Macau Business Daily March 22, 2016

Macau Foundation predicts gaming revenues stabilisation Gaming Page 4

Tuesday, March 22 2016 Year IV Nr. 1006 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Joanne Kuai Employment

MUST: local employees’ confidence hits new low. Page 5

Gaming

Wells Fargo predicts -15 pct y-o-y growth for March. Page 6

Consumption

Mainlanders’ habits strengthen shift towards services economy. Page 10

www.macaubusinessdaily.com Third board

Beijing stock market gains momentum thanks to SMEs. Pages 10&11

Asset-freezing Bill Passes First Reading Legislation Getting up to speed on international obligations. And plugging a legal vacuum. A bill proposing a regime of counter-terrorist asset-freezing passed its first reading at the Legislative Assembly yesterday. Legislators unanimously voted in favour of the bill. Authorising the MSAR Gov’t to meet United Nations stipulations. Authorities also disclosed a workin-progress cash declaration scheme. Page 2

HK HSI March 21, 2016 20,684.15 +12.52 (0.06%) Hong Kong Exchanges and Hengan International

+5.58% +2.15%

Sino Land Co Ltd

+2.04%

Belle International Hold-

+1.95%

China Merchants Holdings

+1.65%

Cheung Kong Property

+1.50%

Cathay Pacific Airways Ltd

-2.02%

Sands China Ltd

-2.22%

China Resources Land Ltd

-2.40%

Li & Fung Ltd

-2.41%

China Overseas Land &

-2.49%

Galaxy Entertainment

-2.87%

Source: Bloomberg

Ringing the changes Gamble on smart phones.

It’s the future of gaming, insiders say. Industry predicts market will grow bigger and faster.

Inflation up

In the same boat

Economy February inflation increased 3.88 pct y-o-y.

Driven by climbing house prices and parking rentals. As well as more expensive eating out. For the twelve months ended February 2016, the average CPI jumped 4.36 pct y-o-y. Page 3

Stocks Rout China’s central bank has reached out to the U.S. Federal Reserve. Soliciting advice regarding last Summer’s stock market rout. Chinese authorities want to know how America tackled the 1987 crisis. Pages 8&9

19° 21° 16° 23° 11° 17° 12° 14° 15° 18° Today

Wed

Thu

I SSN 2226-8294

Fri

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Source: AccuWeather

iGaming Page 7

2 Business Daily Tuesday, March 22 2016

Macau SECURITY Government considering cash declaration rules as well

Terrorist asset-freezing bill passes first reading All 29 attending legislators voted in favour of the government-backed bill seeking to plug Macau’s legal vacuum regarding executing anti-terrorist obligations designated by the United Nations.

Kam Leong kamleog@macaubusinessdaily.com

T

he Legislative Assembly unanimously approved the first reading of the bill that proposes the establishment of a counter-terrorist asset freezing regime in the Special Administrative Region yesterday. The regime aims to plug the city’s legal vacuum of financial sanctions for terrorist activities.

According to Secretary for Administration and Justice Sonia Chan Hoi Fan, the city lacks a legal regime to execute anti-terrorist asset freezing designated by the United Nations Security Nation as indicated in a mutual assessment report conducted

by the Asia/Pacific Group on Money Laundering (APG) and the Group of International Finance Centre Supervisors (GIFCS) in 2007.

“It is necessary for the MSAR Government to plug this legal hole through legislation of an asset freezing scheme in order to fulfil the government’s international obligations and to cope with the [next] assessment report [this year],” the Secretary told legislators when introducing the bill yesterday.

The draft bill proposes the local government immediately freeze assets owned by terrorist groups or individuals in the territory upon the designation of the UN Security Council under the regime.

In addition, it allows the authorities to list designated individuals or entities that are believed to finance terrorism.

The proposal also suggests empowering the Chief Executive to designate persons or entities found committing financial terrorist acts and freezing their assets held in the Special Administrative Region. Such a designation would be effective for two years, whilst the top official could extend the term if necessary.

For any act of asset-freezing for designated persons or entities, the Chief Executive would need to

publicise his dispatches in the city’s Official Gazette, the bill regulates.

Cash declaration regime on the way

Nevertheless, directly elected legislator José Coutinho doubted whether the MSAR Government could enhance its supervision and suppression of financial terrorism in the city by only such a bill. Mr. Coutinho was the only legislator that made a statement during yesterday’s discussion on the proposed law.

“In fact, the 2007 report also indicated the city’s lacks of cash declaration regime and proper equipment to

‘The proposal also suggests empowering the Chief Executive to designate persons or entities found committing financial terrorist acts and freezing their assets’

supervise local imports and exports.

How can we improve other points indicated by the report?” the legislator queried.

The director of the Financial Intelligence Office, Deborah Ng Man Seong, told the legislator that the government is planning to conduct a cash declaration scheme at border checkpoints in order to combat financial crimes in the territory.

“Since the report released in 2007, a cross-department working group has conducted a number of policy studies and research. For example, we did a study on whether we should establish a cash declaration scheme at border checkpoints… The establishment of the scheme would require amendments to local laws.

But we are working on it, hoping we can carry out [the declaration regime] soon,” the Office head claimed.

She added that the city’s Customs have been conducting random checks on the amount of cash individuals bring into the territory. “If [Customs officers] find these individuals suspicious, they would report to the Judiciary Police and our Office.

Meanwhile, via our data base, we will check whether these individuals are related to any financial crimes,” the official said.

Budget

AL adds supplementary budget of MOP5.58 million The city’s legislators approved a supplementary budget of some MOP5.58 million (US$697,828) for the Legislative Assembly (AL) this fiscal year – generated by the legislature’s own surplus during the 2015 fiscal year.

According to the legislative body’s 2015 accounts approved by its members yesterday, its surplus for the last fiscal year totalled MOP6.08 million, which is nearly half the expected surplus of MOP11.8 million in its 2015 budget.

Due to some MOP500,000 of the total surplus already being allocated to this year’s AL account, the legislature only proposed yesterday adding the remaining MOP5.58 million as its supplementary budget for this fiscal year.

For 2015, the city’s legislative organ raked in some MOP154.8 million-worth of revenues, which is 7.1 per cent lower than the expected MOP166.7 million in the budget.

Meanwhile, its total expenditure amounted to MOP148.7 million, which also decreased by 10.8 per cent compared to the budgeted expenses of MOP166.7 million.

Yesterday’s approval of the supplementary budget suggests the legislature’s total budget for this fiscal year has been made up to a total of MOP195.5 million from the originally granted MOP183.91 million. K.L.

Business Daily Tuesday, March 22 2016 3

Macau Island Hospital

MOP9 mln for foundation quality control of new hospital

IBS

Over MOP9 million is being deployed by the government over two years for ‘quality control’ on the construction of the foundations of the General Hospital and the Logistics Support building of the new healthcare complex under construction adjacent to the Estrada do Istmo in Cotai. The

quality control contract grants the group over MOP6.9 million in 2016 with a further MOP2.7 million in 2017.

The contract was awarded to the Civil Engineering Laboratory of Macau, who oversee a separate company handling the MOP380 million contract for the construction of the foundations. The two buildings’ completion date is expected to be around the end of 2017.

Inflation

Inflation up 3.88 pct in February For the twelve months ended February 2016, the average CPI jumped 4.36 pct y-o-y.

In addition, average prices for Education increased 8.92 per cent yearon-year on account of higher tuition fees, whilst costs for Transport increased 6.5 per cent attributable to higher rental for parking spaces.

By contrast, the average price of Clothing and Footwear dipped 3.44 per cent year-on-year in the month, while Communication costs dropped an average 1.39 per year-on-year.

On a month-on-month comparison, the CPI dipped 0.96 per cent. In particular, the price index of Recreation and Culture surged 8.47 per cent month-on-month, due to soaring charges for package tours over Chinese New Year.

Average prices of Food & Non-Alcoholic Beverages were some 1.86 per cent more expensive than they were for January, while average costs for Transport rose 1.13 per cent month-on-month despite costs for

Kam Leong kamleong@macaubusinessdaily.com

T

he city posted an inflation of 3.88 per cent year-on-year for February, driven by the continuous climb in housing and parking rentals, as well as charges for eating out, the latest data released yesterday by the Statistics and Census Service shows.

Last month, the local composite consumer price index (CPI) rose by 4.05 points year-on-year to 108.39.

The inflation rate, compared to 3.81 per cent recorded for January, was slightly higher by 0.07 percentage points.

The price index of Alcoholic Beverages & Tobacco registered the most notable jump in the month, up 39.2 per cent year-on-year due to the hike in tobacco tax.

Bloomberg

gasoline posting a decrease during the period.

For the twelve months ended February 2016, the average CPI of the Special Administrative Region

jumped 4.36 per cent from the previous period. Meanwhile, the index registered a year-on-year increase of 3.85 per cent for the first two months of this year.

Macau

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4 Business Daily Tuesday, March 22 2016

Macau Education

IFT debuts Performance Arts Event Management Course

The Institute for Tourism Studies will open a 189-hour course for Performance Arts Event Management, with programme applications invited until 24th March. Courses - beginning next month and costing MOP9,000 for residents – are subject to a full refund by the Cultural Institute for students who attend 80 per cent of the course and pass exams.

Instructors from Singapore and Hong Kong will join Macau instructors in teaching the six-part course comprising: Introduction to Performing Arts, Performing Arts Administration, Performing Arts Marketing, Events and Production Management, Stage Management and Techniques, Concepts of Stage, and Lighting and Sound Design. The objective is to teach administration, programming, production and the technical roles of performance arts.

Yachting

Macau Foundation

Immigration post at Fisherman’s Wharf for leisure craft

Deja vu gaming revenues this year

A

new immigration post, exclusively for leisure craft has been ordered by the Chief Executive to be set up on the docks of Macau Fisherman’s Wharf. The order goes into effect April 1 and is destined for ‘people embarking from leisure craft that enter or exit the Special Administrative Region of Macau’. The post is mandated to ‘operate when necessary’.

In 2013, the local government signed the Free Yacht Travel scheme between Macau and Zhongshan, in Guangdong. The scheme was first scheduled for implementation in

the middle of last year but was later delayed to the end of September, then the end of 2015. The Water and Marine Bureau website still states that a guide on the Free Yachting Scheme will ‘soon be available’.

