Shenzhen stocks forecast to become the world’s best bet. Stock Market Page 16
www.macaubusinessdaily.com
Friday, March 18 2016 Year IV Nr. 1004 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Joanne Kuai
Court finds Alan Ho guilty Crime The verdict has been handed down. Alan Ho and five co-defendants have been found guilty. The nephew of magnate Stanley Ho was sentenced to 13 months in prison for the crime of facilitating prostitution in Hotel Lisboa. But acquitted of establishing and managing a criminal group. And has already spent the sentence behind bars awaiting trial so is now free. The conspirators’ sentences ranged from five months to two years and five months. Page 5
FTZ and CEPA strategies introduced in China Investment Policy Seminar
Baccarat
Gaming guru: Whales “on a roll” could “destroy” casino profitability
Merchants Group makes informal bid to buy London’s Baltic Exchange
Page 2
Page 8
Page 4
Page 10
Guilty plea U.N. corruption Francis Lorenzo has pleaded guilty. To conspiracy, bribery, money laundering and filing false tax returns. The Deputy Ambassador to the United Nations pleaded guilty to six crimes in all. Including aiding Macau businessman Ng Lap Seng by paying officials of the organisation. Page 5
Hedging their bets Investors Chinese hedge funds are struggling. To cope with new rules issued after last year’s stock markets debacle. Companies are trying to secure legal advice, hire qualified staff, and launch new products. All in a bid to save their licences. Page 9
Fair enough Oxfam Macau, along with 24 local entities, is to promote Fair Trade. An initiative to ensure a fair return for small producers’ labour.
M&A
19° 22° 19° 22° 17° 21° 18° 20° 18° 22° Today
Sat
Sun
Tue
HK HSI March 17, 2016 20,503.81 +246.11 (1.21%) China Unicom Hong Kong
+9.07%
CNOOC Ltd
+5.06%
PetroChina Co Ltd
+4.43%
China Shenhua Energy
+3.36%
China Resources Power
+3.05%
Power Assets Holdings Ltd
+2.92%
China Mobile Ltd
-2.08%
MTR Corp Ltd
-1.04%
Li & Fung Ltd
-1.04%
Cheung Kong Infrastruc-
-0.99%
China Merchants Holdings
-0.93%
I SSN 2226-8294
Report Pages 6&7
Mon
AccuWeather
Lai Ou to appeal acceptance of Radio Taxi for special taxi licence tender
Economy
Bloomberg / Google
Taxis
2 Business Daily Friday, March 18 2016
Macau In Brief Hospitality
Mandarin Oriental gets 5-star rating The self-declared ‘decidedly elegant’ hotel received a 5-star rating from the Secretary for Social Affairs and Culture Alexis Tam this week, under a number of conditions. The hotel, according to the Official Gazette, must continue to be managed by the Mandarin Oriental Hotel Group, or another hotel group of ‘international level’ and must have a restaurant with a traditional Macanese and traditional Portuguese menu but ‘not necessarily exclusive’ to these cuisines. It also has to give hiring priority to Macau residents and students who have frequented courses in IFT or other local hotel training schools. WTO delegate
Local WTO representative re-elected Fung Ping Kuen has been reelected as head of the Economic and Commercial Delegation of Macau to the World Trade Organization. Mr. Fung was nominated by the Chief Executive Fernando Chui Sai On in April last year, continuing a role in public administration stretching back to 1990. Fung was President of the Board of the Social Security Fund from 1999 to 2010. Housing
Public tender for civil servants’ housing The Deputy Director of the Financial Services Bureau, Daisy Ho In Mui, has been elected president of the jury for a new public tender to allot homes to civil servants. The Chief Executive’s mandate, published yesterday in the Official Gazette, authorises the group to proceed with the opening of the public tender for government housing in the SAR for its public workers. Insurance
China Taiping Insurance rated ‘A’ A.M. Best ‘has affirmed the financial strength of A (Excellent) and the issuer credit rating of ‘a’ of China Taiping Insurance (Macau) Co. Ltd.’ the company said in a press release on Wednesday. Citing a strong operating performance and favourable business profile in the ‘nonlife market’, Best also praised the company for its ‘strong and consistent track record of profitable underwriting and investment results [and] stable trend in net loss ratio compared with its local peers’. Negative rating pressure ‘may arise’ if operating results or risk-adjusted capitalization were to deteriorate due to major investment loss.
Taxis
Taxi licence tender descends into debacle
S
PECIAL taxi licence bid der Lai Ou Taxi Service Company Ltd. said it may appeal to Chief Executive F e r n a n d o Ch u i Sai O n against the tender opening committee’s decision to accept the submission of Radio Taxi Macau Taxi Service Ltd. Opening Radio Taxi Macau’s bid submission yesterday, the tender opening committee of the Transport Bureau (DSAT) found the company had wrongly put its bidding prices in two different documents of the submission. However, as the quotations were the same the committee decided that the submission from the company should be valid.
In fact, Radio Taxi Macau’s bid for the licence was originally rejected by DSAT due to its failure to comply with the bidding rules. Upon appeal, the company’s tender was accepted by the authorities at the beginning of this month. The decision of the committee triggered dissatisfaction from Lai Ou, which was the previous sole accepted bidder for the licence controlled by local businessman David Chow Kam Fai. The company’s representatives objected to the committee’s decision to rule Radio Taxi Macau’s submission valid, perceiving the committee had violated the bidding rules. However, the committee declined to accept Lai Ou’s objection and the company
claimed it might file an administrative appeal to the Chief Executive over the issue. In January, the government invited bids to run the special taxi licence for an eight-year term. Under the licence, the winner can operate no more than 100 taxis that can be hailed by phone call, online order or mobile phone application in the territory before 2017. According to local broadcaster TDM Radio, Radio Taxi Macau is planning to invest around MOP70 million (US$8.75 million) to MOP80 million to develop the taxi service if it wins the bid, which is similar to Lai Ou’s expected investment of MOP70 million as recently disclosed by Mr. Chow. K.L.
Land
Nine idle plots still undergoing repossession procedures The government has still to declare the invalidity of grants for nine idle plots of land in the city whose land use purposes remain unfulfilled, the director of Land, Public Works and Transport Bureau (DSSOPT), Li Can Feng, said in a reply to legislator Si Ka Lon’s written enquiry. The DSSOPT director said these nine land parcels are still undergoing administrative procedures and analysis for repossession. The nine plots are among the 48 parcels that were earmarked for reclamation by the government due to the landholders being deemed liable for not developing the land as per contract requirements.
Mr. Li claimed that his department would publicly announce when there are conclusions on these nine undeveloped plots. In 2009, the local land department identified 113 land plots in the territory that were left undeveloped by their awardees, including the 48 plots that were ceded to be reclaimed. The DSSOPT head indicated in his reply that the government may reclaim some of the other 65 parcels by another procedure, despite local authorities being perceived the liable party for their unfulfilled development. “Among these 65 cases, some of their temporary concessions, which
carry a 25-year term, have already expired or are [about] to expire. Article 48 of the Land Law mandates that a temporary concession cannot be renewed. Hence, the government would initiate procedures to declare their land grants invalid if they cannot assume an effective land concession,’ the Bureau head wrote. Currently, the local government has already declared land grants for 23 of the 48 idle plots invalid. Meanwhile, for the other 16 plots, the government decided last year not to take them back as their landholders were not ‘completely liable’ for not developing the sites. K.L.
Business Daily Friday, March 18 2016 3
Macau Crime
Court hands down guilty verdicts to all defendants Former Hotel Lisboa Executive Director Alan Ho has been found guilty of exploitation of prostitution but released immediately as his sentence was served awaiting trial. João Santos Filipe jsfilipe@macaubusinessdaily.com
F
ormer Executive Director of Hotel Lisboa, Alan Ho, has been sentenced to one year and one month in jail after being found guilty of one crime of exploitation of prostitution. The ruling on the alleged prostitution ring case operating inside Hotel Lisboa was read yesterday in a session that took over three hours. With this decision, Mr. Ho, who had already spent one year and two months in jail awaiting trial, was freed yesterday. The family of 69-year old Mr. Ho attending the session burst into spontaneous applause and shouts the very moment the decision was read. This caused the judge to threaten to ban Mr.s Ho’s family from the courtroom. “The first defendant [Mr. Ho] would make sure that the prostitutes
met beauty standards and would take care of the pre-admission process to the hotel [Lisboa]. Also in his role as Executive Director, which controls the operations inside the venue, he would allow the girls to attract clients inside the property”, the judge said. “Facilitating the area for prostitution is punishable according to the law”.
Kelly Wang to serve jail time
Of the six defendants in this case, former Senior Manager of Hotel Lisboa Kelly Wang received the heaviest sentence. Mrs. Wang, 30 years old, was sentenced to two years and five months in jail and will thus have to serve another one year and three months in Coloane prison. “The second defendant [Mrs. Wang] took advantage of her position in the hotel and charged prostitutes money she knew she had no right to ask for. She also received the money through third parties to avoid being related to such payments”, the judge declared. “This is a crime of procuring or to put in other words exploitation of prostitution”, the judge read. The court considered proven that Hotel Lisboa, which is a property of SJM Holdings, had 120 rooms available for prostitutes on the fifth and sixth floors. Wang was in charge of ensuring the girls had rooms but in exchange for this she
would charge some girls, without the knowledge of Alan Ho, a fee ranging from RMB100,000 (US$14,400 / MOP123,180) to RMB150,000. These extra payments were the main factor Kelly Wang received the heaviest sentence.
Accomplices found guilty
The remaining four defendants were all found guilty of one crime of exploitation of prostitution as accomplices. Peter Lun, Bruce Mak, Qiao Yan Yan and Pun Chan Un were sentenced to 5 months, 5 months, 7 months and 7 months in jail, respectively. As with Alan Ho, all the offenders were set free yesterday because they had already served a longer period in jail while awaiting trial. In a document running to 363 pages the court also ruled that Mr. Ho and Mrs. Wang were not guilty of one crime of creating and leading an organised crime association and 89 crimes of exploitation of prostitution. The court considered proven that Hotel Lisboa was already facilitating the access to prostitutes even before 1995, when Alan Ho started working in the venue, which means that both Ho and Wang could not be charged with the creation of an organised crime association. Regarding the crimes of exploitation of prostitution, the judge considered this offence was created to
protect the “general interests of society”, “sexual morality” and “honest earning”. Based on this assumption, it was considered that the criminal conduct was always the same, in spite of the number of prostitutes, and as such only one crime was considered, while the other 89 were dismissed.
