Macau Business Daily March 25, 2016

PBOC asks banks to tighten mortgage standards in Shenzhen Mortgages Page 16

Friday, March 25 2016 Year IV Nr. 1009 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Labour

MOP50,000 fine for 8 fatal industrial accidents in 2015 Page 2

Monetary policy

www.macaubusinessdaily.com

Politics

Taiwan central bank cuts policy rate Page 9

Tourism

New Communist Party Chief appointed for Zhuhai Page 4

Increase in 4-star hotel occupancy rates in February Page 5

Macau Legend to Shuffle Portfolio tables, however, posted a y-o-y increase of 144 pct. Macau Legend announced it will sell The Landmark Macau to a substantial shareholder of the company. A letter of intent has been signed with Li Chi Keung.

For a business valued at HK$5.47 bln. Page 7

Digging deep Polytech is holding firm. On the grounds that it has a weighty legal argument. And will win its dispute with the MSAR Gov’t. Over the land-contract extension for luxury residence Pearl Horizon. If so, construction would resume immediately.

Real Estate Page 3

Tingyi Cayman Islands

+1.83%

MTR Corp Ltd Hengan International Group

Warning light

Economy Reform Premier Li Keqiang struck an upbeat note in his keynote speech.

Upon the occasion of the opening ceremony of the 2016 annual conference of the Boao Forum for Asia. Assuring assembled individuals that China has the necessary tools to address the economic transition. Page 8

Banking Fitch predicts 6.5 pct GDP decline for Macau this year – with risks to banks as loan books expand and deposit growth contracts. Page 2

12° 13° 13° 18° 13° 19° 15° 19° 17° 21° Today

Sat

Sun

20,345.61 -269.62 (1.31%) Hong Kong & China Gas Co

+0.28%

Swire Pacific Ltd

-0.06%

China Merchants Holdings

+0.67%

Cheung Kong Infrastructure

+0.07%

Sands China Ltd

-2.90%

China Life Insurance Co Ltd

-3.93%

+0.32%

Li & Fung Ltd

PetroChina Co Ltd

-4.28%

0.00%

New World Development

-3.18%

-3.68%

Source: Bloomberg

HK Hang Seng Index March 24, 2016

Proper tools

I SSN 2226-8294

Mon

Tue

Source: AccuWeather

Gaming In the red. Hotel and casino operator Macau Legend Development Ltd. posted a net loss of HK$268.5 mln for 2015. Due to decreased gaming revenues from mass market tables and outsourced VIP tables. The company’s self-run VIP

2 Business Daily Friday, March 25 2016

Macau Economy Fitch Ratings forecast a further decline of Macau’s real GDP by 6.5 pct in 2016

Vulnerability of banks coming into focus The rating agency highlights Macau banks’ vulnerability as ‘operating environment weakens, loans surge’.

Joanne Kuai joannekuai@macaubusinessdaily.com

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ressure on Macau banks’ asset quality is expected to intensify, said international rating agency Fitch in a note released yesterday. The agency has forecast a further decline of Macau’s real GDP by 6.5 per cent in 2016. Last year, Macau’s economy shrank 20.1 per cent.

Indicators for the banking sector usually lag the economy. In addition, Fitch highlights the risks to Macau’s banks as having risen ‘as their loan books have expanded rapidly while deposit growth has not kept pace’.

This follows a note on

March 10, 2016, in which Fitch Ratings affirmed Macau’s credit ratings, namely long-term foreign and local currency issuer default ratings, at ‘AA-‘ with a ‘stable’ outlook, attributable to the SAR’s prudent fiscal strength, strong external financial position, credible policy framework and high per-capita income.

Exposure to gaming

Fitch Rating pointed out that Macau’s loan-to-nominal GDP ratio had jumped to 206 per cent by end-2015 from 156 per cent at end2014. The large increase was driven by a 16.9 per cent decline in nominal GDP and a 10.3 per cent increase in loans.

The agency reckons this structural disconnect stems from Macau’s gaming-driven economy, to which the banking system is mainly indirectly exposed. As such, the latest spike in this high and volatile systemic indebtedness, which the agency have been flagging in its Macro Prudential Indicator of ‘3’ since 2012, has remained less of an issue but it points to the concentrated nature of Macau’s economy.

Vulnerabilities highlighted

The key structural characteristics of Macau’s banking system - concentration on property lending - accounting for 44 per cent of loans; and large assets and deposits; direct and indirect gaming exposure – accounting for 1 per cent and 15 per cent of loans, respectively; and dominance

by Chinese-owned banks, which make up 70 per cent

and ongoing casino project expansion.

Nevertheless, Fitch says the risk remains that a prolonged period of anaemic gaming activity could eventually spill over into the domestic economy.

of assets – highlight its vulnerabilities, but thus far have supported the system’s stability, Fitch noted.

So have consumption and investment, which both continue to grow, albeit at a subdued pace, and unemployment remains less than 2 per cent, reflective of a labour force comprising heavily of non-resident workers

“Banks could become more vulnerable to the volatile economy if the current weak environment persists.”

Fitch Ratings

Macroeconomic performance

“Banks could become more vulnerable to the volatile economy if the current weak environment persists”, reads the agency’s report. This will lead to a weakening of Macau bank’s ability to generate earnings.

Two possible scenarios are cited: firstly, if the trend of tighter structural liquidity was to continue; and secondly, if the credit enhancement that Chinese banks provide to their Macau operations also declines.

The rating agency once again points out that Macau’s prudential supervision is less onerous compared with other Asia Pacific markets.

It indicates that in the SAR regulatory exemptions are common, impaired-loan recognition standards are weak, and industry-wide stress-testing has yet to be established.

Work Safety 2,851 labour dispute cases filed in 2015

Pennies for a life DSAL says in 2015 eight fatal industrial accidents, breaching work safety regulations, amounted to fines totalling MOP50,000.

Annie Lao annie.lao@macaubusinessdaily.com

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total death toll of 11 people was recorded at various work places in 2015, according to the Labour Affairs Bureau (DSAL). Of these, eight were attributed to breaches of work safety regulations on construction sites, one case more than the previous year.

The companies in charge of the worksites where the fatal accidents occurred were fined a total amount of MOP50,000 (US$6,256).

“The penalty for breaching work safety regulations resulting in fatal accidents on construction sites tends to be small,” said Lam Iok Cheong, Chief of Occupational Safety and Health Department at DSAL, at a press briefing regarding the Bureau’s work on occupation safety.

“The minimum penalty for work safety violation is MOP1,000 and the maximum is MOP15,000. When fatal cases or severe incidents occur, the penalty will be tripled to MOP3,000 as a minimum.

At the same time, DSAL will issue an order to suspend the

construction,” she explained.

Ms. Lam further noted that of the eight fatal industrial accidents four were related to lifting, three were related to working at height and one death was caused by the mishandling of lifting machinery which occurred at night.

Increasing cases of violation

The fine for violation of work safety regulation on construction sites totalled MOP799,000 in 2015, which is 66.98 per cent higher than the MOP478,500 fined in 2014, according to the DSAL.

In addition to the fatal accidents, the latest available data from DSAL indicates that in the first six months of 2015 a total of 679 people were injured on construction sites. The number was 1,274 for the whole of 2014, averaging 637 for half a year.

On top of that, the DSAL representative indicated that when safety hazards are found during site inspections or when severe work accidents occur the Bureau issues an order to suspend construction work.

The number of such orders issued in 2015 increased to 22, with only 10 suspension orders issued in 2014.

Labour disputes on the rise

According to DSAL, the number of construction workers increased to 54,800 as of mid-2015, from 52,500 in

2014. The Bureau indicated that since some large-scale casino-resorts’ construction works are near completion, it is expected that the construction workforce will shift to public works, medium and small-sized private projects and renovation of casino-resorts. The Bureau vows to enhance supervision and promotion of work safety regulations.

The Bureau added that some 2,851 labour dispute cases were filed in 2015, a 40 per cent increase compared to the 2,041 cases in 2014. The majority of the complaints were in the construction industry, which accounted for 80 per cent of the total.

The Hotel and Food & Beverage industry accounted for 11 per cent. The majority of complaints concerned wages, compulsory holidays and overlapping weekend holidays.

Business Daily Friday, March 25 2016 3

Macau Property Developer claims ‘powerful grounds’ in land dispute

Polytec confident about Pearl Horizon lawsuit The company said it has legal grounds proving the delay in the development of luxury residence Pearl Horizon is not its fault, adding it would resume work on the project immediately if it wins its lawsuit against the local government.

Kam Leong kamleong@macaubusinessdaily.com

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eveloper Polytec Asset Holdings Ltd. believes it has ‘strong legal grounds’ to win its lawsuit against the MSAR Government for compensation of time to complete its high-end residential project Pearl Horizon.

‘Based on the legal opinions received, [The company] has strong legal grounds to obtain compensation of time by applying to the Courts of Macau including Tribunal Adminsitrativo (Administrative Court) in order to continue

and complete the project,’ the developer stated in its annual results filed with the Hong Kong Stock Exchange yesterday.

According to the company, the city’s courts will set a hearing date for the lawsuit filed by its local arm Polytex Corporation Ltd. ‘in the near future’.

Construction work for the project was suspended following the expiration of Polytec’s 25-year temporary land concession for the project site, which expired on December 25 last year.

The government later declined the company’s application for extension of the land grant, stating the city’s land law mandates no temporary land concession can be renewed or extended if developers fail to fulfil their development obligations within the land-use term.

Polytec noted in yesterday’s filing that it would resume its construction work on the project ‘immediately’ and would complete the project in 2018 if it wins the lawsuit and is given relevant approvals by local authorities.

‘If the applications were ultimately declined, the Macau Government would have a right to resume the land without any compensation to the owner of the land,’ it added.

Pearl Horizon, sitting on a site known as Lot-P of Areia Preta on the Macau Peninsula, is designed to house 18 towers with 5,000-plus residential units. Over 3,000 of these units have already

been sold off-plan, according to the government’s earlier disclosure.

Meanwhile, the company claimed yesterday that it had completed the foundation work for another residential project on Lots T+T1 in Areia Preta, for which superstructure work is now in progress.

‘The construction work is being expedited aiming for completion and obtaining an occupation permit in mid2017. A pre-sale programme of its residential units will be launched in due course,’ it said.

2015 net profit up 18.3 pct

For 2015, the developer’s net profit attributable to equity shareholders amounted to HK$51.7 million (US$6.44 million), which increased by 18.3 per cent from HK$43.7 million for 2014. In addition,

its turnover for the year totalled HK$357.5 million, which climbed 21.4 per cent year-on-year.

In particular, the company’s share of gross rental income earned from its investment properties surged 26 per cent year-on-year to HK$68.3 million last year. It explained the lift was primarily attributable to increased rents from its half-owned Macau Square property in the city – which contributed a total of HK$63.2 million to the group’s rental income for the year.

Polytec expects its investment property portfolio in the Special Administrative Region will continue bringing stable income for this year despite it foreseeing that ‘the Macau economy is expected to remain weak for a considerable period of time.’

“Not my fault”

Nevertheless, the Hong Kong-listed developer has stressed that the delay in completion of the luxury residence was due to the delay of the government in granting the requisite approvals and permits for the development of the project and thus filed a lawsuit against the government’s decision to take back the plot.

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4 Business Daily Friday, March 25 2016

Macau Opinion

Pedro Cortés The penalty clauses Two days ago one of our best Secretaries mentioned that the legislation in place is sufficient to cope with delays in public works.