Legislator Zhen Anting, in a written interpellation about the scheme, points out the lack of information three years after the signing of the agreement, saying: “The Bureau has not released any information or guidelines regarding the sailing environment, safety concerns and Customs procedures for the scheme,” reported Business Daily. The response from Bureau Director Susana Wong Soi Man was to blame the

city for not yet finishing inspection of the border checkpoint or confirming procedures for Macau yachts to enter Mainland waters.

The Director also said that the local yachting guide - providing information such as Customs procedures for yacht arrivals and departures, sailing instructions and information about local sea routes – could not be finished until the software and hardware systems of Guangdong City are ready, despite Macau’s being completed already.

A 24-hour border checkpoint at Coloane pier has been in operation since June of last year. K.W.

Bloomberg

Gaming revenues in 2016 will not be very different from last year’s, predicts the president of Macau Foundation.

The institution disbursed MOP2.3 billion in subsidies in 2015.

The Macau Foundation president is confident that gaming revenues have stabilised. During a lunch with English and Portuguese media Wu Zhiliang told Business Daily he expects 2016 gaming revenues to be similar to those of 2015.

Macau Foundation gets its revenues from the gaming taxes the government imposes on the six operators, using some of them to fund institutions and ac­tivities every year. Gaming operators pay 39 per cent gaming tax.

The Foundation continues to maintain a favoured relationship with local associations as these are regarded as the best way to benefit a larger number of residents.

Last year, Macau Foundation supported 2,371 projects presented by 806 institutions and individuals in the amount of MOP2.3 billion ($US287.5 million). Education, social affairs, equipment and human resources are some of the main areas supported by the Foundation.

Speeding up the construction of a multifunctional centre near Sun Yatsen Avenue is one of the Foundation’s tasks for 2016. The centre, to be built on land currently occupied by the parking lot of the Science Centre, will provide a multifunctional place for conventions, exhibitions and cultural activities as well as Macau Foundation’s new offices. The first phase of the project is expected to be ready in 2018. P.A.A.

Corporate

MGM inks MOP8 million-worth of SME deals

MGM has signed 542 deals with local SMEs, amounting to more than MOP8 million in total, spread across 100 vendors. The initiative, whose first session was held on November 30 last year, celebrated its second instalment on Friday and focused on facilities management goods or services that local SMEs can provide. MGM will

continue the quarterly meetings, focusing on specific themes for products regularly sourced by the company.

This time, the majority of suppliers fell into specific subgroups: 67 belonging to ‘Micro SMEs’, 16 to the ‘Made in Macau’ segment and 28 classified ‘Young Entrepreneurs’. The initiative is supported by the Macau Chamber of Commerce, IPIM, CPTTM and the Macao Economic Services.

IFT Irish Food and Whiskey Week kicks off

In a seminar yesterday IFT kicked off its Irish Food and Whiskey week with Martin Moran, Master of Wine from Ireland, with attendants learning about the distillation and production process of whiskey and its various types. A guided tasting culminated the seminar, which

welcomed over 40 participants from the local hospitality sector. Renowned Irish chef James Fox, a veteran of over 12 years in professional kitchens, kicked off the cuisine side of the event, set to run until March 27. Fox has worked in some of Dublin’s most famous restaurants and works as a Lecturer of Culinary Arts at the Dublin Institute of Technology.

Business Daily Tuesday, March 22 2016 5

Macau Employment

Society

Local employees’ confidence hits new low However, satisfaction towards work seems to be increasing.

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his year, local employees’ confidence towards the city’s overall job market, their companies’ development and individual growth has declined compared to last year, according to the Macau Employee Confidence and Satisfaction Index 2016, released by the Macau University of Science and Technology (MUST) yesterday.

The employee confidence index scored 3.04 on a 1 to 5 scale, a 4 per cent decline from 3.15 scored in 2015. It’s the third lowest score since MUST has been conducting this annual survey since 2007, and the lowest since 2011.

Previously, the employee confidence index hit its lowest point of 2.90 in 2009, and 2.95 in 2010, recovering at the beginning of the decade and hitting its highest score in 2015.

This year’s survey, conducted from February 15 to March 4, interviewed 1,004 residents aged 16 and above and full-time employees by phone.

Satisfaction up

While confidence is sagging, local employees’ satisfaction towards their work has increased. The satisfaction index increased 1.6 per cent year-onyear to 3.36 from 3.31 scored in 2015.

The general satisfaction is the highest

in the last ten years since MUST has conducted the survey.

The sub-index of satisfaction towards salary and welfare (3.27) and working conditions (3.35) registered growth of 1.9 per cent and 1.0 per cent year-on-year, respectively, while satisfaction towards work stability has dropped 1.8 per cent to 3.59 but is still the highest. Satisfaction towards self-development remains the same as the 3.24 of the previous year.

Casino workers less happy

The survey results also indicated that employees in the gaming industry showed less confidence and satisfaction compared to people working in other sectors. Of the 1,004 respondents, 251 were casino workers, 82 of whom were dealers.

Their confidence index was 2.92 in 2016, a 3.5 per cent decline from 3.03 in 2015. This compared to the general score of 3.04 is 0.12 lower but a slightly milder decline.

Their satisfaction index was 3.27 in 2016, a 4.1 per cent increase compared to 3.14 in the previous year.

Still, compared to the general scores of 3.36 gathered from workers from all walks of life, it’s 0.09 points lower.

MUST scholars indicate that the continuing gaming revenue slump has hurt the confidence of casino workers, hence a less optimistic view for prospects. However, since the gaming operators have been trying to improve workers’ working condition and even awarded rises, the workers’ satisfaction has registered growth.

FSS subsidies, allowances may increase in July The social security pension and subisidy for the disabled are to be increased by 2.99 per cent to MOP3,450 (US$431) per month from MOP3,350, Iong Kong Io, the President of the Administrative Committee of the Social Security Fund (FSS) told reporters following a meeting held by the Committee for the Co-ordination of Social Affairs (CPCS) yesterday.

It has been suggested that the Social Security Fund (FSS) and other subsidies be increased in July this year. Mr. Iong said the reason behind the decision is that the inflation rate was 4.56 per cent for the whole year of 2015.

Relief payments are to be increased by 3 per cent as MOP2,266 per month, it was suggested. Other one-time payments such as unemployment allowance and sickness allowance are also to be increased at an average of 3 per cent.

Mr. Iong added that for welfare payments there were 88,855 beneficiaries last year with the total amount of MOP2.9 billion disbursed. For social subsidies, there were another 17,448 beneficiaries last year with MOP43 million handed out.

CPCS held its first meeting on activity plans for the year 2016 yesterday. Other topics discussed included the draft law of the ‘Parttime Work System’, and ‘Amendment to the Labour Relations Law and the Law for the Employment of Non-resident Workers’.

6 Business Daily Tuesday, March 22 2016

Macau

Gaming

Wells Fargo predicts ‑15 pct y‑o‑y growth for March EBITDA estimates positive for 2016.

W

ells Fargo expects Macau revenues to revert to the downtrend this month with an expected decline of 15 per cent year-on-year for March.

The banking and financial services company pinpointed a limited impact from recent policy announcements, a cutback by Chinese tourists on luxury policy, speculation that the government could be ‘throttling supply growth’, an easing of Chinese macro policy, and an improvement in

investor sentiment tainted by supply growth remaining ‘an overhang’.

Risks to the major gaming operators revolve primarily around a slowdown in the Chinese market, with a ‘softer China macro-environment’ perilous to both Las Vegas Sand (LVS) and Melco. Risks to Melco also include a slowing VIP market, while LVS is more threatened by ‘slower mass gaming growth in Macau’.

MGM and Wynn risk slowdowns if Macau growth moderates and revenues slow, with a delay in the Cotai

construction of Wynn Palace and excess supply growth also threatening the operator.

EBITDA (Earnings before interest, taxes, depreciation and amortization) for the four operators cited in the report estimate increases for 2016, as compared to last year, with the exception of LVS’s Venetian, Melco’s Altira and City of Dreams properties, and MGM China. LVS’s Parisian property’s 2016 estimate is US$58 million, increasing to US$289 million by year-end 2017.

Risk-reward estimates for MGM were the only positive outlook of the four operators, based upon MGM’s

strong Las Vegas outlook. Meanwhile, Wynn’s new property opening in June ‘could be a catalyst’, and both Melco and LVS could benefit from Wells Fargo’s long-term view of the Macau gaming market while all three operators have ‘equal/risk reward given near term uncertainty’. K.W.

289 Million USD Expected EBITDA for Parisian in 2017

Integrated Resort

Gaming

LVS plans to build US$10 bln integrated resort in Korea

Grand Lisboa opens new gaming area

“Whatever it takes” to convince Korean Government.

Las Vegas Sands (LVS) will do “whatever it takes” to progress its planned restricted-entry casino in South Korea, LVS Corp. Managing Director of Global Development George Tanasijevich told the Korea Times on Sunday.

“Our interest level is high,” Tanasijevich told the South Korean publication, “because we think the opportunity presented by the (Korean) market is a very strong one.

So we will follow the guidance of the Korean Government and Korean people.” Tanasijevich also serves as CEO of Marina Bay Sands (MBS) in Singapore, where the interview was conducted.

The CEO said that LVS was willing to invest US$10 billion in the project, more than double the US$5.6 billion

price tag for the Marina Bay casino resort. Efforts to establish a MICE centre in South Korea had previously been denied given a requirement for legal gaming for locals in Sands’ business model, the publication reported.

The project is not capped at US$10 billion, Tanasijevich said, and could increase depending upon “how many buildings we are allowed to build and how many locations we are allowed to build in.” The CEO described the country as a “top development destination for us”.

Approval for the project depends upon passage of legislation in the National Assembly, with LVS pushing to sway public opinion as “the casino will occupy less than 5 per cent of the total integrated resort area.” K.W.

Punters win HK$2 million.

Approximately 870 square metres of gaming space are now part of the Grand Lisboa’s Upper First Floor, adding 10 gaming tables and over 40 slot machines to the space as well as a dining area. Inaugurated on Friday, the new gaming area played host to a baccarat tournament and a monthly draw for HK$1 million. The baccarat tournament awarded HKD1.46 million in winnings in the three-part competition, with

HK$1 million awarded to a Mr. Wang from Anhui. The winner of the monthly draw was a Mr. Wang from Beijing.

All the winners were from Mainland China.

