Macau Business Daily March 10, 2016 by Business Daily

MOP 6.00 Closing editor: Joanne Kuai

Hedge funds retreat from devaluated yuan bets

Guangzhou football club now ‘world’s most valuable’ Page 16

Year IV

Number 998 Thursday March 10, 2016

Publisher: Paulo A. Azevedo

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Number of short‑term visas to invest in Portugal down 45.3 pct Page 2

Release of Gaming Review Findings Imminent

The gaming mid-term review is basically completed. Now it’s being translated by the Secretariat of Economy and Finance before release to the public. Secretary Lionel Leong (pictured) said a report on the review will be submitted to Beijing by year-end. The review seeks to examine what the local six major operators have achieved per their contractual obligations since gaming liberalisation. “The report will provide very useful information for us to study the future development of the gaming industry. And I believe our report will not conflict with the requirements that the Central Government has set,” Mr. Leong remarked Page 3

Diversification

From MISE to MICE A new association focused on incentives and special events. With ambitions to become the English language platform of the MICE sector in Macau. This is the stated mission of the newly created MISE association

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Winning sales streak Strong sales in Macau, Hong Kong, Taiwan and Australia. All helping Zara owner Inditex increase net profit in 2015 by 15 pct. The good streak continues into 2016 with sales already up 15 pct

www.macaubusinessdaily.com

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The gov’t has submitted its report to Beijing. Outlying how it will diversify the MSAR’s economy. Its new proposed policies seek the capital’s support, says the Government Spokesperson’s Office. Various strategies are outlined in the report to fulfil the stated objectives

Property perking up Thumbs up from Standard & Poor’s. The rating agency has upwardly revised its forecast for property sales and prices on the Mainland. Competition for land in top-tier cities could intensify, says the company, eroding developers’ profit margins.

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March 10, 2016

Macau New 2-star hotel planned for Pátio das Flores The government has granted a land plot of 114 square metres to Ka Iek Sociedade Unipessoal Limitada to build a 2-star hotel in Pátio das Flores, near Calçada de S. João on the Macau Peninsula. According to the Official Gazette released yesterday, the premium for this land concession amounts to MOP6.97 million (US$871,250). The dispatch signed by Secretary for Transport and Public Works Raimundo Rosario reveals that the 2-star hotel project will comprise five storeys, including one basement.

Government submits economic diversification report to Beijing

he Office of the Chief Executive handed a report on advancing the city’s economic diversification to the Central Government on March 1, which included the MSAR Government’s request for support on some new policies, according to a press release by the Government Spokesperson’s Office. ‘In order to speed up the development of economic diversification, the SAR Government

has proposed a few policies [in the report] hoping that they can be supported by the Central Government,’ the Office statement released yesterday reads, without elaborating upon the details of these proposals. According to the press release, the report indicates that the city should strengthen its efforts in boosting the development of economic diversification and sustainability by various means, such as securing the

Number of short-term visas to invest in Portugal down 45.3 per cent

he number of shortterm visas issued by the Portuguese Consulate in Macau to invest in the European country declined 45.3 per cent yearon-year in 2015 to 98 visas from 179 visas in 2014. The information was revealed yesterday by Portuguese language public broadcaster TDM Radio. The short-term visas are the travel permits issued to foreign investors interested in obtaining Portuguese residency by making an investment in the country amounting to 500,000 euros (MOP4.4 million) or the creation of at least 10 jobs,

also known as the Golden Visa scheme. Regarding the Golden Visa in 2015, Portuguese authorities approved 766 residence permits, a decline year-on-year of 49.8 per cent from 1,526 visas approved in 2014. Since the scheme was launched in 2012, some 2,853 Golden Visas have been approved. The scheme, however, was involved in a major corruption scandal involving Portuguese high officials. Of the 2,853 documents issued, around 79 per cent have been issued to Chinese citizens.

stability of local society and economy, speeding up the development of ‘One Centre, One Platform’ and deepening regional co-operation. The Office said the objectives are set based on Macau’s own development, advantages or restrictions. These particularly include integration with the Central Government’ s development strategies, such as the Thirteenth Five-Year Plan and ‘One Belt, One Road’, as well as opportunities

brought by the establishment of Free Trade Zones and the liberation of service trades. On the other hand, the government is targeting the cultivation of new industries with the potential to diversify the city’s industrial structure, in addition to increasing the competitiveness of local SMEs, professional personnel and young people to enhance Macau’s position and function in China’s economic development.

DSAL: Exception allows non‑residents to work in city without blue card

he fact that a nonresident employee is working in the territory for a foreign company operating in the region for a short and defined period makes it possible for that company to be exempted from obtaining a work permit (also known as a blue card) for this non-resident worker. The explanation was given by the Director of the Labour Affairs Bureau (DSAL), Wong Chi Hong, in a written reply to Legislative Assembly (AL) member Jose Pereira Coutinho.

Nevertheless, Wong Chi Hong stressed that the foreign company has to fulfil all the requirements regarding the prohibition of illegal work and is requested to register the days that the worker is expected to be working in the city. The Director of DSAL was questioned by Pereira Coutinho on this subject after the legislator complained that non-residents workers, mainly from Hong Kong, were taking seasonal jobs during exhibitions and convention events in Macau. In the legislator’s view, these

positions occupied by nonresidents as part-time jobs should have been taken by local university students. Besides this issue, the AL member questioned what measures DSAL would adopt to avoid this situation from happening in the future. Regarding this point, the Director said that the local authorities will continue to run local inspections of various companies and promised to listen to the opinions of the legislators and other social sectors before studying the issue further.

Business Daily | 3

March 10, 2016

Macau

Lionel Leong: Gaming interim review released after translation The report, finished by an appointed institution, is to be sent to the Central Government by the end of the year, says Leong

ecretary for Economy and Finance Lionel Leong Vai Tac said yesterday that the midterm review for the gaming industry would be released to the public after translation, adding the SAR Government would submit a report on the review to the Central Government by the end of this year. Speaking to reporters in Beijing yesterday, the Secretary claimed that the government had already received a report on the gaming interim review from the appointed researcher. Nevertheless, due to his secretariat working on the translation of the report, the official said the release of the report will be later than anticipated as the workload is high. At the end of last month, the economy and finance chief said the gaming mid-term review would be released to the public “soon”. The review, started last year, primarily

seeks to examine what the local six major operators have achieved as per their contractual obligations since the liberalisation of the gaming industry occurred in 2002. Meanwhile, Mr. Leong said yesterday that the SAR Government would submit a report on the review to Beijing before the year end.

Central government

In a group meeting of Macau deputies of the National People’s Congress in Beijing, Chen Sixi, vice director of the Central Government’s Liaison Office in Macau, said the Chinese authorities had ordered requirements of the gaming review report, hoping the SAR Government could hand in a comprehensive report on the review to the Central Government by this year-end. “The Central Government cares about the healthy development of the city’s gaming industry in the

future, and whether the gaming sector can support Macau as a World Centre of Tourism & Leisure,” Mr. Leong remarked when asked by reporters about the Central Government’s requirements of the report. “The report will provide very useful information for us to study the future development of the gaming industry in the future. And I believe our report will not conflict with the requirements that the Central Government has set,” the official added. The review examines the progress of the six casino operators since the liberalisation of the gaming market in 2002. Each of the concessions they hold will expire between 2020 and 2022. Officials have noted before that the mid-term review has looked at the development of the gaming industry, the industry’s economic impact on Macau, the industry’s impact on

Secretary for Economy and Finance Lionel Leong

small and medium-sized enterprises, the industry’s impact on local society, the relationship between gaming and non-gaming sectors, whether casino operators have fulfilled

their concessionary contract, the operational status of the gaming companies, and whether the gaming operators are fulfilling social responsibilities as well as their management of junkets.

