Macau Business Daily January 29, 2016

MOP 6.00

Supported by

Closing editor: Joanne Kuai

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

Japan’s Finance Minister resigns amid graft accusations Page 16

Year IV

Number 972 Friday January 29, 2016

Publisher: Paulo A. Azevedo

Galaxy Entertainment Group to pay staff bonus Page 5

Citic uncovers fraud in its bill-financing business Page 8

The Ties that Bind

A helping hand from the Central Gov’t. Should it be necessary. MSAR Liaison Office Director Li Gang said China would initiate measures if it sees a “huge fall” in visitor arrivals. This, on the heels of a slight 2.6 pct downturn in the annual figures. Meanwhile, Secretary for Economy and Finance Lionel Leong said: “Now we’re in the final stage of revision [of the mid-term review], We hope that it can be disclosed to the public soon...but it would not be possible before the Chinese New Year.” He reiterated that the review was primarily designed to serve as reference for a healthier development of the gaming industry Page 4

Banking on big business A big chunk of change. SJM Holdings is in discussions with various lenders. To raise a construction loan of up to HK$25 bln (US$3.2 bln).The casino operator started building its Lisboa Palace in Cotai two years ago, with construction costs estimated to reach HK$30 bln and slated for completion in 2017

Page 5

China and Hong Kong’s official trade figures widened sharply in December.

Analysts say market players appeared to be using the wide spread between onshore and offshore yuan foreign exchange rates.

And disguising possible arbitrage activities across borders as trade transactions

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Brought to you by

HSI - Movers January 28

Name

Package tours plunge

Far fewer package tour visitors. In fact, 31.6 pct less y-o-y in December to 725,000. For the whole year, package tour visitors decreased 12.2 pct to 9.78 mln from 11.14 mln. The first annual drop since 2009. The biggest source market of Mainland Chinese dipped 10.5 pct to 7.97 mln in 2015

Page 2 Gaming www.macaubusinessdaily.com

Trade disfigures

%Day

Henderson Land Devel

+6.74

Sands China Ltd

+6.72

Galaxy Entertainment

+5.12

China Resources Beer H

+3.27

CNOOC Ltd

+2.57

China Resources Powe

-0.81

MTR Corp Ltd

-0.86

Lenovo Group Ltd

-0.87

AIA Group Ltd

-1.63

Sino Land Co Ltd

-1.93

Source: Bloomberg

Optimistic outlook

I SSN 2226-8294

He says it’s stabilised. Billionaire casino mogul Sheldon Adelson was referring to Macau’s topsy turvy gaming market. Sands China Ltd’s adjusted earnings fell 19 pct to US$581.2 mln in Q4. But the figure still beat market estimates of US$555 mln.

With its mall business holding its own

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2 | Business Daily

January 29, 2016

Macau Air Macau takes delivery of two new Airbus planes On January 19 and 26, Air Macau took delivery of the third and fourth airplanes of the lease agreement signed with Hong Kong-based China Aircraft Leasing Group (CALC), according to CALC’s filing with the Hong Kong Stock Exchange.

The agreement involved the lease of a total of four airplanes: one A320 Airbus and three A321 Airbuses. The first two models were delivered on 29 October and 21 December. It took eight months from the time the agreement was signed until all the deliveries were made. The latter two aircraft are financed by the Hong Kong branch of Shanghai Pudong Development Bank. The new Air Macau aircraft are part of the strategy of the carrier to replace its old airplanes to reduce its average age. It is renewing the fleet and completing cabin refurbishment to improve the quality of service and safety.

Number of visitors on package tours sinks 31.6 per cent in December More than 300,000 visitors on package tours stayed away from the territory compared to December 2014 João Santos Filipe

jsfilipe@macaubusinessdaily.com

T

he number of visitors on package tours declined 31.6 per cent year-on-year in December to 725,000 from 1,059,600 in December 2014, according to data released yesterday by the Statistics and Census Service (DSEC).

Regarding the whole year, package tour visitors to the Macao Special Administrative Region (MSAR) declined 12.2 per cent to 9.78 million from 11.14 million. This means that 2015 was the first year to record an annual decline in terms of package tour visitors since 2009, when 4.65 million visitors entered the territory.

The decline in the number of visitors was for the largest part caused by the decline of tourists from Mainland China, which in 2015 dipped 10.5 per cent to 7.97 million, while in 2014 it stood at 8.90 million.

However, in annual terms, all the other main markets – namely, Hong Kong, Taiwan and South Korea - recorded larger declines than 18 per cent.

As for the month of December alone, package tour visitors from Mainland China decreased by 34.4 per cent (574,200), and those from the Republic of Korea (30,200), with Hong Kong (21,000) and Taiwan (35,300) dropping

14.9 per cent, 12.0 per cent and 36.7 per cent, respectively.

Hotel guests increase 19 pct

In December, the number of hotel guests in the territory increased 19 per cent yearon-year to 1.05 million from 0.89 million. Still, the average occupancy rate in hotels declined by 2.3 percentage points to 82.8 per cent from 85.1 per cent, explained by the increase in the number of hotels and guesthouses. While in December 2014 there were 98 hotels and guesthouses, last month there were 106, which was an increase of 8 per cent year-on-year.

The bad news for the industry, however, is that for the entire year of 2015 the number of people sleeping in Macau hotels went down 2.1 per cent to 10.49 million hotel guests from 10.71 million. For the full year, hotel occupancy stood at 80.5 per cent, down 6 percentage points year-onyear from the 86.5 per cent recorded in 2014.

One of the goals of the Macau Government has been to increase the average length of stay of tourists. In 2015, the average tourist stayed in Macau 1.5 nights, an increase from 1.4 nights, and was the highest overnight stay recorded since 2011.

Macau-Tuen Mun route in operation

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urboJET has announced that Tuen Mun Ferry Terminal, which the company will manage

and operate under the terms of an earlier tender, commenced services yesterday. At the same time, two new routes destined

for Macau Maritime Ferry Terminal and Shenzhen Airport Fuyong Ferry Terminal, have also been launched.

‘The new cross-boundary routes represent the company’s strategic step to enhance its service network by harnessing Tuen Mun’s geographical advantage as the centre of the Pearl River Delta, driving visitations to Macau and facilitating exchanges in the region so that Macau can further tap into the market potential of Hong Kong’s Northwest New Territories and Mainland China,’ the company said in a statement issued yesterday.

The new routes also provide a time-saving

choice for Macau outbound travellers departing from Hong Kong International Airport (‘HKIA’).

Journey time between Tuen Mun and Macau takes around 40 minutes.

Ticket prices are on a par with other Hong Kong/ Kowloon-Macau routes.

Eight daily sailings will be provided in the initial phase of operation. The company plans to increase frequency to 30-minutes departures, and introduce routes to other major Pearl River Delta ports in subsequent phases.

4 | Business Daily

January 29, 2016

Macau Sio Tak Hong resigns as Guangdong delegate for PRC advisory body Macau businessman Sio Tak Hong has already stepped down as a member representing Guangdong Province for China’s government advisory body the Chinese People’s Political Consultative Conference (CPPCC), public broadcaster TDM Chinese Radio reported, citing the plenary session of the provincial conference. Mr. Sio chairs Capital Estate Ltd, which owns interests in Hotel Fortuna, a casino-hotel on the Macau Peninsula; he is also the chairman of local private hospital Yin Kui Hospital. Mr. Sio will remain a Macau delegate for the advisory body, according to TDM.

Beijing rep: National support if Macau registers huge fall in visitors The head of the Liaison Office here has noted that Beijing would initiate a support policy for Macau if the territory registers a big contraction in visitor arrivals Stephanie Lai sw.lai@macaubusinessdaily.com

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he Director of the Central People’s Government Liaison Office in Macau, Li Gang, says China would initiate measures to support Macau if it sees a “huge fall” in visitor arrivals, a remark that follows the city’s registering of a slight downturn in the arrival figures for last year.

Li made this remark on the sidelines of the Office’s Spring cocktail reception yesterday, but he did not elaborate upon what kind of support measures would be implemented by China if Macau’s visitor arrivals significantly contract.

Due to a dwindling of the most important visitor source of Mainland China last year, Macau’s visitor arrivals for the full year of 2015 dropped 2.6 per cent year-on-year to 30.7 million, the first annual fall registered since 2009.

Commenting on the figures, the Beijing representative here believes that the city has still received a considerable volume of visitors as it has exceeded 30 million people.

Visa restrictions

The city’s transit visa restrictions for Mainland Chinese visitors were unwound in July in 2015 after being in place for one year: effective from July 1, Mainland Chinese who transit via Macau are again allowed to stay for up to seven days (a relaxed rule from five days) provided that they can present documented proof of onward travel to a third destination. This rule applies on condition that Mainland Chinese passport holders have not entered Macau in the previous 30 days vis-a-vis the previous restriction that this cooling off period last for 60 days.

Also, Mainland Chinese visitors travelling under the transit visa scheme are allowed to stay two days here during their second visit in any given month, a relaxation from the previous allowing only one day.

But following this unwinding of the transit visa restrictions for Mainland Chinese visitors, no further immigration policy changes have been announced by either the local authorities or Beijing.