SJM Holdings Ltd., operator of the casino-hotel, in a filing with the Hong Kong Stock Exchange in February announced that its profit from last year was HK$2.47 billion, a 63.4 per cent year-on-year drop compared to the HK$6.73 billion reported in 2014, reported Business Daily. For the full year of 2015, SJM Holdings saw its gaming revenue drop by 38.7 per cent compared to the previous year, at HK$48.59 billion, compared to the HK$79.27 billion generated in the previous year. EBITDA (Adjusted earnings before interest, taxation, depreciation and amortization) fell 50.3 per cent to approximately HK$3.86 billion. K.W.

Business Daily Tuesday, March 22 2016 7

Macau iGaming

Mobile gaming market in Asia emerging with social games Gaming operators also aim to attract new demographic via emerging technologies.

Technology leads

Annie Lao annie.lao@macaubusinessdaily.com

A

s smartphone penetration continues to skyrocket, social casino gaming on mobile devices is a growing market with huge potential although competition is fierce, Jamison Selby, Vice President of Games at b Spot said at iGaming Asia Congress which kicked off yesterday. “We need to stay competitive by going ‘mobile’ in a growing online gaming market. It’s growing very quickly compared to the land-based operators of casinos,” said Mr. Selby.

John Oh, Director of Neowiz in Seoul added that there has been a growing demand in the mobile gaming market since 2007, with about 1,600 million global mobile users in 2015 and expected to grow faster than desktop users. He indicated that in social casino games in Korea, mobile devices generate 59 per cent of the revenue, while PC takes the other 41 per cent. The iGaming expert also added that video ads not only help boost revenue but helps increase the retention rate of customers.

time-consuming compared to online social casinos.

They use their phones to play on a daily basis and for social gambling. It’s more like a competition and they want to show off the results to their friends,” said Mr. Li.

iGaming Asia Congress, being held at Grand Hyatt, winds down tomorrow. Over 330 igaming operators, vendors and industry professionals are attending, sharing the latest innovations, trends and developments in the mobile gaming industry.

Huge profit

Online social casinos are considered to be a huge

market to be explored.

“Currently, only 2 to 3 per cent of players pay to play at online social casinos.

However, for example, a company in the US makes approximately US$1 million per day. In social gaming, you have a huge amount of gamblers worldwide,” Kevin Li, CEO of Inteplay, said. “A lot of algorithm in land-based casinos can

be applied to online social casinos. We launched an integrated game of slot machines last year. Now we have more than one million players”.

“People will be more relaxed in social gambling.

They invite more players to join the game. There are many ways to keep them attracted. Going to gamble in a real casino is more

Virtual reality technology has been adopted to transform the horseracing viewing experience, said Oonagh Chan, head of broadcasting for Hong Kong Jockey Club.

Ms. Chan said that adopting new technology is one of the means of attracting a new demographic.

“We’ve been using mobile devices in virtual reality games to enhance immersive experiences for horseracing,” said Ms. Chan. “Taking online gambling into a virtual casino for horseracing, therefore increasing customer engagement, have information digitized and providing virtualization of horseracing as an alternative.” She added that the current technique can do this including: Samsung Gear VR, Google Cardboard, YouTube 360-degree videos and Formula 1 immersive 360.

“We need to keep people engaged for longer in social games. Although the cost is high, it will go down as camera equipment is getting better as well as the content,” John English, president of WEBE Gaming, added.

8 Business Daily Tuesday, March 22 2016

Greater China Stocks Rout

A plea for help: How Beijing asked the Fe Messages show how alarmed Beijing has become over the deepening financial turmoil and offer a rare insight into one of the least understood major central banks.

Jason Lange

C

onfronted with a plunge in its stock markets last year, China’s central bank swiftly reached out to the U.S. Federal Reserve, asking it to share its play book for dealing with Wall Street’s “Black Monday” crash of 1987.

The request came in a July 27 email from a People’s Bank of China official with a subject line: “Your urgent assistance is greatly appreciated!”

In a message to a senior Fed staffer, the PBOC’s New York-based chief representative for the Americas, Song Xiangyan, pointed to the day’s 8.5 percent drop in Chinese stocks and said “my Governor would like to draw from your good experience.”

It is not known whether the PBOC had contacted the Fed to deal with previous incidents of market turmoil. The Chinese central bank and the Fed had no comment when reached by Reuters.

In a Reuters analysis last year, Fed insiders, former Fed employees and economists said that there was no official hotline between the PBOC and the Fed and that the Chinese were often reluctant to engage at international meetings.

The Chinese market crash triggered steep declines across global financial markets and within a few hours the Fed sent China’s central bank a trove of publicly-available documents detailing the U.S. central bank’s actions in 1987.

Fed policymakers started a two-day policy meeting the next day and took note of China’s stock sell-off, according the meeting’s minutes. Several said a

Chinese economic slowdown could weigh on America.

Financial market contagion from China was one of the reasons cited by the Fed in September when it put off a rate hike that many analysts had expected, a sign of how important China has become both as an industrial powerhouse and as a financial market.

No secrets

The messages, which Reuters obtained through a Freedom of Information Act request, show how alarmed Beijing has become over the deepening financial turmoil and offer a rare insight into one of the least understood major central banks.

The exchanges also show that while the two central banks have a collegial relationship, they might not share secrets even during a crisis.

“Could you please inform us ASAP about the major measures you took at the time,” Song asked the director of the Fed’s International Finance Division, Steven Kamin in the July 27 email.

The message registered in Kamin’s account just after 11 a.m. in Washington. Kamin quickly replied from his Blackberry: “We’ll try to get you something soon.”

What followed five hours later was a 259-word summary of how the Fed worked to calm markets and prevent a recession after the S&P 500 stock index tumbled 20 percent on October 19, 1987.

Kamin also sent notes to guide PBOC officials through the many dozens of pages of Fed transcripts, statements and reports that were attached to the email.

All of the attached documents had long been available on the Fed’s website and it is unclear if they played a role in shaping Beijing’s actions.

Kamin’s documents detail how the Fed began issuing statements the day after the market crash, known as Black Monday, pledging to supply markets with plenty of cash so they could function.

By the time Song wrote to Kamin, China had spent a month fighting a

People’s Bank of China headquarters in Beijing

stock market slide and many of the actions taken by the PBOC and other Chinese authorities shared the contours of the Fed’s 1987 game plan.

Desperate measures

The July 27 plunge in the Shanghai Composite Index was the biggest oneday fall since 2007 and by then the market had lost nearly a third of its value over six weeks.

China’s central bank had already cut interest rates on June 27 in similar fashion to the Fed’s swift move to ease short-term rates in 1987.

Song told Kamin the PBOC was particularly interested in the details of the Fed’s use of repurchase agreements to temporarily inject

Black market

Stock Markets

Authorities vow crackdown on fake vaccines amid scandal

State margin lender resumes some lending business

The vaccines, which police said were made by licensed producers, were not kept and transported in the required cold chain conditions.

Lending businesses under four terms, including Chinese authorities have pledged to around the country, according to a seven, 14, 28 and 91 days, crack down on the black market sale of notice from the Shandong Public Sehave been resumed after vaccines after a case was made public curity Department.

The vaccines, which police said were involving nearly US$90 million worth an 18-month suspension. of illegal vaccines that are suspected made by licensed producers, were not of being sold in dozens of provinces around the country.

The drug regulator in Shandong, the province at the heart of the scandal, said yesterday it would work with police forces and the health ministry to inspect vaccine stocks to ascertain where 570 million yuan (US$88 million) worth of vaccines had ended up.

The case, which involves vaccines against meningitis, rabies and other illnesses, underlines the challenge the world’s second-largest drug market faces to regulate its fragmented supply chain, even as Beijing looks to support home-grown firms.

“We will thoroughly investigate all clues in the case and once we get to the bottom of it then we will severely punish those found to have violated the law,” the Shandong food and drug administration said in a statement posted on its website.

Local police said a mother and daughter in Shandong had illegally bought vaccines from traders and sold them on to hundreds of re-sellers

kept and transported in the required cold chain conditions, which could mean that patients taking them could suffer severe side effects or even death.

China’s national food and drug regulator also called on other regions which might have bought the illegal vaccines to investigate the issue in a statement posted online on Sunday.

The case also points to frustrations aired by some doctors and patients within China, who say access to some drugs is limited due to red tape around approvals, creating demand for medicines through unapproved channels and the black market.

Pfizer Inc shut its vaccine sales business in China last year after a licence for its Prevenar vaccine, the only vaccine it sold in the country, was not renewed.

Prevenar protects against pneumococcal disease, an illness that can lead to pneumonia, meningitis and sepsis.

The mother - a former doctor - and daughter were detained last April, but the case was not widely publicized until now. Reuters

The move by China’s state margin lender to resume its shorter-term lending business and slash borrowing costs has sent a strong and positive signal to the market, analysts said.

The China Securities Finance Corp Ltd (CSF), which lends brokerages money to fund margin financing, said late on Friday that lending businesses under five terms - ranging from seven to 182 days - would all be open to brokerages starting yesterday.

It means lending businesses under four terms, including seven, 14, 28 and 91 days, have been resumed after an 18-month suspension.

In addition, CSF also announced new rates for the lending business, which the official Securities Times says amounts to a 30 percent cut in borrowing costs.

“It’s a clear signal that regulators are ready to provide the market with easier, and cheaper funding,” said Wang Yu, analyst at Pacific Securities.

“Although it won’t likely translate immediately into any meaningful

cash into the U.S. banking system in 1987.

The PBOC had increased cash injections in June and ramped up repurchase agreements in August as stocks continued to slide. The PBOC also eased policy on Aug. 11 by allowing a 2 percent devaluation in the yuan currency.

(Graphic: http://fingfx.thomsonreuters. com/2015/07/28/045933b72f.htm) As Song and Kamin exchanged messages on July 27 and 28, other Chinese authorities were busy trying to contain the crash.

China’s securities regulator said on July 27 it was prepared to buy shares to stabilize the stock market and that authorities would deal severely with anyone making “malicious” bets that

businesses for brokerages, it definitely boosts investor confidence, in the context of a series of new messages from the new securities chief.”

Since Li Shiyu became new head of China’s Securities Regulatory Commission (CSRC) last month, he has hinted at a possible delay in a planned reform in initial public offerings, while there’s also rising expectation that plans to launch an emerging industry board in Shanghai would also be shelved.

