MOP 6.00 Closing editor: Joanne Kuai
Lui Che-Woo: Galaxy project mulls ‘Avatar’-style theme park
U.S. pressures China to cut steel overcapacity Page 10
Year IV
Number 997 Wednesday March 9, 2016
Publisher: Paulo A. Azevedo
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Chinese brokerage firms maintain lower profile Page 9
Radical Rethink On Gaming Transaction Report Threshold Urged The U.S. Department of State is on the case. Chivvying Macau to lower the large transaction report threshold for casinos. To US$3,000 (MOP24,000) from the current MOP500,000. In an effort to bring it ‘in line with international standards, and to increase Anti-Money Laundering and Counter Financing of Terrorism’. The U.S. report fears an inherent conflict of interest, and anonymity, in the use of ‘junket’ operators. Pinpointing the transfer and mixing of funds, absence of monetary and exchange controls, and vulnerability to money laundering. All encouraging the flight of Chinese capital Page 5
Petitioners involve CCAC Taboo finale It’s curtains down. Cabaret show Taboo closes at the end of this month. Laying off some 32 employees. Melco says the closure is temporary. Macau gaming operators are trying to enrich their non-gaming offerings
The Alto de Coloane residential project. Raising temperatures once more in Macau’s green-lung oasis. Opponents say it will harm the island’s eco-system. And query why building height and plot ratio substantially exceed the area’s norms. The gov’t has been petitioned. And the anti-graft watchdog asked to investigate a series of alleged planning discrepancies
Name
%Day
Want Want China Hold
+2.45
Belle International Ho
+2.24
Kunlun Energy Co Ltd
+0.96
Power Assets Holdings
+0.66
CNOOC Ltd
+0.22
China Resources Powe
-2.40
Galaxy Entertainment
-2.62
Sino Land Co Ltd
-2.68
China Resources Land L
-3.48
Sands China Ltd
-3.68
I SSN 2226-8294
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Water management
www.macaubusinessdaily.com
March 8
Source: Bloomberg
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A territorial waters management agreement is to be signed in May. Between Macau Customs and the Central Government. Details such as law enforcement and work arrangements will be included, says Secretary for Security Wong Sio Chak
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Government
Export concerns
Home sweet home
China’s exports slumped more than expected in February. As weak global demand and seasonal factors added to pressure on the slowing economy. Business inactivity around the Spring Festival holiday exacerbated the y-o-y export slump
MOP60 mln, awarded to P & T Architects. To design new gov’t offices adjacent to Macao Science Centre. Macao Foundation says the estimated budget is not yet known. The plan is to ameliorate the MOP1 bln rental bill the gov’t expects this year
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HSI - Movers
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March 9, 2016
Macau environment - the Grand Taipa hill has already been removed. What we can see now is only high-rise buildings,” he said. “We are concerned about the effect on the landscape, and the environmental impact, by letting the project progress,” Jeremy Lei Mam Chao, the Vice President of Love Macau Association, said.
Laws protect environment
Alto de Coloane residential project ignites environmental controversy Local concern group petition to request the cessation of the project in Estrada do Campo for the protection of the Coloane environment Annie Lao
annie.lao@macaubusinessdaily.com
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ove Macau Association is admonishing the SAR Government to comply with relevant laws set up by the Urban Planning Committee to evaluate whether or not the new housing project planned by local businessman Sio Tak Hong in Estrada do Campo in Coloane may be legally constructed,
given it will damage the natural environment of Coloane. “Coloane is the only area that contains the most green and ecoprotected area in Macau. We request the SAR Government to protect the environment and the eco-system there,” the Director of the Love Macau Association, William Wu,
told reports after handing a petition to the SAR Chief Executive outside Government Headquarters yesterday afternoon. “Although Macau needs continual urban development, the protection of the eco-system is important. The Estrada do Campo project will destroy the landscape of the
“Three laws already highlight the principle of environmental protection, the principle of local residents’ participation and the principle of being reviewed by the public. The major problem here is everything happened in relation to the project unknown to the public,” he complained. “In recent news, including a lot of issues that we don’t understand, why [is it that] in the same area [developers] are only allowed to build up to around 30 metres in height yet this project can be built up to 100 metres? Also, why can the volume of the project be expanded eightfold?” The group saiud they would take further action to protest and a demonstration may take place depending upon the government’s response to this matter.
Further investigation
Furthermore, New Macau Association reported to the Commission Against Corruption (CCAC) yesterday on suspicion that the project was not evaluated by the Environmental Protection Bureau before obtaining the approval to start the project from the Land, Public Works and Transport Bureau (DSSOPT). The proper legislation is not being adhered to in this matter, according to the Association, thus they are requesting CCAC to investigate this project. Earlier this month, DSSOPT said in a press release that the new housing project was not approved for construction yet. The government said that it has not received any official drawings for the project from the developer despite a draft having been recently approved.
Ex-Culture Bureau vice head denies abuse of power
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ormer vice president of Cultural Affairs Bureau Stephen Chan Chak Seng denied on Monday at the city’s Court of First Instance that he had abused his power by helping his brother obtain a service contract outsourced by the Bureau in 2008. In 2011, the city’s graft watchdog Commission Against Corruption (CCAC) found that the civil worker was suspected of deliberately revealing the quotations offered by other bidders for a maintenance service contract to his young brother in order to have him adjudicated the contract, which violates the functional obligation of confidentiality of public servants. The cultural official is also suspected by the corruption body of severely breaching the obligations of impartiality and confidentiality stipulated by the General Regulations
Governing the Staff of the Public Administration of Macau by participating in the procedures of tenders won by his sibling. On Monday, Mr. Chan denied the allegations, claiming he had treated every bidder for the contract fairly, according to Chinese language newspaper Macao Daily. The judge, however, perceived that the public servant’s testimony conflicted with that he gave to the Public Prosecutor’s Office in 2011, when he said he had mentioned other companies’ quotations to his brother. The ex-Cultural Bureau deputy head stepped down from his position as his term was terminated by the then Secretary for Culture and Social Affairs in August 2012. Up to now, however, he is still a senior consultant to the Bureau. The trial continues today. K.L.
Le Saunda expects annual net profit to dive 35 pct
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ootwear retailer Le Saunda Holdings Ltd. has forecast that a net profit slide of 35 per cent year-on-year for fiscal year ended February 29 due to its businesses in Hong Kong and Macau going into the red. In a filing with the Hong Kong Stock Exchange on Monday evening, the company said the drop in net profit is due to its retail businesses in the two Special
Administrative Regions posting an operating loss for the period in addition to increased operating costs in Mainland China, more discounts offered and increased exchange loss. For the prior fiscal year, the retailer generated a net profit of HK$237.1 million, down 17.4 per cent yearon-year. Meanwhile, the company said in the filing that its sales from its self-owned retail
business fell 12.9 per cent year-on-year for the three months ended February 29, in addition to a 13.8 per cent year-on-year decline in same store sales although it did not disclose any related figures. As at the end of last month, Le Saunda owned 896 outlets in Mainland China, Hong Kong and Macau, a decrease of eight stores compared to the same period last year. K.L.
Business Daily | 3
March 9, 2016
Macau
Gov’t to build new public office building next to Macao Science Centre The project may serve as a resolution to the increasing expenditure of official departments renting private buildings for their offices Kam Leong
kamleong@macaubusinessdaily.com
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he government is to build a new public office complex with multifunctional facilities in the current open-air car park of Macao Science Centre in order to deal with the surging rents that public departments are now facing. According to Monday’s Official Gazette, the SAR Government has awarded a contract worth nearly MOP60 million (US$7.5 million) to the local office of P & T Architects and Engineers Ltd. for draft drawings and technical support for the project.
Macao Foundation will be the body in charge of the project and its expenses, the dispatch by the Chief Executive Fernando Chui Sai On indicated. In response to an enquiry by Business Daily, Macao Foundation said in a written statement that there is not yet an estimated budget for the complex nor an expected starting date for construction. ‘The project’s design work has just started. Related designs would need to be evaluated and approved by relevant government departments. The total cost
and starting date of the construction would thus depend upon the final design proposal that is approved,’ the Foundation wrote. Claiming the awarding of the complex’s design contract to P & T follows the related legal procedures and considerations, Macao Foundation said it would certainly open public bids for future construction. According to the autonomous body, the project would occupy 70,100 square metres and accommodate as many as 1,000 persons. However, it would be no higher
than 60 metres, while its general design would visually match that of the Science Centre, in addition to being in line with the Centre’s related urban planning and green energy saving ethos.
High rents
In the statement, the Foundation claimed that one of the aims of the project is to provide office venues for itself and other government departments that need to rent space in private commercial building as their offices. Currently, most of the city’s public departments are located in private commercial buildings
Customs to ink agreement on management of territorial waters The central government of China is to sign an agreement with the MSAR on the management of Macau’s waters, says Secretary for Security Wong Sio Chak
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ollowing Beijing’s approval of the demarcation of territorial waters for the Macau SAR, the General Administration of Customs of the People’s Republic of China is to sign an agreement with Macau Customs in May with regard to the management of Macau’s territorial waters, Secretary for Security Wong Sio Chak has told reporters, explaining that he recently accompanied Chief Executive Fernando Chui Sai On to Beijing and has met with representatives of the General Administration of Customs
of Mainland China. Both sides agreed to sign the relevant agreement in May, which includes details regarding future law enforcement and work arrangements and a better mechanism to enhance communication and co-operation.
Police force
On the sidelines of the 13th inaugural ceremony of deputy commissioners and chief assistants of the Public Security Police Force (PSP) and Fire Department (CB), the Director of
the Macau Security Force Superior School (ESFSM) Hoi Sio Iong, told reporters that the current number of police is adequate. “Officers graduating today are hired according to vacancy; now we hire once a year, or sometimes once every two years, the number of officers is quite enough. For other members of the police, we changed from hiring three times every two years to twice per year starting in 2016,” said Mr. Hoi. “We have about 150 police graduating in May, and
– primarily in NAPE or the city central. The Secretary for Economy and Finance Lionel Leong Vai Tac disclosed last November that the government would need to spend some MOP1.1 billion to rent private venues for only this year. ‘[The project] can deal with the continuous increases in rent of commercial buildings and allow the provision of public services more conveniently and intensively,’ the body said, adding the new complex would also include venues for conventions, exhibitions, and cultural activities.
other members will join the school in April.” Hoi stated that the workforce in public security is basically enough. When asked about any changes in courses due to crimes related to the new development of the city, Hoi said, “courses keep on being updated such as on information technology. In recent years, we have added means like communicating with citizens, meaning we let them know our reason for taking action.”