Alongside the softening visitor traffic of last year, Macau’s gross domestic product (GDP) shrank 24.2 per cent year-on-year for the quarter ended September last year as gross gaming revenue underwent continuous contraction. Macau’s Secretary for Economy and Finance, Lionel Leong Vai Tac, told media before that

he estimated the city would see its GDP fall by over 20 per cent for the full year of 2015.

Speaking to media, the Beijing representative said he was still “very confident” in the development and stability of Macau’s economy.

Mid-term review

Secretary for Economy and Finance Lionel Leong, who also attended the cocktail reception, noted to media on the sidelines of the event that the results of the midterm review of Macau’s gaming industry and gaming concessions cannot be announced before Chinese New Year.

“Now we’re in the final stage of revision [of the mid-term review],” said Mr. Leong. “We hope that it can be disclosed to the public soon...but it would not be

possible before the Chinese New Year.”

The Secretary reiterated that the review was mainly meant to serve as reference for a healthier development of the gaming industry.

Officials have noted before that the mid-term review has looked at the development of the gaming industry, the industry’s economic impact on Macau, the industry’s impact on small and medium-sized enterprises, the industry’s impact on local society, the relationship between gaming and non-gaming sectors, whether casino operators have fulfilled their concessionary contract, the operational status of the gaming companies, and whether the gaming operators are fulfilling social responsibilities as well as their management of junkets.

Business Daily | 5

January 29, 2016

Macau opinion

High Speed Train in Macau

Pedro Cortés

Lawyer* cortes@macau.ctm.net

A

s the Light Railway is now on the correct track, despite all delays by the previous administration, it is time to think about the future.

I know that it is not time for consultations and that I was not hired by any government department to provide my words on this.

But I have a proposal to make: extend the high speed train from Gongbei station to Cotai. It would be very helpful for the future of Macau. Yes, the immigration formalities would be carried out already at the Macau border. It is logistically possible and should not be a problem. We would have half the people entering by the Gongbei border and the other half at the future international railway station of Macau, which could be placed near the new ferry terminal and next to the airport. Do not even say that technically it is not possible. If it is possible to put an Eiffel Tower in Cotai, I’m sure it will be possible to have a train passing through Cotai and a final station as we have in many countries.

This would help tourists to come in and go out. It would help diversification. It would help the gaming operators put their ‘sold out’ announcements on the Internet. It would make Macau a final destination from the entire Mainland high speed railway. It will allow us to take a train and be in Guangzhou in one hour. Our small and medium entrepreneurs will be very happy with this solution, as they could attend meetings with suppliers in a very convenient and time efficient way.

With the blessing of the Mainland Government and, why not, with the money from the gaming operations, that could be a reality in 3 to 4 years. It would also be a good thing to be put on the table for the extension of the gaming concessions and sub-concessions – if that is the solution of the government for the sector.

The hub comprising the new ferry terminal, the airport and the Lotus Flower border, with the help of Hengqin, would establish Macau as one of the great areas of the People’s Republic of China. It would also spare the money needed to extend the Gongbei border or to construct a new border.

Macau needs to be integrated, needs to be part of China, and the sooner the better.

This, of course, with all respect to the Basic Law which some unfortunately do not revere.

With a Macau high speed train station, I am of the view that all would win and we could get on to the next chapter of Macau returning to the Mainland. A high speed Macau 2.0.

Let’s pray that not only my loyal, trustful and sole reader, besides my dear editor and great proofreader, reads this column today! *Part-time Lecturer at the Chinese University of Hong Kong

SJM Holdings negotiating HK$25 billion loan

S

JM Holdings is negotiating a HK$25 billion (US$3.2 billion) loan with various lenders in order to finance its new integrated resort in Cotai, the Lisboa Palace, according to London-based newspaper Global Capital.

The newspaper quotes a ‘banker familiar with the situation’ that says the Macau branch of the Industrial and Commercial Bank of China (ICBC) has been approaching banks on behalf of the company founded by Stanley Ho Hung Sun. While the sum represents a significant amount, the loan is

expected to be successfully agreed, in spite of declining gross gaming revenues in Macau. Initially, the construction of Lisboa Palace was costed at HK$25 billion, but later increased to HK$30 billion because of the labour crunch and increased construction costs.

“The gaming industry is not doing so well but we are talking about the top three or five players here”, said a Hong Kong-based loans banker, as quoted by Global Capital. “These players will have the means to develop alternative sources of revenue, like visitor tours, and increase their

GEG to pay staff bonus

G

alaxy Entertainment Group (GEG) has issued an internal letter to its employees saying that a discretionary performance bonus will be paid on February 5, the gaming operator has told Business Daily. The amount will be decided based upon three factors; namely, general market performance, the company’s business, and the individual employee’s annual work performance appraisal rating.

In addition, another special bonus of one month’s basic salary and guaranteed tips, if applicable, as of

1 July 2016, will be paid in July.

The bonus for employees joining the company on or after 2 July 2015 will be paid on a pro-rata basis.

‘Should you reassign or leave employment before the payment dates of discretionary bonus and special bonus award, you will not be eligible for respective bonus,’ reads a letter posted by local labour union Forefront of Macau Gaming (FMG) on its social media.

‘2015 was another very challenging year for the company. Macau gaming revenue fell continuously for 19

income”.

While the details are not yet finalised, there is the possibility of the loan consisting of a four-year or six-year term.

The construction of Lisboa Palace started in February 2014 at an estimated cost of HK$30 billion and is slated to open in 2017. The new casino-resort will feature three hotels, including a Karl Lagerfeld Hotel and a Palazzo Versace Macau.

Regarding the gaming casino, it will have the capacity to accommodate 700 gaming tables and over 1,200 slot machines.

months, hitting a five-year low in 2015 since its downturn in June 2014 and apparently the company’s business result has been adversely impacted,’ the letter reads.

GEG’s move was made following the first industry announcement by SJM Holdings, followed by Wynn Macau, MGM China and Melco Crown’s statement promising payment of a special bonus to its employees.

According to the labour union, some of its members working at GEG complained that the amount of the discretionary performance bonus hasn’t met their expectations, as some will only receive 60 per cent of their basic salary, which they perceive as much lower than other gaming operators.

6 | Business Daily

January 29, 2016

Macau

Adelson says Macau stabilizing, China unit profit falls 19 pct The American billionaire is confident that the worst is over now, basing his assumptions on data from December and January

B

illionaire casino mogul Sheldon Adelson said Macau’s gambling market has stabilized after Las Vegas Sands Corp.’s unit in the city announced fourth quarter earnings that fell below analysts’ estimates.

Sands China Ltd. posted adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) fell 19 per cent to US$581.2 million (MOP4,664 million) in the fourth quarter, its parent said in a statement. The figure beat the market estimate of US$555 million, according to Karen Tang, an analyst at Deutsche Bank AG. “I thought we had either hit bottom in the mass market or were bottoming out,” Adelson said on a post-earnings conference call. “Some of the numbers put out and experience through December and January” among other materials he has read, “indicate to me that that’s the case.”

Macau is facing headwinds as China’s crackdown on corruption and a slowing economy have scared away high-end gamblers from the world’s largest gambling market. While the city’s casino takings dropped 21.2 per cent in December - falling for the 19th consecutive month - that represented the smallest year-on-year decline since last January.

Sands China’s share price slumped 30 per cent in 2015. Still, the stock gained 14 per cent in the fourth

quarter as the decline in mass market revenue has narrowed. It rose as much as 4.9 per cent to HK$25.75 in Hong Kong trading, reaching the highest intraday level since January 6.

Handsomely beaten

Sands China’s earnings have “handsomely” beaten consensus, said Karen Tang. “We expect Macau stocks to see a six to eight week shortterm bounce into the seasonally strong Chinese New Year, and our top pick is Sands China.”

Las Vegas Sands, the world’s largest casino operator, earlier posted fourth quarter sales and profit that missed analysts’ estimates as gambling revenue in the key markets of Macau and Singapore declined.

The higher dividend could signal management’s confidence in the outlook for Macau. Investors are looking for signs of a recovery after Adelson in December predicted a turnaround “in the near future, certainly in 2016.”

Sands, which has more casinos than other foreign operators, plans to open later this year the US$2.7 billion Parisian Macao, its fifth project featuring a half-size replica of the Eiffel Tower. The Macau Government has urged gaming houses to build more non-gaming entertainment facilities to attract tourists.

Bloomberg

Corporate

GEG organises CNY luncheon for elderly To usher in the Year of the Monkey, Galaxy Entertainment Group (GEG) invited over 100 elderly people from the General Union of Neighbourhood Associations of Macau (UGAMM) to enjoy a New Year luncheon in the Oasis restaurant in Galaxy Macau yesterday, laying out sumptuous

meals and festive entertainment. Apart from delivering New Year wishes to the elderly, GEG executives and volunteer team members played games, delivered red packets and presented festive gift packs to celebrate the upcoming Chinese New Year.

Partial opening for Parisian in summer considered Sheldon Adelson is considering partially opening the new resort in Cotai named Parisian during the summer, while the full opening is only set to happen in mid-September. The revelation was made yesterday on a post-earnings conference call of fourth quarter results of the company.