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March 10, 2016

Macau

DSEC and UMAC to formulate housing price index

he Statistic and Census Services (DSEC) and the University of Macau (UMAC) will collaborate in formulating a housing price index of the local real estate market, said a representative of DSEC at the 31th plenary meeting of the advisory body on the city’s official statistics services held yesterday. In 2016, other major tasks of DSEC include a monthly survey of the retail and food and beverage industry launched in January, a 2016 population by-census, revision

of Gross Domestic Products, an employment survey on hotel chefs and some other positions in the gaming sector, says Mak Hang Chan, a representative of DSEC. Ms. Mak added they will study the feasibly of publishing data on visitors to the MSAR, depending upon their purpose of trip, average expenditure and also accounts of the MICE industry. In addition, the Bureau will launch mobile applications. The Monetary Authority of Macau (AACM) also indicated in the

MOP930 mln subsidies for continued education

meeting that this year’s tasks focus on launching a seasonal investigation into ‘characteristic financial services’ in order to comply with the SAR Government’s initiative in promoting the development of the local financial sector. Besides publishing statistics in accordance with the schedule, other work plans include revision of the monthly bulletin of monetary statistics, updating the data publishing system, as well as improving the timeliness of official financial data publication.

Free Yacht Travel Scheme in doldrums

here is still no timetable for the implementation of the Free Yacht Travel Scheme between the city and Zhongshan in Guangdong as the Chinese city has not yet completed its hardware and software facilities for the scheme. According to Water and Marine Bureau Director Susana Wong Soi Man’s reply to legislator Zheng Anting’s interpellation, the Chinese city has not finished its acceptance check of the border checkpoint for the scheme or confirmed procedures for Macau yachts to enter the Mainland territory. The Free Yacht Travel Scheme between the Special Administrative Region and the Chinese city was first scheduled for implementation in the middle of last year. The opening date was later postponed to the end of September, then to the end of last year. “Besides the scheme not yet being implemented, the Bureau

ince the launch of the Continuing Education Subsidy Scheme in 2011, more than 520,000 individuals (by frequency) have entered the programme as at the end of last year. The amount of subsidies granted has reached MOP930 million (US$116.27 million) according to the Education and Youth Affairs Bureau (DSEJ). Meanwhile, the Non-Tertiary Education Committee held this year’s first plenary meeting yesterday. The Bureau added that some 220,000 individuals had enrolled in the second phase of the continuing education subsidy scheme, which covers from mid-2014 to the end of 2016. The number of participants by the end of last month represented a 20 per cent increase compared to the first phase of the programme covering 2011 to 2013. Of more than 6,000 surveyed individuals, 86 per cent said the scheme was helpful for them in attending the course they wanted to study or exams they wanted to take, said the Secretary for Social Affairs and Culture, Alexis Tam Chon Weng, introducing the mid-term review of the second phase of the scheme, which was conducted by Hong Kong Policy 21 Limited and commissioned by DSEJ. Around 81 per cent of the respondents say the scheme helped them in enhancing their knowledge and skills. According to the same survey that also interviewed 151 organisations included in the programme, 94 per cent of individuals and 98 per cent of organisations support the scheme to continue into a potential third phase. In addition, 69 per cent of the surveyed individuals, and 77.5 per cent of organisations, suggest the future positioning of the scheme focus on diversification.

has not released any information or guidelines regarding the sailing environment, safety concerns and Customs procedures for the scheme, making the industry unclear about the prospects for yachting tourism,” the legislator complained in his enquiry. The Water Bureau head, meanwhile, claimed that the government would release a guide on the Free Yachting Scheme, which will include the overall marine environment of the city, Customs procedures for yacht arrivals and departures, sailing instructions and information about local sea routes. But she added that such a guide could only be completed when the Chinese city fully completes its hardware and software facilities for the scheme despite the Special Administrative Region being ready for the scheme in terms of both hardware and software. At the beginning of the year, the head of the Shipping and Seafarers Department of the Bureau, Lei Veng Seng, told reporters that the Free Yacht Travel Scheme between the city and Zhongshan in Guangdong will hopefully be implemented within the first half of this year.

Business Daily | 5

March 10, 2016

Macau exhibitions and conventions”. MISE currently has a total of 11 members, which include such companies as MGM, SJM and Galaxy Macau. The Association is open to Small and Medium Enterprises and also local students. The launch ceremony was attended by more than 100 MICE professionals on Tuesday in The St. Regis. The expectations of the governing bodies is also for MISE to become the English-language platform for the MICE industry in the territory, where Chinese and Portuguese are the official languages. General Assembly of MISE - Macau Meetings, Incentives and Special Events Association – at the launch ceremony

MISE to develop incentives and special events MISE is a new association launched in Macau with a remit to help develop the MICE industry in the city João Santos Filipe

jsfilipe@macaubusinessdaily.com

acau has a new association focused on the meetings, incentives, conferences and events (MICE) industry named MISE - Macau Meetings, Incentives and Special Events Association. MISE says it is keen to develop the incentives

and special events areas of the local industry. “We felt there was a need to found MISE because the existing associations focusing on the MICE industry do not cover the incentives and special events areas”, the Secretary of the

Executive Board, Bruno Simões, told Business Daily. “We are keen on contributing to the development of incentives and special events and this association is special because the existing ones are for the most part focused on

MICE tourism

In recent years, the Macau Government has tried to develop the MICE industry in order to help the territory become an international tourism hub. This is also one of the main points that MISE wants to embrace in order to help the region. “We will promote the city as a world destination for the MICE industry to attract international events. This will be developed with online marketing campaigns but also other strategies”, Mr. Simões said. Among the goals of this Association is the intention to develop independent reports and studies to complement the material already developed by the local government. “There are reports and studies by the government but we feel there’s still a lot to do in this area. We’re hoping that the future reports and whitepapers to be developed by our Association can contribute to Macau following the best examples of cities focused on the MICE industry”, he explained.

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March 10, 2016

Macau

Warehouse redevelopment scheme a damp squib DSSOPT says ‘the scheme has not been renewed’ and the Bureau is ‘assessing the effectiveness of the scheme’

he warehouse redevelopment scheme, initiated in April of 2011 and conceived to redevelop old warehouses into residential complexes, has failed completely. Two of the projects have barely

started construction, while none have been completed. A total of 13 applications were received in the fiveyear span. The Land, Public Works and Transport Bureau said that ‘the scheme has not been

renewed,’ and the Bureau is ‘assessing the effectiveness of the scheme,’ which called for 70 per cent of redeveloped warehouse space to be in the form of 60 square metre (646 square feet) flats and floor space accounting for

over half of the total project. In order to redevelop the buildings – which required demolishing and rebuilding – the developers needed unanimous approval from all owners of the property in question, with no offer of

discounts on land premiums or tax breaks as incentives to pursue the projects and a requirement that part of the land plot could revert to the government; they also saw little appeal in creating small flats. The scheme is seen as one of the culprits of soaring prices of rent for industrial units since 2011 – when prices averaged MOP12,001 (US$1,499.68) per square metre. As of last year prices had quadrupled to MOP50,560 per square metre, government figures show. According to the Cartography and Cadastre Bureau there were 338 residential, commercial and industrial buildings aged 30 years or over in Macau in the third quarter of 2015 and although the city’s first urban planning law came into force two years ago the MSAR has yet to see a master plan for urban development as required by law. No deadline has been set for the plan, although Secretary for Transport and Public Works Raimundo do Rosário said in February that a government appointed consultative committee on the city’s urban renewal policies would be formed “in weeks”. This follows the scrapping of its last advisory body for the gentrification of old neighborhoods, which despite being formed over a decade ago failed to produce any fruitful results. The government has said some strategic principles could be ready by the second half of this year. Read the full story in this month’s issue of Macau Business magazine, available at newsstands and online at www.magzter.com

Local property market follows downward trend Total number of new residential completions is estimated at 16,287 units by 2020, but limited in the long term due to the land resumption issue

rom rental to sale properties, values are predicted to continue falling in 2016, with the outcome for retail the worst, trailed by office spaces and high-end residential as well as mass-to-medium residential markets. The negative growth of most of Macau’s economic indicators, an increase in supply predicted for this year as well as the special stamp duty all contributed to the slowdown shown in last year’s data. The total number of residential transactions registered until November last year fell 24.2 per cent year-onyear to 5,431, according to figures from the Statistics and Census Service

