MOP 6.00 Closing editor: Joanne Kuai
India to fund state banks as bad loans soar Page 12
Year IV
Number 983 Thursday February 18, 2016
Publisher: Paulo A. Azevedo
Studio City named Resort of the Year Page 7
Taiwan writes down 2016 growth forecast Page 8
Legislative Logjam Laid At Gov’t Door One more year, but 10 more bills. Legislators have a lot on their hands to take care of before this term of the Legislative Assembly ends. AL president Ho Iat Seng says the government’s lack of efficiency is slowing up the legislative process. With even more bills expected to come. Mr. Ho has had no luck with chivvying the Secretaries. And expresses concern that some bills may be nullified if authorities don’t improve on efficiency Page 2
Keep calm and carry on It was a bumpy start to 2016. With Beijing declaring it would keep its currency steady. And ensure employment remains stable during the upcoming restructuring. Just days before the G20 meeting kicks off in Shanghai
Pages 8&9
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Legislator Chui champions AIIB
Very much to Macao’s advantage. So says legislator Jose Chui Sai Peng. Who is pushing membership of the Asian Infrastructure Investment Bank. Chui urges the gov’t to speed up the relevant application procedures
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Increasing contribution
Ponte 16 cautiously optimistic
OCBC Wing Hang Bank Ltd. saw its 2015 net profit soar 192 pct to HK$2.03 bln. Driving up contributions to its parent company by 279 pct y-o-y to HK$1.73 bln. Accounting for 8 pct of the Group’s net profit after tax
Ponte 16 registered 90-plus pct occupancy rate during CNY. By offering cheaper room rates, said operator Success Universe’s Deputy Chairman. Hoffman Ma added that the city’s gaming market is stabilising. With the casino generating encouraging mass market footfall. Although less VIPs are rolling in
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Property
%Day
China Resources Powe
+2.74
China Resources Beer H
+2.64
Belle International Ho
+2.31
Bank of East Asia Ltd/T
+2.25
Sands China Ltd
+1.76
Swire Pacific Ltd
-3.01
PetroChina Co Ltd
-3.02
China Petroleum & Che
-3.62
CNOOC Ltd
-3.95
Kunlun Energy Co Ltd
-4.05
Source: Bloomberg
Cooling market
I SSN 2226-8294
Some 2,482 building units and parking spaces were purchased and sold in Q4. Up 6.8 pct q-to-q. But down 11.7 pct in value. For the whole of 2015, the purchase and sale of building units and parking spaces totalled 9,771. Considerably down in value y-o-y
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2016-2-18
2016-2-19
2016-2-20
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15˚ 19˚
2 | Business Daily
February 18, 2016
Macau
AL head urges government to increase legislative efficiency This term of the Legislative Assembly will end next year. But there are still at least 10 bills awaiting final reading, the president of the legislature said, complaining that the government’s low efficiency is hindering the city’s legislative process Kam Leong
kamleong@macaubusinessdaily.com
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he President of the Legislative Assembly, Ho Iat Seng, has slammed the government’s slow administrative procedures for affecting the Assembly’s legislative process, expressing worries that some of the bills may be nullified if the authorities cannot speed up. “We currently have ten bills in hand, with a few more to come. The government’s procedures are quite slow so it always takes a lot of time to respond to our alterations on the bills…This makes us unable to control the time for legislation,” Mr. Ho told reporters on the sidelines of
the Assembly’s media Spring lunch yesterday. The city’s laws regulate that bills after passing the first reading would be distributed to related sub-committees for article-by-article discussion or alteration before being filed for final reading. “As most of the bills are proposed by the government, we need to reach consensus with the authorities on the texts for the bills we draft. Hence, if the government does not respond to us [in a timely manner] we can only sit and wait,” the AL head said. This four-year term of the
Legislative Assembly is to end next year. The AL president is worried that some of the bills may not catch up for final reading by term-end if the government does not speed up its administrative procedures. “These ten bills have to be completed within this year as it will be the last year of this AL term next year, meaning a year for election. I don’t think legislators could still put as much focus on assisting the bills,” Mr. Ho said, indicating there could be many abandoned bills if the situation does not improve. The legislature president claimed
that the government only needs to nod, or not, on the texts that legislators draft for final reading. “This is not a very difficult procedure. I don’t understand why the government always takes so long,” he said. “After all, once a bill passes the first reading, there will not be any major changes in principle, only some technical changes,” Mr. Ho explained, adding he has called the city’s Secretaries to push for progress but failed. According to Mr. Ho, the local legislature has passed a total of 26 bills since the term began in October 2013.
Legislators: Let’s discuss Zika Virus added to list public contract of transmissible diseases compensation clauses
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he AL is going to discuss the introduction of compensatory penal clauses to the contracts involving public works. The debate proposed by legislator Lei Cheng I was passed yesterday with 14 votes for, 9 against and 4 abstentions and is now waiting to be scheduled. The purpose of introducing such clauses in the future contracts to be signed by the government is to avoid public works being delayed or subject to budget overrun. This was the justification offered by the legislator in proposing debating the topic in the Legislative Assembly in order to avoid such cases as the problems encountered in the construction of the Light Rapid Transport (LRT).
The introduction of such clauses will guarantee in future that the government is financially compensated if the contractor fails to finish the project on time or overshoots the budget. Likewise, this penalty is expected to work as an encouragement for contractors to respect public contracts. In spite of the approval of the debate, the topic is far from being consensual among the members of the AL and yesterday legislators such as Chan Chak Mo, Vitor Cheung Lup Kwan and Lau Veng Seng argued against such clauses. Nevertheless, the majority decided in favour of debating the topic with the government.
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esterday, the Legislative Assembly (AL) approved the proposal of the government to add the Zika virus to the official list of transmissible diseases of Macau. The proposal to change Law No. 2/2004 was approved by 26 votes and comes into effect today. “We are aware of the need to prevent the disease from spreading. We are already following the indications of the World Health Organization (WHO) for this disease”, the Secretary for Social Affairs and Culture, Alexis Tam Chon Weng, said. “The economic impact of having the disease in Macau would be unbearable but more important than that we are concerned about the public health of the population”, he said. The government explained the
need to add the Zika virus to the list of transmissible diseases as large numbers of visitors travel to Macau as well as the fact that the mosquitoes that carry the disease, namely Aedes Albopictus and Aedes Aegypti, have already been found in Macau. However, legislator Chank Iek Lap criticised the time taken by the government to add the virus to the list. The AL member mentioned the case of Hong Kong, when a similar measure was adopted on 1st February. “Hong Kong introduced this disease to their list two weeks ago. Now there are already cases in Taiwan detected. We should have added this disease to the list before”, he said. Discussion about the Zika virus surged after an outbreak of the disease was recorded in Brazil and Colombia in December 2015.
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February 18, 2016
Macau
Hoffman Ma: Sofitel Macau occupancy 90-plus pct for CNY
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eputy Chairman of Success Universe Group Ltd, Hoffman Ma Ho Man, whose company operates Ponte 16, claimed that more than 90 per cent of the 408 hotel rooms in Sofitel Macau were occupied during the Chinese New Year holiday. According to Hong Kong media reports, the businessman said that the
room rates for Sofitel Macau at Ponte 16 on the Peninsula during the holiday period had dropped a bit compared to previous years, estimating that the company would continue setting room rates cautiously. Meanwhile, he commented that the Ponte 16 casino had recorded quite good footfall in the mass market since the second and the third day of
Chinese New Year despite fewer high-rollers visiting the Special Administrative Region during the holiday period. Mr. Ma perceives that the city’s gaming industry has been stabilising in the past three months. However, he does not foresee a V-shaped recovery for the industry as the overall environment has turned down.
At the beginning of this month, the Ponte 16 operator told Hong Kong Stock Exchange that the group may post a net loss after tax for 2015 following the substantial decrease of its share profit from the local casino-hotel property and drop in the operating revenue of its lottery business for the first eleven months of 2015. The company’s interim
report shows that the adjusted EBITDA at Ponte 16 was down 40 per cent year-onyear to HK$155.4 million as at the end of June 2015. The property - running a gaming business under the casino licence of Sociedade de Jogos de Macau, S.A. (SJM) owns 92 mass gaming tables, nine high-limit tables , seven VIP tables and 13 mahjong tables.
José Chui Sai Peng urges OCBC Wing Hang net profit MSAR to join AIIB surges 192 pct for 2015
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egislator José Chui Sai Peng urged the local government yesterday to become a member of the Asian Infrastructure Investment Bank (AIIB), an initiative of the Central Government. “The participation in the development of infrastructure in the developing countries, mainly those which are members of ASEAN [Association of Southeast Asian Nations], is going to bring many advantages for the Macau Special Administrative Region (MSAR). Offering support to the construction and improvement of infrastructure will boost the economic development of the territory”, José Chui Sai Peng said during a plenary session of the Legislative Assembly. “Joining AIIB will stimulate the attraction of businesses and
investment for the projects involving regional co-operation. It is a positive initiative to meet the development strategy defined by our country”, he added. The legislator urged the government to make its best efforts in order for the territory to become a member of AIIB and that this strategy is mentioned in China’s 13th Five-Year Plan, which is the PRC’s national strategy for 2016 to 2020. The AIIB is an international financial institution that seeks to support the building of infrastructure in the Asia Pacific region. The bank has a total of 30 member states, excluding Hong Kong and Macao. The HKSAR has been progressing the procedures required to join the institution.
