MOP 6.00 Closing editor: Joanne Kuai
Chinese authorities reduce growth pace of military budget Page 10
Year IV
Number 995 Monday March 7, 2016
Publisher: Paulo A. Azevedo
Alan Ho’s lawyer claims no proof found of Hotel Lisboa prostitution ring Page 2
Mainland determines 6.5-7 pct growth for the next five years Page 9
Macau Moguls Plummet in Forbes Billionaire List
What goes up must come down. Particularly with regard to the current crop of casino tycoons and entrepreneurs with Asian gaming interests. With few exceptions they have slipped in the latest wealth rankings by U.S.based Forbes magazine. Sands’ Sheldon Adelson fell to 22nd spot in the Forbes 2016 World’s Billionaires list with an estimated net worth of US$25.2 bln. Lui Che Woo, head of the Galaxy Entertainment Group, plummeted nearly 70 places to 151st. His net worth dropped 44 pct, from an estimated US$13.5 bln last year to US$7.6 bln. While several other tycoons saw their fortunes halve Page 5
Burgeoning population Interview
Smell the coffee The café trend has peaked. With economic contraction driving business down. Like many other entrepreneurs, Rictor Iao and Chloe Chan are revaluating their trading model and product line-up. But say the price-cutting route is not an option. The Perfect Moment has an operational philosophy that is not up for debate say the owners. Although diversification and further unique cultural collaboration is very much on the menu. Because only the strongest in a crowded sector can survive, they maintain
www.macaubusinessdaily.com
Pages 6&7
Growing supply The money supply continued to grow in January. Total deposits increased whilst total loans decreased. The overall loan-to-deposit ratio of the banking sector dropped from a month earlier, according to the Monetary Authority of Macau
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Macau squeezed in 646,800 population at end-2015. An increase of 1.7 pct y-o-y. Last year, 8,468 Chinese immigrants arrived, up significantly by 43.8 pct y-o-y. Non-resident workers totalled 181,646 at end-2015, an increase of 11,300 y-o-y, representing a slower growth of 6.6 pct
Page 3
“Absolutely” no hard landing China’s economy “absolutely will not” suffer a hard landing. According to its top planning chief yesterday. Xu Shaoshi, head of the National Development and Reform Commission, was speaking to reporters on the second day of the annual meeting of the National People’s Congress
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Brought to you by
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Name
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Tingyi Cayman Islands
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Hengan International
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MTR Corp Ltd
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AIA Group Ltd
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Source: Bloomberg
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2 | Business Daily
March 7, 2016
Macau
Alan Ho maintains innocence The lawyer defending the nephew of Stanley Ho Hung Sun claims no proof was found in his closing arguments of the Hotel Lisboa prostitution ring case Kelsey Wilhelm
kelsey.wilhelm@macaubusinessdaily.com
N
o proof was found of criminal association or exploitation of prostitution, said the lawyer of former Executive Director of Hotel Lisboa Alan Ho, in the closing arguments of his trial on Friday, and of the other six accused in operating a prostitution ring in Hotel Lisboa,
reports Portuguese news agency Lusa. The case, which began on January 8, accuses the former Executive Director of knowing of a structure, members and contacts with “rules, conditions [and] a well organised system” that allegedly exploited prostitutes working in Macau. The prosecutor on the case
seeks to link Mr. Ho to a sequence of commission payments from the prostitutes operating in the hotel. Prostitution is legal in Macau but exploitation of prostitution is not, and anyone seen to ‘entice, attract or divert another person, even with the agreement of the person,
Microsoft floating on a Cloud
U
sers are not charged for updating versions of Microsoft Office, and Cloud products aim to save space in servers, said a guest speaker at a seminar hosted last Friday by Macau Productivity and Technology Transfer Centre (CPTTM). ‘’Our Cloud service does not have a limited number of users for every client, and we charge on a monthly basis. If there are 10,000 people in a company, it can buy 10,000 licences.’’ Winnie Chu, Product Marketing Manager of Microsoft Hong Kong Limited told Business Daily following a seminar. ‘”Previously a company needed to buy 20,000 suites of Microsoft Office if it suddenly launched a project with 20,000 additional workforce; although the project might end in two months, the company still needed to pay for the suites,” she said. “Now, money can be saved by buying licences to use the
Cloud service for the time period it needs.” Chu also explained the company’s charges, saying, “Price is different according to different plans and tools preferred by different companies, like mobile plan. Our price ranges from around US$4 to US$35 (MOP32 to MOP280) per month per user licence.’’ When asked about the number of companies in Macau using Microsoft Office 365, Keith Chang, Branch Manager of Microsoft Macau Limited, stated that they have many companies in Macau using the Microsoft Office 365, although he could not share the exact number, saying, ‘’Microsoft has office and business partners in Macau to support users by instructing the installation and deployment of the service.’’
Compatibility and saved server space
Chu explained the concern of users downloading Microsoft
services for different devices that they have: “There are many ways to achieve the goals; some of the plans allow users to install the system in only one single device, while some plans allow the same user licence to install the system as well as applications in five mobiles, five tablets and five desktop computers. But if the users only want to have online access to our service, they don’t need to install anything, but access through browsers.” The service and data can be accessed on operating systems (OS) such as Android and iOS other than Windows, therefore it is assuredly more compatible, with users encouraged to access data outside their working place. Microsoft Office 365 is a tool accessed in Cloud with applications such as Yammer, Skype for Business, and Outlook, which are similar to Facebook, Skype and the original Outlook. B.L.
towards prostitution, or that exploits prostitution of others, even with their consent’ risks a prison sentence of one to three years. According to the law the attempt is also punishable. Mr. Ho’s lawyer stated, during more than six hours of closing arguments heard, that it seemed to him that the prosecutor was, at certain steps of the case, in “another trial”. Ho is accused of 90 cases of exploitation of prostitution, of which Jorge Neto Valente said: “There has been no evidence against Alan Ho that permits his conviction.” Mr. Ho’s defence argued that since “the police were called four to five times a month” to the hotel, according to testimonies, that the authorities knew of women dedicated to prostitution operating in the hotel, which “does not constitute illegal [action]”. The lawyer also referred to a “similar case” which resulted in the accused being absolved of criminal activity and exploitation of prostitution, claiming the only difference in the current case was that the prosecution “[wants] to show that the rich and powerful can also fall.” The verdict is expected on March 17th if no delays arise.
Court of Final Appeal upholds verdict on Joseph Lau
T
he Court of Final Appeal ruled on Friday that the reasons for Joseph Lau Luen Hung’s argument for invalidity of unified judicial opinions were untenable, which means the five years and three months jail sentence for the Hong Kong businessman is upheld. Joseph Lau and fellow businessman Steven Lo Kit Sing were involved in the La Scala scandal and found guilty of bribery and money laundering. Both were sentenced in March 2014 by the Court of First Instance to five years and three months in jail. They were accused of paying a bribe of HK$20 million (US$2.57 million) to former disgraced Secretary of Public Works Ao Man Long to help secure five parcels
of land opposite Macau International Airport for the development of luxury residential project La Scala. Following a Court of Second Instance ruling in July 2015, rejecting an appeal against them having been found guilty, Joseph Lau initiated an extraordinary appeal of unified judiciary opinions in September last year. The Court of Final Appeal denied the case in January this year finding that there is no reason for the extraordinary appeal of unified judicial opinions to proceed. Joseph Lau later filed the argument. This failure of appeal follows another two attempts by Lau and Lo’s appeal to the Court of Second Instance seeking an annulment.
Business Daily | 3
March 7, 2016
Macau Local deposits rise to MOP877 billion in January
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MSAR population increases to 646,800 Chinese immigrants soared by 43.8 per cent to 8,468 in the last year, the 2015 Demographic Statistics reveal
T
he total population of Macau hit 646,800 individuals as at end-2015, the Statistics and Census Service (DSEC) revealed on Friday, indicating an increase of 10,600 or 1.7 per cent year-on-year, compared to the previous quarter which increased 3,700 or 0.6 per cent. The female population accounted for 329,800 or 51 per cent of the total. The 65-plus demographic accounts for 9 per cent of the total population with an increase of 0.6 per cent yearon-year; the population aged 0-14 accounts for 11.9 per cent, with an increase of 0.5
per cent; while the 15-64 age group accounts for 79.1 per cent, with a decrease of 1.1 per cent. A total of 7,055 live births were recorded in 2015, a decrease of 305 year-on year. The sex ratio of the newborn was 109.2 male babies per 100 female babies.
Immigrants
In 2015, DSEC recorded 8,468 Chinese immigrants, with an increase of 2,579 or 43.8 per cent year-onyear, up 199 or 10 per cent compared to the previous quarter. Non-resident Worker’s Identification Cards had been granted to 181,646
individuals as at end-2015, an increase of 11,300 or 6.6 per cent year-on-year. Compared to the previous quarter it was an increase of 895 or 0.5 per cent. Workers from Mainland China accounted for 64.1 per cent, while those from the Philippines accounted for13.6 per cent, followed by Vietnam (8.1 per cent), Hong Kong (5 per cent) and Indonesia (2.3 per cent). Some 394 individuals were granted right of abode, representing a decrease of 11 or 2.7 per cent compared to the previous quarter, with 1,784 as at end-2015, dropping 494 or 22 per cent year-on-year. A.L.
otal deposits with local banks registered a month-on-month increase of 2 per cent to MOP876.8 billion (US$109.6 billion) for January, official data released last week by the Monetary Authority of Macao (AMCM) reveals. During the first month of the year, Hong Kong Dollars (HKD) accounted for 43.4 per cent of the total deposits that local banks received, followed by deposits of Patacas (MOP), Renminbi (CNY) and US Dollars (USD), amounting to 20.8 per cent, 8.7 per cent and 24 per cent of the total, respectively. Deposits from local residents totalled MOP460.7 billion in the month, which remained stable compared to December 2015. Meanwhile, non-resident deposits jumped by 6.7 per cent month-onmonth to MOP286.1billion but public sector deposits decreased by 0.9 per cent month-on-month to MOP130 billion. On the other hand, local banks approved some MOP389.3 billion of domestic loans to the private sector in January, which is similar to that of December
2015. Some 66.5 per cent or MOP258.7 billion of such loans were denominated in HKD, whilst another 27.9 per cent was MOP-denominated, amounting to MOP108.6 billion. External loans dropped 1.9 per cent to MOP364.5 billion in the month, of which 48 per cent, or some MOP175.1 billion, was denominated in USD. As at the end of January, the loan-to-deposit ratio for the resident sector grew 0.2 percentage points to 65.9 per cent month-on-month. The ratio for both the resident and non-resident sectors dropped 2.5 percentage points to 86 per cent. Meanwhile, currency in circulation and demand deposits grew 8.8 per cent and 3.5 per cent monthon-month in January, respectively. Money supply (M1) thus increased 4.5 per cent from one month earlier while quasi-monetary liabilities dropped 0.4 per cent month-on-month. Hence, M2, the sum of these two items, increased slightly month-on-month by 0.2 per cent to MOP473.8 billion. K.L.