(DSEC), with capital values of the high-end residential market recording a year-on-year drop of 22.1 per cent last year. The mass-to-medium sector slowed 15.7 per cent, with yields in both high and mass-to-medium sectors contracting by 1.7 per cent and 1.8 per cent in the second half of 2015, respectively. High-end residential values plummeted 30.3 per cent in 2015 compared to the previous year, with mass-to-medium market rental values also dropping 18.8 per cent during last year. Fresh supply to the leasing market came in the form of One Oasis, Paragon and Nova Park, contributing to the total number of

new residential completions at 3,321 as of November 2015. Estimates for 2016 set scheduled residential units for completion at 2,671 of which around 65 per cent have been sold in pre-sale. The total number of new residential completions is estimated at 16,287 units by 2020, but limited in the long term due to the land resumption issue. Retail rental saw a 14.9 per cent fall year-on-year in 2015, with the asking rental of high street shops declining 15 per cent in the second half of 2015 due to tenants’ stronger bargaining power. Overall retail capital values fell 16.0 per cent year-on-year in 2015, according to the JLL Macau

Retail Index and JLL Macau predicts street shop rentals may face further downward pressure due to new mega projects completion in 2016. Rental values for the overall office market and Grade A office sector fell 13.9 per cent and 5.9 per cent yearon-year, respectively, in 2015. Capital values for the overall office market and Grade A office sector also fell by 20.7 per cent and 16.6 per cent year-onyear, leaving the overall office vacancy rate posting a low 6 per cent at the end of 2015, says the JLL Macau report. Read the full story in this month’s issue of Macau Business magazine, available at newsstands and online at www.magzter.com

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March 10, 2016

Macau

Zara owner Inditex posts strong sales, to slow stores openings Inditex has expanded online sales to Hong Kong, Taiwan, Macau and Australia

nditex, the world’s biggest clothing retailer, reported strong sales growth for the first five weeks of its new financial year and the owner of the Zara chain said it would slow its rapid pace of new store openings. Inditex, tapping into a wider industry trend of expanding online sales, will focus store openings on flagship sites in prime locations. It will aim for 6 to 8 percent growth in new sales space in coming years, below previous guidance of 8 to 10 percent. “We believe that Inditex has made the right choice to slow space growth,” said Bernstein analyst Jamie Merriman. “We believe that Inditex is clearly able to grow market share with the less capital intensive e-commerce approach.”

Online presence

Inditex had opened 330 stores in 56 markets in 2015, with a new Zara shop in Hawaii becoming the group’s 7,000th store worldwide. It added a Zara store in New York’s trendy SoHo district last week. Inditex, whose brands include upmarket label Massimo Dutti and teen fashion chain Bershka, expanded online sales to Hong Kong, Taiwan, Macau and Australia during the

year and said it would complete its online presence in all European Union markets in April when it goes live in Slovenia. Sales of items such as broderie anglaise blouses and floral lace dresses from fashion label Zara’s spring collection helped push sales across Inditex’s stable of brands up 15 percent, at constant exchange rates, in the first five weeks of the financial year that started in February. Rival H&M saw sales rise just 7 percent in January in local currencies and warned that price reductions to shift winter wear after unusually warm weather and high purchasing costs due to a strong dollar would weigh on its first quarter.

Dividend rises

Inditex beat Societe Generale’s forecast of 12 percent sales growth. Analyst Anne Critchlow said it implied sales growth, stripping out the effect of new store openings, of 8 to 9 percent. Lower prices may have fed into this performance, she said. “We believe Inditex has been lowering prices and this is booting like-for-like sales growth at Inditex,” she said. Inditex’s net profit came in at 2.88

billion euros ($3.16 billion) for the financial year which stretches from February to January, boosted by the relative weakness of the euro against a basket of around 60 currencies. The profit was in line with the expectations of analysts polled by Reuters. Inditex is one of the richest valued stocks in the apparel sector, trading at 28.3 times forward 12-month earnings, compared with 21.7 times

for H&M, according to Reuters data. Shares, that had fallen around 7 percent since the beginning of the year partly due to worries about a strengthening euro squeezing core profit, rose around 0.6 percent to change hands at 29.6 euros in early Wednesday trade. The cash-rich company proposed a dividend of 0.6 euros per share, up 15.4 percent on the year-ago period. Reuters

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March 10, 2016

Greater China

Hedge funds back off bets on devaluation Derivatives pricing for the yuan has fallen back to levels not seen since the end of November Patrick Graham

Derivatives pricing for the yuan has fallen back to levels not seen since the end of November. “It would seem China would like to hold the line, for a while maybe. We’ve seen a lot more outflows, a lot of defending of the currency,” Hart told Wall Street pay video service www. RealVision.com. “There have been a couple of engineered short squeezes, which have primarily effected those who had a spread on or those who were short spot CNH.” Hart said he still believes China will need to devalue.

Retreat

wo of the three types of hedge funds which bet heavily on a sharp devaluation of China’s yuan last year have backed off the trade, leaving only some ultra-bearish “Black Swan” investors holding long-term bets, fund managers and bankers said. Hedge fund sales desks at four of Wall Street’s biggest banks told Reuters that many U.S. players had made money betting against China by the

time Beijing took aggressive steps to prop up the currency in early January. Heavy official intervention, limits on some capital movement and a reduction in the amount of yuan available offshore prompted many players either to cut exposure or walk away from the trade by the Lunar New Year holiday last month, they said. That has left in place chiefly “tail risk” funds like

Mark Hart’s Texas-based Corriente Partners or Kyle Bass, who have suggested China would have to devalue the yuan by up to 50 percent to rebalance its economy. The yuan fell almost 7 percent in a steady depreciation in offshore markets that started in November and bottomed out at 6.75 yuan per dollar on January 7. Since then it has recovered roughly half of that value.

The big trade in December and January for hedge funds like Hart’s was the low-delta risk reversal, an option contract that only pays out in the event of a very sharp move away from current exchange rates. Data from the U.S. Commodity Futures Trading Commission and banks’ options desks showed large bets going on such options, betting on a fall in the yuan to 7.5-8 per dollar within the next year. “There isn’t a hedge fund on the planet that did not have this trade on somehow but the peak of that positioning is past,” said the head of hedge fund sales with one of the six biggest currency trading banks in London.

“It’s still a very popular long but it is not at the same peak. The more active FX guys who have been in and out of the spot, a lot of them were squeezed out in February. Then you have the buy and hold, tail-risk sorts of investors. They are still in.” Even so, other bankers and fund managers note that the retreat in pricing on a yuan depreciation has been far less pronounced than it was after Beijing tried and then retreated on a sharp oneoff devaluation last August. Whereas from September the six-month low-delta option fell from highs of 4.4 percent to 1.8 percent, this time it has retreated from 4.6 percent to just under 3 percent. The one-year contract in the same periods for comparison went from 9.6 to 4.5 percent last year, and 10.7 to 7 percent. “There is a huge divergence between what happened then and what happened in the past month,” said Chris Morrison, Head of Strategy with Omni Macro Fund in London. “After the August move subsided the forward points went lower, vols (implied volatility) went lower. This time that has not happened; the market is clearly saying that this stability is temporary.” “Ultimately for China it is a stay of execution.” Reuters