Incorruptibility
Following four year of training courses, 24 officers graduated yesterday. Among them, 16 will serve with the PSP, while the other eight will serve in the Fire Department. After the inaugural ceremony, CPSP Wong Iong Iong was asked if benefits and remuneration were taken into consideration for her choice of career, to which she replied “we have better benefits and remuneration after studying in this school, but serving citizens is the most important.” B.L.
4 | Business Daily
March 9, 2016
Macau
CESL Asia adds “Here we go again” value with Focus Sun opinion
João Paulo Meneses in Portugal newsdesk@macaubusinessdaily.com
José I. Duarte Economist
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orgive me for starting with these conceivably impertinent considerations. Movie lovers are well aware of the importance of the soundtrack when watching (and listening) to a story told through a camera. Music lovers are also aware that some tunes and lyrics made for very distinct purposes seem, sometimes, to fit surprisingly well other situations in our collective existence. You will understand, then, that when reading about the many issues raised by the jailing of the former Public Prosecutor, one may not avoid feeling this is a new version of an old movie, with a familiar tune playing in the background. One main topic of contention in the process is that the accused does not have access to an appeal procedure. Big surprise? Not so fast! That is a distinctive, if not necessarily proudly advertised feature of our legal system. I remember that same issue popped up some years ago when another high official was arrested under similar circumstances. Then, as now, he had no appeal mechanism. Other times those were, maybe, and fewer complaints were heard then (or perhaps it is only my memory betraying me). But even in those now seemingly not so remote times anymore, explanations were put forward. Yes, many people were aware of that ‘soft spot’ in our legal system, but nobody felt the need to deal with it. Yes, solutions could have been devised but, after all, no-one ever thought that the need would arise. Leaving for the most enthusiastic readers the judgment about the (extreme?) naiveté or cynicism of such justification, the question facing us now is that such an appeal mechanism is still missing. No-one thought it would ever be needed again? The right of appeal is a basic element in any legal system that aims at fairness and is not shy about proclaiming the primacy of the rule of law. That we find ourselves in this situation again is not only a disservice to the standing of the legal system, but it also leaves all those who might have done anything about it in a less than favourable light. Meanwhile, a newspaper raised issues about the possible limitations of the Higher Court judges to join in the trial. The clarification volunteered by the Court, as reproduced by the government’s press office, only heightens our sense of perplexity. It mentions that such impeachment only affects the ‘foreign judge’ that was involved in the initial preparation of the process. I was not aware that ‘foreign’ was a professional category in the judicial professions, and I still do not know what to make of it. I cannot even fathom why someone felt the need to highlight that (distinctive?) feature of the official involved, why that was felt to be relevant or necessary at all. I would appreciate it if someone among my possibly benevolent readers could provide me with some guidance on this matter.
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ESL Asia has created in Portugal a company with the aim of developing the business of management, operation and Renewable Energy Central Maintenance. The Macau company is the sole shareholder of Focus Sun, which started operating in the last quarter of 2015 with the signing of the “first contract to provide exploration services of our Estoi 1 Centre . . .We intend to increase the hiring of other Central Management during the year 2016 and beyond,” CESL Asia CEO António Trindade told Business Daily. The goal is that Focus Sun can “provide a highly value added service for the ability to optimise both the
performance and life of plants that will benefit from our service.” He went on to explain that the company has invested in a set of control and measurement equipment, as well as technicians with specialised training in technology of facilities applied to renewable energy plants. Thus, the company has created a level of service that’s ‘absolutely necessary’, as the majority of owners have difficulty in doing it with its own means, because it’s not their speciality or as a consequence of lack of scale hindering the monetizing of these investments and technical expertise. In July 2015, CESL ASIA opened its first photovoltaic solar plant in Portugal as the result of a partnership with Portuguese photovoltaic panels
manufacturer Magpower. The plant in Estoi (in the Algarve) is equipped with 90 trackers high concentration photovoltaics producing energy that can supply more than 2,000 people and avoid the emission of 1,000 tonnes of carbon dioxide. António Trindade recognises that, “the market for renewable energy is very interesting, dynamic and technically demanding . . . CESL Asia has technical and economic conditions to develop their investments and services in these aspects seeking to expand this activity in Portugal and other locations. It is therefore natural that CESL Asia may announce other investments during 2016 and the following years “, he confided to this newspaper.
‘Insufficient labour’ main cause of exports backlog
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espite a year-on-year increase of 17.6 per cent in manpower in the fourth quarter of 2015 a survey shows that 55.4 per cent of businesses in the Pharmaceutical Products, Clothing and Apparel, Electronic and Electric Equipment and ‘Other’ sectors in the export business continue to suffer a lack of workers, according to data published by the Macau Economic Services (DSE). This is a slight reduction compared to the 61.4 per cent registered in the previous quarter but still evidences a high procurement of labour in the sectors, particularly Pharmaceutical Products – which registered a 69.1 per cent need for labour in the fourth quarter of 2015.
The reasons for the backlog of products – reportedly highest in the Pharmaceutical Products sector, at 4.97 months and averaging 2.58 months in the fourth quarter of 2015 overall in the surveyed sectors – were attributed by the export companies to ‘elevated prices of raw materials’ (11.9 per cent), ‘insufficient volume of orders’ (8.2 per cent) and ‘more competitive pricing overseas’ (7.6 per cent).
Increasing cost
Of problems faced by the same companies over the fourth quarter of 2015, of those surveyed 58.5 per cent cited ‘elevated price of raw materials’, while 56.3 per cent claimed ‘more competitive pricing overseas’. Those
encountering ‘insufficient amount of labour’, ‘elevated salaries’ and ‘insufficient amount of orders’ stood at 33.2 per cent, 24.4 per cent and 13.9 per cent, respectively. Estimates for the next six months by those surveyed showed 6.7 per cent with an optimistic approach – translated as a one percentage point rise compared to the previous trimester and 11.5 percentage point drop compared to the fourth quarter of 2014. When considering the destination of the exports, the surveyed companies cited the interior of China and Hong Kong as those with relatively better performance, with Japan the weakest based on the amount of orders. K.W.
Business Daily | 5
March 9, 2016
Macau
Macau chivvied to establish measures to ‘prevent money laundering’ U.S. State Department says Macau ‘fosters financial systems such as fei-chien or ‘flying money’’ Kelsey Wilhelm
kelsey.wilhelm@macaubusinessdaily.com
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he U.S. Department of State says, ‘Macau should lower the large transaction report threshold for casinos to US$3,000 (MOP24,000)’ – 4.8 per cent of the current MOP500,000 - to bring it ‘in line with international standards, in an effort to increase Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT), as published in a report on Money Laundering and Financial Crimes released this month. The report suggests that the Macau Government ‘strengthen interagency co-ordination to prevent money laundering in the gaming industry’. Much of the report takes a negative viewpoint on junkets, claiming ‘much of the money funnelled through these middlemen originates from corruption, embezzlement and other illicit activities.’ It alleges that ‘organised crime, including triads, are active in the gaming services and are engaged in loan-sharking, prostitution services, etc.’ In its focus on junket activities in Macau, the report goes into depth regarding cross-border currency movements, stating that Macau presents ‘vulnerabilities for money laundering,’ as well as ‘encourages Chinese capital flight’ even going so far as to state that the current situation in the MSAR ‘fosters financial systems such as fei-chien or ‘flying money’.’ This fostering is seen to derive from the gaming sectors reliance on ‘loosely-regulated gaming promoters […] for the supply of wealthy gamblers, mostly from Mainland China.’
To be improved
Suggested improvements to the system revolve around legislation to strengthen ‘Macau’s customer due diligence requirements,’ – such as compliance with legislation, accurate information on who customers are and guarding against fraud and impersonation - which ‘has been pending for over three years, as has legislation to improve the jurisdiction’s cross-border currency controls.’ This leaves Macau without, in the State Department’s opinion, ‘an effective cross-border cash declaration system.’ The United States State Department urges Macau to ‘enhance its ability to support international AML/CFT (Anti-Money Laundering/ Counter Financing of Terrorism) investigations.’ A 2014 Investment Climate Statement published in June of that year by the U.S. State Department states ‘some observers […] have
US$3,000 proposed large transaction report threshold for casinos, compared to current MOP500,000
U.S. State Department report claims ‘organized crime, including triads, are active in the gaming services’
SUSPICIOUS TRANSACTION REPORTS IN 2014 Typologies
Number of Cases
Chips conversion without/with minimal gambling activities
766
Suspicious wire transfers
346
Use of cheques/promissory notes/accounttransfer to transfer funds
274
Suspected underground banking/alternative remittance sources
173
Unable to provide ID/important personal information
172
Irregular cash withdrawals
143
Significant cash deposit with non-verifiable source of funds
125
Suspected Politically Exposed Person related transaction
120
Possible match with international watch-list or other black list
97
Counterfeit currency
68
Others*
433
*Other typologies include: Account holder issues/receives casino cheques, Currency exchanges/cash conversion, Use of ATM/phone banking/cash deposit machines, Attempted but unsuccessful transaction, Bank account holder with gambling activities (casinos, horse racing, internet gambling etc.), etc. / Source: GIF Annual Report 2014
estimated the figure of U.S. investment [in Macau] to be US $10 billion, which would make the U.S. the number one foreign investor.’
Macau data reinforces findings
Data recorded by the Financial Intelligence Office (GIF) of the MSAR Government reinforces certain claims made by the United States Department of State in its report both in the areas of money laundering activity through gaming-related activities and due diligence requirements relating to gaming promotion operators. Findings published by the GIF in its November 2015 newsletter show that 74.9 per cent of the Suspicious Transaction Reports (STR) received in the first six months of 2015 came from ‘Games of Fortune Operators’, equalling 682 reports over the six months - compared to 663 gaming related reports in the same period in 2014. The 219 STRs from Financial Institutions and Insurance Companies
in the same period in 2015 accounted for only 24.1 per cent of the total.
Suspicious gaming sector
In its annual survey, covering activity in 2014, the GIF counted suspicious transaction reports (STR) related to gaming operators as reaching 3.6 times the amount recorded in 2007 (the first year of recorded data). Of the overall 1,812 STR reports received, ‘the gaming sector received 1,370 reports which accounted for over 75 per cent of the annual submissions’, a 20.3 per cent increase in reports from the sector compared to the previous year. This compares to only 412 reports from the financial sector. This increase in reports – the most common of which is ‘Chips conversion without/with minimal gaming activity’ – accounting for a total of 766 STR cases in 2014 (the largest type of STR recorded that year) - is reported by the Financial Intelligence Office as being ‘due to the
adoption of a new policy by several gaming concessionaires on customer due diligence as well as better control of funds transfers,’ the same type of ‘due diligence’ mentioned in the State Department’s report. The Financial Intelligence Office (GIF) is one of 16 departments working together on the Interdepartmental Anti Money Laundering Working Group (AML Working Group) and co-ordinates with groups such as the Monetary Authority of Macao (AMCM), the Commission Against Corruption (CCAC), the Gaming Inspection and Co-ordination Bureau (DICJ), the Public Prosecutor’s Office (MP) and the Judiciary Police (PJ) among others. Findings of the 2014 report by the GIF show the highest amount of STRs could be related to money-laundering activities (see chart).