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March 7, 2016
Macau Imperial Pacific forecasts narrowed loss for 2015 Junket investor Imperial Pacific International Holdings Ltd. anticipates its loss for the whole year of 2015 will be lower compared to that of 2014, it told the Hong Kong Stock Exchange last week. The company said in the filing that the expected improvements are due to its reduction in operation loss of its casino-resort business on the Island of Saipan, in addition to the gain arising from the termination of profit-sharing from the Macau gaming business. For 2014, the Hong Kong-listed company posted a net loss of HK$19.4 million (US$2.42 million).
Macau’s legal system “increasingly less independent” Local lawyer Manuela António says influence peddling and length of resolution of legal cases is affecting foreign investment Kelsey Wilhelm
kelsey.wilhelm@macaubusinessdaily.com
“T
he laws currently made in Macau for the most part are botched,” stated lawyer Manuela António in an interview with Portuguese language publication Hoje Macau in which she slammed the Macau Government, the Public Prosecutor’s Office, the head of the lawyers association of Macau and both the former Portuguese Administration and the current Administration. Ms. António’s criticism of the current legal situation
in Macau, citing the case of the recently arrested former Head Prosecutor of the Public Prosecutor’s office, blamed not corruption but “influence peddling”, saying “there’s a very high risk of justice becoming increasingly less independent […] principally when the Administration versus the administrators is concerned.” In relation to how Macau’s laws are created, the lawyer cited various reasons for their “bad quality”, both the impreciseness of the Chinese
language - “it’s not an easy language to work in legally because it’s not exact” - and the process of law creation and review: “[They’re] created, in the majority of cases, by those with technical competency,” states the lawyer, “but then they go to the Legislative Assembly and are altered by those who don’t know – the majority of the legislators don’t know the law,” she told Hoje Macau. “[Laws are] difficult to interpret in Portuguese and
Chinese, among other things”, she said, and the distortion of influence gives rise to far greater problems than those originating from the drop in casino revenues; and influences foreign investment. “One of the first questions they ask us when they want to come here, or when banks are interested in financing,” she explains, “is how the legal system functions. How long does a decision take, what’s the quality of the decision, how independent are the courts.”
Sands leads February gaming market Deutsche Bank gaming analysts forecast gross gaming revenues will fall 10.1 pct in March
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aming operator Sands China took the biggest chunk of February’s gross gaming revenues, according to market share data provided by Deutsche Bank gaming analysts. Overall, February market share, inclusive of slots, shows that Sands China took 24.6 per cent, followed by Galaxy with 22.4 per cent. Third place goes to SJM with 20.2 per cent. Melco stood at fourth place with 14.5 per cent, followed by Wynn with 10.9 per cent and MGM with 7.4 per cent. According to the Gaming Inspection and Co-ordination Bureau (DICJ), in February the city’s gross gaming revenue was MOP19.5 billion (US$2.4 billion). The 0.1 per cent year-on-year decrease was the smallest since the downturn began and better than market expectations. “Simply, if the market is recovering then sequential / seasonal trends should be improving,” said Deutsche Bank analysts Carlo Santarelli and Danny Valoy in their Thursday note. “This is
difficult to see in looking at February alone and the January / February combined two-year stack shows just modest improvement from the prior period two-year stacks. Thus, we think March is important and we view down 7 per cent year-on-year as a key level.”
Breakdown
The bank also estimated mass market table gross gaming revenues were down 1.7 per cent year-on-year in February, while VIP revenue was up 0.6 per cent year-on-year. It said that slot machine revenues were up 4.8 per cent compared to the same period of last year, while VIP rolling chips volume was down 15.7 per cent year-on-year. The institution further said it forecast that March gross gaming revenues would experience a 10.1 per cent year-on-year decline underpinned by a 13.6 per cent yearon-year decline in VIP revenues and a 5.5 per cent decline in the mass market segment, inclusive of slots.
In the lawyer’s opinion, “the legal uncertainty affects commerce, lawyers’ offices and the image of the territory much more than the fall in [casino] revenues,” claiming, in particular, that within the “legal and judicial systems” there are “problems with the Public Prosecutor’s Office”. She describes the cases of land contracts where the clock had run out on land concessions which were subsequently reclaimed by the government as “robbery” due to the length of time [the government] took to reach a conclusion on “studies” and “retroactive application of the law”, stating, “the government does what it wants.” This sluggishness, coupled with a “lack of confidence in the legal and judicial system is extremely nefarious,” she maintained, lambasting, too, the efforts of the Portuguese administration as well as, citing both as “not good” but adding, “the technical capacity of the directors of services of the government members is clearly inferior, in general, to the capacity of the Portuguese who were here before.”
Business Daily | 5
March 7, 2016
Macau Broadway to host entertainment-in-residence Broadway Macau, a mass market focused casino, integrated with Galaxy Phase II on the Cotai Strip, is to host the ‘VIVA LA Broadway’ show in its 3,000-seat Broadway Theatre from 1 April to 19 May. The casino operated by Galaxy Entertainment Group Ltd. says the variety show will include Crazy Rouge, a dance group featured on TV reality show Britain’s Got Talent; singer Katie Shepherd; and Laserman, a light and laser act with Dario Falzari from Italy. Macau’s gaming operators have been making an effort to increase their non-gaming elements and mass market entertainment appeal in order to attract more visitors amid the gaming downturn.
Casino moguls tumble down Forbes world billionaire ranking Most Macau-based billionaires fortunes halved
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orbes Annual ‘The World’s Billionaires’ was a sad sight for Macau-based billionaires, with only Sheldon Adelson of Las Vegas Sands group and Lui Che Woo (pictured) of Galaxy Entertainment holding double-digit rankings. Adelson and Woo ranked highest in the list in relation to all Macau-based billionaires, most of whose wealth has been halved since the downturn in revenues began in June 2014. Las Vegas Sand’s group owner Sheldon Adelson made the number 22 spot on the Forbes list, based upon estimated wealth of US$25.2 billion (MOP201.8 billion), two places below Hong Kong billionaire Li Ka-Shing, whose estimated worth is US$27.1 billion. This continues Adelson’s losing chase of the Hong Kong based billionaire, whom he followed by one position last year with an estimated wealth of US$31.4 billion – compared to Li Ka-Shing’s then US$33.3 billion, earning him a healthy 18th spot in the ranking. Galaxy Entertainment’s Lui Che Woo slipped to number 151 this year from his 82nd position in last year’s ranking, a 63 per cent drop from his estimated US$13.5 billion to US$8.6 billion made through casino operations based in Macau. This is the second major downturn for Woo in two years, bringing a new low to Hong Kong’s formerly second richest family – whose fortune was estimated at US$21 billion in 2014. Galaxy is currently the largest property holder in the Cotai area,
46 pct average drop in six casino concession holders’ share price during 2015 – Forbes
Macau-based billionaires losing their fortunes
having recently opened both phases of their operation and their acquisition and remodelling of the new Broadway complex. Wynn revenue suffered due to a delay in construction, putting back the new casino-resort opening date from March of this year to June 25, leaving Wynn stock, as listed on the Hong Kong Stock Exchange, down 52 per cent compared to the same period last year. This earned owner Steve Wynn number 722 on the billionaires listing, coming in at US$2.6 billion. This puts him behind MGM’s Pansy Ho but ahead of both Melco’s Lawrence Ho and SJM’s Angela Leong.
Casino focus
Melco Crown Entertainment, suffering the consequences of the opening of
the US$3.2 billion Studio City in what CEO and Chairman Lawrence Ho described to Forbes as a “horrific operating environment” suffered a 64 per cent drop in its share worth, compared to a year ago, contributing to the CEO’s slide to 1,476 ranking on the billionaire listing, some 1,023 places below the partner in the venture, James Packer, who stepped down from his chairman’s position of Crown Resorts in August of last year, but maintains his co-chairmanship of the Macau group. Packer successfully refocused his sights on the film industry, executive producing hits such as ‘The Revenant’ – which earned Leonardo DiCaprio his first Oscar – ‘Black Mass’, starring Johnny Depp and ‘The Lego Movie’. Melco refocused its sights on its properties in the Philippines and its
recently opened Tigre de Cristal casino property in Vladivostok, Russia – the opening of which starred a heavily sedated 5-month old Siberian Tiger. MGM’s Pansy Ho is no longer Hong Kong’s richest woman, yet still sits in third position, as well as a comfortable number 477 internationally with an estimated fortune of US$3.5 billion – this down from her 2015 ranking of number 309. Ms. Ho’s personal wealth saw a 71 per cent reduction over two years, from US$6.8 billion. Also ranking amongst Hong Kong’s richest is SJM’s Managing Director Angela Leong, who ranks 44 with an estimated US$1.42 billion in personal wealth. This also earns her a place on the billionaires list at number 1,275 despite SJM’s 47 per cent drop in listed share worth compared to this time last year. SJM’s Grand Lisboa Palace is set to open in Q4 of next year and reportedly mirrors the same trend as Wynn Palace, with no tables reserved for an ever-shrinking VIP gaming market.
Stephen Wynn’s pay drops as China gamblers shun VIP tables Fewer high rollers at Macau’s casinos means less money in Stephen Wynn’s wallet
T
he founder and chief executive officer of Wynn Resorts Ltd. Stephen Wynn, saw his compensation fall about 18 per cent to US$20.7 million last year, according to a regulatory filing. The board cut his incentive payout as the company’s adjusted earnings before interest, taxes, depreciation and amortization plunged by a third. Casino operators have been under pressure for two years as the Chinese
government’s crackdown on corruption have made many high rollers wary of visiting the lavish venues in the Chinese gambling enclave. Wynn’s Macau property, which is mostly geared toward a high-end clientele and generates two thirds of the company’s revenue, has suffered accordingly, said Tim Craighead, director of research at Bloomberg Intelligence. “The VIP business cratered and the mass market waned as visitation
from China turned negative,” Craighead wrote in an email. The board cut Wynn’s annual incentive payout to US$17.5 million, paid half in cash and half in shares, due to the company’s financial performance and the “competitive landscape of the labor market, according to the filing. Part of the incentive is tied to the development of Wynn Palace, a 1,700- room casino in the Cotai area of Macau expected to be completed
in June, Wynn said during a February 11 call with investors. His salary was reduced to US$2.5 million from US$4 million so that a larger share of the pay package would be tied to the performance of the company, the proxy said. Wynn, 74, has a net worth of US$2.1 billion, according to the Bloomberg Billionaires Index. Sheldon Adelson, the billionaire founder and CEO of Las Vegas Sands Corp., received US$12 million in reported compensation in
K.W.
