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
Authorities to promote foreign firms deposits in Mainland Page 9
Year IV
Number 969 Tuesday January 26, 2016
Publisher: Paulo A. Azevedo
Clouds ahead on Taiwan’s economic horizon Page 8
S. Korea, Macau to sign tax information exchange agreement Page 2
Growth in blue cards slowing dramatically The boom could never have happened without them. But growth in the city’s non-resident workforce slowed to 6.6 pct last year. A significant drop on the 23.6 pct of the previous year, according to official data. As at end-December 2015, the city logged 181,646 non-resident workers. The drop mainly attributes to the number of outside construction employees. Mostly from Mainland China and Hong Kong, their numbers are shrinking. With Cotai casino-resorts’ construction finished or near completion Page 4
Price break in the pipeline
Oil prices are falling significantly. Although this has yet to feed through to consumers’ electricity bills. Local power generation is cheaper than importation, according to sole electricity supplier CEM. Thus, negotiations are ongoing with the Mainland supplier
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Least affordable. Hong Kong housing led the way in a report by think tank Demographia. 87 major global cities were put under the microscope. With prices in the Fragrant Harbour a record 19 times average pre-tax household income. Housing in the southern Chinese city is classified as ‘severely unaffordable’
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HSI - Movers January 25
Extraordinary appeal denied
Name
%Day
Lenovo Group Ltd
+5.61
CNOOC Ltd
+4.76
Tencent Holdings Ltd
+3.81
Kunlun Energy Co Ltd
+3.38
China Petroleum & Che
+3.13
Sino Land Co Ltd
-0.83
China Overseas Land &
-0.92
Tingyi Cayman Islands
-1.20
China Shenhua Energy
-1.40
Gaming
China Resources Beer H
-6.39
Gaming freefall continues
Source: Bloomberg
Rejected. Macau’s Court of Final Appeal has dismissed Joseph Lau Luen Hung’s extraordinary appeal of unified judicial opinions. This follows the Hong Kong businessman’s failure to seek an annulment of his case. Convicted of bribery and money laundering, Lau was sentenced to five years and three months behind bars two years ago with fellow defendant Steven Lo Kit Sing
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www.macaubusinessdaily.com
Not so fragrant
I SSN 2226-8294
January gaming revenues are predicted to drop. Estimated at between 18 to 22 pct y-o-y, according to analysts at Wells Fargo Securities. China’s economy’s further slowdown will be reflected in the city’s gaming revenues, they say. With the Central Government yet to find a solution to its woes
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2 | Business Daily
January 26, 2016
Macau Gov’t to increase parking fee in 9 car parks The government is to raise the parking fee in 9 local public cark parks from March, a dispatch by Chief Executive Fernando Chui Sai On announced yesterday. The new day-time hourly parking fee in these nine car parks will increase to MOP6 (US$0.75) while that for night-time will be set at MOP3. The nine car parks include Pak Vai, Pak Kong, Pak Lai, Ferreira de Almeida and those in Rua da Tranquilidade, Jardim da Vitória, Jardim de Iao Hon and Jardim de Vasco da Gama, as well as the one in the sewage treatment works, for which the monthly pass will also be cancelled, according to the Official Gazette.
S. Korea, Macau to sign tax information exchange agreement
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acau’s Financial Services Bureau (DSF) has confirmed to Business Daily that the local authority is to sign a Tax Information Exchange Agreement (TIEA) with South Korea, which would add to the existing 15 jurisdictions that have already signed this agreement with the territory. According to the Bureau, its South Korean counterpart is still making preparations to sign the agreement
but DSF said it could not give an estimate when the agreement would be signed. As reported by South Korean news agency Yonhap on Sunday, the country’s Ministry of Strategy and Finance said the agreement would enable authorities to look into financial and taxation information of South Korean companies and citizens based in Macau for cases of tax evasion.
Taxi drivers generated over MOP1 mln in fines in 2015
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ines imposed on taxis in 2015 generated over MOP1 million (US$124,664), an increase from the MOP963,500 collected in the previous year, according to Portuguese TDM radio, quoting data from the Transport Bureau (DSAT). In 2015, the number of cases resulting in the payment of fines was 1,133, while in 2014 it stood at 1,270. During 2015, some 3,447 cases involved taxis, treble the previous year, when DSAT recorded 1,197 cases. According to DSAT, most cases were related to ‘overcharging for the
service and fishing for passengers’. The number of warnings and reprimands of taxi drivers issued by DSAT decreased 67.8 per cent year-on-year to 165 from 512, TDM Radio reported. The same trend was recorded in terms of complaints, which dropped 37.7 per cent to 1,991 from 3,177 cases. DSAT also stressed that it is ‘focused on fighting irregularities committed by taxi drivers’ and that inspections ‘have been made in uncertain areas in order to tackle existing problems in different black spots’.
The authorities can make requests for business information – including transactions and management structures - from these South Korean companies or individuals but such information can only be used against those concerned, according to Yonhap. The news agency also reported that the agreement to be signed with the Macau authority has yet to be ratified by the South Korean parliament. Currently, MSAR has signed
TIEA with 15 jurisdictions. These jurisdictions are Australia, Denmark, Faroes Islands, Finland, Greenland, Iceland, Norway, Sweden, India, Jamaica, Malta, Japan, the United Kingdom, Guernsey and Argentina. The city has also signed Double Taxation Conventions with Mainland China, Portugal, Belgium, Mozambique and Cape Verde, according to the Financial Services Bureau. S.L.
Bonjour expects annual profit to jump significantly
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osmetic retailer Bonjour Holdings Ltd. expects its net profit for the whole year of 2015 to register ‘a significant increase’ as compared to 2014 despite drops in the retail and wholesale business, according to its filing with the Hong Kong Stock Exchange last week. The retailer said in the filing that its expected jump in net profit is contributed to by a gain from the disposal of beauty and health salons operations for some HK$400 million (US$49.8 million)
By contrast, it noted that its operating profit from the retail and wholesale business for last year would post ‘a significant decline’ driven by the general downturn of the retail segment in Hong Kong. In 2014, Bonjour saw its profits plunge 17 per cent year-on-year to HK$226 million due to slower sales growth and changing consumer spending patterns. Nevertheless, its revenues generated by Macau jumped 6.7 per cent year-on-year to HK$231 million. K.L.
Business Daily | 3
January 26, 2016
Macau Personal Data Protection Office tenure extended Chief Executive Fernando Chui Sai On has extended the tenure of the Office for the Personal Data Protection for two more years, until March 12, 2018, according to yesterday’s Official Gazette. The dispatch indicates that the duration extension is due to the Office still needing to execute its responsibilities regulated by the CE. The Office was established in 2007, with an initial duration of three years. The Office, which runs independently and responds directly to the CE, is currently headed by Fong Man Chong.
CEM’s self-generated power cheaper than imports The decline in oil prices has made it cheaper to produce energy than importing, although the profit of the company hasn’t benefited much João Santos Filipe
joaosantosfilipe@macaubusinessdaily.com
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he fall in oil prices has resulted in the local generation of energy by Companhia de Electricidade de Macau (CEM) being more cost effective than importing it from Mainland China, says the company. However, it is not yet clear that CEM and the end consumer will necessarily benefit from this. Since June 20, 2014 until yesterday – by the time the story went to press – the price of oil per barrel had declined 72.7 per cent to US$31.34 (MOP251.69) from US$114.81, according to data from news agency Bloomberg. However, the benefit of this decline hasn’t revealed its full potential to Macau’s sole electrical power supplier or its residents. CEM’s own production capacity is limited because of the old generations units, the first two of which were completed in 1973. All the company’s three existing units together have a generation capacity of 472MW (or 0.472 GW). In 2014 alone, the company needed to import 87.6 per cent of the energy
Not only the decline in terms of oil price can help CEM in this negotiation but also the depreciation of the renminbi, the currency used to acquire energy from the Mainland. Still, according to Iun Iok Meng, such a change may not be reflected in the tariff until it’s adjusted to the new reality of oil prices and renminbi value at the earliest in April, if it’s to be adjusted.
Environmentally friendly goals
consumed in Macau (around 4471 GWh) meaning the price is for the most part dependent upon agreement with the Mainland supplier. “With the continuous decrease in crude oil prices, local generation became more cost competitive than importation from the Mainland”, CEM told Business Daily. “To benefit from the decline in oil prices, first the decline should be in the long term with local
generation capacity being maintained”, the company spokesperson explained.
To be negotiated
Macau consumers are not to expect a decrease in their electricity bill due to the falling cost of oil unless a new agreement is reached with CEM’s main exporter of energy, Guangdong Power Grid. “While over 80 per cent of electricity imported
from Mainland China, the importation price of which was stable, the impact of the decline of the oil price on the customer tariff would not be significant”, CEM’s representative explained. Nonetheless, last week CEM consultant Iun Iok Meng said on a public occasion, as quoted by Macau Chinese language media, that the company will try to negotiate the supply contract with the Mainland company.
As the sole power distributor authorised to operate by the government in Macau, CEM operates under a scheme of control which impacts the profit of the company, which stood at MOP608 million in 2014. The company is working to update current energy generation capacity and has already submitted a proposal for the government to replace some of the generators. Another goal of the company through its proposal is to also implement natural gas generators that are “more environmentally friendly”, the company explained to Business Daily.