Constant revision
Macau is set to be the focus of the ‘3rd Round of Mutual Evaluation’ by the APG/GIFCS (Asia/Pacific Group on Money Laundering and Group of International Finance Centre Supervisors) - according to the report – which is ‘tentatively scheduled for late 2016’. The last time this report was conducted was in 2007 and although the ‘main objective of revising the AML/CFT Law and Administrative Regulation is to incorporate the recommended measures given in the APG/GIFCS Mutual Evaluation Report in 2007,’ despite being ‘submitted to proceed with the legal process’, many of the elements are still ‘under review’ says the 2014 report.
6 | Business Daily
March 9, 2016
Macau
Billionaire Lui Che Woo, chairman and founder of Galaxy Entertainment Group Ltd.
Lui Che-Woo plans Avatar‑like theme park for Galaxy The Galaxy chairman says the next two phases of the HK$86 bln Galaxy Macau project will include similarities to the movie ‘Avatar’
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acau’s decade-long gambling boom made Lui Che-Woo a multi-billionaire and his casino company number three in the world’s largest gambling hub. The Galaxy Entertainment Group Ltd. chairman is now venturing into something more family- friendly: theme parks. The next two phases of the HK$86 billion (US$11 billion) Galaxy Macau project will include “something special and high- tech” similar to the movie “Avatar,” said Lui. Compared with larger theme parks such as Walt Disney Co.’s US$5.5 billion Shanghai park that’s due to open in June, “our park will be smaller but unique,” he said in an interview in Hong Kong. “Nowadays you already see that all these theme parks all have different special ideas,” said 86-yearold Lui, who made his first fortune in construction before entering the casino industry in his 70s. “So we’re thinking of how to compete against them.” Casino owners in Macau are under pressure to come up with ways to attract tourists two years after President Xi Jinping ordered the city to diversify from gambling. As China’s campaign against graft continues to scare off many of Macau’s high-stakes customers, Lui isn’t the only one looking for new ideas, with Melco Crown Entertainment Ltd.’s Hollywood-themed Studio City opening last October. “Theme parks are a great idea and Macau is desperate for more non-gaming attractions,” said CLSA Ltd. analyst Aaron Fischer. “These investments are in line with government demands so this will further strength relations and reduce the risk of the license not being renewed.”
Returns on theme parks are “quite low” however, Fischer said, adding he would also like to see Galaxy to add another 6,000 hotel rooms and convention space to help improve its mid- week occupancy rates. Competition for the mass-market segment, referring to gamblers who don’t play in VIP rooms normally reserved for high- stakes players, is heating up as Las Vegas tycoons Steve Wynn and Sheldon Adelson get ready to open new resorts in the second half of this year. Casino shares fell in Hong Kong trading, with Adelson’s Sands China Ltd. and Wynn Macau Ltd. down as much as 4.7 per cent and 4.6 per cent respectively and Galaxy fell as much as 3.9 per cent. Bloomberg Intelligence’s index of Macau gaming stocks fell as much as 3 per cent, while the Hang Seng Index lost as much as 1.2 per cent.
Movie park
The move to attract more Chinese tourists comes as rising average wages over three decades have spawned a working and middle-class with more discretionary cash that’s more willing to spend on leisure and fun. Going head-to-head with Disneyland, China’s richest person Wang Jianlin opened Dalian Wanda Group Co.’s first theme park in southern China last September and is spending 50 billion yuan (US$7.7 billion) on a movie-plus-theme park in China’s eastern city of Qingdao. The Galaxy Macau Phase Two and Broadway Macau projects started operations last May incorporating a 3,000-seat theater that’s meant to broaden its appeal to families and tourists. The two properties boosted Galaxy’s market share in
These investments are in line with government demands so this will further strengthen relations and reduce the risk of the licence not being renewed Aaron Fischer, CLSA Ltd. analyst
the mass-market segment, helping its fourth-quarter earnings beat analysts estimates. Construction of the third and fourth phases of Galaxy Macau, which will cost as much as HK$50 billion to build, were originally planned to start by end-2013, according to the company’s 2012 annual report. The expansions were delayed as Galaxy re-evaluated the plans amid Macau’s casino downturn, deputy chairman Francis Lui, son of the chairman, said in a briefing last month. Site investigation on the new phases is expected to start this year, the younger Lui said. Galaxy makes up three-quarters of the elder Lui’s US$7.3 billion wealth according to Bloomberg Billionaires Index, making him Hong Kong’s 10th-richest. As Macau’s gambling business tumbled, Lui’s wealth more than halved since the peak in 2014, when he was at one point Asia’s second-richest person. Wynn and Adelson’s fortunes both declined about 30 per cent as their Macau units struggled. Lui, who has transferred US$1 billion worth of his companies’ shares to charitable foundations last September and set up a “Lui Che Woo Prize” for contributions to areas such as food safety and medicines, said he’s circumspect about the current state of Macau’s gambling market, calling the recent decline “reasonable” after a decade of rapid growth. “We continue to invest in Macau,” he said. Another of Galaxy’s nongaming resort will include water sports facilities located on Hengqin, an island that’s part of mainland Zhuhai city neighboring Macau, with details to be announced in the second half of this year, Lui said. Bloomberg
Business Daily | 7
March 9, 2016
Macau
Melco Crown suspends Taboo show, 32 jobs at stake The 32 workers involved in the show were told their contracts are to be terminated, but the operator says it’s a ‘temporary closure’ João Santos Filipe
jsfilipe@macaubusinessdaily.com
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elco Crown Entertainment has decided to close down the Taboo cabaret show hosted at Cubic Club in City of Dreams, with employees involved in the show already told to start looking for another job, Business Daily understands. The Taboo show is hosted by the Melco Crown property in partnership with Dragone, a company founded by Italian theatre director Franco Dragone to create shows and events. The same partnership model between Melco Crown and Dragone is also used in City of Dreams’ flagship show House of Dancing Water. The number of people to be laid off stands at around 32, and were hired by Dragone Macau, the local branch of the shows and events company. Business Daily understands that the decision to cancel the show was announced to employees at the end of January without further explanation. According to the company’s website, show employees include one technical director, 15 artists, six musicians, three members of the technical teams and seven members of support, wardrobe and stage management.
‘Temporary closure’
Melco Crown Entertainment explained this decision to Business Daily as part of its strategy to improve the offering at the City of Dreams. ‘As part of the overall enhancement of City of Dreams, Taboo will undergo temporary closure’, the company explained to our publication in a written email reply to our enquiry. Business Daily also asked Melco Crown Entertainment when the show would be resumed, as it was defined as a ‘temporary closure’ but the company declined to elaborate.
The gaming operator also failed to clarify what would happen to the staff involved and if there was the possibility of some of the staff being relocated to the House of Dancing Water show, since the closure is said to be ‘temporary’. Our publication asked the same questions of the company managing the show, but by the time the story went to press Dragone Macau had not replied.
Fierce rivalry in non-gaming
The number of jobs to be terminated stands at around 32 positions, which are part of the staff of Dragone Macau
Taboo premiered in Cubic Club at City of Dreams in April 2013 and presents its last session on the 31st of this month, which means it has been running for almost four years.
Taboo has been part of the strategy of the gaming operator controlled by Lawrence Ho Yau Long and James Packer to bet on non-gaming elements and diversify the tourism offerings of the city. The show created by Franco Dragone, who formerly worked with world famous Cirque du Soleil and Canadian singer Celine Dion, was marketed as the ‘first and only worldclass cabaret experience in Asia’. The show has faced fierce competition from other shows provided by Melco Crown, such as the House of Dancing Water and more recently the amenities opened in Studio City, such as the House of Magic.
Bernstein: March gaming revenue to decline 18 to 24 pct Sanford C. Bernstein says based on the average daily rate gross gaming revenues of the first week, the monthly result could drop as much as 24 pct
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aming revenue in March is likely to decline between 18 and 24 per cent year-onyear, according to the latest report published by investment research firm Sanford C. Bernstein. This would put gaming revenues in the range of MOP16.4 billion (US$ 2.1 billion) to MOP17.6 billion. ‘”Our channel checks indicate that Macau’s GGR (gross gaming revenue) for last week (March 1 to 6) was around MOP3.2 billion, implying an ADR (average daily rate) of MOP533 million, around 21 per cent lower than February’s ADR of MOP673 million”, the report reads. “Assuming an ADR of MOP550
million to MOP600 million for the remainder of this month, March GGR would be MOP16.4 billion to MOP17.6 billion, representing a year-on-year decline of 18 to 24 per cent”, authors Vitaly Umansky and Simon Zhang added. The results for the first week of March are considered to be disappointing, as previously Sanford C. Bernstein was forecasting a decline of 10 per cent year-onyear for the month. Last year, the industry’s revenues for March stood at MOP21.5 billion. “The estimate for the first week of March is disappointing as we were projecting March to decline around 10 per cent year-on-year.
To maintain price support after the recent rally, GGR will need to show stronger performance during the remainder of the month”, the report notes.
West side vs. East side
In another report issued by Union Gaming, analyst Grant Govertsen said that the revelation that Galaxy Entertainment Group is planning to develop a theme park in the company’s resort in Cotai will create a geographical division in the area between the mass market oriented properties and those targeting the higher segments. “The development of a theme park at Galaxy Macau will further
serve to geographically differentiate the west side of Cotai (Galaxy Macau, The Parisian, Studio City, The Venetian) forming a mass market powerhouse that relies heavily on themed attractions vs. the east side (City of Dreams, Grand Lisboa Palace, MGM Cotai, Sands Cotai Central, Wynn Palace) having a greater focus on higher-end consumers”, the analyst explained in his report issued yesterday. “The development of a theme park will, in our view, create a cluster effect on the west side of Cotai that should result in increased mass market wallet share for these properties”, he added. J.S.F.