Alan Ho
4 Business Daily Friday, March 18 2016
Macau Opinion
Pedro Cortés
Brand new quinquennial plan In recent weeks we have had the meetings of the National People’s Congress. It would be good that such an event had true and real repercussions in Macau. The members that participate, especially those from Macau, are highly skilled and should guide the local structures in implementing what was decided. The 6.5 per cent of growth foreseen is quite responsible and is good news for not only the People’s Republic of China but the entire globe. Every day of my existence in the Macau Special Administrative Region of the People’s Republic of China I tend to understand less of what is going on. But every year I renew my hopes of seeing Macau slot into the correct track for the future. A Macau, for example, that would adopt traffic openness for the new forms of transportation, car pooling and the use of technology. A Special Administrative Region less polluted with fewer cars and genuinely convenient public transportation. A Macau where the rule of law was the rule and not the exception. A Macau that sees progress as something good for everyone. A Macau that does not resist like an old woman or an old man in the Restelo area of Lisbon (this is only for those who have read the Lusíadas of the great poet Luís Vaz de Camões). Well, I may be dreaming again but I wish that the representatives of Macau at the NPC could teach some pawns that are around that Macau is much more important than enriching their bank accounts. We should all respect the values that made Macau what it is today: the values of respect for others, the values of tolerance for different races and religion beliefs, the values of openness to the outside world. I guess that this may happen in the future, as the new generations are quite keen to transform the face of Macau into a better place. We need critical mass more than we think. In building Macau, the politicians should always think in terms of the future generations embodied in their sons and daughters. Respect for that would be one of the best things that a quinquennial national and local plan could aspire to. Making the future world better than it is today should not be very difficult for our Secretaries, our Bureau Directors or our civil servants who work daily for the public interest, whatever that is. Pedro Cortés is a lawyer and frequent contributor to this newspaper.
With a proliferation of nearby cities offering gaming and non-gaming entertainment, Macau finds itself hard-pressed to compete as it diversifies
Gaming
Gaming expert tells CalvinAyre.com Macau is far from being Las Vegas
Gaming guru: Whales “on a roll” could “destroy” casino profitability Gaming expert Sudhir Kalé says SAR can’t be compared to Las Vegas. Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
G
iven that baccarat is “almost an even-money game”, high-rollers with deep pockets “can destroy your (a casino’s) profitability just as easily as you (the casino) can create it,” says Sudhir Kalé – founder of GamePlan Consultants in an interview with CalvinAyre.com posted Wednesday. In the consultant’s view, this threat is eliminated when concentrating on the mass market, as “their bank is going to run out way before the
casino’s bank is going to run out [and] they gamble in small amounts.” The gaming expert, who consults for companies such as Sands China and Galaxy Macau, pointed out that it would take “over 14 million, 800 thousand hands for any operator to say with 95 per cent confidence that you’re going to win,” in relation to VIP Baccarat. Given this, Kalé thinks that Macau, aside from being incomparable to Las Vegas given its “day-tripper” clientele, should have
14.8 Million Number of hands Kalé says it would take to have 95 per cent confidence of winning at VIP Baccarat
concentrated on mass markets “from day one,” he told the news site. The consultancy firm founder views Macau as a “choice for gaming establishments”, as compared to Las Vegas being “clearly a destination”, citing the average of four nights visitors stay in the Nevada city compared to Macau’s less-than-one. This, coupled with an opinion that the non-gaming push is “more a push on the part of both governments,” than on behalf of the gaming operators, leaves Kalé calling a Vegas-Macau comparison “erroneous”, citing nearby destinations for non-gaming activities and amenities such as Singapore, Hong Kong and Malaysia as more attractive destinations which, while offering gaming, are not “pretty much all about gaming.” Diversification appears to be on a far horizon in the consultancy firm founder’s view, as “more than 90 per cent of the revenues and 90 per cent of the profits come from gaming, so clearly this is a gaming-driven market unlike any other.” Sudhir Kalé is a frequent speaker at gaming-related summits and conferences and is widely regarded as an expert in various aspects of gaming management.
Gaming
Gaming Standards Association elects new Board and members International Game Technology’s Adrian Marcu named Chair. Gaming Standards Association (GSA) president Peter DeRaedt announced that the international trade association has named a new board of directors and elected new members, in a press release on Wednesday. The president praised the diversity of the newly elected officials and
Gaming Standards Association Membership type Platinum Gold Silver Bronze
Price (US$) 88,000 44,000 22,000 11,000
members, stating “it is important that our membership and our board reflect all sides of the industry, ensuring all points of view are considered and that our standards are the best they can be.” Also elected to the board were Mark Pace of Scientific Games as Vice Chair, Keith Wood of Aristocrat as Treasurer and Byron Bridger of the Atlantic Lottery Corporation as Secretary. Membership levels are divided into four paid tiers (see chart) and two non-paid tiers, with non-paying members in Advisory and Affiliate
capacities requiring board approval to participate in committees and to access draft standards and committee data. The Macau Gaming Equipment Manufacturers Association and the Macao Polytechnic Institute are both Affiliate Members. Platinum members include Aristocrat Technologies, IGT, Konami Gaming and Sega Sammy Creation Inc. The Gaming Standards Association will participate again this year in the Global Gaming Expo, to be held at The Venetian Macao from 17th to 19th May. K.W.
Business Daily Friday, March 18 2016 5
Macau U.N. Corruption
Deputy UN ambassador pleads guilty in Macau bribery scheme for the construction of a conference center in Macau, according to the prosecutor. Lorenzo also arranged for payments to be made to “other foreign officials” to take unidentified actions that would benefit Ng, she said. Lorenzo told U.S. District Judge Vernon Broderick at a hearing Wednesday that in June 2014, he helped get a US$200,000 bribe paid into a foreign bank account belonging to Ashe, saying “the purpose was to influence John Ashe to the benefit of Ng Lap Seng and others.” As part of his plea agreement, Lorenzo will provide evidence to the Federal Bureau of Investigation and Internal Revenue Service and is prepared to be a government witness in the case, Broderick said in court.
Francis Lorenzo said he served as a middleman funneling bribes to promote the business interests of Macau developer Ng Lap Seng.
T
he deputy ambassador to the United Nations from the Dominican Republic pleaded guilty to engaging in a years-long bribery and money-laundering scheme involving a Macau billionaire and the former president of the UN’s General Assembly. Francis Lorenzo said he served as a middleman funneling bribes to promote the business interests of Macau developer Ng Lap Seng, chairman of the Sun Kian Ip Group, while admitting to charges of conspiracy, money-laundering, bribery and tax fraud. Some of the hundreds of thousands of dollars allegedly paid by Ng were channeled through offshore bank accounts, Lorenzo said. The payments to John Ashe when he was serving as the UN General Assembly president were made to influence the agency’s official business, Assistant U.S. Attorney Janis Echenberg told a Manhattan federal judge. Ng sought Ashe’s support to win the UN’s endorsement
‘Accept responsibility’
“Mr. Lorenzo has chosen to plead guilty and accept responsibility for his conduct,” his lawyer Brian Beiber said after court. “He’s looking forward to resolving all issues and closing this chapter of his life sooner rather than later.” Ashe, Ng Lap Seng and Jeff Yin, an aide to Ng, have pleaded not guilty to the charges. Ashe’s lawyer, Joseph Sumofsky, and Sabrina Shroff, a lawyer for Yin, declined to comment on the plea. Ng’s lawyers, Benjamin Brafman and Hugh Mo, were in court
Ng Lap Seng, Macau developer, Chairman of the Sun Kian Ip Group.
for Lorenzo’s guilty plea and said their client will continue fighting the charges. “Today’s plea by Mr. Lorenzo does not in any way affect Mr. Ng,” Brafman said after court. “He’s determined to proceed to trial. Mr. Ng strongly maintains that he is personally innocent of the crimes he’s been accused of.” Ashe, who was also the ambassador to the UN for Antigua and Barbuda, is accused of omitting more than US$1.2 million, including the proceeds of the alleged bribery scheme, from his tax returns.
Kenyan UN official in order to facilitate meetings between the Chinese and government officials in Nairobi. Two others charged in the case have pleaded guilty. Shiwei Yan,who headed a New York foundation, admitted she paid bribes to Ashe to win his influence both at the UN and in Antigua. Heidi Hong Piao, a businesswoman, pleaded guilty to helping pay almost US$1 million in bribes from sources in China to Ashe. The case is U .S. v. Ashe, 15-cr00706, U.S. District Court, Southern District of New York (Manhattan). Bloomberg
Family vacation
The U.S. says he received money for a family vacation and the construction of a basketball court at his house in Dobbs Ferry, New York. Some funds went to pay his mortgage and other items such as a US$40,000 lease on a new BMW, US$54,000 for a pair of Rolex watches and $59,000 for a single order of custom- tailored suits, Manhattan U.S. Attorney Preet Bharara said. Ashe is also accused of steering a Chinese technology executive to a
“Mr. Ng (Ng Lap Seng) strongly maintains that he is personally innocent of the crimes he’s been accused of” Benjamin Brafman, Ng Lap Seng’s lawyer
Macau
TM
Brand guidelines
4th Ad March 16th.indd 1
3/17/2016 10:34:53 AM
6 Business Daily Friday, March 18 2016
Macau Macau Oxfam Fair Trade Coffee Grounds Workshops for Emperor Hotel employees.
Report Social MOvement 24 local eateries to revamp menu with Fair Trade products
Macau Oxfam launching Fair Trade campaign Macau Oxfam, along with 24 local entities, launches a campaign to raise awareness of the Fair Trade concept. Annie Lao Annie.lao@macaubusinessdaily.com
A
two-week Fair Trade campaign unfolds in Macau today. The event - organised by not-for-profit Macau Oxfam, along with 24 local eateries - aims to raise awareness among local residents and tourists of the concept of Fair Trade. Fair Trade is a social movement. It aims to minimise the exploitation of workers and farmers in developing countries by providing them with a suitable working environment and a fair return for their labour, thus enabling a greater equity in international trade between producers and businessman. The campaign in Macau consists mainly of three parts; namely, local restaurants revamping menus with Fair Trade products, street theatre programmes at various locations in Macau, and family workshops. The two-week campaign runs from today to April 3.
