning from a visit to China to discuss preparations for this year’s G20 summit. “In the end, that not only makes Indian goods less competitive in the Chinese market but also India’s ability to compete with the Chinese in third markets is impacted.” Panagariya, appointed by Prime Minister Narendra Modi a year ago to run his government’s Policy Commission, said he doubted China would allow the yuan to crash: “The Chinese are not going to let the yuan devalue excessively.” Commenting on the rupee, he said the Indian currency had appreciated substantially against most currencies
apart from the dollar. That was a “concern”, he said, because Indian exports have declined over the past year even as global trade has grown slightly. “While one can say that some of the decline is due to the global economy itself, in terms of export markets barely growing, I think some of the burden also falls on the appreciation of the rupee,” said Panagariya. Figures this week showed that India’s merchandise exports fell in December for the 13th month in a row - and were down by nearly 15 percent from a year earlier. Reuters
Rising optimism for New Zealand economy greeted with caution
KEXIM bank eyes 5 bln euro financing deal with Iran The state-run Export-Import Bank of Korea (KEXIM) said yesterday it plans to sign an agreement with the Iranian central bank on providing up to about 5 billion euros (US$5.45 billion) in financing for South Korean companies doing business there. The specialist trade financing bank said in a statement it plans to sign the agreement during the current quarter to support contracts that South Korean companies win from Iran in sectors including power generation, construction and steel-making. The move comes as South Korea hopes the lifting of international sanctions would help its companies secure new business opportunities.
CEO of Freeport’s Indonesian unit steps down
An economic note from the ASB Bank said it expected the lift in inflationary pressures would be transitory
The chief executive of Freeport McMoRan Inc’s Indonesian unit, Maroef Sjamsuddin, has resigned for “personal reasons”, a company spokesman said on Monday, less than a month after the chairman of the U.S. mining giant stepped down. Freeport, which operates one of the world’s largest copper and gold mines in Indonesia’s far-eastern Papua region, is a key source of resource revenue for the country, and the issue of its operations and contract to operate are politically sensitive.
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usiness confidence in New Zealand’s economy picked up in the last quarter, but analysts say the outlook is still too fragile to suggest sustained growth. The New Zealand Institute of Economic Research (NZIER) Quarterly Survey of Business Opinion, out yesterday, showed business confidence rebounded in the last quarter of 2015, following a sharp drop in the previous quarter. A net 13 percent of businesses expected the economy to strengthen in coming months, as demand had picked up across all sectors, suggesting “solid growth” in the first half of this year, said an NZIER statement. Strengthening demand was supporting expansion and recruitment plans, but firms were also reporting increased difficulty in finding skilled labour as well as more caution in regard to investing, particularly in buildings. With activity picking up, there were signs of renewed capacity pressures in the economy, but inflation pressures remained weak, which weighed on profitability. The NZIER said it expected the Reserve Bank of New Zealand (RBNZ)
Thailand’s prosecutor has charged the local unit of Philip Morris International of under-reporting the value of imported cigarettes, which led to tax revenue losses of about 20 billion baht (US$551.27 million), the attorney-general said. The case involves cigarettes imported by Philip Morris Thailand from the Philippines between 2003 and 2007, the prosecutor told reporters. In addition to the company, seven Thais were also charged, as well as four foreigners who were outside the country, they added. A court will hear the case on April 25.
EU team visits Thailand to assess fishing industry clean-up Reserve Bank of New Zealand headquarters
to keep the interest rate on hold over 2016 in the face of solid economic growth, despite subdued inflation. An economic note from the ASB Bank said it expected the lift in inflation pressures would be transitory, as they reflected the fall in the New Zealand dollar over the second half of 2015. The RBNZ would be encouraged by the direction of the survey results, but would be looking for further lifts over the first half of 2016 to be
consistent with its inflation forecasts, said the ASB. “It remains our view that the RBNZ is likely to be disappointed on this front, with confidence and pricing intentions likely to hold at current levels,” it said. “We continue to expect a subdued inflation outlook will prompt two further 25-basis-point OCR (official cash rate) cuts in June and August this year.” Xinhua
A European Union delegation that is visiting Thailand to weigh its progress in battling illegal and unregulated fishing will not make a decision this week on whether to ban Thai seafood products, the government said yesterday. Thailand, the world’s third-largest exporter of seafood, faces the risk of the ban after the European Union gave it a “yellow card” in April for failing to clamp down on problems in its fishing industry. An EU dialogue mission to assess progress is set for Thursday and Friday but a technical team has already arrived, the government said.