O
CBC Wing Hang Bank Ltd. saw its net profit for the whole of 2015 soar 192 per cent to HK$2.03 billion (US$260.6 million) from 2014’s HK$694 million, its parent company Oversea-Chinese Banking Corporation Limited (OCBC Bank) announced yesterday. The latest results released by the Singaporean bank group indicate that OCBC Wing Hang had registered an annual increase of 159 per cent in its operating profit for 2015, surging to HK$2.5 billion from HK$968 million. Meanwhile, the subsidiary’s customer loans and customer deposits totalled HK$154 billion and HK$188 billion as at 2015-end, respectively. The jump in OCBC Wing Hang’s net profit drove its contribution to its parent company up by 279 per cent year-on-year to HK$1.73 billion,
accounting for 8 per cent of the Group’s net profit after tax of S$3.9 billion (HK$21.5 billion) for last year. In 2014, the OCBC Group acquired Hong Kong’s Wing Hang Bank and its 13 branches of Banco Weng Hang in Macau for HK$38.4 billion and rebranded the branches as OCBC Wing Hang after the acquisition. Currently, the Group owns 94 branches and offices in Macau, Hong Kong and China under OCBC Wing Hang. Claiming the company’s core net profit after tax is an increase of 13 per cent from 2014, OCBC Bank said its overall businesses in Greater China increased to 20 per cent of its total profit before tax, with customer loans reaching S$56 billion in the region, whilst some S$4 billion and S$29 billion were credited to Macau and Hong Kong, respectively. K.L.
Business Daily | 5
February 18, 2016
Macau Ihla Verde land plot reclaimed
Real estate transactions up, total value down in Q4 For the whole of 2015, both total volume of real estate transactions and total value registered a y-o-y decrease
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ome 2,482 building units and parking spaces amounting to about MOP11 billion (US$1.4 billion) in total were sold in the fourth quarter of 2015, according to Statistics and Census Service (DSEC) data released yesterday Despite the total volume of real estate transactions increasing 6.8 per cent quarter-to-quarter, the total value of real estate transactions actually decreased 11.7 per cent from the third quarter of 2015. For the whole year of 2015, the purchase and sale of building units and parking spaces totalled 9,771 - amounting to MOP51.66 billion, down 26.1 per cent and 38.3 per cent, respectively, year-on-year. Residential units in the fourth quarter were sold at an average price of MOP76,126 per square metre of usable area, down 9.7 per cent from the third quarter. For the whole of 2015, the average
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KEY POINTS Most costly residential units found in Coloane in 2015, but prices down 15 pct y-o-y Most expensive pre‑sale residential units in Macau in 2015, but in Taipa in the fourth quarter Buildings over 20 years old worth almost half as much as buildings under five years old per square metre
price of residential property amounted to MOP86,826 per square metre, down 13 per cent compared to the year before.
Trends
The most costly residential units were found in Coloane, with the average price at MOP96,440 per square metre in the fourth quarter and MOP103,993 per square metre for the whole year of 2015. Nevertheless, the yearly average price was 15 per cent lower than the previous year. Meanwhile, the most
costly pre-sale residential units were to be found in Taipa at MOP124,913 in the fourth quarter. But for the whole year of 2014 the most costly pre-sale residential units were found on the Macao Peninsula at MOP176,701. When it comes to the age of a building, residential units completed within 5 years or less were priced at an average of MOP112,957 in 2015. Residential units built more than 20 years ago sold for MOP64,883 per square metre last year. B.L.
he government has reclaimed another plot of land at Ihla Verda, on the southwest side of the Macau Peninsula, according to a February 5 dispatch signed by Secretary for Transport and Public Works Raimundo Rosário and published in the Official Gazette yesterday. The land - occupying 980 square metres and located between Travessa do Laboratório and Canal Dos Patos Street - was supposed to be developed into a building with one ground floor with four storeys on top, for a car park and industrial purposes. The government says that the reason for recovery is that the land grantee did not complete the building project that the site was zoned for within 25 years. The land was first granted on December 31, 1986. The dispatch indicated that the land grantee has no rights to receive any compensation as the land belongs to the government. Nevertheless, the land grantee can still opt to take legal action.
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February 18, 2016
Macau
Possible extinction of the Pataca before 2049 Despite its legal circulation not being in question as it’s guaranteed by the Basic Law there is a real risk of the pataca becoming obsolete, leading to its possible extinction post-2049
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efore the handover, as 1999 approached, more and more opinions predicted the demise of the pataca. Despite some bumps on the road, that scenario was never credible during the Portuguese administration and even with the
clear guarantees written in the Basic Law the truth is that several people forecast that the pataca would not survive post-handover. ‘Macau’s dual currency system is under threat’, wrote Asiamoney, some weeks before the handover, adding:
‘The question of whether the pataca is really necessary at all is being raised with increasing frequency’. ‘The outlook for the pataca is difficult. It appears to be a charming anachronism, left over from colonial days. The only reason for it not to
Strict electoral rules necessary Political watchers say the government have to step in to curb hand-outs of free meals, coupons or gifts during the year of the Legislative Assembly election through amendments to the election law
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onspicuous offerings by the associations linked to the candidates running for the Assembly have long been equated to alleged bribery. As the government is now planning to revise rules for
the sixth edition of the Legislative Assembly election in 2017, political watchers say the authorities must step in to rein in this growing phenomenon. The Public Administration and Civil Service Bureau of Macau said
in a statement it was now consulting the Commission Against Corruption and the Public Prosecutor’s Office for opinions on amendments to the election law for the Assembly. There will be a public consultation in the first quarter of this year, aiming to ‘enhance the fairness of the election and the competition in indirect elections,’ the statement said. Of the 33 seats in the current Assembly, seven are appointed by the city’s Chief Executive, 12 are chosen by representatives from particular sectors (so-called indirectly-elected) while 14 are selected by popular vote (so-called directly-elected). The authorities look at the matter in a different light, though. In a summary report of the 2013 Legislative Assembly election published in late December, the government-appointed Electoral Affairs Committee acknowledged the
be completely replaced by the Hong Kong dollar is that the Hong Kong dollar’s lifespan is itself limited. Should the renminbi take over as the currency in Hong Kong, as it will in 2047 at the latest, the pataca’s days might well be numbered’, concluded the same article from the Euromoney group. The Monetary Authority of Macau (AMCM) reacted, saying that the declarations of the Secretary for Economy and Finance regarding the end of restrictions to exploring yuan-based activities do not spell an end to the circulation of the pataca. Furthermore, the AMCM will ‘guarantee, as usual, the statute of the pataca as legal tender and its respective circulation’. In other words, those who fear for the pataca’s future are divided into those who feel the risk is nearer than previously believed and those who project that scenario for 2049 (or 2047, because of Hong Kong). Talking to Macau Business, Paul Spooner says that, “because the Basic Law now legally protects the pataca, it would be extremely disruptive to China’s strategy with the SARs to make any unilateral moves against its present status. Essentially modifying the pataca’s position will imply a move against the Hong Kong dollar”. That is to say that the only guarantee is the Basic Law: “The pataca is not strong enough or widely used enough now to withstand the changes that would emerge in 2049, when it will no longer be protected by the Basic Law”. The full story can be read in this month’s issue of Macau Business magazine, available at newsstands or online at www.magzter.com
hand-out of gifts by some associations as promotion for candidates but offered no concrete solutions to prevent a reoccurrence. Eilo Yu Wing Yat, associate professor of government and public administration at the University of Macau, agrees it is important for the government to draw a clear line. For instance, the associations could keep organising banquets for their members during the election year but no direct or indirect promotions for some candidates would be tolerated during the galas, he suggested. The scholar proposed the government also revamp the “dated” mechanism in forming a cap on campaign spending by each ticket, which now only says the Chief Executive must set the limit below 0.02 per cent of the government’s estimated revenue in the election year. “As the city is on the track of expansion and development, the revenue will only be higher and thus the campaign budget... giving advantage to [wealthy] candidates,” Mr. Yu noted. “Apart from the formula of setting up the cap, I’m also concerned about what expenditure is regarded as part of campaign spending, especially as the government is mulling extending the campaign period,” Prof. Yu added. The full story can be read in this month's issue of Macau Business magazine, available at newsstands or online at www.magzter.com
Business Daily | 7
February 18, 2016
Macau Studio City named Resort of the Year Studio City was recognised as Resort of the Year in the 9th International Gaming Awards for 2016. The Melco Crown property grabbed the award after its opening in October last year in Cotai, Macau. This is the second consecutive year Melco Crown has lifted the award, after City of Dreams Manila was honoured in 2015. The International Gaming Awards also named Wynn Resorts as Casino Operator of the Year for the Americas. Casino Operator of the Year for Asia/Australia was awarded to Crown Resorts. In addition, Galaxy Entertainment Group was awarded Socially Responsible Operator of the Year in the 9th edition of the event.