Raising awareness Despite some lack of popularity due to limited supplies of Fair Trade products, campaign organiser Macau Oxfam told Business Daily that according to a survey Macau residents tend to accept the concept. A study conducted by the Institute for Tourism Studies (IFT) last year revealed that over 90 per cent of respondents were willing to buy Fair Trade products once they had digested the concept. Of these, more than
50 per cent were even willing to pay a little more, such as MOP10, for a Fair Trade product. Meanwhile, the survey also showed that rice, tea and coffee are among the most favourite items for them to purchase. “We had this idea of running this Fair Trade campaign in November last year. We co-operated with local production company K. Planning to help us implement this project by contacting the eateries’ owners to participate, [organise] production and [handle the] logistics of the street theatre workshops and making marketing materials,” Saul Chan U Wai, programme officer at Macau Oxfam said. With the notion of ‘Eat with Conscience, Benefit Farmers’, it aims to educate and encourage Macau residents to buy Fair Trade products through a sense of responsibility. Some 24 local eateries have participated in this campaign by introducing Fair Trade products to their menus for nine days from March 26 to April 3.
Start from basics Most of the Fair Trade products are related to the food we eat every day thus in order to spread the concept of Fair Trade in the most effective manner it has to start with our basic living needs of eating food, said Alfred Choy, the project manager from Macau Oxfam for this campaign. He therefore perceives partnering with local eateries to be the best strategy to introduce this concept in Macau. “We offer some Fair Trade products’ samples to the eateries’ owners [for them] to try and taste first and see if they like the products when compared to the original raw ingredients they’re using in their menus. They then add two to three Fair Trade ingredients or make new recipes,” Mr. Choy said. According to Mr. Choy, some Fair Trade products, Fair Trade certified
chocolate and non-Fair Trade chocolate products are fairly similar in terms of selling price. “Some of the Fair Trade certified chocolate products are even cheaper than the non-Fair Trade chocolate but of course there is some Fair Trade chocolate which is a bit more expensive than others to ensure farmers can earn a fair bit of income,” he explained. He added that according to one blindfold tasting test, by selecting three types of chocolate, without telling the participants what brand of chocolate they were consuming they found they actually liked the Fair Trade chocolate most in terms of taste than non-Fair Trade chocolate.
Limited supply Currently, supermarkets selling Fair Trade products include Marks & Spencer (M&S), Royal Supermarket, New Yaohan and PARKnSHOP. Concept H, a participant in this campaign, is an organic product store which has been selling Fair Trade and organic products for the longest and with the widest variety of Fair Trade products in Macau, according to the organiser.
What is Fair Trade?
Fair trade is a social movement whose stated goal is to help producers in developing countries achieve better trading conditions and to promote sustainability. Members of the movement advocate the payment of higher prices to exporters, as well as improved social and environmental standards. The movement focuses in particular on commodities or products which are typically exported from developing countries to developed countries but also
“We have supplied pasta, coffee, tea, jam, dried fruit and nuts to Macau Oxfam for the campaign,” said Concept H owner Calista Chan. “Some of the products we import directly from the Fair Trade sellers in Malaysia and Europe; they originally purchase the products from Africa and other third world countries,” “Usually, when people come to visit my store it’s not because of the Fair Trade products; it’s more likely that they like the quality of Fair Trade Products after trying and coming back, but we still want more people to know about the concept behind it,” she said. However, Ms. Chan said that there are still limited suppliers in Macau for Fair Trade products. “There are many different varieties of Fair Trade products overseas but the difficulty we’re facing here is the same as other supermarkets in terms of freight costs and longer delivery time,” she explained.
Making a difference “We’ve invited all of the local eateries in Macau but only 24 of them are interested; they all hold a positive
consumed in domestic markets - most notably handicrafts, coffee, cocoa, sugar, tea, bananas, honey, cotton, wine, fresh fruit, chocolates, flowers, gold, and 3D printer filaments. The movement seeks to promote greater equity in international trading partnerships through dialogue, transparency and respect. It promotes sustainable development by offering better trading conditions to, and securing the rights of, marginalised producers and workers in developing countries.
Business Daily Friday, March 18 2016 7
Macau outlook on this campaign and show active support,” Saul, Chan U Wai of Macau Oxfam said. Some of the participating eateries are setting up stall to sell Fair Trade beverages and goods during the campaign. Some have adopted a new menu using Fair Trade products. “We have women who are interested in Fair Trade products aged between 15 to 30,” said Marcus Hoi, owner of Café Voyage and one of the other participating eateries in the campaign. “Actually, it is hard to get Fair Trade products in Macau and we don’t know where and how to get it for our café. We’ve just been informed by Macau Oxfam about the Fair Trade products. It is our first time to use Fair Trade ingredients in our menu,” added Hoi. “I first knew about Fair Trade by reading some magazines and I didn’t know where I could find Fair Trade products in Macau,” said Ivan Lei, Owner of Paddington House of Pancakes, one of the participating eateries in the campaign. “When we explain what the concept of Fair Trade is to our customers they will choose to try it. Usually, young people and Westerners are our main stream of customers.” He also feels that local people don’t know much about the concept so more promotion is indeed needed. “I think it is meaningful to participate in the campaign,” said Kennie Tam, owner of Candy Café, also one of the participating eateries in the campaign. “Local people still don’t know much about the concept of Fair Trade and some people think that organic food is better for health so they will buy,” he said. “Wealthy and mature people are more interested in buying, in general, at the Café.” “The price of the menu is still the same after using Fair Trade organic pasta ingredients, and after the campaign ends we will continue to sell Fair Trade organic coffee to our regular customers,” he added.
Step by step Alfred Choy of Oxfam said the estimated budget for this campaign is about MOP 200,000, with the majority funded by Oxfam Macau and other sponsors such as CTM, Royal Supermarket, and some local magazines providing free advertising for the campaign. Most of the expenditure is accounted for by publishing the ‘Mysterious Cocoa Beans’ illustration books created by Un Chi Wai, a local Macau graphic designer and children’s illustrator to advance the concept of Fair Trade. Meanwhile, some of the participating eateries have also contributed money
200,000 MOP, Budget for Fair Trade campaign
to the budget. Gary Chan, owner of dessert house Serrdura, one of the participating eateries in the campaign, sponsored about MOP20,000 on a 75-second short animated video of the concept of Fair Trade for educating the public which will be shown on Macau Oxfam’s Facebook. “We tried the sample Fair Trade products given by Macau Oxfam and we liked the quality of them so we decided to put some into our dessert ingredients such as coffee powder, cocoa powder and cashew nuts; at the same time, we want to use this opportunity to educate the public,” said Mr. Chan. A small cup of serradura (sawdust pudding) is about MOP20 to MOP25 and some Fair Trade made serradura sells at MOP30. “Honestly, if we purchase cheaper ingredients that helps us to increase our revenue, but the reason we are participating in this is that we want to educate the public to the idea of Fair Trade by giving the public coupons to try and come to know what Fair Trade is so we’re willing to reduce the profit for this campaign,” Mr. Chan explained. Marcus Hoi, Owner of Café Voyage, also said by creating some new meals by using Fair Trade produced penne the price of the meal remains unadjusted, and still sells at MOP50-60. “Fair Trade seems a popular concept overseas and this can have a positive effect here with a good purpose to help improve the living standards of poor farmers,” he said.
Hong Kong model Campaign posters on public buses and in local supermarkets, including Royal Supermarket, and a short animated promotional video are the main marketing ingredients. “It’s hard to promote Fair Trade only by distributing leaflets and posters because Fair Trade is strongly related to food, so the idea of partnership with local eateries fits the campaign. People can try and taste the Fair Trade products,” Mr. Choy of Oxfam said. He added that previously Macau Oxfam has tried workshops in commercial organisations, universities and high schools. It organised about 20 workshops at the University of Macau with positive feedback, while some organisations and schools have invited Oxfam to hold Fair Traderelated activities again. “The first Fair Trade campaign [in the SARs] dates back to the 70s in Hong
‘Mysterious Cocoa Beams’ illustration books created by Un Chi Wai
Kong. Looking back on the last 10 years in Hong Kong promoting Fair Trade, it has become a fair success. Now, we can implement the Hong Kong model in Macau and encourage more traders to join producing Fair Trade products. In the beginning, not many people [wanted] to buy Fair Trade products in Hong Kong, either, but after many years by continually doing marketing campaigns more shop owners have started importing Fair Trade products to sell. I hope the Macau traders will do the same, and open more shops to sell [them],” Mr. Choy said. “I hold a positive view of Macau being a tourism city with the demand of many tourists coming, and possibility of partnership with hotels to encourage tourists to buy.” He added that Macau Oxfam is also planning to sell Fair Trade products at its office.
To be continued Besides the collaboration with the restaurants, six street theatre programmes co-organised with local drama group Zero Distance
Co-operative aim, through interactive theatre, to educate the public on unjust and fair trading. They will take place from March 18 to March 27 at various locations in Macau. Moreover, two family workshops are to be co-hosted by Fair Trade Hong Kong and Concept H. The workshops - titled ‘Fair Trade coffee grounds dying fabric workshop’ and ‘Fair Trade cookies-making workshop’ - aim to involve the public so that they will have a better understanding of Fair Trade. Nevertheless, the campaign will be an ongoing process for Calista Chan of Concept H. Ms. Chan told us that the shop is co-operating with the University of Macau, organising seminars and cooking workshops for UM Open Day 2016 this Saturday to introduce Fair Trade ingredients. “Promoting at the university is easier since young people are more likely to be receptive to the concept of Fair Trade,” Ms. Chan said. “We’re also actively contacting other schools and associations to see if they’re interested in running some cooking workshops in which we can introduce Fair Trade products”.
8 Business Daily Friday, March 18 2016
Macau Free Trade
Retail
Macau SAR encouraged to act as financial beacon Policies and strategies introduced by representatives from the Ministry of Commerce of the People’s Republic of China. Bami Lio bami.lio@macaubusinessdaily.com
M
acau should be “developed in way that can be promoted and copied by other regions,” said Gao Shangde, Assessor to the Adminstration Department of the Foreign Investment of the Ministry of Commerce in a seminar on the Investment Policy of China for 2016 delivered yesterday at Macau Tower. Also speaking at the seminar were Secretary for Economy and Finance Lionel Leong Vai Tac, Deputy Director of the Comprehensive Department of the Ministry of Commerce Li Jigang, Deputy Director-General of Taiwan, Hong Kong and Macau Affairs Department Kang Wen, Assistant Minister of the Ministry of Commerce Liu Haiquan, and Dr. Ding Kang of the Department of International Affairs of the People’s Bank of China. Gao’s speech - titled ‘Construction of Free Trade Zones and their Evolution’ - referenced the Guangdong Free Trade Zone, located next to Macau and occupying a total of 116.2 square kilometres, as a model for
boosting the city’s economy through new development. The Ministry of Commerce representative pointed out local measures that have widespread effects, noting that “taxation benefits terms were means to attract development in the past but they could not be easily copied and spread through the entirety of the Mainland.” Gao encouraged increased use of taxation benefits such as the multilateral currency swap agreement - titled the ‘Chiang Mai Initiative’ - promoting the benefits of the measures he described as “up to international standards and accepted by more that 70 countries in the world”. Gao explained that the 112 policies included in the FTZ agreement mainly concerned limitations on industries in which foreign corporations can invest. More new business opportunities and diversification of the city’s economy were the focus of Secretary Leong in his speech yesterday. Leong’s views were shared by Assistant Minister of the Ministry of Commerce Liu Haiquan, who expects development in the economies of the
Mainland, Macau and Hong Kong to be led by greater diversification and a more dynamic industrial structure. The seminar largely covered strategies and policies from a macro perspective. Dr. Ding Kang, Director of the International Affairs Department of the People’s Bank of China, delivered a speech entitled ‘Direction of Financial Reform in the Mainland,’ in which he broached the internationalisation of the RMB, financial reformation and the 13th Five-year Plan. Li Jigang, Deputy Director of the Comprehensive Department of the Ministry of Commerce, focused on issues encompassed in “deepening trade and economic co-operation and promoting One Belt, One Road (OBOR)” involving regional co-operation for areas including Macau and Hong Kong. Kang Wen, Deputy Director-General of the Taiwan, Hong Kong and Macau Affairs Department from the Ministry of Commerce, introduced policies and shared data centering on free trade arrangements under the Comprehensive Economic Partnership Agreement.