8 | Business Daily
March 9, 2016
Greater China
February exports post worst fall since May 2009 China posted a trade surplus of US$32.59 billion for the month
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hina’s February trade performance was far worse than economists had expected, with exports tumbling the most in over six years, days after top leaders sought to reassure investors that the outlook for the world’s second-largest economy remains solid. Exports fell 25.4 percent from a year earlier, twice as much as markets had feared as demand skidded in all of China’s major markets, while imports slumped 13.8 percent, the 16th straight month of decline. The export drop was the biggest since May 2009, but economists said it may not necessarily point to a significant worsening in economic conditions due to sharply reduced business activity during the long Lunar New Year holidays, which fell in early February this year. Still, January-February exports on a combined basis, which should iron out some of the holiday effect, fell 17.8 percent and imports 16.7 percent, pointing to persistently weak demand at home and abroad that
is weighing on the economy of the world’s largest trading nation. “Exports were very strong last year in February because the Lunar
KEY POINTS China’s February exports and imports shrink more than expected Exports -25.4 pct, worst drop since May 2009; imports -13.8 pct Domestic, global demand weak but holiday may have skewed numbers More stimulus still expected as economy cools Feb daily crude imports jump 20 percent from year ago
New Year started so late and much of the usual disruption from the holiday was pushed into March. So the implication is that we’ll probably see a significant reversal and a stronger number next month,” said Julian Evans-Prichard, China Economist at Capital Economics in Singapore. “We suspect that overall exports remain weak but we don’t see much evidence of marked deterioration, for instance there was no sudden drop-off in export orders in the Markit PMI (activity survey), and they generally do a pretty good job of adjusting for seasonality.” Analysts polled by Reuters had expected February exports to fall by 12.5 percent, with imports seen down 10.0 percent. China posted a trade surplus of US$32.59 billion for the month, down from US$63.29 billion in January, the General Administration of Customs said yesterday.
Commodity comeback
Spot iron ore prices rocketed nearly 20 percent to the highest in more than eight months on Monday, buoyed by expectations that Chinese steel mills are planning an output boost ahead of an expected crackdown on air pollution. China’s iron ore imports rose 6.4 percent in Jan-Feb, though antidumping measures are squeezing steelmakers who are trying to keep mills running by increasing sales overseas. Goldman Sachs, however, said the iron ore rally would not last in the absence of a significant improvement in Chinese domestic steel demand, sticking to its bearish take on one of this year’s biggest commodity comebacks.
Alibaba affiliate reputedely seeks US$60 billion funding valuation In Ant Financial’s initial fundraising round, the company sold a 12.4 percent stake to outside investors Lulu Yilun Chen
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libaba Group Holding Ltd.’s finance affiliate is planning to close its second round of fundraising around mid-April and is seeking a valuation of about US$60 billion, a person familiar with the matter said. Zhejiang Ant Small & Micro Financial Services Group Co., controlled by Alibaba’s billionaire Chairman Jack Ma, has attracted CCB International Holdings Ltd. as a potential investor, although the bank still needs regulatory approval, the person said, requesting not to be named because the matter is private. Ant Financial, as the owner of Alipay is known, was said to be seeking to raise at least 10 billion
As part of efforts to stimulate activity, policymakers have proposed raising the 2016 fiscal deficit to 3 percent of gross domestic product, from 2015’s budgeted 2.3 percent. Economists also expect further reductions this year in interest rates and the amount of money that banks must hold in reserve, extending a yearlong stimulus blitz. In late February, the central bank cut bank reserve ratio requirements, releasing an estimated US$100 billion in cash for lending. “Overall, today’s trade data, together with high-frequency data and leading indicators, suggest that growth momentum weakened further in January-February,” economists from Japanese bank Nomura said in a research note.
Oil imports
Crude oil imports jumped 20 percent on year to their highest ever on a daily basis, as prices at their lowest in more than a decade drove buying from a group of new importers and state and commercial stockpiling. China imported 31.80 million tonnes of crude last month, or a record 8.0 million barrels per day (bpd). Robust crude demand has been supported by independent refiners, also known as teapots, that have been receiving import quotas from Beijing over the past nine months. On a daily basis, February’s imports also jumped roughly 27 percent from 6.29 million bpd in January. The February volumes were more than a million bpd higher than the final estimate by Thomson Reuters Oil Research and Forecasts, which had expected more deliveries to spill over into March. March imports are forecast by the Thomson Reuters analysts at under 7 million bpd. Fuel exports in February rose 71.8 percent on a daily basis compared to the same month last year, reaching 2.99 million tonnes, or 721,700 bpd, after hitting a record 975,500 bpd in December, as China continues to export more diesel amid weakening domestic demand for the industrial fuel. Net fuel exports were 350,000 tonnes in February. Reuters
yuan (US$1.5 billion) in a second round of financing ahead of a potential initial public offering, a person familiar with the matter said in January. Challenging bricks-andmortar banks, the Internet-based Ant Financial runs China’s biggest online payment service, Alipay, and controls the company which manages Yu’E Bao, the nation’s largest moneymarket fund. Ant Financial declined to comment in an e-mailed statement. Li Zhengyang, a spokesman for CCB International, declined to comment on investments. Ant Financial was said to be valued at about US$45 billion after completing an initial round of fundraising in June 2015. In Ant Financial’s initial fundraising round, the company sold a 12.4 percent stake to outside investors including China’s national social security fund and China Development Bank Capital Co. The Wall Street Journal reported earlier Monday that Ant Financial was seeking to raise as much as US$3.1 billion at a US$50 billion valuation. Prior to Alibaba’s record US$25 billion IPO in September 2014, the companies struck a deal which locked in Alibaba’s share of the finance affiliate’s pre-tax earnings and set terms for Alibaba’s entitlements if Alipay or its parent hold an IPO. Bloomberg News
Business Daily | 9
March 9, 2016
Greater China
Profit fears prick party mood at Mainland’s brokerages Profits at China’s 125 securities firms soared 150 percent last year Engen Tham
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o celebrate China’s Lunar New Year last year, one department at Haitong Securities, a leading brokerage, held a lunch for staff and handed out online shopping coupons. This year, there were fewer coupons and a “tea and talk meeting” instead of lunch. “Only they didn’t have any tea, just water,” said an employee at the firm. Last year’s first-half stock market boom was followed by a crash that triggered an industry-wide investigation into insider trading and other illegal practices. Brokers had hoped 2016 would mark a return to strong gains. But the reality of continued weakness on the Shanghai and Shenzhen markets, among the world’s biggest, has prompted brokerages to slash commissions and scale back staff benefits to keep costs in check, employees at several brokerages said. Brokerages, also squeezed by measures to curb margin financing, don’t want to be seen celebrating while they are in the spotlight over possible misdemeanours. China’s biggest brokerage CITIC Securities also cancelled its New Year staff party, one employee said, noting also that two of the firm’s executives
KEY POINTS Lunar New Year parties scaled back at some brokerages Some staff benefits cut, bonuses delayed - staffers Brokerages building up capital to pad for a tough year M&A splurge is a bright spot for those brokers involved
had not yet returned to work after being involved in investigations by Chinese authorities. “Of course this is going to affect our business, how can it not?” the person said. Those on-going anti-graft probes are also blamed for delaying bonus payments at China Galaxy Securities, an employee said. “A lot of work here has stopped. The investigators are checking accounts. If they haven’t cleared the accounting, how can we issue bonuses?” the person said, adding Galaxy also cut a traditional 5,000-10,000 yuan New Year bonus to all staff. Galaxy, CITIC and Haitong declined to comment.
Party pooper
Profits at China’s 125 securities firms soared 150 percent last year to 2.4 trillion yuan (US$366.4 billion), according to Securities Association of China data - despite a 44 percent drop in the CSI300 index of China’s blue-chip stocks between June and August. Brokers and analysts say firms are now bolstering their capital, rather than giving staff hand-outs, so they can make it through what looks like a tough year ahead. “You need to base decisions on profits and capital costs. You can’t give money away because (profits) suddenly grew in two or three quarters,” said Xingyu Chen, analyst at Phillip Securities (Hong Kong) Ltd. Profits at the country’s two dozen listed stockbrokers, including CITIC, Guotai Junan Securities and Guosen Securities are expected to rise by just 25 percent this year and could be flat next year, according to StarMine Professional estimates. CITIC and Shanxi Securities lost money in January. Shares in listed securities firms are generally trading at around half their early-June levels. Fifth-ranked Shenwan Hongyuan Securities has been paring back staff benefits since August, when it
reduced the commission made by some traders to just 25 yuan for every 1 million yuan traded, from 125 yuan previously, said an individual with direct knowledge of the cut. At the end of last year, Shenwan Hongyuan cut other staff benefits including the annual holiday and payouts for family members. Last month, it didn’t award a bonus, the person added. “I used to get 30,000-40,000 yuan a month (US$4,586-US$6,114), now it’s half that,” the person said about his salary. Shenwan Hongyuan did not respond to requests for comment. Unlike U.S. and British brokerages, many of China’s top securities firms are government owned, and prefer to cut costs by scaling back on benefits rather than by shedding jobs. Entry-level employees start at an annual salary of 3,000-8,000 yuan, with sales managers earning 20,000-40,000 yuan and senior levels 30,000-50,000 yuan, said Zhao Bi, a financial services head-hunter at Risfond Executive Search. He said he also noted welfare benefits had been cut across the industry. Brokers in China are not alone in feeling the pinch. The average Wall Street bonus fell 9 percent last year as volatile markets dented profits at broker dealer firms, according to a report by a top New York state financial watchdog.
Silver lining
One bright spot for brokerages is a flurry of overseas acquisitions by Chinese companies looking to sidestep slowing domestic growth. China’s outbound M&A last year helped drive Asia-Pacific’s annual deal value above US$1 trillion for the first time, and hopes are high that 2016 will top even that. Bankers at Guotai Junan, China International Capital Corp and Orient Securities said they have not seen their benefits cut, and hope for bonus payments in May. Reuters
Positive momentum in China-Europe ties not expedient Chinese Foreign Minister Wang Yi yesterday spoke highly of China-Europe ties, saying that the positive momentum in their relations is not an expedient but an inevitable choice of both. Calling the policy on Europe a highlight of China’s diplomacy, Wang said at a press conference on the side-lines of the country’s annual legislative session, there has been simultaneous and mutually complementary development of relations between China and various European countries, which was epitomized by the state visit of President Xi Jinping to the United Kingdom.
HK Disneyland names new chief in reshuffle
Hong Kong Disneyland Resort said late on Monday it promoted Samuel Lau, vice president of operations, to the post of managing director at the theme park to replace Andrew Kam, who the company said had resigned for “personal reasons”. Controlled by a joint venture that is 47 percent-owned by The Walt Disney Company, the company’s reshuffle comes weeks after it said it slid to a HK$148 million (US$19 million) loss for the fiscal year ended October 2015, from a HK$332 million profit a year ago, amid a fall in Hong Kong tourism.
BAIC plan electric-car unit IPO BAIC Group is seeking to raise about 3 billion yuan (US$460 million) in a financing round for its electric-car business, with plans to sell shares in the unit on Shanghai’s exchange for emerging companies, according to people familiar with the matter. Beijing Electric Vehicle Co., which is 60 percent controlled by BAIC, has attracted investments from technology companies including Le Holdings (Beijing) Co., said the people, who asked not to be identified because the information is confidential. BJEV, as the unit is called, plans to use the funds to cut debt and make investments, according to the people.