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January 20, 2016
International German inflation averages 0.3% in 2015 Consumer prices in Germany rose by 0.3 percent in December, bringing the average inflation rate for the year as a whole also to 0.3 percent, official data showed yesterday. The previous month, the national inflation yardstick for Europe’s biggest economy had edged up by 0.4 percent. Using the Harmonised Index of Consumer Prices (HICP) -- the barometer used by the European Central Bank -- the German inflation rate stood at 0.2 percent for December alone and 0.1 percent for the whole of 2015, the federal statistics office Destatis said in a statement.
IEA says oil market to remain oversupplied until late 2016 Unseasonably warm weather and rising supply will keep the crude oil market oversupplied until at least late 2016, the International Energy Agency said in its monthly report yesterday. Warm winter weather around the world cut global oil demand growth to a one-year low of 1 million barrels per day in the fourth quarter of 2015, down from a near five-year high of 2.1 million bpd in the third quarter. The IEA left its estimate of growth in global demand for 2016 unchanged from its previous monthly report at around 1.2 million bpd.
Unilever sees more volatility after steering through 2015 Consumer goods group Unilever said it was preparing itself for tougher market conditions and another year of volatility in 2016 after it outperformed the wider market with better-than-expected 2015 sales growth. Turnover at the Anglo-Dutch maker of Knorr soups, Dove soap and Lipton teas rose 10 percent to 53.3 billion euros, helped by a 5.9 percent tailwind from exchange rates. Underlying sales rose 4.1 percent, beating an average 3.9 percent forecast from analysts. Chief Financial Officer Graeme Pitkethly said the group had a strong finish to the year with fourth quarter underlying sales up 4.9 percent.
U.K. inflation edges higher on fuel costs A surge in air fares produced a modest pickup in U.K. inflation in December as lower food prices kept the rate well below the Bank of England’s target. Prices rose an annual 0.2 percent, as forecast by economists in a Bloomberg survey, following a 0.1 percent gain in November. Core inflation, which excludes volatile food and energy prices, accelerated to 1.4 percent, the highest in a year, the figures from the Office for National Statistics show. BOE officials appear to be in no hurry to follow the Federal Reserve in raising interest rates from a record low.
Total takes oil price hit but will not cut jobs French energy company Total expects a drop in 2015 results but does not plan to cut jobs as peer BP has done to weather currently low oil prices, its chief executive said in a radio interview yesterday. Patrick Pouyanne told Europe 1 that the group had the financial capacity to weather low oil prices. Pouyanne said Total like its peers was being hit by the fall in crude prices and that the company expected its results to drop by 20 percent. A Total spokesman said Pouyanne was referring to the company’s full-year 2015 results, which will be presented on February 11
EU sees deal with U.S. over derivatives rules in H1 Without an agreement by June EU players using U.S. clearing houses to clear their trades would have to hold extra capital
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he European Commission expects to reach within six months an agreement with Washington that would allow it to declare U.S. rules for clearing derivatives equivalent to its own, a senior EU official told Reuters. The two sides are introducing rules to make derivatives such as credit default swaps more transparent after their opacity played a key role in exacerbating the financial crisis that rocked global markets in 2007-09. Without an agreement on rule equivalence by June, when a grace period expires, EU players using U.S. clearing houses to clear their trades would have to hold extra capital as an insurance against defaults, a costly requirement. “With the U.S., we are now quite close to an agreement,” said Olivier Guersent, director general at the EU Commission’s financial services division. “Discussions have been going on for a long time, they started three years ago. We have made considerable progress but the road was bumpy,”
said Guersent, who spoke to Reuters on the side-lines of the Asian Financial Forum in Hong Kong. “We are now entering a final stage of negotiations and we should certainly see an agreement in the first half of this year.” Gu er s en t, wh o r e p o r t s t o Commissioner Jonathan Hill, said the EU’s executive had not yet taken a decision on whether to delay the introduction of a separate set of rules aimed at overhauling how securities and commodities are traded in the EU. European banks, trading firms and investors have asked the Commission to postpone by at least a year the introduction of the new rules, known as MIFID II (Markets in Financial Instruments Directive), as they fear they will not be able to update their IT systems in time. Steven Maijoor, chair of the EU’s European Securities and Markets Authority, told Reuters on Monday he was optimistic the rules would be delayed. “A delay is still to be decided by the Commission,” said Guersent.