2014. James Murren of MGM Resorts International received US$10.2 million. Wynn’s press office didn’t immediately respond to an e-mail seeking comment.
Lake, Gondola
Wynn’s new Macau venue has a gondola ride and a lake with fountains similar to the one fronting the Bellagio in Las Vegas, which could help the company gain traction among less affluent gamblers, Craighead said. Mass market gambling has slid since the Macau government enforced a smoking ban on main floors of casinos starting in October 2014. The company’s Las Vegas operations increased Ebitda by 15 per cent to US$127.4 million in 2015. The chief executive leases a villa from the Wynn Las Vegas casino, overlooking its adjacent golf course, for about about US$560,000 per year, the proxy said. Bloomberg
6 | Business Daily
March 7, 2016
Macau
“The café trend is at the stage of eliminating the weak” The so-called ‘café trend’ started to percolate in the city around the Summer of 2014. After more than one and a half years, the peak has certainly gone, owners of local café The Perfect Moment, Rictor Iao and Chloe Chan, tell Business Daily. Intensive competition and the economic downturn are cited as reasons, meaning the weaker ones are disappearing while the stronger ones, in order to survive, are repositioning their products Kam Leong
kamleong@macaubusinessdaily.com Photos by Cheong Kam Ka
food, we could not make it. We had customers coming inside every day asking whether we had rice or pasta at the beginning. We partners discussed this issue and concluded that you need to compromise if you want to survive.
Besides the compromise of adding more food to the menu, what were your strategies to promote your café? CC: We did pay a lot of attention
to creating our own environment and atmosphere. When there are some 150 cafes in a small city like Macau, we reckon environment is a really important element to attracting customers. We regularly hold different exhibitions to showcase works by local artists and photographers. In addition, we lend our venue for talks and sharing sessions. We also cooperate with different social associations… I believe the cultural environment that we provide is one of our keys to attracting more customers.
Did you have the idea of injecting cultural creative elements into your café at the beginning? CC: Yes, we did. I like painting
Chloe Chan and Rictor Iao
When you opened your café in the Summer of 2014 what opportunities did you see for this business? Rictor Iao: In fact, we first had the idea of opening a café near the end of 2013. At that time, we got a franchising opportunity from a café brand through an exhibition of Macau Trade and Investment Promotion Institute. As we four partners all love coffee and eating around, we decided to give opening a café a try. However, our negotiation with that café brand didn’t go that smoothly so we decided to do it on our own in the end. We finally started our operation in July, 2014.
How did you orientate your café for the growing market at that time? RI: We targeted middle to high-end customers from the beginning and those who have certain standards for coffee. We wanted to make our café like a wine tasting room that customers can come to, and taste and enjoy a cup of coffee. We aimed to focus on coffee itself rather than on food.
There had already been a few cafés in the same area before yours. Were you worried about the competition when you launched your café?
RI: Not really. When we opened
our café, the café trend had just started. There had already been a few cafes, indeed, but the total number was not as high as it is now, which I may describe as a flood. At that time, we did think we could still cut a slice of the cake from this market. As such, we weren’t worried about the competition that much. After all, we focus on customers who really like coffee, whilst other cafes nearby stressed food more. Even if there was competition, it would just drive us to do better in order to attract more customers, we thought at that time.
As you said, the trend is now a bit like a flood…. RI: Yes, and our focus has drifted
away a bit from our very initial aim. We have added more food options to our menu to meet the general market demand as we found that customers don’t want only beverages. Hence, in addition to offering them coffee, we need to provide more food options as well, which is a bit different from our idea at the beginning. Chloe Chan: Exactly. Although we hoped to create an environment similar to coffee shops in Western countries where 70 per cent of the menu is beverages and only the other 30 per cent is about
We started to see our revenues decrease from the middle of last year. The overall consumption sentiment just changed very obviously all of a sudden
myself and I have lots of friends with the same hobby. We realised that we have a lot of works but there is no opportunity or space for us to show our works to others. We co-operated with a gallery for our first exhibition in our café and the feedback was very good. That made us think about what else we could do more in the café besides selling coffee. Gradually, our customers started to ask us whether we could lend our venue to them to hold exhibitions or talks.
Do you think this is an effective way of attracting customers? RI: Yes, we do. Many people might
not have known where we were before they came here attending talks or exhibitions. We do like this idea as it provides us with another channel to promote ourselves. After coming here for talks or exhibitions, they know there’s a good café located right here. This is a win-win situation. Meanwhile, there are many cultural creative elements and businesses in the nearby St. Lazarus Parish. We want to keep our café in line with such an environment.
Shop rents in Macau are high. Is it really affordable for you to allow customers to stay in the café for several hours for just a cup of coffee?
Business Daily | 7
March 7, 2016
Macau
The Perfect Moment is located in Rua de Abreu Nunes on the Peninsula, near Tap Seac Square
When there are some 150 cafes in a small city like Macau, we reckon environment is a really important element in attracting customers
RI: That’s why our prices are
averagely higher than Cantonese tea restaurants. Of course, we don’t want to push our customers to leave. So we can only set higher prices to balance the longer time they may spend.
Who are your major customers at the moment? RI: We have white collars, and
students although not a big proportion. In addition, we have some culturally creative people such as artists, photographers and writers due to the exhibitions. On the other hand, we have started to see some tourists come to our café, including Hong Kong people, Taiwanese, Mainland Chinese and even foreigners.
Strongest will survive What are the biggest challenges you have encountered so far in your operation? RI: We found out that many
regulations in Macau are quite outdated. For example, the freedom of adjusting your menu is restricted as there’s a lot of supervision even if you only want to add one thing or cut one thing from your menu. Another
challenge for us is human resources. Macau is a gaming city; with all the casinos here, it’s really hard for us small businesses to hire local staff. Surging costs for food are another difficulty. CC: Meanwhile, the economy has been turning bad for more than a year. We’ve noticed that residents’ spending habits have also been affected. They’ve become more rational in their expenditure. Rather than eating in a café, they now prefer going to ordinary tea restaurants as they are much cheaper. In fact, recently many café owners have been trying to sell their cafes. I think the café trend is now at the stage where the weaker ones will be eliminated whilst the stronger ones will stay as support for this industry has gone down a lot.
When did you start feeling the impact of the worsened economy? RI: We started to see our revenues
decrease from the middle of last year. The overall consumption sentiment just changed very obviously all of a sudden. We used to see a lot of casino staff coming to our café before. But we don’t see them anymore. In fact, they used to spend quite a lot every time they were here.
RI: The major platform is on
Facebook. And we aim to cooperate more [with enterprises and individuals] for talks, exhibitions, etc.
How do you see the prospects of cafés now? Taiwanese bubble tea stores popped up a few years ago then disappeared… CC: I don’t think local cafes
will suddenly disappear like the Taiwanese bubble tea stores that we had. But the direction for local cafes is getting more professional. For example, we are selling singleorigin coffee as customers are demonstrating higher standards than before. On the other hand, in my opinion, cafes that are closed or closing are [doing so] due to their lack of professional products or they don’t have a clear theme for themselves. That’s why they’re eliminated by the market. Those that can stay, I believe they’re the ones insisting on the quality of their products and have professional knowledge of their own products.
Are you worried about your business? RI: We certainly have worries,
more or less. We’re trying to reduce our operational costs… Meanwhile, we’re working on bringing more innovative products to the market in order to attract more customers. CC: Yes, exactly. Nearby cafes recently started a price war. They have decreased their prices to a level similar to tea restaurants. But we don’t agree with this strategy. We think that we need to insist on our own products and our focus. In this stage, we may do more promotion although we didn’t see this need at the beginning.
How are you going to promote your café?
We found out that many regulations in Macau are quite outdated
What are the future plans for Perfect Moment in this environment? RI: First of all, we want to enhance our image. We wish to expand in the coming one or two years. Secondly, we hope to develop our own coffee beans. As a café, you really need to have your unique products. And we want to engage in the retail sector as well.
As young entrepreneurs For this café, did you apply for the government’s subsidy loan for local young start-ups? RI: No, we didn’t. The procedures
for the scheme are a bit complicated so we didn’t try to apply. After all, we could afford the initial cost … CC: Meanwhile, we’re not really that young for starting a business. So we thought it’s better for us not to apply for the loans and leave it to people that are more in need of the subsidies.
Some social opinion says cafes seem to be the only form of young start-ups. What do you think about that? RI: In my opinion, operating a
café or a food & beverage business would be easier for start-ups. It’s because there’s always demand for food. It just depends on what customers you are targeting. But I wonder whether the government’s policies, such as the loan scheme, will mislead other businesspeople to think young entrepreneurs don’t need to make an effort at all to get that amount of subsidy to launch a business. CC: The reason I wanted to open a café was that I thought running a café was a very romantic thing – which I later realised it isn’t. But I think many young people have a similar view as I did. The café culture only got popular in Macau, Hong Kong and Taiwan a few years ago. The food & beverage business does sound an easier business. When people see another new café opening they may think it’s easy and want to give it a try as well.
8 | Business Daily
March 7, 2016
Greater China
Development plan includes nation’s vision to become a tech power China will implement its “cyber power strategy”, the five-year plan said, underscoring the weight Beijing gives to controlling the Internet
Strengthen the struggle against enemies in online sovereign space and increase control of online public sentiment Chinese five-year development plan
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hina aims to become a world leader in advanced industries such as semiconductors and in the next generation of chip materials, robotics, aviation equipment and satellites, the government said in its blueprint for development between 2016 and 2020. In its new draft five-year development plan unveiled on Saturday, Beijing also said it aims to use the Internet to bolster a slowing economy and make the country a cyber power. China aims to boost its R&D
spending to 2.5 percent of gross domestic product for the five-year period, compared with 2.1 percent of GDP in 2011-to-2015. Innovation is the primary driving force for the country’s development, Premier Li Keqiang said in a speech at the start of the annual full session of parliament. China is hoping to marry its tech sector’s nimbleness and ability to gather and process mountains of data to make other, traditional areas of the economy more advanced and efficient, with an eye to shoring up its slowing
economy and helping transition to a growth model that is driven more by services and consumption than by exports and investment. This policy, known as “Internet Plus”, also applies to government, health care and education. As technology has come to permeate every layer of Chinese business and society, controlling technology and using technology to exert control have become key priorities for the government. China will implement its “cyber power strategy”, the five-year plan
Four biggest cities working on steps to cool housing market Prices in Shenzhen surged nearly 52 percent in January from a year earlier
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hina’s four biggest cities, including Beijing and Shanghai, are working on steps to cool their property markets in response to recent strong housing sales and prices, state media reported on Saturday, citing the country’s housing minister Chen Zhenggao. Local governments in Tier 1 cities will strictly enforce housing purchase restrictions and increase land supply
as part of stabilisation measures, Chen was quoted by the official Xinhua news agency as saying. China’s housing market bottomed out in the second half of 2015 after cooling for more than a year, but a strong rebound in prices in the biggest cities, including Beijing, Shanghai, Shenzhen and Guangzhou, have sparked concerns that some markets may be overheating, raising fears of a property bubble.