China’s ‘happiness economy’ intact in Lunar New Year spending Analysts say the tourism market expanded rapidly, driven by long-term consumption upgrades to the ‘happiness economy’ and good weather across China
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hina’s consumers increased spending on travel and entertainment as hundreds of millions of people travelled to spend time with family during the week-long holiday last week. People spent at least 312 billion yuan (US$48 billion) during the lunar New Year period, when schools and businesses shut down. That record spending came to 31 per cent more than during last year’s holidays, according to China UnionPay Co., which
runs the national bank card network. Travel transactions were up 42 per cent, with the government projecting that people will make 2.91 billion trips during the 40-day festival, which sets in motion the world’s largest annual human migration. “The tourism market expanded rapidly, driven by long-term consumption upgrades to the ‘happiness economy’ and good weather across China,” China International Capital Corp. analysts wrote.
Movies also got a boost as the holiday came in a Monday-to- Sunday period this year while coinciding with Valentine’s Day. Ticket sales rose 67.7 per cent, to a record 3.1 billion yuan, according to entertainment research firm EntGroup Inc. in Beijing. The most popular film was `The Mermaid,’ which earned 1.79 billion yuan. While Mainland Chinese tourists poured into Macau, the world’s largest gaming center, in greater numbers during the holiday week,
gambling revenues extended an almost two-year slump as high-rollers stayed home. Tourism from the Mainland to Hong Kong dropped over the holidays. There was even good news up in the frigid northeast, often called China’s Rust Belt for its struggling mines and factories. Visitors to the annual ice festival in Harbin climbed by about 16 per cent, to more than 300,000, according to the organizers. Bloomberg
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February 18, 2016
Greater China
Gov’t promises stabilit
Global markets and China’s major trading par
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The yuan is expected to be among the key topics of discussion at the meeting of finance ministers and central bank governors from the Group of 20 economies in Shanghai at the end of this month
hinese policymakers emerged from the Lunar New Year hiatus with one collective message for nervous investors at home and abroad - Beijing will put a floor under the slowing economy, keep its currency steady and ensure employment remains stable even as bloated industries undergo restructuring. The string of assurances comes ahead of two high-profile political events for China: a meeting of G20 finance chiefs in Shanghai later this month and next month’s annual gathering of China’s legislature - where the next fiveyear economic development plan will be finalised. A rout in Chinese stocks last summer and its unexpected devaluation of the yuan in August have rattled global markets, raising concerns about the health of the world’s second-largest economy and Beijing’s ability to steer it simultaneously through both a protracted slowdown and radical restructuring. “China’s economic fundamentals have not changed,” Zhao Chenxin, a spokesman for the National Development and Reform Commission (NDRC), the country’s top economic planner, told reporters in Beijing yesterday. “The economy will maintain a medium- to high-rate growth.” “China’s status as the world’s largest holder of foreign exchange reserves has not changed, the largescale trade surplus has not changed and the steady progress in the yuan
internationalisation has not changed,” Zhao said. Still, gross domestic product expanded 6.9 percent in 2015, the slowest in a quarter of a century, and economists see a further cooling this year even if the government expands its year-long stimulus campaign. “We think growth could be 6.76.8 percent this year,” said Xu Gao, chief economist of China Everbright Securities in Beijing. “The risk of a hard landing is not big. The risk of a hard landing may come from improper government policies. If policies are right, the risk of a hard landing is very small.” The NDRC plans to allocate 400 billion yuan (US$61.3 billion) to fund local governments’ infrastructure projects, a local branch of the economic planner said in a statement before the long Lunar New Year break. The economic planner said on Wednesday that it had okayed 54.1 billion yuan of investments in January - following approval of 2.52 trillion yuan worth of projects in 2015 - to help support growth. The announcement followed measures announced by the central bank on Tuesday to support China’s industries. Data also showed banks doled out a record 2.51 trillion yuan of new loans in January, far more than markets had expected and suggesting Beijing is keeping monetary policy loose. Separately, a spokesman for the commerce ministry yesterday downplayed the risk of capital flight,
Taiwan cuts 2016 growth outlook again as exports fizzle The growth slump in Taiwan reflects a broad downturn in exports in regional economies Jeanny Kao and Faith Hung
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aiwan cut its outlook for economic growth this year for the second time as weak global demand slowed its export engine and consumption remained weak at home. Already on the ropes with its January exports contracting for the 12th month running and demand from its largest trading partner China flagging, the island’s worsening outlook has raised the chance for another rate cut next month. The economy is now expected to expand just 1.47 percent this year, the statistics agency said, after growing at its weakest in six years in 2015. Last August, the statistics agency predicted 2.7 percent growth for 2016 before cutting it in November to 2.32 percent. Taiwan’s economy barely emerged from a recession in the fourth quarter. On a seasonally-adjusted annualised basis (SAAR), the final three months of last year still posted growth, but at a 2.18 percent
KEY POINTS Full-year GDP cut for 2nd time to +1.47 pct Sees 2016 exports at -2.78 pct vs earlier growth view Revises Q4 GDP to +2.18 pct SAAR, vs preliminary +3.22 pct Grim outlook raises chance c.bank may cut rates
revised pace that was slower than an earlier 3.22 percent preliminary estimate. The growth slump in Taiwan, an important hub in the global supply-chain for tech giants such as Apple Inc, reflects a broad downturn in exports in regional economies with close trade ties to struggling China. “We are not surprised the GDP data came out
so bad. Global economies, including Taiwan, have been cutting their GDP and export forecasts,” said Eric Lin, chief investment officer of Eastspring Investments, the Asia asset management arm of Prudential, Taipei. “The 2016 GDP forecast bodes ill for Taiwan’s electronics industry. Electronics exports account for 50-60 percent of total
exports,” Lin said. The government now sees exports contracting 2.78 percent for this year, swinging from a previous estimate for mild growth. With an export recovery some way off, economists expect more policy support to bolster growth. Taiwan’s central bank cut its policy discount rate at each of its two previous
quarterly policy meetings and has twice guided market rates lower in the first quarter. “The Bank of Japan has gone to negative interest rates. It’s possible Taiwan’s central bank will cut our rate in March,” said an executive at a Taiwanese state-run bank, who declined to be named due to the sensitive nature of the matter. Reuters
Business Daily | 9
February 18, 2016
Greater China
ty as G20, parliament loom
Alibaba takes e-commerce into the fields
rtners remain nervous about its foreign exchange policy
KEY POINTS China’s economic fundamentals unchanged - state planner Confident it can keep employment stable China says can keep yuan “basically stable” Commerce ministry downplays risk of capital flight Private economists still see numerous risks in 2016
and said there is no basis for continued depreciation of the yuan, a scenario that has been one factor behind a massive sell-off in global markets early this year. Still, global markets and China’s major trading partners remain nervous about its foreign exchange policy. The central bank has stunned investors twice in six months - in August and early this year - by allowing sudden, sharp drops in the value of the yuan against the U.S. dollar, only to intervene quickly and forcefully afterwards to steady it. It burned through a record amount of foreign reserves in 2015 as it sold dollars and bought yuan to support the currency and deter speculators betting on further declines. The yuan is expected to be among the key topics of discussion at the meeting of finance ministers and central bank governors from the Group of 20 economies in Shanghai at the end of this month. While Beijing’s latest assurances of stability may have tempered fears of an imminent and sharp devaluation, most economists and currency strategists expect the yuan will remain under pressure and capital outflows will continue until the economy shows some signs of leveling out.
Stable jobs?
“After the Lunar New Year, the cabinet and government ministries have all sent out positive signals,” said Xu at China Everbright Securities.
