Macau Business Daily March 30, 2016

Anbang raises stakes in fight for Starwood Hotels acquisition M&A Page 9

Wednesday, March 30 2016 Year IV Nr. 1012 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm

www.macaubusinessdaily.com

Labour

PMI

Wanchai border crossing awaits Zhuhai authorities decision Page 2

Gaming

Key witness in US$81 mln cyber heist points to Macau junket Page 6

China’s factory activity slowdown may be moderating Page 10

18° 22° 19° 23° 20° 22° 20° 22° 19° 23° Today

Transport Bureau Targets Rogue Taxi Drivers

Thu

Fri

Sat

Sun

Source: AccuWeather

Macau unemployment rate holds stable at 1.9 pct Page 4

Customs

Stroll in the park CE Chief Executive Chui Sai On is leading a Macau delegation to Jiangsu. With a possible Macau-Jiangsu Co-operation Park in the works. He said Macau is not requesting expansion of the IVS policy. And that citizens’ livelihoods were a paramount consideration.

Page 3

Trading places Hong Kong Commerce in the Fragrant Harbour suffered a new setback with the release of February data. Imports and exports fell more than 10 pct. The worst performance since early 2013. Slowing global markets are taking their toll of Hong Kong. Page 16

Sands China Ltd

+3.65%

Tingyi Cayman Islands

+2.70%

Bank of East Asia Ltd/The

+2.57%

Galaxy Entertainment

+2.46%

Henderson Land Develop-

+2.38%

China Merchants Holdings

+1.91%

China Petroleum & Chem-

-1.46%

Lenovo Group Ltd

-1.95%

China Shenhua Energy

-2.25%

CITIC Ltd

-2.53%

China Resources Land Ltd

-2.60%

PetroChina Co Ltd

-2.92%

Transportation

Suspension of licences. ‘Passive entrapment’ by plainclothes police.

Sound recording system installed in taxis on a voluntary basis. If the Transport Bureau gets its way this will be the new normal for Macau’s image-tarnished cabbies. Page 2

Elaine Wynn demands shares Elaine Wynn has upped the ante.

The former wife of Wynn Resorts Ltd. founder Steve Wynn wants her cut of the company. That would be a block of 10 million shares in the casino operator.

But there are hurdles to overcome.

Gaming Page 5

I SSN 2226-8294

Source: Bloomberg

HK HSI March 29, 2016 20,366.30 +20.69 (0.10%)

2 Business Daily Wednesday, March 30 2016

Macau Transportation New taxi regulation to introduce licence suspension

Better legislation, better taxi service, hopefully DSAT to introduce entrapment and voluntary recording installation.

Joanne Kuai joannekuai@macaubusinessdaily.com

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he Transport Bureau (DSAT) is going to introduce ‘passive entrapment’ and harsh punishment in the upcoming revision of taxi regulations, said Kuok Keng Man, a member of the Transport Advisory Committee, following a closeddoor meeting with government officials yesterday.

The convenor told reporters that the DSAT intends to introduce a licence suspension system for taxis that violate regulations. Any taxi driver accumulating eight violations of the law over a year will have his or her operating licence suspended for one week; if the eight-count violations happens again, the suspension will last for two weeks; on the third occasion the driver reaches the eighth violation the taxi driver will be suspended from service for a maximum three-month period.

“The harsher punishment is to be introduced in order to improve the taxi service in general,” said Mr. Kuok.

“Currently, what we have been discussing is that during the three-month suspension if the taxi driver dares to drive, his or her licence will be suspended permanently.”

Types of violation in question coincide with the current ones in existence; namely, overcharging, refusing passengers and the violation of traffic rules among others.

Other tougher measures will be reflected in the amount of fines, which will be increased

in kind, Mr. Kuok explained, without revealing further details. He added that according to DSAT officials, the draft revision is expected to be finalised in April and enter the process of legislation.

According to data provided by the Public Security Police (PSP), last year the PSP processed 5,079 cases of taxi violation, with drivers refusing passengers listed as the most common - 1,874 cases or 37 per cent; followed by overcharging in 1,233 cases or 24 per cent.

Entrapment and recording

One of the new measures suggested by the government is to introduce ‘passive entrapment’. Mr. Kuok said

this practice would be conducted by “police officers in plain clothes” who have received professional training and would not induce taxi drivers to commit a criminal offence but rather observe the drivers’ actions to see if they were lawful.

Another proposed measure to regulate the taxi services is the installation of sound-recording systems. However, during the initial stages described Mr. Kuok it will take place on a voluntary basis and only authorised personnel such as DSAT officials or police would have access to the recordings.

“In the beginning experimental stage, only if the taxi licence holder and the taxi driver agree, they would

have the recording device installed and there will be a label in the car informing the passengers,” said Mr. Kuok. “The purpose is to avoid future dispute and it safeguards the taxi drivers’ rights. I personally think it’s worthy of encouragement and should be compulsory and universally adopted. For that to happen, the government could allocate a subsidy for the installation of the recording facilities.”

Bus routes adjustment

Kuok Keng Man added that public opinion and acceptance need to be taken into account when revising any draft; however, details of the revision have yet to be disclosed by the DSAT.

Kuok revealed that members of the Transport Advisory Committee have divided views on the current proposals, with some agreeing that they are appropriate, some believing they’re adequate, and some of the opinion that they’re too harsh.

Among the topics revised at yesterday’s meeting between the advisory body and the government was that of bus routes. According to Mr. Kuok, the government suggested adding stops for bus route 34 and establishing another night bus route - N6 - connecting the University of Macau in Hengqin to downtown Taipa. In addition, a designated bus lane will be temporarily introduced in May from Barra to Avenida do Lam Mau.

Customs Doors stay closed, Macau to advise when they open

Wanchai border crossing remains sealed Despite repeated requests for information from local government departments the MSAR has yet to receive an answer from their counterparts across the border in Zhuhai regarding the re-opening of the Wanchai border according to the Secretary for Security Wong Sio Chak, as reported by local Chinese media TDM Radio yesterday. Mr. Wong stressed that the local government must respect Zhuhai’s decision on the

cessation of operations for the Wanchai border crossing, located near the Ponte 16 hotel in the Inner Harbour area.

Prepared for long wait

The neighbouring city will determine the exact method and timeline for the development of the border with the SAR’s advice serving to facilitate an expedient re-opening. In response to legislator Ella Lei Cheng’s enquiry on the border

shutdown and its effect on local citizens and tourists, the Secretary’s response was that Macau Customs has made preparations to deal with such an eventuality and ensure the order, stability and security of the Inner Harbour district. Through liaison with the Public Security Police Force, the Customs officials manning the borders are working to ensure timely management of emergencies resulting from the closure. A.L.

Business Daily Wednesday, March 30 2016 3

Macau Co-operation CE leads delegation to Nanjing

Macau-Jiangsu Co-operation Park in the works Chui Sai On stresses development of the MSAR would not be at the cost of residents’ livelihood.

Joanne Kuai joannekuai@macaubusinessdaily.com

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acau can learn from Jiangsu with regard to its experience of building up industrial zones, said Chief Executive Chui Sai On yesterday. Mr. Chui said that the two regions have a good relationship and that co-operation is expected to deepen further.

The Chief Executive made the comments yesterday

“If a city is overloaded, the negative impact in the long run may be greater than the short-term benefits” Fernando Chui Sai On, Chief Executive of Macau Special Administrative Region

Infrastructure

prior to boarding a plane to Nanjing, capital of Jiangsu Province in eastern China.

He was leading a Macau delegation to visit and observe the industrial development of the area and discuss with local officials the setting up of a Jiangsu-Macau Co-operation Park.

“We’re going to attend the meeting of the organising committee of a Jiangsu-Macau Co-operation Park. We will talk about the feasibility of such a project, the position of its function, the management of the zone,” said Mr. Chui. “I would like to stress that so far we haven’t chosen a location or fields to co-operate in.

All these will have to be discussed.”

The Chief Executive added that the initiative is aimed at helping Macau diversify its economy and enhancing co-operation with the Mainland, in addition to getting involved in the nation’s development.

“Locals the priority”

With regards to the recent ‘9+2’ national strategy proposed by the State Council,

Macau Chief Executive Chui Sai On.

which mentioned ‘optimising the Individual Visa Scheme (IVS)’, Chui Sai On said that Macau’s tourism capacity needs to be taken into consideration.

The ‘9+2’ plan, which aims to create an enlarged Greater Pearl River Delta zone embracing Macau, Hong Kong and nine southern Mainland Provinces - and suggests the possibility of adding more IVS cities – is viewed by many as potentially increasing the

CE: Land premium under review

MSAR Government in sand dance with Guangdong The new Land Law has been in effect for two years now and, according to the law, the base number for the calculation of land premiums is up for review every two years.

Chief Executive Chui Sai On said yesterday morning that he understands the public’s concern regarding whether land premiums would be adjusted, as poor performance has been observed in the real estate market lately, and drops have been seen in transaction numbers.

The Chief Executive also claimed that the Secretary for Transport and Public Works, Raimundo Arrais do Rosário, is reviewing the issue. Chui said he believes “such an issue is being studied from a comprehensive perspective that would safeguard the big picture” and that relevant news would be released in due time.

The Chief Executive reiterated that despite some incidents occurring during the enforcement of the Land Law, the Urban Planning Law and the Cultural Heritage Protection Law, the authorities would carry on processing any matter in strict accordance with the laws.

Sand shortage

The Chief Executive also revealed that the SAR Government is in constant contact with the Guangdong Provincial Communist Party Committee

with regard to the supply of sand for the SAR’s Zone A reclamation.

The sand supply for Macau’s new landfills was interrupted in February last year, resulting in the project missing its deadline for the end of last year.

Despite the restoration of supply in January of this year it has been reported and confirmed by Secretary Raimundo do Rosário that construction had once again stopped at the end of February due to a sand supply shortage.

Mr. Chui confirmed that such a suspension of sand supply happened, with the cause identified as the construction of the Hong Kong-Zhuhai-Macau Bridge. He said that they understand the importance, urgency and complexity of the techniques involved in the project.

Macau landfill construction depends primarily upon sand supplied by Guangdong Province, with a shortage of these resources arising due to many major maritime projects being undertaken by the SARs and the surrounding cities which also need sand. With priority given to the super bridge, the Zone A landfill continues to be delayed.

Mr. Chui added that the MSAR government is in talks with its counterparts in the neighbouring region in search of a resolution restoring the supply of sand as soon as possible.