ZTE says suppliers need to apply for U.S. export licence

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hinese telecommunications equipment maker ZTE Corp said yesterday its suppliers must seek licences to provide materials, in line with newly imposed U.S. restrictions on the company. The news, confirming a Reuters report on Tuesday, comes a day after the U.S. Commerce Department slapped export restrictions on ZTE for alleged Iran sanctions violations, a move that is expected to disrupt its sprawling global supply chain. The U.S. Bureau of Industry and Security of the Department of Commerce added ZTE, ZTE Kangxun Telecommunications Ltd, ZTE Parsian and Beijing 8-Star International Co. to its list of companies impacted, ZTE said in a statement to the Hong Kong stock exchange. U.S. suppliers to these companies are required to apply for a licence for the supply of the components, effective immediately, it added. Suppliers based elsewhere are not affected. “The company is conducting a thorough assessment on the potential impacts of the restriction measures on the business and operation of the group,” chairman Hou Weigui said in the statement. “As at the date of this announcement, the company has

been, and will continue to be, cooperative in the investigations by the U.S. relevant governmental department, and has been actively facilitating communications with the U.S. governmental department to search for a solution.” ZTE said there was no certainty a solution could be reached through the communications. It gave no further details. Shares in Hong Kong-listed company, which has a market value of $1.4 billion, have been suspended since Monday. The export restrictions against ZTE drew fire from the Chinese government, which said it was “resolutely opposed” to the tough measures but stopped short of announcing retaliation. ZTE is among the largest companies that the Commerce Department has hit with a neartotal export ban, according to public records. It’s the No. 4 smartphone vendor in the United States, with a 7 percent market share, behind Apple Inc, Samsung Electronics Co and LG Electronics Inc, according to research firm IDC. It sells handset devices to three of the four largest U.S. mobile carriers - AT&T, T-Mobile US and Sprint Corp. Reuters

Business Daily | 9

March 10, 2016

Greater China Taiwan central bank: Significant 2016 growth a challenge In a report to parliament, the central bank said it will keep “appropriate” monetary policy to stimulate economic growth Liang-Sa Loh and J.R. Wu

aiwan’s central bank said it will be difficult for the trade-reliant island to grow significantly this year due to “downside” risks to global economic growth. “The downside risks are rising in the global economy,” the central bank said in a report Governor Perng Fainan will present to parliament today. “This is not beneficial to Taiwan’s exports. Significant growth in the (local) economy will be difficult, while the inflation outlook is mild,” it said. The report was seen by Reuters on Tuesday, one day after the Taiwan government reported that exports in February contracted for the 13th consecutive month. Last month, the government slashed its 2016 economic growth outlook to 1.47 percent from 2.32 percent, while projecting a year-on-year shrinkage for January-March. Exports are expected to contract for the second straight year. The central bank report also signalled that the island’s monetary authorities were not fazed by a February jump in inflation.

Taiwanese central bank headquarters

Data issued on Tuesday showed the consumer price index rose 2.4 percent in February from a year earlier, triple the January pace and the biggest annual increase in three years. On March 24, two weeks after Perng’s appearance in parliament, the central bank will hold its quarterly meeting. At the past two meetings, the central bank cut the policy discount rate, and market participants expect

another reduction this time. Twice in the first quarter, the central bank has guided down market rates, seen as a signal for a third interest rate cut. In the report to parliament, the central bank said it will keep “appropriate” monetary policy to stimulate economic growth, but added that the effect would be better when paired with fiscal expansion and structural reform. Reuters

Electronic markers will use radio-frequency identification that can be used in conjunction with traffic monitoring equipment Jake Spring

China’s wider fiscal deficit budgeted for 2016 will be mainly used to finance tax cuts, a senior official of China’s cabinet research unit said yesterday. The comments from Huang Shouhong, deputy director of the State Council Research Office, came from a briefing in Beijing. China budgeted a 2016 deficit of 3 percent of gross domestic product (GDP), the Ministry of Finance said on March 5 in its work plan unveiled at the annual meeting of parliament. The fiscal deficit to GDP ratio was budgeted at 2.3 percent in 2015.

Plans to unify corporate bill market

Pilot project could bring electronic tracking to all cars

he southern city of Shenzhen became the first in China to issue electronic IDs to 200,000 vehicles as part of a pilot project that could eventually allow the real-time tracking of all cars, the state-owned company providing the technology said. The first batch of IDs was issued to eight types of vehicles including heavy duty trucks, vehicles for carrying hazardous materials and school buses, China Aerospace Science and Industry Corp (CASC) said in a statement which was also posted yesterday on the website of the central government agency that oversees state-owned companies. If successful, the project will be expanded to all private cars in the city, the statement said. The government has in the past trialled projects in Shenzhen before rolling them out across the country. The project could pave the way for autonomous driving, which requires vehicles to communicate with each other and traffic infrastructure in real-time, but also raises concerns over invasive government measures amid efforts to register every Internet user’s real name. The electronic markers will use

Bigger budget deficit mainly to finance tax cuts

radio-frequency identification that can be used in conjunction with traffic monitoring equipment, the CASC statement said, adding that it would help cut down on fake license plates and other illegal activity, while also allowing accurate data gathering for “smart traffic applications”. Issuing set identities for every car could also help implement targeted transport policies, such as those proposed by Wang Fengying, the general manager of Chinese automaker Great Wall Motor and

a representative in parliament this week. On Monday, Wang filed a proposal that would make petrol more expensive for gas guzzlers by requiring a card to be issued and linked to every car based on the fuel economy of the model, with more efficient vehicles paying less. Wang similarly proposed a law suggesting a system of taxes and fees for cars based on how much they drive among other data. Reuters

China plans to unify the country’s corporate bills market, central bank vice governor Pan Gongsheng was quoted by Shanghai Securities News as saying yesterday. “The central bank is pushing forward to build a unified national bill market, which is included in the central bank’s work plan,” Pan was quoted as saying. An electronic system will help cut bills trading costs and risks, he added. The news follows reports that Agricultural Bank of China Ltd may lose 3.8 billion yuan (US$578 million) from a bills of exchange scam allegedly carried out by two employees.

Westinghouse reactor delayed The world’s first Westinghouse AP1000 nuclear reactor will go into operation in June next year, more than three years behind the original schedule, the head of China’s leading state nuclear project developer said. “We are forecasting that if everything goes smoothly, the first unit will go into operation in June 2017, and the second unit at the end of 2017,” said Sun Qin, the chairman of the China National Nuclear Corporation, speaking to Reuters on the side-lines of the annual session of parliament.

‘Adjustments’ to financing with Venezuela Venezuela and China are considering “adjustments” to a multibillion-dollar financing agreement under which the South American nation borrows money and repays in shipments of oil and fuel, Venezuela’s Oil Minister said on Tuesday. The OPEC nation, which has received some US$50 billion in Chinese financing since 2007, is struggling with a contracting economy and runaway inflation following a collapse in oil prices that has raised concerns of a debt default this year. Investors have hoped that China will provide financial relief, or at least ease the terms of the loan agreement to help Caracas meet heavy debt payments.

Sovereign wealth fund not included in FX reserves Assets of China’s sovereign wealth fund are not included in the country’s foreign exchange reserves and do not impact China’s reserves, China’s FX regulator said yesterday. China has ample FX reserves, the State Administration of Foreign Exchange said on its official microblog.

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March 10, 2016

Greater China

S&P pumps up 2016 forecast for 5-10 pct property price rise Fuelled by a series of government support measures, China's home prices rise 2.5 per cent nationwide

tandard & Poor’s raised its forecast for China’s property sales and prices yesterday, predicting they would rise by 5-10 percent this year on strongerthan-expected government support for the market, which has been dragging on the broader economy.

But it added that competition for land in toptier cities could intensify, eroding developers’ profit margins. S&P had previously forecast growth in property sales by value and average selling prices in 2016 would be flat to 5 percent this year.