Battle with Qatar for Australian freight giant Australian company said it was dumping an initial offer of US$6.3 billion Byron Kaye
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anada’s Brookfield Asset Management is planning a fresh US$6.4 billion bid for Australian port and rail firm Asciano with Qatar’s sovereign fund, two sources told Reuters, widening the global battle for the haulage heavyweight. The willingness of Brookfield to raise its offer and Qatar Investment Authority’s (QIA) entry as a potential co-investor underscore the immense appetite for Australian infrastructure,
especially mining-exposed companies whose share prices have been battered by the commodities downturn. Asciano, which had a market capitalisation of US$4.3 billion a year ago, said on Tuesday it was dumping Brookfield’s initial offer of A$8.9 billion (US$6.3 billion) in favour of a A$9 billion bid from Australian freight rival Qube Holdings Ltd in concert with China Investment Corp. But the sources, who are close to the deal, said the Canadian
“For the economy, there is still lots of room for the government to step up investment. 2016 is the first year of the 13th five-year plan (20162020) and the government will ensure growth of at least 6.5 percent this year.” NDRC’s Zhao also said China has the ability and confidence to maintain stable employment levels, even as the government moves to curb overcapacity in the coal and steel sectors to squeeze out so-called “zombie firms”. The government will take steps to resolve factory overcapacity but will try to reduce the number of layoffs, he said. China’s plan to cut its steel production capacity by 100-150 million tonnes will lead to the loss of up to 400,000 jobs, the official Xinhua news agency reported last month. And while most private economists agree the economy does not appear to be in danger of sharp deterioration at present, most are sticking to forecasts of a gradual and bumpy slowdown. “We expect the economy to continue to slow and corporate balance sheets to worsen,” Tao Wang, Hong Kong-based China economist at UBS, wrote in a report on Monday. “However, we see the risk of an immediate systematic financial crisis as very small, due to high domestic saving and ample banking liquidity, extensive government ownership of banks and many debtors, and capital controls.” Reuters
infrastructure investor would join the Qataris and Canadian pension fund PSP Investments and raise its offer to A$9.05 billion as early as today. The sources asked not to be identified because of the sensitivity of the matter. Brookfield always intended to allow its original binding offer to lapse by a February 17 deadline, they added, so that it could launch a higher cash offer with new partners. It stood by a February 7 letter it wrote to Asciano saying it planned to raise its offer from A$9.10 per share to A$9.28, the sources said. Asciano and Qube declined comment and Brookfield had no official comment. QIA was not immediately available for comment. The deal would be QIA’s first in Australia. The fund has been busy buying assets around the world, including a 44 percent stake in a US$4.5 billion Brookfield property development in Manhattan last year. Its emergence as a potential coinvestor could add a new dimension of scrutiny from Australia’s Foreign Investment Review Board (FIRB). Qube also could face political headwinds due to the Chinese government interests backing its takeover offer. A FIRB spokesman said its assessments of whether deals were in the national interest were applied consistently “regardless of the country of origin of the investor”. Qube is being advised by UBS and Credit Suisse, while Citi and Barclays is advising Brookfield. Brookfield has lined up a A$1.9 billion loan underwritten by ANZ, Barclays, Citi, Deutsche Bank and HSBC. Reuters
Alibaba, China’s biggest online trader, reached agreement yesterday with the top economic planner to expand e-commerce in rural areas. The National Development and Reform Commission (NDRC) will work with Alibaba in more than 300 rural areas to develop e-commerce, which is expected to optimizes the agriculture industrial chain and encourage people to start their own businesses in rural areas. E-commerce is developing fast in rural China as farmers begin selling produce online. Alibaba, JD and others have set up service stations in villages to help those who lack the necessary skills to shop online.
Steelmakers not dumping: Commerce Ministry
Chinese steelmakers are not engaged in dumping of surplus goods into the European Union (EU), China’s Ministry of Commerce (MOC) said yesterday. In response to an EU anti-dumping probe, MOC spokesperson Shen Danyang told the press that low preliminary tariffs were not evidence of dumping by China. Overcapacity is a worldwide industry problem and efforts by Chinese government and enterprises to restructure the steel industry and reduce excess capacity have made headways, Shen said. China hopes to deal with overcapacity together with the EU, and protectionism will exacerbate the situation, he said.
Zheshang Bank wins clearance for HK IPO Mainland China lender China Zheshang Bank Co Ltd has won approval from Hong Kong’s stock exchange for an initial public offering expected to raise around US$1 billion, IFR reported yesterday, citing people familiar with the transaction. The commercial lender, based in China’s eastern Zhejiang province, could start pitching the deal to investors in early March, added IFR, a Thomson Reuters publication, citing one of the people familiar with the IPO plans. The bank did not immediately respond to a Reuters e-mailed request for comment on the IPO.
Okay Airways in commitment for Boeing jets China’s Okay Airways has signed a commitment for 12 Boeing 737 jets worth US$1.3 billion at list prices, as the privately owned carrier looks to expand its fleet to tap the mainland’s growing air travel market. The order includes 11 737 Max jets, the upgraded version of Boeing’s narrow body aircraft line. The deal was signed at the Singapore Airshow. The agreement also includes options for another eight 737 Max planes. The order is not part of the deal to supply 300 aircraft worth US$38 billion at list prices, the company’s chairman told reporters yesterday.
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February 18, 2016
Greater China
Banks hiding losses in ‘opaque’ receivables accounts Official data show nonperforming loans at Chinese commercial banks jumped 51 percent last year to a decade-high of 1.27 trillion yuan Lianting Tu
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hinese lenders are reacting to a regulatory crackdown on shadow financing by increasing activity in their more opaque receivables accounts, a practice Commerzbank AG estimates may result in losses of as much as 1 trillion yuan (US$153 billion) over five years. Banks are increasingly using trusts or asset management plans to lend and recording them as funds to be received rather than as loans, which are subject to stricter regulatory oversight and capital limits. The German bank’s forecast is based on total outstanding receivables of around 11.5 trillion yuan. “Chinese banks haven’t provisioned for receivables and those are essentially riskier loans,” said Xuanlai He, credit analyst at Commerzbank in Singapore. “The eventual losses will have significant impact on China’s economy because you could have contagion risk in banking sector.” Official data show nonperforming loans at Chinese commercial banks jumped 51 percent last year to a decade-high of 1.27 trillion yuan amid a stock market rout and the worst economic growth in a quarter century. While Moody’s Investors Service doesn’t expect a banking crisis in China in the next 12 to 18 months, it said in a Jan. 26 note that it does see higher loan delinquencies, more defaults on corporate debt and some losses in wealth-management products. “The receivables portfolio in Chinese banks is opaque so we can’t make an assumption on the asset quality,” said Christine Kuo, analyst at Moody’s in Hong Kong. “Provisions for receivables are indeed very low compared to that for loans. We tend to think that the Chinese government is likely to provide support if there is any sign of a crisis.” China CITIC Bank Corp.’s assets under receivables tripled to 900 billion yuan by June 30, from 300 billion
when regulators began cracking down shadow banking exposure, according to Sanford Bernstein & Co. While traditional shadow financing such as lending to local governments and property developers is declining, new forms are rising such as bill financing packaged into wealth management products, said Hou Wei, analyst at the research house in Hong Kong. His estimate for potential losses is about 400 billion yuan. Bank’s shadow financing assets, mostly in wealth management products and trusts, now tend be more highly levered, Hou said. Smaller banks, which account for half of all loans, are more exposed than the big five state-owned lenders, Hou said. “Now the biggest risk is the sudden dry-up in liquidity caused by capital outflow and higher leverage,” he said.
Deteriorating assets
yuan at the end of 2013, according to the bank’s financial statements. Concerns about Chinese banks’ creditworthiness are mounting with the cost of insuring Industrial & Commercial Bank of China Ltd.’s debt against default reaching an all-time high of 199.5 basis points on January 21. The bank’s 6 percent perpetual notes that count as Additional Tier 1 capital fell to a record low of 99.5 cents last Thursday. The yield spread on China CITIC’s US$300 million 6 percent 2024 notes surged to a oneyear high of 337 basis points over U.S. Treasuries Monday.
Casting shadows
Calls to China CITIC’s media department went unanswered. Wang Zhenning, a corporate communications official at ICBC in Beijing, declined to comment. Lenders’ on-balance-sheet shadow financing grew 25 percent last year, a jump from the 15 percent in 2014
We tend to think that the Chinese government is likely to provide support if there is any sign of a crisis Christine Kuo, analyst, Moody’s, Hong Kong
Outstanding repurchase agreements in China’s interbank market, used by debt investors to amplify their buying power, soared to 9.73 trillion yuan in December, the highest level since at least 2012, before edging down to 8.1 trillion yuan in January, according to data from ChinaMoney. Risks are large in the receivables items, said Matthew Phan, credit analyst at CreditSights Inc. in Singapore. “The provision requirement is less strict for such assets, which are typically loans to the property and overcapacity sectors.” In the latest official data released Monday, the industry’s bad-loan ratio climbed to 1.67 percent from 1.25 percent. New yuan loans in January jumped to a record high of 2.51 trillion yuan as banks front loaded their 2016 lending targets. “Corporate leverage is rising and around 70 percent of bank loans in China go to corporations,” Moody’s Kuo said. “Until we see corporate leverage and profitability stabilize, we will likely see bank assets continue to deteriorate.” Bloomberg News
Fosun scraps deal to buy Israeli insurer The firm had agreed to pay 1.8 billion shekels to buy a 52.31 percent stake in Phoenix from Delek Group in June last year
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osun International Ltd has dropped a plan to buy a controlling stake in Israeli insurer Phoenix Holdings, the first major set back for the Chinese conglomerate since its chairman Guo Guangchang briefly went missing late last year. Guo, one of China’s most successful private businessmen, was called in to assist authorities in an investigation in December, sparking concern that he was caught in the government’s anti-corruption campaign. After Guo went missing, the Tel
Aviv Stock Exchange suspended trading in Delek and Phoenix. Representatives from Fosun also flew to Israel in December to discuss the deal. Fosun had agreed to pay 1.8 billion shekels (US$462 million) to buy a 52.31 percent stake in Phoenix from Delek Group in June last year. But the Chinese company was unable to “consummate” the deal to the satisfaction, or waiver, of the closing conditions of the agreement, Fosun said in a statement to the Hong Kong Stock Exchange yesterday. Neither party will be obligated to pay termination fees, the company said. No additional details were provided. Billionaire Guo has spent more than US$30 billion over the past decade building a business empire, spanning financial services, real estate to leisure industry. Reuters
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February 18, 2016
Asia
Japan automaker unions’ underwhelming pay demands challenge Abenomics This is the straight third year in which automaker unions have demanded wage rises, having secured increases in the previous two years Tetsushi Kajimoto and Leika Kihara
KEY POINTS Auto unions seek half the base pay rise sought last year Abe struggles to drive private sector-led virtuous growth Market turbulence clouds outlook for annual wage talks
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apan’s automaker labour unions are reducing their demands for pay rises for the next fiscal year from amounts sought the previous year, a move that could hamper the Abe government’s efforts to stoke demand and defeat deflation. The annual “shunto” wage talks are seen as crucial for the ultimate success of Prime Minister Shinzo Abe’s aim to generate virtuous growth led by higher incomes and business investment. The unions’ modest demand underscores Abe’s struggle in pulling Japan out of two decades of deflation and stagnation, with the global stock market rout and yen gains since the start of this year giving firms a perfect excuse to forgo wage hikes. The labour union of auto giant
Toyota Motor Corp, which sets the tone for annual wage talks across Japan, is seeking a 3,000 yen (US$26.31) increase in monthly base pay, half of what was sought last year. Labour unions of other car makers followed suit - despite record profits Toyota and some others expect in this business year to March. This is the straight third year in which automaker unions have demanded wage rises, having secured increases in the previous two years. The wage talks wrap up at other major firms in leading industries in mid-March, when companies’ management will make their formal responses. “Taking into account slowing inflation and uncertainty over the economic outlook, we can’t demand
bigger rises in base salary just because our company logs record profits,” Toyota union’s spokesman Yasuyuki Takaki told Reuters. “We should seek higher bonuses when short-term profits rise, rather than base salary, which cannot be unwound in times of a business downturn.” The sticky deflationary mind-set of labour unions are what the Bank of Japan is trying to eradicate with its aggressive money printing and last month’s decision to adopt negative interest rates to spur growth. Leading blue-chip companies had consented to Abe’s calls to raise wages since he returned to power in late 2012, agreeing to an average wage hike of 2.19 percent in 2014 and a 2.38 percent raise last year - a 17-year high.