High amounts of leverage in the stock market have been cited by analysts as a major factor behind last summer’s rout, which prompted a massive and unprecedented government rescue.

Despite several attempts to rally since then, major indexes are only about 10 percent above their August 2015 lows.

Outstanding margin loans, or money investors borrowed from brokerages to buy stocks, have shrunk to 837.3 billion yuan (US$129.12 billion) as of March 18, from a peak of 2.27 trillion yuan last June, the start of the near-crash that sent shockwaves across global financial markets. Reuters

Li Shiyu

Business Daily Tuesday, March 22 2016 9

Greater China

ed for its stock crash play book

In Brief Retirement

PBOC issues guidance for pensions services sector China’s central bank yesterday encouraged financial firms to develop financial products for the elderly with long-term and stable yields to meet their pension needs.

The People’s Bank of China (PBOC) jointly issued guidance with other top ministries and regulators on financial support for developing the pensions services sector yesterday. The guidance was published on the central bank website. The bank also encouraged pension services firms to list shares and issue bonds.

Oil

Saudi imports rise to near record

stocks would fall.

In 1987, the Fed contacted banks directly and encouraged them to meet “legitimate funding needs” of their customers, according to Kamin’s email to Song.

In addition to its pledges and cajoling, the U.S. central bank in 1987 eased collateral restrictions on Wall Street and tried to calm markets by intervening in trading earlier than normal.

The U.S. economy continued to grow, eventually entering recession in 1990.

The central bank in Beijing does not have as free a hand to conduct policy as does the Fed, which answers to the U.S. Congress but operates independently from the administration.

The PBOC governor Zhou Xiaochuan

Key Points Chinese official asked how Fed handled 1987 crash Fed official responded with publiclyavailable documents Emails show behind-the-scenes information sharing implements policies ultimately decided by political leaders in Beijing and lacks the authority to lead debate or shed light on decision-making.

China’s vice finance minister told Reuters last year Chinese supervisors needed to learn from countries like the United States.

Premier Li Keqiang said last month China’s regulators did not respond sufficiently but China had fended off systemic risks.

U.S. central bankers say their relative transparency helps their effectiveness and legitimacy, but open records laws also make Fed officials cautious about their communications, much of which must be made public when requested. Fed Vice Chairman Stanley Fischer has said transparency makes it harder for policymakers to have informal discussions.

Kamin pointed out in his email that everything he was sending was publicly available.

“I hope this is helpful,” he said. Reuters

Commerce

U.S. to offer ZTE “temporary relief” on export curbs ZTE said yesterday it aims to ensure all of its operational activities adhere to international standards.

Steve Stecklow

T

he U.S. government plans to temporarily lift export curbs it imposed on Chinese telecom equipment and smartphone maker ZTE Corp for alleged Iran sanctions violations, a senior Department of Commerce official said.

The Commerce Department restrictions imposed earlier this month made it difficult for ZTE to acquire U.S. components by requiring its suppliers to apply for an export license before shipping any American-made equipment or parts to ZTE. The department had said the license applications generally would be denied.

Shenzhen-based ZTE has been “in active, constructive discussions” with the Commerce Department for the past week, according to a senior official at the agency.

“As part of the effort to resolve the matter, and based upon binding commitments that ZTE has made to the U.S. government, Commerce expects this

week to be able to provide temporary relief from some licensing requirements,” the official said.

“The relief would be temporary in nature and would be maintained only if ZTE is abiding by its commitments to the U.S. Government,” the official added.

The details of the commitments are expected to be published this week in the U.S. Federal Register.

ZTE said yesterday it aims to ensure all of its operational activities adhere to international standards of its host countries and it will continue to communicate with relevant parties to resolve the issue as soon as possible.

Big hit

ZTE is among the largest companies that the Commerce Department has hit with a near-total export ban, according to public records.

It is the No. 4 smartphone vendor in the United States, with a 7 percent market share, behind Apple Inc, Samsung Electronics Co and LG Electronics Inc, according to research firm IDC. It sells handset devices to three of the four largest U.S. mobile carriers: AT&T, T-Mobile US and Sprint Corp The export restrictions have drawn protests from the Chinese government and rocked ZTE’s business.

Its shares have not traded on the Hong Kong stock exchange for the past two weeks. The company also said last week it was delaying the publication of its annual results while it assesses the impact of Washington’s action.

ZTE also said it would postpone its board meeting. Its shares last closed at HK$14.16, prior to a trading suspension on March 7.

Goldman Sachs suspended its coverage on ZTE, saying there was not enough information to determine an investment rating, price target and earnings estimates for the company.

Since coming under fire in 2012 for alleged deals with sanctions-hit Iran and possible links to the Chinese government and military, ZTE has ramped up its spending on Washington lobbyists.

It spent US$5.1 million in the last four years, up from US$212,000 in 2011, as it sought to assuage national security concerns, according to publicly available lobbying records maintained by Congress.

The Commerce Department investigated ZTE for alleged export-control violations following Reuters reports that the company had signed contracts to ship millions of dollars worth of American-made hardware and software to Iran’s largest telecoms carrier. Reuters

China’s February crude oil imports from Saudi Arabia rose 20.59 percent from a year earlier to 5.48 million tonnes, or 1.38 million barrels per day (bpd), customs data showed yesterday. The volume was slightly below the record in February 2012 of 1.39 million bpd. Oil imports from Iran were up 1.05 percent to 537,969 bpd.

World Bank

Medium-high growth to continue China can achieve at least 6.5-percent GDP growth in the next five years if everything goes as planned, said Sri Mulyani Indrawati, Managing Director of the World Bank on Sunday. There will not be a sudden loss in the growth speed for the world’s second largest economy, said Indrawati at the two-day China Development Forum 2016 that opened in Beijing. In the 13th Five-year Plan released this week, the Chinese government has recognized what need to be done, according to the managing director. It’s important for China to change its growth model: relying more on domestic sources of growth, said Indrawati.

Infrastructure

Tianqin programme starts construction China started to build infrastructure for its gravitational wave research project “Tianqin” in the southern coastal city of Zhuhai on Sunday. Sun Yat-sen University, initiator of the program, held a foundation stone laying ceremony for a 30,000-square-meter research building, a 10,000-square-meter ultra-quiet cave laboratory and a 5,000-square-meter observation station on its Zhuhai campus. Meanwhile, the university is recruiting research staff for the international cooperation program dominated by Chinese scientists.

With an estimated cost of 15 billion yuan (US2.3 billion), Tianqin would be carried out in four stages over the next 15 to 20 years.

10 Business Daily Tuesday, March 22 2016

Greater China

Bad Debt

As authorities open market, private equity firms step in China’s troubled loans, including nonperforming loans and ones that are categorised as at risk of turning sour, totalled 4.16 trillion yuan in 2015.

Elzio Barreto

F

oreign distressed debt managers are building a presence in China, undeterred by an opaque legal system but equally encouraged by government steps to open up to specialised players and reduce a mountain of corporate bad debt.

New measures that include a pilot programme to securitise bad loans may only act to dent an estimated 4 trillion yuan (US$620 billion) of distressed debt, but big foreign firms believe the economy’s slowing growth is pressuring Beijing to allow alternative ways to reduce debt.

KKR & Co LP and Oaktree Capital Group LP, as well as niche players such as Clearwater Capital Partners and Shoreline Capital Management, have all staked out plans in China’s

distressed debt market.

“The government seems willing to allow large, well capitalised alternative credit managers into China,” said Robert Petty, who co-founded Clearwater Capital in 2001. The China businesses that Clearwater has invested in have conducted US$5.7 billion in onshore senior secured loans.

“When people are nervous, there’s less capital in the credit markets, which in turn drives improved deal terms for others that are willing to invest.”

KKR, the world’s No.2 private equity firm, said in January it had formed a partnership with state-owned baddebt manager China Orient Asset Management, to seek deals particularly in the property sector.

Howard Marks, co-founder and chairman of Oaktree Capital, the world’s largest distressed debt investor, said late last year his company was actively looking for opportunities in China, where it has a joint venture with China Cinda Asset Management.

Clearwater Capital last April bought onshore asset management and loan servicing company Fan Ya Tai. Shoreline Capital is raising money for a new fund in 2016 that aims to surpass a previous US$700 million fund, building a war chest to invest in a new wave of bad debt expected

to come to markets this year.

These players expect to pick up distressed assets from sectors burdened by overcapacity, such as steel, coal and cement, as well as real estate.

“We do have enough dry powder to participate in the opportunities that we’re seeing right now. That said, I do expect to raise the next fund this year,” said Benjamin Fanger, co-founder of Shoreline Capital.

China’s troubled loans, including non-performing loans and ones that are categorised as at risk of turning sour, totalled 4.16 trillion yuan in 2015 (US$640 billion), the China Banking Regulatory Commission said on Feb 15. Analysts say the total is more like US$3 trillion.

Global names like KKR are not the only investors running a slide rule

Key Points KKR, Oaktree, Clearwater, Shoreline developing presence Official figures show distressed debt market $600 billion plus Analysts say troubled loan market is much bigger China testing securitised market for bad loans

over China’s bad debts. A range of players are also wading in, including Chinese asset managers, trust companies and even ex-regulators.

One of them, Denis Zhang, said he has launched four hedge fund products since October. He said they are the first distressed debt hedge funds in China and invest in bad loans from smaller firms to avoid competing with bigger players.

“Chinese banks are under increasing pressure to dispose of distressed assets,” the former financial engineer at Credit Lyonnais said.

In the past, banks would sell soured loans every quarter, he said. In 2013, it became every month and now it is a “rolling business”.

Still, entering China’s bad debt market is not for the faint hearted.

Financial transparency is often poor and China’s legal system can be difficult to navigate.

Shoreline has been involved in more than 1,000 lawsuits to enforce its claims on loans. On one occasion, it found that a building that served as collateral had been torn down.

“When you buy a pool of 1,000 corporate loans across an entire province that are already in default, you’re going to have to sue a few businesses to create some leverage to get paid back,” Fanger said. Reuters

Service Drive

Consumers spend up on spas, travel and entertainment While foreign brands dominate the premium segment, local companies are increasing their market share in the mass segment of the market.

Enda Curran and Malcolm Scott

China’s consumers are ignoring the bears.

Consultancy McKinsey & Co. is tipping that China’s shoppers will increase

their spending by 10 percent per year through the end of the decade as incomes rise.