Well, I agree almost all of the time with Mr. Raimundo do Rosário. I like his attitude and the positive way that he faces the problems that exist - that are a consequence of one decade of inactivity in his Secretariat.

In this case, I also approve his views. The legislation exists. The enforcement of the legislation is a problem. I guess many of the legislators don’t know that the legal regime of public works already provides for penalty clauses in case of delay in accomplishing the deadlines imposed.

The problem, in my view, is that most of the time the contractors suffer from the inactivity of the public departments, from the lack of competence, and, sometimes, for the lack of capability of people.

It is true that Macau does not have a culture of enforcing penalties and other measures on contractors. As a matter of fact, I do not want to believe that the legislators who now urge new legislation have not read a word of the Macau laws on this matter. It is not the imposition of clauses that will make the projects be developed faster. It is a culture of exigence, of demand for quality that should exist in Macau.

The problem is not the legislation but the lack of action in the cases of land that was reverted to the government, the case of the LRT that only now can see the light of day, or in many other situations that we could cite as an example.

And yes, Mr. Rosário; if we introduce new measures in the law or in the contracts, the contractors would start to fight it in court, to the benefit of some professions – in which I may be included – delaying even more our public works.

In a way, what we need is talented persons, like our Secretary, in the public administration and, why not, in the Legislative Assembly, rather than penal or compensatory clauses in the public works contracts.

Well, we may also need, more than ever, a Happy, Sacred and Peaceful Easter, in these difficult times in terms of security of our population, our way of life, and our cultural values.

Pedro Cortés is a lawyer and frequent contributor to this newspaper.

Property Visit rate and transaction rate increased in March

Property market expected to stabilise Properties between MOP2-3 million seen as most attractive in March.

Bami Lio bami.lio@macaubusinessdaily.com

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n the wake of Chinese New Year the property market has begun to stabilise, Leong Keng Seng, founder and president of the Macau Property Evaluation Association (MPAA) told local Chinese publication Macao Daily yesterday.

Mr. Leong said that less costly properties experienced a better recovery than more expensive ones, 5-storey houses or those completed over 20 years ago. Properties at prices of between MOP2 million (US$250,000) to MOP3 million were believed to have experienced increases in both visit rate and transaction rate in the month of March.

He said that expectations are that the city will see a stable property

market in 2016 following last year’s downturn unless there is a big change in the city’s economic environment or an increase in the unemployment rate.

Economic environment and residents’ expectations

Mr. Leong told the publication that properties in Taipa and Coloane saw the greatest decreases in price compared to those on the Macau Peninsula. Buildings completed within the last two years and especially those finished within five years also recorded a drop in price. Moreover, properties with larger square footage saw greater decreases in price.

Leong stated that properties with more stable pricing were usually those completed over 20 years ago and largely occupied.

The rapid downturn mainly appeared in the second half of 2015, with Leong citing the economic environment and residents’ expectation of a downturn in the property market.

For the whole year of 2015, both total value and total volume of real estate transactions registered a year-on-year decrease, according to the Statistics and Census Service (DSEC). The city also saw a monthon-month decrease in both total value and total volume of real estate transactions in January. The city’s economic trend followed the downturn on the Mainland.

MPAA is an organisation registered in Macau and founded in 2005 with members of professions and personnel from the industrial section of property evaluation.

Transportation

Corruption Another tiger falls

Pac On Ferry Terminal to be completed in April

Guo Yuanqiang named new Zhuhai Communist Party Chief

Extended construction of the Pac On Ferry Terminal in Taipa will be completed by next month. The project has been delayed several times due to a change in its function from temporary ferry terminal to permanent terminal and the continual addition of new car parks. Secretary for Public Works and Transport Raimundo Arrais do Rosário said in the Legislative Assembly yesterday that the project construction continues “once again with changes, which definitely affects the speed of the project.” The project will be passed to the Public Security Police Force and Macau Customs for design work next month.

Predecessor Li Jia under graft-buster investigation one day after attending public events.

Guangdong has appointed Guo Yuanqiang as the Communist Party Chief across the border in neighbouring Zhuhai City with immediate effect – as of yesterday, according to a Chinese media report.

Mr. Guo previously held the post of top leader at the Department of Commerce of Guangdong Province.

An announcement that Guo’s predecessor, Li Jia, has been spared from occupying any future public post was made at the same time yesterday at a general meeting of Zhuhai officials.

Li Jia is currently under investigation for “serious discipline violations”, according to a statement by the Commission for Discipline Inspection of the Central Committee of the Communist Party of China (CCDI) issued last night.

The Commission is in charge of investigating corruption and other wrongdoing among party cadres. The announcement comes as a surprise as Li was seen attending two public events just the previous day. No details have emerged of allegations against Li Jia from the government’s anti-graft agency.

Li Jia is Guangdong’s fourth provincial-level cadre official to be accused of corruption since Chinese President Xi Jinping launched a massive anti-graft crackdown upon taking office.

In 2012, Mr. Li took the top job in Zhuhai, the neighbouring city bordering the Macau SAR, which was set up as one of China’s Special Economic Zones in 1980 at the start of the country’s landmark economic reforms.

The former Zhuhai Party Chief made a point of maintaining constant contact with his Macau counterpart and just in February Li Jia met with Macau Chief Executive Chui Sai On to discuss developing the ‘One Centre, One Platform’ policy in Macau and tourism co-operation between the two cities.

Last year, when Chui Sai On led a delegation to Zhuhai they were received by Zhuhai officials led by Li Jia, where Li said that the next five years were important ones not only for Macao but also for Zhuhai, with the Hengqin Free Trade Zone and the completion of the Hong Kong-Zhuhai-Macau Bridge imminent. J.K.

Business Daily Friday, March 25 2016 5

Macau Retail

Expanded City of Dreams mall to open mid-year in gaming-based revenue accompanying the Chinese

Government’s anti-corruption enforcement activities in Macau. Melco Crown Ltd. also previously increased the amount of its retail space in its other Macau operation: Studio City. The new mall is expected to be ready before Wynn Palace’s resort - which is scheduled to open its doors on June 25 this year. The fifth hotel tower, known as ‘Tower D’, at City of Dreams is still under construction, and will only be open in 2018, Mr. Ho revealed.

The expanded retail mall at City of Dreams is expected to open by mid-2016. Co-chairman and chief executive of casino operator Melco Crown Entertainment Ltd. Lawrence Ho Yau Lung confirmed the opening period, GGR ASIA has reported. As the government seeks to diversify the economy, steering the SAR from its predominantly gaming-based economy, the CEO said his company would increase the amount of retail space for its non-gaming offerings due to a slowdown

Hospitality

Cheaper 4-star hotels drive higher occupancy rates in February Year-on-year increase in occupancy rate only seen in 4-star hotels despite cheaper rooms in 3 and 5-star hotels.

Bami Lio bami.lio@macaubusinessdaily.com

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o cal 3 -sta r t o 5-star hotels during the month of February recorded a yearon-year decrease of 0.9 per cent in occupancy rates, with 81.3 per cent occupancy. This came despite a year-on-year decrease of 17.3 per cent in room rates, bringing the average room price in February to MOP1,515.4 (US$189.4), according to the latest data provided by the Macau Hotel Association and released by the Macao Government Tourism Office (MGTO).

In terms of category, 4-star hotels were the only segment to record a year-on-year increase in occupancy rates, with the month of February seeing a 3 per cent rise,

952.9 MOP Price for average 4-star hotel room in February

bringing occupancy for the 4-star properties up to 79 per cent. A year-on-year decrease of 1.2 per cent and 2.7 per cent were registered in local 3-star (84.2 per cent) and 5-star (82 per cent)

hotels, respectively.

For the first two months of 2016, 4-star hotels were also the only category to post a year-on-year increase in occupancy rate, rising 1.2 per cent to 78.8 per cent

occupancy. A decrease of 3.4 per cent and 4.1 per cent was registered in occupancy rates compared to the previous year for 3-star (83.9 per cent) and 5-star hotels (79.3 per cent) respectively.

Cheaper average room rate

Local 4-star properties registered the biggest year-onyear drop in their average room rates, falling 18.9

per cent to MOP952.9 last month, MOP109.8 cheaper than that of 3-star hotels. For February alone, a year-on-year decrease of 18.6 per cent and 15.9 per cent was registered in room rates of local 3-star hotels (MOP1,062.7) and 5-star (MOP1,865.1) hotels, respectively.

For the first two months of 2016, 4-star hotels also saw the biggest year-onyear decrease in average room rates, dropping 20.8 per cent to MOP876.7, which was MOP116.2 less than that of 3-star hotels. The data for January and February this year showed a yearon-year decrease of 18.5 per cent and 15.8 per cent was recorded in room rates for 3-star (MOP992.9) and 5-star (MOP1,786.6) hotels, respectively.

Retail

Local Milan Station revenues plunge 81 pct in 2015 Luxury branded handbag store chain Milan Station Holdings Ltd. saw its revenues plunge by 80.8 per cent year-on-year to HK$15.6 million (US$1.94 million) in Macau for 2015, following its closure of retail stores in the territory, according to its filing with Hong Kong Stock Exchange on Wednesday.

‘The gaming industry and tourism industry in Macau shrunk in recent years, which greatly bombarded the Group’s business locally. During the year, the Group closed the retail stores

in Macau, while the points of sale in exclusive clubhouses also performed unsatisfactorily,’ the retailer noted in the filing.

The company said it would adjust the product mix for its current sales points in local exclusive clubhouses as well as focusing on selling midpriced brands in order to improve its revenues in the Special Administrative Region.

For last year, the company generated total revenues of HK$400 million, a 35 per cent year-on-year drop compared

to the HK$616 million it made in 2014.

Meanwhile, it posted a narrowed net loss of HK$48 million for the year, some 9 per cent lower than the HK$53 million loss suffered one year ago.

In addition to the sales drop in the city, Milan Station’s Hong Kong sales also fell 23.9 per cent year-on-year to HK$343.9 million. The company explained that the decline is due to the decreased number of Mainland China tourist visits to the HKSAR, weakening per capita consumption, and exchange rate fluctuations. K.L.

Business

Vitasoy to sell US subsidiary assets for US$19.8 mln Hong Kong-listed beverage producer Vitasoy International Holdings Ltd. said it is to sell certain assets of its business operation in North America to Korean joint-stock company Pulmuone Foods Co. Ltd for an estimated gain of US$19.8 million (HK$153.5 million).

In a filing with the Hong Kong Stock Exchange yesterday, the beverage producer said the South Korean company is to acquire the company’s property, plant, equipment and working capital as well as intellectual property rights used by its subsidiary on the continent.

‘The Board is of the view that the disposal will enable the Group to focus and accelerate its growth of core businesses in Hong Kong and Mainland China as well as to support its further expansion into other new markets,’ Vitasoy claimed.

For the six months ending September 30 of last year the Hong Kong-listed company posted a net profit of HK$310 million and total revenues of HK$3.11 billion, which surged by 40 per cent and 14 per cent year-onyear, respectively, according to its latest interim report. K.L.

6 Business Daily Friday, March 25 2016

Macau Retail

E-Commerce latecomer Chow Tai Fook chases Alibaba

Chow Tai Fook jewelry stores in Macau lure luxury shoppers.

Chow Tai Fook aims to break into online market.