The credit rating agency also raised its forecast for sales volume from flat to up to 5 percent growth. S&P sees moderate growth in property investment from rated developers this year, in contrast to nationwide property investment, whose growth cooled to just 1

percent in 2015, the slowest in nearly seven years even as national sales improved. Some analysts believe property investment will likely fall this year as developers slow new construction due to a glut of unsold homes. “Developers who picked up destocking will (now) need

Mainlanders hunt for property bargains from Dubai to Manchester Dubai developer Nakheel said Chinese bought 70 percent of its almost 600 townhouses sold at Warsan Villa Clare Jim

s Chinese property investors heat up prices in many of the world’s biggest cities, China buyers are now searching beyond traditional hot spots for bargains and higher returns, ranging from land in Dubai to student housing in Manchester. The investors range from wealthy individuals and private equity funds buying residential units to companies and funds setting up local joint ventures to invest in property projects. “People invest in emerging markets for higher yields, lower entry prices, and higher capital appreciation,” said SPV Global director Clara Yeung. “Some invest for vacation purposes ... good prospects for an economy or political situations, for example, the World Expo 2020 in Dubai or the change of governor in Myanmar are some other reasons to invest in these emerging markets.” Chinese were the seventh biggest

Many Chinese bought land from us; they want to develop and they want it for rental because it’s around a 10 percent yield for the development Ali Rashid Ahmed Lootah, Chairman, Nakheel

property investors in Dubai last year, pumping in US$463 million in the first nine months of 2015 compared with US$354 million in all of 2013, according to Sajid Ali, director of Sumansa Exhibitions who organized a Dubai property show in Hong Kong in January. Chinese institutional real estate investment in New York and Sydney was close to US$6 billion and US$4 billion, respectively, last year, up from US$1.2 billion and US$3.5 billion a year ago. “The average price of a studio apartment in Hong Kong’s (Central) area is HK$7 million (US$900,000), while for the same amount one can buy 7 studio apartments in Dubai,” Ali said, adding returns on investment in Dubai are as much as 7.2 percent, compared with 2.8 percent in Hong Kong. One would-be buyer who gave only his surname Chen, said he is

to speed up construction as the government continues to support the sector,” S&P corporate ratings director Cindy Huang said in a conference call with reporters. But she warned of credit risks for developers as they step up land acquisitions and construction. “Land costs in firsttier cities are increasing significantly. Developers buy this expensive land as they expect home prices to increase, but once the government starts to taper price growth, it will be a significant risk.” Fuelled by a series of government support measures, China’s home prices rose 2.5 percent nationwide in January from a year earlier but have shot markedly higher in the country’s biggest cities, with prices in Shenzhen up nearly 52 percent. The Shanghai Securities News yesterday quoted central bank vice governor Pan Gongsheng Pan as saying the central bank, banking regulator and the housing ministry are studying measures to address rising housing prices in tier one cities. Land minister Jiang Daming said later on Wednesday that China will boost land supply appropriately in cities where prices rise quickly. Huang added that refinancing risk for developers was low as onshore funding conditions improve, and she expected possible defaults in the next 12 to 18 months to be lower. Reuters

considering apartments in either Dubai or Bangkok. “It’s impossible to buy in Shenzhen now, prices are too high,” said Chen. Home prices in the southern Chinese city in January were up 52 percent from a year earlier. Dubai developer Nakheel said Chinese bought 70 percent of its almost 600 townhouses sold at Warsan Villa, a development close to its Dragoncity shopping mall. Nakheel also sells land, which is for freehold in Dubai. “Many Chinese bought land from us; they want to develop and they want it for rental because it’s around a 10 percent yield for the development,” said Chairman Ali Rashid Ahmed Lootah.

Student dorms

Student housing, already a hot target for private equity, is also increasingly attracting Chinese investors, some of whom buy such properties without even visiting them first. “It’s different if you’re buying a 3 million pound (US$4.16 million) mansion in London and you want to see it. They’re buying primarily for investment, as long as the figures are right they’d be buying anything,” said Julie Harvey, director of property investment company Pinnacle Alliance based in London. Student housing is close to campuses which are not usually in central areas. In Manchester, their rental yield rate is around 8 percent and their capital growth was around 10 percent last year, according to Harvey. Reuters

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March 10, 2016

Asia

Japanese court issues injunction to halt Takahama nuclear reactors Kansai Electric issued a statement saying it would not accept the verdict and would quickly appeal the injunction

Japanese court yesterday issued an injunction to halt operations at Kansai Electric Power’s Takahama No.3 and No.4 nuclear reactors, the operator said, siding with local residents worried about the safety of the plant. The order, by the Otsu District Court, will take immediate effect and lead to the shutdown of Takahama No.3 reactor, which restarted in late January, Jiji news agency said. This is the first injunction issued in Japan to halt a nuclear plant that is under operations, said Jiji and national broadcaster NHK. Kansai Electric had also been working to restart Takahama No.4 reactor this month after an unplanned shutdown due to a technical problem last week. The move could potentially throw government energy policy into disarray, with the nuclear industry only recently starting to get reactors back online amid widespread public scepticism after the meltdowns at Fukushima in 2011. It also comes

as Japan’s energy market embarks on the biggest reforms in its history. However, Japanese lower courts sometimes hand down contentious verdicts that are then overturned by higher courts, where judges tend to be more attuned to political implications, judicial experts say. Kansai Electric issued a statement saying it would not accept the verdict and would quickly appeal the injunction. It will hold a news conference at its headquarters in Osaka at 0900 GMT. “This is a wake up call for nuclear

industry and the government. They can no longer take for granted that the judiciary will follow the old ways,” Mutsuyoshi Nishimura, a former Japanese government official and chief climate change negotiator said after the decision. Japan’s chief government spokesman Yoshihide Suga said after the verdict that there was no change in Tokyo’s stance on safety at the Takahama reactors or in its policy of promoting the restart of reactors that meet new safety standards imposed after Fukushima.

Kansai Electric planned late last month to lower power fees it charges to customers from May 1 to pass on fossil fuel cost savings from the restart of Takahama No.3 and No.4 reactors, but the verdict could force Japan’s No.2 power utility in revenues to scrap that plan. The Takahama reactors, on the coast of Fukui prefecture in western Japan, had met beefed-up safety standards set by Japan’s nuclear regulator last year. Reuters

KEY POINTS Marks first injunction to shut operating Japan nuclear plant Could deal blow to govt energy policy Kansai Electric to appeal verdict

Indonesia’s Bank Central Asia to hold back expansion due to margin squeeze Banks in Southeast Asia’s largest economy were hit by rising bad loans in 2015 as economic growth slowed to the weakest in six years Gayatri Suroyo and Cindy Silviana

ndonesia’s biggest bank by market value Bank Central Asia (BCA) said it would hold back some expansion plans this year after regulators announced a series of measures that will lower banks’ margins, its top executive said on Tuesday. The government is targeting lowering banks’ lending rate for companies to 9 percent by the end of this year from the current average of 12 percent, including by capping the maximum rate banks pay for savings. Forcing banks to offer low credit rates by reducing costs of funding can pressure

banks’ margins, BCA President Director Jahja Setiaatmadja said. BCA’s net interest margin (NIM) may fall 50-70 bps this year from 6.7 percentage points at end-2015 due to the measures, creating a “challenging” profit environment for 2016, he said. “In a situation when (lending) rate is falling, it means margin is decreasing. We have to be more efficient in the sense that expansion ambition must be reduced,” Setiaatmadja said in an interview with Reuters. Setiaatmadja said BCA

had planned to add 40 new branches and 2,700 ATMs this year but might have to cut back plans to 20 branches and 1,700 ATMs due to the margin squeeze. The competition for liquidity is also expected to be tougher this year as banks compete with government bond issuance for savings, he said. But BCA still wants to acquire two small banks this year as funding for the deal has been set aside since the plans emerged in 2014, Setiaatmadja said. The two banks will cater to a niche market that BCA does

not serve under a “cheaper and more accessible brand”, he said. “Maybe we will start to look around in June,” he said, adding that the process might take a long time. In 2015, BCA posted a 9.3 percent increase in net profit to 18 trillion rupiah (US$1.37 billion), one of the best performing Indonesian banks. That compares to an estimated 6.7 percent drop in 2015 net profit in the overall banking industry, based on Indonesia’s Financial Services Authority’s statistics. Banks in Southeast Asia’s largest economy were hit by

rising bad loans in 2015 as economic growth slowed to the weakest in six years, forcing them to set profit aside for provisions. BCA’s non performing loan (NPL) ratio increased marginally from 0.6 percent in December 2014 to 0.7 percent in 2015. The banking industry’s NPL ratio was 2.5 percent as of end-2015. Setiaatmadja said he expects BCA’s bad loan ratio to stay at that level in 2016, as there will not be a dramatic economic recovery, while BCA’s loan growth is targeted at 10 percent. Reuters