Some 55 percent of consumers expect a significant wage increase over the next five years.

It’s not just staple goods that will be filling the shopping trolleys. Consumers are spending more on luxury items like spa visits, travel and entertainment.

The shift is just another sign of China’s economy changing away from one that is fuelled by heavy industry and exports and towards one where consumers and services drive growth.

The chart below shows how shoppers plan to spend more on leisure and travel.

Here’s another sign of the burgeoning market: consumers are adopting new products, services and retail experiences at rates unseen in developed markets. Mobile

payment in China went from zero in 2011 to 25 percent of the population in 2015.

“Gone are the days of indiscriminate spending on products,” according to McKinsey. “The focus is shifting to purchasing more premium products, and living a more balanced, healthy, and family-centric life.”

While China’s retail sales slowed in the first two months of the year, they remain in a double-digit growth range.

Annual sales of cinema tickets could overtake the U.S. as early as 2017 and outbound tourist trips is on course to reach 200 million by 2020, according to CLSA Ltd.

Still, for foreign competitors hoping to capture greater market share, the outlook is mixed. While foreign brands dominate the premium segment, local companies are increasing their market share in the mass segment of the market.

“While scale, speed, and simplicity proved advantageous during the past 15 to 20 years, the changing shape of Chinese consumption is set to topple some giants of the past, and elevate new champions,” McKinsey said.

McKinsey surveyed 10,000 shoppers aged between 18 and 65 in 44 cities across China. Bloomberg News

Business Daily Tuesday, March 22 2016 11

Greater China Third Board

Money to burn?

Smaller firms seek newer investors Nearly 1,000 companies joined Beijing’s National Equities Exchange and Quotations since January 1.

T

he Guangdong Yixiang Folk Culture Co. has a licence to print money -- thousands of lookalike US dollars roll off its clattering presses every minute, intended as burnt offerings for the heavenly bank accounts of Chinese ancestors.

But in the earthly realm, small- and medium-sized companies like this have a devil of a time getting a loan from China’s big state-owned banks, which prefer to lend to large, often state-owned, firms.

Business is booming, says general manager Xu Shaohong, and it is ready to expand its products from “Bank of Hell” currency to paraphernalia for events earlier in the cycle of life, such as weddings and births.

Like thousands of other capital-starved enterprises in the upside-down world of Chinese corporate finance, it has applied to list on the National Equities Exchange and Quotations (NEEQ), a little-known stock market based in Beijing.

The NEEQ, also known as the “New Third Board”, has exploded, growing from 356 companies at the end of 2013 to more than 6,000 today -- with nearly 1,000 joining since January 1.

It already has twice as many listings as the Shanghai and Shenzhen stock exchanges combined and is expected to add as many as 5,000 more by the end of 2016.

“It’s the next NASDAQ,” Xu said, referring to the US exchange favoured by technology start-ups.

of Shantou are bright and modern. It has almost 80 employees and mostly exports to Hong Kong and diaspora Chinese communities across Asia.

Documents submitted to NEEQ as part of its listing application show three years of healthy profits -- more than two million yuan (US$300,000) in 2015.

With reliable income from one of life’s two certainties, it would seem to be an attractive borrower.

For years, China has promised to make it easier for such firms to access capital, and last year Premier Li Keqiang urged the country’s banks to increase financing for them.

But lenders remain risk-averse, said Suzie Wu, a managing partner at Tianxing Capital, which invests in NEEQ-quoted firms.

“They actually only support the big companies,” she said, leaving companies like Guangdong Yixiang to turn to “shadow banks”, unofficial lenders that often charge exorbitant, profit-sapping interest rates.

“Until the NEEQ market came, it was very difficult for the small, medium enterprises to get financial support.”

Open goal

There were 2,565 share issues on NEEQ last year, generating US$18.7 billion, according to data from the exchange, with another US$4.07 billion raised in the first two months of this year.

But unlike most major global stock

In Brief exchanges, joining NEEQ does not of itself provide corporate funding, as new listings do not necessarily sell shares in an initial public offering.

When Chinese and Asian football champions Guangzhou Evergrande Taobao -- one of the most high-profile companies quoted on NEEQ -listed last year, it simply declared its shares to be worth 40 yuan apiece.

It was not until this January that it sold new investors a little more than five percent of itself, raising 869 million yuan -- giving it a market capitalisation close to that of Manchester United.

More than half the listed companies have never recorded a single share sale on the board, data on the NEEQ website shows.

But companies who cannot find buyers can still use their shares as “collateral for loans”, said Christopher Balding, of Peking University’s HSBC Business School in Shenzhen.

As such “being on the New Third Board is better than not being on the New Third Board”, explained Yang Peng, a consultant for Guangdong Yixiang.

If nothing else “it will definitely make it much easier to get a bank loan”.

Loose listing requirements are another large part of the NEEQ’s appeal, a contrast to the heavily regulated flotation process in Shanghai and Shenzhen.

Until now, companies wanting to go public in China have generally had to show years of profitability, but the New Third Board asks them to demonstrate little more than two years of existence and that their business activities are legal.

As such, Balding said, the bourse does not require “full and accurate disclosure” of the “financial risks that investors might be facing”.

But Xu, the banknote printer, had no qualms, imagining a future financed by NEEQ investors, with automated production lines and orders fulfilled online. AFP

Death and taxes

As the world’s second-largest economy falters, Beijing is counting on small, private companies to help move it away from dependency on heavy industry and plodding stateowned enterprises.

Guangdong Yixiang is a prime example. Its offices in the southern city

Lagarde backs 13th Five-Year Plan The 13th Five-Year Plan will help China achieve more inclusive and sustainable growth, IMF managing director Christine Lagarde said at the China Development Forum in Beijing on Sunday.

At the opening of the twoday event, Lagarde said China was going through “a historic transition” that is “good for China and good for the world.” The country needs to strike a delicate balance between shifting to a relatively slower but more sustainable pace of growth, and advancing much-needed structural reforms, according to the IMF chief.

Credit

Bohai Steel may be unable to repay debt Bohai Steel Group Co Ltd, a steelmaker based in northeast China, may be unable to make full repayment on 192 billion yuan (US$29.61 billion) of debt, the online financial magazine Caixin reported. The city government of Tianjin, which owns the firm, has set up a committee of creditors to help resolve the problem, Caixin said on Saturday. Creditors include the Tianjin branch of the Bank of Beijing Co Ltd and 105 other financial institutions, the magazine reported, including several trust companies such as Tianjin Trust, Beifang Trust and Guomin Trust.

Xinjiang

Textile industry to get support The government of northwest China’s Xinjiang Uygur Autonomous Region has promised policies including rent-free factories and favourable loan deals to boost the local textile industry and create 11,000 jobs this year.

Xinjiang will establish a fund for textile and garment companies to help them increase exports to central and western Asia, Russia and Europe, said Liang Yong, deputy secretary-general of the regional government. New companies from other provinces will be offered new rent-free factories in industrial parks and Xinjiang’s less-developed southern area of Hotan, Aksu, Kashgar and Kizilsu Kirgiz prefectures.

“Being on the New Third Board is better than not being on the New Third Board” Yang Peng, A consultant for Guangdong Yixiang

Trade Deal

Nepal strengthens links with Mainland Government to encourage Chinese firms to look at internal rail plan.

China agreed yesterday to consider building a railway into Nepal and to start a feasibility study for a free trade agreement with the impoverished, landlocked country, which has been trying to lessen its dependence on its big neighbour to the south, India.

The Himalayan nation, that serves as a natural buffer between China and India, adopted its first post-monarchy constitution in September hoping this would usher in peace and stability after years of conflict.

But protesters blocked trucks coming in from India, leading to acute shortages of fuel and medicine. Nepal blamed New Delhi for siding with the protesters, a charge India denied.

The border blockade ended last month but supply of oil and cooking gas is far from normal.

IMF

Meeting in Beijing’s Great Hall of the People, Nepali Prime Minister K.P. Oli told Chinese Premier Li Keqiang he had “come to China with a special mission” when it came to strengthening relations. He did not elaborate in front of reporters.

Hou Yanqi, deputy head of the Chinese Foreign Ministry’s Asia Division, said Oli raised the possibility of two rail lines, one connecting three of Nepal’s most important cities and two other crossing the border from China into Nepal.

Hou said the government would encourage Chinese firms to look at the internal rail plan, and that China was already planning to extend the railway from the Tibetan city of Shigatse to Gyirong on the Nepal border.

“Of course, a further extension from

Gyirong is an even longer-term plan. It’s up to geographic and technical conditions, financing ability. We believe that far in the future the two will countries be connected by rail,” she said.

The two countries signed a total of 10 agreements, including on the feasibility plan for a free trade agreement, as well a concessional loan for a new airport in Nepal’s Pokhara and a feasibility study for oil and gas survey projects.

No details were given.

Kathmandu says it wants to import 33 percent of the annual demand of 1.8 million tonnes of petroleum products from Beijing but trade officials say absence of connectivity - logistics, cost and transportation through difficult Himalayan terrain - poses a challenge to any fuel trade between the two countries. Reuters

Tourism

New Year drives record New Zealand visits The Chinese New Year holiday helped drive a February record in overseas visitors to New Zealand last month, tourism officials said yesterday. Visitor arrivals numbered 373,400 in February, up 9 percent year-on-year, according to Statistics New Zealand, the government statistics agency. “An increase in holidaymakers, coupled with 2016 being a leap year, helped boost visitor arrivals to a record high for a February month,” population statistics manager Jo-Anne Skinner said. In the year to the end of February, visitor arrivals hit a record 3.2 million, up 10 percent year-on-year.

12 Business Daily Tuesday, March 22 2016

Asia Bangladesh Theft

Bribery

Philippines to hold banks ‘accountable’ for role in cyber heist Bangko Sentral ng Pilipinas Governor Amando Tetangco said March 18 he sees “risk associated” with the incident.

Clarissa Batino and Andreo Calonzo

The Philippines will hold accountable any bank or banker found responsible or remiss in their duties in the US$81 million cyber heist of Bangladeshi foreign reserves that wound up in the Southeast Asian nation’s financial system, officials said.

“You can be assured that banks that fail to perform their responsibilities will be held accountable,” Bangko Sentral ng Pilipinas Deputy Governor Nestor Espenilla, who heads the central bank’s supervision and examination division, said Saturday in reply to a text message.