T

he Chow Tai Fook brand took almost 90 years to become a family empire spanning Hong Kong shopping centers, the world’s largest jewelry chain and casinos to give patriarch Cheng Yu-tung a US$10 billion net worth. Alibaba Group Holding Ltd.’s founder Jack Ma needed less than five years to amass an e-commerce fortune almost triple that.

Now, the Cheng family’s holding company is making a move to chase Alibaba and other Internet retailers by expanding its online presence. It invested 350 million yuan (US$54

Key Points Chow Tai Fook invested 350 million yuan in shopping platform in Dec. Alibaba Group worth nearly triple Chow Tai Fook Online Chinese market for imports is US$100 billion-a-year Chow Tai Fook isn’t seeking partnership in the venture

million) in shopping platform CTFHOKO.com in December and a mall to showcase products sold online.

Its website offers genuine imports such as infant formula, diapers and cosmetics at prices at least 10 per cent cheaper than shops in mainland China and is aimed at consumers wary of counterfeit goods online.

The company is banking on its decades-old reputation. While Hong Kong-based Chow Tai Fook has little e-commerce experience compared with JD.com Inc. and Alibaba’s Tmall, it “can offer confidence in product quality while some existing websites may have fake products,” said Chan Sai-cheong, executive director of Chow Tai Fook’s jewelry unit in charge of the venture.

Cheng family’s flagship Chow Tai Fook Jewellery Group Ltd. joins other retailers in stepping up its online business that has long been dominated by Alibaba and other e-commerce companies. It’s also seen its traditional business suffer its worst year since 2011 as China’s slowing economy and anti-graft campaigns curb demand for luxury goods. Shares of the company have dipped 4 per

Corporate

IFT students promote local travel writer’s book

IFT Tourism Retail and Marketing Management Year 3 students have assisted travel writer Sio Ng to develop campaigns via her Facebook fan page to boost the promotion of the launch of her travel book later this year. As part of the programme project at IFT students assessed the current state of

cent this year, compared to the 7 per cent drop in Hong Kong’s Hang Sang Index.

The prize is a US$100 billion-ayear online Chinese market for imports such as cookies and diapers, according to a report by Mintel Group Ltd., as consumers remain concerned about local products after a series of scandals over fake goods. China’s e-commerce industry is dominated

by Alibaba and JD.com, with market shares of 52 per cent and 20 per cent respectively, according to the report.

“It’s unlikely for newcomers to compete for website visitation” because China’s most popular online platforms such as Alibaba attracts the most traffic, said Ray Zhao, an analyst at Guotai Junan Securities Co. “It has to cooperate with China’s Internet companies to let Chinese consumers know there is a new website.”

The hurdle for Chow Tai Fook is not just homegrown. Amazon.com Inc., the world’s largest e-commerce company, is also putting together a plan to take on Alibaba as it vies to capture China’s growing cross-border e-commerce market, which by 2020 is expected to swell into a US$1 trillion industry serving 900 million shoppers, according to a June report from Accenture and AliResearch, Alibaba’s research arm.

No Partnership the writer’s Facebook page to identify its strengths and weaknesses and later proposed ideas for improvement.

Students also referenced several top quality Facebook pages of the same nature in a bid to learn from the best and identify top practices. Through this project, students put theory into practice and gained hands-on experience.

While other brick-and-mortar companies have paired up with established platforms to break into China’s online market, such as the partnership between LVMH-owned cosmetics retailer Sephora and JD.com as well as department store chain Intime Retail Group Co.’s venture with Alibaba, Chow Tai Fook is prepared to go at it alone.

“We don’t need to have any partnership in expanding the business -- we are strong enough to do it by ourselves,” Chan said in an interview in his Hong Kong office. “What we care is that the business model has potential to grow.”

Cosmetics, Cakes

To complement its online offerings, Chow Tai Fook built a companion shopping mall in the Qianhai free trade zone in the southern city of

Shenzhen to exhibit products sold online, while some are also for sale at the stores.

Since the first phase of the three-story mall opened in December, Chow Tai Fook has invited 21 Hong Kong retail brands such as cosmetics retailer Sa Sa International Holdings Ltd. and Maxim’s Cakes to display their wares there and sell on its website.

At least another 50 retailers will open outlets at the mall when its next phase is ready in May, said Chan.

All products in the CTF HOKO mall and sold on its sister website are shipped from Hong Kong or other countries outside China, and prices for products such as cosmetics, milk powder and diapers are cheaper than at shops. That’s because the government has adopted lower taxes for online retailers that import through specific ports, under a program labeled “cross border e-commerce.”

Chow Tai Fook isn’t the only tra-

“We don’t need to have any partnership in expanding the business - we are strong enough to do it by ourselves.”

Chan Sai-cheong, Executive Director of Chow Tai Fook’s jewelry unit

ditional retailer to try and benefit from the program. China Resources Holdings Co. started ewj.com last July and opened a companion showroom in Shenzhen, while Wal-Mart Stores Inc. also plans to introduce a cross-border e-commerce service this year.

Imported products for infants have been the most popular category since Chow Tai Fook opened its platform, as “Chinese parents don’t stint on baby products,” said Chan. “They want to give their children everything that’s good quality, and they don’t trust domestic brands after some scandals.” Bloomberg

Business Daily Friday, March 25 2016 7

Macau Gaming AN ANNUAL DROP OF NEARLY 30 PCT IN ITS GAMING REVENUES REGISTERED

Macau Legend falls into the red The gaming operator posted a net loss of HK$268.5 million for 2015 from a net profit in 2014. The reason for the loss is reported to be an overall decrease in gaming revenues despite takings from self-run VIP tables registering an annual increase.

Kam Leong kamleong@macaubusinessdaily.com

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ocal casino and hotel operator Macau Legend Development Ltd. saw its annual results dip into the red for 2015, posting a net loss of HK$268.5 million (US$33.4 million) contrasting a profit of HK$478.9 million recorded just one year ago. The loss is mainly driven by the plunge in its overall gaming revenues.

According to its filing with the Hong Kong Stock Exchange on Wednesday after trading hours, the company’s adjusted BEITDA amounted to HK$263.8 million for last year, a hit of 64.7 per cent compared to the HK$760.3 million recorded for 2014. The company’s total revenues fell 20.7 per cent year-on-year to HK$1.44 billion.

The operator explained that the annual net loss was also attributable to the increase in overall operating expenses as well as the hike in overall depreciation and amortisation charges.

In 2015, Macau Legend raked in total gaming revenues of HK$897.4 million, which dropped by 29.9 per cent year-on-year from HK$1.28 billion one year ago - due to decreases in takings from mass market tables and outsourced VIP tables.

Self-run VIP tables outperform market

The company’s mass market tables earned approximately HK$711.5 million in revenues during 2015, a year-on-year decline of 35 per cent, while its revenues from outsourced VIP tables posted a fall of 70 per cent year-on-year to HK$35.2 million.

However, the gaming operator’s revenues from its self-run VIP tables, primarily located in Pharaoh’s Palace

Macau Legend Development Ltd. CEO David Chow.

Casino and Babylon Casino, increased nearly 1.5 times to HK$142.1 million for last year, compared to HK$58.2 million in 2014.

The gaming results registered

by Macau Legend, in fact, outperformed the general trend of the city’s high-roller market, sitting much more in line with the mass market.

Last year, the city generated gaming revenues of MOP127.8 billion from VIP gaming tables, which represents a plunge of 40 per cent year-on-year from the year before. Meanwhile,

Macau Legend to sell Landmark Macau

Macau Legend announced it is to sell The Landmark Macau, one of its casino-hotel complexes on the Peninsula, to a substantial shareholder of the company named Li Chi Keung.

In a separate filing on Wednesday night, the casino operator said it has signed a letter of intent with Mr. Li, whom the company described as ‘a connected person of the company’, on the proposed disposal.

Citing a third-party valuation report conducted on March 18, Macau Legend indicated the market value of The Landmark Macau amounted to HK$5.47 billion as at the end of last year.

The company’s previous interim report shows Mr. Li held a 12.3 per cent stake in Macau Legend as of June 30 last year.

total gaming revenue was down 34.3 per cent year-on-year to MOP230.8 billion, according to official data released by the Gaming Inspection and Co-ordination Bureau (DICJ).

Non-gaming takings up slightly

On the other hand, non-gaming revenues of the company registered a slight increase of 1.4 per cent yearon-year to HK$538.7 million compared to HK$531.1 million recorded one year ago. It said in the filing that the increase was due to the revenues

Meanwhile, Macau Legend believes the proposed disposal will allow it to ‘expand its businesses in Macau and overseas without taking on too much additional leverage,’ according to the filing.

The hotel and casino property, located on Avenida da Amizade, saw its total revenues contributing to Macau Legend slashed by 34 per cent year-on-year for 2015, amounting to HK$968.4 million compared to HK$1.47 billion in 2014, the company’s latest annual results reveal.

Of the total, the property’s casino business, which runs under the casino licence of local gaming operator SJM Holdings Ltd, plunged 34.7 per cent year-on-year to HK$744.4 million, whilst non-gaming takings of the property decreased 31.2 per cent yearon-year to some HK$224 million. K.L.

of HK$115.2 million contributed by Harbourview Hotel at Macau Fisherman’s Wharf – which began operations last February.

As at the end of last year, the occupancy rate of The Landmark Macau fell 17.4 per cent year-on-year to 67.2 per cent, whilst that of Rocks Hotel dived 6.9 per cent year-on-year to approximately 78.4 per cent. The newly opened Harbourview Hotel, meanwhile, registered an average occupancy rate of 65.6 per cent at 2015 year-end.

Invest outside the city

The company also noted in the filing it would keep looking for new investments, especially integrated resort projects, outside the Special Administrative Region in addition to its casino complex in Cape Verde currently under construction.

‘We will focus on Southeast Asian destinations where the ‘One Road, One Belt’ policy from China is supporting new investment in tourism and tourism related infrastructure and will also focus on Portuguese-speaking countries to make good use of the Sino-Portuguese platform for the Group’s business diversification overseas,’ it claimed.

Gaming

RENOVATION

Babylon Casino installs 50 Live multi-game terminals

SJM: Jai Alai project on track to reopen soon with gaming facilities

Hong Kong-listed Paradise Entertainment Ltd., under its LT Game brand, has installed 50 Live Multi Game (LMG) terminals in the Flamingo Slot Club in Macau Fisherman’s Wharf under a leasing agreement, reports GGRAsia. The terminals feature a live dealer but both betting and bet settlement are done electronically.

The Flamingo Slot club is located in the Babylon Casino, on property owned and operated by Macau Legend Development Inc. Jay Chun, chairman and managing director of Paradise Entertainment, said in a statement on Wednesday, that: ‘”Macau Legend’s selection of our electronic table game solutions is a vote of confidence in the product’s

ability to drive performance for casino operators while addressing the changing casino landscape and players’ gaming experience.”

In addition to the new terminals in Babylon, the manufacturer provides over 3,000 terminals throughout the SAR to the gaming industry.

Paradise Entertainment Ltd. is a holding company which also provides management services to four operators in the MSAR apart from its supply and lease of gaming facilities.

Early last month the manufacturer also installed 70 LMG terminals in the Casino Diamond in the Hotel Holiday Inn Macau, operated by SJM Holdings Ltd. B.L.

Casino operator SJM Holdings Ltd. said that the revamped Jai Alai project is on track to meet the expected opening date in the second half of this year, a date that has been dragged out by pending government approvals of the renovation works.