Eurozone bank sector on mend, ECB survey shows Banks reported a net easing of credit standards on loans to households for house purchase
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urope’s battered financial sector is showing further signs of mending and banks are increasingly competing for custom by easing credit standards, a key European Central Bank survey showed yesterday. The ECB said its quarterly bank lending survey (BLS) showed banks are easing credit standards for loans to enterprises, an encouraging sign, since the chronic weakness of credit activity in the euro area has previously been blamed for the absence of any noticeable recovery in the 19 countries that share the single currency.
“In response to the January 2016 bank lending survey, euroarea banks reported a continued net easing of credit standards on loans to enterprises in the fourth quarter of 2015,” the ECB report said. It conceded that the easing was “slightly less pronounced than banks’ expectations in the previous survey round.” But “competitive pressures were the main factor behind this easing,” it added. Banks reported a net easing of credit standards on loans to households for house purchase, again due to competitive pressures, it said.
“If decided, it would involve an amendment to primary legislation.” “In any case, we will continue the process on the adoption of secondary legislation. Postponement, if there is any, would mainly be due to the need for the industry and supervisors to bring up in line their IT system.” Reuters
KEY POINTS EU, U.S. nearing deal on equivalence of clearing rules-Guersent Without agreement, EU players face higher capital requirements EU Commission has not yet decided on delaying MIFID II
Demand for loans is also increasing, the ECB found. “Net demand across all loan categories continued to rise, especially for loans to enterprises,” the survey showed. “The low general level of interest rates contributed most to the increase in loan demand. For loans to enterprises, financing needs for working capital and fixed investment were further contributors to stronger demand. For housing loans, consumer confidence and housing market prospects additionally underpinned loan demand.” The eurozone central bank has previously complained that its ultra-easy monetary policy had not been feeding through into the real economy, because banks are not passing the money on in loans, particularly to the small and midsized enterprises (SMEs) which are the region’s economic backbone. In an attempt to address this, the ECB embarked on a controversial programme of sovereign bond purchases, known as quantitative easing or QE. AFP
Business Daily | 15
January 20, 2016
Opinion Business
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Leading reports from Asia’s best business newspapers
China GDP shows action needed on industry zombies, currency Clyde Russell
THE KOREA HERALD
Reuters columnist
South Korea will start another round of nationwide discount events later this month in a bid to boost domestic consumption around the Lunar New Year’s holiday, the finance ministry said Tuesday. The so-called Korea Grand Sale will begin on January 25 and run through February 7 across the nation before the holiday, with the participation of 300 local traditional markets, according to the Ministry of Strategy and Finance. For foreign tourists, the event will take place from February 1 in duty-free shops and other retail stores to celebrate the start of the Visit Korea Year 2016-2018.
JAKARTA GLOBE CIMB Group Holding Bhd said it has no new plan to lay off staff in Malaysia and Indonesia in 2016 after the completion of last year’s mutual separation scheme (MSS), said chief executive officer Tengku Datuk Seri Zafrul Aziz. Instead, the focus would be on improving productivity within the group and continuing with its business agenda. The banking group, however, confirmed that it had let go 32 staff members from its investment banking and equities business arm in Hong Kong. The redundancy exercise reflected the worsening capital markets environment in North Asia.
JAKARTA GLOBE Indonesia is set to allow foreigners to wholly own cold storage businesses, sugar factories and rubber manufacturing companies in an attempt to attract more foreign investment, a senior official said. The move is part of the upcoming revision to the socalled negative investment list, which restricts foreigners ownership in sectors deemed strategic or crucial to the national interest. Franky Sibarani, the chairman of Investment Coordinating Board, said that foreigners would be able own 100 percent of cold storage businesses across Indonesia.
NEW ZEALAND HERALD A former Financial Markets Authority (FMA) analyst who falsified his CV to get that job has admitted theft and forgery charges. Benjamin Anthony Kiro was convicted after pleading guilty to 23 charges, including forgery, use of a forged document, theft by a person in a special relationship and obtaining money by deception. Kiro forged his academic record from Australian universities and used a false curriculum vitae to obtain employment the FMA in 2014. He worked at the capital markets regulator for around three months, which is likely to cause embarrassment for the organisation.