Joseph Lau’s extraordinary appeal dismissed by TUI The Court of Final Appeal says that there is no reason for the extraordinary appeal of unified judicial opinions to proceed, hence the denial
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acau’s Court of Final Appeal (TUI) has ruled that Hong Kong businessman Joseph Lau Luen Hung’s grounds for an extraordinary appeal of unified judicial opinions were insufficient, hence the appeal is rejected, according to a press release issued by the court yesterday. Joseph Lau and businessman Steven Lo Kit Sing were involved in the La Scala scandal and found guilty of bribery and money laundering. Both were sentenced in March two years ago by the Court of First Instance to five years and three months in jail. Both had been accused of paying a bribe of HK$20 million (US$2.57 million) to former disgraced Secretary
of Public Works Ao Man Long to help secure five parcels of land opposite Macau International Airport for the development of luxury residential project La Scala. The land deal was declared void by the Macau Government in 2013 – and it was ruled by the Court of Second Instance last year that these five plots should be returned to the Macau Government’s possession. Following a Court of Second Instance ruling in July 2015, rejecting an appeal against them having been found guilty, Joseph Lau initiated an extraordinary appeal of unified judiciary opinions in September last year.
Based on Macau law, on the same legal issue of the same law, if the Court of Final Appeal publicises the judgments of two collegiate benches which are opposed to each other, or the judgment announced by one collegiate bench of the Court of Second Instance conflicts with that of another collegiate bench in the same Court or the Court of Final Appeal, and no ordinary appeal can be lodged, an extraordinary appeal for unified judicial opinions can be lodged. According to the court statement issued yesterday, Joseph Lau tried to argue that despite the other defendant in Ao Man Long’s case being found not guilty of money laundering, he was
nevertheless convicted of the crime based on the same evidence. However, the court says that the two cases were ruled on based upon different facts and do not conflict with each other, hence no issue of unified judiciary opinions was involved. ‘Because none of the fundamental elements has been met in order for an extraordinary appeal of unified judiciary opinions to be carried on, the appeal should be dismissed,’ reads the court’s statement. This failure of appeal follows another two attempts of Lau and Lo’s appeal to the Court of Second Instance and another time seeking an annulment.
4 | Business Daily
January 26, 2016
Macau
MSAR’s imported labour growth slows significantly in 2015 Growth in the city’s non-resident workforce slowed to 6.6 pct last year as the number of outside construction employees – mostly from Mainland China and Hong Kong – started to shrink Stephanie Lai
sw.lai@macaubusinessdaily.com
Majority from Mainland
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he city’s growth of imported workers - known as ‘bluecard holders’ - significantly slowed last year as the number of construction workers from outside started to shrink, latest data from the Public Security Police shows. As at end-December 2015, the city logged a total of 181,646 non-resident workers, a number that has grown by a year-on-year 6.6 per cent – but it is also a growth rate that is slower than the 23.6 per cent seen in the previous year, according to official data. As in the previous two years, non-resident workers in Macau were mainly engaged in the construction
workforce of 48,101 people by end-December, representing a year-on-year growth of 13 per cent. The sector with the thirdlargest share of non-resident workers is domestic work, which employed 23,723 workers last year, up nearly 10 per cent year-on-year, official data shows. Aside from growth in the conventionally dominant sources of the Philippines, Vietnam and Indonesia, the growth of domestic workers seen last year has also been driven by an 87 per cent rise in the number of Myanmar domestic workers.
sector, hotels, restaurants and domestic work last year.
Construction sector dominant
Dominant in terms of the non-resident workforce, the city’s construction sector
employed 43,482 outside workers as at end-December last year, representing a 5 per cent year-on-year decrease, contrasting with the staggering annual growth of nearly 75 per cent in 2014 driven by Cotai casino-resorts
construction, according to Business Daily’s calculation of the official data. The number of nonresident workers employed by ‘hotels, restaurants and similar activities’ is the biggest of all sectors with a
For last year, Mainland Chinese remained the most important source of nonresident workers, with a total of 116,366 people employed in the city; most of these workers were employed in the city’s construction companies, hotels, restaurants and wholesale and retail units. Filipinos (24,729) and Vietnamese (14,727) remained the second and third dominant non-resident workforce here, according to police figures. But the number of Hong Kong workers here shrank 7.6 per cent last year as fewer were employed in the construction sector and the number of those that worked in hotels and restaurants remained almost level with the previous year.
Business Daily | 5
January 26, 2016
Macau
Wells Fargo: Gaming industry continuing to feel Mainland’s pain The brokerage firm predicts gaming revenues will shrink between 18 and 22 per cent during the first month of the year João Santos Filipe
jsfilipe@macaubusinessdaily.com
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acau will continue to suffer from the Mainland economy’s pangs and gaming revenues will drop by between 18 to 22 per cent in January, according to the latest report from brokerage firm Wells Fargo Securities. The previous forecast by Wells Fargo predicted a decline “in the mid-teens”. “Our January estimate assumes average daily revenues (ADR) of roughly MOP600 million (US$74.76 million) to MOP620 million for the month. This implies sequential ADR growth of approximately 3 per cent month-on-month, lower than the historical average of 5 per cent month-on-month for the month of January”, the report signed by analysts Cameron McKnight, Daniel Adam and Robert J. Shore explains. If the report, titled ‘China’s Slowdown Underscores Our Cautious View’, proves correct, then this will be the second consecutive time that revenue has declined in January in year-on-year terms. In 2015, it dropped 17.4 per cent to MOP23.75 billion from MOP28.74 billion in the first month of 2014. Much of the decline of the gaming industry is expected
to be pressured by the slowdown in the Mainland’s economy. Regarding this, the brokerage firm remarks that there are signs that China’s economy will slow down even further. “There have been several tangible signs of economic weakness in China, and this week’s data included: December industrial production growth of 5.9 per cent, which was lower than the consensus of 6.0 per cent and decelerated vs. November’s 6.2 per cent yeaon-year”, the authors say.
“Disappointing December retail sales growth of 11.1 per cent vs. 11.2 per cent year-on-year consensus, and December FDI [Foreign Direct Investment] was down 5.8 per cent year-on-year, lower than the consensus of 3.1 per cent and down vs. November’s 1.9 per cent year-on-year”, they added.
Central Government’s challenges
While the local economy is directly hit by what happens on the other side of the border gate, the analysts consider
that the Central Government faces challenges that it has yet to find the best way to meet. This is stressed by the level of credit growth in December. “China’s December new loans of 598 billion yuan (US$91 billion) were down 1 per cent sequentially and 15 per cent below consensus (700 billion yuan). In our view, December’s lower than expected reading highlights inherent limitations in Beijing’s policy effectiveness - likely due to excess capacity and leverage
from the 2009 and 2012 stimulus programmes”, they highlight. Another factor contributing to the review of the forecast is the capital outflow from the Mainland, a trend common to emerging markets but which is expected to have an impact on the main local industry. Still, the impact of this can be short lived. “Emerging market capital outflows are worse than expected. The Financial Times this week noted that capital outflows emanating from emerging markets (led by China) totalled US$735 billion in 2015”, they wrote. “This compares with the Institute of International Finance’s (IIF) US$540 billion estimate in October, or 36 per cent higher than previously thought”, they added. “China’s Foreign Exchange Trade System (CFETS) indicated this week that capital outflow pressures eased in Q4, according to Bloomberg. In our view, capital flight from emerging market economies – particularly China’s – could pressure visitation and correspondingly, gaming revenues in Macau”, it was claimed.
Wynn buys half a million company shares
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ynn Resorts Ltd.’s Chairman and Chief Executive Officer Steve Wynn spent US$31.86 million (MOP251.5 million) to buy about half a million of the company’s shares on the Nasdaq open market via the entity of Wynn Family Ltd. Partnership, a filing with the US Securities and Exchange Commission on Friday shows. According to the filing, Wynn bought 572,850 shares at prices ranging from US$53.21 per share to US$59.19 per share in eight transactions from January 20 to 22. Following these transactions, Wynn’s direct and indirect stakes held in the company equated to 11,741,477 shares.
Prior to these transactions, Wynn had spent about US$63.8 million in acquiring more than one million shares of his company’s stock on the open market in early December. Wynn Resorts is the parent company of Macau casino operator Wynn Macau Ltd. On January 15, Wynn Resorts spoke in a filing of its expectation of seeing less operating income from the Macau unit in the fourth quarter of last year. Wynn Resorts said it expects to report operating income of between US$75 million and US$83 million from its business in Macau in the fourth quarter, a substantial fall from the US$157.6 million registered in the fourth quarter of 2014.
6 | Business Daily
January 26, 2016
Macau Melco to pay special bonus to non-management staff Melco Crown Entertainment Limited has announced a one-month discretionary bonus for its non-management staff. The bonus will be paid before the Chinese New Year “to thank them (the staff) for their hard work and devotion in the past year,” according to a statement released by the gaming operator yesterday. No number of affected employees or the accumulated amount was mentioned in the statement. This announcement was made following the first industry announcement by SJM Holdings, followed by Wynn Macau and MGM China’s statement of paying a special bonus to their employees.