Prices in Shenzhen (Shenzhen) surged nearly 52 percent in January from a year earlier, followed by Shanghai with a near 18 percent rise. “We are paying high attention to prices changes in Tier 1 cities and are making close communication with authorities in these four cities,” Chen said. Local administrations will also increase the supply of small- and medium-sized homes and clamp down
said, underscoring the weight Beijing gives to controlling the Internet, both for domestic national security and the aim of becoming a powerful voice in international governance of the web. China aims to increase Internet control capabilities, set up a network security review system, strengthen cyberspace control and promote a multilateral, democratic and transparent international Internet governance system, according to the plan. Since President Xi Jinping came to power in early 2013, the government has increasingly reined in the Internet, seeing the web as a crucial domain for controlling public opinion and eliminating anti-Communist Party sentiment. China will “strengthen the struggle against enemies in online sovereign space and increase control of online public sentiment,” said the plan. It will also “perfect cybersecurity laws and legislation”. Such laws and regulations have sparked fear amongst foreign businesses operating in China, and prompted major powers to express concern to Beijing over three new or planned laws, including one on counterterrorism. These laws codify sweeping powers for the government to combat perceived threats, from widespread censorship to heightened control over certain technologies. Reuters
on illegal transactions to stabilise market sentiment, he said. While property prices in China’s small cities are still falling, authorities in some big cities have already announced measures to cool the market. Shanghai last week issued new rules to increase the supply of medium- and small-sized apartments after the recent surge in home prices in the city. “There is not much inventory (of unsold homes) in the first tier cities. We must pay high attention to it and need to take some targeted measures,” Jia Kang, told reporters at the sideline of the on-going annual meeting of parliament. China’s home prices rose for a fourth straight month in January with big cities leading the gains, suggesting an uneven recovery in the housing market as the government’s stimulus policies gain traction. Reuters
Business Daily | 9
March 7, 2016
Greater China
Government aims to maintain growth pace in next five years Economists widely expect it to cool further to a still-healthy rate of around 6.5 percent this year Xiaoyi Shao and Jake Spring
KEY POINTS Premier Li sees tough battle as growth sinks to 25-yr low Draft documents set GDP growth target 6.5-7 pct in 2016 Budget deficit 3 pct of GDP only modest fiscal boost Defence spending to slow, energy consumption capped
Chinese Premier Li Keqiang delivers his speech during the opening of the fourth Session of the 12th National People's Congress (NPC) at the Great Hall of the People in Beijing on Saturday
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hina faces a tough battle to keep its economy growing by at least 6.5 percent over the next five years while creating more jobs and restructuring inefficient industries, Premier Li Keqiang said as he opened China’s annual parliament on Saturday. Growth of 6.5 percent would mark a ripping pace for most countries but would be the slowest in China in a quarter century as world’s No. 2 economy grapples with gyrating financial markets, softening global trade and efforts to reduce environmental degradation. “Our country’s development faces more and greater difficulties ... so we must be prepared for a tough battle,” Li said. In 2016, Beijing will aim for an economic growth rate between 6.57 percent, as Reuters previously reported, with a consumer inflation target of around 3 percent and money supply expansion of around 13 percent, according to a series of draft reports ahead of the opening of the 12-day parliament. Many investors had been hoping China would post an aggressive target for fiscal spending to prop growth. But the draft goal of running a fiscal deficit equivalent to 3 percent of GDP, while up from the previous year’s target of 2.3 percent, still disappointed some who had hoped for a number closer to 4. “The budget deficit of 3 percent is not enough and should be increased,” economist and former central bank advisor Yu Yongding told Reuters on the side-lines of the meeting. Zhou Hao, economist at Commerzbank in Singapore, said the low figure may reflect concerns that a higher number would signal tolerance for another spree of debtfuelled growth such as that Beijing embarked on in 2009.
Moody’s recently downgraded the outlook for Chinese sovereign debt, a move Chinese regulators said was unjustified. “The pressure from rating agencies could be something China has to consider, indicating that China is cautious on rolling out large infrastructure investment that could result in long-term debt issues,” Zhou said in a email.
Kill the zombies
The reports provide a blueprint of China’s aspirations for the next five years across a range of sectors and measures. They show Beijing trying to strike a balance between holding up growth and restructuring underperforming industries, where so-called “zombie firms” are responsible for much of the country’s corporate debt overhang left over from the 2009 stimulus. In lead up to parliament, the government flagged major job losses in key coal and steel industries. Overall, China aims to lay off 5-6 million state workers over the next two to three years, two sources said, in Beijing’s boldest retrenchment program in almost two decades. Li said the country will create 10 million new jobs, address zombie firms through mergers, bankruptcies and debt deals, and hold the urban registered unemployment rate below 4.5 percent in 2016. Seeking to improve the environment, Beijing aims to cap total energy consumption at 5 billion tonnes of standard coal by 2020 and set targets for improving water efficiency. China will increase military spending by 7.6 percent this year, its lowest increase in six years, as it pursues a modernisation plan that will shrink staffing.
Unlike previous years, the documents did not mention a specific target for trade figures, having missed their goals repeatedly in recent years. Weighed down by sluggish demand at home and abroad, industrial overcapacity and faltering investment, China’s economic growth slowed to 6.9 percent in 2015. Economists widely expect it to cool further to a still-healthy rate of around 6.5 percent this year. But slower growth raises the spectre of social unrest, as the transformation from low-end manufacturing to high technology and services leads to rising structural unemployment.
Fixing markets
Beijing hopes the country’s financial markets can play a stronger role in supporting the economic transformation. “We will move forward with the reform of stock and bond markets and increase the level of rule of law in their development, promote the sound development of the multilevel capital market, and ensure that the proportion of direct financing is increased,” Li said. The reassurance comes after Chinese markets erupted in 2015, with the stock indexes crashing, the yuan sliding sharply, and property markets in major cities spiked while smaller cities lagged. Those moves prompted heavyhanded intervention from the government, leading some to question whether the Chinese Communist Party was capable of following through on its commitment to let markets play a “decisive role” in setting the price of assets. Li said China will open its capital account in an “orderly manner” and continue to improve the exchange rate regime in 2016. Reuters
Premier advocates opposing Taiwan “separatist” activities China will oppose Taiwan independence “separatist” activities and safeguard peace and stability in the Taiwan Strait, Premier Li Keqiang said on Saturday, following the victory of an independence-leaning party in the island’s elections in January. China considers Taiwan a wayward province, to be brought under its control by force if necessary. Defeated Nationalist forces fled to Taiwan in 1949 after the Chinese civil war. Beijing has repeatedly warned against any moves towards independence since January’s landslide win by Tsai Ing-wen and her Democratic Progressive Party (DPP) in Taiwan’s presidential and parliamentary elections.
Government to invest in Xinjiang projects China plans to invest about $17 billion in 100 projects in the violence-prone far western region of Xinjiang, the official Xinhua news agency reported. Hundreds have died in recent years in unrest in Xinjiang, blamed by Beijing on Islamist militants who want to establish an independent state called East Turkestan. But the government has recognised the economic roots of some of the problems and has poured money in to develop the region. The funds will cover projects spanning employment, housing, agriculture, poverty-relief among other things, according to the Standing Committee of the regional Party Committee.
IMF to identify holdings of yuan in reserves surveys The International Monetary Fund said on Friday it will separately identify China’s yuan currency in its official foreign exchange reserves database starting October 1, a move prompted by the yuan’s new status in the Fund’s reserve currency basket. The move will aid China’s effort to secure a bigger role for its currency, also known as the renminbi, by revealing quarterly reserve holdings of yuan among the 188 IMF member countries. Last November, the IMF agreed to include the yuan in its Special Drawing Rights basket after determining that it is “freely usable.”
U.S. launches probe into stainless steel from mainland The U.S. Commerce Department said on Friday it had launched an anti-dumping and countervailing duty investigation into imports of stainless steel sheet and strip from China. The probe was in response to a petition from AK Steel Corp , Allegheny Ludlum, North American Stainless, and Outokumpu Stainless USA, it said. It added that the U.S. International Trade Commission was scheduled to make its preliminary determination of injury to U.S. producers on or before March 28.
10 | Business Daily
March 7, 2016
Greater China
Beijing says defence spending pace to slow While the five-year plan said China would improve its national security “technology and equipment construction” Michael Martina and Ben Blanchard
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hina said on Saturday it will raise military spending by 7.6 percent this year, its lowest increase in six years, but vowed to protect its maritime rights amid disputes in the East and South China Seas and improve intelligence gathering. The 954.35 billion yuan (US$146.67 billion) figure is only around a quarter of the U.S. Defence Department budget for 2016 of US$573 billion. The increase is the first singledigit rise since 2010, following a nearly unbroken two-decade run of double-digit jumps, and comes as China’s economy slows. It was announced on Saturday at the start of the annual meeting of parliament, but had been flagged by an official who gave a rough figure the previous day. President Xi Jinping is seeking to drag the People’s Liberation Army, the world’s largest armed forces, into the modern age, cutting 300,000 jobs and revamping its Cold War-era command structure. Premier Li Keqiang told the opening of China’s largely rubber-
Delegates from Chinese People's Liberation Army (PLA) arrive before the opening of the fourth Session of the 12th National People's Congress (NPC) outside the Great Hall of the People in Beijing on Saturday
stamp parliament that the country will “strengthen in a coordinated way military preparedness on all fronts and for all scenarios”. “We will work to make the military more revolutionary, modern and well-structured in every respect, and remain committed to safeguarding national security,” he said. “We will make steady progress in reforming military leadership and command structures and launch reform
of the military’s size and structure as well as its policies and institutions.”
“Economic headwinds”
The official Xinhua news agency attributed the slowdown in the pace of defence spending to “rising economic headwinds and last year’s massive drawdown of service people”. China’s Defence Ministry, in a commentary on its website, described the slower pace as “appropriate”.