“SJM is on track to meet the completion of the Grand Lisboa Palace in late 2017, while the revamp of Jai Alai will finish in the second half of this year, with exciting offerings of restaurants, shops, entertainment, and gaming facilities”, said SJM chief executive Ambrose So Shu Fai at a media luncheon which took place at the Grand Lisboa ballroom yesterday.

SJM previously stated that renovation work was restarted on the former

Casino Jai Alai premises in May 2015, with work suspended since February 2014 pending receipt of government approvals. The project, called Jai Alai Palace, is predicted to absorb about HK$ 1 billion in renovation costs.

In addition to the announcements, the SJM CEO said that the gaming operator is committed to being a responsible member of the community.

With national strategies like “One Belt, One Road”, and the policy of making Macau “One Centre, One Platform”, Mr. So said “the result of two plus two may be bigger than five”. He also mentioned the ‘9+2’ plan announced by the State Council earlier this month and the positive impact it may have on the MSAR. J.K.

8 Business Daily Friday, March 25 2016

Greater China Premier Li

Cash

Beijing has enough tools to keep economy stable

Companies grubbi

Li reiterated that the country hopes to cut taxes by 500 billion yuan in 2016 and promote reforms to the VAT system.

Sue-Lin Wong

C

Premier Li Keqiang delivers a keynote speech at the annual Boao Forum for Asia in Boao in Hainan province.

hina has enough policy tools to keep the economy stable despite “deep rooted” structural problems and downward pressure, Premier Li Keqiang said yesterday, channelling calm amid concerns about the country’s slowdown.

Speaking at an annual forum in Boao on the southern Chinese island of Hainan, Li said high economic growth rates are not sustainable, so the government will pay more attention to the quality and efficiency of economic growth.

The comments echoed previous statements by policymakers who are grappling with the challenge of slowing growth, soaring debt and a pressing need to drive restructuring and overdue economic reforms.

“Domestically, China faces deep-rooted, structural problems and the economy continues to face downward pressures, especially as we try to restructure and upgrade,” Li said.

The renminbi currency, watched closely by global markets, will be kept within “a reasonable range”, Li told the forum.

“China is a responsible nation and there’s no possibility that our exchange range will depreciate in the long-term,” he said.

China plans to lay off millions of people as it restructures industries mired in overcapacity, but Li said the government would “use market tools” to create new job opportunities to offset the impact.

“There’ll be short-term difficulties in the job market as some companies go bankrupt but the government needs to help people find new employment opportunities and ensure a basic standard of living. Both the central government and local governments have already started doing this,” he said.

While many economists have highlighted the risks in China’s growing debt, Li said the country’s debt-to-GDP ratio was not high.

To facilitate business and fuel economic growth, the government would move to ease taxes and red tape, Li said, repeating commitments he has made in the past.

He added, however, that the country is inexperienced in implementing such reforms and there would be challenges.

Li also reiterated that the country hopes to cut taxes by 500 billion yuan (US$76.77 billion) in 2016 and promote reforms to the value-added-tax (VAT) system.

The government would continue to reduce overcapacity in steel, coal and other sectors while helping develop smaller private enterprises, Li said without giving details.

China’s leaders have set an economic growth target of 6.5 to 7 percent for 2016. Growth last year cooled to 6.9 percent, the slowest in a quarter of a century. Reuters

The figures demonstrate the become increasingly relucta Adam Jourdan and Umesh Desai

Chinese companies, with ever more cash tied up in stocks and unpaid bills, are facing their tightest liquidity crunch in a decade, according to a Reuters analysis, forcing some into more costly and less secure borrowing to stay afloat.

The analysis of Chinese listed companies that have reported 2015 earnings shows it takes them almost 170 days to turn working capital - broadly the net amount tied up in stocks and bills payable and receivable - into cash.

For the 141 of the companies that have been around for at least a decade, the figure is 130 days, compared with roughly one month 10 years ago, and both the amount clients owe them and the amount they owe suppliers are at the highest level since at least 2006.

The figures demonstrate the growing strains on Chinese companies as banks, chastened by a doubling in bad loans last year, become increasingly reluctant to lend into China’s slowing economy.

Banks prefer to lend to state-owned enterprises, rather than the smaller businesses that provide 80 percent of urban employment and 60 percent of GDP, so rate cuts and monetary easing steps from China’s central bank are not making life much easier for them.

“The last two years, people often say things are okay, but then don’t pay up,” said a manager at Shandong Wansheng Stainless Steel in eastern China, who gave his surname as Wang.

“It has a big impact; it means we don’t have enough capital and have to find other channels.”

M&A

Yum in talks to sell stake in mainland unit The China business could be valued at about US$10 billion, analysts and bankers estimate.

Saeed Azhar and Elzio Barreto

Yum Brands Inc, owner of KFC and Pizza Hut, is in talks with private equity firms including KKR & Co LP and Hopu Investments to sell a minority stake in its China operations as it prepares to spin off the once booming unit, two sources familiar with the plans said yesterday.

Several other Chinese investors were also looking into the deal, said the sources, who declined to be named.

The potential investment comes after a difficult few years for Yum in China, its biggest market by sales, where a series of food-safety scandals and management mis-steps has dented its reputation with diners.

The chain plans to spin off its 6,900 restaurants in China, which account for about half of the company’s total sales, by the end of 2016. Yum China will list on the New York Stock Exchange, and possibly in Hong Kong.

The China business could be

Key Points Possible sale of near 20 pct stake in Yum China - sources Stake values the China business at about US$10 billion Western fast food companies battling slowing China sales

valued at about US$10 billion, analysts and bankers estimate, based on its core earnings.

Yum, still the largest fast food chain in China, has been losing ground to McDonald’s Corp as they both strive to revive flagging sales in the teeth of growing competition from local rivals and a slowing economy.

“We continue to make good progress since we announced the transaction separating Yum and Yum China,” a Yum spokesperson said by email.

“We will provide updates on the transaction at appropriate times, and we won’t comment on rumours or speculation.”

Yum’s China sales dipped 0.4 percent in 2015, after two flat years, underlining how managers have struggled to repair its reputation since the food safety scares.

Chinese diners once flocked to its outlets - and to McDonald’s - helping drive revenue growth of nearly 30 percent a year between 2006 and 2012.

No silver bullet

Yum China, under new boss Micky Pant, is facing a cocktail of challenges in China: a slowing fast-food market, the rise of food delivery apps creating an online price war, and a lack of local franchise partners.

Analysts said securing private equity investment would be no silver bullet for recovery, but could help drive faster store growth and fund a makeover for older stores.

“My guess is that they are looking at sources of funding so they can refurbish or revamp their stores here or expand more aggressively,” said Ben Cavender, Shanghai-based principal at China Market Research Group.

Hopu Investments, a China-based private equity firm co-founded by former Goldman Sachs banker Fang Fenglei, was not available for immediate comment. KKR declined to comment.

Singapore state investor Temasek Holdings had been approached about the deal, but it was unclear whether talks were on-going, one source said. Temasek declined to comment.

Other investors looking into the deal included Baring Private Equity Asia, said the Wall Street Journal, which initially reported the deal.

Yum appeared to be intent on selling a 19.9 percent stake to avoid a big tax bill, the Journal said. Baring declined to comment.

Yum’s sales at established restaurants in China rose 2 percent in the fourth quarter, the second increase in 1-1/2 years. Yum China earned US$1 billion before taxes, interest, depreciation and amortization (EBITDA) last year.

Shares in Yum closed nearly 2 percent up at US$80.55 on Wednesday. The stock has gained 10.3 percent since unveiling plans to spin off the China business last October. Reuters

Business Daily Friday, March 25 2016 9

Greater China In Brief

ing for cash as liquidity tightens

e growing strains on Chinese companies as banks ant to lend into China’s slowing economy.

The squeeze is particularly acute for small businesses like Gangye Machinery in Suzhou, eastern China, which have less clout with suppliers and lenders alike.

Pan Zhengqiang, who owns the firm, said his clients are taking two to three months to pay, up from one to two months a year ago, and his bills are piling up and his staff still need paying.

He wants a bank loan, but says the banks have too many conditions for people like him, and they always find a reason to turn him down.

“If I can’t get a loan there, then I have to go to relatives or friends,” said Pan. “If I can’t even borrow from them, then the only options left are microcredit firms and loan sharks.”

able to tell them that they are qualified (for a loan) or not,” said Soul Htite, chief executive of online lender Dianrong. com, echoing complaints from small firms who say they struggle to borrow through regular channels.

Dianrong.com now has 2,700 employees, and its loan volumes grew over tenfold last year against 2014, Htite said.

Businesses are also increasingly resorting to selling their unpaid bills to a third party, suffering a discount on the face value of the debt but getting immediate access to cash.

Discounted bills now amount to 46 percent of the total, up from 20 percent at the end of 2013, according to research firm CreditSights - its highest

level since monthly data began in 2011.

With China’s growth set to slow further from its 25-year low in 2015, and wary consumers paring back their spending, the cash crunch for businesses can only get worse.

GMM Nonstick Coatings, which has a plant in Guangdong province making coatings for rice cookers and saucepans, said its China sales, which account for 10 to 20 percent of its total, are down 15 percent so far in 2016.

“When consumer (appetite) starts to dip, stuff isn’t moving off the retailer’s shelf,” said CEO Ravin Gandhi.

“As soon as the retailer sees that, they take their foot off the gas pedal for their suppliers.”

That is already having consequences for GMM’s trade debtors; it is now imposing a 45-day payment period on domestic buyers, down from 60 days at the end of 2015.

“It ripples all the way down the line,” said Gandhi. Reuters

Stock market

35 brokerages resume short selling Thirty-five brokerages have resumed short-selling business after a long hiatus, official state media reported yesterday, as Beijing moves to warm up frozen derivatives markets in the wake of a massive market crash last year. Domestic stock indexes have been rallying in recent days on news that the state-controlled margin lender had resumed lending to brokerages to fund margin finance operations and cut borrowing costs. However, there are remaining restrictions still in place on trading in stock index futures put in place during the crash.

Cash flow ripples

The unmet needs of people like Wang and Pan are fuelling a boom in alternative lending such as online loans brokered on peer-to-peer (P2P) platforms, in a country where regulators are already fretting about the hidden risks in its sprawling shadow banking industry.

P2P loans shot up in the first two months of the year to hit 243 billion yuan (US$37 billion), versus 69 billion for the same period in 2015.

They quadrupled in 2015 to 982 billion yuan, according to industry data provider Wangdaizhijia.

P2P loans are more costly than bank loans, but they are quick, and speed can be critical to businessmen facing a cash flow crunch.

“They run a business and don’t need to wait for three months before you are

Nuclear Summit

Xi, Obama to meet in Washington

Monetary policy

Taiwan cuts rate for third straight meeting Taiwan’s economy headed for third consecutive quarter of contraction as shipments shrink over 13 months.

Justina Lee and Chinmei Sung

Taiwan cut its benchmark rate for a third consecutive quarter as an export slump showed no signs of recovering and has begun weighing on the labour market.

The central bank lowered the benchmark discount rate by another 12.5 basis points to 1.5 percent, it said in a statement yesterday in Taipei. Twenty-five of 26 economists surveyed by Bloomberg had forecast a cut, with 22 expecting the rate to reach 1.5 percent, three predicting 1.375 percent and one expecting no change.

The inflation outlook is steady and the domestic outlook is poised to improve, albeit at a slow pace, the central bank said in the statement.