Possibilities include sourcing sand from locations further afield. J.K. C

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number of tourists to the SARs. Chui Sai On said his administration is not in blind pursuit of increasing the number of tourist arrivals to the SAR or IVS cities; instead, he stressed that the priority is to safeguard the quality of life of local residents.

“The SAR Government and ministries of the central government all understand that a city has a certain capacity,” said Mr. Chui. “If a city

is overloaded, the negative impact in the long run may be greater than short-term benefits. We, for sure, will view the matter comprehensively and look out for the long run.”

Chui Sai On added that the SAR Government would hand the latest report on Macau’s tourism capacity produced by the Institute for Tourism Study (IFT) to the National Tourism Authority for its reference.

4 Business Daily Wednesday, March 30 2016

Macau Opinion

José I. Duarte Vaccination challenges Mainland China is dealing with another health scare and scandal. This time it’s about vaccines that were sold all over the country, improperly stored and in many cases used beyond their validity dates. At best, hundreds of thousands of vaccinations made are essentially worthless, which is bad enough; at worst they may have adverse health effects. Fortunately, national and international health authorities assure us that the latter is unlikely and, contrary to rumours that immediately gained some traction, very unlikely to be a cause of death.

So, essentially, we are dealing with a gigantic fraud and a huge amount of useless vaccinations. That is surely a significant issue for Mainland citizens. Their trust in health authorities will inevitably be further eroded, and anxiety about the level of protection provided to anyone who got vaccinated, properly or not, is bound to be high. But it also raises important issues for Macau and Hong Kong.

First, there is the fear that, as has happened in previous similar situations, Mainlanders will look to the two regions as safe sources of supply. The governments of both special regions were quick and adamant to state that stocks are enough for local needs, and will be reserved and guaranteed for residents. That is a welcome and necessary assurance to avoid anxieties this side of the border. But both regional governments should be bolder and take a broader and less defensive look at the issue.

First of all, this is not a health problem solely for the Mainland. Vaccination is a public service and in many cases delivered freely to everyone for a reason. It must be universal to provide effective protection to a population. If a significant part of the population fails to be immunized, the risk rises for everyone. With the enormous flow of people coming in and out of our borders every day that problem is also our problem.

Secondly, if only for what we might call humanitarian reasons, we should consider what we could do to help those affected by the scandal. Surely, the health services providers in both regions, either public or private, can find ways to co-operate with the Mainland authorities, helping them to strengthen their vaccination coverage; and also to support those who may come to us anyway, seeking both reassurances and access to safe vaccination services. It is difficult to see why we shouldn’t.

José I. Duarte is an economist and permanent contributor to this newspaper.

Business 355 ISO certificates in Macau

Subsidy for management ISO introduced by CPTTM Local companies are entitled to a subsidy for staff training and obtaining ISO certification, a representative of CPTTM says.

Bami Lio bami.lio@macaubusinessdaily.com

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ompanies registered in Macau are entitled to a subsidy ranging from MOP20,000 to MOP40,000 for obtaining ISO certificates, said Helena Lei, Senior Manager of Professional Training & Examination, Quality Management & Enterprise Support in the Macau Productivity and Technology Transfer Centre (CPTTM). ISO certificates are awarded by the International Organization for Standardization.

The subsidy is just one of the new measures to support local companies, Ms. Lei said in a conference yesterday, adding that the number of years of operation for companies to apply for the subsidy is not limited and that the only condition is

that the companies are registered in Macau. Eligible companies can apply for a subsidy amounting to a maximum of MOP40,000 on first applciation for ISO certificates such as ISO 9001- a standard for quality management systems. Discounts of 50 per cent off the courses taken by staff in procuring ISO certificates were another measure brought up

by Ms. Lei. CPTTM will provide a delivery service for lab tests focusing on quality and safety for products such as textiles. Local companies can apply for subsidy for an 80 per cent discount on the testing fees.

Types of ISO

Ms. Lei stated that 1.6 million ISO certificates have been obtained worldwide, of which the largest portion is ISO 9001 – accounting for

1.1 million certificates. She added that 355 ISO certificates are registered in Macau now, with over 50 per cent of them ISO 9001. Usually ISO certificates are valid for three years as a continual measurement process to improve and maintain company management.

She reminded her audience of ISO procurers that the location and operation of their business should be considered when trying to obtain the ISO certificates Ms. Lei stated that ISO certificates are a means for SMEs to show their quality guarantee in their management system to their customers. Currently popular ISOs are: ISO 20000 – related to information technology; ISO 27000 – regarding security for gambling operators; ISO31000 – for risk management; and ISO 20121 for events and conventions.

In response to an enquiry about whether water was included in the food category for subsidies Ms. Lei replied that currently water is not included in the food category but that it can be discussed and considered.

Employment

Gaming labour force increasing Labour force in the city totalled 397,800.

Macau’s gaming and junket activities continue to take up the largest chunk of the labour force of the city. While the total amounted to 397,800, some 82,800 are engaged in the gaming sector, according to the latest data from the Statistics and Census Service (DSEC).

The Employment Survey, conducted between December 2015 and February 2016 and released yesterday,

1.9 Per cent Macau’s unemployment rate

indicates that by industry recreational, cultural, gaming and other services take up 24 per cent of total employment, followed by hotels, restaurants and similar activities with 15 per cent, construction at 12 per cent, and wholesale and retail trade taking up 11 per cent.

The survey engaged 46,700 people during the study period, recording that the construction sector saw a decline in the number of people it employed; the industry suffered a 3.9 per cent drop compared to the previous survey period – from November 2015 to January 2016.

Wholesale and retail - employing 43,100 people - saw a slight drop of

0.9 per cent compared to the previous period, while gaming and junket activities - employing 82,800 people - experienced an uptick of 1.8 per cent.

Stable unemployment rate

DSEC’s data also indicates that the total labour force in the city is 397,800.

The labour force participation rate is 72.5 per cent. Total employment is 390,400, up slightly by 100; the number of unemployed was 7,400, down 300.

The unemployment rate remained at 1.9 per cent, a number that has held stable from June to August 2015. The underemployment rate was 0.5 per cent, up 0.1 percentage points. J.K.

Business Daily Wednesday, March 30 2016 5

Macau Gaming

Elaine Wynn sues for control of her Wynn Resorts stock Former wife seeks control of nearly US$900 million stake in casino company.

In papers filed with a state court in Clark County, Nevada, Elaine Wynn is seeking to void the agreement so she can take control of her Wynn Resorts stake, plan her estate to benefit her daughters, and stop Steve Wynn from misusing the agreement to exert “full and perpetual control” over her life and legacy.

9.4 Per cent Elaine Wynn’s percentage of Wynn Resorts’ stock, as opposed to Steve Wynn’s 11.8 per cent

Elaine Wynn, former wife of Steve Wynn, founder of Wynn Resorts.

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laine Wynn, former wife of Wynn Resorts Ltd founder Steve Wynn, sued him on Monday to get control over her nearly 10 per cent stake, worth close to US$900 million, in the casino company.

Escalating a battle that followed a

bitter divorce, Elaine Wynn said Steve Wynn breached a 2010 stockholder agreement by engineering her ouster from the company’s board last April after she faulted its internal controls, his alleged withholding of information from the board, and the “tone at the top.”

Elaine Wynn controls 9.4 per cent of Wynn Resorts’ stock, while Steve Wynn controls 11.8 per cent, Reuters data show.

Claims

Steve Wynn, through a spokesman, called Elaine Wynn “a disappointed ex-wife who is seeking to tarnish the reputation of Wynn Resorts and Steve Wynn and their daughters,” and said her lawsuit was “filled with lies and distortions.”

In a separate statement, Wynn Resorts accused Elaine Wynn of making “falsehoods and distortions,” and said her allegations that the company misused assets were without merit.

Wynn Resorts controls properties including the Wynn Las Vegas resort, Encore at Wynn Las Vegas and Wynn Macau.

Steve Wynn, 74, also helped develop other Las Vegas hotels including the Bellagio, the Mirage and Treasure Island.

He is worth US$2.7 billion, while Elaine Wynn, 73, is worth US$1.5 billion, according to Forbes magazine.

The Wynns married in 1963, divorced in 1986, remarried in 1991, and divorced again in 2010, court papers show.

Wynn-Okada

Elaine Wynn’s lawsuit also names as defendants Wynn Resorts and General Counsel Kimmarie Sinatra.

It seeks compensatory and punitive damages, including for Steve Wynn’s alleged failure to support Elaine Wynn’s reelection to the board.

The lawsuit was filed as a counterclaim to a 2012 lawsuit by Wynn Resorts against defendants including Kazuo Okada, a Japanese billionaire.

Okada owned 20 per cent of Wynn Resorts before the company forcibly redeemed his stake in 2012. He and Wynn Resorts have traded allegations of illegal conduct in later U.S. litigation.

Wynn Resorts shares closed down 64 cents at US$92.83 in Monday trading on the Nasdaq.

The case is Wynn Resorts Ltd v Okada et al, Nevada District Court, Clark County, No. A-12-656710-B. Reuters

6 Business Daily Wednesday, March 30 2016

Macau

Gaming MACAU JUNKET OPERATOR LINKED TO ONE OF THE LARGEST BANK HEISTS IN MODERN HISTORY

Key witness in US$81 million cyber heist points to two foreigners

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im Wong, the Philippine gambling junket operator dubbed the “missing link” in the cyber heist of US$81 million in Bangladesh central bank funds, said he was merely an interpreter while two Chinese nationals facilitated the transfer of the stolen funds to the Philippines.

Wong played the role of an interpreter when one of the men asked the manager of a Rizal Commercial Banking Corp. branch to open the accounts where the money eventually ended up, he said at the Tuesday hearing before the Senate Blue Ribbon Committee.

“I had nothing to do with the actual opening of accounts,” Wong said at the hearing. “I had nothing to do with the falsification of bank documents so the money could get in, and I don’t know where the US$81 million came from.”

81 Million USD Amount stolen from Bangladesh central bank funds in cyber heist

The amount made this one of the largest bank heists in modern history, with the funds channeling through the Philippine bank to at least two Philippine casinos where the money trail has gone cold. A further US$20 million that the hackers managed to transfer to a Sri Lankan bank was recovered.

Two Foreigners

“Two foreigners facilitated the entry of the funds to the Philippines,” Wong said. “One of them has been in and out of the Philippines for a long time already.”