“I’m personally thinking about the possibility of an early opening and partial opening. We just turned over 1,000 rooms to operations from the construction department to start installing furniture, fixtures and equipment, FF&E [Furniture, fixtures and equipment]”, he said.

“It’s amazing that eight months before a scheduled opening, we’re turning rooms over to the operations to provide the finishes and installing FF&E. It has never happened before”, he explained.

However this plan is only at the moment in Sheldon Adelson’s mind, who was the first to clearly say that this early opening has not been discussed with the members of the Board.

“I haven’t discussed that at length with my staff”, he admitted.

The Parisian Macao features 3,000 guest

rooms and other areas such as meeting spaces, restaurants and family-friendly entertainment. Besides the replica of the Eiffel Tower, there is a themed water park on the pool deck of the resort.

When completed, the new Sands China resort will increase the number of rooms of the company in Macau to 12,000 and the number of shops to over 800.

Mall revenue increases 4 per cent year-on-year in Macau During the presentation of the results, Adelson praised the performance of the company in terms of Macau mall revenue, saying that the profit from mall revenue went up 4 per cent during the past year.

“For 2015, the operating profit of our malls in Macau and Singapore reached US$0.5 billion. I’m pleased to highlight that despite the downturn in luxury retail in Greater China, our Macau mall revenue still grew by 4 per cent in 2015”, he said.

While the information about the retail sector that Macau properties have generated last year was not announced yesterday, for the whole group there was an increase of 2 per cent to US$564.3 million from US$553.6 million.

J.S.F.

8 | Business Daily

January 29, 2016

Greater China

Widening trade figures gap with HK raises fake trade concerns Imports from Hong Kong surged 64 percent year-on-year last month, while Hong Kong’s exports to the mainland rose just 0.9 Michelle Chen

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he gap between China’s and Hong Kong’s official trade figures widened sharply in December, raising concerns that market players might be using trade to move funds across borders at a time when Beijing is trying to curb capital outflows.

China’s Customs data showed that the mainland’s imports from Hong Kong surged 64 percent year-onyear last month, while Hong Kong’s statistics indicated that the city’s exports to the mainland rose just 0.9 percent from a year earlier.

According to Reuters data, this is the largest discrepancy between the two official figures in absolute terms since the beginning of the datasets in 2006.

Similarly, China’s exports to Hong Kong increased 11 percent, while Hong Kong’s imports from China contracted 1 percent.

Statistical discrepancies have always existed between China’s and Hong Kong’s respective cross-border trade numbers, to a greater or less extent.

However, analysts say market players appeared to be using the

wide spread between onshore and offshore yuan foreign exchange rates and disguising possible arbitrage activities across borders as trade transactions.

“The divergence of trade data indicates a potential use of trade channel for financial arbitrage,” said Raymond Yeung, a senior economist at ANZ in Hong Kong.

“By blowing up trade figures, traders may have potentially received

a larger forex quota to move funds abroad,” said Yeung.

China has been working hard to prevent funds from flowing out of the country as capital flight adds to the downward pressure on its currency, which has already lost 4 percent against the dollar in the past three months.

In a series of measures taken recently, the world’s secondlargest economy has suspended

new applications for the Renminbi Qualified Domestic Institutional Investor (RQDII) scheme, and instructed yuan participant banks to stop yuan account financing.

“The gap was caused by crossborder arbitrage on different foreign exchange rates and interest rates in and out of China. People may do several rounds of fund transfers, inflating both imports and exports figures,” said Liao Qun, China chief economist at Citic Bank International in Hong Kong.

The spread between onshore and offshore yuan widened to 1,400 pips this month, the highest level since September 2011.

Using trade channels to steer clear of Beijing’s regulations on capital account controls isn’t a new trick, especially when the spread between two yuan foreign exchange rates onshore and offshore widens.

In late 2013, a spike in yuan trade settlement coincided with a divergence in China and Hong Kong trade statistics, indicating possibly fake invoices and arbitrage fund flows disguised as trade.

Reuters

Citic said to uncover US$152 million bill fraud Agricultural Bank of China Ltd., the nation’s third-largest lender, revealed last week a 3.9 billion yuan case of bill fraud at its Beijing branch

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hina Citic Bank Corp., a unit of the nation’s largest investment conglomerate, uncovered a fraud case at its billfinancing business involving about 1 billion yuan (US$152 million) late last year, people familiar with the matter said.

An employee at the Beijingbased bank’s branch in Lanzhou city allegedly conspired with other people between May and July to fake

documents that were used as collateral to obtain a bankers’ acceptance, said the people, who asked not to be identified as they aren’t authorized to speak publicly. The acceptance was later sold on several times at discounted prices, bringing total exposure to 900 million yuan to 1 billion yuan, they said.

The proceeds were invested in stocks, and the fraud was uncovered after Chinese equities slumped, one

of the people said. An official at Citic Bank declined to comment when contacted by phone.

The incident underscores the poor internal controls at some Chinese banks and the risks involved in the bill-financing business, which has doubled in value to 4.6 trillion yuan in the past two years. The bills are used for short-term corporate lending, but have often been used to fund speculative investment in real estate and shares. Banks have sometimes used the bills to inflate their balance sheets to meet regulatory requirements.

“Bill financing is a business rampant with loopholes and operational risks, and is taken advantage of by many banks for regulatory arbitrage,” said Ma Kunpeng, a Shanghai-based analyst at Sinolink Securities Co. “These are not isolated cases. The regulator has tried to fix it many times but failed each and every time.”

Agricultural Bank of China Ltd., the nation’s third-largest lender, revealed last week a 3.9 billion yuan case of bill fraud at its Beijing branch.

Regulatory clampdown

In a sign of tighter scrutiny, the China Banking Regulatory Commission issued a notice earlier this month asking banks to review bill-financing businesses for violations and risks, people familiar with the matter have said.

Onsite checks of some banks’ bills businesses last year by the regulator found “imprudent behaviour,” according to the notice seen by Bloomberg News. The CBRC identified violations including fraudulent transactions, the use of the financing to inflate deposits and loans, and adjustments intended to lower capital charges, the notice showed.

An Industrial & Commercial Bank of China Ltd. branch has suspended such lending for iron ore, steel and coal trading companies, and limited transactions to select banks, a person familiar with the matter said last week.

The regulatory clampdown on bill financing has tightened market liquidity and added to the pressures on China’s central bank, which this week added the most funds to the financial system in three years to prevent a cash crunch as money demand picks up before the weeklong Lunar New Year Holiday.

Bankers’ acceptance, known in China as bills, are short-term debt instruments issued by a company with a maturity of up to six months and guaranteed by a commercial bank, usually as part of a commercial transaction. The bill can be sold to another financial institution or the central bank at a discount before it matures, making it a common tool of obtaining financing.

Bloomberg News

Business Daily | 9

January 29, 2016

Greater China Authorities to curb FX buying under current account

Western mainland grows quickly

The nation has increased scrutiny of funds being transferred overseas and curbed the offshore supply of the yuan to make betting on the currency’s declines more expensive

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hina stepped up efforts to prevent companies from dumping yuan by restricting the timeframe for foreign-exchange purchases to pay for imports.

Companies can only buy overseas currencies a maximum five days before they make actual payments for goods, having previously been free to make their own decisions on timing, according to people familiar with the matter who cited the State Administration of Foreign Exchange’s instructions to lenders in some regions.

The new rule comes at a time when China is increasingly resorting to administrative measures to damp depreciation pressures on the yuan and stem record capital outflows.

“The move aims to limit large-scale foreign-currency purchases as the market still expects the yuan will decline and will hurt companies with genuine demand for the dollar,” said Zhou Hao, an economist at Commerzbank AG in Singapore. “But the policy makers’ top priority now is to stabilize the market with such measures, which will likely remain in pace in the near term.”

Chinese banks sold a net 568.3 billion yuan (US$86 billion) of overseas currencies to their clients in December, SAFE said on its website

The move aims to limit large-scale foreigncurrency purchases as the market still expects the yuan will decline and will hurt companies with genuine demand for the dollar Zhou Hao, economist, Commerzbank

Bloomberg News

Beijing to cut domestic corn prices to spur demand The import price is 20 percent lower than the state support price for the current marketing year ending September

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hina, the world’s secondlargest corn consumer, will cut domestic prices to spur demand from downstream industry and reduce cheaper imports, a senior government official said yesterday.

China has instituted a crop stockpiling policy to protect its rural population from fluctuating prices and prop up incomes. But corn reserves are now at record highs.

Demand for cheaper overseas supplies has spiked because the stockpiling elevated domestic prices, with imports of corn and corn substitutes hitting a record high last year.

“If corn prices were set rationally on basis of supply and demand, China wouldn’t need to import at all,” said Chen Xiwen, deputy director with the Communist Party’s Central Rural Working Leading Group, the country’s top rural policy maker.

He said the import price of 1,600 yuan (US$243.24) per tonne was accepted by downstream corn processors and should be considered a “rational” level for domestic corn.

The import price is 20 percent lower than the state support price for the current marketing year ending September, and is lower than the

last week. That’s a sixth consecutive month of net selling and more than twice the amount in November. The data suggest onshore companies and individuals are hoarding dollars as speculation builds the yuan will weaken further after posting the biggest annual drop in more than two decades in 2015, according to Commonwealth Bank of Australia.