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March 10, 2016

Asia The market volatility and unfavourable media coverage on property markets appears to have triggered a reassessment of risk preferences Bill Evans, Chief Economist, Westpac

The survey of 1,200 people by the Melbourne Institute and Westpac Bank showed its index of consumer sentiment fell back 2.2 percent in March

Australian consumer sentiment dips back in March Expectations for the economic outlook of the next 12 months have improved by 8.2 per cent

measure of Australian consumer sentiment slipped in March as the national mood proved every bit as volatile as the financial markets dominating the news headlines. The survey of 1,200 people by the Melbourne Institute and Westpac Bank showed its index of consumer sentiment fell back 2.2 percent in March. That extended the saw-

toothed pattern of recent months, with sentiment jumping 4.2 percent in February after a 3.5 percent drop the month before. The pullback could add to the Reserve Bank of Australia’s (RBA) concerns that wild swings in global markets will do lasting damage to confidence and thus consumer spending. Despite all the noise in the survey,

the overall index reading of 99.1 was just 0.4 percent lower than a year ago, showing confidence basically oscillating around the long-run trend. Much of the weakness came in respondents who held a mortgage, which could reflect recent media speculation that house prices were unsustainable and about to tumble. “The market volatility and unfavourable media coverage on

property markets appears to have triggered a reassessment of risk preferences,” said Westpac Chief Economist Bill Evans. He noted a larger share of respondents had favoured paying down debt as the wisest place for savings, while the appetite for property and equities fell sharply. The volatility spread through the survey’s sub-indices. An index of family finances compared to a year ago sank 8.2 percent after surging in February, while the outlook for the 12 months ahead actually edged up 0.2 percent. Expectations for the economic outlook over the next 12 months improved by 8.2 percent, perhaps reflecting last week’s news that the Australian economy outpaced forecasts by growing 3 percent in 2015. Yet the outlook for the next five years slipped 2.5 percent, and the index of whether it was a good time to buy a major household item dropped 6.6 percent.

Sharp’s banks set to offer additional aid as part of Foxconn deal The additional support under consideration is designed to ensure a turnaround of Sharp Taro Fuse

harp Corp’s two main banks are set to lower interest rates on billions of dollars in loans and offer other financial support as part of a planned takeover by Taiwan’s Foxconn, a source with direct knowledge of the plan said. The move is partly a

response to a last-minute hitch to the signing of the deal over potential liabilities at the ailing Japanese display maker, although some of the discussions have been going on for a while, the source said. He added that the deal is now likely to be announced next week.

The core banking units of Mitsubishi UFJ Financial Group Inc and Mizuho Financial Group Inc have extended the vast majority of Sharp’s 510 billion yen (US$4.5 billion) in syndicated loans which are due at the end of the month. They also plan to extend the deadline and are considering

an additional commitment line, the source said. Sharp has a total 700 billion yen in interest-bearing debt. The source declined to be identified because the plan has not been officially announced. Representatives for Mitsubishi UFJ and

Reuters

Mizuho declined to comment. Sharp also declined to comment while Foxconn could not be immediately reached for comment. Foxconn, known formally as Hon Hai Precision Industry Co , pushed the pause button on the deal last month after receiving an unexpected document from Sharp just before the pact was due to be signed. The document listed contingent liabilities of around 300 billion yen, which were worst-case scenario risks that might happen in the future, sources familiar with the matter have said. The additional support under consideration is designed to ensure a turnaround of Sharp and to address potential risks that were included in Sharp’s document, the source said. Reuters

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March 10, 2016

Asia

Sri Lanka hikes VAT, taxes capital gains before IMF loan talks Prime Minister announced VAT would be hiked to 15 percent from 11 percent Shihar Aneez and Ranga Sirilal

ri Lanka will raise its value added tax and reintroduce capital gains tax to break out of a debt trap, Prime Minister Ranil Wickremesinghe said on Tuesday, ahead of talks on a US$1.5-billion loan it is seeking from the International Monetary Fund. Sri Lanka’s finances are under scrutiny after ratings agency Fitch last week downgraded its sovereign rating by a notch, to “B+”, spurred by a ballooning fiscal deficit, rising foreign debt and sluggish growth prospects. It also faces a balance-of-payments crisis after a third of its foreign exchange reserves was depleted within the 15 months to January by the central bank’s defence of the rupee currency, pressured by heavy debt piled up under the previous government. “This crisis can be overcome only by reducing the budget deficit and a medium-term joint financial programme aiming at suitable reforms to reduce the debt burden,” Wickremesinghe told lawmakers.

KEY POINTS Measures aim to help country break out of debt trap VAT to rise to 15 pct from 11 pct Capital gains to be taxed for first time since 1987

Prime Minister Ranil Wickremesinghe

Taking action to boost revenues, he announced that VAT would be hiked to 15 percent from 11 percent, while capital gains will be taxed for the first time since 1987. Wickremesinghe said the government owed 9.5 trillion rupees (US$65.6 billion), as he revised some of the main budget numbers presented in November. He said the former government headed by Mahinda Rajapaksa has not included 1.04 trillion rupees in

borrowing by state enterprises in the national debt, which was estimated at 8.48 trillion rupees at the end of last year. The prime minister, also the minister of policy planning and economic development, said the country has to pay 1.21 trillion rupees on its debts this year, including 562 billion rupees in interest. The IMF has long called on Sri Lanka to reduce its budget deficit,

raise revenues, and bolster its foreign exchange reserves. These are likely to be the main conditions for the grant of a loan, economists say. “The government is responding to an urgent revenue need,” Anushka Wijesinghe, the chief economist of Sri Lanka’s main business chamber, told Reuters. “But ad hoc tax policy changes like these will hurt investor sentiment. The credibility of the budget is lost.” Reuters

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March 10, 2016

International Rusal Q4 core profit slumps over 50 pct Russia’s Rusal Plc reported a 53-percent slide in fourth-quarter core profit on Wednesday, hit by weak aluminium prices, but said it expects a strong increase in demand for the metal in 2016 and sees Chinese output growth slowing sharply. The world’s biggest aluminium producer said it expects global aluminium demand to rise 5.7 percent in 2016 to 59.6 million tonnes, while Chinese appetite will expand 7 percent to 31 million tonnes. It said Chinese aluminium production is expected to increase by just 4.8 percent.

U.S. to announce further easing of Cuba restrictions President Barack Obama’s administration will announce further measures to ease travel and trade restrictions on Cuba on March 17, ahead of his historic visit to the Communist-ruled island this month, U.S. congressional sources said on Tuesday. The new rules will mark the latest effort by Obama to use his executive powers to sidestep the U.S. Congress and chip away at the more than half-century-old U.S. economic embargo against Cuba. The anticipated announcement appears timed as a gesture toward Cuba just days before Obama flies to Havana for a March 21-22 visit.

Finance lobby says Brexit would hit the City

All alternatives to Britain’s membership of the European Union are second best and risk damaging the competitiveness of the City of London’s finance industry, although Brexit would not be ruinous for the economy, TheCityUK lobby said yesterday. In a guide to the consequences of Brexit, TheCityUK said a bespoke financial services agreement between Britain and the EU was feasible, but its content would be uncertain. Negotiations would take a long time and the bloc could end up treating Britain as a less-regulated “off-shore” centre, TheCityUK, which lobbies for Britain’s financial services sector, said.

Argentina deal to pay debt clears hurdle in Congress A bill aimed at stopping Argentina’s economic decline by ending its 14-year banishment from the global bond market passed its first legislative hurdle on Tuesday, when a Congressional committee sent the measure to the full house of representatives. President Mauricio Macri, elected in November on a free-markets platform, wants Congress to approve a deal to pay US$4.6 billion in cash to the biggest holders of defaulted debt. The pact is the cornerstone of his plan for attracting investment to an economy battered by heavy currency controls under the previous government. Access to financing would help Macri close a wide fiscal deficit.