Overseas inflows have been strong amid low rates abroad, and policy makers will maintain foreign-exchange market order in the event of excessive volatility, according to the statement. Taiwan also will ease rules on mortgages.

Taiwan’s economy is headed for a third consecutive quarter of contraction as shipments shrank in the past

13 months amid a slowdown in China.

The strongest stock inflows in Asia this year are buoying the local dollar, threatening to put the island’s exporters at a disadvantage to rivals in South Korea. The weaker trade picture also is weighing on the labour market, raising the risk that consumption will cool further as well.

“The effects of rate cuts are becoming less and less obvious, but it still needs to be done,” Woods Chen, an economist at Ta Chong Bank Ltd. in Taipei, said before the announcement. “The goal is to further push down lending rates and weaken the Taiwan dollar, or at least limit its appreciation.”

Taiwan’s currency has gained 1 percent this year, more than that of its main export competitor South Korea.

The weighted average interest rate on new loans made by the five leading banks dropped to a four-year low of 1.593 percent in February.

The unemployment rate rose to 3.94 percent in February and has climbed steadily from a record low of 3.73 percent a year earlier. Youth unemployment is “stubbornly high” and there’s “substantial slack” in the labour market that may not be evident in the overall jobless rate, John Zhu, an economist at HSBC Holdings Plc in Hong Kong, wrote in a note. Bloomberg News

Chinese President Xi Jinping will meet with his U.S. counterpart Barack Obama on the side-lines of the fourth Nuclear Security Summit in Washington next week, a senior official said yesterday. “It will be the first meeting between the two heads of state this year. It will be of great significance in advancing the bilateral relationship in a sustained and stable way,” Chinese Vice Foreign Minister Li Baodong said. Li said President Xi will also meet with other state leaders on the side-lines of the nuclear security summit to exchange views on bilateral relations.

Taiwan

First cross-Strait bank card issued A bank in Fujian Province has issued the first cross-Strait debit card, in association with a Taiwan duty-free shop chain.

The debit card was unveiled on Wednesday at Xiamen Bank, a mainland bank with Taiwanese investment. The card can be used in Taiwan with preferential treatment in duty-free outlets affiliated with Ever Rich D.F.S Corp., the bank’s partner.

Card holders can withdraw money from all ATMs in Taiwan without commission and are entitled to various business services. More than 3.4 million trips were made from the mainland to Taiwan in 2015. Dutyfree shops in Taiwan are among the most popular destinations.

E-commerce

Bank of China release white paper with UK firm Bank of China (BOC) and UK Trade & Investment (UKTI) jointly released China-UK Cross-border E-commerce White Paper at Bank of China London Branch on Wednesday.

The white paper was jointly prepared by BOC and UKTI with the aim of providing an informative background to assist British enterprises who intend to cooperate in cross-border E-commerce ventures with China. Featuring an overview of Chinese national policies and guidelines, relevant BOC products and services, as well as an explanation of the importance of Chinese pilot cities project in Cross Border E-commerce.

10 Business Daily Friday, March 25 2016

Greater China

Dalian Wanda Group owner Wang Jianlin

Property

Wanda Commercial scaling back building in smaller cities The firm said it will open at least 50 new Wanda Plazas in 2016.

Clare Jim

C

hina’sbiggestcommercial property developer, Dalian Wanda Commercial Properties Co Ltd, yesterday said it would scale back investment and construction in small cities due to oversupply.

The property arm of Dalian Wanda Group, owned by China’s richest man, Wang Jianlin, said it would stop land purchases for home and office developments in these cities while continuing to build hotels and shopping malls.

Until now Wanda Commercial has banked on large plots of land in smaller cities, but inventories are currently bloated in such centres while Chinese home prices rose at their fastest clip in almost two years in February thanks to demand in big cities.

“In third- and fourth-tier cities, despite some improvement under government stimulus policies, the real estate market is still facing heavy destocking pressure,” Wanda Commercial President Qi Jie told an earnings conference.

The developer said on Wednesday its core profit rose 14.8 percent to 17 billion yuan (US$2.61 billion) in 2015, the first full year of its shift to an “asset-light” strategy that seeks outside investment to finance shopping plazas.

Yesterday it said 57 percent of its contract sales came from major cities last year, up from 52 percent in 2014.

The developer expected a 39 percent decline in sales in 2016 to 100 billion yuan, as it focuses more on rental and property management income.

“In third- and fourth-tier cities … the real estate market is still facing heavy destocking pressure” Qi Jie , Wanda Commercial President

Wanda said it will open at least 50 new Wanda Plazas in 2016, adding to a total of 133 at the end of 2015.

Wanda Commercial adopted the asset-light strategy over a year ago to seek funds for Wanda Plazas as revenue growth in the real estate sector slows.

Wanda’s impairment provision of inventories surged over 17 times last year to 1.1 billion yuan, which company director Liu Chaohui attributed partly to the price decline in China’s smaller cities. Reuters

M&A

ENN buys stake in Australia’s gas producer Santos Private Chinese gas distributors like ENN are looking to acquire interests in gas producers to lock in supplies of liquefied natural gas.

Sonali Paul

Chinese gas distributor ENN is set to become the top shareholder in Australian gas producer Santos after agreeing to buy a US$750 million stake from Hony Capital in a push to ease its dependence on China’s state-owned giants for supply.

As part of the deal, Hony, one of China’s most successful private equity funds, will buy a stake in a unit of ENN Group, looking to help drive ENN’s expansion offshore.

“We are gaining a strategic investor and partner in Hony Capital whose

deep China experience and global outlook can help us accelerate future growth overseas,” ENN Group chairman Wang Yusuo said in a statement.

Santos said on last Friday it had approved the transfer of Hony’s 11.7 percent stake to ENN Group’s ENN Ecological Holdings Co. Hony acquired most of its interest last November when Santos sold A$3 billion in new shares to help it slash debt.

ENN is effectively paying A$4.84 a share, based on yesterday’s exchange rate, a 23 percent premium to Santos’ last close.

Private Chinese gas distributors like

ENN are looking to acquire interests in gas producers to lock in supplies of liquefied natural gas (LNG) and ease their dependence on state-owned giants CNOOC Ltd, PetroChina and Sinopec, bankers have said.

“Once the proposed transaction completes, we will be keen to meet with ENN and discuss whether there are opportunities to supply gas through ENN into the growing Chinese gas market,” Santos said in an email to Reuters.

ENN is building China’s first private LNG receiving terminal in Zhoushan, set to handle 3 million tonnes a year, starting in 2018.

“Bringing in ENN as a strategic investor will help Santos connect to that opportunity in China, and at the

Key Points ENN to acquire 11.7 pct stake in Santos Hony Capital looks to back ENN’s push overseas Santos keen to talk to ENN about gas supply to China

same time we are helping a Chinese company expand internationally,” Hony Capital Chairman John Zhao said in a statement.

The jewel in Santos’ crown is a 13.5 percent stake in the Papua New Guinea LNG (PNG LNG) project, while its biggest LNG asset is the newly opened US$18.5 billion Gladstone LNG project in Australia.

“Santos investors will wait to see what ENN’s intentions are towards Santos, but at the very least this should provide some comfort that there are other buyers out there willing to pay a premium for Santos stock,” UBS analysts said in a note.

Hony, whose backers include state-sponsored Legend Holdings , Singapore’s Temasek and Abu Dhabi Investment Authority, will invest US$380 million for a stake in ENN, subject to approval by ENN-EC’s shareholders.

Santos shares rose 3 percent yesterday to value the group at A$7.1 billion, in line with the value of a takeover proposal it rejected last year from a fund backed by the ruling families of Brunei and the United Arab Emirates. Reuters

Business Daily Friday, March 25 2016 11

Asia Monetary policy

Bank of Japan board debate rolling back negative rates Dissenters argue policy may have aggravated public’s deflationary mindset.

Leika Kihara

B

ank of Japan (BOJ) policymakers engaged in heated debate during their policy review in March on the pros and cons of their decision in January to adopt negative interest rates, with one even saying it was preferable to roll it back.

A summary of the March 1415 meeting of the nine-member board that was released yesterday showed some warned of weak inflation expectations and persistent overseas headwinds even after the surprise January action.

The dissenters were not named, but their reservations highlighted the problems the central bank faces trying to boost growth and reflate the economy with dwindling policy ammunition.

“It’s preferable to roll back the negative rate policy. But abandoning it immediately after introducing it would cause market confusion

and risk eroding trust in the BOJ. With the effects still not clear, we should maintain the policy,” said one of the four members who disagreed with January’s decision.

Another board member said a roll back was “out of the question” as markets were already moving on the assumption that negative rates would remain in place.

The BOJ unexpectedly cut a benchmark interest rate to minus 0.1 percent in January as it stepped up its faltering efforts to revive growth, pull Japan out of years of deflation and achieve a goal of 2 percent inflation.

But the radical policy prescription has failed arrest an unwelcome rise in the yen, drawing criticism from

lawmakers for confusing, rather than calming, markets.

At the March meeting, advocates of negative rates said the policy was exerting its intended effects with mortgage loan rates already on the decline, the summary said.

Dissenters, however, argued the policy may have aggravated the public’s deflationary mind-set by causing anxiety over the outlook for Japan’s economy.

Others said the policy gave markets the impression the BOJ had no other choice but to revert to a negative rate policy because its asset-buying programme was reaching its limits.

“All the demerits of the policy I raised as risks ... are materialising,” one board member said.

Concerns were expressed over the gloomy outlook,

with one member warning that risks to the economy remained tilted to the downside, the summary noted.

Several members complained that wage growth remained slow and the BOJ’s own index stripping away the effect of fresh food and energy costs may slip below 1 percent.

The index, which the BOJ scrutinises in gauging the broad price trend, showed annual consumer inflation slowed to 1.1 percent in January from 1.3 percent in December as the yen’s rebound pushed down prices of imported goods.

In March, the BOJ kept monetary settings unchanged but downgraded its economic assessment, signalling its readiness to deploy additional stimulus if risks derail a fragile recovery. Reuters

Key Points One member said minus rates aggravating deflation-summary Another said demerits of policy materialising Others said negative rate exerting intended effects Some fret of slow wage growth, weakening price trend Bank of Japan headquarters.

Restructure

World’s biggest start-up? Samsung Electronics to reform corporate culture Some current and former employees say it will be difficult for a company which has global headcount of more than 300,000 to transform itself.

Se Young Lee

Samsung Electronics Co Ltd , the world’s biggest maker of smartphones and memory chips, announced yesterday that it plans to adopt a corporate culture akin to a start-up, seeking to become more nimble as growth slows.

Samsung’s executives will sign a pledge to move away from a topdown culture and towards a working environment that fosters open dialogue.

The flagship firm of South Korea’s dominant conglomerate will also reduce the number of levels in its staff hierarchy and hold more frequent online discussions between business division heads and employees.

“We aim to reform our internal culture, execute as quickly as a startup company and push towards open communication and continuously innovate,” it said in a statement.

The pronouncement is the latest among sweeping changes attempted at a time of crisis by the conglomerate and carries echoes of a 1993 exhortation by Samsung Group patriarch Lee Kun-hee to executives

to “change everything but your wife and children”.

Hurt by a rapid decline in smartphone profits and the absence of new businesses to drive growth, Samsung has been under pressure to reform its military-style working culture to foster innovation.