Secretary for Economy and Finance Lionel Leong Vai Tac was among those who spoke at the seminar
Samsonite net sales up 3.1 pct in SARs Luggage manufacturer and retailer Samsonite International S.A. said its net sales in Hong Kong and Macau amounted to US$77.2 million (MOP617.6 million) for 2015, a slight increase of 3.1 per cent compared to US$74.9 million one year ago, according to its filing with the Hong Kong Stock Exchange yesterday. The amount of net sales in the two cities included the contribution from Gregory brand that it acquired in 2014. If this contribution from the sub-brand is excluded, the company’s net sales in the two Special Administrative Regions fell 1.5 per cent year-on-year on a constant currency basis. Meanwhile, same-store sales in the two cities also registered a year-onyear drop of 6.5 per cent. Samsonite explained that these decreases are due to fewer tourist arrivals from Mainland China in the two Special Administrative Regions. Currently, the American company has six stores in Macau, comprising one in NAPE and five in Cotai. The company’s total profit attributable to equity holders jumped 10.7 per cent year-on-year on a constant currency basis to US$197.6 million for the year, while its total net sales posted a record US$2.43 million, which is a year-on-year increase of 11.9 per cent compared to last year. In terms of region, the company’s net sales in Asia, North America and Europe posted year-on-year increases of 12.8 per cent, 7.4 per cent and 17.7 per cent on a constant basis, amounting to US$947.6 million, US$811.3 million and US$544.7 million, respectively. K.L.
Funding
Tourism Fund disburses over MOP1.2 mln in 2015 Q4
Corporate
CEM welcomes Hong Kong engineers
CEM received the visit of a delegation from the Hong Kong Institution of Engineers’ (HKIE) Electrical Division Committee last weekend, with a view to introducing the technical developments applied in the Macau electrical networks system. The delegation visited CEM’s 220kV Lotus Substation, and was accompanied by Billy Chan, CEM Transmission and Distribution Department Senior Manager, as well as Unit Head Vincent
Lam and other CEM representatives. HKIE plays an important and leading engineering position in Hong Kong, with some of its members occupying managerial positions of important entities such as China Light & Power (CLP), Hong Kong Electric (HKE) and the Electrical and Mechanical Services Department (EMSD). These visits seek to strengthen communication as well as information, sharing knowledge and experience between the members of the power industry.
In the fourth quarter of last year the Government Tourism Fund granted over MOP1.2 million (US$150,200) to individuals and associations. Of the total, MOP177,000 was spent on Chinese opera concerts disbursed over 58 separate events, according to data published in the Official Gazette. The largest single amount attributed by the Fund went to the Federation of Macau Citizens Association to fund a ‘Silk Road Antiques Exhibition’ to the tune of MOP240,093. In support of heritage, for the 10th anniversary of the inscription of the Historic Centre of Macau on the World Heritage List MOP100,000 was granted to go towards a photo album of the Historic Centre. A further MOP155,000 went to the Macau Designers Association in support of the Tenth Macau Design Biennale. The General Union of Neighbours Association of Macau was granted MOP171,500 to celebrate a Three Lamps Community Fun Day Countdown and the Association of Thais in Macau (Associação dos Tailandeses de Macau) received MOP200,000 to fund the Thai Cultural Festival held annually in December. Aside from the arts, business was also represented, as the Macau Management Association received MOP75,000 to conduct the 2015 World Management Challenge. K.W.
Business Daily Friday, March 18 2016 9
China Stocks Regulation
Hedge fund scramble as authorities clean up “Wild East” They have attracted increased scrutiny in China amid fears the country’s relaxed registration-based licensing regime has allowed fraudsters and shadow-lenders to proliferate. Michelle Price and Engen Tham
C
hina’s hedge fund industry has been thrown into disarray as managers rush to comply with stringent new rules, introduced overnight, that could see over half the industry shut down by August, fund managers and lawyers told Reuters. Domestic and foreign hedge fund managers are scrambling to secure legal advice, hire qualified staff and launch new products in a bid to save their licences after the regulator threatened last month to close down around 17,000 “phantom” fund managers as part of a broader government financial sector crackdown. The new hedge fund rules aim to shrink a vast industry insiders describe as a “Wild East” rife with fraud. But many in the industry say the measures are heavy-handed and rushed, threatening to suffocate much-needed domestic and foreign institutional investment as the country faces its slowest rate of growth in more than two decades. “It is very difficult for the regulators to police such a vast landscape so now they’re trying to shake this number out,” said Effie Vasilopoulos, a partner at law firm Sidley Austin in Hong Kong. “This is a sensible thing to do, but the risk is that in trying to recalibrate, the pendulum is swinging too far in the opposite direction.” Hedge funds have attracted increased scrutiny in China amid fears the country’s relaxed registration-based licensing regime has allowed fraudsters and shadow-lenders to proliferate. Private fund registrations more than doubled in 2015 to reach more than 25,000, according to data from the Asset Management Association of China (AMAC), a self-regulatory body that oversees private funds. Roughly two-thirds of these are “phantom” fund managers that have not launched a product, and may be using the registration for illegal fund-raising or lending, said AMAC. While many “phantom” funds may have done nothing illegal, the AMAC licence, a requirement for operating
a hedge fund, has often been used as cover for fraudulent peer-to-peer lending platforms, industry insiders say. Some fraudsters also raise money upfront for a bogus fund that is never launched.
Raising the bar
Last month on the eve of Chinese New Year, a week-long holiday in mainland China, AMAC said it was raising the bar with new risk management and qualification requirements. There would also be penalties for tardy information disclosures and an obligation for new fund managers to obtain a legal opinion endorsing their operations - all with immediate effect. The association said it would revoke the licences of fund managers if they failed to launch products by two separate deadlines in May and August, sparking a race to save registrations, according to market participants. “The new rules are going in the right direction, but the problem is that they were published just before Chinese New Year with immediate effect and short compliance deadlines,” said Ying White, a partner at law firm Clifford Chance’s China office. “So there hasn’t been much time to get to grips with them, and there is still a lot of ambiguity in the rules.” Although the rules spell boom times for lawyers, who can charge up to 100,000 yuan (US$15,000) for a complex legal opinion, market insiders said they expect as many as 12,000 fund managers to de-register or be shut down. Several managers listed by AMAC as having no products told Reuters they were working on new products in a bid to save the registration. “We are aware of the new regulations,” said an employee at Shandong Province-based Ocean Brightstone Industrial Fund Management, who did not give their name. “We have new private fund products that we are currently working on.”
Talent dearth
A new requirement for senior executives to have fund management qualifications and experience is also proving tricky, because there is not
enough talent to go round, said one Shanghai-based banker who helps set up hedge funds. “In the short-term it’s really annoying for my clients, but in the long-term it’s a good thing for the industry,” she said. An employee at a small Shanghai hedge fund said the qualification requirement was causing headaches. “At the moment we only have one person who has taken the test, but now one of my colleagues is rushing to take it,” she said. “Thankfully the test is not hard.”
Key Points • Hedge fund managers in bid to save licences amid closure threat • More than 12,000 “phantom” fund licences expected to be revoked • Foreign funds using cross-border investment schemes also hit • Measures form part of broader government crackdown on fraud AMAC did not respond to requests for comment, but one person familiar with its thinking said staff felt the association had approved too many funds and did not have proper oversight of the market. This person confirmed AMAC, a state-run body supervised by China’s securities regulator and civil affairs ministry, had slowed approvals and was considering further restrictions. Although the rules are aimed at domestic funds, they are also hitting foreign fund managers that have setup onshore entities through special cross-border investment schemes, as well as foreign firms hoping to partner up with domestic funds. One executive at a multi-billion dollar overseas hedge fund looking to set up such an arrangement said his firm had had to delay its launch plans following the rule changes. “While attacking illegal entities, the restrictions are also impacting those funds that want to do real business,” said Elva Yu, a partner at Llinks Law Offices in Shanghai. Reuters
In Brief Shanghai Bourse
Green bond expansion on trial China took another step toward expanding financing for clean energy and environmental protection with plans for a pilot program for green corporate bonds to be traded on the Shanghai stock exchange. Under the trial, issuers are required to disclose details of projects that they will invest in using proceeds, according to a statement Wednesday on the exchange website. The bourse will encourage firms to get independent professional assessment on whether the projects qualify as green, according to the statement. It also will encourage financial institutions, brokerages, pension funds and other institutional investors to invest in the securities. Results
Li Ning returns to profit Chinese sportswear maker Li Ning Co Ltd yesterday said it returned to profit in 2015 after three consecutive years of losses, beating its own guidance of a break-even result on the back of a surge in online sales. China’s bestknown home-grown sports brand posted an annual net profit of 14.3 million yuan (US$2.2 million), compared with a 781.5 million yuan loss a year ago. Revenue rose 17 percent to 7.09 billion yuan. “Revenue of the e-commerce division increased by 95 percent year-on-year. This will emerge into growth for the whole year of 2016,” the company said. Trade
Decline will ease after March Declines in China’s foreign trade will ease after March, though trade conditions are expected to be more severe this year than in 2015, a spokesman at the Commerce Ministry said on Wednesday. “There is increasing growth momentum in foreign trade,” Shen Danyang told reporters in Beijing. “We expect declines in trade will gradually ease after March.” China’s February exports posted their biggest fall since May 2009, while imports also missed forecasts, slumping for the 16th straight month. Danyang blamed the weak trade performance in January and February on the Lunar New Year holidays. Education
More students study abroad in 2015 There were 523,700 Chinese students studying abroad in 2015, an increase of 13.9 percent year on year, statistics released by the Ministry of Education have shown. Of the 523,700 students, 25,900 were funded by the government, 16,000 by their employers, and 481,800 at their own expense, according to statistics made public on Wednesday. The ministry said 409,100 Chinese students studying abroad returned to China in 2015, an increase of 12.1 percent from 2014, including 21,100 funded by the government, 14,200 by their employers, and 373,800 at their own expense.