More investment in Russia’s Far East China is encouraging more enterprises to invest in agriculture in Russia’s Far East, Minister of Agriculture Han Changfu said on Monday. Investment of enterprises from Heilongjiang Province, which borders Russia, has yielded handsome returns, Han said at a press conference on the side-lines of the national legislature annual session. The minister said he expects more Sino-Russo cooperation in agricultural research and development as well as professional training. China and Russia have had a solid foundation to expand agricultural cooperation, a significant aspect of bilateral ties, Han said.
10 | Business Daily
March 9, 2016
Greater China
Hutchison’s U.K. deal gets phone feedback at EU hearing The hearing gives Hutchison a chance to deflect possible antitrust concerns over O2’s deal Aoife White
TeliaSonera AB and Telenor ASA’s attempt to merge their Danish units collapsed in the face of EU opposition last year. Pay-TV giant Sky Plc, TalkTalk Telecom Group Plc, BT Group Plcand Liberty Global Plc were also among firms due to speak for 10 minutes each, according to a person familiar with the agenda, who asked not to be named because the hearing isn’t public. Others scheduled to talk are Dixons Carphone Plc, Tesco Plc’s mobile phone unit, UKB Networks Ltd. and Gamma Communications Plc.
Concessions, opportunity
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K Hutchison Holdings Ltd. sought to persuade European Union competition regulators to back its plan to create the U.K’s biggest mobile phone business as rivals and customers flocked to an EU hearing on the proposal. Firms including Vodafone Group Plc as well as French operator Iliad SA headed to Brussels as Hutchison, owned by billionaire Li Ka-Shing (pictured), seeks to overcome EU antitrust objections to the bid to merge its Three unit with Telefonica SA’s O2. Monday’s hearing gave Hutchison “the opportunity to have another fruitful exchange” with EU regulators and European government officials, it said in an e-mailed statement. The takeover, bolstered by Hutchison’s pledges to invest in its network and to avoid mobile-phone price increases for five years “will make the U.K. mobile market truly competitive.” Hutchison’s promise is separate from any offer it makes to allay EU antitrust concerns. Regulators often demand tough concessions before clearing mobile phone mergers.
US$12.7 bln value of proposed O2-Three merger deal
Such concessions are a business opportunity for many; Liberty Global entered the Irish and Austrian markets after Hutchison agreed with the EU to aid so-called mobile virtual network operators (MVNOs) that lease network space to offer mobilephone services to customers. While the U.K. has a large number of MVNOs, some are anxious about how the deal may affect the terms they’re offered if there are fewer networks to choose from. Virgin Mobile Holdings UK Ltd. and Tesco Plc’s MVNOs have more than 5 million customers, according to MVNO Dynamics, an industry website. The hearing gives Hutchison a chance to deflect possible antitrust concerns over the deal, valued at more than 9 billion pounds (US$12.7 billion.) For TalkTalk, “it’s important for us to attend and to hear the arguments” in a deal that affects the U.K. mobile phone landscape, said Isobel Bradshaw, a spokeswoman for the company in London. Tesco said in an e-mailed statement that it wanted to ensure that “challenger brands such as Tesco Mobile can continue to grow, develop and deliver the best possible service to U.K. customers.” Other than TalkTalk and Tesco, most of the companies had no immediate comment on the hearing. Ofcom, the U.K.’s telecoms regulator, is also attending the meeting. Its CEO, Sharon White, has been openly critical of how the deal might increase prices for consumers. Ofcom declined to comment when contacted Monday. Bloomberg News
Washington pushing Beijing to cut excess steel capacity U.S. producers have been filing anti-dumping cases against Chinese manufacturers
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h e O b a m a administration is pushing China to reduce excess steelmaking capacity that is causing a glut of steel imports into the United States and other world markets, the top U.S. trade official said on Monday. U.S. Trade Representative Michael Froman told reporters in Minneapolis that improving conditions for the U.S. steel industry and Minnesota’s beleaguered iron ore range would require negotiations with other countries to eliminate subsidies for state-owned steel enterprises as well as vigilant trade enforcement efforts. “When it comes to steel, there is a significant issue of overcapacity around the world, significantly in China where it’s estimated to have
U.S. Trade Representative Michael Froman
more than 400 million metric tons of excess capacity, and we’re pushing that issue with the Chinese. They know it’s something they need to address,” Froman said after a speech to the Economic Club of Minnesota. Froman noted that U.S. producers have been filing
anti-dumping cases against Chinese manufacturers that have been selling steel in the United States at prices below fair value, and countervailing duties have been imposed in many cases. On Friday, the Commerce Department said it would launch an anti-dumping
investigation into imports of stainless steel sheet and strip products from China. China’s Ministry of Commerce on Saturday said it is “gravely concerned” about frequent U.S. trade investigations into Chinese high-end steel products, the official Xinhua news agency reported. “Similar probes into high-end steel products have caused significant impact on the interests of Chinese firms. China is gravely concerned about it,” Xinhua said, quoting the ministry’s statement. The Xinhua report added that steel overcapacity was a global problem that required coordinated efforts from all sides and that China had already taken measures to curb excess capacity. In Europe, Reuters
exclusively reported that EU ministers reviewing China’s market economy status were considering linking a lowering of EU trade defenses to a reduction of steel exports to Europe Froman said his agency will hold a public hearing in April on the global steel market capacity situation and its impact on the U.S. steel industry. “We have mobilized the international community - in North America and more broadly and there will be a series of high-level discussions in the coming weeks at the OECD and elsewhere about what to do,” Froman said in his speech. “And we have used all of our bilateral mechanism with China to continue pressing for progress.” Reuters
Business Daily | 11
March 9, 2016
Asia
Australia’s central bank upbeat on economy Government data out last week showed the overall economy had also gained momentum
KEY POINTS Scope for cut in rates, but economy doing relatively well RBA would welcome lower A$, hard when other central banks easing
Wayne Cole
NAB business survey shows momentum in sales, jobs, investment
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ustralia’s economy is successfully dealing with the aftermath of a decadelong boom in mining investment while low inflation means there is still scope for further rate cuts if needed, a top central banker said yesterday. The upbeat outlook was underlined by a well-regarded survey of Australian business which showed a pick up in sales, profits employment and investment plans late last month. Reserve Bank of Australia (RBA) Deputy Governor Philip Lowe linked the prospects for any further easing to the labour market, implying a move might not be needed should the unemployment rate remain steady. The central bank has kept rates at 2 percent since last May as employment growth surprised with its strength and helped hold the jobless rate around 6 percent. Government data out last week showed the overall economy had also gained momentum to reach growth of 3 percent in the final quarter of 2015, well above the RBA’s own forecast. That pick up looked to have continued this year with businesses reporting stronger activity across a range of sectors. “While none of these indicators suggests that we are on the cusp of a return to the type of growth rates we saw before 2008, they do suggest that the economy is
successfully rebalancing following the mining investment boom,” said Lowe. National Australia Bank’s well regarded monthly survey of more than 500 firms showed its index of business conditions rose three points to +8 last month, comfortably above the long-run average. “The service sectors have very much stepped up and are now driving an impressive rebound in non-mining domestic demand,” said NAB’s chief economist Alan Oster. Helping the economy has been a lower Australian currency, which touched a seven-year trough against the U.S. dollar in January having fallen by a third over the preceding three years. The Australian dollar has since bounced over five U.S. cents to reach an eight-month top at US$0.7486 as commodity prices bounced and domestic data proved solid. Asked about the rebound, Lowe said the RBA would welcome a “slightly lower” currency but also acknowledged how hard that was to obtain when so many other central banks were busy easing policy. “When you look around the world at the moment, almost every central bank would like a lower currency,” said Lowe. “We would be in that group.” Reuters
Reserve Bank of Australia (headquarters pictured) Deputy Governor Philip Lowe linked the prospects for any further easing to the labour market
Bank of Korea expected to hold rates in March Pressure for the central bank to cut rates has risen as exports show no sign of rebounding
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outh Korea’s central bank is expected to keep interest rates unchanged on Thursday but may cut them next month when it revises its forecasts to reflect a softer economic recovery than expected, a Reuters poll found. Twenty-two of 33 analysts polled by Reuters said the Bank of Korea (BOK) would keep its monetary policy rate steady at 1.50 percent for a ninth straight month when it reviews rates on March 10. The remaining 11 said the central bank could cut interest rates to a new record low of 1.25 percent. Of those who saw rates on hold this week, however, 13 respondents said the BOK would cut rates in April or some time later in the year. Only eight from the overall poll saw rates on hold for the rest of the year. One remaining analyst did not provide a forecast for future movements. “It’s no longer a matter of whether
the central bank will cut rates, but when, as downside risks to the bank’s economic forecasts are higher from poor exports and consumption,” said Lee Sang-jae, chief economist at Eugene Investment and Securities. “But in consideration of the
KEY POINTS 22 out of 33 analysts see base rate unchanged at 1.50 pct Some analysts push back cut timing to April The Bank of Korea reviews policy on March 10
governor’s comments last month that global uncertainties would need to dissipate for monetary policy to better take effect, rates should be cut in April after policy meetings in key economies.” Lee was referring to the European Central Bank’s governing council meeting, which also takes place on March 10, and the U.S. Federal Reserve’s Federal Open March Committee’s two-day meeting that starts on March 15. Pressure for the central bank to cut rates has risen as exports show no sign of rebounding from an unprecedented period of decline. Poor exports have in turn hurt industrial production, which fell in January at the fastest pace in a year as production of key export items has declined. Inflation picked up to 1.3 percent in February, its highest in more than a year, but still stands well below the central bank’s 2 percent target.
In January the Bank of Korea cut this year’s growth projection from 3.2 percent to 3.0 percent, slightly lower than the finance ministry’s forecast of 3.1 percent. Many of the analysts who saw a rate cut also added recent turbulence in financial markets would have to abate before the bank would lower rates, citing the plunge of the won. The won has been Asia’s worstperforming currency because of “risk-off” sentiment that has seen outflows increase since late last year. Some analysts said a rate cut could exacerbate that trend. South Korean foreign exchange authorities were suspected to have sold around US$2 billion in one session alone to prop up the won late last month shortly after issuing a stern warning against herd behaviour to curb the won’s weakness against the dollar. Reuters
12 | Business Daily
March 9, 2016
Asia
Japan’s Q4 GDP shrinks less than expected
Private consumption fell 0.9 percent, slightly more than a preliminary 0.8 percent decline estimated earlier. Taken together, domestic demand shaved 0.4 percentage point off growth, against a preliminary negative contribution of 0.5 point.