An estimated US$550 billion yuan of funds left China since mid-2015, with some 60 percent of this stemming from Chinese residents’ accumulation of overseas assets, Goldman Sachs Group Inc. economists led by MK Tang wrote in a note this week.

Bloomberg Intelligence estimates that about US$1 trillion of capital fled last year, underscoring the scale of the battle facing policy makers as they struggle to boost an economy growing at the slowest pace since 1990.

Yu Yongding, a former member of the central bank’s monetary policy committee, said Wednesday that capital controls should be strengthened. The nation has increased scrutiny of funds being transferred overseas and curbed the offshore supply of the yuan to make betting on the currency’s declines more expensive.

1,800 yuan price proposed earlier by China’s top planning agency.

January 2017 corn futures on the Dalian Exchange fell 1.95 percent yesterday to 1,540 yuan per tonne.

However, some traders oppose the cuts, saying they would erode farmers’ incomes and cause losses for the government, which paid more than 2,000 yuan per tonne for the reserves.

“A big price cut will not help consumption. The industry is still not willing to build inventories as they know that the government has massive stocks,” said Feng Jilong, a senior corn trader with a stateowned firm.

Chen said Beijing is currently looking how to subsidise farmers without artificially raising prices, and is also studying whether to abandon the price support system and let the market decide.

China is running out of space for the corn stockpiles, and some of the ageing crop is deteriorating, but destocking would take time because a rapid sell-off would have too big an impact on the market, said Han Jun, Chen’s deputy.

The government plans to reduce the domestic corn acreage next year and encourage farmers to grow other crops, such as soybeans, of which the country is the world’s top buyer.

Reuters

China’s south-western metropolis of Chongqing and western region of Tibet were the fastest growing regions in the country in 2015, while the north-eastern “rust belt” province of Liaoning had the lowest growth, according to media.

The economy of Liaoning grew only 3 percent last year, China News reported yesterday, while Chongqing and Tibet both grew 11 percent. However, Tibet’s total GDP in 2015 was 102.64 billion yuan (US$15.61 billion), the smallest of all regions. Beijing is close to naming Chongqing Mayor Huang Qifan as Premier Li Keqiang’s right-hand man to help tackle economy, sources told Reuters.

More open market operations during New Year China’s central bank said yesterday it will increase the frequency of open market operations between January 29 and February 19 to maintain liquidity in the market during the Lunar New Year. The People’s Bank of China (PBOC) said it would allow more banks to participate in the short-term liquidity operation (SLO) effective January 29. Bonds issued by government supported agencies as well as commercial banks can be used as collateral for borrowing in SLOs and open market operations. The PBOC launched SLOs in 2013 to supplement its other monetary policy tools.

Canadian PM seeks stronger ties with Mainland

Canadian Prime Minister Justin Trudeau promised to engage very positively with China to enhance a strong and growing relationship with China in the coming years. Trudeau made the remarks at a special reception and photo exhibition to celebrate the 45th anniversary of diplomatic relations between China and Canada, which is co-hosted by the Chinese Embassy in Canada and Canada’s Department of Global Affairs. The event was attended by some 400 guests from political, business and academic circles as well as Chinese communities from Ottawa, Toronto and Montreal.

MMG output plan for Peru copper mine tops forecasts China’s MMG Ltd flagged yesterday that its US$10 billion new copper mine in Peru was set to ramp up production faster than some analysts had expected, which could weigh on copper markets already mired at more than six-year lows. MMG, the Melbourne-based arm of China’s state-owned Minmetals Corp, said it expected to produce 250,000 to 300,000 tonnes of copper in concentrate at the Las Bambas mine in 2016. That’s well above two analyst forecasts for up to 200,000 tonnes this year from the project, which shipped its first cargo earlier in January.

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January 29, 2016

Greater China

Zombie clearout to limit 2016 bond sale growth The number of Chinese companies with debt more than double equity has reached 339 from 187 in 2007

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he top underwriter of Chinese bonds forecasts slower growth in sales this year and limited yield declines as the government allows the weakest borrowers to fail.

“There may be a phase when zombie companies are being cleared out, against the backdrop of the cleaning up of excess capacity,

In other parts of the corporate landscape, I wouldn’t be surprised if the growth slows.

Onshore bond yields are quite low and tight for high-yield equivalent issuers and we are likely to see more credit events onshore Bryan Collins, portfolio manager, Fidelity fund

leverage reduction, de-stocking and a structural adjustment of the economy,” said Tang Lingyun, deputy head of global markets at Industrial & Commercial Bank of China Ltd. The bank managed almost 8 percent of onshore yuan note sales in 2015.

China’s regulatory and industry bodies should pay more attention to risk management and investor protection by making bankruptcy proceedings and corporate restructuring more effective, Tang said in an interview.

While issuance will probably still grow at a rapid pace, the over 30 percent growth rate achieved last year may not be repeated, said Tang.

China Construction Bank Corp. and Bank of China Ltd. ranked second and third with market shares of 7.4 percent and 6.7 percent respectively.

Premier Li Keqiang last month pledged “ruthless” measures by the government to get rid of zombie companies, loss-making enterprises that live on government subsidies and bank loans. At least seven companies defaulted in 2015, up from only one in 2014. The number of Chinese companies with debt more than double equity has reached 339 from 187 in 2007, Bloomberg-compiled data show.

Default watch

China’s cabinet has outlined moves to clean up zombie companies including asset reorganization, transferring

property rights and bankruptcy proceedings, according to the official Xinhua News Agency. A Bloomberg survey in December saw all 22 bond market participants forecast the default rate will rise in 2016, while over 70 percent said the extra yield on such credit will increase.

Corporate note sales surged 34 percent to a record 8 trillion yuan (US$1.2 billion) last year, according to Bloomberg- compiled data. The yield spread between five-year toprated company bonds and government securities plunged 69 basis points in 2015, the most in its data going back to 2007.

Growth was supercharged last year as companies sold more short-term paper and rolled over debts more frequently, said Tang. Falling yields helped save firms as much as 150 billion yuan last year, he said, citing data from the National Association of Financial Market Institutional Investors.

Property issuers

Companies taking advantage of low borrowing costs meant issuance got off to a flying start this year, surging 87.6 percent to 787.6 billion yuan.

Moody’s Investors Service said reform may take a back seat to economic growth and market stability after the stock-market slumped and the economy expanded at the slowest pace in a quarter century.

“Chinese authorities are finding it increasingly difficult to reconcile tensions inherent in designing and implementing credible and effective reform measures while maintaining economic, financial and social stability,” the rating firm wrote in a January 9 report that forecast 6.3 percent growth this year. “A further marked slowdown in activity in commodity, construction and heavy industry sectors will be offset by significant fiscal and monetary stimulus.”

As part of that stimulus, Chinese developers were allowed back into onshore debt markets and they almost quadrupled issuance last year to 456.6 billion yuan. That kind of surge in sales is unlikely this year, said Fidelity International.

“I wouldn’t be surprised if we saw the pace of property developer issuance moderate because they sold so much last year,” according to Bryan Collins, portfolio manager for a US$2.6 billion Asian high yield fund. “In other parts of corporate landscape, I wouldn’t be surprised if the growth slows. Onshore bond yields are quite low and tight for high-yield equivalent issuers and we are likely to see more credit events onshore.”

Corporate bonds issued by nonfinancial companies may grow at 20 percent this year from last year, Zheng Xinying, a general manager at the investment banking department of China Merchants Bank Co., the sixthranked manager last year, said in an interview earlier this month. Merchants Bank is exiting underwriting for lowrated issuers as well as those from industries with excess capacity, Zheng said, adding that while he expects defaults to rise this year, they are unlikely to trigger a systemic crisis.

“The domestic capital markets are more discerning and one of the big themes is to improve and bring about an efficient cost of allocation of capital,” said Collins of Fidelity.

Bloomberg News

Business Daily | 11

January 29, 2016

Asia

New Zealand central bank holds rates but flags more easing The Reserve Bank of New Zealand had previously predicted inflation would creep back inside its inflation target band of 1 to 3 percent by early this year

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he global curse of toolow inflation struck again yesterday when the Reserve Bank of New Zealand kept its official cash rate on hold and reopened the door to rate cuts just a month after all but slamming it shut.

From Europe to Japan a chilling mix of falling energy prices, abundant supply and inadequate demand has policy makers taking ever more desperate measures to stave off deflation.

New Zealand has an added wrinkle as its success in attracting migrants has deepened the pool of willing workers and suppressed wages, closing another route to higher inflation.

At least New Zealand has rates to cut - at 2.5 percent its official cash rate is among the highest in the rich world.

Markets have already priced in a quarter-point easing by mid-year, but analysts see the 2.0 percent level on the horizon.

Su-Lin Ong, a senior economist at RBC Capital Markets, expects cuts in both March and June.

“It’s all part of the

KEY POINTS RBNZ holds rates at 2.50 pct but opens door to more easing Inflation persistently undershoots forecasts, targets China slowdown hits dairy prices, farmers pile up debt

global disinflation story,” said Ong. “This persistent undershooting of inflation targets is a world wide problem.”