Some current and former employees say it will be difficult for a company like Samsung, which has global headcount of more than 300,000, to

“We aim to reform our internal culture, execute as quickly as a startup company and push towards open communication and continuously innovate” Samsung statement

transform itself. Analysts also say there is the risk of Samsung losing its edge as a fast-execution hardware company by attempting to change its ways.

Lee has been hospitalised since a 2014 heart attack, and the group is in the midst of a transition to control by his son, Jay Y. Lee. Other moves in recent years to ease a rigid corporate culture include flexible working hours, a loosening of

dress code requirements for weekend work and less pressure on employees to attend after-work drinking sessions that have long been a staple of Korean corporate life.

Samsung said it will also cut down on unnecessary internal meetings and simplify reporting procedures in order to improve productivity and offer training to employees to strengthen their “winning spirit”.

It will also reduce unnecessary overtime and weekend work and push employees to spend time with their families or take advantage of learning opportunities. Reuters

12 Business Daily Friday, March 25 2016

Asia Bad debt

ANZ warns of bigger credit hit from resources exposure Rival Westpac Banking Corp also said yesterday it detected signs of stress in consumer loans.

Swati Pandey

A

ustralia and New Zealand Banking Group yesterday said bad debt charges for the first half of 2016 could almost double due to a downturn in the resources sector, a problem analysts warn could snowball across the banking sector.

A plunge in the prices of two of Australia’s biggest

exports - iron ore and coal - has raised the spectre of mounting defaults by mining companies and a follow-on impact on bank earnings after years of record profits.

Shares in No.4 lender ANZ dived the most in over seven months after it said bad debt charges would likely blow out to A$900 million (US$676 million) for the first half of the current financial

year, up from its A$800 million forecast only a month ago. It cited a “small number” of resources-related exposures.

Rival Westpac Banking Corp also said yesterday it was seeing signs of stress in consumer loans in Western Australia and Queensland Australia’s biggest mining states.

“You’re probably past the bottom of the credit cycle so

it’s hard to see how things can get better from here,” said Andrew Martin, a fund manager at Alphinity Investment Management, which owns shares in the major banks.

“There is a reasonable chance that incrementally things get worse so it tends to be reasonably hard for the banks to out-perform.”

ANZ shares slumped 5.7 percent yesterday, shaving nearly A$5 billion off its market value. The other major banks were between 2.9 percent to 4.3 percent lower, underperforming a 1.2 percent fall in the wider market.

While Australia’s economy grew 3 percent last year - well above expectations - the economy would have grown at 4.7 percent but for the downturn in the resources sector linked t o w ea k e n i n g Ch i n es e

demand, government data shows.

To be sure, Australia’s major banks have small exposures to mining and mining-related services, accounting for between 1-2.5 percent of their overall portfolios, and their total loan losses are at record lows.

But Morgan Stanley analyst Richard Wiles forecast Australian major bank impairment charges to nearly double to 28 basis points of total loans by fiscal year 2017 from 16 basis points in 2015, implying an “earnings headwind” of about 4 percent a year over the next two years.

National Australia Bank and Commonwealth Bank declined to comment on any revised outlook for bad loans, referring instead to earnings statements last month where they said asset quality remained strong. Reuters

Results

Japan’s Mitsubishi to post first net loss That will mark its first consolidated net loss since it was established in 1954.

Yuka Obayashi and Osamu Tsukimori

Japanese trading firm Mitsubishi Corp said yesterday it would post its first ever annual loss in the year to March 31, totalling 150 billion yen (US$1.33 billion), hurt by massive writedowns from a slump in commodities.

Japanese trading firms, like major international oil and mining companies, have been caught off-guard by steep falls in the prices of goods from oil to iron ore as China’s economic growth has slowed.

Local rival, Mitsui & Co Ltd, on Wednesday predicted the firm would post its first net loss since it was established in 1947 after the slide in energy and metal prices forced it book 260

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billion yen in write-downs.

Trading house Sumitomo Corp last month more than halved its net profit forecast for this year due to 170 billion yen in write-downs on resource assets. Marubeni has written down 73 billion yen on metals and energy assets for the April-December period.

Mitsubishi’s group net loss is now forecast at 150 billion yen, against its earlier estimate of a profit of 300 billion yen, as the company plans to book an impairment loss totalling 430 billion yen.

That will mark its first consolidated net loss since it was established in 1954, a spokesman said.

Mitsubishi’s impairment losses include a 280 billion yen write-down

on its stake in Chilean copper company Anglo American Sur and 40 billion yen on the Browse liquefied natural gas (LNG) project in Australia.

Its partner Woodside Petroleum and other stakeholders on Wednesday shelved plans to build the US$30 billion Browse floating LNG project in the face of global oversupply, spelling the end of an era of mega LNG projects.

“We had expected Mitsubishi and Mitsui would book an impairment loss, but the size of the losses were bigger than we had anticipated,” Nomura Securities analyst Yasuhiro Narita said.

“Trading firms will need to focus

more on the areas where each of them has a strength,” he said.

Analysts have said hefty losses from weak markets may further deter Japanese trading houses from investing in energy and metals projects.

Mitsubishi’s loss was flagged by the Nikkei business daily earlier yesterday, which said the trading house is likely to post a net loss of about 100 billion yen for the current year.

Shares in Mitsubishi fell 4.1 percent to close at 1,920.0 yen before the announcement. Shares in Mitsui, which announced its revision after the market closed the previous day, lost 7.5 percent to end at 1,299.5 yen, underperforming the Nikkei index which slid 0.6 percent. Reuters

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Business Daily Friday, March 25 2016 13

Asia In Brief Commodities

Indonesia to buy rubber to support prices

The number of successful property transactions recorded in Hanoi and Ho Chi Minh City (pictured) rose 75 pct from 2014.

Real Estate

Boon for Vietnam property market as more overseas cash goes home State Bank of Vietnam expects remittances to hit a record US$14 billion this year.

Ho Binh Minh

E

ncouraged by an easing of real estate laws and a thriving economy, the Vietnamese diaspora is sending record homebound remittances and adding impetus to a property sector now undergoing a boom after emerging from the doldrums.

House and condominium buys - in cash - will bolster the market recovery just as the State Bank of Vietnam (SBV) prepares to tighten criteria on domestic home loans to avoid a repeat of a painful 2011 collapse that left US$6 billion of unsold properties and banks crippled by bad debt.

Experts say a healthier economy in the United States, where many of the diaspora live, and Vietnam’s improving business prospects are encouraging people to send money to their old country.

Procurement manager Vu Ngoc Mai settled in Europe after studying in the Netherlands 18 years ago and said she trawls the internet daily in search of bargain property investments.

She sent cash to Vietnam in 2012 to build a small block of apartments in Hanoi, which her family rents out.

“I’m looking to buy a condominium to lease to foreigners,” said Mai, now a Netherlands citizen, who works for a telecoms equipment firm in Belgium.

“It’ll be my savings for a later stage, when I return.”

SBV expects remittances to hit a record US$14 billion this year, and to be equivalent to 6.4 percent of gross domestic product.

Up 15 percent from 2015, Vietnam’s remittance growth would eclipse the 4 percent increase expected by

the Philippines, Southeast Asia’s top remittance receiver as a share of GDP. The real value of remittances could be far higher than the SBV estimates, as the National Financial Supervisory Commission reckons an additional US$2.7 billion may have been sent home last year via unofficial channels.

Not just viet kieu

These inflows are fuelling an economy that grew 6.7 percent last year, its fastest pace since 2008.

There are many people like Mai. Vietnam’s diaspora numbers about five million, known as “Viet Kieu”, or overseas Vietnamese.

They include Vietnamese who emigrated or work abroad in places like South Korea, Japan and Taiwan, or those who fled as “boat people” around the time of the Vietnam War, who - including their children - are citizens of numerous Western countries. The United States had 1.5 million citizens of Vietnamese origin according to a 2010 census.

Seventy percent of remitted cash went into production and businesses, lured by solid consumer spending from rising household incomes and middle class growth, making remittances “a vital source of funding for Vietnam’s economy,” according to HSBC economist Izumi Devalier.

According to SBV, a fifth of cash sent to the country last year went into real estate. That is supporting property prices, according to Le Hoang Chau, chairman of the Ho Chi Minh City Real Estate Association, which has warned of potential instability if the SBV gets strict on home loans.

After the SBV slashed dollar deposit

rates to zero in December, more and more foreign cash, official or unofficial, is going into property.

Prices have recovered sharply to near pre-crisis levels.

By the end of 2015, the price for an average high-end apartment in the southern commercial hub Ho Chi Minh City had risen 21 percent to fetch US$1,949 per square metre, while the price in the capital Hanoi rose nearly 10 percent to US$1,592, according to global property adviser CBRE. “When the market started to pick up in 2014, lots of families were using a mortgage or a home loan. We see less and less of that now which strongly suggests that the money is coming from (overseas) families in cash,” said Marc Townsend, managing director of CBRE Vietnam.

New legislation has also helped, easing restrictions on ownership by foreign citizens, with Japanese, South Korean and Singaporean investors keen to buy, as well as Viet Kieu of various nationalities.

The number of successful property transactions recorded in Hanoi and Ho Chi Minh City - once called Saigon and the capital of the former South Vietnam until 1975 - rose 75 percent from 2014 to total 38,050 last year, according to the Construction Ministry.

In Macau, Trang, a Vietnamese woman working there who gave only her first name, is sending money home to her brother. She wants it invested in business and property.

“Stashing cash under mattress is now very old fashioned,” she said.

“The young generation won’t do that anymore.” Reuters

Industrial data

Singapore’s manufacturing output down For the general manufacturing industries cluster, the output dropped 0.3 percent in February year-on-year.

Singapore’s manufacturing output declined 4.7 percent in February on a year-on-year basis, said the country’s Economic Development Board (EDB) in a press release yesterday.

EDB said excluding biomedical manufacturing, output fell 7.4 percent in February. While on a seasonally adjusted month-on-month basis, manufacturing output decreased 4.8 percent, compared to the previous month. Excluding biomedical manufacturing, output fell 2. 1 percent.

Output of transport engineering cluster plunged 14.5 percent in February year-on-year. The marine and offshore engineering segment remained weak with output falling 23.1

percent, on account of lower level of rig-building activity and weaker demand for oilfield and gas field equipment amidst the low oil price environment.

Electronics cluster’s output declined 8.4 percent in February yearon-year, said EDB. Growth in the data storage and other electronic modules and components segments was offset by declines in the rest of the electronic segments.

Output of precision engineering cluster decreased 7.5 percent yearon-year. The precision modules and components segment contracted 7.4 percent with lower production of industrial rubber and metal precision components. The machinery and systems segment fell 7.7 percent, on account of lower output in refrigerating systems and mechanical engineering work.

As for the general manufacturing industries cluster, the output dropped 0.3 percent in February year-onyear. The decline was mainly attributed to the miscellaneous industries segment, falling 4.1 percent, on the

back of lower production of wearing apparels and steel structural components, according to EDB’s press release. The printing and food, beverages and tobacco segments registered output growth of 6.0 percent and 1.0 percent respectively.

The biomedical manufacturing cluster’s output expanded 5.8 percent in February year-on-year. The medical technology segment increased 12.7 percent on the back of higher export demand for medical devices, while pharmaceuticals segment’s output grew 4.0 percent with higher production of active pharmaceutical ingredients and biological products.