Pacha club in New York closing because of local unit
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he existing Pacha club in New York Centre is set to close because of the opening of the unit in Macau, according to French news agency AFP, which quotes the owner of the place in the American City, Eddie Dean. Instead of retiring, Eddie Dean has become the manager of Pacha Macau, in Studio City. “On a scale of one to 10, you’re looking at 0.5” on potential achieved so far, Eddie Dean said about the local club and how much he hopes for it to develop in the MSAR. Commenting at the grand opening of the club in Macau, which took place last week, Dean said: “We are thrilled
by the response and feedback from guests on the new Pacha Macau club – it’s long been a dream of mine to bring Pacha to Macau . . . This is just the beginning of many more incredible parties to come,” according to a press release issued earlier by Melco. With a capacity to host 3,000 people, Pacha Macau imitates the Spanish party island style of Ibiza. It says it is equipped with state-ofthe-art audio/visual facilities including digital mapping and specialised lighting systems to bring incredible energy to the 1,000 square foot dance floor Pacha Group has 16 clubs operating and is expecting to open a unit in Shanghai this year. The first Pacha club opened in Sitges outside Barcelona in Spain in 1967 and the second in Ibiza in 1973. The Pacha franchise has since expanded to other cities including New York, Rio de Janeiro, London, Moscow, Sydney, Buenos Aires and Munich.
Business Daily | 7
January 26, 2016
Gaming
Casinos, one-arm bandits, coming to cash-strapped French cities
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rench casino operators are seeking to expand beyond their historic hunting grounds of chic holiday resorts in search of younger customers. An industry that has thrived despite strict regulation and a century-old ban in the capital Paris is now eyeing big urban centres where it was once unwelcome. With cash-strapped local governments looking for more revenue, the tax jackpots casinos can generate are looking increasingly attractive. That is helping them get a foothold outside of the resort and health spa towns, such as Deauville on France's northern coast, to which they have been largely confined since casino gambling was legalised in 1907. In a policy U-turn, the mayor of Marseille, Jean-Claude Gaudin, has just opened the way for a casino operation in the Mediterranean port city of more than 800,000 people, where one in four resident lives below the poverty line. Gaudin announced earlier this week that a public tender was to be launched to license a casino operator in a sun-
soaked city that more often makes the headlines with news of shootouts among rival druglords. "I've never in my entire life played in a casino, but I can understand people like it," Gaudin conceded. As France, like the rest of Europe, strives to keep a lid on public overspending, the drive to cut deficits is putting local government funding under increasing pressure and boosting the attractiveness of cash-cow casinos. According to the casino industry federation, taxes paid by casinos, mostly levies on "one-arm bandits"
and other types of coin-slot machines, provide 30 per cent of the city budget in Deauville and up to 80 per cent of local funds on other places. Now that the casino business as a whole is back in profit for the first time since 2008, the potential tax take for stretched local governments is even greater. For the first time in seven years, the net revenues of France's 201 casinos rose in 2015, growing 2.2 per cent to 2.2 billion euros. "France is the leading country in Europe for the number of casinos and the turnover figure, ahead of
Atlantic City cut deeper jnto junk by S&P as default risk grows
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tlantic City’s credit rating was cut four levels deeper into junk by Standard & Poor’s, which said the struggling New Jersey casino hub may default on its bonds within six months. The downgrade Friday to CCCfrom B came after city officials this week said they would consider filing for bankruptcy. Governor Chris Christie vetoed a financial rescue plan that the city was counting on to stay afloat past April, and New Jersey officials are considering whether to take over the city. “We believe it is likely to default without an unforeseen positive
development,” S&P analyst Timothy Little said in a statement. Once the second-largest U.S. gambling market, Atlantic City’s share of the business has declined as day-trip patrons shift to newer casinos in nearby Pennsylvania, Delaware and Maryland. While state aid has helped plug the government’s deficit, the city of 39,000 faces a shortfall of US$90 million next year, which amounts to about a third of its budget. S&P may raise the rating if the city receives ”extraordinary support” from the state or lower it if none occurs. Bloomberg
England," Laurent Lassiaz, chairman of Casino group JOA, told Reuters. More than half of the space at JOA's 22 casinos was now devoted to non-gambling activity too, he said, adding that diversification was vital. "The goal is to generate turnover and profitability from the host of activities with a clientele that sees casinos more as leisure centres." Partouche, the country's largest casino group, has started building an open air casino in the historic shipbuilding city of La Ciotat, not far from Marseille, where most of a vast outdoor
space will be filled with slot machines. All of the large casino groups are looking to get in on the act in Marseille itself, where mayor Gaudin's change of heart is partly inspired by studies showing a new casino could create 500 jobs and contribute 10 million euros per year to the city's public finances. The last bastion is Paris. No casinos are allowed inside the capital or anywhere within a radius of 100 km under a law dating back to 1907. Unlike many other cities, the capital is less in need of an extra revenue stream given the vast sources that already exist in the form of local business taxes and the spoils of being one of the world's biggest tourist attractions. If Paris authorities shun a 2015 report recommending that casinos be legalised, casino groups could enter the capital via private gambling clubs, of which there are just three. The idea of expanding that activity along models that have thrived in London, is now being actively examined, says JOA's Lassiaz. Reuters
8 | Business Daily
January 26, 2016
Greater China
Taiwan Q4 GDP to reveal economy mired in recession The preliminary fourth-quarter GDP figures will be released on Friday Faith Hung
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aiwan’s economy is seen mired in recession in the final three months of last year, extending a painful slump from the previous quarter as weak global growth and a slowdown in China deal a severe blow to the island’s export sector.
October-December gross domestic product (GDP) was forecast to have contracted 0.25 percent from the yearago period, according to a Reuters poll of 16 analysts, after a 0.63 percent decline in the third quarter. Taiwan, a major supply chain hub for global titans
such as Apple Inc, has been knocked hard by the downturn in global demand. The slowdown in China has had a ripple effect across many export-reliant economies, with Asian powerhouse exporters Japan and South Korea struggling to stay afloat amid a downturn in shipments.
After Taiwan’s economy slipped into recession in the third quarter, pressure has been growing for the central bank to cut interest rates for a third straight meeting in March. “The softness in manufacturing has started to spill over into the labour market, with the unemployment rate in December reaching the highest level in 14 months,” Barclays said in a research note recently. “Against the backdrop of a deteriorating labor market, which may cut into domestic consumption more deeply in Q1 16 and the inflation outlook remaining subdued in 2016, we now expect the CBC to cut its policy rate by another 12.5bp in its March meeting,” it wrote. The government cut Taiwan’s 2015 economic growth outlook to a fresh six-year low in November, underscoring the precipitous decline in the island’s exports amid cooling growth in China
and weak global demand. Taiwan’s exports in December fell for the 11th straight month, while shipment orders - which typically lead actual exports by two to three months - last month fell more than expected. The deterioration in global demand is expected to hit some of Apple’s main Asian suppliers’ revenues and orders this quarter, indicating iPhone sales are almost certain to post their first annual decline since the flagship product was launched almost a decade ago. Exports to China, which account for about one-third of Taiwan’s shipments, have been particularly hard hit. In December exports to China tumbled 16.4 percent on-year, worse than the United States, Japan or Europe. The preliminary fourthquarter GDP figures will be released on Friday. Final data will be out about two to three weeks later, with more details and forward-looking forecasts. Reuters
More holes than fingers? Beijing struggles
Weak real estate prices and the gyrations of the stock market have only encouraged the t Samuel Shen and Pete Sweeney
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s a slick slide presentation runs for the well-heeled investors jammed into the banqueting hall of Shanghai’s Renaissance Yangtze Hotel, an image flashes up of a grinning Chinese man pushing a wheelbarrow full of cash into Europe. Another slide features a car bearing a Chinese flag preparing to drive into a pit. For wealthy Chinese, desperate to avoid further falls in a currency that has shed 6 percent against the dollar since August, the message is clear. “The yuan will keep depreciating as time goes by, so we should swap the money we have in hand into tangible assets,” Li Xiaodong, chairman of Canaan Capital, tells his audience, while exhorting them to pull their money out of China while the going is still good and pour it into property in Spain and Portugal. Canaan Capital is one of a swarm of asset management firms leaping to profit from Beijing’s latest policy headache: the swelling crowd of Chinese individuals and firms trying to get their money out of the world’s second biggest economy as its growth slows to a quarter-century low. Weak real estate prices and the gyrations of the stock market, which plunged as much as 40 percent in a summer meltdown last year and has tumbled around 17 percent so far
this year, have only encouraged the trend to seek better returns elsewhere. The risk for policymakers is that so much money will exit China it will undo their efforts to cut the cost of credit domestically and reinvigorate flagging productive investment. In graphs and numbers, Li’s slideshow ran through some of the reasons why many of the 600 or so people who packed into his talk in late December are sceptical that the wobbly economy is turning around soon: an aging society, slowing growth, and the slide of the yuan against the dollar. “Where was Li Ka-shing heading? He was heading to Europe,” Li quipped, drawing laughs for his reference to the Hong Kong multibillionaire, who has been trimming his exposure at home and buying utilities and telecoms assets in the West.
even buy a foreign company outright. And their scope is not limited to Europe. One Shanghai-based investment company, Zengda, plans to guide Chinese money into mines, land and gas projects in Africa. Others use trade and even tourism transactions to get money out of the
country - contributing to the US$200US$500 billion Chinese tourists are estimated to spend abroad annually. The trend has grown so rapidly that some international banks are bolstering their wealth management divisions, encouraged by data showing money pouring out of China.