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he trick with big, important numbers like China’s gross domestic product (GDP) is not working out what the data tells us, rather it’s what it doesn’t. China’s economy met market expectations by expanding 6.8 percent year-on-year in the fourth quarter of last year, which put full-year growth at 6.9 percent, down from 7.3 percent in 2014 and the slowest pace of expansion in a quarter of a century. Other economic data released yesterday came in slightly below market forecasts, with December industrial output up 5.9 percent year-on-year, retail sales up 11.1 percent and January to December fixed-asset investment up 10 percent. What the data shows is that the trend of a slowing Chinese economy remains intact, as does the slow and somewhat painful process of shifting the drivers of growth from heavy industry and construction to consumer activity. It’s now virtually an accepted market fact that China’s economy will continue down this path in 2016, something top officials have acknowledged. So what are the GDP and other numbers not telling us? The main thing is exactly what steps Beijing will take and when they will be taken in order to ensure that growth doesn’t fall too far this year. The market will be looking to further monetary and fiscal easing as the headline act in official efforts to prop up growth and ease the transformation process. But given that China’s slowing growth is largely a result of debt-driven overcapacity in
many sectors, it’s likely that monetary and fiscal policy won’t be enough. What would seem key to China’s prospects of a second half recovery is decisive action on structural reforms, and dealing with excess capacity in key heavy industries is the main area to target. Industries that need action to purge surplus capacity include steel, aluminium, coal, cement and shipbuilding, all of which happen to be key consumers of major imported commodities. At the UBS Greater China Conference in Shanghai last week, the bank’s chief China economist Wang Tao said she believed the government would have success this year in tackling overcapacity. However, when the conferences delegates were asked to vote on whether they shared this optimism, the overwhelming response was that Beijing would make little to no significant progress on restructuring, merging or closing state-owned enterprises (SOE).
Need to kill zombies Many of these companies are referred to as zombies, insofar as they continue producing even though they are lossmaking and saddled with enough debt that it would be impossible for them to trade themselves to sustainable profitability, even if the prices of the commodities or products they produce increased. The other key issue raised at the conference was whether the authorities will be able to manage the yuan exchange rate, or whether they will struggle to prevent a weakening of more than 10 percent against the U.S. dollar in 2016.
Industries that need action to purge surplus capacity include steel, aluminium, coal, cement and shipbuilding, all of which happen to be key consumers of major imported commodities
Both the issue of reform of industries with excess capacity and the path of the yuan will be key for China’s commodity imports. A significantly weaker yuan will discourage commodity imports and may lead to the reduction of stockpiles, particularly for those commodities with existing elevated inventory levels, such as copper and iron ore. The impact of restructuring the SOE sector will be harder to quantify, as in theory it will lead to lower output and therefore a reduced requirement for natural resource inputs. But it’s more complex than that. Rationalising domestic mining may result in lower output of iron ore and coal, thus opening the door for increased imports of cheaper supplies, especially from top exporter Australia. Shutting excess steel capacity may not lower actual output much, rather it will lower the cost curve for China’s production, which in turn may make exports more competitive. The same argument could be made for aluminium and copper smelting, which also stand to benefit from lower overall production costs, rather than lower actual supply. However, the start of a recovery in commodity prices is likely linked to the removal of excess capacity, particularly in China. This may come initially at the cost of lower imports of key natural resources, which in turn should drive rationalisation of output outside China. But overall, it will key to watch what Beijing actually does to reform zombie SOEs, and if reforms are forthcoming, working out how long they will take to make a difference. Reuters
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January 20, 2016
Closing Report quantifies pollution of China’s 245.77 mln vehicles
ZTE aims to double annual revenue by 2020
Vehicles across China emitted over 45 million tonnes of pollutants in 2014, a dip of 0.5 percent from a year earlier, according to an annual report on vehicle pollution made public by the Ministry of Environmental Protection yesterday. According to the report, the number of registered vehicles, including cars, trucks, and motorcycles, across the country reached 245.77 million, 33 times that in 1980. Out of the 45 million tonnes of pollutants, vehicles discharged 6.27 million tonnes of nitrogen oxide (NOx), 574,000 tonnes of particulate matter (PM), 4.28 million tonnes of hydrocarbon (HC) and 34.33 million tonnes of carbon monoxide (CO), according to the report.
Chinese telecom equipment maker ZTE Corp is aiming for 200 billion yuan in revenue in 2020, double its expected record high income in 2015, a spokesman said yesterday. Shenzhen-based ZTE also aims to boost U.S. sales to become the third largest provider of smartphones there, spokesman David Dai Shu said after the company reported a 43.5 percent increase in preliminary net profit to 3.8 billion yuan (US$577.81 million). Revenue in 2015 also rose 23.8 percent to a record high 100.8 billion yuan, preliminary results showed. Analysts had estimated profit at 3.54 billion yuan and revenue at 94.14 billion. Strong demand for 4G telecom infrastructure at home also helped boost profits, he said.