The Reserve Bank of New Zealand (RBNZ) had previously predicted inflation would creep back inside its inflation target band of 1 to 3 percent by early this year.

Yet data out last week showed consumer price inflation slowed to just 0.1

percent in the final three months of 2015, the lowest since 1999.

“The even-lower starting point for inflation suggests that annual CPI is likely to remain sub 1 percent in 2016 and barely reach 1.5 percent by the end of 2017,” Ong said.

Similar problems plague the European Central Bank and the Bank of Japan, both of which are under pressure to ease again, while

Malaysia cuts 2016 growth target due to oil plunge Economists had expected cuts of about 7 billion ringgit and an upward revision of the fiscal deficit target

M

alaysia yesterday trimmed its 2016 growth forecast and said it would cut spending as slumping global oil prices squeeze the finances of Southeast Asia’s thirdlargest economy.

It also maintained its fiscal deficit target for this year at 3.1 percent of gross domestic product, contrary to expectations by some economists that the gap would be widened.

The world’s second-largest exporter of liquefied natural gas has been hit hard by a tumble in crude oil prices, which Malaysia assumed in its initial budget in October would average US$48 a barrel this year.

But oil prices are around US$30 a barrel - Malaysia has changed its 2016 forecast to US$30-US$35 - and state firms such as Petronas are cutting their contribution to the government as profits slide.

The Malaysian economy is now expected to grow 4.0-4.5 percent this year, down from an earlier forecast of 4.0-5.0 percent, Prime Minister Najib Razak said.

He said that there will be savings of 9 billion ringgit (US$2.13 billion), or 3.4 percent of the government spending originally planned for 2016. The savings will be made on both operational and development expenditure, Najib said.

markets are wagering the U.S. Federal Reserve will struggle to hike rates much further this year.

Another common theme is the impact of the slowdown in China which has been a heavy weight on prices for New Zealand’s major export earner - dairy.

Earlier yesterday, dairy giant Fonterra cut its forecast pay-out to its 10,500 farmer shareholders, stripping some NZ$800

“Malaysia has been tested with many unexpected challenges beyond our control,” said Najib, who has had to revise his budget for a second straight year.

Economists had expected cuts of about 7 billion ringgit and an upward revision of the fiscal deficit target.

Fiscal slippage?

Some economists are sceptical that this year’s budget gap can be kept to 3.1 percent.

“We caution that odds of fiscal slippage remain high with little manoeuvring space, especially if oil remains on a significantly lower glide path and tax revenue is crimped by lower corporate profits and weaker growth,” said ANZ economist Weiwen Ng. The budget revisions were announced two days after Malaysia’s attorney-general cleared Najib of any criminal offences or corruption, closing investigations into a multimillion dollar funding scandal that has hurt investment.

But his troubles are far from over as Najib continues to face economic woes, including slowing growth and a public outcry over rising costs.

million out of the economy and adding to pressure on the beleaguered sector.

The central bank has repeatedly flagged the sector as a risk to financial stability and estimates around 80 percent of dairy farmers will have negative cash flow in the current season.

Farm debt is mounting so fast that Fitch recently downgraded its view on New Zealand’s banking sector.

Reuters

In yesterday’s speech, Najib made clear the government has no plans to increase the goods and services tax, which is now at 6 percent, and announced 11 calibrated measures including lower employee pension contributions and tax relief for lower income earners.

The GST was imposed in April 2015 to help narrow Malaysia’s fiscal deficit.

Reuters

KEY POINTS 2016 GDP growth target reduced to 4-4.5 pct Fiscal deficit target kept at 3.1 pct of GDP Economists say deficit target may be hard to reach Najib says revisions will save 9 billion ringgit

12 | Business Daily

January 29, 2016

Asia

Big-spending Philippines posts strong Q4 growth Main growth drivers in the fourth quarter were services and government spending Karen Lema

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rowth in the Philippine economy picked up late in 2015 as strong domestic demand and government spending cushioned the impact of weak exports which are hurting many of its larger, trade-reliant Asian neighbours.

Even the severe El Niño dry spell, which hit farm output, failed

KEY POINTS 2015 growth of 5.8 pct among strongest in the world Q4 GDP 6.3 pct y/y, more than forecast and highest in a year Q4 GDP expands 2.0 pct q/q vs forecast 2.2 pct 2016 seen faster at 6.2 pct, supported by election spending Under outgoing President Benigno Aquino (pictured), the economy grew an average of 6.3 percent annually

C.bank says no need to change policy settings

South Korea plans new steps to boost shipments In 2015, exports fell 8.0 percent, the worst performance since the depth of the global financial crisis in 2009 Christine Kim

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outh Korea’s finance ministry said yesterday it aims to pre-empt a downturn in the economy by diversifying export markets and unveiling new measures to boost demand for consumer goods.

In its policy direction for 2016 to deal with challenging external conditions, the

finance ministry said it would expand cooperation with countries formerly under international sanctions, like Iran and Cuba.

The South Korean government has been contemplating measures to shore up the economy as exports, its traditional engine of growth, have weakened in

recent years.

South Korea’s economic growth in the fourth quarter slowed by more than half from the third quarter of 2015 as weakness in construction investment and exports hurt activity.

“Our task this year is to mend exports, which is imperative to shoring up

to dampen the country’s momentum much.

Southeast Asia’s fifth-largest economy grew 6.3 percent in the fourth quarter from a year earlier, faster than the 5.9 percent economists had predicted and picking up from a revised 6.1 percent in the third quarter.

That brought full-year growth to 5.8 percent, national statistician Lisa Grace Bersales told a news conference, which could mark one of the strongest expansions in the world in turbulent 2015. China has reported 2015 growth of 6.9 percent and Vietnam 6.7 percent.

On a quarterly basis, the economy once known as “the sick man of Asia” grew 2.0 percent in the fourth quarter from the previous three months, slightly less than markets had expected but eclipsing China’s 1.6 percent.

“The Philippines is not as heavily leveraged to external growth as some other countries in the region, and domestic demand, predominantly government spending and investment spending, is what really pushed up the growth numbers in the fourth quarter,” said Rahul Bajoria, regional economist at Barclays Bank in Singapore.

“This momentum should generally be sustained. We are expecting growth to be around 5.5 percent in 2016, slightly lower but broadly still in a very comfortable position.”

The resilient performance appeared to support the central bank’s conviction that the economy does not need additional stimulus at the moment.

Main growth drivers in the fourth quarter were services, where growth accelerated to 7.4 percent on-year, and government spending, which surged 17.4 percent. Consumption also grew at its fastest annual rate in at least two years at 6.4 percent.

growth momentum,” said Finance Minister Yoo Il-ho in opening remarks ahead of a government meeting to discuss policy priority.

Yoo said last week South Korea aims to double exports to Iran in two years, with construction and shipbuilding firms seen to benefit from the recent lifting of international sanctions.

In addition to Iran and Cuba, the government is also planning to establish a cooperative body with personnel from both the private and public sector to work with Asian countries like Malaysia, Cambodia and Thailand to increase trade.

The ministry statement said the government will announce new measures to boost exports of consumer goods like cosmetics, food products and apparel in March this year.

The government will also step up monitoring of foreign

risk factors in the wake of uncertainty stemming from the Federal Reserve’s pledge to keep raising U.S. borrowing costs.

As part of efforts to foster foreign exchange stability, the government will require banks to meet the current foreign exchange liquidity coverage ratio (LCR) before year-end.

The LCR, a Basel III regulation aimed at promoting banks’ resilience of liquidity risk profiles, was implemented on a voluntary basis last year.

The government plans to make it compulsory, with expectations for LCR at 40 percent for this year and moving up 10 percentage points a year to 80 percent by 2019.

However, the LCR implementation process will be flexible and subject to change based on market conditions, the ministry said.

Reuters

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Business Daily | 13

January 29, 2016

Asia “We remain bullish. We are maintaining our expansion plans, opening new supermarkets, expanding our convenience stores and putting up new malls,” said Leonardo Dayao, president of Cosco Capital, the parent firm of the Philippines’ second largest supermarket chain Puregold.

Nearly US$40 billion worth of inflows from business outsourcing contracts and millions of Filipinos working overseas flood into the Philippines every year, lifting incomes and spurring demand for property, cars, consumer goods and services.

“We continue to see no need to adjust policy settings at the moment, given the healthy Q4 GDP...and an inflation outlook of a slow creep to within target over the policy horizon,” Bangko Sentral ng Pilipinas Governor Amando Tetangco said.

But in a sign that the consumptionled economy is not totally immune to the slowdown in China, economic planning secretary Arsenio Balisacan said the Philippines would likely miss the top end of its 7-8 percent target for 2016.

Philippine exports were down 5.8 percent in the 11 months to January last year due to sluggish demand from top trading partners Japan, United States and China.

Growth also should be boosted this year from campaign spending ahead of presidential elections in early May, though investors are likely to be cautious until the new leader’s policies are clear.

Under outgoing President Benigno Aquino, the economy grew an average of 6.3 percent annually, helping cut the once stubbornly high jobless rate to a record low of 5.6 percent. His efforts to collect more revenue by intensifying a campaign against tax evasion, as well as prioritising infrastructure, helped win the country investment grade ratings from major credit agencies.