Legal outlets
Thanks to incremental reforms to China’s capital account enacted while the yuan was still strong, it is easier than ever for Chinese companies and individuals to get money out legally. They can buy property, or invest in offshore stocks, bonds or managed hedge funds; they can purchase offshore life insurance that can be used as collateral for further loans, or
Many funds are using the free trade zones China has rolled out in recent years, which were specifically de
Business Daily | 9
January 26, 2016
Greater China Beijing to encourage foreign trade earnings to stay in country
Onshore assets of banking sector up
Government has been fighting to suppress speculative activity and capital flight resulting from downward pressure on the yuan against the dollar
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hina’s central bank will allow funds in non-resident accounts (NRA) to be converted into fixed deposits, sources told Reuters, which could encourage foreigners’ to keep trade-related earnings in the country and help authorities temper capital outflows. Four people with direct knowledge of the matter told Reuters yesterday that the People’s Bank of China (PBOC) has issued a document to the effect, with commercial banks expected to receive formal notice soon. Some regions have already started preparing details to implement the new regulation, they said. The people declined to be identified because they are not authorised to speak to the media. The PBOC did not respond to Reuters’ request for comment. “Regulators hope to prevent capital outflows,” said a banking source. “The latest step shows regulators are trying to attract more funds into the country, so as to offset outflows.” Beijing has been fighting to suppress speculative activity and capital flight resulting from downward pressure on the yuan against the dollar, but it has its work cut out amid confusion
over its currency policy and a slowing domestic economy. Letting foreign companies reallocate earnings from trade into fixed deposit accounts would theoretically benefit these firms as they can earn higher returns on their cash than they might at home, given negligible interest rates on dollar assets. In some ways the latest move smacks of a carrot and stick approach: The central bank has already asked
trend to seek better returns elsewhere
designed to make it easier for capital to cross the borders
Reuters
Beijing to grant new crude import licences China is set to grant another four non-major oil refineries licences to import crude, the country’s commerce ministry said yesterday. The four firms are Shandong Huifeng Petrochemical Group, Tianhong Chemical, and Shandong Chambroad Petrochemicals Co., Shandong Shouguang Luqing Petrochemical Co., the ministry said on its website. The four have already obtained quotas to use imported crude oil from the country’s economic planning commission.
No injuries or production impact at iPhone plant fire
to plug capital flight
China’s central bank and commercial banks sold a net 629 billion yuan (US$95.61 billion) worth of foreign exchange in December, nearly triple the figure for the previous month. One way of investing money overseas is through the Qualified
commercial banks to strengthen supervision of NRA purchases of foreign exchange in China, among other measures to make it more difficult to move money quickly out of the country. NRA accounts include both yuan and foreign currency deposit, but exactly how much money is saved in such accounts is difficult to estimate, bankers said.
Chinese banks held 194.2 trillion yuan (US$29.7 trillion) in onshore assets at the end of 2015, according to data from China Banking Regulatory Commission. The volume was up 15.5 percent from a year earlier, the banking regulator said. The combined onshore assets of China’s “big five” lenders, including the Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, and Bank of Communications, came in at 73.67 trillion yuan by the end of 2015, accounting for 37.9 percent of the total assets in the industry.
Domestic Institutional Investor (QDII) pilot programme, which allows Chinese mutual funds to buy offshore stocks. “Clients come to me now, realizing that hedging makes sense,” said a private wealth manager at an international investment bank who spoke on condition of anonymity. “I heard the QDII scheme was so popular that some brokerage firms were charging 6 percent just to use the quota, but people are still paying. They’re afraid of depreciation.” A second investment management source in Shanghai confirmed that the costs of borrowing QDII quota had shot up in recent weeks amid surging demand and short supply. China Asset Management (Hong Kong) Ltd has recently launched a 150 million yuan (US$22 million) hedge fund under QDII to invest overseas and is charging mainland investors 1 percent annually as a channel fee, in addition to subscription and management fees, according to sales document seen by Reuters.
Happy to help
Policymakers fret that, instead of putting money into the research and development China wants to move its firms up the value chain, the executive elite will pour it into the
elegant condos in downtown Lisbon that Canaan Capital is selling. Unfortunately for Beijing, it is going to be very difficult to stem the tide, given many of the channels being used are legal and, in some ways, beneficial. Beijing has, for example, been trying to make it easier for domestic companies to acquire overseas assets, seen as a way to increase Chinese influence and help firms move up the value chain by acquiring foreign competitors. Any move to slow capital flight being disguised as M&A could impede strategic investments as well. Beijing has also been trying to increase the international usage of the yuan, a project that could collapse if foreigners saw their money getting trapped in China. Moreover, many of the funds are using the free trade zones China has rolled out in the last few years as part of a major reform push, which were specifically designed to make it easier for capital to cross the borders. As a result, fund managers say that so far Beijing moved cautiously in its efforts to close the taps, halting quota issuance for easily controllable channels such as the QDII programme, for instance, and pressing banks to tighten outflows. Whether regulators will be forced to go further to defend monetary stability remains in question, but few expect the demand to go away. “The huge level of individual and corporate savings which exist in China at present obviously cannot find a reasonable return on investment in China,” said Hao Zhou, Commerzbank analyst in Singapore. “Consequently there is every chance that capital flight can become a long-standing affair.” Reuters
A small fire broke out on Sunday night on the roof of a factory complex where iPhones are assembled in China, but Taiwan-based tech giant Foxconn Technology Group, which runs the factory, said nobody was hurt and manufacturing was unaffected. The fire took place at a plant in Zhengzhou, in Henan province, the key supplier to Apple Inc, according to a statement from Foxconn. “The fire was brought under control by the fire department shortly after it was reported. There were no injuries associated with this incident and there is no impact on the manufacturing operations of that facility,” a spokesman said.
Noble chairman sees company’s future as smaller Noble Group, Asia’s biggest commodities trader, expects to ride out the market downturn and recover from recent accounting-related allegations by being nimbler and asset-light, its founder and chairman Richard Elman told Reuters in an interview on Friday. Noble was thrust into the spotlight a year ago when Iceberg Research published the first of three detailed reports on the company, alleging it inflated its assets by billions of dollars by inaccurately representing the value of its contracts. Elman, 75, said he sees no further disruptions to the business from those claims, which Noble rejects.
Insurers’ premium income hits US$365 bln The premium income received by China’s insurance firms hit 2.4 trillion yuan (US$364.85 billion) in 2015, the industry regulator said yesterday. This means insurance premium income rose 20 percent last year from 2014, Chen Yingdong, a spokesman for the China Insurance Regulatory Commission, told a conference in Beijing. Industry profits were 282.36 billion yuan last year, an on-year rise of 38 percent, said Chen.
10 | Business Daily
January 26, 2016
Greater China
A Hong Kong move unlikely to slash HSBC tax bill The bank declined to say how much of its group costs would be booked in Hong Kong as part of any overseas move Tom Bergin
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SBC's possible relocation to Hong Kong is unlikely to save the British bank much tax - one of its reasons for maybe moving abroad - and could actually increase its bill, a Reuters analysis of the company's filings shows. HSBC said last year that it was considering a possible shift overseas from London, citing higher taxes and tighter regulation in Britain and a desire to be closer to fastergrowing Asian markets. Analysts said HSBC's former home Hong Kong, with a corporate tax rate of 16.5 percent against a British rate set to rise to 26 percent, was the most likely destination. Some investors have said weakening growth in Asia and a reduction in a British levy on banks' asset bases announced last year, argues for HSBC to stay put. But some analysts say Asia's better longterm growth opportunities and Hong Kong's lower tax rate may yet hold attractions for the bank. A Reuters examination of corporate filings shows that Hong Kong may offer HSBC fewer tax advantages than many believe. That's because HSBC will struggle to move enough profit to Hong Kong to benefit from its lower tax rate. Indeed, it may have to report more income in Britain if it moves, since many of the overhead and borrowing costs now booked in Britain may in
KEY POINTS HSBC considering possible move abroad Some investors think bank better off in London Analysts say Asia growth and lower tax favour Hong Kong
future be offset against more lightly taxed Hong Kong profits. Also, Hong Kong's less generous treatment of share bonuses may cost HSBC millions of dollars in tax deductions each year. Crawford Spence, Professor of Accounting at Warwick Business School, who has studied international groups' tax planning, said the Reuters analysis showed the "commonsense understanding" that HSBC would receive a big tax benefit was too simplistic. "They may not be saving much money at all on this particular aspect," he said. HSBC declined to answer questions on possible changes in its structure and their tax impact. "The Board is considering at least eleven criteria for long term shareholder value, one of which includes the tax system which needs to be transparent, fair and competitive," a spokeswoman said in a statement. HSBC moved to London from Hong Kong in 1993 after it bought Midland Bank. However the climate for banks in the city has become increasingly hostile since the 2008 crisis with regulators bringing in tougher rules on capital and bankers' pay as well as imposing heavy fines for a litany of misdeeds that has scarred the industry. While regulators in Asia have followed suit with tighter rules on bank capital and liquidity, the region's relatively strong showing in the 2008 crisis means lenders there have faced less of the public and political backlash seen in Europe.