Wong was referring to the man he identified as a junket operator from Beijing, whom he has known for about eight years. Through the Beijing business associate, Wong met the other man, a Macau junket operator who had promised Wong that he would bring casino players to Manila.

Rizal Bank branch manager Maia Santos Deguito had been trying to encourage him to open an account at her branch, Wong said. Deguito wasn’t at the hearing and her lawyer Ferdinand Topacio couldn’t be reached immediately for a comment.

Of the US$81 million in stolen funds, US$63 million was wired to the Midas and Solaire casinos, and the remaining US$18 million was sent to the remittance company, Philrem Service Corp., according to Wong.

Philrem Treasurer Michael Bautista

said at the Senate hearing he denied retaining any funds.

Banking Secrecy

Rizal Bank’s head of legal and regulatory affairs, Maria Celia Estavillo, said all deposits in Philippine banks were confidential and that the secrecy provisions couldn’t be broken without the consent from account holder.

‘A Victim’

“I had nothing to do with the falsification of bank documents so the money could get in, and I don’t know where the US$81 million came from.”

Kim Wong, Philippine gambling junket operator

Even as Senator Serge Osmena said the accounts were opened in false names and there was “nobody’s privacy to protect,” Estavillo said the Bank Secrecy Act protected not just the account owner but the deposit itself, and there was as yet no legal determination that the funds had

Corporate

CTM hosts AICEP regulation workshop

Nearly 30 participants recently assembled at Sofitel Macau at Ponte 16, bringing together senior members of AICEP (International Association of Portuguese Speaking Communications) associations including Postal, Telecommunications, Television and Regulatory Authorities from 9 Portuguese-speaking countries and territories. Themed ‘Under the Digital Sign’, the workshop facilitated expert opinions for work and debate via four panels: From Communications to Digital Economy; Regulation in the Digital Age; Trust, Privacy; and Data

Protection and Security. Over the two days participants discussed new threats in the Digital Age involving privacy, personal data protection, computer crime and more.

been stolen. “The law does not allow us to speak about these deposits,” Estavillo said at the hearing.

Rizal Bank President Lorenzo Tan told the Senate hearing that the bank’s human and technological controls may have failed to stop the flow of the US$81 million in stolen funds. “I think what happened here is some judgment error from the people on the ground,” he said.

S.H.E.

Known as the ‘Asia Girl Group’, S.H.E got together for the first time since 2014 to perform onstage, filling up the 5,000-seat Studio City Event Centre (SCEC) on 26th March. Macau is their first stop to perform their ‘Never Say Goodbye’ concert, bringing Selina, Hebe and Ella out from their native Taiwan.

The group performed a selection of their greatest hits from their 15-year career as a pop group. The SCEC also celebrated its first ‘Taiwan Music Series last year, featuring nine Taiwan Mando-Pop stars including Show Lo, JJ Lin, A-Lin and Hebe Tien.

According to a complaint filed at the Department of Justice by Anti Money Laundering Council regulators this month, Wong is president and general manager of Eastern Hawaii Leisure Co. Ltd., a casino operator that received 1 billion pesos (US$21.6 million) from Rizal Bank through local remittance company Philrem between Feb. 10 and 11.

Eastern Hawaii couldn’t be reached for comment.

“I’m also a victim because casino is my business,” Wong said in an interview on Philippine network ABSCBN that aired on Monday. “I don’t know where the money came from.”

Citing their investigation, regulators said Wong then withdrew a total of 1.3 billion pesos from an Eastern Hawaii account and his own personal account with Philippine National Bank between Feb. 10 and 26. Both accounts were ordered frozen by the Court of Appeals on March 1, regulators said. Bloomberg

Business Daily Wednesday, March 30 2016 7

Gaming Tourism

Easter arrivals up 4.24 pct

Over 2 million people passed through the SAR during the four days of the Easter holidays.

Reportedly 668,000 of them were tourists, said local news broadcaster TDM Radio. The amount was evenly split between arrivals and departures from April 25 to 28. Despite a 4.24 per cent increase year-on-year the

China

reflection on retail is as yet unclear.

Lo Kam Kuan, vice president of the United Association of Food and Beverage Merchants of Macao, told Macao Daily News that the income for the industry is the same as from last year while a representative from a jewellery chain told the newspaper that revenue had decreased by double digits compared to last year.

Cambodia

Approved Malaysian SV International in Sihanoukville Sihanoukville is to be transformed into the ‘Macau of Southeast Asia’, with construction slated to start in April.

Annie Lao annie.lao@macaubusinessdaily.com

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he Cambodian Government’s Council of Ministers has approved plans for Malaysian company SV International to build hotels and casinos in Sihanoukville, Cambodia, according to a promotional video released by the company, reports GGRAsia. Despite the announcement, the firm has not yet applied for a casino licence from Cambodia’s Ministry of Finance as Ros Phearun,

a spokesman for the Ministry, told Cambodia Daily newspaper on Monday.

The additional tourist offerings would transform the city into the ‘Macau of Southeast Asia’ according to the promotional video released by SV International. Planned developments include casinos, online casinos, hotels and pawnshops, the newspaper quoted ‘founder and chairman of SV International’ Alan Lim as saying. The first property - called SV World casino – is to be located in a refurbished hotel, with work beginning in April and completed in September. The Malaysian firm stated in the promotional video that it hopes to acquire its second casino licence in the next three to six months.

Online gaming

Cambodia has not yet issued licences for online operations and

currently gambling is illegal for locals in Cambodia. Nevertheless, one Cambodian entrepreneur has been given permission to run an online gaming operation, the Khmer Times reports. Telephone betting for Asian customers has become popular in Sihanoukville on live video feeds showing casino dealers operating casino table games, Tim Shepherd, president of business development for Asian casino and gambling hall operator Silver Heritage Ltd., said.

Lottery sales down Mainland China’s total lottery sales for February decreased 9.4 per cent yearon-year to about RMB22.45 billion (US$3.45 billion) according to data released by the Chinese Ministry of Finance and reported by GGRASIA. Welfare lottery sales dropped to RMB12.3 billion in February, a fall of 5.2 per cent compared to the year before. Meanwhile, sports lottery sales decreased to RMB10.11 billion, accounting for a 14.1 per cent year-on-year slowdown.

February sales saw a sales increase in 16 of the 31 provinces and cities in Mainland China, according to the official data. Of those that registered sales increases, most recorded double-digit increases, reported the publication.

Guangdong Province showed the highest aggregate sales in January and February in welfare lottery sales, amounting to about RMB2.97 billion, which still accounted for a decrease of 5.7 per cent compared to last year.

In addition, the sale of sports lottery tickets was the highest in the country in Guangdong for the first two months – amounting to RMB2.45 billion, an increase of 3.1 per cent year-on-year.

Jiangsu and Shandong recorded the second and third highest sales for sports lottery tickets with each province raking in over RMB2 billion.

In Beijing and Shanghai the recorded sales of lottery products dived 30.3 per cent and 53 per cent, respectively, in the first two months.

Total lottery sales in the country for the first two months totalled about RMB55.1 billion, a decrease of 13.9 per cent year-on-year, including welfare lottery sales of RMB30.47 billion, with a fall of 6.8 per cent and sports lottery sales of RMB24.63 billion, with a 21. 4 per cent drop. A.L.

8 Business Daily Wednesday, March 30 2016

Greater China Prices liberalization

Government to end corn stockpiling Nine-year-old stockpiling system has artificially lifted corn prices around 30-to 50-percent above global markets.

Niu Shuping and David Stanway

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hina plans to scrap its corn stockpiling scheme and allow markets to set prices for the grain, pushing to boost efficiency on its farms and to narrow a gap between local and international prices that has sparked a surge of cheaper imports.

The government will instead subsidise corn growers and encourage commercial firms to buy grain from farmers at market prices, the State Administration of Grain said in a statement yesterday.

The new policy, which marks the biggest reform in China’s grains sector for a decade, is aimed at improving quality and efficiency in its agricultural sector as part of the country’s “supply-side reform”.

But it could prove costly for Beijing, potentially leaving it with huge financial losses as falling prices devalue massive stockpiles that hold over half

the world’s corn supplies.

And as domestic prices start to shift in line with international markets, Chinese demand for imports of corn and corn substitutes such as sorghum, feed-grade barley and distillers’ grains is expected to tank, hitting major suppliers such as the United States and Australia.

“We hope the new reform would let the market play more of a role in the formation of prices,” Liu Xiaonan, a deputy director with the National Development and Reform Commission (NDRC), was quoted as saying in the statement.

The new policy will take

effect in the world’s No.2 corn consumer from the 2016/17 marketing year that starts in October.

“Imports after autumn would be very difficult and could come to a halt,” said Li Qiang, an analyst with commodity advisory Shanghai JC Intelligence Co Ltd (JCI).

“Given the market-oriented reform of domestic corn prices, it is possible that China would be able to export both corn and corn products.”

Beijing’s nine-year-old stockpiling system, designed to support its huge rural workforce, has artificially lifted corn prices around 30-to 50-percent above global markets,

triggering a record volume of imports of corn and corn substitutes in 2015.

Government officials signalled the policy change last month. Chen Xiwen, deputy director with the Communist Party’s Central Rural Working Leading Group said the move would make domestic corn prices cheap enough to deter imports.

The step was also flagged over the weekend by local television, and has already driven down domestic corn prices.

Massive state sales loom?

After years of stockpiling coupled with weakening domestic demand, the government has

Key Points China to let market decide corn prices Pushing to end gap between domestic, foreign prices Also wants to boost efficiency in farming sector New policy to come into effect in October Could lead to exports of Chinese corn -analyst

been saddled with about 250 million tonnes of corn in its reserves, more than the country can consume in a whole year, with the quality of the stored grain deteriorating.

The government is likely to sell more than 40 million tonnes from stockpiles this year, possibly starting from next month, with prices potentially below market price, said JCI’s Li. “Traders will be watching developments closely as the sell down of Chinese reserves will impact demand for U.S. corn,” said Tobin Gorey, director of agricultural strategy at Commonwealth Bank of Australia.

Government hopes that the policy will cut corn production could be dashed in the short term, however, as many farmers have already purchased seeds ahead of the planting season that starts next month, analysts said.

“Farmers may not reduce acreage as much as the government expects. Corn could still be in surplus during the autumn harvest,” said an analyst with an official think-tank, who declined to be identified due to the sensitivity of the issue.