10 Business Daily Friday, March 18 2016
Greater China M&A
Merchants Group joins race to buy Baltic Exchange The two sources said China Merchants Securities was willing to pay a premium above other bidders to acquire the Baltic.
S
tate-run conglomerate China Merchants Group has made an informal bid to buy London’s Baltic Exchange, becoming the latest contender for the business that has been the hub of the global shipping market for centuries, two sources told Reuters. The approach was made by the group’s subsidiary China Merchants Securities, according to the sources, who declined to be identified as the matter is not public. “They are the latest (suitor) and certainly, with such a massive group, it shows how this is heating up,” one source said. An acquisition of the Baltic, which was founded in 1744, would give the Chinese conglomerate ownership of the industry’s benchmark indices - which could be further commercialised - and greater access to the multi-billion dollar freight derivatives market. It is the latest Chinese company to look at shipping and commodities targets in Europe, aiming to take advantage of a market downturn that has pushed down valuations of some firms. China Merchants Securities, which is listed in Shanghai, did not respond to repeated requests for comment. A spokesman for China Merchants Group in the Chinese city of Shenzhen said on Wednesday he was not aware of any bid for the Baltic Exchange, adding if there was a bid it would be processed by one of the group’s units, which are listed in various locations such as Shanghai, Hong Kong and Singapore. A Baltic spokesman said the exchange “to date hasn’t commented on the identity of anyone involved in the process and declines to comment on whether or not the Baltic is in discussion with CMG (China Merchants Group)”. On February 26 the privately held Baltic Exchange confirmed it had received a number of “exploratory approaches” after the Singapore Exchange Ltd (SGX) revealed it was seeking to buy the business. Both statements came a day after Reuters exclusively reported the Baltic had held talks with SGX and other potential buyers including CME Group, ICE and Platts. Last October, sources said the London Metal
Key Points • Baltic Exchange would give buyer edge in shipping • Founded in 1744, exchange is hub of global industry • Freight derivatives sector is multi‑billion dollar market Exchange (LME) had made an approach to buy the Baltic. Clearing houses and exchanges are all looking for a way to distinguish themselves at a time of growing regulatory scrutiny and weak commodities markets. Buying the Baltic would allow any of those entities to diversify their activities into freight. China Merchants Group is among the country’s biggest conglomerates, with interests spanning ports, shipping and financial services. In December, Chinese authorities approved its acquisition of staterun logistics group Sinotrans & CSC Holdings Co, part of efforts by Beijing to make sprawling government-controlled firms more efficient
as economic growth slows. That deal placed China Merchants’ estimated assets worth 624 billion yuan (US$96 billion) and Sinotrans & CSC assets of about 109 billion yuan under one roof. Separate sources had previously estimated the deal could be worth about 84 million pounds (US$118 million). Other Chinese firms looking at targets in Europe include COSCO, last month named by Greece as the preferred bidder for its biggest port, Piraeus. Since then, COSCO has merged with fellow state firm China Shipping Group to create one of the world’s biggest commercial shipping companies, China Cosco Shipping Corporation.
Competition
China Merchants still faces competition from SGX and others such as the LME, which was bought by Hong Kong Exchanges and Clearing in 2012 for US$2.2 billion. The Baltic is owned by around 380 shareholders, many from the shipping industry. It produces daily
benchmark rates and indices that are used across the world to trade and settle freight contracts. Last month Baltic Exchange chairman Guy Campbell wrote to the company’s wider members, comprising around 650 companies that include the shareholders, and said no formal offer had been received, adding that discussions “may very well lead nowhere”. In 2011, the Baltic - via a wholly owned subsidiary -launched the first central freight derivatives platform, called Baltex. Freight derivatives, which allow investors to take positions on freight rates in the future, are a multi-billion dollar niche market which is seen as another attraction. Any acquisition of the Baltic could face opposition from freight brokers who would fear some loss of their business. In the Baltic’s last annual report in the year to end-March 2015 it recorded an after-tax profit of 1.3 million pounds versus 901,809 pounds in 2014. Shipping industry sources say it could increase profitability, partly by charging more to data users. Reuters
Results
ZTE delays annual briefing after U.S. restrictions The firm said they would appeal against the U.S. export restrictions China’s ZTE Corp said it will delay the publication of its annual results because it needs to assess the impact of tough U.S. export restrictions imposed on the telecom
equipment maker last week. The U.S. Commerce Department has imposed restrictions on U.S. suppliers providing crucial components to ZTE for alleged Iran sanctions violations, a move likely to disrupt its global supply chain. ZTE was unable to finalise its annual results “pending a thorough self-assessment on the potential impacts of the restriction measures on the business and operation of the group,” the firm said in a filing to the Hong Kong stock exchange yesterday. ZTE’s board meeting would also be postponed, while its Hong Kong-listed shares would continue to be suspended, it added. The shares
last closed at HK$14.16, prior to a trading suspension on March 7. Goldman Sachs last week suspended its coverage on
ZTE, saying there was not enough information to determine an investment rating, price target and earnings estimates for the company.
Key Points • ZTE says assessing impact of U.S. supplier restrictions • Postpones board meeting, HK shares to remain suspended • ZTE in talks with U.S. Commerce Dept China official
Reuters reported on Wednesday that ZTE would appeal against the U.S. export restrictions after the firm’s costly lobbying effort failed to allay concerns about its business. A spokesman for the Chinese Commerce Ministry said ZTE was communicating with the U.S. Commerce Department regarding the export restrictions. In January, ZTE said preliminary net profit for 2015 rose 43.5 percent to 3.8 billion yuan (US$583 million). The company said it aimed to double its annual revenue by 2020. Hong Kong-listed shares of ZTE have dropped 20 percent so far this year. Reuters
Business Daily Friday, March 18 2016 11
Asia Monetary Policy
Cheap money sets the spotlight on Asian central banks Low rates have created problems for savers around the world, and debt levels are continuing to rise to unsustainable levels from China to Japan and in Europe. Rajesh Kumar Singh and Gayatri Suroyo
C
entral bankers in emerging Asia who are struggling to revive slowing growth and keep their financial systems stable are facing new risks as their counterparts in Europe and Japan plunge deeper into unconventional, uncharted policy territory. The Bank of Japan in February joined several European central banks in turning policy on its head with a radical prescription of negative interest rates to revive flagging economies, prompting calls from emerging markets for some form of global coordination to avoid a race to the bottom for rates and currencies. Concerns about potentially destabilising spillovers into the rest of the world are likely to be a key talking point over the coming week as central banks in Indonesia, Thailand, Philippines and Taiwan hold policy reviews. All four central banks have seen volatile swings in their currencies and stock markets over the past year as the world’s major central banks have taken markedly divergent policy paths. While many Asian economies have strengthened their defences since the 1997/98 regional financial crisis, they remain vulnerable to sudden capital outflows. Reserve Bank of India Governor Raghuram Rajan, a vocal critic of the massive stimulus rolled out in developed economies, called on Saturday for global central banks to adopt a system for assessing the wider impact of unconventional monetary policies. “While the jury is still out on the effects of unconventional monetary policy on the domestic economy, it
Bank Negara Malaysia Governor Zeti Akhtar Aziz told reporters there’s a need for greater policy coordination among countries to prevent overreliance on monetary policy.
seems fair to say that the benefits seem to be diminishing after years of effort, and the costs increasing,” Rajan said at a three-day International Monetary Fund (IMF) event in New Delhi. Low rates have created problems for savers around the world, and debt levels are continuing to rise to unsustainable levels from China to Japan and in Europe - feeding fears of a fresh blow to the global economy from financial market dislocation. Rajan’s concerns were echoed by his peers in emerging markets such as Indonesia and Malaysia, but few if any in the region expect the likes of
Key Points • Asia worries about risks from unconventional rich-world policies • Upcoming Asia c.bank meetings put spotlight on ‘race-to-bottom’ • But developed economies unlikely to go slow on policy easing
the ECB to give priority to any nasty side effects for other economies when setting policy. “The potential for this (to manage economic crises) is becoming more and more limited as monetary policy rates have already trended closer to zero and quantitative easing is becoming more significant,” Bank Negara Malaysia Governor Zeti Akhtar Aziz told reporters. Zeti, who retires next months after a 16-year tenure, said there’s a need for greater policy coordination among countries to prevent overreliance on monetary policy. Juda Agung, Bank Indonesia’s executive director for monetary and economic policy, concurred. “A low yield environment encourages excessive risk-taking behaviour. At the end, the credibility of the central bank is at stake,” Agung told Reuters earlier this week.
Negative impact
Indeed, a recovery in the euro zone has flagged over the past year and deflation looms large, while Japan’s economy is teetering on the brink of its fourth recession in five years.
There is scant evidence that the nearly US$3 trillion it has pumped into the financial system in the past three years has resulted in any sustained boost to economic activity. The International Monetary Fund in January cut its global growth projections for 2016 and 2017, with a slowdown in China rippling across producers of oil to cars to a range of consumer products. Even in the United States, which has started to tighten policy, inflation remains below the Federal Reserve’s target even after years of printing money to reanimate demand. Frederic Neumann, co-head of Asian economic research at HSBC, says that emerging economies are right to raise a voice of caution about unconventional policies. “Policy makers are backpedalling because it’s not entirely clear what the benefits of negative rates would be,” he said, referring to the ECB President Mario Draghi’s suggestion last week that further rate cuts were probably off the table. “However, it’s unlikely if Europe or Japan will set their policies to suit emerging markets.” Reuters
Australia
Unemployment rate unexpectedly falls The labour market has been one of the star performers in domestic economy. Australia’s jobless rate took a surprising drop in February even as employment all but stalled, a mixed bag that left the outlook clouded but did seem to lessen the chance of a cut in interest rates in the near term. Yesterday’s report from the Australian Bureau of Statistics showed unemployment fell to 5.8 percent in February, when analysts had expected it to stay at 6.0 percent. That owed much to a fall in the number of people looking for work since actual employment underwhelmed with an increase of just 300 in the month. Full-time employment rose a solid 15,900, only to be almost completely offset by a drop in parttime jobs.