OCBC profit beats expectations The bank benefited from a 7 basis point rise in interest rate margin which helped boost its net interest income by 5 percent despite a small growth in loans
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versea-Chinese Banking Corp, Singapore's second-biggest lender, posted a 21 percent rise in quarterly net profit, beating expectations, but also showed a 25 percent jump in bad debt charges as an economic slowdown hits regional banks. China's economic slowdown has hurt trade finance and weak oil prices have stymied lending to energy companies, although they have yet to impact the profitability of Singapore banks. "The past year has been a challenging one for most industries," OCBC CEO Samuel Tsien said in a statement. "The ongoing economic transformation and slowdown in
KEY POINTS OCBC Q4 net profit S$960 mln; consensus S$872 mln Bad debt charges up 25 pct reflecting industry trend China have created contradictory pressure on regional economies." OCBC's net profit came in at S$960 million (US$683.42 million) in the three months ended December, versus S$791 million a year earlier and above an average forecast of
Flags weakness in some oil and gas accounts
Major firms respond to unionists’ demand in mid-March
In a sign that momentum is fading, Japan’s biggest business lobby, Keidanren, has said wage hikes don’t necessarily have to take the form of a hike in base salary - toning down from the more explicit requests it had made until last year. “Labour unions have not shaken off their deflationary mindset,” said Hisashi Yamada, chief economist at Japan Research Institute. “If labour unions of top firms lower base pay demand, that may make it harder for small firms to raise wages. If base pay stops rising, that could pave the way for return of deflation.” Reuters
S$872 million from six analysts polled by Reuters. Rival United Overseas Bank this week also reported a jump in bad debt charges and warned that S$2 billion of its oil and gas portfolio could be vulnerable if oil prices continued to stay low. Unlike UOB, OCBC is more exposed to the Chinese economy after it bought Hong Kong-based Wing Hang Bank in 2014, which accounted for 8 percent of the group's net profit in 2015. OCBC benefited from a 7 basis point rise in interest rate margin which helped boost its net interest income by 5 percent despite a small growth in loans. Non-interest income climbed 26 percent largely driven by a 24 percent increase in profit from its insurance unit Great Eastern Holdings and significantly higher net trading income. OCBC's bad debt charges for loans and other assets rose to S$193 million in the fourth quarter from S$154 million a year earlier. Singapore's biggest bank DBS Group Holdings will report results on February 22. Reuters
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Asia
Modi plans to inject more funds into state banks as bad loans soar Banks are the main source of funding for infrastructure and other investment projects Devidutta Tripathy and Rajesh Kumar Singh
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ndia is preparing to pump in a higher-than-anticipated capital sum into poorly performing state banks, government sources said, a move that could see New Delhi infuse as much as US$34 billion additionally and make it harder to hit planned deficit targets. Prime Minister Narendra Modi’s government in August pledged to put in 700 billion rupees (US$10.2 billion) into state-run banks through four years to March 2019 as part of a broader banking reforms programme. It had then said the lenders would raise another 1.1 trillion rupees from the financial markets. But a surge in provisions for bad loans in a central bank-directed balance sheet clean-up exercise has sent several lenders into losses, hammering their stock prices and limiting their ability to secure external funding as the economy wobbles. It also means Finance Minister Arun Jaitley will have to squeeze the national budget to foot the bill. “Indian public sector banks may find it difficult to raise capital, given their currently weak operating performance,” Standard & Poor’s credit analyst Deepali Seth said in a
KEY POINTS Extra capital burden may add 35-40 bps/year to deficit for 3 yrs Finance minister may propose capital infusion plan at month-end Low book values to hit banks’ plans to raise funds from markets
Indian Prime Minister Narendra Modi
report, highlighting a risk of further rating downgrades. “These banks will therefore have to rely more on government support for capital infusions.” Two senior government officials with direct knowledge of the matter said a new capital-infusion plan was being formulated that Jaitley might propose as early as the end of this
month when he presents the federal budget. They did not say how much more the government was targeting injecting into the banks. A finance ministry spokesman did not immediately respond to a request for comment. India Ratings and Research, a local affiliate of Fitch, reckons the government will have to cough up at
least 1.26 trillion rupees, nearly double of what it originally planned, to keep its current ownership of state banks. But the figure might swell to as much as 3 trillion rupees if the lenders fail to raise funds from markets, it said. “Right now it’s a tightrope walk,” said Abhishek Bhattacharya, co-head of financial institutions at India Ratings.
Indian tax office tells Vodafone to pay US$2 bln in tax dispute A number of other multinational companies including Royal Dutch Shell Plc, IBM Corp, Microsoft Corp and Hewlett-Packard Co have fallen foul of India’s tax collectors in recent years
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ndia’s tax office has sent Vodafone a reminder to pay US$2 billion in taxes and threatened the UK group with seizure of local assets if it fails to do so, despite the dispute being the subject of an international arbitration process. Vodafone, one of India’s largest corporate investors, has been involved in a string of tax disputes in India since it bought in 2007 Hutchison’s local mobile business to enter into the world’s second-
biggest market for mobile phone users. In the long-running dispute, the telecoms group was held liable for paying capital gains tax on the deal, for which the reminder notice by the Indian tax office has been sent. The development comes even as Prime Minister Narendra Modi’s government has sought to move towards a tax-friendly regime to boost foreign investment and reduce the number of
outstanding tax disputes with multinational firms. “We can confirm that we have received a tax reminder from the tax department that also references asset seizures in the event of nonpayment,” a London-based spokesman for Vodafone said in a statement. “In a week when Prime Minister Modi is promoting a tax-friendly environment for foreign investors this seems a complete disconnect between government and the tax
department,” the Vodafone statement said. Indian revenue secretary Hasmukh Adhia said in social media posts that the tax office’s notice to Vodafone was a routine exercise of sending notices in cases where collection of dues was not ‘stayed’, or temporarily put on hold, by any court. “The party can always approach assessing office with a request to stay the demand as per law,” Adhia said in posts on his official Twitter account late
on Tuesday. “In case assessing officer does not agree, party can go to next higher authority and get a stay.” In 2012, India’s Supreme Court ruled that Vodafone was not liable for any tax on the Hutchison deal, but the government then changed the law later that year to enable it to tax such deals retrospectively, demanding more than US$2 billion be paid. In 2014 Vodafone then sought international arbitration of the dispute, which has still not been settled. A number of other multinational companies including Royal Dutch Shell Plc, IBM Corp, Microsoft Corp and Hewlett-Packard Co have fallen foul of India’s tax collectors in recent years. In most of the cases the tax department has charged the firms with under-invoicing the value of products, services or shares sold to their parents and, therefore, lowering tax liabilities. Reuters
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February 18, 2016
Asia A sharp slowdown in India’s nominal economic growth, which drives tax revenues, has already made it tougher for Jaitley to meet a target of trimming the fiscal deficit to 3.5 percent of GDP in the year that begins in April from the 3.9 percent budgeted for this year. Bhattacharya said the extra burden of capital infusion could add 35-40 basis points every year to the deficit over the next three years. In a Twitter post on Friday, the finance ministry quoted Jaitley as saying that the government is “committed to protect the banks and give them the capital requirements”. “Bad loans are there but banks are equipped to deal with these issues,” Jaitley said.