Philippine lawmakers last week started an investigation into how the stolen funds ended up in Rizal Commercial Banking Corp., wired to remittance company Philrem Service Corp., and transferred to casinos.

Senator Teofisto Guingona, who’s leading the inquiry, said the theft could threaten the wider financial

sector in the Philippines and put the country’s credit rating at risk.

Bangko Sentral ng Pilipinas Governor Amando Tetangco said March 18 he sees “risk associated” with the incident and the nation has “to show that action has been taken.” Bank officials found to be involved in the money-laundering case will be held accountable, Communications Undersecretary Manolo Quezon also said on Saturday in a briefing on government radio.

Regulatory issues

The Philippines banking regulatory framework is already strong and the remedy isn’t necessarily more regulations, Espenilla said. Strict deposit secrecy law, inadequate protection of bank examiners and delays in the judiciary are among the challenges banking regulators face in enforcing effective compliance, he said.

President Benigno Aquino will wait for recommendations from the Bangko Sentral ng Pilipinas on the easing of the bank secrecy law, Quezon said.

Senate hearings on the heist focused on testimony by Maia Santos Deguito, the manager of the Rizal Bank branch from which the money was withdrawn, who agreed to a tell-all in a in closed-door session with lawmakers last week. Rizal Bank President Lorenzo Tan, who has denied Deguito’s claims, invoked the law on bank secrecy during the Senate hearing.

The case is an isolated one and has nothing to do with the bank’s strength and stability, Rizal Bank said in the statement on Friday. “RCBC follows global best practices but even the most stringent rules and restrictions are only as good as the people who must follow them.” Bloomberg News

Australian bourse chief quits amid probe His resignation makes him the highest profile Australian business leader to lose his job over bribery allegations.

Byron Kaye and Swati Pandey

Australian bourse operator ASX Ltd said its chief executive officer has quit as police investigate allegations of bribery at gambling company Tabcorp Holdings Ltd, which he formerly headed.

Tabcorp last week revealed it was under investigation by Australian Federal Police over a payment concerning a Cambodian business opportunity in 2009. The police said in a statement they were investigating allegations of foreign bribery relating to Tabcorp but did not give further details.

Elmer Funke Kupper, who was CEO of Tabcorp from 2007 to 2011 before taking up his role at the ASX, could not be immediately reached for comment.

His resignation makes him the highest profile Australian business leader to lose his job over bribery allegations since executives at wheat exporter AWB Ltd stepped down a decade ago amid accusations of paying off Saddam Hussein’s government to do business in Iraq.

“The ASX board accepted that Elmer wanted to direct his full focus to the investigations which may be made into the Tabcorp matter, and not have them interfere with the important role of leading the ASX,” ASX Chairman Rick Holliday-Smith said in a statement yesterday.

The statement said his resignation would be effective immediately and that Holliday-Smith would lead the bourse until a replacement had been found.

Holliday-Smith said Funke Kupper had left the ASX a more focused company that was committed to innovation and investment in customer services and infrastructure.

Dutch-born Funke Kupper, 50, has remained a director at Tabcorp since taking the helm of the world’s eighth-largest stock exchange by free float capital. Tabcorp said yesterday that he had taken a leave of absence in relation to the investigation.

In its statement last week, Tabcorp said it had at one point it had considered entering the Cambodian sports betting market in 2009 amid expectations of gambling deregulation in Asia, but ultimately it never set up a business there. Reuters

Key Points CEO Elmer Funke Kupper’s resignation is effective immediately Tabcorp probed by police over bribery allegations ASX Chairman Holliday-Smith to lead ASX until replacement found

IMF

Lagarde says Vietnam’s economy is at risk without reforms The nation’s poverty rate has dropped to 13.5 percent from 60 percent in 1993.

John Boudreau

Vietnam risks being vulnerable to external shocks if it doesn’t push through reforms to strengthen its banking system and restructure state businesses, according to International Monetary Fund chief Christine Lagarde.

The Southeast Asian nation isn’t in a position to withstand economic blows from tightening of monetary policies elsewhere, a deep and prolonged drop in commodity prices and a slowing China without reforms, she said in a March 18 interview in Ho Chi Minh City.

“The risk is that from being slightly vulnerable, Vietnam could become very vulnerable to external shocks,” she said. “It would expose the Vietnamese economy and that would not be good for the Vietnamese population.”

Vietnam’s integration with the global economy has driven growth and reduced poverty. The economy is forecast to grow at

6.6 percent this year, according to Bloomberg surveys, while Prime Minister Nguyen Tan Dung has proposed raising the country’s 2016 economic expansion target to 7 percent from 6.7 percent.

The nation’s poverty rate has dropped to 13.5 percent from 60 percent in 1993 and its economic growth is expected to be “solid” at more than six percent this year, Lagarde said in a visit to the country last week, during which she met with the country’s top leaders. Vietnam, which is in the process of a once-in-five-years political transition, now has one of the world’s most open economies, she said.

remarkable,” Lagarde said in the interview.

Still, the nation’s economic expansion since 2008 has been slower than the two preceding decades and it has failed to match per-capita-income growth that the region’s most successful economies experienced similar stages in development, she said.

Vietnam also needs to make greater use of exchange-rate flexibility to soften the blows of overseas economic shocks and build external reserves, she said. Reforming the nation’s state-owned

Corporate governance

“We believe the banking system needs to be made stronger, better and more capitalized with less stressed assets in its balance sheets so the banks can actually fuel the economy,” Lagarde said. SOEs need better governance and to refocus on their core businesses, she said.

The country is also at risk with public debt at about 60 percent of gross domestic product and with one of the world’s fastest-aging societies and a working-age population that is beginning to decline.

“When you have the combination of high debt and slightly declining working age population, you need to be very careful with your macroeconomic stability,” she said in the interview.

“You need to be very careful with the revenue you generate and how you spend it.”

Bloomberg News

Remarkable potential

“Vietnam has done very well -- to have the ability to maintain macroeconomic stability in an environment which is challenging because the rest of the world is not growing at the pace and the potential we would like to see is quite

Lagarde said reforming the nation’s state-owned companies and resolving bad debt at banks will offset the aging of its working-age population.

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

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companies and resolving bad debt at banks will offset the aging of its working-age population that could be a future drag on growth, according to Lagarde.

Business Daily Tuesday, March 22 2016 13

Asia In Brief

Intellectual property

Singapore to launch new mediation scheme Businesses and entrepreneurs will enjoy greater access to intellectual property (IP) mediation services in Singapore through the IP Mediation Promotion Scheme that will take effective from April 1, the Intellectual Property Office of Singapore (IPOS) announced in a press release yesterday. Designed to help businesses and entrepreneurs leverage the strengths of mediation in achieving customized, win-win solutions, the IP Mediation Promotion Scheme funds parties who opt for mediation in IP disputes up to 5,500 Singapore dollars (US$4,044) per mediation case.

Cambodia

PM says new cabinet will work hard for growth

Australian PM Malcolm Turnbull speaks to the media during a press conference at Parliament House in Canberra yesterday.

Australia

Prime Minister sets stage for July 2 national election The popularity of Turnbull’s Liberal-National coalition has slipped since he seized the leadership six months ago.

Jason Scott

A

ustralia’s Prime Minister Malcolm Turnbull said he will call an election on July 2 unless the Senate passes legislation to crack down on trade unions.

Militant union activity is acting as a “handbrake on growth” and the government will hold a so-called double dissolution election unless bills to restore a building industry watchdog and set up a commission to regulate unions are passed by mid-May, Turnbull said yesterday.

The federal budget will now be held May 3, a week earlier than planned, he said.

“The time for playing games is over,” Turnbull told reporters in Canberra. The Senate had “to recognize its responsibilities and help advance our economic plans, rather than standing in the way,” he said.

The move is a gamble by the former investment banker, whose government has been beset by policy inaction and an economy suffering from a waning mining boom. The popularity of Turnbull’s Liberal-National coalition has slipped since he seized the leadership six months ago, and he’s now seeking to pressure the main opposition Labour Party and win over more voters by making industrial relations a key election platform.

Political wedge

“Turnbull is using the union issue as a wedge against Labour because he’s willing to bet that his government will be able to win a July election,” said Nick Economou, a Melbourne-based professor at Monash University’s School of Political and Social Inquiry.

“His government would be the clear favourite to win, albeit probably with a reduced majority.”

A Newspoll published in the Australian newspaper on Monday showed the coalition leads Labour, 51 percent to 49 percent, on a two-party preferred basis. That’s even as voters express their current disappointment at Turnbull’s leadership, with more voters now dissatisfied with his performance than satisfied. The poll, conducted March 17-20, surveyed 2,049 voters and has a margin of error of 2.2 percentage points.

“Today Australians have seen a PM in full panic mode” Bill Shorten, Australian Labor Party leader

Turnbull cited a lack of economic leadership as his reason for ousting Tony Abbott in September. Business leaders have since criticized Turnbull, saying his government’s lack of progress on taxation reform is creating uncertainty for the country.

Parliament will be recalled on April 18 for three weeks to debate the legislation, which has already been rejected by the Senate, Turnbull, 61, said.

The budget will be brought forward by a week to give lawmakers more time to consider the bills, he said.

Double dissolution

If the legislation is not passed, Turnbull said he would call the double dissolution election, the first since 1987. All 150 seats in the House of

Representatives and all 76 Senate seats are up for grabs in the ballot. In a normal election, only half the Senators from the six states are replaced.

Last week, the government overhauled voting laws to make it harder for independent candidate to be elected to the Senate with only a tiny fraction of votes. Eight independent and micro-party lawmakers collectively hold the balance of power in the Senate currently and are helping block A$13 billion (US$10 billion) in budget savings.

A double dissolution election, held under the new Senate voting laws, will potentially clear most of them out of the upper house and may allow the coalition to strengthen its grip on power.

‘Panic mode’

Labour leader Bill Shorten said Turnbull was putting his own future ahead of the nation’s. “Today Australians have seen a PM in full panic mode,” Shorten told reporters.

Attention will now focus on whether the independents will backtrack on their previous collective opposition to the industrial relations laws. Should they vote in support of the bills, it would remove Turnbull’s trigger for a double- dissolution ballot. Most of them wouldn’t face re-election under a normal ballot, that would be held between August and October.