Still, the monthly jobs numbers are notoriously volatile and the Reserve Bank of Australia (RBA) tends to focus on shifts in the unemployment rate to gauge the health of the labour market. Interbank futures continue to imply around a 50-50 chance of a rate cut by August, in part because policy steps by other major central banks were pushing the local dollar higher in a way that could prove a brake on exports.
Workers wanted
The labour market has been one of the star performers in an Australian economy grappling with the demise of a decade-long boom in mining investment. Key has been growth in a range of service sectors which have been generating more than 300,000 new jobs a year. An aging population has boosted health care, while a boom in visitors from China and the rest of Asia lifted tourism and education. Home
building is also hitting records and generating jobs in architectural and engineering services. Measures of demand for labour were also flashing green. A well-regarded survey of industrial trends released on Thursday showed strength
in home building had boosted conditions to their best in two decades. The survey from the Australian Chamber of Commerce and Westpac Bank also found the outlook for the labour market at its strongest since the mid-2000s. Reuters
12 Business Daily Friday, March 18 2016
Asia In Brief Myanmar
Proposal plan to form new government Myanmar President-elect U Htin Kyaw yesterday submitted to the Union Parliament a proposal plan of forming the new government for approval as part of the process in preparation for taking office at the end of this month. U Htin Kyaw’s proposal plan was forwarded two days after he was elected by the parliament as new President of Myanmar for the next five years. U Htin Kyaw proposed formation of 21 ministries with 18 ministers to be appointed and the proposal is set to be discussed in the parliament today.
New Zealand
Economic growth beats forecasts In the fourth quarter, strong growth in the services industries helped offset a fall in manufacturing and agriculture.
N
ew Zealand’s economy expanded more than expected in the fourth quarter but the tepid inflation picture means economists still expect more rate cuts from the central bank. The gross domestic product rose a seasonally adjusted 0.9 percent in the fourth quarter versus the prior quarter and 2.3 percent on the year, data showed yesterday. Economists had been expecting the economy to expand 0.6 percent on quarter and
2.0 percent on year according to a Reuters poll. While the economy ended 2015 on a solid footing “we are now well into 2016, with slowing global growth, dairy wobbles and tightening financial conditions flagging downside risks,” said ANZ Bank Senior Economist Mark Smith. “Viewed in combination with low inflation and easing inflation expectations, that’s an environment where the odds favour an even lower official cash rate,” he said. New Zealand’s central bank unexpectedly cut interest rates to a record-low 2.25 percent last on Wednesday and indicated that at least one more rate cut was likely. Economists are currently expecting another 25 basis point rate cut in June. The “surprisingly strong” growth “will not prevent the RBNZ from cutting interest rates from 2.25 percent to 2.00 percent in the coming months,” said Paul Dales, chief Australia and New Zealand economist for Capital Economics. While the economy had more momentum than expected “it’s only a matter of time before the weakness in the dairy sector spreads to other areas,” said Dales. Up until recently dairy formed the backbone of the economy,
Key Points • New Zealand’s economy expanded 0.9 percent quarteron-quarter in Q4 • Economists still expecting further rate cuts, despite solid growth • New Zealand dollar pushes higher on news representing around 25 percent of exports. However, global dairy prices have slumped more than 50 percent since early 2014 and the majority of New Zealand farmers are already operating below break-even. In the fourth quarter, strong growth in the services industries - which make up around 70 percent of the economy - helped offset a fall in manufacturing and agriculture. The New Zealand dollar, already trading higher after the U.S. Federal Reserve reduced its expectations for interest rate hikes in 2016 to two from four on Wednesday, got a further lift from the better-than-expected number. Sam Tuck, ANZ senior manager FX, said the kiwi got squeezed higher in early trading on U.S. dollar selling and “it was topped up by the Q4 GDP surprise.” Reuters
M&A
Canon agrees to buy Toshiba’s medical unit Canon has agreed to buy Toshiba’s medical equipment unit for 665.5 billion yen (US$5.9 billion), the companies said yesterday. Toshiba, which is selling the unit to help fund restructuring after a massive accounting scandal, said the deal would yield a profit of about 590 billion yen in the current fiscal year ending this month if it closes in time. The Japanese maker of cameras and office equipment last week won exclusive negotiating rights to buy Toshiba Medical Corp in a hotly contested auction. Canon has been trying for years to expand into high-margin medical devices. Cambodia
Prime Minister to reshuffle cabinet next month Cambodian Prime Minister Hun Sen said yesterday he has already requested to the National Assembly to reshuffle his cabinet on April 4 in order to increase work efficiency. “The upcoming reshuffle is to increase the government’s work efficiency. No any ministers are bad, but some ministers are not very active,” he said at a graduation ceremony of nearly 4,100 students at the Norton University. Hun Sen hinted that eight ministers would be either removed or reshuffled. Last month, Hun Sen warned Transport Minister Tram Ivtek and Agriculture Minister Ouk Rabun for not working actively.
Up until recently dairy formed the backbone of the economy.
Hacking
Software, printer problems delayed discovery of Bangladesh heist The officials saw the first signs that something was off on February 5. Serajul Quadir
The cyber thieves who stole US$81 million from Bangladesh Bank hid their tracks by installing malware that manipulated a central bank printer to hide evidence of the heist, according to a person familiar with the investigation. Earlier, two central bank officials filed a police report that said that a computer and printer the bank uses to order SWIFT wire transfers was manipulated so that authorities could not see records of outgoing wire transfer requests or receipts confirming that they had been received. Details about the issues with the computer and printer were among the first clues to surface as to how the attack was carried out. Last week, central bank officials briefed on the investigation said
Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk João Santos Filipe; Michael Armstrong; Óscar Guijarro; Kam Leong; Joanne Kuai; Bami Lio; Annie Lao; Kelsey Wilhelm Group Senior Analyst José I. Duarte Design Francisco Cordeiro Web & IT Janne Louhikari Photography Carmo Correia Contributors James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily. com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com Founder & Publisher
Business Daily is a product of De Ficção – Multimedia Projects
malware was suspected to have been installed on the central bank’s computer systems. Then, the hackers appeared to have stolen Bangladesh Bank’s credentials for the SWIFT messaging system, which banks around the world use for secure financial communication. The computer linked to the SWIFT system at Bangladesh Bank was supposed to keep records so they could be easily reviewed by bank staff, according to the police report. The officials saw the first signs that something was off on February 5, when they noticed a glitch with a printer that is set up to automatically print all SWIFT wire transfers. When they realised the previous day’s transactions had not been printed, they attempted to manually print them but were unable to do so, according to the report, which was reviewed by Reuters on Wednesday. One official asked that the printer be repaired before leaving the office that day, which was a Friday and the first day of the weekend in Bangladesh. Other bank employees
later decided to wait until the next day to fix it, according to the report. When the officials tried to access the computer the bank uses to send SWIFT messages, they got messages saying a file NROFF.EXE “is missing or changed.” They were eventually able to access the SWIFT messaging system on February 8 and print out messages after obtaining clearance to use other means to access the system from senior bank officials. When they printed the SWIFT messages there were three from the New York Fed seeking information about several suspicious transactions, which flagged them to the heist that this week resulted in the ouster of the central bank’s governor. A representative from Brussels-based SWIFT, a bank-owned cooperative that runs a secure private messaging system widely used for requesting money transfers, declined comment on Wednesday. SWIFT last week issued a statement saying that it was working with Bangladesh’s central bank “to resolve an internal operational issue at the central bank.” It added that “SWIFT’s core messaging services were not impacted by the issue and continued to work as normal.” Reuters
Business Daily Friday, March 18 2016 13
Asia Japan
Exports fall for 5th month Exports to Asia fell 6.1 per cent in February from a year ago. Stanley White
J
apan’s exports fell for the fifth month in a row in February, and although shipments to China picked up worries remain that fragile overseas demand could tip the world’s third-largest economy into its fourth recession in five years. Exports fell 4.0 percent year-onyear in February, Ministry of Finance data showed yesterday, more than the median estimate for a 3.1 percent annual decline. The improvement from January’s 12.9 percent slump, the biggest decline in shipments since 2009, mainly reflected the bounce in sales to China as factories resumed operations after the Lunar New Year. Still, while many analysts expect the economy to have rebounded modestly in the current quarter after shrinking in September-December, the bleak outlook for global demand has stoked worries about another contraction that will push Japan into its fourth recession in five years. “The Lunar New Year is certainly a factor because Chinese factory activity slows to a trickle and then resumes very quickly,” said Shuji Tonouchi, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities.
“Excluding that factor, there is still uncertainty about how China will rebalance its economy and how other emerging markets will cope.” The Bank of Japan said on Tuesday it would maintain its massive asset buying programme at existing levels but offered a bleaker view of the economy, suggesting it may roll out more stimulus as it struggles to reach an elusive inflation target.
China sales up
In February, Japanese exports to China rose 5.1 percent from a year earlier, the first increase in seven months, due to higher shipments
of motors and metal processing equipment. The Lunar New Year holidays came 10 days earlier than last year, meaning exports to China recovered sooner
Key Points • February exports -4.0 pct yr/yr vs forecast -3.1 pct • Exports to China +5.1 pct yr/yr, rebound after Lunar New Year • Economists still worry about emerging market demand
than usual, a finance ministry official told reports. Exports to Asia fell 6.1 percent in February from a year ago, slower than a 17.7 percent year-on-year decline in the previous month. Shipments to the United States gained 0.2 percent in February from a year ago, versus a 5.3 percent annual decline in January. Exports from South Korea and Taiwan tumbled in February, separate data showed earlier this month, in a warning sign that China’s economic slowdown is putting the brakes on export-oriented economies. Reuters
14 Business Daily Friday, March 18 2016
International In Brief WTO
Director says members willing to engage with Iran Members of the World Trade Organisation are willing to engage with Iran on its accession to the body, but a lot will depend on Tehran’s drive to make proposals during the early stages, the WTO’s director general said yesterday. Iran, the biggest economy outside the WTO, had signalled its intention to join as part of normalising its international trade relations once nuclear-related sanctions were lifted. “We are in the early stages but I think there is goodwill and engagement and I hope that the process will move as expeditiously as possible,” Roberto Azevedo told a media briefing in Cape Town. Israel
Parliament backs cap for CEO salaries A parliamentary committee on Wednesday approved a limit on annual compensation for Israel’s top financial executives, in what could be the first step to curb pay at the country’s biggest companies. Salaries at banks and insurance companies will be capped at 2.5 million shekels ($649,000), according to a statement published on the website of Israel’s Knesset, the country’s parliament. The draft legislation must still pass a second and third reading. Banks can still pay their executives more than the limit but will be forced to pay higher tax rates on any sum above that amount.