“It certainly doesn’t mean the Chinese people’s dreams of a strong country and military will be impacted upon,” it added. A draft of the five-year plan, a blueprint for the country’s aspirations from this year through to 2020, said China would strengthen its capabilities in maritime law enforcement and “appropriately handle” infringements of its maritime rights, though it gave no details. The Global Times, a widely read tabloid published by the ruling Communist Party’s People’s Daily, said that for many Chinese the smaller increase “was a bit of a disappointment”, but called for understanding. “There is no need to spend hugely to catch up with the U.S., which seeks to keep its global military presence. China’s regional military deterrence aimed at national defence has been taking shape.” The five-year plan also said China would improve its national security “technology and equipment construction” and raise the country’s intelligence gathering abilities. China, the world’s second-largest economy, is increasingly exposed to international crises like the Middle East but has little experience at dealing with them, unlike established powers like the United States and Russia. Underscoring the sensitivity of China’s defence spending, about a dozen senior officers approached by Reuters on the side-lines of parliament declined to comment on the matter. In a government-arranged interview the previous evening, Chen Zhou, a researcher at the Academy of Military Science, said a more modern army needed better training and this is where defence funds should be spent. “Investment in troop training needs to increase, as only this way can we allow our military to walk down a path of military professionalism.” Reuters
AMC entertainment buys Carmike as Wang consolidates cinemas The deal helps Wang Jianlin achieve his goal of controlling 20 percent of the global film market by 2020 Ed Hammond, Anousha Sakoui and Alex Sherman
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MC Entertainment Holdings Inc., controlled by China’s richest man, agreed to buy Carmike Cinemas Inc. in a US$1.1 billion all-cash deal that would create the world’s largest cinema chain. AMC, majority owned by billionaire Wang Jianlin’s Dalian Wanda Group Co., will pay US$30 a share for Carmike, a 19 percent premium over its closing stock price Thursday, according to a statement from the companies. The agreement combines the second- and fourthbiggest U.S. movie theatre chains and vaults the resulting entity past Regal Entertainment Group. The deal, the latest sign of China’s growing influence in the movie industry, comes as exhibitors have been investing heavily in their chains, competing for fans with bigger screens and luxury seating. U.S. ticket sales, while rising to a record US$11.1 billion in 2015, are little changed in recent years. China, the secondlargest movie market, is growing fast and is poised to pass the U.S.
“I called the CEO of Carmike on my first week of the job,” Adam Aron, AMC’s chief executive officer, who took over in January, said in an interview. “We had dinner on the third week. There was no reason to go slow. There is an old adage, ‘Time is the enemy of all deals.”’ Wanda wasn’t directly involved in talks, Aron said. The parent company green lighted his plan to grow through acquisition and was “enthusiastic,” he added. Citigroup Global Markets Inc. advised AMC, while JPMorgan Chase & Co. advised Carmike.
Counter bid?
AMC’s offer is low on a per-screen basis and Carmike could attract a counter bidder like Regal Entertainment, according to Eric Wold, a B. Riley & Co. analyst who was recommending all three stocks. Carmike recently came under pressure from the activist investor Oasis Management Co. “The only way to grow is to buy someone else,” Wold said in an interview.
The only way to grow is to buy someone else Eric Wold, analyst, B. Riley & Co. Together, AMC and Carmike would have well over 600 locations in United States, according to the companies’ joint statement. The deal may require some divestitures, Carmike’s Chief Executive Officer David Passman said in an interview, adding that the talks had been going on for a few weeks. “This is a compelling transaction that brings together two great
Business Daily | 11
March 7, 2016
Greater China Foreign investors welcome bond market opening but wary of yuan
Financial risks controllable: official
Overseas investors now own a meagre 2 percent of China’s US$7 trillion bond market Michelle Chen
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oreign investors have welcomed China’s landmark decision to open up its interbank bond market but are unlikely to jump in soon amid lingering concerns over the slowing economy and the outlook for its yuan currency. While the move is expected to attract huge inflows into Chinese bonds in the medium- to-long term, which could help offset downward pressure on the yuan, foreigners are likely to wait for more economic and policy clarity, analysts said. Others are likely to be more interested in higher-yielding offshore bonds, especially given expectations that China’s central bank will cut interest rates further this year along with a host of other policy easing measures. That would put further pressure on the yuan, which economists expect to fall another 3.5 percent against the dollar in the next 12 months, according to a Reuters poll. The People’s Bank of China (PBOC) said in late February that it would allow certain types of foreign investors to buy bonds in its interbank bond market and would scrap quotas for long-term
investors such as pension funds and charity funds. It significantly widened foreign access to the world’s third-largest debt market from the current Qualified Foreign Institutional Investor (QFII) and Renminbi QFII (RQFII) channels, which are restricted by license and quota approvals. “The near-term impact may be moderate, as funding costs (of the yuan) are high and the market remains more focused on yuan depreciation risk,” Nomura analysts wrote in a research note. The annualised FX implied yields that show yuan funding costs are above 4 percent for tenors beyond nine months in Hong Kong, substantially higher than the onshore government bond yields that investors receive as returns. Overseas investors now own a meagre 2 percent of China’s US$7 trillion bond market, much lower than South Korea (6.5 percent) and India (4.5 percent), not to mention markets that have already been included in the JP Morgan GBIEM diversified benchmark index. Foreign holdings of Chinese bonds actually decreased by a
record high of 49.6 billion yuan (US$7.58 billion) in January, according to official data. Much higher yields in the offshore yuan bond market are also stealing the thunder from onshore bonds. “Dim sum bond yields are more attractive to us and we are overweighting dim sum bonds versus onshore bonds,” said Hayden Briscoe, director of Asia Pacific fixed income at AllianceBernstein that has investments in both markets. For onshore bond investments, Briscoe said he was targeting a yield of about 3 percent for 10year government bonds, versus 2.88 percent now. The yield spread between onshore and offshore yuan bond markets remains wide with threeyear government bonds trading at 2.49/2.43 percent onshore versus 4.01/3.62 percent offshore. Deutsche Bank expects foreign ownership of yuan bonds to rise to 8-10 percent of China’s debt market in the next five years, implying approximately 8-10 trillion yuan of potential capital inflows. Reuters
goal of controlling 20 percent of the global film market by 2020. AMC operates 5,426 screens, according to its latest earnings release, while Carmike had 2,954. Regal closed out 2015 with 7,361 screens. Wang’s Dalian Wanda Group, a real estate-to-entertainment conglomerate, acquired AMC Entertainment in 2012 for US$2.6 billion including debt. The theatre chain went public in December 2013. Wang is the second-richest person in Asia behind Hong Kong billionaire Li Ka-shing, according to the Bloomberg Billionaires Index.
Wanda expands
Wang Jianlin, Chairman of the Dalian Wanda Group
companies with complementary strengths to create substantial value for our guests and shareholders,” Aron said in the statement. The companies said the deal would generate US$35 million in cost savings annually. While some theatre sales may be necessary, Aron said the two circuits “were quite complementary,” with AMC in urban markets and Carmike
having a larger presence in smaller cities. The combined company will be run by Aron, who was appointed on January 4, and will keep its headquarters in Leawood, Kansas, according to the statement. The transaction was approved by both boards and is expected to close by year end. The deal helps Wang achieve his
It’s already been a busy year for Wanda. The company agreed in January to buy Legendary Entertainment, the independent film and TV producer that made “Godzilla,” for US$3.5 billion. Wanda also announced a retailand-leisure development outside of Paris, a US$2.3 billion investment in three hospitals, the formation of a financial group and the signing a US$10 billion development deal in India. The company has also said it’s planning five major acquisitions in 2016 -- three of them overseas. Wang’s film, tourism and sports operations all fall under its fastgrowing Cultural Industry Group, which saw revenue climb 46 percent last year and is forecast to climb 30 percent in 2016. By comparison, Wanda Group estimates overall sales rose 19 percent in 2015 and will probably decline 12 percent this year because of the slump in its property business. Bloomberg News
China will be able to keep financial risks under control as financial processes develop, a senior official of China’s cabinet research office said Saturday. China’s financial system is sound overall, although the overuse of some financial tools could cause certain risks, said Huang Shouhong, deputy director of the State Council Research Office, at a news conference. The government pays high attention to potential risks, such as bad loan ratio increases, and many financial regulators have also taken specific measures to cushion against the risks, Huang said.
Cap on energy consumption in Mainland China aims to keep energy consumption within 5 billion tonnes of standard coal equivalent by 2020, it said in its latest five-year plan published on Saturday, marking the first time the world’s second-biggest economy has set such a target. China has long been considering an energy consumption cap in a bid to improve industrial efficiency, tackle smog and control greenhouse gas emissions, which are the highest in the world. Total energy consumption was 4.3 billion tonnes of standard coal in 2015, up 0.9 percent from the previous year, according to the most recent data from the National Bureau of Statistics.
Hanergy appoints CICC to find strategic investor
Scandal-hit Hanergy Thin Film (HTF) has appointed China International Capital Corp (CICC) to find a strategic investor, a move it hopes will shore up its finances and help its shares resume trading, two sources with knowledge of the matter said. HTF is under investigation by the Securities and Futures Commission (SFC) after its shares crashed suddenly in May, a case that has raised concerns about possible widespread market manipulation in Hong Kong, denting the appeal of the Asian city as a major financial centre.
C.bank vice gov expects forex reserves to stabilise The level of China’s foreign reserves will stabilise as expectations on the yuan become steady, Yi Gang, a vice governor of the central bank. told the official Securities Times on Friday. China’s foreign exchange reserves, which are the world’s largest, declined by US$99.5 billion in January to US$3.23 trillion after a record fall the previous month. Reserves have shrunk by US$762 billion since mid-2014, more than the gross domestic product of Switzerland. A Reuters’ poll showed that foreign exchange reserves likely fell for a fourth straight month in February, easing to US$3.2 trillion.
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March 7, 2016
Asia
Malaysia’s January exports fall Exports to the EU grew 6.4 percent, while U.S. exports rose 7.9 percent supported by higher exports of manufactured goods Emily Chow
KEY POINTS January exports -2.8 pct y/y vs Reuters poll f’cast +2.5 pct January imports +3.3 pct y/y vs poll f’cast of +4.9 pct Trade surplus 5.39 bln rgt vs f’cast 7.70 bln rgt surplus Exports to China +1.0 pct y/y; U.S. +7.9 pct; EU +6.4 pct
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alaysia’s January exports unexpectedly fell for the first time in eight months on weak global demand and a fall in energy prices that look set to pressure the country’s finances this year. Exports in January declined 2.8 percent from a year earlier, government data showed on Friday, compared with 1.4 percent growth in December and a Reuters poll forecast of 2.5 percent. It was the first fall in exports since May 2015.