Low U.K. profits
HSBC's ability to cut its tax bill by moving from Britain is constrained by the fact that it doesn't declare much taxable profit in Britain. Britain is a lucrative market for HSBC, generating over US$15 billion in net interest income and fees in 2014, the most recent full year for which data is available. However, the bank reported an
accounting loss in Britain in 2014 and had a tax charge of US$69 million for the year. This is despite the fact its British retail bank, which has tens of thousands of staff, produces what Chief Executive Stuart Gulliver said last August were "excellent returns". HSBC's investment bank, which is headquartered in London, had profits of US$8 billion in 2014, while its commercial bank, which also has a significant British presence, had profits of US$9 billion. A key reason for the modest British taxable result is that much of the group's overhead costs are booked in Britain, such as top management salaries and central support functions. Also, since HSBC borrows most of its debt via British-registered companies, its annual report shows, it is also entitled to British tax deductions on bond coupons and other interest costs. HSBC's accounts show group overhead expenses of around US$9 billion a year. Hong Kong, which does not bear the same share of group overhead costs as London, generated over US$8 billion in profit on almost US$13 billion of revenue in 2014, filings show. The bank declined to say how much of its group costs would be booked in Hong Kong as part of any overseas move. However, analysts said the change could be significant. Chris Wheeler, banks analyst at Atlantic Securities, said regulatory rules mean that if HSBC moved its main holding company to Hong Kong, it would have to raise more debt there, rather than in Britain. "It would have to be in Hong Kong. It would have to be in the holding company," he said. If these costs were no longer booked against UK income, the UK profits would rise and face UK tax. Of course, booking costs in Hong Kong would depress taxable profits there, reducing the tax bill there. However, that's not the kind of tax arbitrage companies usually target.
"You're better issuing (debt) out of a higher tax jurisdiction than a lower tax jurisdiction," said Gary Greenwood, an analyst at Shore Capital who covers HSBC.
Banker bonuses
In the area of executive pay, HSBC could find itself losing UK tax deductions without any corresponding saving in Hong Kong. In response pressure from investors and regulators, banks are increasingly paying senior bank executives their bonuses - often worth millions a year - in shares. Britain allows companies to take tax deductions in relation to newly issued shares paid to employees, even though this does not represent a cost to the company itself. Hong Kong does not, according to its Inland Revenue Department. All this means that HSBC will have to shift much more UK profit than costs to Hong Kong in the coming years or face an increase in its tax bill. That could be a hard task to manage. That's because HSBC's average annual British tax bill of US$100 million in the past three years suggests an annual taxable profit of just US$440 million, based on prevailing tax rates. One area where HSBC won't make any tax saving by moving to Hong Kong is on the bank levy. Following extensive lobbying, the British finance minister, George Osborne, said in July that he would halve the levy and, crucially for HSBC, no longer apply it to the overseas assets of British banks. HSBC's levy charge was US$1.1 billion in 2014 and previously planned increases in the rate were set to lift this to around US$1.5 billion a year. Gulliver said last year that half the levy charge related to non-British assets. That meant an overseas move might have shaved US$750 million a year off HSBC's levy. The fact nonBritish assets will in future be exempt means this part of the charge will no longer apply. Reuters
Business Daily | 11
January 26, 2016
Asia
Singapore's consumer prices drop for 14th straight month Overall services inflation picked up to 0.9 percent in December
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ingapore’s consumer price index (CPI) came in at -0.6 percent year on year in December. Although slightly improved from the 0.8 percent fall in November, it is the 14th straight month of decline, largely on account of a stronger pickup in the cost of petrol and overall price of services, a joint press release by the Ministry of Trade and Industry (MTI) and the Monetary of Authority of Singapore (MAS) said yesterday. Private road transport cost fell by 1.1 percent in December, moderating from the 1.7 percent decline in November. Petrol pump prices rose at a faster pace on a year-ago basis in December, owing to the relatively low base in the same period last year. This more than offset the larger drop in car prices seen in December amid weaker Certificate of Entitlement (COE) premiums. Accommodation cost was 3.0 percent lower in December, similar to the decline in the previous month, reflecting the soft housing rental market, said MAS and MTI. Food inflation edged down to 1.5 percent as increases in the prices of prepared meals (such as hawker food) moderated. In the meantime, overall services inflation picked up to 0.9 percent in December, due to a faster pace of increase in holiday travel expenses and a smaller decline in telecommunication services fees.
Food inflation edged down to 1.5 percent as increases in the prices of prepared meals moderated
For the whole of 2015, CPI-All Items inflation eased to -0.5 percent from 1.0 percent in the preceding year. The MAS Core Inflation, which excludes the costs of accommodation and private road transport, increased to 0.3 percent from 0.2 percent in November. This is due to higher services inflation, MAS and MTI said. For the whole of 2015, MAS Core Inflation eased to 0.5 percent, from 1. 9 percent in the preceding year. Looking forward, the MAS and MTI said external sources of inflation are likely to remain muted, given ample supply buffers in the major commodity markets and weak global demand conditions. CPI-All Items inflation will continue to be dampened by lower car prices and imputed rentals on OOA, due to an expected increase in the supply of COEs and newlycompleted housing units.
The Monetary Authority of Singapore’s Core Inflation, which excludes the costs of accommodation and private road transport, increased to 0.3 percent from 0.2 percent in November
At this stage, the forecasts for CPI-All Items inflation and MAS Core Inflation for 2016 remain at -0.5 percent to 0.5 percent and 0.5 percent to 1.5 percent respectively, the two said. However, MTI and MAS said there is significant uncertainty over the outlook for average global oil prices for the year as a whole. MTI and MAS said it will continue to closely monitor the developments in global oil prices and assess their impact on domestic inflation. On the same day, MAS and MTI also published
the consumer price index for households in different income groups in Singapore. According to the report, the CPI-All Items inflation for general households fell by 0.7 percent in the second half of 2015 compared with a year ago. For the whole 2015, the figure was -0.6 percent, the first decline since 2002. In terms of the different income groups, the CPIAll Items for the lowest 20 percent, middle 60 percent and highest 20 percent income groups decreased by 1.1 percent, 0.3 percent and 0.7 percent respectively in 2015.
Excluding imputed rentals on owner-occupied accommodation (OOA), the CPI for the lowest 20 percent and highest 20 percent income groups dipped by 0.4 percent and 0.1 percent respectively, while that for the middle 60 percent income group went up by 0.3 percent. MAS and MTI said for all income groups, the decline in their respective CPI-All Items in 2015 was driven by lower accommodation costs and electricity tariffs, which had more than offset the increase in food prices. Xinhua
South Korean court orders jail term for Deutsche trader The Deutsche Securities employee was at the time a senior vice president in charge of stock derivatives Joyce Lee
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South Korean court yesterday sentenced a Deutsche Bank AG trader to five years in jail, a court official said, in a 2010 market manipulation case that saw stocks plunge after Deutsche dumped shares soon before the local market closed. The court also ordered the German bank’s local securities unit to pay about 2.8 billion won (US$2.34 million) in fines and restitution, a court official told Reuters, adding that Deutsche’s South Korean banking unit was also ordered to pay around 43.7 billion won. The case involved the two Deutsche
units selling about 2.4 trillion won worth of stocks on the Seoul bourse on November 11, 2010, triggering a plunge in share prices in the benchmark KOSPI in the closing minutes of trade that day, the Seoul Central District Court official said. The Deutsche Securities employee, identified by the court as Park Do-joon, was at the time a senior vice president in charge of stock derivatives, according to Yonhap news agency. Defendants made unlawful gains through derivatives they had previously bought by selling off a large
quantity of stocks, pushing down the benchmark index on an option expiry day, the court said. Domestic investors lost about 140 billion won due to the drop, regulators have said. Asked about the ruling, Hong Kong-based spokesman Michael West said Deutsche Bank “respectfully acknowledges the court’s decision”. “Deutsche Bank has strengthened its systems and controls and is committed to compliance with applicable laws and regulation in all jurisdictions,” he added, declining further comment. In the same case, South Korean
prosecutors in 2011 had also charged three former Deutsche employees who are not South Korean nationals, but have not been able to ascertain their whereabouts, the country’s Financial Supervisory Service said yesterday. Of 15 cases brought by South Korean entities claiming damages against Deutsche for the share price drop, four are still pending, Yonhap reported. Reuters
12 | Business Daily
January 26, 2016
Asia
Japan’s exports tumble most in three years Exports to China, Japan’s biggest trading partner, fell 8.6 percent in December from a year earlier Tetsushi Kajimoto
KEY POINTS December exports -8.0 pct yr/ yr; -3.8 pct mth/mth Imports -18.0 pct yr/yr; trade balance +140.2 bln yen China-led global slowdown clouds the outlook All eyes on BOJ policy decision at January 28‑29 review Containers stacked at Tokai container terminal in Tokyo yesterday
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apan’s exports fell the most in more than three years in December from a year earlier, stoking fears of economic contraction in the final quarter of 2015 as a slowdown in China and emerging markets takes its toll on the export-reliant economy. The weak data should keep the Bank of Japan (BOJ) under pressure
to act as early as at its January 28-29 review, as the collapse in oil prices weighs on inflation expectations while worries over a China-led global slowdown and a stock market rout sap business morale. The central bank is expected to cut its inflation projection for the fiscal year from April to possibly below 1
percent this week - far below its 2 percent target - with the outcome of the two-day policy review seen hanging in the balance. “The BOJ may ease policy again this week if stock prices plunge and the yen spikes to below 115 yen to the dollar, which would wipe out effects of a weak yen and derail
Tepid inflation may push NZ central bank to easing bias But economists do not expect a cut out of the RBNZ’s meeting on Thursday according to a poll
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ew Zealand’s interest rates are expected to remain on hold this week but the pressure for rate cuts is building, in particular as the economy teeters on the verge of deflation. Data last week showing annual inflation at 0.1 percent in the fourth quarter - the lowest since 1999 has raised the stakes for the Reserve Bank of New Zealand (RBNZ) which is mandated to keep inflation between 1 percent and 3 percent. In December the RBNZ cut its benchmark official
cash rate back to a record low of 2.50 percent but virtually shut the door on further easing, saying it expects to achieve its inflation target without more monetary stimulus. The latest inflation data, which undershot its own forecasts by a wide margin, may force it to backtrack. Economists do not expect a cut out of the RBNZ’s meeting on Thursday according to a Reuters poll, but most expect the tone of the central bank’s statement to point to more easing down the track.