But private consumption fell 0.9 percent, slightly more than a preliminary 0.8 percent decline estimated earlier Leika Kihara
J
apan’s economy contracted less than initially estimated in the final quarter of 2015 but private consumption remained weak, underscoring the challenges facing premier Shinzo Abe in restoring growth amid intensifying overseas headwinds. While many analysts expect growth to have rebounded modestly in the current quarter, the bleak outlook for global demand has led some to predict another contraction that will push Japan back into technical recession - defined as two straight quarters of shrinking growth. The weak economic backdrop will keep the Bank of Japan (BOJ) under pressure to further expand monetary stimulus, although central bank policymakers meeting for a rate review next week are wary of acting so soon after adopting negative interest rates late in January. Sluggish growth could also heighten market speculation that Abe may delay a second consumption tax hike to 10 percent from 8 percent scheduled in April next year, some analysts say. Japan’s economy, the world’s third-largest, shrank an annualised
KEY POINTS Q4 GDP revised to annualised -1.1 pct vs prel -1.4 pct Private consumption falls 0.9 pct vs prel -0.8 pct Capex rises 1.5 pct vs prel +1.5 pct Consumer mood worsens, hits 1-year low Economy Minister Nobuteru Ishihara
1.1 percent in October-December, less than a preliminary estimate of a 1.4 percent contraction, Cabinet Office data showed yesterday. That compared with a median market forecast for a revision to a 1.5 percent contraction. “Economic indicators in January are weak. The economy likely won’t rebound significantly in JanuaryMarch,” said Yoshiki Shinke, chief
economist at Dai-ichi Life Research Institute. “The government may adopt some form of stimulus steps and may delay the sales tax hike if growth is weak in January-March and prospects emerge that it will stay stagnant in April-June.” Growth in capital expenditure was revised up to a 1.5 percent increase from a preliminary 1.4 percent rise.
Indonesia to miss 2016 biodiesel output target The market has lost about 4 per cent since then due to weak demand and a stronger Malaysian ringgit Naveen Thukral
I
ndonesia may produce about 2.5 million tonnes of palm oil-based biodiesel in 2016, about a third of its targeted volume, because of the widening spread between biodiesel and gasoil, a Malaysian industry official said yesterday. Indonesia, the world biggest palm oil producer, requires a 20 percent blend of biodiesel into gasoil in 2016
as it aims reduce its crude oil import bill, cut greenhouse gas emissions and create more demand for the edible oil. The benchmark Malaysia palm oil futures climbed to their highest in almost two years in February at 2,648 ringgit (US$648) a tonne, driven by expectations of higher palm oil demand to meet the greater biodiesel output.
The market has lost about 4 percent since then due to weak demand and a stronger Malaysian ringgit. “It will be difficult for Indonesia to fulfil its biofuel targets, given the fact that current differential between biodiesel and gasoil is well over US$300 a tonne,” U.R. Unnithan, deputy president of Malaysian Biodiesel
Consumer mood sours
Economy Minister Nobuteru Ishihara said there was no change to the government’s view that Japan’s fundamentals were strong. But separate data showed consumer confidence fell for a second straight month in February to hit a one-year low, a sign Abe’s efforts to lift the economy clear of decades of deflation and stagnation are under threat. The government has begun informally discussing a delay to the sales tax hike, as Abe prepares for elections with household spending less than it was when he came to office. Analysts polled by Reuters before yesterday’s data release expect Japan’s economy to expand an annualised 0.9 percent in January-March. But some among those polled predict a contraction including Deutsche Securities, which expects the economy to shrink 1.0 percent. The BOJ stunned markets in January by deploying negative interest rates to prevent global market volatility from hurting already frail business sentiment. BOJ Governor Haruhiko Kuroda said on Monday the central bank will scrutinise the effects of negative interest rates on the economy for the time being, suggesting that no immediate expansion of stimulus was forthcoming. But sluggish exports will likely force the BOJ to cut next fiscal year’s economic and price growth forecasts at a quarterly review in April, sources said, keeping policy-makers under pressure to do more to reflate growth.
Association told Reuters. Prices for palm methyl ester, the raw component of biodiesel, in Southeast Asia are currently at US$630 a tonne versus gasoil prices in Singapore, the regional benchmark, at US$44.07 a barrel, or about US$328 a tonne. Last year, President Joko Widodo increased biodiesel subsidies and raised the minimum bio content in diesel fuel to 15 percent from 10 percent. It has been raised to 20 percent this year and 30 percent in 2020. Indonesia consumed an estimated 1.5 million tonnes of biodiesel in 2015, which works out to a blend of about 7.5 percent if you take the nation’s total gasoil consumption into account, said Unnithan, who is executive director at privately held palm oil producer Carotino Sdn. Bhd. For Malaysia, the official said the industry was pushing the government to implement
Reuters
B10, or 10 percent blend, from April onwards. “We are in active discussion with the government and we hope that government is able come up with some decision within the month of March,” he said. Malaysian is expected to produce 1 million tonnes of biodiesel in 2016 if the 10 percent blend is mandated, up from about 700,000 tonnes consumed last year under the B7 programme. He said cars in Malaysia had clocked 40 million kilometres using biodiesel with no complaint. Unnithan, who has been promoting biodiesel use since 2007, said palm oil prices could rally if higher volumes of palm oil are used in making biofuels. “For every 100 ringgit increase in palm oil prices, the income to the country is roughly 2 billion ringgit. The programme more than pays for itself.” Reuters
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Business Daily | 13
March 9, 2016
Asia India rolls back pension tax plan after backlash The climb-down underscores the challenges for vital but politically sensitive economic reforms in Asia’s third largest economy Rajesh Kumar Singh
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rime Minister Narendra Modi’s government yesterday dropped a controversial proposal to tax pension withdrawals, caving in after an outcry by salaried workers threatened to undermine his party’s prospects in upcoming Indian state elections.
Finance Minister Arun Jaitley had proposed in his February 29 budget taxing lump-sum withdrawals exceeding 40 percent of an individual’s retirement pot in the Employees’ Provident Fund (EPF), unless the sum is reinvested in an annuity. At present, withdrawals from the
EPF are tax-free. The tax proposal sparked a backlash from India’s small but vocal professional class, with some calling it a raid on the retirement savings of honest taxpayers. Only around 36 million of the country’s 1.3 billion people contribute to the EPF. The move also drew flak from opposition parties, forcing the government to change tack ahead of elections in five states in April and May in which Modi’s Bharatiya Janata Party (BJP) eyes gains. “The policy objective is not to get more revenue but to encourage the people to join the pension scheme,” Jaitley said in a statement to lawmakers. The climb-down underscores the challenges for vital but politicallysensitive economic reforms in Asia’s third-largest economy. Protests by farmers last year forced Modi to abandon a bill to simplify rules for industrial land sales in India. Critics of the surprise budget announcement say Modi should instead be looking to widen its revenue base and charge lower income tax rates to put the public finances on a steadier footing, rather than milk existing taxpayers for more revenue. One aide said that Modi had intervened directly in the matter. “He felt that this will discourage people from using traditional means of saving,” the official said. India’s urban middle class, which mostly supported Modi in the 2014 general election, has shown resentment over a rise in its tax burden. Apart from imposing a levy to fund Modi’s clean India initiative, the government has taxed away half the windfall of a slump in oil prices. This year’s budget hiked taxes on cars and aviation fuel, and introduced a new tax surcharge to pay for measures to aid the rural poor.
Prime Minister Narendra Modi (L)
Reuters
Australian miner Fortescue to team up with Brazil’s Vale
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of an attractive and competitive new iron ore blend in China,” Fortescue chief executive Nev Power said. Fortescue, of which billionaire Andrew “Twiggy” Forrest is a major shareholder, said the memorandum of understanding proposed the formation of one or more joint ventures for the blending of selected volumes of iron ore from both companies. It also provided a framework for potential investment by Vale in Fortescue “through a minority acquisition of shares on market and/ or investment in current or future mining assets”, a statement said.
Bangladesh’s central bank said on Monday its account at the U.S. Federal Reserve had been hacked and money was stolen, but that some of the funds were traced to the Philippines and recovered. The New York Fed, which manages the account, denied that its systems were breached but did not say whether funds had been drained from the account, citing confidentiality. Bangladesh Bank said it was working with anti-money laundering authorities in the Philippines. It did not say how much money had been stolen and a spokesman declined to comment.
Bank of Thailand to cut growth outlook Thailand’s central bank plans to lower its 2016 economic growth forecast from 3.5 percent seen in December due to increased downside risks, its governor said yesterday. Governor Veerathai Santiprabhob gave no other details on the forecast. The central bank reviews economic forecasts on March 23 but will not release them until March 31. He also told reporters that fiscal policy is a more effective tool than monetary policy. The central bank has left its benchmark interest rate unchanged at 1.50 percent, near a record low, since April last year.
Japan’s MOF considering cutting inflation-linked bond sales Japan’s Ministry of Finance is considering reducing its issuance of inflation-linked Japanese government bonds in the next fiscal year, a source with knowledge of the matter said, following the collapse in the price of the bonds this year. In a rare revision to the bond sales plan before the new financial year actually begins on April 1, the ministry is considering reducing the sale of inflation-linked JGBs to 400 billion yen (US$3.54 billion) per auction from the current volume of 500 billion yen (Us$4.43 billion), the source said.
Sri Lanka calls for aid for war-torn regions
The agreement was subject to board and regulatory approvals though ustralia’s Fortescue Metals yesterday opened the door to joint ventures and other investment deals with the world’s biggest iron ore producer Vale under an agreement aimed at serving Chinese customers. As iron ore prices jumped a record 19 percent overnight on the prospect of more Chinese stimulus, Fortescue Metals Group said it had entered into a non-binding memorandum of understanding with the Brazilian giant. “(It) will allow us to work together to deliver long-term value to our customers, through the efficient supply
Bangladesh central bank says U.S. account hacked
After the announcement, Fortescue issued a clarifying statement, saying the memorandum of understanding “contemplates an acquisition of its listed shares of between 5 percent and 15 percent, as agreed between the parties”. Iron ore producers had been battling a supply glut and softening Chinese demand, which has seen the price of the key steel-making ingredient plunge. But commodity markets surged on Monday with iron ore spiking 19 percent to US$63.73 on China’s weekend announcement to expand spending, with the prospect of increased steel consumption boosting iron ore. Shares in Fortescue, which exports 165 million tonnes of iron ore annually from its deposits in Western Australia’s Pilbara region, soared 23.7 percent on Monday, but closed down 9.42 percent after yesterday’s announcement at A$2.79 in an overall falling market. Fortescue said the Vale agreement, which had been under discussion for about a year, was subject to board and regulatory approvals. AFP
The Sri Lankan government yesterday said it would call for international investments and assistance to develop former war torn areas in the north and east. Niroshan Perera, State Minister of National Policy and Economic Development, said the government would convene a donor conference this year to seek technical and financial assistance for the north and east and had requested Japan to take the lead. “When the prime minister visited Japan, he requested the Japanese government to take the lead. They have been organizing that. Hopefully we will have it in the middle of the year,” Perera said.