Monetary Policy
Swiss central bank keeps rate on hold It cut its 2016 inflation forecast and now sees consumer prices dropping 0.8 per cent.
S
witzerland’s central bank held interest rates at a record low and repeated a pledged to intervene in currency markets, a threat President Thomas Jordan has used to keep the franc from strengthening. Describing the nation’s currency as “significantly overvalued,” the Swiss National Bank kept its deposit rate at minus 0.75 percent, as expected by all economists in a Bloomberg survey. It lowered the prediction for growth this year to between 1 percent and 1.5 percent. In keeping rates on hold, Jordan breaks with colleagues at the European Central Bank and the Bank of Japan, who’ve acted this year to keep deflationary forces at bay, prompting criticism of competitive devaluations. The SNB could afford not to cut after last week’s ECB stimulus failed to have much impact on the franc versus the euro, the currency of its largest trade partner. Even so, Switzerland’s economy remains in a fragile state due to the
currency’s strength and deteriorating demand in China and other emerging markets, as well as commodity-producing countries. The SNB scrapped a 1.20 per euro cap on the franc in early 2015, and the
“Any further easing from the SNB will only occur if there is a re-acceleration of franc appreciation” Jordan Rochester, FX Strategist at Nomura International
currency was at 1.09888 before the announcement. “The global economic outlook has deteriorated slightly in recent months and the situation on international financial markets remains
volatile,” the SNB said in a statement yesterday. “Against this background, the negative interest rate and the SNB’s willingness to intervene in the foreign exchange market serve to ease pressure on the Swiss franc.” Governing Board member Andrea Maechler said in an interview earlier this month that foreign risks, including the potential for the U.K. to leave the EU, had increased. Still, the franc had become less of a haven of late, with capital heading for Japan instead, she said. Yet another drop in the price of oil has added to the challenges facing officials in Switzerland, where the annual inflation rate hasn’t been positive since 2011. The Swiss government cut its 2016 inflation forecast yesterday, predicting a price drop of 0.6 percent this year. According to a Bloomberg survey, Jordan and his colleagues have room on interest rates if they need to respond to any threats. Economists say the SNB could cut its deposit rate to as low as 1.25 percent. Bloomberg News
M&A
Three Qatar banks in merger talks Qatari lenders Al Khalij Commercial Bank, Ahli Bank and International Bank of Qatar are in early-stage talks on a merger that could pool assets worth more than US$30 billion, three people with knowledge of the matter told Reuters. Should the deal go ahead, it would be a rare example of consolidation among banks in the Gulf region, where powerful local shareholders are usually reluctant to cede control due to the prestige of owning their own lender. But with Qatari banks grappling with the impact of lower oil prices the logic for such mergers has become more compelling. Monetary policy
Norway cuts rates and signals more easing Central bank cut its benchmark interest rate to a record low and signalled it’s prepared to ease policy further to ward off a recession in western Europe’s biggest crude oil producer. The overnight deposit rate was lowered by 25 basis points to 0.50 percent, the Oslo-based central bank said yesterday. The decision was predicted by 18 of 20 economists surveyed by Bloomberg. “The current outlook for the Norwegian economy suggests that the key policy rate may be reduced further in the course of the year,” Governor Oeystein Olsen said in a statement.
Corruption
Brazilians protest after Lula gains immunity Popular anger at Rousseff is mounting as an investigation into bribes and political kickbacks at state oil company Petrobras taints her inner circle. Protests erupted in several Brazilian cities on Wednesday after President Dilma Rousseff named her predecessor Luiz Inacio Lula da Silva chief of staff and a taped conversation fed opposition claims the move was meant to shield Lula from prosecution. In the capital Brasilia, riot police fired pepper spray at more than 5,000 demonstrators who filled the streets outside the presidential palace and Congress building. They waved banners calling for the leftist leader’s resignation and Lula’s arrest. Thousands more demonstrators packed the main Avenue Paulista in Sao Paulo, Brazil’s financial hub, which was the center of national
protests on Sunday that drew more than 1 million people onto the streets in a call for Rousseff’s departure. With Brazil’s economy mired in its worst recession in a generation, popular anger at Rousseff is mounting as an investigation into bribes and political kickbacks at state oil company Petrobras taints her inner circle. Rousseff’s appointment of Lula, who was charged last week with money laundering and fraud as part of the probe, was slammed by opposition parties as a desperate attempt to rally support in Congress against impeachment proceedings. Lula, a 70-year-old former union leader whose 2003-2010 government helped lift some 40 million Brazilians out of poverty, remains one of Brazil’s most influential politicians. However, the corruption investigation has weakened his sway in Congress and there are growing signs that Rousseff’s main coalition partner is preparing to abandon the government. The hurried publication of Lula’s appointment as Rousseff’s chief of staff in a special edition of the government’s Official Gazette on Wednesday gave him immunity from all but the Supreme Court, delaying any attempts to prosecute him. The federal judge overseeing the graft probe said in a court filing released on Wednesday that taped telephone conversations showed Lula and Rousseff considered trying to influence prosecutors and courts in favour of the former president. He admitted, however, there was no evidence they actually carried this out. One recording, made public by
the court, showed Rousseff offering to send Lula a copy of his appointment “in case it was necessary” - a possible reference to it providing him with immunity. Facing a government backlash against his release of the recordings, Judge Sergio Moro - whose uncompromising tactics have been repeatedly criticized by authorities - said they allowed the public to scrutinize Brazil’s leaders. “Democracy in a free society requires that the governed know what their leaders do, even when they try to act in the protected shadows,” he wrote.
Government promises action
Lula’s lawyer, Cristiano Zanin Martins, said the decision to release the wiretaps by the court was arbitrary and intended to stir up demonstrations. The presidential palace said it would take action against the judge. Rousseff said Lula was chosen as chief of staff for his experience and that he has a history of championing sound economic policies and fighting inflation. She said his appointment would not mean he was above investigation as he could be tried by the Supreme Court. The former president’s return to Brasilia was overshadowed on Tuesday by the release of plea bargain testimony from Senator Delcídio do Amaral, who alleged Lula and Rousseff knew about the graft scheme at Petrobras and one of her ministers had tried to buy his silence. Lula, Rousseff and her ministers have denied any wrongdoing. Reuters
Business Daily Friday, March 18 2016 15
Opinion Business Wires
THE TIMES OF INDIA An arm of the finance ministry has recommended maintaining import duties on some steel products until March 2018, a government document showed, in a move to support the local steel industry and protect mills from cheaper imports. The government imposed a provisional safeguard import duty for 200 days on some steel products in September 2015 and last month set a floor price on imports to deter countries such as China from undercutting local mills, the first such move in more than 15 years. Steel imports into India dropped for a fourth straight month in February.
The US Federal Reserve’s monetary-policy reversal combined with the negative-interest-rate policies of the Bank of Japan and the European Central Bank has caused financial-market fluctuations and left emerging economies vulnerable to capital flight.
Maintaining the emerging-economy growth engine
THE JAPAN NEWS The government at a meeting of a relevant panel drafted a set of measures aimed at achieving its medium- and long-term greenhouse gas emissions cut targets. After soliciting public comments, the government is expected to adopt the measures at a Cabinet meeting before the May 26-27 summit of major nations to be held in Shima, Mie Prefecture. At the meeting of the Global Warming Prevention Headquarters, Prime Minister Shinzo Abe […] revealed an idea to set up a team comprising representatives from related ministries and agencies, and business and consumer organizations in order to encourage the public to boost efforts to reduce emissions.
THE STAR The ringgit, which has fallen by more than 15% against the US dollar since January last year, has made Malaysia very attractive, says Mark Mobius. Mobius, executive chairman of Templeton Emerging Markets Group, also noted that the country’s economic growth has been very good. He said although foreign reserves have come down, it was still at a good level while the public debt level was manageable. “It (ringgit) is 28% undervalued, which is why we have been buying local stocks,” Mobius said. He said this at the Securities Commission’s inaugural Global Emerging Markets Programme Conference.
JAKARTA GLOBE Indonesia is on the right trajectory to reduce its logistics costs to 19 percent of its gross domestic products (GDP) by 2020, thanks to government efforts to modernize ports and open up the logistics sector to foreign investment, according to an assessment from global consulting firm Roland Berger. Total logistics costs could further decline to 9 percent of the GDP by 2035 with further reform in port operating models and the development of better port infrastructure, Anthonie Versluis, Roland Berger’s global head of ports practices said.