Saudi Arabia seeks US$6-8 bln bank loan to shore up state coffers The pricing of the loan is likely to be benchmarked against international loans taken out by the governments of Qatar and Oman in the last few months Archana Narayanan

audi Arabia is seeking a bank loan of between US$6 billion and US$8 billion, sources familiar with the matter told Reuters, in what would be the first significant foreign borrowing by the kingdom’s government for over a decade. Riyadh has asked lenders to submit proposals to extend it a five-year U.S. dollar loan of that size, with an option to increase it, the sources said, to help plug a record budget deficit caused by low oil prices. The sources declined to be named because the matter is not public. Calls to the Saudi finance ministry and central bank seeking comment yesterday were not answered. Last week, Reuters reported that Saudi Arabia had asked banks to discuss the idea of an international loan, but details such as the size and lifespan were not specified. The kingdom’s budget deficit reached nearly US$100 billion last year. The government is currently bridging the gap by drawing down its massive store of foreign assets and issuing domestic bonds. But the assets will only last a few more years at their current rate of decline, while the bond issues have started to strain liquidity in the banking system.

London-based boutique advisory firm Verus Partners, set up by former Citigroup bankers Mark Aplin and Andrew Elliot, is advising the Saudi government on the loan, the sources said. The firm has sent requests for proposals to a small group of banks on behalf of the Saudi Ministry of Finance, the sources said. They added that banks participating in the loan would have a better chance of being chosen to arrange an international bond issue that Saudi Arabia may conduct as soon as this year. A spokesman for Verus Partners was not immediately available to comment.

Rating cut

Analysts say sovereign borrowing by the six wealthy Gulf Arab oil exporters could total US$20 billion or more in 2016 - a big shift from years past, when the region had a surfeit of funds and was lending to the rest of the world. All of the six states have either launched borrowing programmes in response to low oil prices or are laying plans to do so. With money becoming scarcer at home, Gulf companies are also expected to borrow more from abroad.

In mid-February, Standard & Poor’s cut Saudi Arabia’s long-term sovereign credit rating by two notches to A-minus. The world’s other two major rating agencies still have much higher assessments of Riyadh, but last week Moody’s Investors Service put Saudi Arabia on review for a possible downgrade. Nevertheless, bankers said a sovereign loan from Saudi Arabia could attract considerable demand, given the kingdom’s wealth; its net foreign assets still total nearly US$600 billion, while its public debt levels that are among the world’s lowest. The pricing of the loan is likely to be benchmarked against international loans taken out by the governments of Qatar and Oman in the last few months, according to bankers. Because of banks’ concern about the Gulf region’s ability to cope with an era of cheap oil, those two loans took considerable time to arrange and the pricing was raised during that period. Oman’s US$1 billion loan was ultimately priced at 120 basis points over the London interbank offered rate (Libor), while Qatar’s US$5.5 billion loan was priced at 110 bps over, with both concluded in January. Reuters

EU to force multinationals to make clearer tax disclosures The new rules will oblige large companies to disclose data on revenues, profits and taxes to the administrations of all EU countries where they operate Francesco Guarascio

uropean Union countries will exchange information on the tax affairs of multinational companies under new rules backed by EU finance ministers on Tuesday aimed at stopping big companies avoiding paying their fair share into government coffers. The rules, that should take effect later this year, are a response to growing concerns about corporate tax avoidance which costs the EU public 70 billion euros (US$77 billion) a year, according to a European Parliament estimate. “Today we reached a political agreement on cooperation between tax administrations, country-by-country reporting. This is part of our work on the anti-tax avoidance package,”

said Dutch Finance Minister Jeroen Dijsselbloem who chaired the meeting of EU ministers in Brussels. The new rules will oblige large companies to disclose data on revenues, profits and taxes to the administrations of all EU countries where they operate. That data will then be exchanged between the 28 EU states. The EU deal goes beyond international guidelines known as anti-BEPS (Base Erosion and Profit Shifting), agreed by the G20 and the Organisation for Economic Cooperation and Development. Those guidelines do not force subsidiaries of foreign countries to disclose the tax data of their parent group, whereas the EU rules will affect foreign multinationals that

have subsidiaries in the European Union, EU officials said. Due to concerns expressed by Germany and some other EU states that the measures could scare away foreign investors , the new rules will only be mandatory for foreign companies from 2017. The rules are expected to be formally adopted by June, Dijsselbloem said. The unanimous approval of all 28 EU states is required. Despite misgivings from some EU governments, EU tax commissioner Pierre Moscovici is considering proposing in the coming weeks bolder provisions to make company tax data available to the public, and not just to state administrations. Reuters

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March 10, 2016

Opinion Business

wires

Leading reports from Asia’s best business newspapers

The election, protectionism and the return of inflation

THE STRAITS TIMES

James Saft

In something of an annual pre-Budget ritual, small and medium-sized (Singaporean) enterprises are crying out for government help to tackle the high cost of doing business here, especially manpower costs. But they note that this year, the local economy - hit by weaker global demand, low oil prices and stock market volatility - looks set to take a turn for the worse. Some firms are already said to be facing problems collecting payments from customers. As firms brace themselves for tougher times, they hope the Government will offer timely relief in its March 24 Budget.

Reuters columnist

BANGKOK POST The Industry Ministry’s Department of Industrial Works is conducting a study on industrial zoning to seek appropriate locations for industrial estates in special economic zones (SEZs), says director-general Pasu Loharnjun. The move is part of a plan to push forward the government’s flagship policy to boost investment and trade along border areas by setting up industrial estates and trade facilities as well as infrastructure development for investment and tourism in each SEZ. Mr Pasu said industrial estates were part of the SEZs, and a zoning plan would help find proper locations with the participation of villagers.

NEW ZEALAND HERALD Prime Minister John Key says a million Chinese tourists will soon be visiting here annually. Making his prediction at a ground-breaking ceremony for Auckland’s new NZ$200 million Park Hyatt, Key told more than 100 dignitaries in a waterfront marquee how he expected massive growth. Quipping how he expected to be at the new five-star hotel regularly because he is often at events in hotels, Key said China was New Zealand’s second biggest market for tourists after Australia. About 371,000 Chinese tourists now visit New Zealand annually.

VIETNAM NEWS International integration is a consistent focus of Viet Nam’s foreign policy at present and will continue to be in the coming years, Deputy Foreign Minister Bùi Thanh Son said. In his speech on Viet Nam’s international integration delivered at the Royal Institute of International Affairs (Chatham House) in London on Monday on the occasion of his participation in the 5th Viet Nam-UK Strategic Partnership Dialogue, Son said international integration is the next step of the Renewal (Đoi Moi) process, which was a turning point for Viet Nam’s development orientation over the last 30 years.

he 2016 U.S. presidential election may succeed where the world’s central banks have failed, but not as they would wish: in bringing back inflation through protectionism. One of the most striking aspects of the election campaign is the way in which Donald Trump and Bernie Sanders are attracting support by attacking trade deals they see as robbing Americans of jobs and wages on unfair terms. Not only has Trump called for a 45 percent tariff on all imports from China, but Bernie Sanders, speaking Sunday at a debate in Flint, Michigan, said current trade policy was responsible for “Not only job loss by the millions, but a race to the bottom so that new jobs in manufacturing in some cases pay 50 percent less than they did 20 years ago. How stupid is that trade policy?” Even Hillary Clinton sounded very little like an advocate of free trade in Flint, stressing that she’d voted against the only trade pact to come to a vote in her time in the Senate and had come out against the proposed Trans-Pacific Partnership agreement. To put this sea-change in perspective: Clinton, in 2012 as Secretary of State, called the then-embryonic TPP the “gold standard in trade agreements.” Discount all this as you see fit as election rhetoric, or as unlikely to come to fruition, but the fact remains that the conversation in the U.S. about the benefits of unrestricted trade has changed. Whoever wins the White House, or seeks national office is likely in future to be more willing to impose barriers to trade and less secure in their ability to argue for lower

tariffs and more open trade. Indeed, it is perhaps no coincidence that the U.S. last week slapped a 266 percent tariff on some imports of steel products from China and a lower levy on six other countries. There are any number of economic consequences of this, including potentially lower, though more equally shared, economic growth, but one stands out as an easy call: trade barriers are inflationary. The erosion of the longstanding, broad, cross-party consensus on trade is a big deal, and perhaps a very inflationary one. Imposing tariffs on imported goods sets off a classic kind of cost-push inflation in which the inputs of a good, such as parts, materials and labour, rise in price and prompt rising prices. Good or bad, just or unjust it may be, but a U.S. which is more willing to build moats and walls around its economy is one which, all else being equal, will have more inflation.