Indian tribunal halts Diageo’s payment An Indian tribunal, heeding a call from a group of creditor banks, has blocked a US$75 million settlement agreed between Diageo Plc and liquor baron Vijay Mallya, after he was ousted from the spirits giant’s local unit last month. Banks owed money by Mallya’s now defunct Kingfisher Airlines had demanded “first right” to the Diageo cash, arguing they had been left with hefty unpaid debts - US$1.4 billion as of September 2013 - when the airline collapsed more than three years ago.
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International Canadian PM poised for first official US visit Canadian Prime Minister Justin Trudeau will bring panache and progressivism on his first official visit to Washington, where he and his wife will be guests of honour at a White House state dinner Thursday. “There’s a buzz in Washington,” said Matt Browne, a senior fellow at the Center for American Progress think tank in the US capital. “People are really very excited to be around him, speaking with him and learning more about his vision.” Trudeau will be the first Canadian leader to be feted in Washington in almost two decades.
EU pushes for ‘breakthrough’ Turkey migrant deal next week Ankara has proved a difficult partner, failing to honour an earlier three billion euro deal with the EU
German industrial output speeds up German industrial output rose in January at its fastest pace in more than six years, showing that the engine room of Europe’s largest economy began 2016 well despite the financial market turmoil that has hurt business sentiment. Output rose by 3.3 percent on the month, data from the Economy Ministry showed yesterday, surpassing the mid-range forecast in a Reuters poll for a 0.5 percent gain. The rise was the biggest since September 2009. Relatively mild winter weather allowed construction output to rise by 7.0 percent on the month.
Fed officials set battle lines on rate hikes After a long wait for inflation to accelerate, U.S. Federal Reserve officials face a complex and possibly divisive debate over whether recent evidence of rising prices is strong enough to move ahead with planned rate hikes. In separate statements on Monday, policymakers at the core of that debate staked out starkly different views, with Fed Vice Chairman Stanley Fischer saying economic data now points to the “first stirrings” of inflation, and Fed Governor Lael Brainard countering that the Fed should not move until inflation proves its “persistence.”
ECB monitoring liquidity levels at some Italian banks The European Central Bank is checking liquidity levels at a number of Italian banks, including Banca Carige and Monte dei Paschi di Siena, on a daily basis, two sources close to the matter said on Monday. Italian banking shares have fallen sharply since the start of the year amid market concerns about some 360 billion euros of bad loans on their books and weak capital levels. The ECB has been putting pressure on several Italian banks to improve their capital position. The regulator can decide to monitor liquidity levels at any bank it supervises on a weekly or daily basis if it has any concern about deposits or funding.
U.S. delivers first payment to global climate fund The United States has paid US$500 million into the United Nations’ Green Climate Fund, the first tranche of the US$3 billion it pledged as part of the commitments it made in the December Paris Climate Agreement, the State Department confirmed Monday. “This grant is the first step toward meeting the president’s commitment of US$3 billion to the GCF, and shows that the United States stands squarely behind our international climate commitments,” a State Department spokesman said. The United States in 2014 pledged US$3 billion for the GCF.
Turkish Prime Minister Ahmet Davutoglu (L) and European council President Donald Tusk speak during a news conference at the end of an extraordinary summit of European Union leaders with Turkey in Brussels yesterday
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uropean Union leaders on Monday hailed a “breakthrough” in talks with Turkey on a deal to curb the migrant crisis but delayed a decision until a summit next week to flesh out the details of Ankara’s new demands. Turkish Prime Minister Ahmet Davutoglu stunned his 28 EU counterparts in Brussels when he suddenly asked for an extra three billion euros (US$3.3 billion) in aid and visafree travel for Turks to the bloc by June. In return he proposed to take back all illegal migrants landing on the overstretched Greek islands, and suggested a one-for-one deal under which the EU would resettle one Syrian refugee from camps in Turkey in exchange for every Syrian that Turkey takes from Greece. After EU leaders “warmly welcomed” Turkey’s proposals, EU president Donald Tusk said he would
now work on the legal details to reach a final deal at a European summit in Brussels on March 17-18.
‘Game-changer’
Muslim-majority Turkey is the main launching point for the more than one million migrants who have made the dangerous crossing over the Aegean Sea to the Greek islands since the start of 2015. It hosts 2.7 million refugees from the five-year civil war in neighbouring Syria, more than any other country. Davutoglu surprised EU leaders on Monday by offering to take all irregular migrants from Greece, a step that would relieve the pressure on debt-hit Athens and the whole of the EU. European Commission chief JeanClaude Juncker also called the plan a “real game changer”, insisting that it was “legally feasible” despite questions
Coalition attempts to close private fund manager U.S. tax loophole Changing carried interest rules in New York would generate an estimated US$3.7 billion in revenue for the state Lawrence Delevingne
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group of liberal political activists, lawmakers and “patriotic millionaires” are hoping to end what they call “one of Wall Street’s most beloved tax loopholes” in New York and other states. At issue is so-called carried interest, or how the share of profits from an investment paid to managers of private equity and other funds is taxed. That money, after adjustments, is treated as a capital gain and taxed at a rate significantly lower than the one for the income of wage earners. The capital gains rate applies to investments held for one year or longer.
Opponents of carried interest argue that the money is a fee that should be taxed as ordinary income. Carried interest has long been criticized by some politicians, traditionally Democrats such as Hillary Clinton, but also recent Republican presidential candidates Donald Trump and Jeb Bush. Still, efforts to change the tax treatment nationally have stalled in Congress for years. On Monday, New York state assembly members Jeffrion Aubry and Sean Ryan proposed legislation that would essentially charge the managers of private equity, venture
from rights groups about whether it would breach international laws on the treatment of refugees. For Turkey perhaps the biggest win was the EU’s agreement to push forward to June visa-free travel to the EU’s Schengen passport-free area for Turkey’s 75 million people, provided that Ankara honours its promises. He further pushed for the opening of five more “chapters” in Turkey’s long-drawn out EU accession process -- so far it has only completed one out of more than 30.
Divided Europe
But securing a deal next week may still be difficult given the deep divisions that the migration crisis has sown in the bloc. Hungary’s hard-line anti-migration Prime Minister Viktor Orban may veto the resettlement deal. There is still bad blood in Ankara too, with Turkish President Recep Tayyip Erdogan -- who has previously threatened to “flood” the EU with migrants -- on Monday criticising the EU for a four-month delay in disbursing the funds from the November deal. Next week the EU leaders must agree on a plan to restore the Schengen area to full functioning by the end of the year, after parts were effectively suspended by border closures. They are also set to approve a 700 million euro aid plan for Greece, whose Prime Minister Alexis Tsipras has vowed that he will not let the rest of the EU turn his country into a “warehouse of souls”. AFP
capital and hedge funds for what they would have paid if the rules were different nationally. The extra revenue would go to state causes such as public schools, infrastructure and housing. The announcement, in Albany on Monday, was made in coordination with the Hedge Clippers, a liberal group that works to challenge what it sees as hedge fund industry excess, and the Patriotic Millionaires, a group of wealthy individuals who have supported causes such as a US$15 an hour minimum wage. That effort on higher worker pay, according to a spokesman for the coalition, is a model for this campaign: if it does not work nationally, try it locally. Changing carried interest rules in New York would generate an estimated US$3.7 billion in revenue for the state, according to a report by the Hedge Clippers. Similar legislative efforts are planned in California, Connecticut, Illinois, Massachusetts, New Jersey and Pennsylvania, according to a press release from the activist coalition. The Private Equity Growth Capital Council, a trade association, defends carried interest, saying it spurs long-term investment. “This tax policy encourages the risk taking that is required to start and grow companies,” the group states on its website. “Changing the taxation of carried interest would upend a long-standing, successful policy that has helped America prosper for more than 100 years.” Reuters
Business Daily | 15
March 9, 2016
Opinion Business
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Leading reports from Asia’s best business newspapers
Asian growth in turbulent times
PHILSTAR
Changyong Rhee
Local traders expect the country’s business environment to remain favourable over the next couple of years regardless of who leads the next administration. Amid an upcoming change in the country’s administration by the middle of the year, Makati Business Club chairman Ramon del Rosario Jr. told local companies are not holding back their investments and expansion plans to wait and see who would replace President Aquino after June 30. Del Rosario admitted even though there is cautiousness surrounding the business community at present, optimism there would be continuity in reforms and economic growth still prevails.
Director of the Asia and Pacific Department at the International Monetary Fund
THE STAR Global sukuk market is expected to remain fairly resilient at around US$55 billion to US$65 billion (RM231 billion to RM273 billion) this year compared with US$66.4 billion last year, despite ebbing global market sentiment, particularly in Malaysia amid the weaker ringgit, according to RAM Ratings. Given the steep fall in crude oil prices that have adversely affected the core sukuk markets of Malaysia and the Gulf Cooperation Council (GCC), the rating agency’s projection takes into account these countries’ government expenditure cuts and potential delays in infrastructure spending.
THE TIMES OF INDIA In a bid to encourage women entrepreneurs and promote greater usage of banking services by women, the country’s largest lender SBI has decided to set up one all-woman branch in every district. The bank has already opened 14 such branches - one in each regional hub. Speaking to Times of India, SBI chairman Arundhati Bhattacharya said that “supporting women to grow is an idea that is central to our philosophy of being the ‘Banker to every Indian’. SBI has initiated steps to ensure that at least one all-women branch is there for each district.”
THE KOREA HERALD The South Korean government said Monday that it would establish a special overarching committee to coordinate and streamline all policymaking related to the nation’s biotechnology business, viewed as a promising sector to lead the country’s future growth. The decision was made last week at a meeting of the 11th National Science & Technology Council, a prime minister-led institution that evaluates the state’s science and technology policies. The new committee will act as a “control tower” that bridges the country’s biotech sector-related policies, currently scattered across multiple ministries, for improved execution, according to the council.