Royal Bank of Canada Economist Michael Turner said a cut this week is not out of the question but it’s more likely the central bank “waits for the dust to settle following the New Year volatility and looks to ease policy when unveiling weaker output and inflation forecasts at its March monetary policy statement.” The RBNZ joins central banks around the world that are struggling with weak inflation and a shaky global backdrop. Bank of Japan Governor Haruhiko Kuroda said Friday there
efforts to generate a virtuous growth,” Takeshi Minami, chief economist at Norinchukin Research Institute said. Ministry of Finance data yesterday showed exports fell 8.0 percent by value in the year to December, down for the third straight month, marking the biggest drop since September 2012. The volume of exports fell 4.4 percent in December, down for a sixth straight month, a sign that the weak yen aspect of the government’s “Abenomics” policies has struggled to boost exports, even as its value has fallen by more than a third versus the dollar since Prime Minister Shinzo Abe took office in late 2012. Yesterday’s data will be followed on Friday by a batch of other indicators including household spending, consumer inflation and factory output. Exports to China, Japan’s biggest trading partner, fell 8.6 percent in December from a year earlier, down for a fifth straight month, dragged down by shipments of chemicals and electronics parts. Shipments to Asia, which accounts for more than half of Japan’s exports, declined 10.3 percent in December, the biggest annual drop since January 2012. Exports to the United States, another key market for Japanese goods, fell 3.4 percent in December, marking the first annual decline in 16 months, due to falling shipments of mining machines, steel and metal processing machinery. For the full-year 2015, Japan’s exports grew 3.5 percent, up for a third straight year led by U.S.-bound car shipments, while imports fell 8.7 percent, down for the first time in six years due to the collapse in oil prices. That resulted in a trade deficit at 2.8 trillion yen (US$23.57 billion).
is further room for the BOJ to expand its quantitative easing program if inflation continues to wane. His comments came on the heels of European Central Bank Chief Mario Draghi saying his bank would need to review its policy in March, which was read by markets as a promise of more easing. “Developments, particularly the weak Q4 CPI outcome should be prompting a rethink within the RBNZ,” said ASB Bank Chief Economist Nick Tuffley. ASB is tipping two more rate cuts this year to 2.0 percent. “The RBNZ will cut the official cash rate further this year, from 2.5 percent to 2.0 percent,” said Westpac Bank Senior Economist Michael Gordon, noting this week’s review provided the central bank with an “opportunity to shift towards an explicit easing bias.” However, solid consumer and business confidence as well as record high tourist
Reuters
and migrant numbers coupled with a hot housing market mean that not all economists are convinced. News that house prices are pushing higher nationwide will have raised red flags at the central bank, which has voiced consistent concern about rising house price inflation in the largest city of Auckland. The data “suggests the wider economy does not need additional stimulus, while housing remains a constraint on policy rates,” said UBS Senior Economist Robin Clements. Annette Beacher, chief Asia-Pacific Macro Strategist for TD Securities, said tepid inflation will push the central bank to return to a clear easing bias where it likely says “some further easing may be appropriate. This will depend on emerging data.” However, she expects the data to remain solid and sees interest rates on hold at 2.5 percent until 2017. 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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Business Daily | 13
January 26, 2016
Asia J.C. Flowers Buys Chi-X Trading Business in Australia, Japan Chi-X, created by Nomura’s brokerage unit Instinet LLC, has been competing with ASX in Australia and Japan Exchange Group Inc. in Tokyo Eduard Gismatullin and Yuji Nakamura
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.C. Flowers & Co., a New Yorkbased private equity firm, has agreed to buy Chi-X Global Holdings LLC’s exchange businesses in Australia and Japan. The acquisition, which also includes technology services unit Chi-Tech Hong Kong, is expected to close in the first quarter, pending clearance by regulators, Chi-X said in a statement. Financial terms weren’t disclosed. The sale to is the latest part of Chi-X to be portioned off by its investors. In early December Chi-X sold its Canada unit to U.S. exchange operator Nasdaq Inc. Another exchange company, Bats Global Markets Inc., bought Chi-X’s European division in 2011. “It’s likely that Australia was attractive due to its solid earnings growth,” said Takashi Hiratsuka, in charge of Resona Bank Ltd.’s asset management division in the trading
Financial investments
J.C. Flowers, which focuses on the financial services industry, has invested more than US$14 billion in 32 portfolio companies in 14 countries
The global ICT market fell 5.8 pct in 2015, according to market researcher Gartner’s estimate
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J.C. Flowers, which focuses on the financial services industry, has invested more than US$14 billion in 32 portfolio companies in 14 countries, according to its website. The firm was founded in 1998 by J. Christopher Flowers, 58, its chief executive officer and a former Goldman Sachs partner. Its investments in Asia include Japanese lender Shinsei Bank Ltd. The firm took over near-bankrupt Long-Term Credit Bank of Japan in 2000 with Ripplewood Holdings LLC founder Tim Collins and renamed it Shinsei before taking it public in February 2004 for a US$7 billion gain. South Korea’s Maeil Business newspaper reported this month that J.C. Flowers is teaming up with local buyout firm Vogo Investment to invest as much as 180 billion won (US$150 million) in HK Savings Bank. Bloomberg News
South Korea’s ICT exports fall 1.9 pct in 2015
outh Korea’s exports of information and communications technology (ICT) products in 2015 declined on soft global demand for goods caused by economic slowdown, a government report showed yesterday. The country’s ICT exports came to US$172.9 billion in 2015, down 1.9 percent from a year ago, according to the Ministry of Trade, Industry and Energy.
group. “Chi-X was able to earn more profit in Australia than Japan.” Nomura Holdings Inc. and its co-investors in Chi-X, including JPMorgan Chase & Co., Bank of America Corp., UBS Group AG, and Goldman Sachs Group Inc., have been examining plans to sell the business since last year. Chi-X has about 11 percent equity on-market share in Australia and less than 2 percent in Japan, according to ASX Ltd. and data compiled by Bloomberg. Chi-X, created by Nomura’s brokerage unit Instinet LLC, has been competing with ASX in Australia and Japan Exchange Group Inc. in Tokyo. “The Chi-X businesses have established themselves as successful and innovative alternatives to primary exchanges,” Thierry Porte, managing director of J.C. Flowers, said in the statement. “We hope to accelerate this growth through continued enhancements to the platform.”
ICT imports, however, grew 3.6 percent to US$91.3 billion, sending last year’s ICT trade surplus to US$81.6 billion that was down from the previous year. The ebbing exports in ICT products came after the global ICT industry shrank last year. The global ICT market fell 5.8 percent in 2015, according to market researcher Gartner’s estimate. Despite the negative conditions,
South Korea’s ICT exports topped US$170 billion in 2015, leading the overall growth of the export-driven economy. The ICT exports accounted for about a third of the country’s total exports last year, with the ICT surplus taking up about 90 percent of the total trade surplus. Major export items were chips and handsets. Exports of handsets, including smartphones, increased 9.8 percent to US$29.0 billion in 2015, with chip shipments rising 0.4 percent to US$62.9 billion despite lower prices. Exports of display panels and digital TVs declined 6.8 percent and 26.1 percent each last year due to weak global demand and lower product prices. Imports of handsets surged 32.6 percent due to demand for smartphones made by Chinese companies and Apple. Chip imports grew 5 percent, and digital TV imports jumped 18.6 percent. Xinhua
Philippine economic planning minister quits Philippine economic planning chief has resigned from his post to head the newly-formed Philippine Competition Commission (PCC), the National Economic and Development Authority (NEDA) said yesterday. Economic Planning Secretary and NEDA Director-General Arsenio Balisacan has quit effective on January 31. Deputy Director-General Emmanuel F. Esguerra will serve as the Officer-in-Charge of NEDA. The commission is a quasi-judicial body that will enforce and implement the provisions of the Philippine Competition Act, including its implementing rules and regulations.
Cambodian PM calls for more investment in rice storage Cambodian Prime Minister Hun Sen yesterday called for more investment in rice storage facilities and drying machines in order to increase the country’s rice export capacity. Speaking at the opening ceremony of the 5th Cambodia Rice Forum here, Hun Sen said the lack of rice storage facilities and drying machines is a key challenge for the country in buying a large amount of paddy rice from farmers and more investment in these sectors is needed. The prime minister said China is the largest importer of milled rice from Cambodia.
Heavy snowfall in Japan wreaks havoc Japan’s cold snap continued to see heavy amounts of snow dumped yesterday across swathes of central and western Japan, particularly affecting coastal regions on the Sea of Japan, the weather agency said. According to Japan’s Meteorological Agency (JMA) a cold air mass has been gripping Japan since late last week with heavy snowfall overnight wreaking havoc on the nation’s roads, severely disrupting local and intercity Shinkansen train services, as well as halting flights from regional airports, involving some of Japan’ s major carriers.
Lion Air could revive IPO in 2017 Airline group could go public as early as next year if Indonesia’s economy recovers, its founder and owner told Reuters, saying any listing was intended to improve transparency before he plans to hand over management control in five years. Last year, weak market conditions forced the group, which operates budget flights throughout Southeast Asia, to delay plans for a listing which would have taken place in the first quarter of 2016. Southeast Asia’s biggest economy likely grew at its weakest pace since the global financial crisis in 2015, hit by faltering consumption, rising unemployment and weak commodity prices.