Southeast Asia’s third-largest economy is a net exporter of liquefied natural gas (LNG) and falling oil prices and a slowdown in China, its largest trading partner, has slowed export growth in the last two months. “Looking ahead, the trade balance (exports) will be held hostage by the evolution of oil prices. On-going economic headwinds could also keep a lid on sentiment and weigh on imports of investment goods,” said economist Ng Weiwen of ANZ Research in a note.
“I expect the trade balance to remain under pressure, with the current account surplus to halve in 2016 from 2015 on lower LNG prices as well as weaker commodity exports.” LNG exports in January dropped 48 percent from a year earlier, while crude oil shipments declined 38 percent. Imports in January rose 3.3 percent from a year earlier, picking up from 3.2 percent the previous month, but lower than economists’ forecast of 4.9 percent. January’s trade surplus narrowed to 5.39 billion ringgit (US$1.30
Bank of Japan to cut rates before July meeting Speculation is increasing over whether the government could delay the planned 2017 sales tax hike because the economy may be too fragile to absorb its impact
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he Bank of Japan (BOJ) is expected to cut its negative interest rates further to minus 0.2 percent at or before its July meeting, a Reuters poll found, as consumer price inflation remains stuck far below the central bank’s target and the economy stagnates. Economists also downgraded their forecasts for core consumer prices for the fiscal year starting April and the following year as weak
domestic demand and falling energy costs keep prices low. “Downside risks to the economy have become apparent,” said Takeshi Minami, chief economist at Norinchukin Research Institute. “In addition to oil price falls, when the BOJ judges the disappearing effects from yen’s weakness hampers price recovery, it will likely ease again,” he said. Thirteen of 14 analysts
project that the BOJ will ease policy further at or before the July meeting, the poll taken between Feb 26 and March 3 showed. Three respondents each chose the March, April and June meetings for when the central bank would ease policy, four nominated the July meeting, and one opted for the October 31 to November 1 review. The BOJ surprised markets in January by implementing a
billion) compared with 7.99 billion ringgit in December, pressured by falling oil and commodities prices but also from a strengthening ringgit in the first month of the year.
Ringgit effect
Malaysia reports its trade figures in ringgit, which sank more than 18 percent against the dollar last year, Asia’s worst performing currency. It gained 3.8 percent since the start of the year. The ringgit pared its gains after the data, slipping to 4.1300 per dollar from 4.1260. It was last trading at 4.1270. “The value of exports could have partly been depressed by the ringgit appreciation, and also due to seasonality effects such as the holiday period,” said Julia Goh, an economist at UOB Bank Malaysia. “We expect the ringgit to rebound this year which may temper trade surplus gains, but it could be offset by lower import costs so the net gains should still be there. How significant its impact also depends on domestic demand.” Exports to the EU grew 6.4 percent, while U.S. exports rose 7.9 percent supported by higher exports of manufactured goods.
0.1 percent charge on a portion of current account deposits that financial institutions have at the central bank. But the move, similar to a European Central Bank programme, has so far done little to push the Japanese yen lower. It rallied seven percent against the dollar the week after the policy announcement. A Reuters poll on Thursday found the yen was not expected to weaken to 120 to the dollar, the level it was trading at through most of 2015, until towards the end of this year. In the absence of a weaker yen, which is helpful for Japan’s export economy and makes imports costlier, economists cut their forecasts for the core consumer price index in the latest poll. The headline inflation measure, which includes oil products but excludes fresh food, is predicted to reach 0.4 percent in the fiscal year from April, down from the 0.6 percent projected last month. In fiscal 2017 core CPI
Reuters
is seen rising 1.0 percent excluding the impact from a planned sales tax hike in April that year, down from 1.2 percent forecast in February. The central bank’s new consumer price index, which excludes the effects of volatile energy and fresh food costs, rose 1.1 percent in January versus 1.3 percent in December. The world’s third-largest economy was expected to grow 1.0 percent over for the next fiscal year, the poll showed, down from 1.2 percent projected last month. Prime Minister Shinzo Abe will pull together a new advisory panel to debate the need for a supplementary budget for the next fiscal year. The panel is expected to meet about five times before the Group of Seven summit in late May. But many economists surveyed said the government should not compile an additional budget soon, and predicted it would not do so. Reuters
editorial council Paulo A. Azevedo, José I. Duarte, Mandy Kuok Founder & Publisher Paulo A. Azevedo | pazevedo@macaubusinessdaily.com Newsdesk João Santos Filipe, Michael Armstrong, Óscar Guijarro, Kam Leong, Joanne Kuai, Bami Lio, Annie Lao GROUP SENIOR ANALYST José I. Duarte Designer Francisco Cordeiro WEB & IT Janne Louhikari Contributors James Chu, João Francisco Pinto, José Carlos Matias, Larry So, Pedro Cortés, Ricardo Siu, Rose N. Lai, Zen Udani Photography Carmo Correia Assistant to the publisher Lu Yang | lu.yang@projectasiacorp.com office manager Elsa Vong | elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd.
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Business Daily | 13
March 7, 2016
Asia
Indonesia plans minimum tax on serial loss-making firms The country had a large tax shortfall last year when exports fell Gayatri Suroyo and Hidayat Setiaji
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ndonesia announced plans on Friday to impose a minimum tax on thousands of companies that have reported losses for years but are still operating regardless, part of a push to raise revenues that a senior official said would hit foreign firms hardest. “Most of them operate normally without signs of bankruptcy ... That is an insult to the tax authority,” Finance Minister Bambang Brodjonegoro told Reuters, complaining that by declaring losses many companies, most of them foreign firms, avoid paying any taxes. Goro Ekanto, head of revenue policy in the fiscal policy office, said that such companies would now face an “alternative minimum tax” (AMT) on their turnover. Indonesia’s corporate income tax rate is 25 percent of net profit. Companies that have a large chunk of shares traded in the stock market pay a lower rate of 20 percent. Indonesia had a large tax shortfall last year when exports fell, corporate earnings dropped and economic growth slowed to 4.8 percent, its slowest pace since 2009. Brodjonegoro has said the government could face another big fiscal shortfall this year, and the government is counting on a tax
amnesty plan to narrow the gap. However, a parliamentary debate on the tax amnesty bill has been delayed until at least April and analysts say it may take longer than that for it to be approved. The AMT tax plan will be included in the revision of the Income Tax Law, which Ekanto said will be discussed after the amnesty bill is passed. Bawono Kristiaji, a partner at Danny Darussalam Tax Center in Jakarta, said the government should check why companies are reporting losses before charging them a minimum tax. “If these are multinational companies, then there are indications that they are practicing profit shifting through transfer pricing schemes,” he said, referring to illegal practices of inflating costs or lowering prices when selling to affiliates abroad. He said it is better to tackle this by strengthening anti-transfer pricing
KEY POINTS Plan would impose alternative minimum tax on turnover Companies liable if report losses for years but running normally rules rather than imposing a new tax. The tax office is already targeting individuals more aggressively this year, using “geo-tagging” from Internet-based maps to check on assets. It is also imposing land tax on miners in a different way this year, by charging for mine deposits as well as the value of the land around them, local media reported.
Devidutta Tripathy
government-owned lenders. “You need strong banks rather than numerically a larger number,” Jaitley said. “What is the best course for consolidation? Where do you start from? Which are the banks to be considered?,” the minister said. He added that the planned panel would consider options such as making some banks subsidiaries under a holding company, merging a weaker bank with a stronger bank, or allowing banks that are stronger in a particular region to merge. Central bank governor Raghuram Rajan said in January it was “premature” to talk of bank mergers when bank managements were preoccupied with dealing with stressed assets. Jaitley said on Saturday it was too early to say how many state-run banks would emerge at the end of a consolidation process and declined to give any timeline for the shake-up. Among other measures, Jaitley
Myanmar has granted operating licences to four Asian banks, bringing to 13 the number of foreign banks allowed to conduct business in the previously isolated country. Bank for Investment and Development of Vietnam, State Bank of India, Taiwan’s Sun Commercial Bank and South Korea’s Shinhan Bank were granted preliminary licenses, Myanmar’s Foreign Bank Licensing Committee said in a statement on Friday. The approval gives the banks 12 months to demonstrate they can fulfil business plans laid out in their application to Myanmar’s government before they will be granted permanent licenses, the statement said.
South Korea expects record coal demand An increase in the number of coal-fired power plants starting operations this year will likely drive record coal demand in South Korea, despite the country’s pledge to curb greenhouse gas emissions at last year’s Paris climate summit. The Korea Energy Economics Institute (KEEI), a government-run think tank, forecasts South Korean coal demand will rise 6.3 percent to more than 140 million tonnes in 2016, as 9 new plants with a combined capacity of 7.7 gigawatts come online. Coal accounted for nearly 40 percent of South Korea’s electricity supply last year.
Australian grain consortium steps up lobbying
Industry analysts question the need to have more than two dozen government-owned lenders
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India’s central bank will wait a month to cut interest rates again, according to economists in a Reuters poll who mostly said New Delhi’s latest fiscal deficit target looked optimistic. Finance Minister Arun Jaitley committed to fiscal discipline in his February 29 budget, lowering the deficit target further for the fiscal year that starts next month, but offered little in the way of reforms investors have been waiting for. Investors and traders in financial markets have been hoping Reserve Bank of India Governor Raghuram Rajan will follow soon with a rate cut, like he did last year.
Myanmar approves four more banks licences
India to study mergers of state-run banks in efficiency push
ndia will consider merging some of its more than two dozen state-run banks, the finance minister said on Saturday, as the government seeks to improve efficiency at the ailing lenders that dominate the nation’s banking sector. Bankers have “strongly supported” the idea of consolidation, suggesting the government form a panel of experts to devise a merger strategy, Arun Jaitley said after a two-day annual brainstorming event of industry leaders and officials from the central bank and finance ministry. State-run lenders hold more than two-thirds of assets in India’s banking industry. But they also hold about 85 percent of non-performing loans after adding toxic assets at a faster pace than their private sector rivals, hurting profitability. About 40 percent of Indians have little access to formal banking channels yet industry analysts question the need to have more than two dozen
A poll sees India cutting rates in April
KEY POINTS Gov’t to set up panel to devise strategy for mergers Consolidation could make banks stronger, minister says India striving to reform state banking sector said, the government was considering an employee stock option plan for state-run banks, where senior executives earn far less than their private sector counterparts. He also said the government was considering amending some rules, including strengthening the debt recovery tribunals, to help banks recover bad loans more quickly. Reuters
A consortium seeking to buy Australia’s biggest wheat exporter, Co-operative Bulk Handling Ltd (CBH), is stepping up lobbying for its offer amid concerns the deal may be snubbed and reports of a rival Chinese bidder. The Australian Grains Champion (AGC), which includes farmers and some former directors of CBH, wants to acquire and list the Western Australia co-operative in a deal that analysts say would be worth up to A$3 billion (US$2.2 billion). The consortium’s drive for shareholder support comes as a newspaper reported Chinese agribusiness COFCO was considering a bid.