China has already abolished stockpiling in cotton, soybeans and rapeseed, and yesterday’s statement said it would also look into reforming wheat and rice, the two remaining staple food commodities subject to minimum purchase prices set by the government. Reuters

Relocation

Big state companies to leave overcrowded Beijing A government plan could represent the most ambitious corporate relocation effort ever attempted by China’s communist leaders.

B

eijing may be pulling in the welcome mat for many of the country’s biggest stateowned companies (SOE), including some that have had their headquarters in the capital for decades, setting off a scramble among other cities competing to lure them away.

The plan - part of President Xi Jinping’s blueprint to reinvigorate the

economy - aims to move the main offices of state firms that have no core business in Beijing, according to two people familiar with the discussions. The relocations would help reduce traffic congestion, pollution and overcrowding in the capital as well as reinvigorate other first- and second-tier cities on the receiving end, such as Shenzhen, Tianjin, Wuhan and others, according to the people who

asked not to be identified because the discussions were private.

“Every Chinese city wants to have SOE headquarters to boost the local economy,” said Wang Yukai, a professor at the Chinese Academy of Governance, a state-run research institution.

“The impact of having a locally based state-run firm is considerable for the local development, as it will bring extra tax revenue, make more jobs available

The plan is part of President Xi Jinping’s blueprint to reinvigorate the economy.

Business Daily Wednesday, March 30 2016 9

Greater China M&A

Anbang raises offer for Starwood to US$14 billion Anbang’s latest offer values Starwood at 13.5 times earnings.

Greg Roumeliotis and Mike Stone

China’s Anbang Insurance Group Co raised its offer for Starwood Hotels & Resorts Worldwide Inc to almost US$14 billion, Starwood said on Monday, in the latest challenge to the U.S. hotel operator’s merger with Marriott International Inc. The bidding war for Starwood has pitted Marriott’s ambitions to create the world’s largest lodging company with about 5,700 hotels against Anbang’s drive to create a vast portfolio of U.S. real estate assets.

The acquisition of Starwood, owner of the Sheraton and Westin brands, by Anbang would be the largest ever by a Chinese company in the United States.

Anbang’s consortium, which includes private equity firms J.C. Flowers & Co and Primavera Capital Ltd, has offered US$82.75 per share in cash, in what is reasonably likely to lead to a proposal that is superior to the deal with Marriott, Starwood said on Monday. Reuters had reported earlier on Monday that Anbang had raised its offer.

Marriott’s latest cash-and-stock offer, which was announced on March 21, is currently worth around US$78 per share. Starwood’s board has not yet changed its recommendation to its shareholders in support of the company’s merger with Marriott, Starwood said. A vote for Starwood shareholders to approve the Marriott deal is scheduled for April 8.

“Marriott has the financial capacity and the wherewithal to push its bid up

higher. However, so much of the transaction is based on Marriott’s current share price, I think investors would be less than thrilled if it increased its offer materially at this juncture,” said Bill Crow, an analyst at Raymond James.

Marriott declined to say on Monday if it would raise its offer further. In a statement, Marriott said it was confident that the previously announced amended merger agreement with Starwood is the best course for both companies.

“Starwood stockholders should give serious consideration to the question of whether the Anbang-led consortium will be able to close the proposed transaction, with a particular focus on

Anbang Insurance already owns landmark hotel Waldorf Astoria in New York

In Brief the certainty of the consortium’s financing and the timing of any required regulatory approvals,” Marriott said in its statement.

In any deal with Anbang or Marriott, Starwood shareholders will also receive stock in Interval Leisure Group Inc, which is getting Starwood’s vacation ownership business, currently worth US$5.91 per Starwood share.

Anbang’s latest offer values Starwood at 13.5 times earnings. By comparison, peers Hyatt Hotels Corp and Hilton Worldwide Holdings Inc are trading at around ten times earnings.

To be sure, the Anbang offer is still cheaper than some of large real estate deals seen in the run-up to the 2008 financial crisis. Buyout firm Blackstone Group LP’s US$26 billion leveraged buyout of Hilton in 2007, for example, valued that company at 15 times earnings.

CFIUS review

Marriott said last week it believes it could achieve US$250 million in annual cost synergies within two years after closing the deal with Starwood, up from US$200 million estimated in November 2015 when it signed its original merger agreement.

An acquisition of Starwood by Anbang would probably face scrutiny by the Committee on Foreign Investment in the United States (CFIUS), an interagency panel that reviews deals to ensure they do not harm national security. However, sources have said both Starwood and Anbang believe that deal would receive CFIUS clearance.

Under its latest merger agreement with Marriott, Starwood would pay a breakup fee to Marriott of US$450 million.

Lazard and Citigroup Global Markets Inc are financial advisers to Starwood, and Cravath, Swaine & Moore LLP is its legal counsel. Deutsche Bank Securities and Gibson, Dunn & Crutcher are advising Marriott.

PJT Partners Inc is Anbang’s financial adviser, while Skadden, Arps, Slate, Meagher & Flom LLP is its legal counsel. Reuters

Results

BoCom Q4 profit rises above estimates China’s Bank of Communications Co Ltd (BoCom) said yesterday net profit rose 1 percent in the fourth quarter of 2015, above analyst estimates, as in common with peers it battled rising bad debt in a slowing economy. Profit reached 14.5 billion yuan (US$2.23 billion) in the three months through December from 14.3 billion yuan in the same period a year prior, according to a Reuters calculation from the company’s figures. The result compared with the 13.3 billion yuan average estimate extrapolated from 21 analysts polled

by Thomson Reuters on their expected yearly net profit.

Watchdog

U.K. may step up inspections of Mainland banks Britain’s finance regulator may ramp up financial crime inspections at the London branches of two of China’s biggest banks, with a focus on money laundering and anti-corruption, the Chinese magazine Caixin quoted unidentified sources as saying.

China’s banks have been dogged by allegations of lax compliance and money laundering in their European branches over the last year.

The Financial Conduct Authority, or FCA, plans to strengthen inspections at the London branches of China’s largest lender, the Industrial and Commercial Bank of China (ICBC), and China Construction Bank Corp (CCB), Caixin said yesterday.

Corruption

Premier outlines more action against graft and be good branding for the city.”

Many details of the plan remain unclear, including the timeline for any moves and how many companies might have to relocate. Beijing is home to more than 80 of the top 106 stateowned enterprises that fall under the State-Owned Assets Supervision and Administration Commission, or SASAC. Many set up bases near the centre of Chinese political power by default as they were hived off from state agencies during earlier waves of market-based industrial reforms, including the creation of SASAC in 2003.

Attractive packages

Other cities aren’t waiting for final plans to be announced. Just days ahead of the national parliament meetings that started March 5, several officials from Shenzhen entered the distinctive headquarters of China National Offshore Oil Corporation (CNOOC) in a bid to sway the country’s third-biggest oil company to relocate to the southern city.

The Shenzhen delegation led by Executive Deputy Mayor Zhang Hu offered CNOOC President Liu Jian a package including parcels of land and programs to make it easier for employees to relocate, according to one of the people familiar with the talks.

“Every Chinese city wants to have SOE headquarters to boost the local economy” Wang Yukai, Professor at the Chinese Academy of Governance

Tianjin - another first-tier city, along with Beijing, Guangzhou and Shanghai - has also offered a full package of preferential policies to CNOOC, according to two other people with knowledge of those discussions.

One senior manager said in a meeting that CNOOC wouldn’t move unless so ordered by the central government, according to the people. The manager added that the company had better consider options in case a move becomes inevitable, they said.

Forced relocations

China Three Gorges Corporation, China Electronics Corporation, China Nuclear Engineering Group are among other state firms that are in talks with local governments vying to lure the stateowned giants, according to the people.

Neither CNOOC nor the other three companies responded to requests for comment on the discussions. SASAC and the governments of Beijing, Shenzhen and Tianjin didn’t respond to faxed requests for comment.

If carried out on a broad scale, the plan could represent the most ambitious corporate relocation effort ever attempted by China’s communist leaders. The push follows pledges by Mayor Wang Anshun to clear Beijing’s dirty air and cap its ballooning population at 23 million by the end of the decade. The municipality had 21.7 million people last year, ranking it among the world’s most-populous cities by any measure.

Dirty industries

Ahead of the 2008 Beijing Olympic Games, some heavily polluting industries were directed to move out of Beijing. Then, Shougang Corp. relocated iron-and-steel production to the Caofeidian area of neighbouring

Hebei province. Last year, Beijing’s municipal government announced it would relocate some government offices to Tongzhou district to the east.

This time, faced with a slowing economy and uneven regional development, China’s leaders are studying ways to spur overall growth while shifting stimulus from the top cities, generally in the east, to other regions further inland.

“Most SOEs were spun out of ministries over the last 20 years or so,” said Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics. “The ministries were all in Beijing. New staff of the SOEs had been ministerial staff, none of whom wanted to leave Beijing. So lots of SOE headquarters are there.”

Suitor cities

Some state-owned companies may be reluctant to leave Beijing, where executives can more easily influence policy makers who set rules that affect how the firms make profits. It’s also home to foreign and domestic-funded financial institutions and all government agencies.

Potential suitor cities have begun sending teams of delegates to the capital in hopes of attracting the state companies, and a few have even included the strategies in their work plans this year.

Shenzhen has prepared a fund of 10 billion yuan (US$1.5 billion) this year to “push forward the relocation of the headquarters of the major SOEs,” according to the annual budget report. The work plan of Tianjin - a port city about 120 kilometres southeast of Beijing - states it aims to “transfer the resources from the capital, to favourably attract the headquarters of SOEs and major sectors.” Bloomberg News

China plans more measures to stamp out corruption including greater supervision of public finances, Premier Li Keqiang said during a special cabinet meeting on Monday, according to state media.

Chinese President Xi Jinping has pursued a sweeping campaign to root out corruption since assuming power three years ago. Li said that the government had made much progress in anti-corruption work last year, but there were still areas that needed more attention.

Supervision of both the use of national funds and of stateowned enterprises needed to be strengthened, he said.

Industry

TSMC to build a US$3 billion plant in mainland Taiwan Semiconductor Manufacturing Company has signed a deal to build a US$3 billion plant in China, the island’s largest outbound investment on the mainland. The firm, which counts Apple as a client and in revenue terms is the world’s top microchip maker providing tailor-made services, will set up the factory in Nanjing, the company said in a statement Monday. Taiwan previously controlled such hi-tech investment on fears the island could lose its competitive edge to China, which still regards Taiwan as part of its territory awaiting reunification - by force if necessary.