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January 26, 2016
International Saudi to seek non-oil FDI Saudi Arabia aims to at least double annual inflows of foreign direct investment (FDI) over the next 10 years by focusing on new sectors such as mining, health care and information technology, the head of its investment agency said on Sunday. The plan outlined by Abdullatif al-Othman, governor of the Saudi Arabian General Investment Authority (SAGIA), is part of a radical revamp of economic policy as the kingdom seeks to adapt to an era of cheap oil. In the past, foreign investment was heavily concentrated in the oil and gas sector of the world’s top crude exporter.
Puerto Rico’s PREPA gets help from lenders Puerto Rico’s struggling power utility, PREPA, said on Sunday it reached a deal with some lenders that protects it from litigation through February 12, but the agency’s future remains uncertain after the collapse of a crucial restructuring plan on Friday. PREPA said it had come to terms with the lenders on a forbearance agreement through February 12, a pact that typically prevents creditors from calling default during restructuring talks, protecting borrowers from litigation. Fixing PREPA, hamstrung by inefficient governance and out of date plants, is key to solving Puerto Rico’s problems at large.
Portugal’s new president pledges interparty collaboration Marcelo Rebelo de Sousa, Portugal’s newly-elected president, pledged Sunday to bridge differences among different parties and maintain economic stability vital to the debt-laden country. According to preliminary results released by the Ministry of Internal Affairs Election Administration, Rebelo de Sousa, a candidate with the centre-right Social Democratic Party (PSD), garnered 52 percent of the votes after 98.77 percent of votes were counted, enough for him to claim victory without a run-off. The 67-year-old law professor at the University of Lisbon will be sworn in as Portugal’s 20th president in March.
Timid inflation pickup first clue for Draghi mulling action Professional forecasters surveyed by the ECB cut their inflation outlook for this year and next to 0.7 percent and 1.4 percent Jana Randow
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ario Draghi is about to receive his first major clue of 2016 on whether the euro area needs more stimulus. Inflation picked up to 0.4 percent in January from 0.2 percent the previous month, according to a Bloomberg Survey before data due Friday. While that would be the highest rate in 15 months, it’s still only a fraction of the goal of just under 2 percent -- a target the European Central Bank president hasn’t met in nearly three years. Plummeting oil prices and a China-led slowdown in emerging markets have dimmed hopes for an inflation rebound in the 19- nation euro area, and Draghi has warned that the rate may even fall below zero in coming months. Persistent declines in the cost of crude and other commodities have become increasingly correlated with weaker inflation expectations, meaning their deterioration could warrant another expansion of quantitative easing or a cut to the deposit rate. “The ECB is still very much in
a disinflation-fighting stance,” said Aline Schuiling, senior economist at ABN Amro Bank NV in Amsterdam, who projects more stimulus in March. Draghi has made clear that “they want to do everything they can to prevent inflation expectations from becoming dislodged,” she said. The five-year, five-year forward inflation-swap rate, one measure of inflation expectations that Draghi has said he watches, is near the lowest level since January last year, when policy makers first announced largescale asset purchases. Professional forecasters surveyed by the ECB cut their inflation outlook for this year and next to 0.7 percent and 1.4 percent. They see it averaging 1.6 percent in 2018, a level that the Frankfurt-based central bank predicted less than two months ago would be reached in 2017. The ECB will publish its own projections in March. “Inflation rates are currently expected to remain at very low or negative levels in the coming months and to pick up only later in 2016,”
Lukoil says Russia needs to work with OPEC Russia needs to start working with OPEC to cut oil supplies to the world market in a bid to support prices, Leonid Fedun, vice-president of Russia’s No.2 oil producer Lukoil, was quoted as saying yesterday. Russia, the world’s top oil producer, has long refused to cooperate with OPEC while regularly meeting officials from the cartel. OPEC has always said it would agree cuts if other producers such as Russia joined to move. Russia’s oil production hit a post-Soviet high of 10.83 million barrels per day (bpd) in December.
Draghi said on Thursday after the ECB kept interest rates and its 1.5 trillion-euro (US$1.6 trillion) QE plan unchanged. “We’re doing whatever is necessary to comply with our mandate, and we’re not surrendering in front of these global factors.” Even core inflation, which strips out volatile items such as food and energy and which Draghi has said can be a signal for future headline inflation, is weak. The European Union’s statistics office will say the measure held steady at 0.9 percent in January, based on the median projection of economists in a separate survey. The external factors dragging inflation lower contrast with improving euro-area domestic data such as falling joblessness and strengthening economic growth. Unemployment has dropped to 10.5 percent, the lowest level since 2011, and expansion probably accelerated to 1.5 percent last year from 0.9 percent in 2014. A report on consumer and business sentiment scheduled for Thursday will offer additional clues about how the economy is shaping up. Economic confidence is forecast to ease in January after reaching the highest in almost five years in December. In Germany, the Ifo institute’s business-climate index fell for a second month in January, with gauges for companies’ assessment of current conditions and expectations both deteriorating, according to a report published yesterday. So far, the euro-area economy has been more resilient than the global economy, according to Carsten Brzeski, chief economist at ING-Diba AG in Frankfurt. Whether that holds up will be a crucial determinant of what the ECB does in March. “The question is whether the sentiment indicators, and more importantly the hard data, follow this path, or whether we see a downward correction,” he said. Bloomberg News
Russian GDP fell 3.7% in 2015
Mexico’s economic foundation solid enough Finance minister Anton Siluanov said this month that the country must adapt its budget to “new realities” Mexico’s economic foundation is solid enough to face the current global financial turbulence caused by plunging oil prices and currency depreciation, ruling party leader said Sunday. Since the start of 2016, Mexico has been troubled by financial uncertainty, but the country has maintained macroeconomic consistency, implemented economic reforms and planned adjustments in the public sector, said Manlio Fabio Beltrones, president of the Institutional Revolutionary Party (PRI). “Mexico has taken provisional measures to avoid the negative impact on the population’s welfare and to sustain economic growth,” said Beltrones during the weekly meeting with his team.
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ussia’s gross domestic product (GDP) fell 3.7 percent in 2015 as the country’s energydependent economy reeled from low oil prices, the state statistics agency said yesterday, citing preliminary data. The figure is in line with an earlier economy ministry estimate, cited by President Vladimir Putin at his annual press conference in December. Russian GDP increased by 0.6 percent in 2014.
Russia -- whose energy-reliant economy has already been pushed into recession by low oil prices and Western sanctions over Ukraine -- has been rocked by the fresh fall in oil prices and officials have come under increasing pressure to react. Russia’s central bank chief Elvira Nabiullina said last week that authorities have “all the means” needed to ward off instability, as the ruble recovered after slumping to an all-time low against the dollar on Thursday.
Finance minister Anton Siluanov said this month that the country must adapt its budget to “new realities”. Putin said last month that Russia had calculated its 2016 budget based an oil price of US$50 per barrel, a figure he said was an “optimistic” assessment of the situation. With the Brent hovering around US$30 a barrel, the Russian government has announced an anticrisis plan to support struggling sectors of the economy. AFP
Business Daily | 15
January 26, 2016
Opinion Business
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Leading reports from Asia’s best business newspapers
Maybe central banks will declare victory and go home James Saft
THE AGE
Reuters columnist
Business confidence (in Australia) in December and the first half of January showed a small drop but was still in positive territory, according to the NAB business survey, despite the recent global market turmoil. The index fell to 3 in December from November’s 5 reading, while the business conditions index fell to 7 from 10, according to the survey. NAB business surveys are usually taken at the end of the month, but the survey for December was taken on January 15, meaning that business reaction to the recent market turmoil is included.
VIETNAM NEWS The HCM City industrial development index last year saw higher growth than in previous years, especially by four key industries, with the ratio of processing and manufacturing sectors increasing and labour-intensive and polluting industries decreasing. According to the municipal Department of Industry and Trade, the industry development index rose 7.9 per cent last year compared to 7 per cent in 2014. The processing and manufacturing sectors grew 8 per cent, spearheading the rise in the index. It enabled the creation of 2 per cent more new jobs compared with 2014.
BANGKOK POST The Finance Ministry is seeking cabinet approval to waive import tariffs on more than 1,000 items, says Customs Department director-general Kulit Sombatsiri. If approved, 56 categories of imported goods and a total of 1,100 items will be allowed into the country without tariff, Mr Kulit said. Although the tariff waivers will shrink tax revenue by about 3 billion baht, it will help local manufacturers with their cost of materials, especially intermediate types used in the final production stage of high-value goods. In the first three months of fiscal 2016, Customs collected 31 billion baht.
THE TIMES OF INDIA Taking forward the memorandum of understanding signed in July, Mahindra Defence and Airbus Helicopters inked a pact to form a joint venture to produce military helicopters in India. The statement of intent was signed on Sunday by representatives of both companies in the presence of Prime Minister Narendra Modi and French President Francois Hollande. “We have made significant progress in setting up the joint venture and together the companies are creating a world-class advanced helicopter production facility in India,” Mahindra and Mahindra Group President for Aerospace and Defence S P Shukla said in statement.