Growth capital
Banks are the main source of funding for infrastructure and other investment projects, and capital constraints at the banks could throttle a nascent recovery. Big quarterly losses at lenders including Bank of India and Indian Overseas Bank mean some of them will need more capital sooner than expected to grow lending. Bank credit growth last fiscal year fell to its slowest in nearly two decades. With all state-run banks, including top lender State Bank of India, trading at a steep discount to their book values, selling shares at dirt-cheap valuations is not an option. Ashwani Kumar, chairman at Dena Bank that is in talks with the government for capital support, said the original capital infusion plan was based on parameters including profitability of lenders, pace of bad loan additions and banks’ ability to raise funds from the market. “If those parameters don’t hold good, they have to put in more money,” he said. Reuters
Philippines launches 25-year U.S. dollar bond issue Citigroup, Deutsche Bank, HSBC and Standard Chartered were appointed deal managers for the issue
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he Philippine government has launched a 25-year US dollardenominated bond issue to fund this year’s budget and buy back shorter-dated and expensive debt. It did not say how much it plans to raise, but National Treasurer Roberto Tan told Reuters in August the government was looking at raising as much as US$750 million from the foreign debt market to finance its 2016 funding needs. The yield guidance for the dollar bond issue is 4.0 percent, Thomson Reuters publication IFR reported yesterday. Citigroup, Deutsche Bank, HSBC and Standard Chartered were appointed deal managers for the issue and for the bond switch tender offer, under which holders of the Philippines’ existing offshore bonds can either switch into the new notes or sell them for cash at a fixed price. Holders of bonds maturing in October 7, 2016 to January 13, 2037 can participate in the bond switch. “The invitation is a part of the Republic’s general debt management program and its broader program to manage its external liabilities,” the government said in a notice to investors. The Philippines used to be one of Asia’s most active sovereign bond issuers, but has relied more on onshore funding in recent years.
Government’s notice
It has a history of issuing sovereign bonds early in a year in the hopes of getting more favourable terms. Tan told reporters on Tuesday that the government has completed the registration of US$5 billion worth of new issues with the United States Securities and Exchange Commission to allow it to sell bonds to the U.S. market. That amount covers this year’s planned dollar bond sale. Reuters
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Need to diversify
GrainCorp said joining the CBH proposal was part of its strategy to diversify away from grain production in Australia’s east coast, where dry weather has affected crops and cut into profits.
this year as global commodity prices remain low, the finance minister said yesterday. The figure is a shortfall in the government’s 2016 target of 1,822 trillion rupiah in revenue. Finance Minister Bambang Brodjonegoro told reporters the calculation was based on oil averaging US$30 per barrel. Lower-than-expected tax revenue may exacerbate the drop, he added.
U.S. to boost economic engagement with ASEAN U.S. President Barack Obama unveiled on Tuesday a new initiative to promote economic ties with members of the Association of Southeast Asian Nations (ASEAN). The initiative, called U.S.-ASEAN Connect, is designed to set up a network of hubs across the region to connect more entrepreneurs, investors and businesses between the two sides, Obama said at a press conference at the end of a twoday meeting with ASEAN leaders. “We agreed to do more together to encourage the entrepreneurship and innovation that are at the heart of modern competitive economies,” Obama said.
Nissan to start assembling cars in Myanmar this year
Colin Packham
Palmquist, GrainCorp managing director and chief executive officer. CBH said in a statement it had received the proposal and an assessment would take “several weeks”. Should CBH agree to put the deal to its 4,200 farmer owners, the proposal would require at least 75 percent support to go ahead. Palmquist acknowledged on a conference call with reporters that getting necessary shareholder approval may be challenging. Australian Grains Champion (AGC), which said its bid was also supported by a “tier one Australian institution”, believes its plan would unlock cash for farmers and put CBH on a more commercial footing. “We need to move on, we need to modernise,” AGC director Clancy Michael told Reuters.
South Korea’s foreign exchange bank deposits declined for a third straight month in January to their lowest level in nearly two years as companies withdrew dollars for trade payments, monthly central bank data showed yesterday. Foreign exchange bank deposits on a whole fell $2.93 billion to stand at US$55.60 billion as of the end of January, the Bank of Korea said in a statement. This was the lowest level seen since the end of March 2014. The decline was mainly due to a downturn in dollar deposits as companies withdrew dollars to pay for both export and import payments.
The invitation is a part of the Republic’s general Indonesia anticipates debt management drop in state revenue program and its broader in 2016 program to manage its Indonesia is likely to see a 90 trillion external liabilities rupiah ($6.7 billion) drop in state revenue
GrainCorp joins bid to buy Australia’s biggest grain exporter ustralia’s GrainCorp will join a consortium that aims to acquire and list the country’s largest wheat exporter, valued at up to US$2.1 billion, potentially putting Graincorp in the box seat to take over its west coast rival. The proposal to list Western Australia-based Co-Operative Bulk Handling Ltd (CBH) is being led by Australian Grains Champion, a grower-led initiative that includes farmers and some former directors of CBH. The value of CBH would be determined through an initial public offering, GrainCorp said, but analysts said the Western Australian cooperative could be worth as much as A$3 billion ($2.1 billion). GrainCorp said it would be a cornerstone investor, committing as much as A$600 million, which would be transferred to an equity stake in CBH once it was listed. Such an investment would give GrainCorp a 20 percent stake in CBH if it was valued at A$3 billion. “Our proposed investment is a good strategic fit for GrainCorp, bearing in mind CBH’s complementary assets and capabilities,” said Mark
S.Korean FX bank deposits decline
Western Australia is the country’s largest grain producing region, accounting for more than a third of all production. A CBH listing would draw wide takeover interest, but Australia’s political landscape meant GrainCorp would likely be in pole position, analysts said. Bowing to pressure from growers, the Australian government in 2013 rejected a A$2.8 billion bid for GrainCorp by U.S. agribusiness giant Archer Daniels Midland Co Ltd on national interest grounds. “The big global agribusinesses would all be attracted to CBH given its market leadership in Australia’s largest grain market,” said Belinda Moore, analyst at RBS Morgans. Palmquist refused to be drawn on the possibility of a full takeover of CBH. Australia is the world’s fourthlargest wheat exporter, selling just shy of 19 million tonnes of the grain this season to markets in Asia, but it is also rated as the world’s most expensive country to produce wheat. Reuters
Japan’s Nissan Motor Co said yesterday it would start assembling cars in Myanmar this year for the first time, as the Southeast Asian country opens up its economy. Japan’s second-biggest automaker said it would initially use an existing facility of partner Tan Chong Motor Group to assemble the Sunny compact sedan. It will then transfer production to a new plant, in the Bago region, with a work force of about 300 and annual output capacity of 10,000 cars at full production. “Demand in Myanmar is expected to grow rapidly following economic and political reforms,” Nissan said.
Philippine Air signs deal for Airbus jets Philippine Airlines (PAL) is securing 12 wide-body Airbus jets worth about US$3.7 billion at list prices as it aims to operate non-stop flights from Manila to U.S. destinations. PAL will start taking delivery of the Airbus A350-900 jets in two years, Jamie Bautista, PAL’s president, and Fabrice Bregier, Airbus president, told a news conference at the Singapore Airshow yesterday. PAL has ordered six Airbus jets, with another six purchase options, Bautista said. Earlier this week, Reuters reported PAL’s planned deal with Airbus.
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International Euronext’s core profit jumps European exchanges operator Euronext NV said its core earnings rose 26 percent in 2015, thanks to sustained listing activity and strong turnover from cash trading. Trading activity in 2016 so far has been “resilient”, Chief Executive Stephane Boujnah said in a statement yesterday. Euronext, which operates exchanges in Paris, Amsterdam, Brussels, London and Lisbon, plans to announce a new strategic plan in the second quarter of 2016, he added. The company’s earnings before interest, tax, depreciation and amortization rose to 283.8 million euros (US$316.9 million) in 2015 from 225.4 million euros a year earlier.
Argentina reaches settlement in U.S. debt class action But Elliott Management’s NML Capital Ltd and Aurelius Capital Management LP, among the leading creditors pursuing individual lawsuits in the dispute, have not accepted the offer Nate Raymond
Apple CEO opposes helping FBI unlock iPhone Apple Inc Chief Executive Tim Cook said his company opposed a demand from a U.S. judge to help the FBI break into an iPhone recovered from one of the San Bernardino shooters. Cook said that the demand threatened the security of Apple’s customers and had “implications far beyond the legal case at hand.” Judge Sheri Pym of U.S. District Court in Los Angeles said on Tuesday that Apple must provide “reasonable technical assistance” to investigators seeking to unlock data on an iPhone 5C that had been owned by Syed Rizwan Farook.