10 Business Daily Wednesday, March 30 2016

Greater China

PMI

March’s official factory activity contracting at slower pace China’s factory sector has been in a prolonged slowdown, weighed down by weak global demand.

A

ctivity in China’s manufacturing sector likely shrank for an eight straight month in March, but at a slower pace than in February as a reviving property market gave a much-needed boost to sales of steel and other construction materials, economists polled by Reuters said.

The official manufacturing Purchasing Managers’ Index (PMI) is expected to rise to 49.3 in March from 49.0 a month earlier, according to a median forecast of 32 economists in a Reuters poll. February’s reading was the weakest since November 2011.

Although the forecast rise implies a slower rate of shrinkage, it is still below the 50.0 mark which separates expansion from contraction.

China’s factory sector has been in a prolonged slowdown, weighed down by weak global demand for the country’s exports and overcapacity in key sectors such steel and basic materials.

Dongbei Special Steel Group Co Ltd, an unlisted steel manufacturer

in northeast China, became the latest casualty of the supply glut and weak demand this week. It missed a payment on an 800 million yuan (US$123 million) short-term note which matured over the weekend, the Shanghai Clearing House said in a statement on its website on Tuesday.

Nonetheless, signs of a nascent turnaround in the construction sector, driven by strong home sales and bubbly prices in big cities such as Beijing, have recently given some support to steel and other embattled heavy industries.

The National Bureau of Statistics’ (NBS) industrial survey for January and February showed industrial profits growing 4.8 percent from a year earlier, reversing seven straight months of decline.

While an NBS official said that the return to growth was partly due to a low base in the same period last year, analysts said that the real estate recovery was also a factor.

“The recovery in property investment has helped industrial profits

return to positive growth,” Zhang Wenlang, an analyst at CITIC Securities, wrote in a note.

“Looking forward, industrial profits are likely to grow this year thanks to improved household consumption, a recovery in property investment and a halt in the slump in commodity prices.”

Key Points China official PMI seen at 49.3 in March vs 49.0 in Feb Bureau of Statistics survey show industrial profits growing 4.8 percent yearly Official PMI data will be released on April 1 Some analysts also thought an easing of concerns over capital outflows and the direction of China’s foreign exchange policy might also have played a role in reviving business confidence.

“We think some of the January-February strength (in profits) was due to the release of pent-up demand from the second half of last year,” Tim Condon, chief Asia economist at ING Bank in Singapore, said in a research note.

“We believe steadier (central bank) policy since the second week of January released the pent-up demand.”

China’s yuan currency fluctuated sharply against the dollar in December and January amid rising concerns about capital outflows, but it has been relatively stable since the end of the Lunar New Year holiday in mid-February, thanks to heavy intervention by the central bank and the dollar’s loss of upward momentum.

The official manufacturing PMI data will be released on April 1, along with the official services PMI. The Markit/Caixin factory PMI, a private and separate gauge of manufacturing data, will also be released on April 1. Reuters

M&A

Taiwan’s CTBC in talks to buy stake in Thai LH Financial unit The potential deal to buy into the unit marks the latest expansion by CTBC into China and Southeast Asia.

Faith Hung

CTBC Financial Holding Co, the parent of Taiwan’s biggest credit card issuer, is in talks to buy a stake of up to 40 percent in Thai firm LH Financial Group’s banking unit, a person familiar with the matter said yesterday.

The potential deal is a non-binding proposal worth around T$15 billion (US$450 million), subject to regulatory clearance in both Taiwan and Thailand, the person said. The person

declined to be identified as the matter had yet to be made public.

Shares in LH Financial jumped as much as 4.7 percent to a 13-month high after Reuters reported the talks.

Officials at the financial services firm could not be reached immediately for comment.

The potential deal to buy into the unit, LH Bank, marks the latest expansion by CTBC into China and Southeast Asia, seeking to expand revenue away from its competitive home market.

A CTBC official declined to comment yesterday, but the firm has previously said it wants overseas banking revenue to grow to 50 percent of total revenue in five years from 36 percent now. It currently has 100 overseas branches, offices and subsidiaries, with Southeast Asia a key focus.

Meanwhile LH Financial has long sought a partner for its banking unit, a provider of housing loans and one of Thailand’s smallest lenders, to boost its electronic banking and fend off fierce competition.

LH Financial reported a net profit of 1.65 billion baht (US$47 million) in 2015, up 37.5 percent on the year. It had assets of about 198 billion baht at the end of February, according to data from Thai stock exchange. Reuters

Key Points Move to extend Taiwan bank expansion in SE Asia LH Financial shares jump as much as 4.7 percent Thai firm seeking partner for small lender LH Bank

Business Daily Wednesday, March 30 2016 11

Asia Stimuli

Japan FY2016 budget clears parliament The proposed expenditure features a bulging welfare outlay to cope with a fastageing population.

Tetsushi Kajimoto

J

apan’s parliament approved yesterday a record 96.72 trillion yen (US$851.5 billion) state budget for fiscal 2016, paving the way for a fully-fledged debate on additional stimulus spending to

spur the flagging economy.

Prime Minister Shinzo Abe seeks to front-load spending for the annual budget for the coming fiscal year from April and to adopt a fresh extra budget, while speculation is rife that he may again delay a sales tax increase planned for April 2017.

The fiscal 2016 budget was given a final approval by the upper house of parliament, with the ruling bloc’s firm majority.

Abe needs to strike a delicate balance between conflicting needs to curb the industrial world’s heaviest public debt burden and to

revive the economy teetering close to another recession.

Sources have told Reuters that the government has begun considering a tax-hike delay and more fiscal stimulus, with people around Abe calling for additional spending of 5 trillion to 10 trillion yen to stimulate consumption.

Abe is expected to decide on the sales tax and stimulus spending around a May 26-27 Group of Seven summit that he will host, after analysing the first quarter GDP data due earlier that month.

“If they decide to go ahead with the tax hike, an

extra budget would likely be around 10 trillion yen. If they delay it, the stimulus would be smaller at about 5 trillion yen,” said Kiichi Murashima, economist at Citigroup Global Markets Japan.

The April 2014 tax increase to 8 percent from 5 percent hit consumers hard, leading to a recession, despite a 5.5 trillion yen extra budget adopted earlier to ease the

Key Points Abe mulls another sales tax hike delay, extra stimulus budget Decision on sales tax, fiscal stimulus to come around G7 summit Fiscal stimulus may not help sustainable growth - analyst

pain from the tax hike. It forced Abe to delay another tax increase to 10 percent initially scheduled for last October - to April 2017.

“Expectations for fiscal policy is rising worldwide due to a limit in monetary policy.

But it would be quite hard for fiscal stimulus to boost the economy sustainably,” Murashima noted.

The 2016 budget features a bulging welfare outlay to cope with a fast-ageing population, with Abe taking advantage of higher tax revenue, and low borrowing costs due to aggressive stimulus by the central bank, for boosting spending.

Ahead of the budget’s approval, Abe has steered clear of debating in public additional fiscal spending, as doing so may have risked a delay in passage of the budget bill. Reuters

Abe is expected to decide on the sales tax and stimulus spending around a May 26-27 Group of Seven summit that he will host.

Consumer Sentiment

South Korean bonds gain despite upbeat data and minister A private survey produced a median forecast for exports to decline 10.4 percent in March year-on-year.

Choonsik Yoo

S

outh Korea’s consumer sentiment ticked up and its finance minister sounded upbeat on exports turning the corner, but bond market investors still bet on interest rates, already at record lows, coming down further.

The central bank said yesterday the composite consumer sentiment index (CCSI), compiled from its monthly survey, rose to 100 in March from 98 in February, when the index had its third consecutive monthly fall to hit an eight-month low.

Finance Minister Yoo Il-ho told a forum exports this month would be better than in January and February, when overseas sales plunged by a combined 15.7 percent over a year earlier after a 12.0 percent fall during the final quarter of 2015.

The liquid 3-year treasury bond futures jumped as the data and the minister’s remarks fell far short of changing their stance that the trade-reliant

economy would be unable to sustain a recovery without further stimulus.

“At best, what we had this morning means troubles facing the economy may not be worsening,” said Kong Dong-rak, a fixed-income analyst at Korea Asset Investment Securities.

“As to the simple question about the direction for the next change in the interest rate, it’s surely downward

rather than upward.”

A Reuters survey of 12 analysts produced a median forecast for exports to decline 10.4 percent in March yearon-year, slowing from 12.2 percent in February.

Inflation would likely stay at a comfortably low level of 1.3 percent this month, the same survey showed, unchanged from February and far

below the central bank’s target of 2 percent.

The Bank of Korea’s governor, Lee Ju-yeol, agreed as recently as early this month that this year’s economic growth forecast was more likely to be downgraded than upgraded in its next regular revision due next month.

But a majority of the central bank’s seven policy board members including Lee have showed their reluctance to cut the policy rate further due to their concern about unwelcome effects of possible capital outflows and faster household-debt growth.

The Bank of Korea’s monetary policy committee next meets on April 19 to set the 7-day policy interest rate, which has been left unchanged at record-low 1.5 percent after seven rounds of reduction until June last year.

Asia’s fourth largest economy grew 0.7 percent in the final quarter of 2015, slowing from 1.2 percent in the third quarter as construction spending shrank and corporate investment in plants and other facilities slowed. Reuters

12 Business Daily Wednesday, March 30 2016

Asia Dairy

China’s milk stockpile leaves New Zealand dairy farmers struggling Debt in the sector has nearly tripled over the past decade and jumped 10 percent in the year to June 2015.

Rebecca Howard

China once helped drive global dairy demand but its stockpiling of powdered milk sent prices plunging and has left farmers in the world’s top milk exporter, New Zealand, struggling to stay afloat and its agriculture-dependent economy facing risks.

New Zealand’s dairy sector was until recently the backbone of the economy, representing around 25 percent of exports, but in the past two years farmers have had NZ$7 billion (US$4.74 billion) wiped off their collective revenue.

Today, around 85 percent of farms run at a loss, leaving them fighting to stave off bankruptcy and forced farm sales.

Farmers’ struggles pose a risk to economic growth, and banks exposed to the sector, but alongside the financial cost some fear a growing human toll: suicides as a result of the stress.

“We have accepted the fact that we are going to have financial casualties, what we don’t want are actual casualties,” said Andrew Hoggard, dairy

industry chairman for lobby group Federated Farmers.