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ars don’t always end with treaties; developments at the European Central Bank show how the war on low inflation may end when the loser declares victory and goes home. ECB chief Mario Draghi on Thursday vowed a strong defence of the bank’s 2 percent inflation target, a goal it and other central banks have been signally unable to meet. Giving a nod to both dropping energy prices and to continued falls in market-based measures of inflation expectations, Draghi, speaking after the ECB left interest rates on hold, with one hand worked to downgrade expectations of inflation while with the other suggested strong action. “So now these conditions have worsened and I think the credibility of the ECB would be harmed if we were not ready to review and possibly reconsider our monetary policy stance when we will have full information,” Draghi said in remarks indicating that further loosening is a very live possibility at the next ECB meeting in March. Stressing there were “no limits” on the scope of ECB actions, if within its mandate, Draghi also called, yet again, for support from fiscal policy and structural reform. What’s remarkable is not that Draghi is talking about further measures - after all he and his predecessors have been doing this for years, all the while watching inflation fluctuate below the 2 percent target. Euro zone inflation now stands at 0.2 percent and, given
energy prices, will soon fall into negative territory. What’s remarkable is that Draghi is doubling down on meeting his 2 percent goal, later, against a backdrop of credible criticism of the underlying idea and mechanism of inflation targets. Otmar Issing, the former chief economist of the ECB, argued for pushing back the amount of time it allows itself for meeting the 2 percent goal. “There is a lot to be said for pushing back that time horizon a fair bit,” Issing told the financial daily Boersen-Zeitung in an interview published Thursday. Issing is quite right that failure to deliver undermines credibility, but so can changing the benchmarks. Former Bank of England head Mervyn King and economist Marvin Goodfriend in a review of Swedish monetary policy released on last Tuesday made a similar point, only more strongly. “Where, in the opinion of the Executive Board, it is appropriate to deviate for a while from targeting inflation some two years ahead, the Riksbank shall explain its reasons and defend them” to parliament, the commissioned report said. King and Goodfriend also argued not only for using an inflation measure that overlooks mortgage costs but also for a review of the inflation target every decade. The report also recommended revisiting the inflation target every 10 years. To be sure, the Riksbank famously tightened too quickly after the financial crisis and then eased too slowly but the fact remains that having failed to meet its mandate for
If financial markets ever come to believe that central banks are acknowledging the limits of their power, they will react violently
an extended time we are now discussing, at least in part, measurement issues.
Politics are complicated While acknowledging that it will take longer to get to 2 percent, or declaring oneself willing to tolerate higher inflation down the road to get there, may be reasonable given the evidence, it does not inspire confidence. The risk of more shock and awe from central banks is that strong moves increasingly get lower responses from financial markets. But there is a similar risk embedded
in acknowledging changing inflation dynamics by changing targets: it feels out of control. “We think at some point, there will be a need for the ECB, or politicians (!), to consider what the appropriate target for ECB should be if the target keeps getting missed,” economist Anatoli Annenkov of Societe Generale wrote in a note to clients. “We expect this discussion to continue in the coming years and we see reasons why the ECB should task its committees with the question, seeing that it was 13 years ago since the ‘aim’ was formulated.” These are, of course, ultimately political discussions and they are very difficult ones for central bankers to have openly without inviting threats to their independence, their credibility, or both. The underlying reality is that most of the players in this game, politicians not least, endowed central banks with supposed powers that were actually far beyond their grasp. While this is easier to see in a small economy like Sweden, one need only turn to Japan to get another excellent example of the limits of monetary policy. Draghi is exactly right that more of the heavy lifting should be done by politicians via structural reform and fiscal policy. Yet, sensible as it may be, if financial markets ever come to believe that central banks are acknowledging the limits of their power, they will react violently. Declaring victory and going home changes the meaning of both “victory” and “home”. Reuters
16 | Business Daily
January 26, 2016
Closing Mainland’s outflows rise to estimated US$1 trillion in 2015
Air quality drops in major Chinese cities in December
China’s capital outflows jumped in December, with the estimated 2015 total reaching US$1 trillion, underscoring the scale of the battle facing policy makers trying to hold up the yuan amid slower economic growth and slumping stocks. Outflows increased to US$158.7 billion in December, the second-highest monthly outflow of the year after September’s US$194.3 billion, according to estimates compiled by Bloomberg Intelligence. The total for the year soared more than seven times from US$134.3 billion in the whole of 2014 to a record for Bloomberg Intelligence data dating back to 2006.
Air quality in major Chinese cities in north and east China dropped significantly last month due to heating in winter and adverse weather, the Ministry of Environmental Protection (MEP) said yesterday. The ministry issued air quality figures yesterday for 74 major Chinese cities in December, saying that in the three key areas of the Yangtze River Delta, Pearl River Delta and the combined Beijing, Tianjin and Hebei region, only the Pearl River Delta saw better air quality. Air quality in the other two regions worsened and PM2.5, a major pollutant, increased significantly compared to the same period of 2014, the ministry said.
Hong Kong scores record in survey of priciest home markets Prices climbed 370 per cent from 2003 to their peak in September 2015 Frederik Balfour
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ong Kong has set a record that the city’s government is unlikely to brag about: The world’s most unaffordable housing ever measured in the 11 years that Demographia has been conducting global surveys. Hong Kong ranked as the most expensive housing market among 87 major metropolitan regions,
according to the annual Demographia International Housing Affordability Survey, which used data from the third quarter of 2015. The median home in Hong Kong costs 19 times the median annual pre-tax household income, the highest multiple Demographia has measured, and up from 17 in last year’s report, according to the company’s website.
Hong Kong Chief Executive Leung ChunYing has introduced a raft of measures to cool the property market since 2012 after a rally in home prices fuelled complaints of a widening wealth gap. While home prices have started weakening recently amid a slowing economy in China, affordable housing remains a distant possibility: Demographia
classifies any region with a median multiple of over 5.1 as “severely unaffordable.” Hong Kong and London are the cities most at risk of a housing bubble amid declining affordability, UBS Group AG said in a report in October. Prices have climbed
Sydney was the second-most unaffordable market after its multiple climbed to 12.2 from 9.8 in 2014
370 percent from 2003 to their peak in September 2015, and they’ve since fallen 8 percent, according to data from the Centaline Property CentaCity Leading Index. Prices are poised to fall as much as 30 percent this year, according to Bocom International Holdings Co. analyst Alfred Lau. Sydney was the secondmost unaffordable market after its multiple climbed to 12.2 from 9.8 in 2014, the biggest year-to-year increase that Demographia has ever reported. Vancouver was the third-most expensive city, with a rating of 10.8, while San Jose, California, ranked fourth with a score of 9.7, the survey showed. London ranked in eighth place with a ratio of 8.5. The most affordable markets were in the U.S., including cities such as Buffalo and Rochester in New York state, Cincinnati and Cleveland in Ohio, and Pittsburgh in Pennsylvania. Bloomberg News
Ford to exit all operations in Japan, Indonesia
Profits at China state firms fall in 2015
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utomaker Ford Motor Co said yesterday it will close all operations in Japan and Indonesia this year as it sees “no reasonable path to profitability” in the two countries. Ford will exit all areas of business, including shuttering dealerships and stopping sales and imports of Ford and Lincoln vehicles, according to an email from Asia Pacific President Dave Schoch to all employees in the region. Product development carried out in Japan will be shifted elsewhere. “Unfortunately, this also means that our team members based in Japan and Indonesia will no longer work for Ford Japan or Ford Indonesia following the closures,” Schoch wrote. A Ford spokeswoman earlier confirmed that an email regarding the decision was sent to employees yesterday. The automaker employs 292 workers in Japan, while it has a staff of 35 in Indonesia and 44 dealerships there, according to Shanghai-based Ford spokeswoman Karen Hampton. Ford follows in the footsteps of General Motors, which last year decided to stop making GM-branded cars in Indonesia - with the loss of 500 jobs - amid intense competition from Japanese rivals. Reuters
France, India sign Rafale jets agreement
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rofits at China’s state firms in 2015 fell 6.7 percent from the prior year, when they increased 3.4 percent, the Ministry of Finance said yesterday. Last year’s decline shows that “downward pressure on economic operations remains relatively big, although there are signs of warming up in some indicators,” the ministry said in a statement on its website. In 2015, combined profits of state-owned enterprises totalled 2.3 trillion yuan (US$349.59 billion), according to the ministry. It did not give figures for December alone, but the full-year numbers indicated an improvement in profitability that month. Earlier, the ministry said that January-November profit was 9.5 percent below a year earlier. Excluding financial firms, the combined revenue of state-owned firms fell 4.5 percent in 2015 from the previous year to 45.47 trillion yuan, the ministry said. Companies in transportation, chemical and machinery reported a rise in profit last year, while firms in coal, oil, petrochemicals and building materials saw a drop in earnings.
ndia and France have signed an agreement on the long-delayed purchase of 36 French Rafale fighter jets but have yet to reach a deal on financial issues, the leaders of both countries said yesterday. French President Francois Hollande said there remained “some financial issues” to be resolved before the purchase, first announced in 2012, could be completed. He was speaking after holding talks with Prime Minister Narendra Modi on the second day of an official visit to India. In a joint statement the two leaders welcomed “the conclusion of the Inter-governmental Agreement (IGA) on the acquisition of 36 Rafale fighter aircrafts in flyaway condition, except for some financial issues”. The statement did not specify what those issues were, but said both had agreed they should be resolved “as soon as possible”. Hollande’s visit had raised fresh expectations that the Rafale deal would be finalised after years of tortuous negotiations. A senior French official said the two sides were still haggling over the price, which experts say could reach around five billion euros.
Reuters
AFP