Spain’s Bankia to pay small investors for listing loss The bank will fully compensate thousands of small investors who bought into its ill-fated listing, the state-owned bank said. Yesterday’s surprise move represents a bid to close a painful chapter for the bank which will allow it to move ahead with its restructuring and return to private ownership. Bankia became a symbol of Spain’s banking crisis when it was nationalised in 2012 through a 22.5 billion euro (US$25 billion) bailout just a year after it was listed, wiping out its shareholders and triggering protracted legal action.
Puerto Rico government doubts own solvency Puerto Rico’s government said it had “substantial doubt” about its ability to operate long-term, and cited a threat to public services if its Government Development Bank misses debt payments, in a draft of long-delayed fiscal year 2014 financial data released Tuesday. The 366-page draft, which has not yet been audited, follows criticism from some U.S. lawmakers and financial creditors that Puerto Rico has not been transparent with its finances. The U.S. territory is mired in economic crisis, facing a 45 percent poverty rate and a dwindling tax base as locals flock to the mainland United States.
Buffett to webcast annual meeting Warren Buffett’s Berkshire Hathaway Inc plans to webcast its annual meeting for the first time, allowing the largest U.S. shareholder gathering to reach a global audience through Yahoo Inc’s finance page. Viewers will be able to watch Buffett, Berkshire’s 85-year-old chief executive officer, and Vice Chairman Charlie Munger, 92, field five hours of questions on April 30 from shareholders, reporters and analysts about the Omaha, Nebraska-based company, investing, the economy and life.
The deal came after Argentina, headed by President Mauricio Macri, on February 5 proposed paying US$6.5 billion to settle litigation
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rgentina has reached a deal with lawyers pursuing a U.S. class action lawsuit over defaulted debt to resolve the case, as part of the country’s efforts to settle long-running litigation over its 2002 default, a court-appointed mediator said Tuesday. Daniel Pollack, a New York lawyer overseeing the settlement talks, said the agreement in principle “fit within the numerics” of Argentina’s proposed offer earlier this month to resolve various lawsuits by holders of defaulted bonds. Exactly how many bondholders are covered by the class action settlement would be known in several weeks, Pollack said. Those who do participate would receive 100 percent of the
principal owed and 50 percent of the interest on that principal, he said. Pollack said the deal was conditioned on the approval of the Argentine Congress and the lifting of injunctions issued by U.S. District Judge Thomas Griesa in the litigation. He added that he was “hopeful that there will be more settlements to come.” Jason Zweig, a lawyer for the plaintiffs, said he was pleased Argentina had “decided to put this matter behind them.” “This shows that the proposal is good and that we are continuing to advance positively. We hope that there will be more agreements in the coming days,” said a source in the Argentine finance ministry.
Britons see lowest chance of rate rise Despite British consumer demand remaining robust, buoyed by record employment levels and rising real wages
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he number of Britons who expect the Bank of England to raise its record-low interest rates over the next 12 months has fallen sharply to its lowest in more than two years, a survey of households showed yesterday. Financial data company Markit said 46 percent of households expected the BoE to raise rates before February 2017, down from 71 percent in November. The number expecting a move in the next six months sank to just 22 percent from 40 percent in January. Both figures were the lowest
since October 2013. The change in household expectations comes as inflation remains stubbornly low, and financial markets have pushed back their bets on a first increase in rates to beyond 2018 following a slump in global share prices. Last month BoE Governor Mark Carney said he wanted to see economic growth back above average, wages growing faster and underlying inflation nearer 2 percent before raising rates. “With policymakers facing low
The deal came after Argentina, headed by President Mauricio Macri, on February 5 proposed paying US$6.5 billion to settle litigation stemming from its record US$100 billion default in 2002. Two out of six leading bondholders pursuing have already accepted the offer, Pollack has said. The offer represents a 27.5 percent to 30 percent discount for creditors who filed claims of about US$9 billion. But Elliott Management’s NML Capital Ltd and Aurelius Capital Management LP, among the leading creditors pursuing individual lawsuits in the dispute, have not accepted the offer. Those creditors spurned Argentina’s 2005 and 2010 debt restructurings, which resulted in 92 percent of its defaulted debt being swapped and investors being paid less than 30 cents on the dollar. The class action lawsuit in Tuesday’s accord was one of several by bondholders who sought to pursue claims as a group. Plaintiffs led by Henry Brecher, one of the bondholders, until recently sought US$68 million. But a U.S. appeals court in September dealt the plaintiffs a setback by throwing out a ruling that had expanded the class action. As a result, the plaintiffs were expected at a hearing in April to present a revised model in which the damages that could be sought would have been limited to only investors who held the bonds for a continuous defined period. Reuters
inflation, falling commodity prices and global growth worries, less than half of UK households predict an interest rate rise over the coming year,” Markit economist Philip Leake said. The BoE has kept interest rates at a record low since March 2009, and many economists had expected a rise by the middle of the year until a renewed slump in oil prices and a slide in shares at the deepened concern about the world economy. British consumer demand has remained robust, buoyed by record employment levels and rising real wages, and Markit’s Household Finance Index suggests this is likely to continue. Households reported that their financial situation was the least squeezed since May 2015, bolstered by limited rises in the cost of living, higher take-home pay and little increase in the cost of living. Concerns about job security persisted, however. The results are based on a survey of 1,500 Britons aged 18-64 conducted online by polling company Ipsos MORI between Feb. 10 and February 14. Reuters
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February 18, 2016
Opinion Business
wires
The negative rates club
Leading reports from Asia’s best business newspapers
Daniel Gros
Director of the Center for European Policy Studies
TAIPEI TIMES The New Power Party (NPP) announced its legislative agenda, which includes introducing bills to institutionalize the transition of governments, combat media monopolies and increase transparency in crossstrait negotiations, as well as amend disaster relief and compensation laws. The party made the announcement at a news conference held after its caucus met in Taipei to set its priorities in the Legislative Yuan session that is to begin on Friday. NPP convener Hsu Yung-ming also vowed to halt Morgan Stanley Private Equity Asia IV’s proposed purchase of cable TV operator China Network Systems.
THE KOREA HERALD Korea’s jobless rate was higher in January from a month earlier due mainly to seasonal factors, a government report showed yesterday. The jobless rate reached 3.7 percent last month, up from 3.2 percent in December. Compared to a year earlier, the January figure was 0.1 percentage point lower. However, the seasonally adjusted jobless rate remained unchanged from a month earlier at 3.5 percent. In its report, Statistics Korea said cold weather prevented the agriculture and fishery sectors from hiring more in January, compared with the exceptionally warm weather in December.
JAKARTA GLOBE President Joko Widodo said innovative entrepreneurship and better access for small and medium enterprises to the digital world are keys to narrowing the gaps in economic development among members of the Association of Southeast Asian Nations (Asean). The president is currently attending the US-Asean Summit in Sunnylands, California. In a press statement released on Tuesday Joko, who is a former entrepreneur, said SMEs are typically very resilient in their ability to support the national economy, even during global crises.
THE STAR Affordability and strict bank lending will continue to weigh on the property sector, with the outlook to remain bleak in the first half of the year. UOBKayHian Research said in a report that demand remained an issue despite property prices in key areas – Penang, Johor and the Klang Valley – remaining relatively stable with house-price indices holding up. “Demand continues to be sluggish post implementation of the goods and services tax (GST). We expect this trend to persist as affordability and stringent lending policies continue to dampen the sector outlook,” it said.