Michelle Thompson, chief executive of the Rural Health Alliance, said New Zealand’s rural suicide rate has been 20-50 percent higher than the urban rate in the past 10 years.

A recent survey by Federated Farmers shows 11.1 percent of its dairy farmer members are experiencing pressure from banks over mortgages, compared with 6.6 percent six months ago. Around 3 percent of farms are at “extreme risk” of going under.

Dairy farmer Louise Giltrap says she has to think twice before starting her tractor as it costs her money.

“It’s right down to the nitty-gitty and you can’t do anything unless it’s going to have a payoff,” said Giltrap, who runs 200 cows near Kerikeri, on New Zealand’s North Island.

Debt in the sector has nearly tripled over the past decade and jumped 10 percent in the year to June 2015.

The dairy sector’s woes have hit the wider economy, with the central bank forecasting growth of around 2.3 percent in the year to March 2016, down from 3.6 percent a year earlier.

Weak dairy prices will have a “significant negative impact on the wider economy,” said BNZ Head of Research Stephen Toplis.

The Reserve Bank of New Zealand warned this month that stress tests showed banks would report losses ranging between 3 percent and 8 percent of their dairy exposure,

depending on the severity of the price plunge.

Banks have lent about NZ$38 billion (US$25.13 billion) to farmers, 10 percent of total lending in New Zealand.

The five banks that were the subject of the stress tests represent nearly all the lending to the sector.

China milk demand key

Since early 2014, dairy prices have fallen around 60 percent, in large part linked to weaker demand from China after it stockpiled milk powder, and with most analysts tipping milk prices to stay low for longer.

“In China itself, inventories are about the same as last year,” said David Mahon, managing director of Beijing-based Mahon China Investment Management, who estimated current stocks at around 300,000 tonnes. “It’s going to be a very difficult year for Western farmers, Australasia particularly. Farms will close, there will be a lot of stress.”

Key Points Many farms running at a loss, fighting to stay afloat Dairy sector problems weighing on economic growth Central bank: farm lending exposure could hit bank earnings Human toll too, with growing risk seen of farmer suicides

New Zealand’s Fonterra Cooperative Ltd, the world’s largest dairy exporter, is also downbeat and recently cut its forecast pay-out for its 10,500 farmer-shareholders to a nine-year low.

Ironically, Fonterra, which counts 90 percent of farmers as shareholder producers, last week reported a 123 percent rise in annual profit, helped by products like mozzarella and ice cream. Fonterra buys the raw milk for those products, making a profit on the margin.

In recognition of the hardships faced by farmers, Fonterra brought forward a dividend, taking the payout to NZ$4.30 - still well below the break-even point of NZ$5.25 for many farmers.

The Real Estate Institute of New Zealand says overall farm sales in February rose to 115, up 15 percent from a year ago.

And land prices are falling, putting further pressure on those thinking about abandoning the land. The median sales price per hectare for dairy farms fell 19 percent in the three months ended February 2016, says the institute.

Government officials have ruled out any bailouts, but Minister of Primary Industries Nathan Guy said banks have indicated they will support farmers.

However, Guy warned: “It is inevitable that some farming businesses will be unable to sustain these prices.”

For farmers like Giltrap, there is only one solution.

“It’s not a question if prices are going to improve; it’s a question of when. You just have to play a waiting game. You can’t actually make any plans,” Giltrap said. Reuters

Industry Data

Thai factory output falls again but less than forecast With sluggish demand abroad and at home, the junta has struggled to revive Southeast Asia’s second‑largest economy since seizing power in 2014.

Thailand’s industrial output contracted again in February from a year earlier, as exports and consumption remained weak, but the shrinkage was less than expected.

Business Daily is a product of De Ficção – Multimedia Projects

The Industry Ministry said yesterday its manufacturing production index (MPI) in February dropped 1.62 percent from a year earlier, smaller than a 2.55 percent drop projected

in a Reuters poll.

In January, output contracted a revised 3.5 percent on the year.

Industrial goods accounted for 83 percent of total exports in February, which rose 10.3 percent from a year earlier due to unusual items large gold shipments and helicopters brought in earlier for a war exercise.

Excluding those items, exports fell 2 percent.

February’s output fall was led by autos, steel, electronics and clothes.

Capacity utilisation was 65.7 percent last month, up from January’s 63.93 percent.

With sluggish demand abroad and at home, the junta has struggled to revive Southeast Asia’s second-largest economy since seizing power to end months of political unrest in May 2014.

Exports, worth about two-third of the economy, contracted the past three years. The Bank of Thailand has predicted they will fall again in 2016, by 2 percent.

The central bank last week cut its 2016 economic growth forecast to 3.1 percent from 3.5 percent.

Growth last year was 2.8 percent.

Reuters

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Business Daily Wednesday, March 30 2016 13

Asia In Brief Trade

Cambodia, Russia to enhance cooperation Cambodia and Russia agreed yesterday to enhance their bilateral cooperation in trade, investment and tourism for the benefits of the two countries and peoples.

The agreement was made after the 9th session of the Cambodian-Russian intergovernmental commission for trade, economic, scientific and technical cooperation, which was co-chaired

by Cambodian Deputy Prime Minister and Foreign Minister Hor Namhong and visiting Russian Minister of Telecom and Mass Communication Nikolay Nikiforov. Both sides welcomed the outcomes of the meeting, which is aimed at boosting trade, economic and investment cooperation up to 2020.

Consumption

Japanese spending bounces in February Domestic consumption has mostly struggled since the government raised the sales tax in 2014.

Stanley White

J

apan’s consumer spending in February rose for the first time in six months, official data showed yesterday, but the rise was partly because of the extra Leap Year day and did little to reduce pressure on the government to inject more economic stimulus.

The propensity to consume - a measure of households’ willingness to spend rather than save - rose 3.9 points in February, the biggest gain in nine months.

Spending also rose because consumers bought mobile phone plans before government regulations stopped carriers from subsidising the entire cost of handsets, economists said.

“This is not the kind of spending you see when wages are improving,”

said Daiju Aoki, economist at UBS Securities.

“I am worried consumption could pull back in March because the data in February were driven by temporary factors.”

Cigarette sales also rose before a price hike in April.

Labour demand remained at the highest in two decades but the jobless rate rose slightly in February, in a tentative sign of a pause in recent improvements in the labour market.

Worries about risks posed by weak emerging market economies are likely to fuel speculation that Japan’s government will launch a new round of stimulus spending and delay a sales tax increase scheduled for next year.

“I expect consumer spending to rise further, but the gains will be very moderate given low demand for durable goods,” said Hidenobu

Tokuda, senior economist at Mizuho Research Institute.

“It would still make sense for the government to consider some form of stimulus, because it may want to act in response to concerns that the global economy is slowing.”

Household spending rose 1.2 percent in February from a year earlier, government data showed yesterday.

That compared with the median forecast for a 1.5 percent annual decline.

Domestic consumption has mostly struggled since the government raised the sales tax in 2014.

A second sales tax hike is due in 2017, which is part of a two-step plan to raise more money for healthcare spending. Advisers close to the prime minister are calling for next year’s tax hike to be shelved.

The unemployment rate rose in February to 3.3 percent, from 3.2 percent in the previous month, and the jobs-applicants ratio held steady at a 24-year high of 1.28 in February.

Reuters

India’s currency

Barclays joins Morgan Stanley in predicting more pain for rupee A recovery in crude oil prices and the willingness of central banks to support global growth has calmed markets and boosted demand.

Kartik Goyal

Barclays Plc is predicting more losses for India’s rupee, Asia’s worst performer this year, as the dollar strengthens and policy makers try to arrest a slump in exports.

The London-based bank has lowered its year-end and September-end forecasts for the Indian currency, which it estimates will drop to an unprecedented 69 a dollar

by June 30, according to Siddhartha Sanyal, chief India economist

in Mumbai. The rupee is down 0.6 percent in 2016 even after rallying 2.8 percent this month as India’s government stuck to its fiscal goals in February’s budget and investor sentiment toward emerging markets improved.

A recovery in crude oil prices and the willingness of central banks to support global growth has calmed markets and boosted demand for developing-nation assets following a volatile first six weeks of 2016.

Even so, investor confidence remains fragile with concern over China’s economic slowdown and the global oil supply glut lingering. The rupee’s rally this month follows a 0.9 percent decline in February and a 2.4 percent slide in January.

“There is a clear trend of dollar strengthening and we think that will lead to some weakening of the rupee along with other emerging-market currencies,” Sanyal said, citing the change in rupee forecasts by the bank’s currency strategists. “The scope for rupee appreciation is very limited as we expect the Reserve Bank of India will probably limit any gains to protect exports and will look to accumulate reserves.”

Barclays’ strategists see the rupee ending 2016 at 71.50 a dollar, compared with an earlier projection of 70.50, according to Sanyal. The

currency is forecast to weaken to 70.50 by September 30, down from an earlier estimate of 69.50.

Morgan Stanley slashed its year-end rupee forecast to 73 a dollar from 70 earlier this month. The rupee “is likely to underperform in a risk-averse environment that we expect will continue to dominate fundamentals over the next few quarters,” Morgan Stanley currency strategists led by London-based Hans Redeker wrote in a report dated March 13.

The currency fell last month to the brink of an all-time low of 68.845 seen in August 2013. A gauge of the greenback has dropped 0.2 percent in the past two days after climbing 1.3 percent last week in its biggest gain since November.

Exports from India declined 5.7 percent in February, a 15th straight month of contraction. The current-account deficit in Asia’s third-largest economy in the quarter through December was US$7.1 billion, wider than the median US$3 billion in a Bloomberg survey of economists, as overseas earnings from services slowed.

Indian sovereign bonds were steady yesterday, with the yield on notes due January 2026 at 7.50 percent in Mumbai, according to prices from the central bank’s trading system. Bloomberg News

Infrastructure

Thai cabinet approves rail projects Thailand’s cabinet yesterday approved a 111 billion baht (US$3.14 billion) project to build two new rail lines in the Thai capital, part of a wider infrastructure push by the ruling junta as it seeks to boost a sluggish economy. Thai Transport Minister Arkhom Termpittayapaisith said the Cabinet approved construction of a Pink Line and a Yellow Line. “We’ll now look at the bidding process to ensure it takes place within the next three months,” Arkhom told Reuters. The rail lines are part of the military government’s infrastructure drive, aimed at kick-starting Southeast Asia’s second-largest economy.