“It wouldn’t be a surprise” if the legislation fails to pass and the prime minister calls an early election, Trade Minister Steven Ciobo said in an interview with Bloomberg Television yesterday. The Senate should “respect the mandate that the government has” and pass the laws, he said. Bloomberg News

Cambodian Prime Minister Hun Sen yesterday said that even though his new cabinet members are the “same faces,” they will work harder to maintain high economic growth and poverty reduction. “They are old faces, but they have innovative ideas,” he said during the launching ceremony of a public financial management reform program. He said that with his strong cabinet members, Cambodia has achieved the average economic growth of 8.8 percent per annum in the last decade. Hun Sen last Wednesday submitted the proposed cabinet changes to the National Assembly.

Eight ministers will be either removed or reshuffled.

New Zealand

Central bank launches probe into possible leak The New Zealand central bank said it has launched an external investigation into allegations made by a blogger that its surprise rate cut decision on March 10 was leaked. “We are aware of an allegation that information may have been leaked ahead of the OCR announcement on 10 March,” a Reserve Bank of New Zealand spokesman told Reuters by phone yesterday. He emphasised there was no evidence at this stage that any information was leaked. However, “we take the integrity and security of market-sensitive information very seriously and have initiated an external investigation into the allegation.”

Myanmar

Parliament approves government formation plan Myanmar’s parliament yesterday approved Presidentelect U Htin Kyaw’s plan of forming a new government with reduced ministries.

The proposal was approved by a vote of 611-3 with 21 abstentions. President-elect U Htin Kyaw made his first public appearance by delivering a speech in the Union Parliament, clarifying the plan of forming a government with 21 ministries and 18 ministers, slashed from 36 and 32 respectively in the outgoing government.

14 Business Daily Tuesday, March 22 2016

International In Brief

European banks study bolsters Cameron’s stance

M&A

IHS to merge with Markit in US$13 bln deal Business research provider IHS Inc said it would buy Markit Ltd in an all-stock deal that values the Londonbased financial data provider at about US$5.9 billion. IHS shareholders will own about 57 percent of the combined company, which would have a total value of more than US$13 billion, while Markit shareholders will own the rest. Shareholders of IHS will get 3.5566 common shares of the combined company, IHS Markit, for each share held.

IHS said the deal value implied a market price of US$31.13 per Markit share, a premium of 5.6 percent over its Friday close.

Inflation

Fed’s Lacker confident of reaching target U.S. inflation will likely accelerate in coming years and move toward the Federal Reserve’s 2 percent target, Richmond Fed President Jeffrey Lacker said yesterday.

Inflation has been unusually sluggish since the 2007-2009 recession. The Fed has kept interest rates low in part to foster faster price gains and said last week it was likely to raise interest rates more slowly than policymakers had expected in December.

The U.S. central bank noted in its Wednesday policy statement that financial market-based measures of expected inflation were low.

Aviation emissions

NGOs demand enforceable deal

Brexit

Study for European banks says Brexit would harm sector Campaigners who want Britain to leave the EU say the UK could negotiate favourable new trading terms.

Huw Jones

B

anks in London would be hit hard if Britain left the European Union to trigger a long spell of uncertainty, a study conducted for European banking lobby AFME said yesterday.

The 68-page study commissioned from law firm Clifford Chance looked at the potential impact of “Brexit”, or Britain voting to leave the EU in a referendum on June 23.

It is the latest warning that Brexit would be bad news for the financial services industry, Britain’s biggest tax-earning sector and which operates across the EU. “Banks and investment firms are likely to be significantly and adversely affected by new restrictions on cross-border business,” the study said.

Many banks, including international ones such as JPMorgan,

Morgan Stanley and Goldman Sachs, have their European bases in London, the EU’s biggest financial centre, and would lose their “passport” under EU law to offer services across the bloc.

“This ‘passport’ is key to the UK’s appeal for many non-EU financial institutions,” the study said.

Campaigners who want Britain to leave the EU say the UK could negotiate favourable new trading terms given the size of its financial centre and economy. They also argue Britain could write its own financial rules outside the EU. The study said the EU can grant passports to non-EU lenders, which

“Banks and investment firms are likely to be significantly and adversely affected by new restrictions on cross-border business”

“could be an important mitigant allowing wholesale cross-border investment services to be provided in the EU”.

But to obtain a passport, a non-EU lender would have to comply with rules the EU deemed to be “equivalent”, or as strict as its own.

Like Norway, Britain would need to be a member of the European Economic Area (EEA), which offers some of the benefits of the EU’s single market without being an EU member.

Unless Britain was in the EEA, any replacement trade agreement would have the potential to restrict cross-border trading, the study added.

“There is likely to be a long period of uncertainty after a vote to leave as to whether these regimes will be available, which will affect market participants’ business planning,” said Chris Bates, a partner at Clifford Chance.

Exchanges and clearing and settlement houses for securities could also be hit by new restrictions unless they are recognised as “equivalent”, the study said.

Last week Deutsche Boerse and the London Stock Exchange said their plans to merge would not be derailed by a Brexit. Reuters

A deal this fall to cap carbon emissions from global aviation at 2020 levels must be enforceable and set long-term goals in line with the 2015 Paris agreement on climate change, a coalition of environmental groups said yesterday. Aviation was excluded from the landmark climate accord in Paris in December.

But carbon emissions from the sector could triple by 2050 if left unchecked, the International Coalition for Sustainable Aviation, which represents a half dozen non-profit groups, warned in a statement. In Paris, countries agreed to limit the rise in global temperatures to “well below” 2 degrees Celsius (3.6 degrees Fahrenheit) above pre-industrial levels.

Euro zone lenders, Greece make progress on tax, pension reforms

Reserves protection

The focus is on ways to cover an estimated fiscal gap of 3 percent of GDP by 2018.

The SWIFT messaging system plans to ask banks to make sure they are following recommended security practices following cyber attack on Bangladesh’s central bank. Brussels-based SWIFT, a cooperative owned by some 3,000 global financial institutions, will issue a written advisory on Monday asking banks to review internal security, the spokeswoman said. SWIFT staff will also begin calling banks to highlight the importance of reviewing security measures after the attack in Bangladesh, she added. SWIFT prepared a summary of previously issued recommendations for implementing security measures to thwart hackers.

European lenders have made important progress with Greece on tax and pension reforms in a package of measures Athens must adopt to win new loans and debt relief, a European Commission spokesperson has said.

Inspectors from the European Commision, the European Central Bank and the International Monetary Fund assessing Greece’s progress on reforms left Athens on Sunday, taking a break for the Easter holiday in western Christianity.

Greek Prime Minister Alexis Tsipras wants to wrap up the reform review quickly to clear the way for talks on debt relief, help restore confidence in the country’s economy and persuade the Greek people that their sacrifices over six years of austerity are paying off.

European Commission Vice President Valdis Dombrovskis told a group of regional German newspapers that

SWIFT to advise banks on security

AFME study

Greece

the talks with Athens were constructive but added: “There’s still a huge amount to do”.

He said Greece currently had sufficient cash reserves but it was important now to complete the review so the next tranche of funds could be paid out. Lenders and the Greek government agree that the review needs to be finished quickly to “send a reassuring signal that Greece is financially stable”, he said.

But the talks have dragged on for months due to disagreements over fiscal targets, pension cuts and tax reforms between Athens and its European Union and IMF lenders, and among the EU and IMF institutions themselves.

The focus is on ways to cover an estimated fiscal gap of 3 percent of GDP by 2018.

According to sources close to the talks, EU lenders have been more lenient during the review than the IMF,

which has said Greece will need far bigger debt relief than euro zone partners have been prepared to envisage.

A meeting of euro zone finance ministers in April will be crucial for Greece, which is also dealing with a huge migrant crisis.

The government, which has a parliamentary majority of just three seats, has pledged to trim its pension budget by 1 percent of GDP this year.

But it wants to avoid cutting pensions for the 12th time since 2010 to plug the estimated fiscal hole.

Greek government officials said the IMF opposed key pension proposals, such as hiking social security contributions, during the latest round of talks and it wants to lower a tax-exempt threshold for low-income earners.

It has also turned down a plan giving tax evaders incentives to disclose hidden income as part of efforts to boost tax revenues. Reuters

Business Daily Tuesday, March 22 2016 15

Opinion Business Wires

THE STAR RAM Ratings has reiterated its “stable outlook” on the Malaysian banking sector. In a statement yesterday, the ratings agency said its expects most banks to be able to navigate through the more challenging economic landscape with sound credit metrics. “Our view is underscored by our detailed reviews of close to 50 Malaysian banks and non-bank financial institutions in our rating universe in the past year,” it said. Its key expectations for 2016 include asset quality remaining healthy despite some expected slippage, sturdy capital buffers, liquidity remaining healthy albeit with tighter funding conditions, loan growth easing to 6%, and some softening in projected earnings.

THE STRAITS TIMES Small and medium-sized enterprises (SMEs) hope the upcoming (Singapore’s) Budget will contain more incentives and help for expanding overseas, according to a new survey. Respondents to the poll conducted by United Overseas Bank also called for more government-backed financing schemes and measures to encourage investment in technology, amid an on-going economic slowdown that has depressed incomes and margins for many firms. While 26 per cent of those polled want the Budget on Thursday to contain more incentives for overseas expansion, just 5 per cent of respondents said they are hoping for subsidies to hire and train older employees.

China and the future of commodity prices

T

THE JAPAN NEWS Japan and Vietnam, at a joint committee meeting in Hanoi, agreed to work together for the promotion of the textile industry in Vietnam. The agreement is aimed at dealing with an expected increase in Vietnamese textile exports to the United States once the Trans-Pacific Partnership free trade agreement enters into force. At the first meeting of the Joint Committee between Japan and Vietnam on Cooperation in Industry, Trade and Energy, the two countries also agreed to start an industrial policy dialogue at an early date and discuss specific measures.

THE AGE The Aussie is poised for its best month since October 2011 but the currency’s momentum isn’t strong enough to budge the world’s biggest fund manager.

BlackRock’s Sydney-based head of fixed income for Australia, Stephen Miller, who started avoiding the Aussie as it peaked in 2011 and picked its 2008 nadir, is sticking with a bearish call he’s maintained for about three years. He sees the Aussie plunging at least 15 per cent back past the seven-year low it hit in January.

here is no doubt that China’s on-going growth slowdown has had far-reaching effects on the global economy.