Philippine inflation at slowest in 4 months Philippine annual inflation unexpectedly eased in February to the slowest in four months, the statistics agency said on Friday. The consumer price index in February rose 0.9 percent from a year earlier, below analysts’ expectations and hitting the low end of the central bank’s 0.9-1.7 percent forecast for the month. Core inflation in February was 1.5 percent, slowing from 1.8 percent in January, while consumer prices fell 0.3 percent from the previous month. The central bank has a 2-4 percent target for the year.
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International Iran eyes 2016 economic growth above 5 pct Iran expects economic growth of more than 5 percent in 2016, its central bank’s governor said on Saturday, after emerging from years of isolation and crippling international sanctions over the country’s nuclear programme. But President Hassan Rouhani said last month that his country needed 8 percent economic growth in order to deal with inflation and unemployment, both of which stand above 10 percent. Energy Minister Hamid Chitchian said on Thursday Iran is implementing a development plan aiming for yearly growth of 8 percent although many private economists consider that over-optimistic.
Rousseff visits Lula after detention Brazil’s President Dilma Rousseff and hundreds of supporters flocked to the home of Luiz Inacio Lula da Silva on the outskirts of Sao Paulo in a sign of support for the former leader, who was detained for questioning by police on Friday in relation to a corruption scandal that has gripped the country. Activists from the ruling Workers’ Party, known as PT, and its followers staged a daylight vigil in front of the building where Lula lives, chanting “Lula is my friend, if you mess with him, you mess with me.”
Slovak PM Fico wins election Slovak Prime Minister Robert Fico won Saturday’s parliamentary election, nearly complete results showed, but gains by opposition parties including far-right extremists will complicate formation of a new government. Fico, a leftist whose anti-immigration views are in line with neighbours Poland and Hungary, took 28.7 percent of the vote, far ahead of others but less than around 35 percent predicted in opinion surveys, results from 91 percent of voting districts showed. With euro zone member Slovakia due to take over the European Union’s rotating presidency from July the election is being watched closely in Brussels.
UK business chief suspended in Brexit row The director general of the British Chambers of Commerce has been suspended after he called for Britain to leave the European Union, against the wishes of most of the organisation’s members, the Financial Times reported on Saturday. The newspaper said John Longworth had told reporters on Thursday that Britain would be better off leaving the 28-member bloc, comments directly at odds with the majority of BCC members who want to stay in, according to its own research. The FT said that after an emergency board meeting on Friday Longworth was suspended.
Russia sees need to adapt budget to lower oil Russia needs to adapt its budget to lower oil prices, Finance Minister Anton Siluanov said on Saturday after credit rating agency Moody’s Investors Service warned Moscow it might downgrade the country’s sovereign debt rating further into junk territory. The agency said on Friday that it placed Russia’s Ba1 debt rating on review for downgrade, pending a two-month review of the government’s policies. Of the three major rating agencies, Moody’s, Standard and Poor’s and Fitch, only the latter keeps Russia’s debt rating in an investment grade, although only a notch above junk.
Cabot Square framed by some of the financial landmark buildings in London
Bankers jostle to be junior as UK accountability rules kick in Few lawyers expect regulators to make any major enforcement moves in the early days, but said they would eventually want to bare their teeth
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ew rules to hold bosses responsible for wrongdoing at British banks is deterring some bankers from taking on senior management roles and even prompting big-hitters to play down their own importance, say legal and compliance experts. Public anger that so few senior bankers were punished after taxpayers bailed out the industry in the financial crisis, or for scandals such as Libor and currency-market rigging, has led to the rules which make it easier to hold them to account. The Senior Managers Regime (SMR) from today replaces a system that UK lawmakers criticised for giving illusory control over individuals with little prospect of enforcement action. A step change in banking rules, it
will allow regulators to pin blame on named people rather than just firms, which lawyers said has triggered anxiety among top bankers. Unlike the old system, bankers deemed to wield significant managerial influence will have to sign up to a legal duty of responsibility for their units, and show they took reasonable steps to prevent or stop rule breaking that comes to light. They include CEOs, heads of big business units, and non-executive directors who chair key committees and will amount to about 10,000 staff across 900 banking companies, or an average of about 12 per firm, rising to 40-50 for the biggest lenders. Britain’s Financial Conduct Authority (FCA) and the Bank of England’s Prudential Regulation
Low oil prices put strains on Gulf currency pegs Some analysts and speculators anticipate that the United Arab Emirates could be the first to end its dollar link
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eak oil prices pose a threat to Gulf Arab states’ currency pegs against the dollar, but the energy-rich region is unlikely to abandon the policy yet, analysts say. Bahrain, Oman, Qatar, Saudi Arabia and the United Arab Emirates all keep the values of their currencies fixed against the greenback, while Kuwait has a link to a basket of currencies including the dollar. But doubts are growing about whether the policy still makes sense. The slide in oil prices has battered the economies of the six Gulf Cooperation Council (GCC) member states at a time when an improving American economy and prospects of higher US interest rates are lifting the dollar. To maintain the currency pegs, all GCC members except Qatar raised their interest rates in December, tracking the US Federal Reserve, even though their economies needed exactly the opposite.
The Gulf states now face a dilemma of whether to keep the pegs or opt for a flexible exchange rate regime, allowing their currencies to fall against the greenback. For now GCC states, with the exceptions of Bahrain and Oman, have huge reserves to defend their pegs. But some speculators are betting that the Gulf states, particularly Saudi Arabia, will be unable to maintain the currency links indefinitely. Jan Randolph, director of Sovereign Risk Analysis at IHS Global Insight, believes the contrasting performances of the US and Gulf economies will increase pressure on the pegs. Monetary policies are also expected to diverge -- “stimulating in the GCC and gradual tightening in the United States,” Randolph told AFP. GCC states need weak currencies and low interest rates to boost their waning economies, especially to develop non-oil export sectors, Randolph said.
Authority, which will both enforce the regime, declined to comment. Asked if bankers were balking at the new rules, Simon Hills, an executive director at the British Bankers’ Association, said the SMR was regarded in the industry as a key element to restoring trust in banking. The United States and other European countries have not gone as far as the SMR by holding senior managers personally responsible by law. Requirements in the rules for senior managers to demonstrate they took steps to prevent or stop rule breaking will also prompt bosses to document all delegation of tasks and to archive emails to help keep them in the clear if misconduct is uncovered, lawyers said. Reuters
The longer the economic divergence continues, “the more sense it makes to move to a more flexible exchange rate regime,” he said. Maintaining the dollar pegs brings financial stability and certainty to GCC economies amid regional geopolitical tensions. It also helps contain inflation and boost confidence for foreign investment.
Falling living standards
Oil producers like Russia, Kazakhstan, Azerbaijan, and Nigeria have already devalued their currencies, raising oil revenues in local currency terms which helped to curb their current account and budget deficits. But there is a cost. Devaluation “typically causes higher inflation and often results in falling living standards, which can undermine social stability,” Standard and Poor’s said in a recent report. Analysts say that if GCC states depeg from the dollar, some currencies risk falling by 20 percent or more. That would boost oil revenues and the value of GCC fiscal reserves in their sovereign wealth funds in terms of local currencies, said Sebastian Henin, head of asset management at Abu Dhabi-based The National Investor. The hospitality sector of the Gulf emirate of Dubai would also benefit as it becomes a more affordable tourist destination and more attractive to non-oil businesses, Henin told AFP. AFP
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March 7, 2016
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Leading reports from Asia’s best business newspapers
The global economy’s stealth resilience
THE JAPAN NEWS
Ngaire Woods
The Cabinet of Prime Minister Shizo Abe adopted bills Friday aimed at regulating virtual currency businesses and allowing banking groups to invest in the financial technology sector. The Abe government plans to introduce the two bills to amend the settlement law and the banking law, respectively, during the on-going Diet session, hoping to have them enacted before the Ise-Shima summit of the Group of Seven major economies that Japan will host in late May, officials said. The amendment bill defines virtual currencies as assets that can be traded by an unspecified number of people and electronically transferred.
Dean of the Blavatnik School of Government and Director of the Global Economic Governance Program at the University of Oxford
THE KOREA HERALD The number of new companies kicking off operations in Korea advanced 1.7 percent on-year in January, data showed yesterday, marking a record-high figure for the month. According to data compiled by the state-run Small and Medium Business Administration (SMBA), the number of new businesses in the country reached 8,210 in January, compared to the 8,070 posted a year earlier. The growth, however, marked a sharp decrease from the 10 percent onmonth increase posted in December. The SMBA said the slowed growth followed the decrease in the number of business days in January.
THE TIMES OF INDIA Government will soon set up an expert group to look into consolidation of public sector banks as the country needs stronger rather than a large number of banks, finance minister Arun Jaitley said here on Saturday. He also said the government is considering ESOPs for PSU bank officials besides strengthening the SARFAESI Act and Debt Recovery Tribunals to deal with the problems of stressed assets that are estimated at around Rs 8 lakh crore. Jaitley said that consolidation in the banking sector was discussed at the meeting.
PHILSTAR Dutch financial giant ING Bank expects (Philippines’) inflation kicking up closer to three percent in the second half of the year with the projected rebound of oil prices in the world market. Joey Cuyegkeng, senior economist at ING Bank Manila, said inflation would trend towards the middle of the two to four percent target set by the Bangko Sentral ng Pilipinas (BSP). Cuyegkeng pointed out inflation would edge up to two percent this year after easing to 1.4 percent last year from 4.1 percent in 2014 due to lower food prices and cheaper utility rates.
People’s Bank of China Governor Zhou Xiaochuan delivers a speech during G20 meeting in Shanghai a couple of weeks ago
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wo weeks ago, Christine Lagarde, the International Monetary Fund’s managing director, warned that if countries do not act together, the global economy could be derailed. Likewise, the OECD has warned that countries must move “urgently” and “collectively” to boost global growth prospects. Yet the G-20 finance ministers and centralbank governors to whom these entreaties were directed failed to agree any such action at their recent meeting in Shanghai. To be sure, the communiqué released after the meeting includes a pledge to use “all policy tools – monetary, fiscal, and structural – individually and collectively” to “foster confidence and preserve and strengthen the recovery.” But the communiqué also reflects distinct divisions – particularly with regard to the role of monetary and fiscal policy in stimulating growth – among the finance ministers and central bankers who agreed on its text. On monetary policy, the communiqué offers the empty statement that the G-20 would “continue to support economic activity and ensure price stability, consistent with central banks’ mandates.” That avoided the central question: Should central banks be attempting to stimulate growth through “unconventional” monetary policies? The Bank for International Settlements thinks not, arguing in its 2015 annual report that “monetary policy has been overburdened” in an attempt to reinvigorate growth, a reality that is reflected in “the persistence of ultra-low interest rates.” The result is a vicious cycle of too much debt, too little growth, and too-low interest rates that, to quote the BIS’s Claudio Borio, “beget lower rates.”