Business plan

Takata plans to increase capital Japan’s Takata Corp is likely to seek more capital around September as it expects its finances to take a hit from a rise in costs to recall potentially defective airbag parts, Kyodo News reported yesterday. Takata is expected to narrow down which companies to approach for investment, Kyodo said without citing sources, adding that candidates would include automakers such as top client Honda Motor Co. A Takata spokesman declined to comment, while a Honda spokesman said it had no plans to provide additional financial support to Takata.

Financing

Kakao says it is considering issuing convertible bonds South Korean messaging app operator Kakao Corp said yesterday it is considering issuing convertible bonds in order to pay back bridge loans taken out earlier this year to fund an acquisition.

Kakao, in a regulatory filing, said it is considering various financing options including convertible bonds, but nothing has been decided yet. Kakao said earlier this month it borrowed 800 billion won (US$687.43 million) in short-term loans to fund its acquisition of music streaming service provider Loen Entertainment Inc.

14 Business Daily Wednesday, March 30 2016

International In Brief Monetary policy

Kyrgyzstan’s cuts key rate 200 bp Kyrgyzstan’s central bank cut its policy rate to 8 percent from 10 percent, it said yesterday, citing economic contraction and falling consumer prices. “This decision will support stimulus measures for the real economy aimed at achieving positive growth with low inflationary risks this year,” the bank said in a statement.

Kygryzstan’s gross domestic product fell 7.8 percent year-on-year in January and February as gold and silver production, which accounts for most of its industrial output, dropped 56.5 percent by volume.

Excluding gold miner Kumtor, Kyrgyzstan’s GDP shrank 0.1 percent year-onyear in the same period.

Dollar rate

Fed’s president says some upside risks to inflation San Francisco Federal Reserve President John Williams said yesterday there is some upside risk that inflation could hit the Fed’s target sooner, but more data is needed to make a convincing assessment. Williams was answering a question at an event hosted by the National University of Singapore. In a speech earlier, he said recent data reinforce his expectation that inflation is on track to move back to 2 percent over the next two years.

Railway bid

Kenya seeks adviser to find operator Kenya has invited bids for an adviser to help identify an operator for its new standard gauge railway network, a massive infrastructure project aimed at boosting trade and cutting transport costs across East Africa. The US$13.8 billion rail project, which began in December 2014, will eventually link Kenya’s Indian Ocean port of Mombasa to the capital Nairobi, then on to Uganda.

State-run Kenya Railways (KR) said in a newspaper advertisement yesterday the adviser would recommend the appropriate operating model for the railway that is currently under construction.

Tourism

Turkey’s foreign visitor arrivals tumbling The number of foreign visitors coming to Turkey tumbled 10 percent in February, the biggest drop in a decade, data showed yesterday, as widening security concerns ate into a major source of revenue for the economy. Turkey has been hit by a spate a bomb attacks this year, including two blamed on Islamic State in Istanbul, its biggest city and traditional tourist draw. In January a suicide bomber blew himself up in the city’s historic heart, killing 12 German tourists. Tourism fell by 10.32 percent year-on-year in February, to 1.24 million people, the data from the tourism ministry showed.

Bank of England headquarters.

Bankers’ wages

Bank of England raises buffer rate as ‘brexit’ referendum looms The central bank also wants to use the buffer to help simplify its capital requirements and make them more transparent.

John Glover

T

he Bank of England (BOE) said banks should begin building up capital earmarked to support lending when the economy turns down, as the outlook for U.K. financial stability worsens.

The BOE’s Financial Policy Committee (FPC) raised the countercyclical capital buffer rate for U.K. exposures to 0.5 percent of risk-weighted assets from zero, becoming binding from March 29 next year. The buffer applies to U.K. banks and building societies, as well as to branches of other European Union banks that lend into the country.

“Risks associated with domestic credit are no longer subdued,” and global risks “which can also affect U.K. exposures indirectly, are heightened,” the FPC said yesterday in explaining its decision. The June 23 referendum on the U.K.’s membership of the EU is the source of “the most significant near-term domestic risks to financial stability,” the regulator said in a statement.

The BOE said it intends to set the countercyclical capital buffer at about 1 percent in a “standard risk environment.” The aim of the measure is to push against banks’ tendency to boost

lending in boom times only to slash it in a bust, exacerbating damage to the economy.

‘Financial imbalances’

Toward this end, overlapping elements of existing bank- specific capital buffers will be reduced, “where possible,” by 0.5 percent as the countercyclical buffer is increased, the FPC said. As a result, “banks accounting for around three quarters of the outstanding stock of U.K. lending will not see their overall regulatory capital buffers increase,” the regulator said.

A countercyclical leverage ratio buffer will be set at 35 percent of the risk-weighted buffer, applying only to big U.K. banks and building societies.

“It’s basically a neutral reallocation of capital within the current structure” Philip Rush, U.K. economist at Nomura International Plc in London

“The bank is creating room on the downside, space that can be used if there’s a Brexit, for example,” Philip Rush, U.K. economist at Nomura International Plc in London, said before yesterday’s decision. On risks to stability from the EU-membership referendum, the FPC said the effect so far “has been most marked in sterling spot and

options markets,” and “heightened and prolonged uncertainty has the potential to increase the risk premia investors require on a wider range of U.K. assets.”

‘Domestic risks’

Officials plan to feed the results of stress tests, which the banks undergo annually, into the calculation of buffer rates.

The BOE published the key elements of its 2016 stress test, which is applied to banks and building societies with total retail deposits of more than 50 billion pounds. The scenario reflects the central bank’s judgment that “domestic risks to the U.K. banking system have risen beyond their subdued levels during the immediate post-crisis period, but are not yet elevated.”

Under the BOE’s five-year macroeconomic stress scenario, U.K. gross domestic product falls 4.3 percent, with a 4.5 percentage point increase in unemployment. Residential property prices fall 31 percent, and commercial real estate prices plummet 42 percent.

Banks are expected to meet minimum risk-based capital requirements in the stress scenario, though no common hurdle for common equity Tier 1, the highest-quality capital, has been set because the BOE considers some bank-specific requirements as part of the minimum.

A Tier 1 leverage ratio hurdle rate of 3 percent will be applied to all banks in the test.

The four biggest U.K. lenders will also undergo a Europe-wide stress test this year run by the European Banking Authority. Bloomberg News

Bankers’ wages

Israel caps bankers’ salaries at US$658,000 a year The Association of Banks in Israel is said to be considering an appeal to Israel’s supreme court.

Israel’s parliament has passed a law capping the annual salaries of bank executives at US$658,000, described as among the world’s toughest such restrictions.

The law, passed by the Knesset late Monday, says no salary in the financial sector can be more than 35 times that of the lowest-paid worker in the same company, with a ceiling of 2.5 million shekels (US$658,000).

A parliament statement issued just before midnight, quoting finance committee chairman Moshe Gafni, said the law “deals with a problem of morals and values concerning the excessive salaries of those who undertake to manage the public’s money.”

The Association of Banks in Israel is said to be considering an appeal to Israel’s supreme court against the legislation but it had no official comment yesterday.

Israeli media have described the measure as unprecedented in its severity and some have warned it could harm the Jewish state’s economy.

“Israel, a country looking for investment, must not be the most extreme on the issue,” left-leaning newspaper Haaretz wrote in an editorial.

The high cost of living is a major concern in Israel and a key issue for Finance Minister Moshe Kahlon, who pushed for the legislation, approved by a vote of 56 to zero in the 120-seat Knesset.

Prime Minister Benjamin Netanyahu has taken a pro-business stance, but holds only a one-seat majority in parliament and needs Kahlon’s Kulanu party to maintain his majority.

Interviewed on public radio last week the director of Netanyahu’s office said he had given Kahlon his backing on the bankers’ salaries bill but did not want to see the measure extended to other industries.

“This is an important reform by the finance minister and the prime minister supports him on the matter,” Eli Groner told the radio.

“At the same time, we do not think it would be right to extend it to other sectors.’

Netanyahu has not yet publicly commented on the passage of the law.

On Sunday, the supreme court struck down a landmark deal for the exploitation of Israel’s Mediterranean gas reserves, drawing fire from Netanyahu, who warned that the country was acquiring a reputation for being hostile to business.

“Israel is perceived as a country with exaggerated legal intervention, in which it is hard to do business,” he said in a statement. AFP

Business Daily Wednesday, March 30 2016 15

Opinion Business Wires

The Phom Penh Post Asia-Pacific Development Bank has obtained an approval letter from the central bank’s governor to operate a specialised bank in Cambodia, an official at the National Bank of Cambodia (NBC) said yesterday. Khieu Bophaphuong, director of the NBC’s licensing department, said the approval letter allows the bank to prepare an office and launch operations, although she could not provide any details about the bank’s shareholding structure, capital or operations plan.

When contacted, a local representative of Asia-Pacific Specialised Bank declined to comment on the bank’s plan for the Cambodian market.

Premier Li Keqiang outlined the new strategy of the just-enacted 13th Five-Year Plan.

The Japan News There are growing moves to privatize airport operations amid the sharp increase in foreign visitors to Japan, in a bid to utilize private-sector expertise to bring more passengers and visitors to airport facilities. Four airports in Hokkaido are being eyed for private management, with the transport ministry seeking to entrust the private sector with the operation of all four as early as 2020. Privatesector operations are also scheduled to start at Kansai Airport and Sendai Airport this year, according to the Land, Infrastructure, Transport and Tourism Ministry.

The Straits Times Measures to boost social support (in Singapore) in this year’s Budget were welcomed by analysts, especially in the light of an expected economic slowdown this year. While there was a strong focus on the economy - and especially on small and medium-sized enterprises, with a raft of new schemes to give such businesses a leg-up - academics and political commentators alike told The Straits Times they were heartened that the man in the street was not forgotten. Enhancements to employment and social support programmes … show that the Government is committed to regular investments and improvements to its social mobility levers.

The Korea Herald Korean credit and debit card spending jumped 8.8 percent last year from a year earlier as consumers increasingly favour using cards both for small-sized daily settlements and big tax payments, government data showed yesterday. The card-based expenditure reached 667.1 trillion won (US$572 million) in 2015, up from 613.2 trillion won the previous year.

A 16 percent increase in debit, or check, card spending outweighed a 7.1 percent rise in credit card spending last year, the Financial Supervisory Service (FSS) said in a statement.