Reuters

Suu Kyi’s Myanmar government takes shape The most-anticipated decision is who the NLD will put forward as president, a position Suu Kyi is constitutionally barred from holding Chris Blake and Kyaw Thu

A

ung San Suu Kyi’s National League for Democracy (NLD) announced its first picks for key positions in Myanmar’s new government, naming leaders for both houses of parliament ahead of the first legislative session Monday.

Since ousting the ruling militarybacked government in historic November elections, the NLD had been silent about who would lead cabinet ministries, control the legislature and hold other top jobs.

The most-anticipated decision is who the NLD will put forward as president, a position Suu Kyi is constitutionally barred from holding.

Suu Kyi has pledged to run the government and remain above the president. Her choice of a figurehead to hold the post may not be known for more than a month.

The NLD will nominate Mahn Win Khaing Than -- the grandson of a cabinet minister assassinated alongside Suu Kyi’s father in 1947 -- as chairman of the upper house of parliament, senior party member Win Htein told reporters Thursday. If the

NLD follows the established rotation between the two houses, Mahn Win Khaing Than, 63, will also become speaker of the combined parliament.

Win Myint, 64, will be the party’s choice as chairman of the lower house, Win Htein said in the capital, Naypyidaw. Win Myint serves on the NLD’s central executive committee, a group of senior leaders who meet regularly with Suu Kyi. Legislative approval of the two chairmen is practically assured as the NLD holds a majority in both houses.

The speaker in the outgoing parliament is Shwe Mann, a former general in the junta that has ruled the country by itself or through its proxies for a half-century.

In what will likely be his final speech to parliament, outgoing President Thein Sein reiterated yesterday that the transfer of power to the new government -- the first of its kind in Myanmar -would be peaceful. He implored the next legislature and government to “work for peace, stability and the development of the country.”

Bloomberg News

Vietnam party boss says tough job ahead for new leadership Uncertainty hangs over the outlook for economic reforms rolled out at an unusually fast rate under Dung

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at an unusually fast rate under Dung, whose exit has caused some jitters.

Those might be assuaged by the inclusion of Nguyen Van Binh, the governor of a central bank praised for its stable monetary policy and tackling of bad debt that swamped a beleaguered banking sector.

Joining him is U.S.-educated foreign minister and Dung’s deputy, Pham Binh Minh, seen by some experts as a signal of the party’s pursuit of even ties between competing superpowers China and United States.

Fred Burke, a board member of the U.S. Chamber of Commerce in Vietnam and managing partner at law firm Baker & McKenzie, said the lineup was reassuring for business and would pick up where Dung left off.

“It’s positive,” he said. “It’s continuity, but continuity with a 21st century bent, a professional bent, with people who are pragmatists who want to roll up their sleeves and get on with it.”

Vietnam-U.S. relations have warmed dramatically as tensions between Communist neighbours

Thailand’s economy is expected to grow 3.7 this year, according to the finance ministry, slightly down from its previous forecast of 3.8 percent, due to sluggish exports. Growth will be helped by government investment and economic stimulus, the ministry said in a statement yesterday. The ministry predicts exports, a key driver of the economy, will grow just 0.1 percent this year, with a forecast range of a 0.4 percent fall and a 0.6 percent rise. The ministry maintained its GDP growth forecast for 2015 at 2.8 percent. Official 2015 GDP data is due on February 15.

POSCO’s operating profit down South Korean steelmaker POSCO posted its smallest quarterly operating profit in at least three years, as steel prices fell faster than raw materials costs, pressured by record exports of Chinese steel. POSCO, the world’s sixth-biggest steelmaker, saw its operating profit in the October-December period slump 55 percent to 341 billion won (US$282.22 million) on a consolidated basis, which includes earnings of its affiliates, according to Reuters’ calculations. POSCO only provided full-year earnings. That was below a consensus forecast of 503 billion won compiled by Thomson Reuters I/B/E/S.

Fortescue steps up costcuts to stay in black Australia’s Fortescue Metals Group said yesterday that it could weather far lower iron ore prices than previously touted, as the world’s No.4 exporter of the steelmaking ingredient cuts costs faster than planned. The company said it would push on with its drive to slash costs after hitting a cost-reduction target six months early due to improved efficiency at its operations, lower debt and falling prices for oil and freight. “If you stack all those together ... that results in a substantial reduction in our cash breakeven below our last guidance at $36 a tonne,” Chief Executive Nev Power said.

Samsung Life to buy stake in Samsung Card

Martin Petty

ietnam’s Communist Party unveiled a new politburo on Thursday with 12 newcomers and members of the controversial outgoing premier’s cabinet, expanding the leadership of a party facing a “heavy” workload of economic reforms.

Nguyen Phu Trong, who stays party chief, pledged to maintain a pro-growth status quo that balances foreign ties and cements a consensus leadership that analysts say was strained by Prime Minister Nguyen Tan Dung’s assertiveness in the latter years of his administration.

Trong, 71, said he was a reluctant leader of a party that would move Vietnam towards modernisation.

“My age is high, health is limited, knowledge is limited. I asked to step down, but because of the responsibility assigned by the party I have to perform my duty,” Trong told reporters.

“I’m also worried because the upcoming work is heavy.”

The 19-member politburo contains conservative and progressive elements, although uncertainty hangs over the outlook for economic reforms rolled out

Thai finance ministry trims growth forecast

Hanoi and Beijing have increased over South China Sea sovereignty.

While Trong has been less critical of China’s expansionism, Dung was the party’s strongest voice in denouncing Beijing and was credited with Vietnam’s smooth accession to a U.S.-led Trans-Pacific Partnership.

Trong was the politburo’s sole candidate for party chief, running unopposed despite rumours of a fierce showdown with Dung for the top post.

Adding some personality to a traditionally arcane politburo is Dinh La Thang, a media-savvy transport minister who has won popularity for brash comments, rebukes of officials and Facebook accounts carrying his name.

The politburo retains an authoritarian streak, however, with four members hailing from a police force criticised by rights groups for crushing the party’s detractors.

Nominations for president, prime minister and legislative chair were included. They are Tran Dai Quang, Nguyen Xuan Phuc and Nguyen Thi Kim Ngan, respectively.

Reuters

South Korea’s Samsung Life Insurance Co Ltd said yesterday it will buy Samsung Electronics Co Ltd’s 37.5 percent stake in sister firm Samsung Card Co Ltd for 1.54 trillion won (US$1.3 billion). Samsung Life, an insurance arm of Samsung Group, the country’s biggest conglomerate, already owns 34.4 percent of the credit card business. Analysts and investors had long speculated that Samsung Group would eventually consolidate control of its financial arms under the life insurer.

Takata prepares CEO exit Takata Corp is preparing the ground for the exit of its chief executive, two people close to the Japanese air bag maker said, as pressure builds on a company reeling from the auto industry’s biggest recall. Takata has been under fire for almost two years over defective air bags that can explode with excessive force and shoot shrapnel inside the car - a problem that has ballooned into a damaging safety scandal affecting nearly 50 million vehicles. The company said on Tuesday that an 11th death could be linked to a faulty air bag.

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January 29, 2016

International Kremlin says ‘nothing tangible’ on OPEC The Kremlin said yesterday that the situation on oil markets was being actively discussed among producers, but that there was “nothing to talk about in a tangible sense” when it came to possible coordination with the OPEC group. “It is too early to talk about the outcome of these active discussions,” Dmitry Peskov, a Kremlin spokesman, said of the talks about what action, if any, oil-producing countries might take to boost low prices.

U.K. economy gained momentum at end of 2015 Annualized growth in the U.K. in the fourth quarter was 2 percent following 1.8 percent in the third Jill Ward

Bank of England Governor Mark Carney said this week that domestic cost pressures need to pick up to justify increasing the benchmark interest rate from 0.5 per cent

Spanish unemployment falls to five year low Spanish unemployment fell to its lowest in almost five years, giving a boost to Acting Prime Minister Mariano Rajoy as he struggles to form a government following an inconclusive election. The jobless rate dropped to 20.9 percent from 21.2 percent the previous quarter, the National Statistics Institute said in Madrid yesterday. Economists had forecast the rate would be little changed, according to the median of nine estimates in a Bloomberg News survey. Unemployment is slowly declining across the euro area, reaching a four-year low of 10.5 percent in November.

Deutsche Bank stays course on restructuring Deutsche Bank Chief Executive John Cryan urged investors to bear with him as he expects the overhaul of Germany’s biggest lender to peak this year, following a record loss in 2015. “We know that periods of restructuring can be challenging,” Cryan said yesterday, as Deutsche reported fourth-quarter earnings including a 1.2 billion euro (US$1.30 billion) loss in its investment bank hurt by legal costs and weak bond trading. Some large investors showed their patience was beginning to thin after Deutsche flagged the loss last week, sending its shares lower.

H&M warns of larger markdowns Fashion retailer Hennes & Mauritz warned yesterday that price reductions to shift stocks of winter wear after unusually warm weather and high purchasing costs due to a strong dollar would weigh on its first quarter. The world’s second-biggest fashion retailer, which long enjoyed a profitability edge over bigger rival Inditex by sourcing largely in low-cost Asia rather than in Europe, is now seeing that advantage eroded by the strong dollar, the currency in which most Asian factories are paid.