This sobering analysis has not stopped the Bank of Japan or the European Central Bank from further monetary easing. Nor did it deter People’s Bank of China Governor Zhou Xiaochuan from expressing a willingness to shoulder more of the growthstimulating burden in Shanghai. But not everyone is ignoring the writing on the wall. Reserve Bank of India Governor Raghuram Rajan has called on the IMF to examine the effects of unconventional monetary policy not just on the countries that implement them, but also on the rest of the world. Likewise, Bank of England Governor Mark Carney has pointed out that countries using negative interest rates (including, most recently, Japan) are, by forcing currency devaluation, exporting weak demand – ultimately a zerosum game. When it comes to fiscal policy, agreement is similarly lacking. The IMF is urging surplus countries like Germany to pursue more stimulus. The OECD, too, has called upon its wealthier members to take advantage of their current ability to borrow for long periods at very low interest rates to increase growth-enhancing investment in infrastructure. These calls provoked a sharp rebuttal from German Finance Minister Wolfgang Schäuble, who condemned the “debtfinanced growth model.” The result of this conflict was a vague declaration by the G-20 that it would use “fiscal-policy flexibly to strengthen growth, job creation, and confidence, while enhancing resilience and ensuring debt as a share of GDP is on a sustainable path.” In light of the statements by the IMF and the OECD, this distinct failure to agree on monetary and fiscal policy seems highly dangerous. But both institutions may be overstating the problem.
Bodies like the IMF, the World Bank, and the World Trade Organization should be responsible for analysing and transmitting vital information to the array of institutions that are filling their traditional role
In fact, despite widespread uncertainty – volatile capital flows, plummeting commodity prices, escalating geopolitical tensions, the shock of a potential British exit from the European Union, and a massive refugee crisis – the stalling of global cooperation may be less risky today than it was even a decade ago. The key factor in this context has been widespread recognition of the risks inherent in economic globalization, and concerted efforts to build up the needed resilience on a national, bilateral, or regional basis. Consider finance. Twenty years ago, a catastrophic financial crisis began in Thailand and quickly spread across East Asia. Since then, those economies, and others in the emerging
world, have self-insured against crisis by building up huge stockpiles of foreign-exchange reserves. Partly as a result of this, the volume of reserves has risen from some 5% of world GDP in 1995 to around 15% today. Emerging economies are also holding less sovereign debt, and they have created bilateral and regional currency-swap arrangements. In addition, more than 40 countries have deployed macroprudential measures since the 2008 global financial crisis. Countries also benefit from greater access to more diversified sources of finance. Some emerging and developing countries now access global bond markets individually. And the role of regional development banks – including the African, Asian, and Inter-American Development Banks, as well as the newly created Asian Infrastructure Investment Bank and the New Development Bank – has grown. The final manifestation of this new pattern of cooperation – which might be called “distributed governance” – appears in trade. While the Doha Round of negotiations has staggered and fallen, liberalization is proceeding apace, owing to the proliferation of bilateral, regional, and superregional deals. These new governance arrangements have important resilience-enhancing effects; but they may not offer a more efficient alternative to multilateralism, and they do not eliminate the need for traditional multilateral institutions. On the contrary, bodies like the IMF, the World Bank, and the World Trade Organization should be responsible for analysing and transmitting vital information to the array of institutions that are filling their traditional role. For example, the IMF should respond to Rajan’s request to track and analyse the effects of unconventional monetary policies. Likewise, it could strengthen its analysis of the impact of capital controls on the countries implementing them, and on other countries. It could also resume preparing models of how sovereign-debt restructuring could be better supported – whether at the national level, through GDPlinked or contingent convertible bonds, or at the regional or global level. At their Shanghai meeting, G-20 policymakers vowed to adopt a range of policy tools to boost global growth and avoid currency wars. They did not deliver on that promise. But their failure may have reinforced the shift to a new phase of distributed global economic governance. Project Syndicate
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Closing Graft busters discipline nearly 300,000 officials in 2015
Mainland courts handle 1,000-plus online fraud cases
Graft busters administered disciplinary penalties to nearly 300,000 officials last year, according to the top discipline watchdog of the Communist Party of China (CPC). Among them, 200,000 officials were given light disciplinary punishments and transferred to other posts, and 82,000 were handed severe disciplinary punishments and major demotions. Ten centrally appointed and administered officials were given severe disciplinary penalties for serious violations against the CPC code of conduct. The CPC Central Commission for Discipline Inspection penalized them with drastic demotions.
More than 1,000 cases of Internet fraud were handled by the courts last year, according to the Supreme People’s Court (SPP). “In many cases, unsuspecting victims were cheated out of millions or tens of millions of yuan. The most serious case involved over 100 million yuan (US$15.3 million),” said Li Ruiyi, a senior criminal judge at the SPP. Different from “traditional” phone scams, Internet fraud often involves identity theft and software is employed to disguise the criminal’s identities and phone numbers. According to Li, the severity of the crimes led some companies to file for bankruptcy, while some individuals committed suicide.
State planner dismisses talk of hard landing for China’s economy Xu Shaoshi said economic growth will create more jobs and help offset the impact of capacity cuts
KEY POINTS China not dragging on global economy - state planner chairman Xu Uncertain global economy poses risk to China’s growth - Xu Over capacity cuts unlikely to cause large-scale layoffs – Xu
Xu Shaoshi, Director of the National Development and Reform Commission, waits for questions during a press conference at the Fourth Session of the 12th National People's Congress yesterday
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hina’s economy isn’t headed for a hard landing and isn’t dragging on the global economy, China’s top economic planner said yesterday, but uncertainty and instability in the global economy do pose a risk to the country’s growth. “China will absolutely not
experience a hard landing,” Xu Shaoshi, head of the National Development and Reform Commission (NDRC), told reporters at a briefing. “These predictions of a hard landing are destined to come to nothing.” The state of the world’s second-biggest economy and Beijing’s ability to manage
it were key talking points at a Group of 20 finance ministers and central bankers in Shanghai last month. “In general, I think China’s economy performance has stayed at a reasonable range (since 2015),” Xu said, adding that the Chinese economy shouldn’t be viewed through traditional perspectives.
“First, we should look from the angle that the economy has entered the ‘new normal’ period,” he said, in which growth rates have shifted and the economy’s growth engines are changing towards services from investment. In the run-up to parliament, Beijing has flagged major job losses in
the country’s bloated coal and steel industries. But plans to reduce industrial over-capacity were unlikely to result in large-scale layoffs, Xu said. Economic growth will create more jobs and help offset the impact of capacity cuts, he said. China also plans to launch several mixed ownership pilot programmes in the oil, natural gas and rail sectors, Xu said, part of the most far-reaching reforms of its sprawling and inefficient state sector in two decades. In September last year, China issued guidance on reforming state-owned enterprises, including the introduction of so-called mixed ownership of state firms. China has about 150,000 state-owned enterprises, managing more than 100 trillion yuan (US$15 trillion) in assets and employing over 30 million people, according to the official Xinhua news agency. Nonetheless, the broader world economy poses challenges to China this year, Xu said. “First, we estimate the slow recovery and low growth rates in the world’s economy will continue for a period of time,” he said. “Also we could not overlook the risks from unstable (global) financial markets, falling prices of commodities and risks of geopolitics.” Reuters
PBOC’s governor voices support Guangdong forecasts GDP growth of 7-7.5 pct in 2016 for supply-side reforms
Lotte shareholders vote in support of Shin Dong Bin
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hinese central bank governor Zhou Xiaochuan voiced his support for the government’s plan to overhaul state-owned enterprises and reduce overcapacity, saying the reforms would make the country’s fiscal policy more effective. “Supply-side structural reforms will help fiscal policy to be more effective from a functional point of view,” Zhou told reporters after attending legislative meetings in Beijing yesterday. “Monetary policy is mainly for managing aggregate demand, which if done well would give more room for supply-side policies.” More robust fiscal measures and structural reforms have both been proposed by Chinese authorities as methods for supporting an economy that expanded at the slowest pace in a quarter century last year. Zhou, speaking to reporters yesterday about what role the People’s Bank of China could play in such efforts, said appropriate financial policies would bolster such structural reforms. “We can make the financial structure better fit structural adjustment policies that tackle the issues of overcapacity cuts, leveraging and inventory destocking,” he said.
hina’s southern Guangdong province expects economic growth of between 7-7.5 percent in 2016, said Hu Chunhua, the Communist Party boss of the economic and export powerhouse. “Guangdong is like the rest of the country in facing great slowdown pressures,” said Hu, following a meeting with the province’s delegates in Beijing. He singled out exports as one sector under even greater strain for the province, whose gross domestic product (GDP) is larger than Indonesia’s. “The influence of the global economy is bigger (for Guangdong) than in other places,” Hu said, pointing out that the province, including the “world’s factory” of the Pearl River Delta, accounted for one-quarter of China’s overall exports. This year’s expected rate of growth is less than the 8 percent Guangdong recorded last year, Hu said, but above China’s overall expected growth of 6.5-7 percent for 2016. Guangdong is faced with the substantial challenge of upgrading its low-value-added manufacturing sector, but it would push ahead with industrial restructuring and innovation, Hu told reporters in a news conference.
Bloomberg News
Reuters
hareholders of Tokyo-based Lotte Holdings Co., a key unit of Korean-Japanese retail conglomerate Lotte Group, voted to oppose a measure to remove Chairman Shin Dong Bin at an extraordinary general meeting yesterday. Family-controlled Lotte Group is in the midst of a power struggle between Shin Dong Bin and his older sibling who was stripped of his executive positions at the Japan unit in January last year. The brother Shin Dong Joo had called for the meeting last month to put him on Lotte Holdings’ board and oust its current directors. Shareholders denied all measures proposed on February 16 by Shin Dong Joo, Lotte confirmed in an e-mailed statement yesterday. He had proposed a plan to form a new board of directors for Lotte Holdings with himself as chief executive officer and the two men’s father Shin Kyuk Ho as founder, and for them to also sit at the top of the South Korean business. A spokeswoman at Lotte Group in Seoul said at the time those plans don’t seem achievable. Shin Dong Joo refused to accept today’s rebuttal and said that he would resubmit the proposals at June’s shareholder meeting, according to a statement provided by SDJ Corp. Bloomberg News