China’s economic identity crisis

U

nlike the West, where former US President George H.W. Bush once mockingly referred to “the vision thing,” China takes economic strategy very seriously. That much was clear at the recent China Development Forum (CDF) in Beijing, an important gathering held each year since 2000, immediately after the conclusion of the annual National People’s Congress.

Originally conceived by former Premier Zhu Rongji – one of modern China’s most strategy-minded reformers – the CDF quickly became a high-level platform for engagement between senior Chinese policymakers and an international line-up of academics, foreign officials, and business leaders.

It is, in essence, an intellectual stress test – forcing Chinese leaders to defend newly formulated strategies and policies before a tough and seasoned audience of outside experts.

It’s not always easy to distil a singular message from an event like this, especially as the CDF, once a small intimate gathering, has morphed into a Davos-like extravaganza of some 50 sessions spread out over three days. But, having attended 16 of the 17 meetings (I missed the first one), my sense is that CDF 2016 was especially rich in its strategic implications for China’s daunting economic challenges. And, as I saw it, the elephant in the room was the core identity of China’s economic model – a producer-led versus a consumer-led model.

China’s 30-year development miracle – 10% real annual GDP growth from 1980 to 2010 – was all about the country’s prowess as the ultimate producer. Led by manufacturing and construction, China enjoyed a uniquely powerful impetus. In 1980, exports and investment collectively accounted for 41% of Chinese GDP; by 2010, the combined share was 75%. The export portion increased the most – by nearly six-fold, from 6% in 1980 to a pre-crisis peak of 35% in 2007 – as new capacity and infrastructure, low-cost labour, and accession to the World Trade Organization made China the world’s greatest beneficiary of accelerating globalization and surging trade flows.

Yet the producer model was not the definitive formula for achieving China’s aspirations of becoming a moderately prosperous society by 2020. This realization was foreshadowed by the now-famous “Four Uns” critique of former Premier Wen Jiabao, who back in 2007 correctly diagnosed the producer model as “unbalanced, unstable, uncoordinated, and unsustainable.”

Those, of course, were code words for surplus saving, excessive investment, open-ended resource demand, environmental degradation, and mounting income inequalities. A new model was needed not only to escape such pitfalls, but also to avoid the dreaded “middle-income trap” that ensnares most fast-growing developing economies when they reach income thresholds that China was rapidly approaching.

Wen’s critique triggered an intense internal debate that resulted in a key strategic decision to rebalance the Chinese economy by shifting to a consumer-based model, as framed by the 12th Five-Year Plan of 2011-2015. This new approach stressed three major components: a shift to services to boost job creation; accelerated urbanization to raise real wages; and a more robust social safety

Stephen S. Roach Faculty member at Yale University and former Chairman of Morgan Stanley Asia.

net to provide Chinese families with the security needed to channel their newfound income from fear-driven precautionary saving into discretionary consumption.

The results of the now-completed 12th Five-Year Plan were impressive – especially in light of the formidable challenge that structural change implies for any economy. But that’s where China’s strategic focus is most effective – providing an over-arching framework to guide the economy from point A to point B. But this journey is far from complete. While China’s targets for services and urbanization were exceeded, the end results fell short on many aspects of building a more robust (that is, fully funded) social safety net. As a result, personal consumption inched up from just 35% of GDP in 2010 to only about 37% in 2015.

Notwithstanding the unfinished business of consumer-led rebalancing, China now appears to be embracing yet another shift in its core economic strategy – driven by a broad array of “supply-side initiatives” that range from capacity reduction and deleveraging to innovation and productivity. That emphasis was formalized in Premier Li Keqiang’s recent “Work Report,” which outlined the new strategy of the just-enacted 13th Five-Year Plan (covering the 2016-20 period).

In identifying the top “eight tasks” for 2016, Li put supply-side reforms at number two – second only to the government’s focus on economic stability in countering China’s growth slowdown. By contrast, emphasis on boosting domestic demand – long the focus of China’s consumer-led rebalancing strategy – was downgraded to third place on the so-called work agenda.

In China, where internal debates are carefully scripted, nothing happens by accident. In the keynote speech at this year’s CDF, Vice Premier and Politburo Standing Committee Member Zhang Gaoli drove this point home, emphasizing the need to direct supply-side initiatives at China’s “main threat.” By contrast, there were only passing mentions of consumer-led rebalancing.

Maybe I am guilty of splitting hairs. After all, every economy needs to focus on both the supply and the demand sides of its growth equation. But this shift in emphasis – in the 13th Five-Year Plan as well as in the debate and messaging at this year’s China Development Forum – appears to be an important signal. I worry that it could indicate a premature shift away from the consumer-led model back to China’s comfort zone of a producer model that has long been more amenable to the industrial engineering of central planning.

Strategy is China’s greatest strength, lending credibility to its commitment to structural transformation. Yet much remains to bring the Chinese consumer to life. Yes, it is a tough challenge. But de-emphasizing that strategic commitment could call into question a crucial shift now required of China’s core economic identity. Project Syndicate

“Notwithstanding the unfinished business of consumer-led rebalancing, China now appears to be embracing yet another shift in its core economic strategy”

16 Business Daily Wednesday, March 30 2016

Closing Mobile payment

Samsung to launch in China payment services for smartphones South Korea’s Samsung yesterday announced the launch of its mobile payment service in China, where it is likely to struggle in an already crowded market that arch-rival Apple entered nearly six weeks ago.

The world’s second largest economy is also the world’s biggest smartphone market, and Samsung Pay has a powerful partner in China - bank card provider UnionPay - which has links to the central bank. But unlike most other countries, mobile payment systems are already well-established in China, with local

providers dominating the market. As an outsider Samsung will also have to compete with Apple, which launched its own Apple Pay system last month - also in partnership with Union Pay. The South Korean electronics giant said its service currently supports selected credit and debit cards from nine Chinese banks and is available on its top-end Galaxy smartphones, with mid-range models to follow. Like its California-based rival, Samsung Pay’s initial challenge will be securing a foothold in such a competitive market place. AFP

Trade

Hong Kong February exports post worst fall since 2013 Imports to Hong Kong from China fell 18.2 percent.

H

ong Kong’s annual imports and exports fell more than 10 percent in February, in the worst decline since early 2013 given global economic headwinds and a slump in trade with a slowing China.

Total imports in February fell 10.1 percent to HK$237.6 billion (US$30.63 billion) from HK$264.2 billion a year earlier, government data showed yesterday. Exports fell 10.4 percent to HK$204.5 billion from the same period a year earlier.

This was the largest decline for both imports and exports since February

2013, in what a government spokesman attributed to increased headwinds from weak global demand that had “put a significant drag on the export performance of many other Asian economies”.

The spokesman also said in a statement that February’s figures had been distorted by the Lunar New Year holiday that month, when businesses are shut down for extended periods.

Hong Kong’s external trading environment “will still be subject to considerable downside risks in the near term,” the statement added, including a slowing global economy, normalisation of U.S. monetary policy

Eurozone

and heightened geopolitical tensions in different parts of the world.

Imports to Hong Kong from China in February fell 18.2 percent, while the value of exports to China fell 6.4 percent. China earlier reported that exports to Hong Kong had fallen 13.1 percent in February to 14.6 billion yuan (US$2.26 billion).

There have been concerns of massive fake trade invoicing from China to Hong Kong, following a massive discrepancy in China’s reported exports to Hong Kong in December, and the value of goods recorded by the financial hub for the same period.

The official trade figure gap raised concerns market players might have been artificially inflating trade

Subsidies

invoices to move funds overseas to skirt China’s capital controls and to disguise possible arbitrage activities.

The latest February trade figures, however, suggest there has been a narrowing of this gap from previous levels. Reuters

Key Points Hong Kong’s Feb exports -10.4 pct y/y; imports -10.1 pct y/y Largest decline for both since Feb 2013 External trade environment facing considerable downside risks-govt

Infrastructure

Growth of European private Beijing to consider cutting sector picks up modestly help for electric buses

Indonesia unveils port reforms

Growth of loans to the private sector in the euro area picked up modestly in February, European Central Bank data showed yesterday.

For the ECB, the statistics are a key indicator of the economic health of the single currency area, as borrowing is a main financing source for corporate investment which in turn should boost the eurozone’s currently weak economy.

In February, approved loans rose 1.1 percent from a year ago, slightly faster than growth of 0.8 percent in January, an ECB statement said.

When certain strictly financial transactions are stripped out from the loans data, the trend remained the same -- with credit accorded to households and companies up 0.9 percent in February, compared with 0.6 percent in January.

The ECB has launched a raft of policy measures to get credit flowing, most significantly a massive programme to buy public sector bonds to pump liquidity into the system.

The ECB already extended that programme by a further six months in a bid to drive eurozone inflation higher. AFP

The amount of time it takes for imports to clear Indonesian ports will be reduced to 3.7 days from 4.7 days under new reforms of procedures, the chief economics minister said.

The port changes were announced yesterday as part of an 11th package of measures President Joko Widodo’s government has rolled out since September to try to improve the investment climate.

Previous packages included a new formula for minimum wages, easier import rules, numerous tax incentives and a revision to the negative investment list of sectors partially or fully closed to foreign investors.

Coordinating Minister for Economics Darmin Nasution said 18 government agencies with authority at ports currently have different criteria for customs checks. All those will be harmonized into one criteria, which “will create a better procedure for exports and imports”, he told a press conference.

Nasution also announced additional tax cuts for real estate investment trusts (REITs) as the government seek to attract back Indonesian money invested in REITs in Singapore. Reuters

China is proposing to cut the amount of subsidies for electric buses because the policy was considered overly generous, while imposing a price ceiling on passenger vehicles that qualify for incentives, according to people familiar with the matter.

Incentives for electric buses will be cut by an average of 32 percent, with funding for the largest models slashed by as much as 49.5 percent, according to the people, who asked not to be identified as the deliberations are private. Electric passenger vehicles costing more than 350,000 yuan (US$53,800) won’t be eligible for government subsidies under the proposal. The plan is still being reviewed by various ministries and has to be approved by the State Council, or cabinet, the people said.

The plan, if approved in its current form, may damp demand electric vehicle sales, which surged more than threefold last year to 331,000 units.

China has encouraged consumers to switch from fossil-fuel burning automobiles to emission-free electric cars and gasoline-electric hybrids with the dual aim of mitigating tailpipe pollution and to push its carmakers toward what it sees as the dominant automotive technology of the future. Bloomberg News