Output for chemicals cluster increased 1.2 percent on a year-onyear basis in February. The other chemicals and specialties segment posted growth of 19.0 percent and 2.8 percent respectively. Growth in the other chemicals segment was supported by higher output in fragrances, while the petrochemicals segment contracted 12.2 percent mainly due to plant maintenance shutdowns, said EDB. Xinhua

Indonesian government agencies and state owned companies will buy 500,000 tonnes of domestically produced rubber to help support prices, the government said yesterday as it launched a replanting program. The government gave no details on the timing of the purchases, but the Indonesian rubber association said it expected demand should come from infrastructure development, such as using rubber in asphalt mix for roads. Indonesia is the world’s second-biggest producer of natural rubber, but prices touched seven-year lows last month.

Thailand

Tourism to grow 12 pct during Q1 2016 Thailand’s tourism sector is estimated to grow by an average of 12 percent during this year’s first half, said a leading tourism business person yesterday. Tourism Council of Thailand chairman Itthirit Kinglek said Thai tourist industry will likely grow by 12.2 percent with some 8.8 million foreign tourists during this year’s first quarter and by 11.5 percent with about 7.8 million foreigners visiting during the second quarter. More than 33 million foreign tourists, mostly being Chinese, are expected throughout this year, accounting for a 13.2 percent increase from last year, he said. They will generate some US$4.8 billion in earnings to the tourism sector throughout this year.

Sri Lanka

Power failure at Stock Exchange investigated Sri Lankan Prime Minister Ranil Wickremesinghe has called for a probe into a sudden power failure at the country’s stock exchange earlier this month which halted trading for over 17 minutes. The power failure affected the Colombo Stock Exchange on March 16, causing panic and mayhem among traders. “Every stock exchange should have back-up power to operate.

Today, foreign investors asked us how should they invest in a market where there is no power to operate,” Locale media quoted Wickremesinghe.

Taxi apps

Indonesia tells Uber to partner with transport firms Taxi-hailing apps Grab and Uber Technologies Inc must partner with a transport business and register their cars by the end of May if they want to go on operating in Southeast Asia’s largest economy, a minister said yesterday.

Indonesia’s new rules on the online ride-hailing apps come two days after thousands of cabbies held a protest rally in the capital, Jakarta, demanding the government ban the two companies. The rise of ride-hailing apps has sparked protests and legal action around the world from traditional taxi operators, who see the new operators as a threat to their livelihoods.

14 Business Daily Friday, March 25 2016

International In Brief Forex

UK banks cut currency transfer costs British banks have cut the amount they charge for small international transfers between currencies by more than a fifth in the past three months as competition in the sector continues to grow, an index of market costs showed on Wednesday. Money transfer comparison and intelligence firm FXCompared.com said its quarterly International Money Transfer Index (IMTI) showed banks were starting to respond more aggressively to the arrival of small online providers. Banks cut the average cost of a transfer of 1,000 pounds (US$1,410) by just under 22 percent between December and March, the firm said.

Airports

EU to hold aviation security meeting European Union experts will next week discuss ways of strengthening security in airports after the attacks in Brussels, an EU official said. The attackers accessed the airport without passing security checks, which in Europe usually only take place after check-in. The European Commission, the EU executive arm, will host a meeting of aviation security experts from the 28 EU states on March 31, an EU Commission official said. A meeting of land transport security experts would be held on April 11.

Protectionism

Free-trade opposition unites U.S. political rivals The poll also shows the vast majority of Americans say they would be willing to pay “a little bit more” for merchandise that’s made in the U.S.

O

pposition to free trade is a unifying concept even in a deeply divided electorate, with almost two thirds of Americans favouring more restrictions on imported goods instead of fewer.

The latest Bloomberg Politics national poll shows the issue unites the country like few others, across lines of politics, race, gender, education, and income.

A stunning rejection of what was a post-war cornerstone of American economic and foreign policies reverberates again and again in the answers to the poll’s questions.

Large majorities or pluralities favour policies protecting domestic jobs over lower prices, describe the North American Free Trade Agreement as being bad for the U.S., and even prefer a U.S. company building a nearby factory to employ 1,000 workers over a foreign - in this instance Chinese - owner that would hire twice as many.

Republican Donald Trump and Democrat Bernie Sanders, from opposite ends of the political spectrum,

have especially sought to leverage the protectionist sentiment to boost their presidential campaigns.

Trump has tapped into growing anger among voters who say freetrade policies, including some that have helped add to his own personal wealth, have hurt communities and meant the loss of manufacturing jobs to China, Mexico, and other nations.

Sanders has repeatedly targeted what he calls “disastrous” trade deals such as NAFTA that he argues benefit corporate America at a cost of lost jobs and a shrinking middle class.

In an era of increased U.S. worry about China’s growing economic and military strength, the poll found that more than two-thirds of Americans pick fewer jobs over Chinese ownership, when asked to select between a theoretical offer for their community of a U.S.-owned factory with 1,000 jobs or a Chinese-owned plant with 2,000 workers.

The poll also shows the vast majority of Americans - 82 percent

“Virtually every question of policy has a RepublicanDemocrat split… On trade, there is unity.”

J. Ann Selzer, Pollester who oversaw the survey

- say they would be willing to pay “a little bit more” for merchandise that’s made in the U.S. Among those with household incomes of less than US$50,000, the number dropped slightly, to 75 percent.

A plurality of Americans - 44 percent - say NAFTA has been bad for the U.S. economy, while 29 percent say it has been a positive development.

The accord, which took effect in 1994, was unfamiliar enough to 27 percent that they had no opinion.

Democrats divided almost evenly, with 38 percent saying it has been good and 36 percent saying it has been bad. A majority of Republicans - 53 percent - selected bad, while 46 percent of independents went that way.

The night before the March 15 Ohio primary, Trump appeared near Youngstown, where he blasted Ohio Governor John Kasich for supporting NAFTA when he was a member of Congress. Trump easily won the county where he’d spoken.

Even though trade policy has been a prevalent topic in this year’s presidential campaign, it ranks relatively low in the set of issues tested in the poll. Just 2 percent picked it as the “most important” issue facing the nation right now, well below unemployment and jobs at 19 percent and a decline in real income for Americans workers at 16 percent.

The national poll of 1,000 adults was conducted March 19-22 by Selzer & Co. of West Des Moines, Iowa. It has a margin of error of plus or minus 3.1 percentage points. Bloomberg News

Poll

German consumer morale edges lower Consumer confidence in Germany is beginning to feel the heat from global economic risks, a poll found yesterday. “Optimism among German consumers faded somewhat in March,” market research company GfK said in a statement. “It is unlikely that weak demand for German goods in a number of key countries will not have any effect on German economic growth,” the statement said. Income expectations, as well as consumers’ willingness to spend have also taken a knock, even if they remain at a high level overall. Looking to April, GfK’s headline household confidence index was forecast to ease fractionally to 9.4 points from 9.5 points, the institute said.

Oil

Rockefeller Family Fund divests from fossil fuels The Rockefeller Family Fund said on Wednesday it would divest from fossil fuels as quickly as possible and “eliminate holdings” of Exxon Mobil Corp, saying the oil company associated with the family fortune has misled the public about climate change risks. Though only a sliver of the endowment’s modest US$130 million in assets is invested in fossil fuels, the move is notable because a century ago John D. Rockefeller Sr. made a fortune running Standard Oil, a precursor to Exxon Mobil. The charity said it would also divest from coal and Canadian oil sands.

Bonds

Berlin investor goes extreme to beat peers Lutz Roehmeyer focuses on sovereigns, quasi-sovereigns or supranational-agency bonds from 64 countries.

Natasha Doff

L

utz Roehmeyer is pushing the idea of a global bond fund to the extreme. And it’s paying off.

In the past four months, the money manager at Landesbank Berlin Investment GmbH who oversees 1.2 billion euros (US$1.3 billion) has added 45 new bonds to his Weltzins-Invest fund. That’s increased the number of countries he invests in to 64, more than four times the nations included in the JPMorgan Chase & Co. index he tracks.

His strategy to spread holdings across dozens of markets has helped

his fund outperform all of its peers on a five-year basis after adjusting for price swings, according to data compiled by Bloomberg. It’s also protected it against extreme market moves that drove developing-nation currency volatility to a four-year high last month. He now holds bonds from countries including Armenia and Zambia and is considering investing in Cuba and Iran.

“What we see right now is that we have huge volatility,” Roehmeyer said. “So we are trying to diversify even more. We are trying to add more and more countries.”

Roehmeyer’s strategy has its pitfalls.

His fund has trailed 75 percent of its peers in the past month after diversification limited the benefit from a 20 percent rally in Brazilian local-currency debt and a 9.5 percent jump in the real. In contrast, Franklin Templeton’s US$55 billion Global Bond Fund, which counts Brazil as its third-biggest holding, outperformed 85 percent of its counterparts in the period.

Roehmeyer’s portfolio of bonds in developed, emerging and frontier markets and is the third-biggest publicly-listed holder of Bosnian sovereign bonds, according to data compiled by Bloomberg.

“We like Bosnia, Macedonia, Montenegro fundamentally,” Roehmeyer said. “We like to invest in places where no one else is invested because then we are safer in terms of volatility. It pays off to look at these smaller countries because you end up with a better risk-return ratio.”

Roehmeyer said he focuses on sovereigns, quasi-sovereigns or supranational-agency bonds, buying securities with maturities averaging three years and holding them until they come due.

As emerging-market volatility climbed last year amid China’s devaluation and tumbling commodity prices, Roehmeyer ventured into new countries and now he’s eyeing Malawi and Gambia, as well as market openings in countries like Iran and Cuba.

“Whenever a capital market opens up, it makes sense for us to look at it,” he said. “The trend is do even more diversification.” Bloomberg News

Business Daily Friday, March 25 2016 15

Opinion Business Wires

THE KOREA HERALD Korea’s state debt collector, the Korea Deposit Insurance Corp., plans to open overseas offices to help locate slush funds or other illegal money hidden outside the country by companies and businesspeople. Preparations have been underway since the beginning of the year, with the United States, Cambodia and Australia, as likely candidates for the new offices, KDIC officials said yesterday. The agency handles seizing properties of individuals and firms to help collect debt and so far has relied on private investigators hired in foreign countries to pursue assets hidden outside of Korea.

TAIPEI TIMES Industrial production dropped 3.65 percent annually last month, representing the smallest annual decline in the past seven months, supported mainly by rising output of stainless steel and chemical products, the Ministry of Economic Affairs said. “The size of the annual contraction could have been smaller if the production of some electronics manufacturers were not affected by the earthquake last month,” the ministry’s Department of Statistics Deputy Director-General Yang Kuei-hsien told a press conference. Last month’s result also marked the 10th consecutive month of annual declines, ministry data showed.

THE ASAHI SHIMBUN Many university-educated foreigners cited poor pay and an uncertain future as major problems in working for Japanese companies, according to a government survey released March 22. The results indicated what was behind the alarming trend of about 10,000 foreign students who have studied in Japan leaving the nation annually rather than working for a Japanese company after graduation.

As global competition for quality human resources continues to intensify, the economy ministry plans to urge companies to change their traditional Japanese employment practices.

THE PHNOM PENH POST The Cambodian economy will continue to experience robust growth, with GDP increasing by 7.1 per cent in 2016 and 6.9 per cent in 2017, Vongsey Vissoth, secretary of state for the Ministry of Economy and Finance, announced in a report delivered to the Economic and Financial Policy Committee meeting, state news agency AKP reported. He said the industrial field, mainly garments and the local production sectors, would continue to drive the country’s economic growth.