But its role in the sharp fall in commodity prices that has occurred since 2014 – an outcome that has been devastating for commodity-exporting countries, including once-dynamic emerging economies – is more limited than the conventional wisdom suggests. In fact, China’s slowdown is only a part of the commodity-price story.

To be sure, there is a clear correlation between Chinese GDP growth and commodity prices. In the early 2000s, when Chinese growth accelerated, commodity prices rose sharply; since China’s slowdown began in 2011, energy prices have fallen by 70%, metals prices by 50%, and agricultural commodity prices by 35%.

But the view that China’s slowdown is the main driver of the collapse in commodity prices is incomplete, at best. As new research by the Asian Development Bank shows, while China plays a significant role in commodity markets – accounting for about half of global consumption of metals, coal, and pork, for example – it is not nearly as dominant as is widely believed. China accounts for less than one-fifth of world consumption of sugar, wheat, poultry, and beef; 12% of world consumption of crude oil; and 5% of natural gas. And, in fact, some of the commodities that have experienced the largest price declines – most notably, oil (down 73%) and natural gas (down 55%) – are those in which China is a relatively minor player.

Moreover, China’s actual commodity consumption is even lower than the figures suggest.

Conventional measures, instead of taking into account cross-border production chains, simply take the sum of a country’s production and net commodity imports to determine its level of consumption. But, for China, a sizeable proportion of the commodities it “consumes” is actually used in the production of goods that will be exported to the rest of the world. Indeed, almost one-third of Chinese metals demand is used to satisfy export demand. Subtracting the commodities embedded in China’s exported manufactured goods would substantially reduce China’s apparent role in these markets.

A look at the commodity-price fluctuations themselves reinforces this view. Consider copper: From 2001 to 2006, prices gyrated wildly, with price declines of 30% in some years and increases of 150% in others – all while growth in Chinese industrial production and demand for copper remained relatively steady, at 15% and 20%, respectively.

Clearly, other factors – ranging from supply-side factors and global demand to speculative demand

Abdul Abiad Economic Adviser at the Asian Development Bank

Shang-Jin Wei Chief Economist of the Asian Development Bank

and inventory adjustment – are also playing a major role in driving outcomes in commodity markets.

So what does China’s continuing slowdown imply for commodity prices? Even though China’s growth has moderated since 2011, the country’s commodity-consumption growth still outpaces that of the rest of the world. As a result, its share in global commodity consumption has been rising.

This should not be surprising, given that Chinese GDP growth, though down significantly from its double-digit heyday, remains above 6%. While the shift from an investment-led to a consumption-driven growth model will weaken growth in demand for metals and energy, it will also bring an increase in demand for food products and services, and hence for agricultural commodities.

The conclusion is clear: China’s changing economic situation does not spell disaster for commodity exporters. On the contrary, even if, as many fear, China’s economic growth slows further, its impact on commodity prices will be limited.

Bolstering prospects for commodity prices further is the promise that demand in other emerging giants, such as India and Indonesia, will accelerate in the coming years. The rest of developing Asia’s economy is currently about 4% larger than China’s, and twice as large as China was in 2000, when growth in the country’s commodity demand began to accelerate. If solid growth in Asia’s other emerging economies continues over the next decade and a half, it will generate commodity demand at least as large as China’s in the boom years.

The drag on commodity prices from China’s growth moderation is real. But the sharp and generalized drop seen in commodity prices should not be laid entirely at China’s feet. Perhaps more important, with the country still importing large volumes of commodities and the rest of developing Asia set to generate a new surge in commodity demand, the prospects for a commodity-price rebound look brighter. Project Syndicate

“The view that China’s slowdown is the main driver of the collapse in commodity prices is incomplete, at best”

16 Business Daily Tuesday, March 22 2016

Closing E-Commerce

Alibaba transaction volumes cross 3 trillion yuan March 31, 2015.

Chinese e-commerce company Alibaba Group Holding Ltd said yesterday its total transaction volume had surpassed 3 trillion yuan (US$463 billion) in the fiscal year through endMarch, highlighting a milestone even as growth has slowed.

With less than two weeks left in the fiscal year, the figure represents growth of about 23 percent from the 2.44 trillion yuan in gross merchandise volume (GMV) Alibaba reported for the previous year - a significant downshift from the 46 percent GMV growth it had in the year to

Alibaba has sought to bring more foreign sellers onto its e-commerce platforms and penetrate China’s huge and largely untapped rural consumer market as Chinese economic growth has slowed to a 25-year low.

In a post on the company’s external blog, Executive Vice Chairman Joe Tsai wrote that the company’s growing GMV reflected China’s shift away from investment and exportled growth toward consumption and services, with Alibaba “at the heart OF this new economy”. Reuters

Taiwan

Export orders contract for 11th month Thirteen out of 14 analysts polled expect the central bank to trim the discount rate on Thursday.

Taiwan’s export orders are a leading indicator of demand for Asia’s exports and for hi-tech gadgets, and typically lead actual exports by two to three months. Taiwan is a crucial hub in the global supply-chain for tech giants such as Apple Inc. Persistently weak external demand will add pressure on the central bank to cut its policy interest rate for the third meeting in a row this week.

Key Points Taiwan Feb export orders -7.4 pct vs poll -9.95 pct China -12.1 pct y/y; U.S. -4.5 pct y/y Japan -26.1 pct y/y; Europe -1.1 pct y/y Gov’t expects Q1 orders to contract y/y Reinforces views c.bank will cut interest rate this week

Faith Hung and Liang-Sa Loh

G

lobal orders for Taiwan’s products shrank for the 11th straight month in February, pointing to no let up in sight for Asia’s struggling trade-reliant economies and cementing expectations that the island’s central bank will cut interest rates again this week.

With the persistent drag from exports weighing on industrial output, the government has already forecast the economy will contract in the first quarter, before recovering modestly later in the year.

Taiwan slipped into recession in

the third quarter of 2015 but managed to post growth in the fourth quarter on a seasonally adjusted annualised basis.

Export orders in February fell 7.4 percent year-on-year, data showed yesterday, better than a 9.95 percent slide predicted by economists in a Reuters poll. In January, orders shrank 12.4 percent from a year earlier, the worst in three years.

Highlighting global weakness, orders from all of Taiwan’s major markets fell. China declined 12.1 percent and Japan slumped 26.1 percent, while the United States and Europe fell 4.5 percent and 1.1 percent, respectively.

Orders for its seven major products also contracted, led by precision products which dropped 32.5 percent year-on-year due to weak demand for big flat TV panels and intensifying global competition, the Ministry of Economic Affairs said.

Information communications and electronics products were off 1.8 percent and 1.5 percent, respectively, it said.

“Export order momentum will return gradually,” said the ministry.

However, it expects first-quarter orders to contract year-on-year in part because China’s growth momentum remains weak.

Thirteen out of 14 analysts polled expect the central bank to trim the discount rate by 12.5 basis points (bps) to 1.50 percent on Thursday, while one thought it would be cut by 25 bps, a Reuters poll showed.

“We expect the central bank to trim the interest rate by 12.5 basis point this week,” said analyst Woods Chen of Ta Chong Bank.

Taiwan recently cut its outlook for economic growth this year for the second time to 1.47 percent as weak global demand stunts exports, its main economic driver, and domestic consumption remains lacklustre.

It expected exports could shrink 2.78 percent this year.

Taiwan’s economic growth slowed to 0.75 percent in 2015 -- the weakest since the depths of the global financial crisis in 2009 -- from 3.92 percent in 2014. Reuters

Myanmar

Investment

Infrastructures

Border trade picks up

GM says plans for Mainland on track

CREC to set up regional centre in Malaysia

General Motors Co (GM) is pressing ahead with its investment plans in China, the world’s largest auto market, where it expects car demand to grow 3-5 percent a year on average until 2020, executives at the U.S. car maker said.

While GM continues to bet on the growth of the Chinese market, consultancy JD Power has said that three or more years of less than 5 percent growth would trigger a painful restructuring in China’s auto sector.

Analysts say China’s auto market has entered a period of unprecedented uncertainty as the economy grows at its slowest pace in 25 years.

“Even though the China market is maturing, it will still be a tremendous source of growth for us in both the short term and the long term,” GM President Dan Ammann told a media conference yesterday.

China chief Matt Tsien, who disclosed the car market growth estimates until 2020, said GM’s Wuhan plant that opened last year was operating at maximum utilization, and a planned second phase is being added there that will double capacity to 480,000 units a year. Reuters

China Railway Group Limited (CREC), one of China’s largest state-owned companies, announced yesterday to invest US$2 billion to build a regional centre in Malaysia.

CREC president Zhang Zongyan said the company would make the investment to build an integrated office complex in Bandar Malaysia, a future transport, business and commercial hub for Kuala Lumpur.

Statically located about 7 km from the Kuala Lumpur city centre, Bandar Malaysia would also serve as the terminal for the proposed high-speed railway linking the Malaysian capital and Singapore.

The announcement came three months after CREC’s successful bid with its Malaysian joint-venture partner in December to acquire 60 percent of the equity in the Bandar Malaysia project.

Malaysian Prime Minister Najib Razak hailed CREC’s investment as another testimony of the long-standing friendly relations between Malaysia and China.

CREC is one of the world’s largest engineering and construction firms, and also has businesses, amongst others, in industrial manufacturing, real estate development and resources and mineral products. Xinhua

Myanmar’s border trade picked by over US$500 million in fiscal year 2015-2016 as compared with previous year, according to the Ministry of Commerce yesterday.

The border trade value for nearly 12 months (till March 11) stood at US$6.56 billion, while that for the same period of the previous fiscal year 20142015 was US$6.14 billion. The export value through border trade for nearly 12 months of the fiscal year 2015-2016 was US$4.15 billion while the import value for the same period was US$2.4 billion.

There are 15 border trade zones in Myanmar which link China, Thailand, India and Bangladesh.

Of them, Muse border trade zone which connects with China has the maximum trade value.

Maywaddy, one of the border trade zones connected to Thailand has the second maximum value while Htee Khee also linked to Thailand has the minimum value.

Myanmar government aims to open five new border trade zones in Mine Lat to link with China, Three Pagodas, PonepaKyinsu and Mese to link with Thailand, Htantalan to link with India.

However, it is not easy to open new border trade zones due to lack of transport infrastructure, according to an official of the ministry. Xinhua