T
he world’s emerging economies seem to be losing their dynamism. Countries that only a few years ago were being hailed for their resilience in the face of a global economic meltdown are now facing myriad challenges, reflected in significantly slower GDP growth. Is the emerging-economy growth engine breaking down? From 2000 to 2007, annual growth in emerging and developing economies averaged 6.5%. More impressive, from 2008 to 2010, when the advanced economies were in recession or struggling through a fragile recovery, they managed to sustain 5.5% growth. In fact, at the end of that period, average growth stood at a very healthy 7.5%. But then growth began to slow, with the annual rate falling to 4% in 2015. Even China, the largest and most dynamic emerging economy, recorded its lowest growth rate since 1990 (6.9%) last year, and the slowdown is forecast to accelerate this year. Many now argue that the emerging economies are settling into a “new normal” of slower growth, and that their days as the key driver of the global economy are over. Despite their current struggles, it would be premature to write off the emerging economies. For starters, even if these countries’ growth rates do not return to pre-crisis levels, their contribution to the world economy should remain substantial, given that their share of world GDP in purchasing-power-parity terms has increased significantly, from 43% in 2000 to 58% in 2015. But the emerging economies have much more to offer. With the right policies, they can tap into as-yet-unexploited growth potential and continue their progress toward convergence with advanced-economy income levels. The key to determining what those policies must be is to understand why growth has slowed in the first place. At first, emerging economies were hit by external challenges, including weakening world trade, low commodity prices, and tight financial conditions. Global merchandise trade slowed considerably over the last four years; in the first half of 2015, it contracted for the first time since 2009. Oil and metal prices have dropped more than 50% from their 2011 peaks. Moreover, the US Federal Reserve’s monetary-policy reversal, which entails a long-delayed increase in interest rates, combined with the negative-interest-rate policies of the Bank of Japan and the European Central Bank, has caused financial-market fluctuations and left emerging economies vulnerable to capital flight. These external factors could be cyclical, but it remains to be seen how soon they will pass. The recent emerging-economy slowdown is also the result of structural factors. When the emerging economies’ growth stories began, the gap between their actual per capita incomes and long-run potential enabled rapid capital accumulation and strong technology-enabled productivity gains. But after years of large-scale investment – which,
Lee Jong-Wha Professor of Economics and Director of the Asiatic Research Institute at Korea University
in China in particular, has led to excess capacity and resource misallocation – capital accumulation has moderated. Meanwhile, as countries move closer to the technology frontier, imitation and adaptation must give way to genuine innovation – no easy feat when innovative capabilities are lacking. So what can emerging economies do to improve their prospects? Though the particular policy mix will vary by economy, some priorities are clear. For one thing, countries must strengthen their resilience against adverse external shocks, including through efforts to strengthen their own financial systems. To reduce their vulnerability to volatile capital flows, they should promote exchange-rate flexibility, secure adequate international reserves, and adopt carefully designed capital controls. Emerging economies that rely excessively on exports need to rebalance their sources of growth toward domestic demand. Investment in public infrastructure, an improved investment climate, and social safety nets could all help to spur higher private-sector investment and household expenditure. Greater priority must also be given to structural supply-side policies targeting productivity growth. First, to strengthen human capital, emerging economies must complement their progress in educational attainment with efforts to improve schools’ quality, especially at the secondary and tertiary levels. Where necessary, education systems must be reformed to meet changing industry demand and skill requirements. Second, structural bottlenecks must urgently be addressed, through the streamlining of regulations, as well as reforms to promote competition in product markets and to increase the flexibility and efficiency of factor markets for labor, finance, and land. Emerging economies must lower barriers to market entry, support business operations, and increase access to finance. Obstacles to trade and foreign direct investment must be removed as well. Finally, emerging economies must work to strengthen their institutions. As it stands, corruption – facilitated by complex and burdensome regulatory environments, inefficient tax regimes, and weak judicial systems incapable of protecting investor and property rights – is pervasive in many emerging economies, hindering sustained growth. Improving governance and bolstering the rule of law are essential to boosting productivity and long-term GDP growth. The emerging-economy growth engine is not broken; it simply needs to be serviced. With appropriate policies and structural reforms, the emerging economies can recapture their dynamism and move onto an even stronger growth path – taking the entire global economy with them. Project Syndicate
“Emerging economies that rely excessively on exports need to rebalance their sources of growth toward domestic demand”
16 Business Daily Friday, March 18 2016
Closing Results
China Mobile 2015 profit slips
China’s largest mobile phone carrier China Mobile posted yesterday a 0.6 percent fall in 2015 net profit, its third straight drop in annual profit, as smaller rivals gained ground in the deployment of lucrative fourth-generation (4G) services. In a securities filing, China Mobile said net profit for last year fell to 108.5 billion yuan (US$16.7 billion) from 109.2 billion yuan a year earlier. Revenue climbed 2.6 percent to 668 billion yuan from a revised 651.5 billion yuan.
The results were largely as expected by analysts. The average estimates of analysts polled by Thomson Reuters SmartEstimates were 110 billion yuan for net profit and 662.6 billion yuan for revenue. Like smaller peers China Unicom Hong Kong Ltd and China Telecom, the company competes in communications with popular free messaging apps like Tencent Holdings Ltd’s WeChat, which continued to eat into revenue at network providers. Reuters
Index
Shenzhen stocks to go from worst to world’s best The Shenzhen Composite trades at 39 times reported earnings, almost half the level of last year’s peak.
J
ordi Visser, head of investments at US$1.4 billion U.S. hedge fund Weiss Multi-Strategy Advisers, has a bold prediction for the world’s worst-performing stock market. Not only does he foresee China’s Shenzhen Composite Index beating most global peers by the end of December, he expects the measure to top all others in the next three to five years. Foreign funds should have unprecedented access to the city’s equities this year when a delayed exchange trading link via Hong Kong opens up. In a situation he likens to the U.S. in the early 1980s, Visser sees China succeeding in its attempts to move from an economy driven by industrial expansion to one focused on technological efficiency. With bloated state-run companies clustered on the larger Shanghai bourse, Shenzhen’s success in attracting privately run start-ups makes it the best place to profit from this shift in the world’s second-largest economy, according to Visser, chief investment officer at Weiss in New York. The firm’s main hedge fund has outperformed the industry average this year and since its 2006 inception. “Five years from now, when you look at the largest companies in the world, I think the very high number
of them will be related to what’s happened in Shenzhen,” said 49-year-old Visser, who declined to provide details of the fund’s Chinese investments. The Shanghai Composite Index “represents China of the industrial revolution, but Shenzhen, because of all these innovative companies, represents the digital economy.”
Sales growth
The Shenzhen Composite trades at 39 times reported earnings, almost half the level of last year’s peak. While that’s higher than the 29 multiple of the technology-heavy Nasdaq Composite Index in the U.S., companies listed on the Chinese index are projected to boost sales by 37 percent this year, compared with a 4.4 percent increase for firms on the U.S. “In Shenzhen, there are a lot of companies with very fat growth,” Visser said. “Companies in that index are still making money. The PE continues to collapse as the market stabilizes because earnings are coming through. You have to look at multiples from sales growth as well.” China’s focus on reducing pollution and increasing automation resembles that of the U.S. three decades ago, where towns had sprung up within a 60-year period and Los Angeles was choked by smog, Visser said. In less than 30 years, Shenzhen has
Tourism
grown from a village across the border with Hong Kong into a sprawling city with 10 million migrants from all over the country.
‘Entrepreneurial boom’
“What really helped the U.S. in early 1980s was entrepreneurial boom having companies like Microsoft, Amazon, having leaders like Bill Gates and Steve Jobs,” Visser said. “China is going to have the same things. We will learn about entrepreneurs and there will be great stories about inventions that will be created there. The rest of the world will face China in a very different way the majority think about it from today.” One of the major hurdles for foreign funds investing in Shenzhen stocks will be removed when a link with Hong Kong finally begins. Premier Li Keqiang said at an annual news conference in Beijing Wednesday the government aims to begin the connect in 2016. Weiss Multi-Strategy is a unit of George Weiss Associates, a brokerage started in 1978. The firm’s main hedge fund returned 0.26 percent this year through March 4 and an annualized 6 percent since its October 2006 inception, according to a person with knowledge of the returns. The hedge fund industry posted an average decline of 0.9 percent this year and
an annualized loss of 0.14 percent since October 2006.
Emerging markets
Visser, who predicted in an October 2013 report that China would experience a bull market before the Shenzhen Composite rose almost threefold to a record last year, said he expects emerging markets to outperform those of the developed world in 2016. Investment banks shuttering offices in emerging markets, large fund outflows from the region and panic reaching developed markets are all signs that developing economies have reached a trough, he said. While China will slow in coming years, the country won’t experience a so-called hard landing, Visser said in a report last month. The nation’s bad debt is held in “zombie” state-backed firms and local governments akin to the U.S. automakers, banks
and mortgage companies that were bailed out or seized by the government during the global financial crisis, he said. Visser expects the Shenzhen bourse to overtake its bigger neighbouring exchange by market value to become one of the largest in the world as major state-owned enterprises (SOE) struggle to make the transition to a technology-led economy. The Shenzhen exchange is valued at 17.6 trillion yuan (US$2.7 trillion) compared with Shanghai’s 23.7 trillion yuan. Japan has a market capitalization of US$4.6 trillion. “There’s still too much of a focus on SOEs which to me will not grow in any meaningful way,” he said. “You’ve got a growth side, you’ve got an acceleration, all in Shenzhen. I am very much optimistic about how much the market can go higher.” Bloomberg News
Shenzhen Stock Exchange building.
Li Ka-shing
IPO
Mainlanders “critical” of Australian economy
CK Hutchison 2015 profit at HK$31.17 billion
Tibetan rush continues with new Shanghai listing
Tourism Australia, the Australian government’s tourism organization, is placing Chinese tourists high on its agenda. In 2015, more than 1 million Chinese tourists visited Australia and spent in excess of A$8 billion (some US$6.08 billion), official statistics from Australia has shown. A conference held in Sydney yesterday, “China Uncovered,” explored how to bring more Chinese tourists to the country. Tourism Australia Managing Director John O Sullivan said tourists from China were “critical” to the Australian economy. “Chinese spending in tourism accounted for 6 percent of the growth in the Australian economy last year as a whole,” he said. “They account for A$8 billion (around US$6.08 billion) out of A$37 billion (around US$28.12 billion), so you can see from that particular quantum, that they are hugely important.” Tourism Australia is working towards a specific China 2020 strategy that is structured around specific principles including aviation partnerships, geographic locations and understanding the consumer. It is assisted with offices located across Shanghai, Chengdu, Beijing and Guangzhou and social media platforms Weibo and WeChat. Xinhua
CK Hutchison Holdings, the ports-to-telecoms arm of Asia’s richest man Li Ka-shing, said yesterday it clocked a net profit of HK$31.17 billion ($4.02 billion) for 2015, a year in which it grappled with weak euro growth and in which sluggish oil prices weighed on its energy business. CK Hutchison was created by a group reshuffle announced early last year that segregated its property assets and increased exposure to overseas markets. The result was in line with an average estimate for net profit of HK$31.03 billion, according to 10 analysts polled by Reuters. Turnover stood at HK$316.32 billion. A fall in oil prices hurt its energy assets, but its Husky Energy Inc unit was able to post a smaller-than-expected quarterly loss for the fourth quarter as cost cuts helped cushion the impact of slumping oil prices. Last week, CK Hutchison said it had “fruitful” talks with EU regulators at a hearing aimed at dispelling antitrust concerns over its plan to become the top UK mobile operator by buying Telefonica’s O2 unit, which is crucial for Hutchison to expand its telecoms footprint across Europe. Reuters
The number of listed companies in southwest China’s Tibet Autonomous Region has risen to 13 after Tibet Huayu Mining Co. Ltd joined their ranks. With the government encouraging Tibetan IPOs to boost the region’s economy, Huayu’s shares on the Shanghai stock exchange jumped by the maximum allowance of 44 percent on Wednesday’s first day of trading and by the daily limit of 10 percent to 11.37 yuan (US$1.75) per share yesterday. Established in 2002 in Lhasa with a registered capital of 468 million yuan, the company is engaged in exploitation, processing, sales and prospecting of non-ferrous metal. It has two mining projects for production and four for prospecting, with total assets exceeding 1 billion yuan. The China Securities Regulatory Commission (CSRC) approved Huayu’s IPO application in November. Chen Manjiang, deputy director of the regional government’s finance office, said the listing indicates the capital market is becoming an increasingly important part of the regional economy. In March last year, the CSRC vowed to prioritize IPOs by Tibetan companies zand create a “multi-layer equity market” in the region. Xinhua