H&M’s budget fashion also faces greater competition than Inditex’s mid-market Zara from the rise of discounters like Primark.

Electrolux swings to loss after GE deal collapse Sweden’s Electrolux skidded to a loss in the fourth quarter, suffering a hangover from the collapsed purchase of General Electric’s white goods business that has left the home appliances maker needing a strategy reboot. Looking at the current year, Electrolux forecast growing demand on both sides of the North Atlantic and nudged its U.S. market outlook slightly higher. The company, vying for market leadership with the likes of U.S. rival Whirlpool, swung to a fourth-quarter operating loss of 202 million crowns (US$23.7 million), compared with a profit of 1.4 billion crowns last year.

services and finance leading the way.

Industrial production fell 0.2 percent, with manufacturing unchanged and utilities and mines cutting output.

Construction output fell 0.1 percent.

Britain also faces the possibility of a referendum on whether to stay in the European Union an early as June.

Pro-EU campaigners say a decision to leave the bloc the U.K. joined in 1973 would hit investment and employment and send the pound tumbling.

U.S. data

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he U.K. economy gained a little momentum at the end of last year, thanks entirely to the services industry.

Gross domestic product rose 0.5 percent in the fourth quarter from the previous three months, in line with the median estimate of economists in a Bloomberg survey, figures from the Office for National Statistics published yesterday showed.

While output has expanded for 12 straight quarters and unemployment is at its lowest rate for a decade, Bank of England (BOE) policy makers are focusing on the global risks to the British economy. They will announce their latest interest-rate decision and publish new growth and inflation forecasts on Feb. 4.

BOE Governor Mark Carney said this week that domestic cost pressures need to pickup to justify increasing the benchmark interest rate from 0.5 percent, where it’s been since 2009.

Some economists now see borrowing costs staying at a record low for another year. The economy grew 1.9 percent in the fourth quarter from a year earlier, the slowest annual rate since the start of 2013.

Yesterday’s figures underline the economy’s continued reliance on consumers, who are benefitting from rising employment, falling oil prices and real wage growth.

Services, which account for about 79 percent of GDP, saw growth accelerate to 0.7 percent from 0.6 percent in the previous quarter with business

Kuwait projects record deficit on falling oil income The oil income estimate for 2016-17 is 46 percent lower than in the current year

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PEC member Kuwait projected a record budget deficit for the fiscal year starting April 1 on the sliding price of oil, the finance ministry said yesterday.

The shortfall for the 2016-17 fiscal year is estimated at 11.5 billion dinars (US$38 billion) or a massive 30 percent of gross domestic product (GDP) due to a sharp decline in oil revenues, the ministry said on its Twitter account.

Spending was estimated at 18.9 billion dinars, just 1.6 percent lower than in the current year, the ministry said.

Revenues were projected at 7.4 billion dinars (US$24.4 billion) of which oil income was estimated at US$19.1 billion or just 78 percent of the public revenues.

In the past, income from oil

contributed more than 94 percent of revenues in the Gulf emirate, before the decline in crude prices.

The budget was approved at a joint meeting of the cabinet and the supreme planning council on Wednesday night.

The oil income estimate for 201617 is 46 percent lower than in the current year, and 74 percent below the actual oil revenues in 2014-15, the ministry said.

The oil revenues are calculated on the basis of a crude price of $25 a barrel, down from the current year’s US$45 a barrel.

The price of Kuwaiti oil dived to as low as $19 a barrel last week.

Currently it is hovering around US$23 a barrel.

Kuwait has projected a shortfall of US$23 billion in the current fiscal

The latest GDP data come a day before the U.S. publishes its estimate for the fourth quarter, with economists predicting annualized growth of 0.8 percent following 2 percent in the third.

Federal Reserve policy makers on Wednesday acknowledged the global economic risks in a statement that economists interpreted as diminishing the chances of a March rate increase.

Annualized growth in the U.K. in the fourth quarter was 2 percent following 1.8 percent in the third.

U.K. growth slowed to 2.2 percent in 2015 from 2.9 percent in 2014, the ONS said. The International Monetary Fund forecasts that it will expand 2.2 percent this year, and that the U.S. will grow 2.6 percent.

The fourth-quarter report is the first of three estimates from the statistics office and may be revised, as it’s based on about 44 percent of the information that will ultimately be available.

Bloomberg News

year, the first deficit after 16 years of surplus.

The Gulf state, which has a native population of just 1.3 million, has built around US$600 billion in fiscal reserves in those years.

Figures posted on the finance ministry website show that actual income earned in the first three quarters of 2015/2016 fiscal year is US$37.6 billion, or 46.2 percent lower than last year.

The Gulf state posted a provisional deficit of US$8 billion in the first nine months. The shortfall normally swells in the last quarter due to accounting adjustments.

All the Gulf Cooperation Council (GCC) states -- Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates -- have posted deficits after oil prices lost three quarters of their value since mid-2014.

The Gulf states have announced a series of austerity measures that included raising the prices of fuel products, electricity, water and others.

Kuwait has liberalised the price of diesel and kerosene and is considering cutting subsidies on other services.

But it is facing difficulties to cut spending which has increased more than four folds since 2006, mostly on wages and subsidies, according to official figures.

The wage bill in the new budget is estimated at US$34 billion or 55 percent of total spending while subsidies account for 15 percent.

AFP

Business Daily | 15

January 29, 2016

Opinion Business

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Leading reports from Asia’s best business newspapers

Fed still waiting for Godot, er, the Phillips curve to show James Saft

THE KOREA HERALD

Reuters columnist

Korean banks’ excessive dependence on loans for profit could pose a serious risk to the banking sector should a sudden rate hike force households to default on their debts, a report said yesterday. As of the end of 2014, the ratio of outstanding loans held by local lenders to their total assets came to 73.8 percent, up from 72 percent in 2012 and 67.7 percent in 2008, according to the report from Hana Institute of Finance, a private think tank run by Hana Financial Group.

THANH NIEN NEWS The Vietnamese government is looking to collaborate with Russia and Belarus in automobile manufacturing in an apparent effort to boost the local auto industry. The governments finished talks on the collaboration last week and are expected to ink official agreements some time between the end of next month and the beginning of March, the Ministry of Industry and Trade reported. According to the plans, Vietnamese automakers will join hands with foreign companies such as KAMAZ, GAZ, UAZ and MAZ to set up joint-ventures to produce and assemble vehicles.

NEW ZEALAND HERALD New Zealand wine exports have reached a record high of NZ$1.54 billion for the 2015 year, up 14 per cent on 2014 according to New Zealand Winegrowers. Chief executive of New Zealand Winegrowers Philip Gregan said the growth was “an outstanding achievement” and “testifies to the strong global demand” for New Zealand wines. “The past year has seen particularly strong growth into the USA, with export value up 26 per cent to NZ$430 million, Canada up 18 per cent to NZ$100 million, and the UK up 12 per cent to NZ$380 million,” Gregan said.

THE JAPAN NEWS Mitsui Fudosan Co. opened a large-scale outlet mall near Taipei on Wednesday. Mitsui Outlet Park Linkou in New Taipei City, located about 16 kilometres from central Taipei, is the major Japanese real estate developer’s third overseas outlet mall, after ones in China and Malaysia.

It is operated by a company Mitsui Fudosan set up with a local partner. Taking advantage of its location within 30 minutes by car from Taiwan Taoyuan International Airport and Taipei Songshan Airport, the new outlet mall aims to attract tourists from China and Japan, as well as local consumers.

Fed chair Janet Yellen

T

he Federal Reserve, in leaving rates on hold Wednesday, nodded to global ructions but doubled down on its bet that employment drives inflation.

Markets didn’t like it, with equities falling perhaps in belief that the Fed will be slow to back away from promised rate rises.

“The main surprise here was that the statement leads with strong labour market momentum before characterizing growth as having slowed,” Barclays economist Michael Gapen wrote to clients.

“Normally, the statement starts by characterizing growth and then shifts to the committee’s assessment of labour market conditions. Leading with solid labour market momentum first could be an indication that the committee believes the signal from labour markets more than slowing activity data, particularly if that slowing was driven by transitory factors as we expect.”

At the heart of the idea that the impact from falls in energy prices will only be transitory is the concept of the Phillips curve, an historically fairly stable relationship in economics between the unemployment rate and inflation. A couple of Fed officials threw shadow on the orthodoxy of the Phillips curve last year, raising the possibility that the relationship between rising employment and rising inflation has weakened.

This has not only been stoutly rejected by Fed chair Janet Yellen, but was the subtext of much of Wednesday’s Federal Open Market Committee explanation of its decision.

Not only does the Fed think that employment will eventually bring on inflation, forcing it to raise rates as planned, but it also acknowledges that “economic growth has slowed” since last it hiked in December

“Inflation is expected to remain low in the near term, in part because of the further declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labour market strengthens further,” the FOMC statement said.

That’s a pretty clear statement of how the Phillips curve is supposed to work, arguing for the primacy of employment’s ability to generate inflation over

the passing influence of a oneoff fall in energy prices.