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or the better part of a decade, central banks have been making only limited headway in curbing powerful global deflationary forces. Since 2008, the US Federal Reserve has maintained zero interest rates, while pursuing multiple waves of unprecedented balance-sheet expansion through large-scale bond purchases. The Bank of England, the Bank of Japan, and the European Central Bank have followed suit, each with its own version of so-called “quantitative easing” (QE). Yet inflation has not picked up appreciably anywhere. Despite their shared struggles with deflationary pressures, these countries’ monetary policies – and economic performance – are now diverging. Whereas the United States and the United Kingdom are now growing strongly enough to exit their expansionary policies and raise interest rates, the eurozone and Japan are doubling down on QE, pushing policy longterm interest rates further into negative territory. What explains this difference? The short answer is debt. The US and the UK have been running current-account deficits for decades, and are thus debtors, while the eurozone and Japan have been running external surpluses, making them creditors. Because negative rates benefit debtors and harm creditors, introducing them after the global economic crisis spurred a recovery in the US and the UK, but had little effect in the eurozone and Japan. This is not an isolated phenomenon. By now, most of the world’s creditor countries – those with large and persistent current-account surpluses, such as Denmark and Switzerland – have negative interest rates, not only for long-term governments bonds and other “riskless” debt, but also for medium-term maturities. And it is doing little good. Despite the weak impact of low interest rates, central banks
in these economies remain committed to them. If it is suggested that QE or lower interest rates are unlikely to benefit their economies much, they shift the focus of the discussion, railing against the notion that raising interest rates would stimulate the economy – an ostensibly airtight argument. Only it is actually far from airtight. Basic economics courses cover the curious case of the “backward-bending supply curve of savings”: In some circumstances, lower interest rates can lead to higher savings. Because lower rates reduce savers’ income, they spend less, especially if they have a savings target for their retirement. None of this discredits the general rule – which forms the basis of modern monetary policymaking – that a lower interest rate tends to stimulate consumption and other expenditure. The impact simply varies according to the economy’s debt position. In a closed economy, there is a debtor for every creditor, so whatever creditors lose from ultra-low interest rates, debtors should gain. But in an economy with a large net-foreign-asset position, there are naturally more creditors than debtors. For a country with large foreign debts, the opposite is true. The effectiveness of monetary policy at the lower bound should thus be different in creditor and debtor economies. Until recently, this condition did not matter, because foreign-asset positions were usually small (as a percentage of GDP). Today, however, these positions in the major industrial economies are large and increasingly divergent, partly owing to the build-up of leverage that led to the global financial crisis of 2007-2008. And, in fact, at the international level, leverage is continuing to grow. Though current-account imbalances have generally fallen since the financial crisis began, they have not
Traditional creditors have seen their currentaccount surpluses grow so much that the debtor/ creditor asymmetry continues to increase
reversed. This implies that the surplus countries continue to strengthen their creditor positions, diverging from the deficit economies. Commodity exporters like Russia and Saudi Arabia, which ran large current-account surpluses when oil prices were high, are the main exception to this pattern of diverging foreign-asset positions. With the precipitous decline in world oil prices since June 2014, their fortunes have reversed. Their export earnings have plummeted – falling by half in many cases – forcing them to run deficits and draw on the large sovereign-wealth funds they accumulated during the global commodity boom. A radical reduction in expenditure has now become unavoidable. The industrialized economies face very different challenges. Their problem – in a sense, a luxury problem – is to ensure that their consumers spend
the windfall from lower import prices. But in the creditor countries, negative rates do not seem to advance this goal; indeed, some external surpluses are even increasing. This divergence is also playing out within the eurozone. Though it is a creditor economy overall, it comprises debtor countries as well. The debtor economies, such as Spain and Portugal, now run small current-account surpluses, and are gradually reducing their debt. But the traditional creditors have seen their current-account surpluses grow so much that the debtor/ creditor asymmetry continues to increase. Most notably, since the start of the financial crisis, Germany’s current-account surplus has increased to nearly 8% of GDP, meaning that the country has accumulated more surpluses in that period than in its entire previous history. On current trends, the German creditor position might rise from 60% of GDP to 100% of GDP. Central bankers are supposed to be patient. Indeed, economists supported the global movement toward centralbank independence precisely because it seemed that central bankers would be less inclined to try to stimulate the economy for short-term gain. But central bankers seem to have become impatient, fretting about low inflation, even though the output gap is slowly closing and full employment has been reached in the US and Japan. Creditor countries’ central bankers must stop trying to manipulate their economies with more potentially counterproductive monetary easing. Instead, they should allow the recovery to run its course, even if that happens slowly, and wait for the base effect of lower oil prices to disappear. ECB President Mario Draghi recently admitted that, in today’s global context, the current monetary-policy approach might not be effective. But promising more of the same is not the answer. Project Syndicate
16 | Business Daily
February 18, 2016
Closing Philippine Customs’ revenue climbs in January
Perfect World to fund Universal movies in US$250 million deal
The Philippine Bureau of Customs has collected 30.9 billion pesos (US$648.87 million) in January, up 5.2 percent year-on-year, a senior official said yesterday. Customs Commissioner Alberto Lina said that volume and values of non-imports rose by 23 percent and 17.2 percent respectively. Collection from oil, however, fell to 3.9 billion pesos from 4.6 billion pesos a year ago. Meanwhile, Lina admitted that the January collection fell short by 21.10 percent from the target collection of 39.2 billion pesos. The collection effort of the customs bureau is adversely affected by the 41.2-percent drop in the weighted average price of crude and petro products.
Chinese film company Perfect World Pictures Co Ltd will invest $250 million into a slate of Universal Pictures movies, extending the tie-ups between China and Hollywood, as the world’s second largest economy sees its box office soar. The Chinese firm will help fund at least 50 Universal Pictures films over a five-year period through its Perfect Universe Investment Inc investment unit, the company said in a regulatory filing yesterday. Universal Pictures, owned by Comcast Corp, is the studio behind blockbusters such as “Jurassic World” and “Fast and Furious”, the latest instalment which is one of China’s biggest-ever grossing films.
Japan needs more data to measure impact of negative rates Economy shrank more than expected in the final quarter of last year as consumer spending and exports slumped Stanley White
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olicymakers need more data on economic activity and lending to judge the impact of the Bank of Japan’s (BOJ) surprise adoption of negative interest rates, Japanese Economy Minister Nobuteru Ishihara (pictured) said yesterday. Since the BOJ took such a bold step, it is important for the government to work with the central bank to ensure the economy grows and does not return to deflation, Ishihara told reporters in a group interview. The risk of a return to deflation still cannot be ruled out, so the government should focus on implementing a stimulus package recently passed in parliament and then pass the state budget for the next fiscal year, Ishihara said. Ishihara also said the government’s plan to raise the sales tax next year to 10
percent from 8 percent is important for fiscal discipline, but implementation becomes a political decision if there is a big shock to the economy.
Year of monkey ushers in “Monkey Market”
“The important message is deflation is not good for the economy,” Ishihara said. “The government and the BOJ need to work as one
to make sure the economy grows and to prevent a return to deflation. We’ll need to look at the economic data to judge the impact of negative rates.” The BOJ unexpectedly cut a benchmark interest rate below zero last month as volatile markets and slowing global growth threaten its efforts to beat deflation. The central bank decided to charge 0.1 percent interest on small amount of current account deposits that financial institutions hold with it. The change came into effect on Tuesday. Some analysts have criticised the move, because it initially failed to arrest gains in the yen or stop a sell-off in Japanese shares. Some households are also worried that savings deposit rates could dip below zero. On the positive side, borrowing costs have fallen
rapidly, and some economists say it is only a matter of time until this leads to an increase in corporate lending and mortgages. When asked whether the government needs to compile another stimulus package, Ishihara said he wants to focus on implementing stimulus measures that were passed into law last month, which include cash hand-outs to pensioners. Japan’s economy shrank more than expected in the final quarter of last year as consumer spending and exports slumped. A tight labour market and rising wages should support consumption this year, Ishihara said. However, this scenario could become less likely if China’s economic slowdown persists, some economists say. Reuters
‘World’s cheapest smartphone’ Cambodia: 336 labour strikes, to be launched in India 192 demonstrations in 2015
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s the year of the Monkey began after the Chinese Lunar New Year, Hong Kong Feng Shui masters forecasted a year of “Monkey Market,” saying the market will be as unpredictable as the mischievous creature. So far their prediction has stood, as the world market has undergone tumult in the past week. World market shares slumped at the beginning of the lunar new year which fell on February 8, China’s sliding foreign reserves and a mixed U.S. jobs report sent European shares to 16-month lows. Safe haven spots gold and 10-year Treasury bond both enjoyed more popularity as gold prices climbed to 1,198.70 dollars an ounce, its strongest since June 22, and bond yield dropped to an oneyear low of 1.74 percent. The losing streak ended yesterday after U.S. Fed Chair Janet Yellen told the Congress in a testimony that she does not expect the central bank to reverse its rate hike program. The statement injected confidence into investors by dispersing uncertainty of future U.S. monetary policies. The market responded to Yellen’s remarks positively and recovered some ground before ending largely flat.
little-known Indian company launched a smartphone believed to be the cheapest in the world, targeting a market already dominated by low-cost handsets. Set to be priced at under 500 rupees (US$7.30), domestic handset maker Ringing Bells’ Freedom 251 smartphone is about one percent of the price of the latest Apple iPhone. Ringing Bells was set up in September 2015 and began selling mobile phones via its website a few weeks ago under its Bell brand, a spokeswoman said. “This is our flagship model and we think it will bring a revolution in the industry,” she told AFP. Ringing Bells currently imports parts from overseas and assembles them in India but plans to make its phones domestically within a year, the spokeswoman said. Cheap smartphone handsets, many of them Chinese-made, are readily available in the Indian market but domestic competitors are making inroads, with models selling for less than US$20. India is the world’s second-largest mobile market and notched up its billionth mobile phone subscriber in October, according to the country’s telecoms regulator.
ambodia reported 336 cases of labour strikes last year, a decrease of 2 percent from the 342 cases in a year earlier, according to a report released by the Ministry of Labour yesterday. Eighty of the cases last year turned violent, the report said. Some 82,458 workers took part in the strikes last year, down 40 percent from 137,708 in the year before, it said. Besides the strikes, some 192 cases of demonstrations occurred last year, remarkably up from only 14 cases a year earlier, the report said, adding that about 19,274 workers participated in the demonstrations last year, up 77 percent from last year. Eleven cases of the demonstrations led to violence, it said. Most of the strikes and demonstrations happened in garment and footwear industry in which workers demanded higher wages and better working conditions. Labour Minister Ith Samheng said the ministry had always taken workers’ demand into consideration. Garment and footwear industry, the kingdom’s largest foreign currency earner, has 1,007 factories with 754,188 workers, according to the government figures.
Xinhua
AFP
Xinhua