Global impact And of course, trade is a relationship rather than something one side dictates, and if the world’s consumer of last resort is raising tariffs you can expect others to do so as well, theoretically sparking inflation elsewhere. Falling inflation and bouts of deflation have roughly paralleled the huge increase in global trade which came as China was, and other emerging markets were effectively, integrated into the global economy. That fall in inflation might have other causes, notably the aging of populations in developed economies, but offshoring of manufacturing also played a role in driving down the price of manufactured goods like

A rekindling of tariffs, much less trade wars, would likely drive inflation higher while doing it in a way that is negative for growth

electronics, clothing and even some food. This global competition has global impact, keeping a lid on price rises in emerging markets and developed economies alike. It is striking the way in which tariffs have declined along with global inflation in recent decades. Average world tariff rates were 30 percent in the early 1980s, spiking as high as 40 percent in the early 1990s and then steadily declining to roughly 6 percent by 2010, according to World Bank-derived data. Global inflation traced a similar path, from as high as 30 percent in the 1990s to about 3.3 percent today. A rekindling of tariffs, much less trade wars, would likely drive inflation higher while doing it in a way that is negative for growth. This will be an extremely unpleasant puzzle for central banks to solve, making the current search for inflation seem simple and risk-free in comparison. At the very least you can expect increased political pressure on central banks. While this scenario would be bad for bonds, which fall in value as interest rates rise, it is also no picnic for stocks. Trade policy as it has been practiced over the past 30 years has been asymmetrically positive for corporate profits for multinationals which can move production and build a global supply chain. Less of the economy goes to labour and companies have often been good at gaming the system to protect themselves, and their profit margins, from competition. Look for falling margins and rising wages, all with higher rates as a backdrop. Could be tough times ahead for investors. Reuters

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Closing Jewellers in India losing US$150 million a day

Cathay Pacific net profit jumps 90.5 pct on low oil prices

Jewellers in India, the world’s biggest gold consumer after China, are estimated to be losing about US$150 million a day as a shutdown to protest a proposed tax enters its second week, according to the All India Gems & Jewellery Trade Federation. Shops will remain closed until the government assures jewellers that the 1 percent duty will be withdrawn, said Bachhraj Bamalwa, a director at the federation, which represents 300,000 jewellers and bullion dealers across the country. In Mumbai’s Zaveri Bazaar, India’s biggest gold market, protesters gathered in large numbers yesterday wearing white cloth caps with the words ‘Roll-back Excise’ written in Hindi and English.

Cathay Pacific Airways reported yesterday a more than 90 percent surge in net profit for 2015, beating estimates, as record low crude oil prices and a higher contribution from its affiliate Air China boosted income. Cathay said annual net profit was HK$6 billion (US$772.57 million), slightly higher than the HK$5.7 billion estimate of 16 analysts polled by Thomson Reuters SmartEstimate. In its earnings statement, Cathay said contributions from its partners had improved, without giving details. The plunge in crude oil prices also helped reduce fuel costs by 37.8 percent from a year ago, it added. Air China, in which Cathay owns about a third, said in January it expects its annual net profit to rise by up to 80 percent.

China’s Evergrande ‘world’s most valuable club’ The implied market capitalisation narrowly surpassed the US$3.26 billion Forbes magazine said Real Madrid was worth in 2015

Guangzhou Evergrande play at Tianhe Stadium as local team

hina’s Guangzhou Evergrande Taobao were proclaimed the holders of an unlikely title by the official news agency Xinhua yesterday: the world’s most valuable football club.

A transaction in the club’s shares on the National Equities Exchange and Quotations (NEEQ), the over-the-counter Chinese market where it is listed, gave it a market capitalisation of US$3.35 billion, Xinhua said.

“Guangzhou Evergrande tops world clubs in market value,” it trumpeted, as money pours into the Chinese game with President Xi Jinping pushing to turn the country -ranked a lowly 96th by FIFA -- into a footballing power.

The deal Xinhua cited, for 36,000 shares at 55 yuan apiece (US$8.50), represented a jump of nearly 40 percent from the 40 yuan each at which the club sold shares in a fundraising only two months ago.

The implied market capitalisation narrowly surpassed the US$3.26 billion Forbes magazine said Real Madrid was worth when it named the Spanish side the world’s most valuable sports team in 2015. It also bested Premier League club Manchester United, whose New Yorklisted stock closed at US$14.32 on Tuesday for a market capitalisation of US$2.35 billion, according to the US exchange. On Wednesday, Evergrande’s stock traded a fraction higher on NEEQ, with deals at 55.10 yuan. The club is majorityowned by property developer Evergrande, with e-commerce giant Alibaba holding a stake of nearly 40 percent. But it lost around US$75 million in 2014, according to previously released results. The reigning Asian champions have started the new season slowly, with a draw and a defeat in their first two AFC Champions League matches, and went down 2-1 to little-known Chongqing Lifan in their opening Chinese Super League game at the weekend. The club splashed out 42 million euros (US$46 million) on Colombian striker Jackson Martinez in the recent transfer window, when Chinese clubs spent a world-leading 331 million euros, according to the Transfermarkt website. AFP

900 million mainlanders to Malaysia’s central bank holds vote in elections for lawmakers benchmark rate

CNPC chairman rejects ‘capitalist’ layoffs

hina National Petroleum Corp. won’t cut frontline oil and gas workers as it seeks to reduce costs to cope with low energy prices, according to Chairman Wang Yilin. The country’s biggest oil and gas producer will create new opportunities for workers and is drafting development plans for a long-term low price environment, Wang said in an interview in Beijing yesterday. The state-owned company is actively looking at overseas acquisitions and may boost investments in Russia and Iran, he said without elaborating. “We are not like international oil companies where layoffs are the most convenient way to cut cost in the capitalist world,” Wang said. “We won’t have massive employees layoffs despite facing challenges from a low oil price.” CNPC will cut capital spending this year by more than 20 percent and sees domestic crude production slipping as the company looks to shore up profit amid the energy downturn, Su Jun, general manager of the production and operation department at the company, said. It has a workforce of 1.4 million people, Wang said.

ore than 900 million Chinese voters are expected to directly elect more than 2.5 million lawmakers in county or townshiplevel elections set to begin this year, top legislator Zhang Dejiang said yesterday. “Beginning in 2016, elections will be held for new people’s congresses at the county and township levels across the country,” Zhang said when delivering a work report on the National People’s Congress (NPC) Standing Committee. “This will be a major political event in China, and an important step in the development of socialist democracy,” he said. Under China’s current Electoral Law, deputies to people’s congresses at the level of townships and counties, who account for more than 90 percent of lawmakers at all levels nationwide, are elected directly by voters. They in turn elect deputies to people’s congresses of cities who then elect deputies at the provincial level. NPC deputies are elected by people’s congresses of provinces, autonomous regions and municipalities.

alaysia’s central bank maintained its key interest rate at 3.25 percent yesterday as expected, and kept unchanged a reserve requirement ratio that it cut in January. “Overall investment will continue to be supported by the implementation of infrastructure development projects and capital spending in the manufacturing and services sectors,” Bank Negara Malaysia (BNM) said in a statement. “The external sector is expected to record a modest improvement and provide additional support to the economy,” the central bank added. In January, BNM announced an unexpected move to cut the statutory reserve requirement ratio (SRR) to 3.5 percent from 4.0 percent to boost liquidity. All 11 economists in a Reuters poll had expected BNM would keep the overnight policy rate unchanged yesterday. BNM last revised the benchmark rate in July 2014, when it was raised by 25 basis points from 3.0 percent to curb rising household debt.

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