China is now the top trading partner of most major regional economies, particularly in East Asia and ASEAN (members’ flags pictured)
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new reality is emerging in Asia. In recent decades, many of Asia’s economies have boomed. The region today accounts for about 40 percent of the world’s GDP – up from 25 percent in 1990 – and contributes about two-thirds of global economic growth. There’s more. Asia has made unprecedented strides in reducing poverty and improving broad development indicators. The poverty rate fell from 55 percent in 1990 to 21 percent in 2010, while education and health outcomes have improved significantly. Hundreds of millions of lives have been improved in the process. And, looking ahead, Asia is expected to continue to grow at an average annual rate of 5 percent, leading global economic expansion. But today, the region is facing challenging new economic conditions. With growth in advanced economies tepid, risk aversion increasing in global financial markets, and the commodity super-cycle coming to an end, the world economy is providing little impetus to Asian growth. At the same time, China is moving toward a more sustainable growth model that implies slower expansion. Given the growing links between China and the rest of the world, particularly Asia, the spillover effects are significant. Indeed, China is now the top trading partner of most major regional economies, particularly in East Asia and ASEAN. New research by the International Monetary Fund, to be published in next month’s Regional Economic Outlook for Asia and the Pacific, suggests that the median Asian
country’s economic sensitivity to China’s GDP has doubled in the last couple of decades. So China’s slowdown means a slower pace of growth across Asia. Asia’s achievements in recent decades attest to the hard work of the region’s people, as well as to the soundness of the policies that many Asian governments have adopted since the late 1990s, including improved monetary-policy and exchangerate frameworks, increased international reserve buffers, and stronger financial sector regulation and supervision. Against this backdrop, the region attracted vast amounts of foreign direct investment. As trade links expanded, a sophisticated network of integrated supply chains emerged, creating the conditions for Asia to become a manufacturing powerhouse and, increasingly, an exporter of services as well. More recently, thanks to strong policies and ample reserves, the region quickly recovered from the global financial crisis. Asia also benefited during these years from strong global tailwinds, including favourable external financing conditions and the rapid expansion of the Chinese economy. Amid this new testing reality now dawning in Asia, we must not lose sight of the deep, and long term, structural challenges facing the region. Populations are rapidly aging and even declining in countries like Japan, Korea, Singapore, and Thailand, dragging down potential growth and putting pressure on fiscal balances. Income inequality is a further challenge. While inequality has remained stable or declined
We must not lose sight of the deep, and long term, structural challenges facing the region
in Malaysia, Thailand, and the Philippines, it is rising in many parts of the region, most notably in India and China (as well as other parts of East Asia). In many emerging markets and developing countries, widespread infrastructure gaps persist, notably in power and transport. And, elsewhere in the region – the small Pacific islands in particular – vulnerability to the effects of climate change is increasing. This shifting landscape calls for bold action on several fronts. While the response will certainly need to be tailored to each country’s specific circumstances, some recommendations could be helpful for most countries: Because inflation remains low across most of the region, monetary policy should remain supportive of growth in case downside risks materialize.
Exchange-rate flexibility and targeted macroprudential policies should be part of the risk-management toolkit. Countries need to deepen their financial systems to channel the large pool of domestic and regional savings toward financing their development needs; closing the region’s infrastructure gaps, for example, remains critical. Structural reforms, aided by fiscal policy, should support the economic transitions and rebalancing, while boosting potential growth and alleviating poverty. The good news is that Asia, as demonstrated by its strong performance in recent years, can meet these challenges and continue to build upon the significant achievements of the past two decades. It has the resources and the people; it has the buffers and resilience; and it has ample opportunities for further trade and financial integration. To discuss these challenges, the government of India and the IMF are organizing the Advancing Asia conference in New Delhi on March 1113, bringing together regional policymakers and thinkers. India, a bright spot among emerging markets in these difficult times – indeed, the world’s fastest growing major economy – is an auspicious place to hold this gathering. Our mutual aim in convening with Asian policymakers is clear and critical, for Asia and for the global economy: to ensure that growth in Asia continues to be robust, sustainable, and inclusive, so that the region remains a powerful locomotive for global growth. Project Syndicate
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Closing Myanmar expects 500,000 tourists to come to Mandalay
Mainland’s farm produce prices rise modestly
Myanmar expects 500,000 tourists to come to Mandalay in 2016, official media reported yesterday. The 500,000 out of 5 million tourists to the country are also expected to visit Bagan Cultural Zone, according to the Ministry of Hotel and Tourism. Tourists arrivals to Mandalay have increased from October 2015 to March 2016. Most tourists are American, French, German, Dutch, Japanese, Thai and Chinese. Mandalay International Airport is directly linked with Thailand, India and China. Tourists who entered Mandalay through direct flights from these countries in 2015 was over 120,000.
Farm produce prices rose modestly last week, the Ministry of Commerce (MOC) said yesterday. The average price of 30 kinds of vegetables increased 1.6 percent last week, with prices of zucchini, white gourd and cabbage jumping 8.9 percent, 8.5 percent and 8.4 percent in a sample 36 Chinese cities, the MOC said in a statement on its website. Rice prices were up 0.4 percent week on week while flour prices remained unchanged. Egg prices fell 3.6 percent from the previous week. Prices of beef and mutton were down 0.2 percent and 0.7 percent, according to the statement. Food prices have a one-third weighting in the calculation of China’s CPI.
Who’s next? Asia investor activism set to grow after BlackRock public campaign The number of companies in Asia subject to one or more public shareholder demands more than doubled over the past two years Michelle Price and Elzio Barreto
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ollowing a rare public campaign, BlackRock Inc voted against a deal planned by a Hong Kong firm that the world’s biggest asset manager partly owns, revving up investor activism in Asia after it roared ahead in 2015. In a ballot yesterday, BlackRock rejected G-Resources Group Ltd’s plan to sell its main asset, an Indonesian gold mine, saying it didn’t have confidence G-Resources would use the proceeds in investors’ best interests. Owning 8 percent of G-Resources, BlackRock urged other shareholders to follow suit. G-Resources, which has said it would use the proceeds to shift its focus to financial services, reported after market hours that the sale was approved by a 59 percent majority. BlackRock’s campaign,
albeit unsuccessful, highlights how investors are becoming more active in seeking out better returns in Asia amid ultra-low interest rates and sluggish global growth. The trend has been given added weight by reforms in places like Hong Kong and Japan designed to enhance corporate governance and promote minority shareholder rights, giving investors ammunition to push back against company management. “You have seen the success of activist funds in the United States improving businesses and increasing shareholder returns,” said Seth Fischer, chief investment officer at Hong Kong-based activist hedge fund Oasis Management. “They are looking for further opportunities, bringing their critical know-how to Asia and saying, ‘Let’s produce the same things out here’.”
Beijing to see 30 mln more in mainland work force by 2050
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According to data from research firm Activist Insight, the number of companies in Asia subject to one or more public shareholder demands more than doubled over the past two years to reach 31 in 2015, with nearly half successful, up from 30 percent a year earlier. More than 65 percent of cases were instigated by overseas investors, according to Activist Insight, with U.S. fund Elliot Associates’ ultimately unsuccessful move to challenge restructuring at South Korea’s Samsung Group and Oasis Management’s action tackling Japanese technology firm Kyocera Corp and videogame maker Nintendo Co Ltd among recent high-profile campaigns.
Behind closed doors
Typically, much investor activism takes place behind closed doors, especially
in Asia where there is a cultural aversion to public confrontation. As Asian companies are often closely held, it is much tougher to successfully push for change in some markets in the region. But investors said making grievances known publicly can sometimes accelerate changes - especially when faced with management intransigence. Pru Bennett, head of BlackRock’s investment stewardship team for the Asia-Pacific region, said the firm typically raises any concerns with firms in private. In the case of G-Resources, however, she said BlackRock felt airing its view in public was necessary to rally support from other minority investors. “Engagement by companies with their key stakeholders is at an early stage in Hong Kong, but
increasingly we think companies are seeing the value,” she added. Public campaigns are likely to become more prevalent in the region once success rates grow, with more and more companies preparing for greater investor scrutiny, according to Angela Campbell-Noe, senior partner at Tulchan Communications, an investor relations and communications firm which advises companies on how best to handle public investor attacks. “We’re increasingly doing crisis training and scenarioplanning with companies, as speed and preparation are hugely important if a shareholder turns hostile,” said Campbell-Noe. “Companies are starting to look at their share registers and asking, ‘Could this happen to me?’” Reuters
StanChart says China interbank Bursa Malaysia plans to boost bond quota scrapped options trading
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senior official responsible for public health and population yesterday expected China to have 30 million more in work force by 2050 due to the policy shift which allows the second child into nationwide households. About 90 million couples might each have two children, which could contribute to population growth, especially of new-borns, Li Bin, who heads the National Health and Family Planning Commission, said at a press conference on the side-lines of the national legislature annual session. Li said the Chinese population reached 1.375 billion in 2015, with a population peak at about 1.45 billion sometime before 2050, when the total population is estimated to fall from the peak to 1.38 billion. Li said the ratio of old-age people to the whole population would somehow decrease by 2050. China last year adopted the policy that encourages all couples nationwide to have two children, after allowing couples, if either being the only child, to have two children in 2013. Li said China will continue the family-planning policy to achieve a delicate balance between population, environment and sustained development.
hina has scrapped investment quota for all eligible foreign asset managers to enter its interbank debt market and the implementation details are expected to be finalized this month, Standard Chartered said yesterday. The People’s Bank of China (PBOC) said in February that it would allow all kinds of financial institutions that are registered outside of China to buy bonds in the interbank market and would scrap quotas for medium and long-term investors. The regulator has yet to announce any operational details of this expanded investment scheme, leaving market players in the dark for now on whether individual quotas will be set for fund managers other than medium and long-term investors and if FX conversions should be conducted onshore or offshore. “Our later clarification shows that basically it’s open for all investors and as long as your agent banks agree to on-board you and you complete your filing with the PBOC, there is no individual quota,” said Becky Liu, a senior rates strategist at Standard Chartered. “They only look at aggregate inflows and outflows and could come out with the so-called macro-prudential measures if there are extreme capital inflows or outflows,” Liu said.
ursa Malaysia Derivatives plans to boost palm oil options trading following a recent increase in demand from financial institutions and producers, a senior exchange official said yesterday. The open interest on crude palm oil options has climbed to more than 6,000 contracts earlier this year from negligible levels in 2015, “which is very encouraging,” K. Sree Kumar, acting chief executive of Bursa Malaysia told Reuters in an interview. “It can grow into a retail contract very soon, we have to step up,” he said. “This will be across all our options products, we have an options for the index as well.” Bursa launched options in 2012 but it has struggled to boost volumes until the last few months. It now plans to promote participation from retail investors. Bursa, which runs the global benchmark crude palm oil contract, expects to see growth of about 10 percent in traded volumes in 2016 from last year, he said on the side-lines of the industry conference organised by the exchange. The 2016 growth is “almost similar to what we had last year and we are confident as we see the volumes are very encouraging this year,” Sree Kumar said.
Xinhua
Reuters
Reuters