Chinese less mobile in 2015 The fall appears to have been driven by a drop in the movement of urban residents
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hina’s population movement decreased in 2015 for the first time in at least five years, data showed yesterday, apparently as fewer people moved between its teeming cities. The movement of hundreds of millions of people from the countryside
to towns and cities in recent decades has been both a prime driver and a result of China’s economic boom. But the country’s “floating population” -- those who live in a different area to the one where they are registered, including city-to-city movers -- fell by 5.68 million to 247 million, figures from the
National Bureau of Statistics showed. It was the first recorded decrease since 2000, when China first began issuing the statistic. The figures were published every five years until 2010, when they began to appear annually. The fall appears to have been driven by a drop in the
movement of urban residents, even as the government works to ease restrictions on residence registrations known as “hukou”, which are crucial to securing services such as health and education and have hampered labour mobility. In contrast, the number of workers who have moved
from farming areas to urban environments -- including in their administrative home district -- crept up again, rising 0.4 percent to 277 million. Increasing economic uncertainty may have led to more people staying put, unwilling to face the difficult transition of leaving their homes and often their families behind. The total number of people in the world’s most populous country increased by 6.8 million to 1.374 billion, the figures showed. The data also highlighted the demographic challenges the country faces. Natural births in 2015 continued to decrease, dropping from 12.37 to 12.07 per thousand, as the country faces a looming population crisis that has forced it to ease its “one child policy” to allow two births for each married couple. The decline in the working age population -- defined in China as those aged 16 to 59 -- accelerated, falling by 4.87 million people in 2015 as opposed to 3.71 million the previous year.
Migrant workers have lunch at a construction site in central business district in Beijing yesterday
AFP
China’s top statistics official defends data accuracy
HK’s share of Mainland tourists to drop
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National Bluestar appoints ex-Bayer executive as CEO
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ong Kong’s share of tourists from Chinese mainland is predicted to drop to 27 percent in 2020, down from a peak of 42 percent in 2012, according to the brokerage firm CLSA. A survey CLSA conducted with 400 mainland tourists found that they are attaching greater importance to experiencing foreign cultures and broadening their horizons when choosing holiday destinations, local media reported yesterday. Aaron Fischer, CLSA’s regional head of consumer and gaming research, said this partially explained the shift away from Hong Kong, which is primarily viewed as a shopping destination. “When they travel to these other places, the impressions they’ re having are quite positive, particularly when it comes to the environment or experience of foreign culture,” he said. Fischer also said Hong Kong still has capacity constraints, with occupancy rates in hotels still at a high level despite the economic slowdown. He also identified a lack of new attractions and widely reported tensions between some locals and mainland tourists as other obstacles the city was facing.
t his first press briefing releasing China’s annual economic growth, the head of the nation’s statistics authority was prepared for questions over the veracity of his data. “The GDP we published is genuine and credible,” said Wang Baoan, the new head of the National Bureau of Statistics, citing tax data that supports the readings and the size of his survey team, which tops 20,000 people. That was in response to reporters’ questioning as to whether the reported full-year expansion pace of 6.9 percent reflected reality. With China compiling its full-year report card far quicker than most major economies and past discrepancies fanning controversy, analysts have long questioned whether authorities inflate or smooth out economic readings. This time around, gauges of old growth pillars such as heavy industry and property investment show a more sluggish picture, while there’s less data available on betterperforming new growth drivers like services. “China’s GDP calculation is based on solid and accurate basic data,” said Wang, who became head of the NBS in May last year.
hina National Bluestar Co. Ltd, a specialty chemicals manufacturer, has appointed ex-Bayer executive Michael Keonig as its new CEO, it said yesterday in an e-mailed statement. Koenig was a Bayer board member since 2013 in charge of human resources and technology for Asia and the Middle East. He replaces Robert Lu Xiaobao, becoming the first non-Chinese national to head the firm, said a Bluestar press official. National Bluestar, a subsidiary of stateowned chemical giant China National Chemical Corp (ChemChina), was established in 1984 by ChemChina’s chairman Ren Jianxin and started with making industrial solvents. In 2008 Bluestar brought in U.S. private equity firm Blackstone Group as a strategic investor and in 2011 bought Norway-based silicon maker Elkem for US$2 billion. Koenig, a chemical engineer by training, began his Bayer career in 1990 as a process engineer in Europe. In 2000 he became general manager for Bayer Polymers Shanghai Co. Ltd and later senior country manager for Greater China.
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