Vissoth added that inflation would be a manageable 1.9 per cent in 2016 and 3.3 per cent in 2017, and the exchange rate would stabilise around 4,050 riel to the US dollar.

Economics in a time of political instability

O

ver the last 35 years, Western democracies have seen a rapid rise in political instability, characterized by frequent shifts in governing parties and their programs and philosophies, driven at least partly by economic transformation and hardship. The question now is how to improve economic performance at a time when political instability is impeding effective policymaking.

In a recent article, one of us (David Brady) shows the correlation between rising political instability and declining economic performance, pointing out that countries with below-average economic performance have experienced the most electoral volatility. More specifically, such instability corresponds with a decline in the share of industrial or manufacturing employment in advanced countries. Though the extent of the decline varies somewhat across countries – it has been less sharp in Germany than in the United States, for example – the pattern is fairly ubiquitous.

Over the last 15 years, in particular, increasingly powerful digital technologies enabled the automation and disintermediation of “routine” whiteand blue-collar jobs. With advances in robotics, materials, 3D printing, and artificial intelligence, one can reasonably expect the scope of “routine” jobs that can be automated to continue expanding.

The rise of digital technologies also boosted companies’ ability to manage complex multi-source global supply chains efficiently, and thus take advantage of global economic integration. As services became increasingly tradable, manufacturing declined steadily as a share of employment, from 40% in 1960 to about 20% today. But, in most advanced countries, the tradable sector did not generate much employment, at least not enough to offset declines in manufacturing. In the United States, for example, net employment generation in the third of the economy that produces tradable goods and services was essentially zero over the last two decades.

Partly driven by these trends, the share of national income going to labour, which rose in the early post-war period, began falling in the 1970s. While globalization and digital technologies have produced broad-based benefits, in the form of lower costs for goods and an expanded array of services, they have also fuelled job and income polarization, with a declining share of middle-income jobs and a rising share of lower- and higher-income jobs splitting the income distribution. The magnitude of this polarization varies by country, owing to disparate social-security systems and policy responses.

Until 2008, when economic crisis roiled much of the world, the concerns associated with rising inequality were at least partly masked by higher leverage, with government expenditures and wealth effects from rising asset prices supporting household consumption and propping up growth and employment. When that growth pattern broke down, economic and political conditions deteriorated rapidly.

Most obvious, the drop in growth and employment has amplified the adverse effects of job and income polarization.

Beyond the obvious practical problems this has raised, it has impinged on many citizens’ sense of identity.

In the post-war industrial era, one could reasonably expect to earn a decent living, support a family, and contribute in a visible way to the country’s overall prosperity. Being shunted into the non-tradable service sector, with lower income and less job security, caused many to lose self-esteem, as well as fostering resentment toward the system that brought about the shift. (It did not help matters that the same system bailed out the main driver of the economic crisis, the financial sector – a move that exposed a stark disparity between exigency and fairness.)

While technology-driven economic transformation is not new, it has never occurred as rapidly or on as large a scale as it has over the last 35 years, when it has been turbocharged by globalization.

With their experiences and fortunes changing fast, many citizens now believe that powerful forces are operating outside the control of existing governance structures, insulated from policy intervention. And, to some extent, they are right.

The result is a widespread loss of confidence in government’s motivations, capabilities,

Michael Spence Nobel laureate in economics, is Professor of Economics at New York University’s Stern School of Business and Senior Fellow at the Hoover Institution.

David Brady Senior Fellow at the Hoover Institution and Professor of Political Science at Stanford University.

The drop in growth and employment has amplified the adverse effects of job and income polarization.

and competence. This sentiment does not appear to be mitigated much by a recognition of the complexity of the challenge of maintaining incentives and dynamism while addressing rising inequality (which, at its most extreme, undermines equality of opportunity and intergenerational mobility).

As Brady points out, during the more stable period immediately following World War II, growth patterns were largely benign from a distributional perspective, and political parties were largely organized around the interests of labour and capital, with an overlay of common interests created by the Cold War. As outcomes have become increasingly unequal, there has been a fragmentation of interests across the electoral spectrum, leading to instability in electoral outcomes, political paralysis, and frequent changes in policy frameworks and direction.

This has several economic consequences. One is policy-induced uncertainty, which, by most accounts, amounts to a major impediment to investment. Another is the distinct lack of consensus on an agenda to restore growth, reduce unemployment, re-establish a pattern of inclusiveness, and retain the benefits of global interconnectedness.

On one level, it is hard not to see this as a self-reinforcing destructive cycle. Political instability reduces the likelihood of defining and implementing a reasonably comprehensive, coherent, and sustained economic-policy agenda. The resulting persistence of low growth, high unemployment, and rising inequality fuels continued political instability and fragmentation, which further undermines officials’ capacity to implement effective economic policies.

But on another level, these trends may actually be healthy, as they bring concerns about globalization, structural transformation, and governance – which have so far been expressed mainly in the streets – into the political process. This kind of direct connection between citizens’ concerns and governance is, after all, a core strength of democracy.

When a developing country gets stuck in a nogrowth equilibrium, building a consensus on a forward-looking vision for inclusive growth is always the critical first step toward achieving better economic performance and the policies that support it. That is what the most effective leaders have done. The principle is the same for developed countries. Our best hope is that today’s leaders understand it and will adhere to it, thereby putting their creative energies to work on a new vision that places their countries on a path to greater prosperity and equity. Project Syndicate

“Political instability reduces the likelihood of defining and implementing a reasonably comprehensive, coherent, and sustained economic-policy agenda”

16 Business Daily Friday, March 25 2016

Closing Green push

Beijing to halt coal power plants construction in 15 regions

producing centres of Inner Mongolia, Shanxi and Shaanxi.

An official at the communications office of the National Energy Administration (NEA) told Reuters that the report China will stop the construction of coal-fired power plants was correct, but he did not provide any further details. in 15 regions as part of its efforts to tackle a capacity glut in the sector, the country’s energy regulator said yesterday, The report, citing documents issued to local governments by the regulator, said China would also stop approving new confirming an earlier media report.

The Southern Energy Observer, a magazine run by the state- projects in as many as 13 provinces and regions until 2018. owned China Southern Power Grid Corp, said regulators had The rapid expansion of China’s coal-fired power capacity halted the construction of coal-fired plants in regions where has saddled the sector with its lowest utilisation rates since 1978, the NEA said earlier this year. Reuters capacity was already in surplus, including the major coal

Mortgages

Shenzhen’s banks asked to tighten loan standards The recovery in China’s property market accelerated last month, with prices rising in the most cities since March 2014.

A

research unit of China’s central bank branch in Shenzhen asked commercial banks in the city to strengthen risk-control practices on household mortgage loans as property prices have soared, according to a statement obtained by Bloomberg News.

Mortgage leverage in Shenzhen has been far higher than in other first-tier cities since 2015, and has accumulated risks, according to the statement from the Financial Society of Shenzhen Special Economic Zone, a research unit under the local branch of the People’s Bank of China. Banks should “appropriately control” the total size of home loans and decide mortgage rates in a prudent manner, and shouldn’t cut them to compete

for clients, according to the statement, which said the measures are effective March 28.

Residential home prices in first-tier cities including Beijing, Shanghai and Shenzhen have surged amid monetary stimulus from the central bank and a relaxation of housing curbs intended to boost real estate investment. The recovery in China’s property market accelerated last month, with prices rising in the most cities since March 2014, according to official data. Prices in Shenzhen have jumped more than 50 percent over the past year.

Shenzhen boom

The housing boom in Shenzhen, a southern business hub that borders Hong Kong, showed no sign

of abating last month, with prices jumping 3.5 percent from a month earlier, the quickest among all cities monitored by the government, and leading to a 57 percent jump from a year earlier.

The central bank research unit in Shenzhen, in the statement, also asked banks to not lend to any buyer who has borrowed mortgage loans

‘Prices in Shenzhen have jumped more than 50 percent over the past year’

twice in the past two years, or to those that have obtained credit for down payments from small companies or peer-to-peer lenders. They also said banks should control the down-payment ratios for high-end apartments and strengthen their examination of buyers’ debt-paying capacity.

The city has made moves to curb the housing boom, including increasing the appraisal values used to determine sales taxes and fees on property transactions starting April 1, the Shenzhen Real Estate Broker Trade Association said this month.

The measures will raise costs for home transactions.

Shanghai, China’s financial centre that’s trailing Shenzhen in a homeprice surge, is likely to announce additional measures soon to stem a surge in property prices in China’s financial hub, a person with knowledge of the matter said this week. Potential regulations being considered include increasing down- payment requirements for some second-home purchases to 70 percent and tightening the criteria for non-locals to buy homes in Shanghai, said the people.

Calls to the Shenzhen unit’s office and the Shenzhen government went unanswered. Bloomberg News

2016 Budget

Support Package

Inflation

Indonesia may seek to remove diesel subsidies

Singapore to launch program to help industries

Vietnam consumer prices up sharply in first quarter

The Indonesian government may seek parliamentary approval to remove diesel subsidies in a budget revision for 2016, which it will submit before the second half of this year, cabinet ministers said.

The administration removed gasoline subsidies at the start of 2015, but kept subsidising diesel fuel. It reallocated the money to infrastructure expenditure which won a round of applause from analysts and investors to rating agencies.

Standard & Poor’s, a ratings agency, told Reuters this week Southeast Asia’s largest economy needs to cut subsidies on diesel and gas, among others, in order to win its coveted investment grade status.

S&P is the only one out of the three major rating agencies yet to give Indonesia an investment grade rating. Indonesia obtained investment grade from Fitch Ratings and Moody’s in 2011 and 2012, respectively.

The subsidy for diesel fuel is at 1,000 rupiah (US$0.08) per litre and the energy minister said the government could free up 15 trillion to 16 trillion rupiah if the subsidies are removed. Reuters

Singapore will launch an Industry Transformation Program (ITP) to help firms and industries, said the country’s Finance Minister Heng Swee Keat in his first budget statement yesterday.

Heng said Singapore must seize every opportunity to transform, to emerge stronger in the coming years as the global economic landscape is changing.

ITP focuses on providing support at three levels, namely on firm level, industry level, and innovation. Heng elaborated that the ITP will feature four specific measures to provide support for individual firms.

A Business Grants Portal will be launched in the fourth quarter this year to help enterprises access grants from various government agencies for capability building, training and international expansion, said Heng.

An Automation Support Package will be developed to help firms automate, drive productivity and scale up. IE Singapore and SPRING will also partner businesses to access overseas markets under the scheme. Xinhua

Vietnam’s inflation rate rose sharply in the first quarter of 2016 according to official figures released yesterday, a turnaround for the communist country which saw inflation dwindle to zero last year.

Year-on-year consumer price inflation was 1.25 percent in the first quarter, the General Statistics Office (GSO) said in a statement posted on its website, a sharp increase compared to the same period in 2015.

For the month of March, consumer prices rose 1.69 percent compared to 2015, the GSO added.

For decades, Vietnam has suffered from runaway inflation - with triple digit increases in the 1980s and rates as high as 28.3 percent as recently as August 2008.

Taming inflation has been a key priority for the Vietnamese government, which has repeatedly increased official interest rates in an effort to prevent the economy overheating.

But as inflation slowed sharply in 2014 and 2015, the government for the first time expressed concerned about deflation - a broader trend affecting the region. AFP