The Fed did balance this appeal to orthodoxy with an acknowledgment that it was “closely monitoring global economic and financial developments”. By this, of course, the Fed means that it is mindful of the potential damage from Chinese economic and market fallout, on emerging markets, on commodity prices and, ultimately, on the U.S. economy.

This was likely intended to reassure investors that the Fed wasn’t going to blindly go on hiking if the global situation deteriorated, but it was less of a salve than investors clearly had expected.

Maybe this time is a little different There remains a glaring gap between the four hikes this year the Fed’s projections have indicated and how the market is pricing the likelihood.

Futures prices from CME Group show that investors see about a 7-in-10 chance of no hike in March, about where things stood on Tuesday. Same thing over the longer term, with markets pricing a 1-in-3 chance that rates remain at 0.25-0.50 percent in December, again about as it was before the announcement.

Olivier Blanchard, former chief economist of the International Monetary Fund, weighed in recently with an analysis of the behaviour of inflation in this cycle, which he thinks shows that the Phillips curve is acting more as it did in the 1960s, when the unemployment

rate drove the level of inflation rather than later, when falling unemployment usually led to rapid acceleration in inflation.

“Put another way, the US Phillips curve is alive. (I wish I could say ‘alive and well,’ but it would be an overstatement: The relation has never been very tight),” Blanchard wrote in a policy brief for the Peterson Institute for International Economics.

In other words, unemployment still drives inflation but at a diluted rate. Blanchard also argues that consumer expectations of inflation have actually become better anchored over time. If true, this would lower the costs to the Fed of a short boom, as the chances of rapidly accelerating and self-perpetuating inflation are lower.

It seems less clear moving in the other direction, and market prices, at least, seem to show that investors don’t expect the Fed to meet their 2 percent goal over extended periods of time.

Taking a step back, there really wasn’t much to like in this statement for risk assets. Not only does the Fed think that employment will eventually bring on inflation, forcing it to raise rates as planned, but it also acknowledges that “economic growth has slowed” since last it hiked in December. Focus will now turn to Janet Yellen’s scheduled Congressional testimony on February 10, by when the tune may be slightly different.

For now, the Fed seems not much closer to backtracking on its plans for normalizing interest rates.

Reuters

16 | Business Daily

January 29, 2016

Closing Indian PM cracks whip on non-performing bureaucrats

First container train links Zhejiang to Middle East

Upset over the increasing number of complaints from people, Indian Prime Minister Narendra Modi has finally cracked the whip on non-performing bureaucrats. Sources said yesterday that the prime minister has ordered “strictest action” against the officials responsible, including their sacking. Modi, known as a “man of action”, has been mulling forced retirement of non-performing officials above the age of 50 in a bid to clean up the bureaucracy plagued by red tape. The prime minister has sacked a few top bureaucrats for non-performance since his government came to power in 2014.

A container train linking China and Iran departed from Yiwu City in east China’s Zhejiang Province loaded with Chinese small commodities on Thursday morning.

According to the train’s operator, Yiwu Tianmeng industry investment company, it is the first regular container train linking China to the Middle East. The train will exit China through Alataw Pass in Xinjiang, the westmost Chinese region, and pass through Kazakhstan and Turkmenistan before reaching its destination Tehran. Company president Feng Xubin said it will take the train 14 days to complete the 10,399 kilometres journey.

Japan’s ‘Abenomics’ Minister Amari quits over graft scandal Nobuteru Ishihara, a former secretary general of Prime Minister Shinzo Abe’s Liberal Democratic Party, will replace him, national broadcaster NHK reported Isabel Reynolds and Maiko Takahashi

J

apanese Economy Minister Akira Amari resigned after a week fending off allegations he received money in return for favours.

A tearful Amari apologized for the scandal, saying it had caused embarrassment. He added any cash received by his office was a political donation but he had to take responsibility for what happened on his watch. He said his secretary had also resigned.

“I decided to resign my cabinet position today in consideration of my responsibility to oversee my secretary as a national lawmaker, my duty as a minister, and my pride as a politician,” Amari, 66, told reporters in Tokyo.

Amari is the most influential minister to step down since Abe took office in December 2012. He was Japan’s point man in the

Japanese Economy Minister Akira Amari reacts during a press conference in Tokyo yesterday

Trans-Pacific Partnership regional trade talks, and spearheaded Abe’s strategy to boost the nation’s competitiveness, known as “Abenomics.”

Abenomics risk

“The resignation of one of the leading members in the Abe cabinet hurts the policy implementation capacity of Abenomics,” said Minori Uchida, head of global markets research at Bank of Tokyo-Mitsubishi UFJ Ltd. “It may be a reason to buy the yen and sell stocks.”

With the yen strengthening to a one-year high last week, and exports falling faster than expected in December, the resignation comes at a key time for Abenomics, which is aimed at pulling the world’s third-largest economy out of deflation. The loss of Amari may also prove a headache for Abe in the run-up to elections in parliament’s upper house this summer.

“In order to escape deflation and build a strong economy, we need to pass the budget and related important bills as soon as possible,” Amari said. “We need to remove any impediments to that and I am no exception.”

Amari was responding to an article published in the weekly Shukan Bunshun magazine last week that said he and his staff took money from an unidentified Chiba prefecturebased construction company in an alleged violation of a political funding law. The

payments amounted to at least 12 million yen (about US$101,000).

A follow-up piece yesterday said Amari twice pocketed envelopes containing 500,000 yen in cash. Further unrecorded payments were made, bringing the total to tens of millions of yen, the magazine said.

Secretary resigns

During the briefing, Amari said he had no recollection of taking cash. He said his secretary had given testimony that money was received by his office and dealt with as a political donation. The secretary, who had spent 3 million yen of the funds, had acknowledged taking money, he said.

Amari is the fourth cabinet member to resign over allegations of financial impropriety. None were as important to Abe as his economy minister, who

completed tough negotiations with the U.S. over the TPP trade deal even after battling cancer of the tongue. Amari had been expected to travel to New Zealand for the signing of the pact by the 12 countries involved on February 4.

“It’s a minus rather than a plus,” said Yuji Saito, head of the foreign-exchange department at Credit Agricole SA in Tokyo.

While Abe recovered from previous resignations to win a snap general election by a landslide in December 2014, a series of scandal-linked resignations contributed to the unravelling of his first administration in 2007 after less than a year.

“I worked without sleep or rest,” Amari said. “After Prime Minister Abe put my self at the helm of Abenomics, I put my life on the line for my national duty over the past three years.”

Bloomberg News

Malaysia to grant visa exemption EU takes aim at multinationals’ Singapore refines regulatory system for oversight of exchanges for Chinese tourists multi-billion tax avoidance

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M

he Monetary Authority of Singapore is refining the regulatory system in which Singapore Exchange Ltd. operates amid the emergence of rival bourses in the city-state.

Starting from this year, as long as exchange members are licensed by the MAS, the central bank will no longer require bourses to inspect their members in areas of capital and reserves, business conduct, anti-money laundering and counter terrorist financing, and operational resilience, according to Deputy Managing Director Ong Chong Tee. The MAS also plans to boost its market surveillance capabilities across markets, he said in a speech at an event organized by the exchange.

SGX, as the only securities exchange in Singapore, remains an appropriate listing authority, he said.

SGX, Southeast Asia’s biggest bourse, is facing increased competition as global rivals bring new products to the region. Intercontinental Exchange Inc., owner of the New York Stock Exchange, opened its futures venue in Singapore in November, while Deutsche Boerse AG plans to start a derivatives market next year.

alaysian Prime Minister Najib Razak said yesterday that the country will grant visa exemption for Chinese.

When announcing the revised Budget 2016, Najib said that subject to certain conditions, visa will not be required for Chinese tourists to Malaysia for a period of no more than 15 days beginning from March 1 to December 31, 2016.

This is among the efforts of the Malaysian government to lure the Chinese tourists to prop up its tourism, with the country’s economy hit by the weak oil and international commodity price since last year.

Malaysian Deputy Prime Minister Ahmad Zahid Hamidi said that the country aims to draw annually 8 million Chinese tourists over the next five years with RM22.1 billion (about US$5.24 billion) spending power.

Acknowledging the arduousness of the target, Zahid said that the average spending of Chinese tourists on food, lodging and shopping has reached RM3345 (about US$792.4), and by taking proper planning and effective promotion, the aim could be realized.

Bloomberg News

Xinhua

T

he European Commission proposed yesterday allowing EU countries to tax corporate profits at home in some circumstances even if the money has been transferred elsewhere to avoid such payments.

Weighing in on a row about business responsibility and fairness, the Commission proposed a set of measures to tackle some of the most common tax avoidance schemes used by multinational companies to reduce their tax bills.

Business warned that the measures could hurt competitiveness and deter investment.

Big corporations legally avoid taxes of up to 70 billion euros (US$76.10 billion) a year in Europe, a study of the European Parliament estimated, with global losses from such schemes ranging between US$100 billion and US$240 billion.

“Billions of euros are lost every year to tax avoidance. This is unacceptable and we are acting to tackle it,” the EU tax commissioner Pierre Moscovici said in a statement calling “for fair and effective taxation for all Europeans.”

Reuters