Macau Business Daily April 4, 2016

New legislation in Mainland could impact luxury goods market Taxes Page 10

Monday, April 4 2016 Year V Nr. 1015 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Gaming

LVS law suit to proceed in Macau courts seeking 70 pct of profits Page 7

MIECF

Green conference closes with talks on waste management Page 5

Tourism

Spanish start‑up app targets local hospitality industry Page 3

www.macaubusinessdaily.com Billing

Chinese central bank takes firm step towards digital corporate billing Page 10

Gaming Revenues Tumble for 22nd Consecutive Month Gaming

Gross gaming revenue fell to MOP17.8 bln in March. A 16.3 pct y-o-y drop. Contributing to a near two-year consecutive month tumble, reveals data from the DICJ. Analysts hope for a June recovery although volatility remains high. Page 6

Happy rebound

IFT A few surprises. An Institute for Tourism Studies survey reveals only 26 pct of respondents gamble in the territory. While 57 pct stayed overnight. The majority of interviewees said they came for leisure and tourism. With shopping and food racking up the points. Page 2

China manufacturing Economic activity rebounded in March. To its highest level since August. Credited to continued structural reforms. The Purchasing Managers’ Index (PMI) came in at 50.2.

Up from February’s 49, according to the National Bureau of Statistics (NBS) and the China Federation of Logistics and Purchasing. Page 11

Blademark can’t get no satisfaction The MSAR still has a way to go. In recognising the value of its musical artists and creators, and being willing to pay for them. Blademark frontman Fortes Pakeong Sequeira tells Business Daily that they’ve done the time. Now they want to reach out to more markets and more genres. Their work-in-progress documentary tells it like it is for them and the competition. While he takes aim at the notorious middlemen in the industry.

And says Macau has to up its game.

Interview Pages 8&9

HK HSI April 1, 2016 20,498.92 -277.78 (1.34%) CLP Holdings Ltd

+0.14%

CK Hutchison Holdings Ltd

+0.10%

Tencent Holdings Ltd

+0.06%

Hengan International

-0.45%

China Petroleum & Chem-

-0.59%

BOC Hong Kong Holdings

-0.65%

Wharf Holdings Ltd/The

-5.78%

Sands China Ltd

-4.75%

China Shenhua Energy

-4.10%

Galaxy Entertainment

-3.78%

China Life Insurance Co

-3.24%

CNOOC Ltd

-3.17%

Industrial & Commercial

-2.76%

20° 23° 19° 23° 20° 24° 20° 24° 17° 24° Today

Notice With Monday April 4 a mandatory holiday for Ching Ming Festival, Business Daily will not be published on Tuesday April 5.

We will be back on Wednesday April 6, and meanwhile wish all our readers a very safe and enjoyable family holiday.

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Source: Bloomberg

Melco Melco does not “anticipate any impact on the construction process” for its fifth tower in the City of Dreams complex. Despite the passing of its iconic, award-winning designer Dame Zaha Hadid on Thursday. Page 4

Leisure centre

Source: AccuWeather

Renowned architect passes away

2 Business Daily Monday, April 4 2016

Macau Infrastructure

First phase of new prison costs MOP150 million

The president of the Legislative Assembly’s Public Finance Affairs Monitoring Committee, Mak Soi Kun (pictured), said the first phase of the new prison has been basically completed in Ka Ho, Coloane, according to a report by local TDM Chinese Radio. Due to the stringent

requirements of the prison, certain aspects of the project are still under inspection. The first phase of the project’s expenditure amounted to MOP150 million (US$ 18.78 million), while the second phase contract - begun in March – is set to cost a further MOP1.1 billion. The third phase of the project is still in the design stage without a defined budget yet.

Tourism IFT studies Macau’s visitor profile

Majority of surveyed visitors here for leisure Mainlanders want to shop, Hong Kongers come for food, while others appreciate the heritage.

Joanne Kuai joannekuai@macaubusinessdaily.com

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bout 26 per cent of surveyed visitors gambled during their trip to Macau, with 52 per cent of those gambling spending less than MOP1,000 on their bets (US$125), data from the fourth quarter of the 2015 Macau Visitor Profile shows. The survey - conducted by a research team from the Institute for Tourism Studies (IFT) - was released last week.

The sample consisted of 1,042 visitors, the majority of whom came from Mainland China (62 per cent), followed by Hong Kong visitors (18 per cent) and those from Taiwan (10 per cent) among other regions and countries.

The majority of respondents (82 per cent) visited Macau mainly for leisure and vacation. The second most popular purpose for visiting the MSAR was to see friends or relatives (11 per cent), followed by business (4 per cent) and other reasons (4 per cent).

The survey report reveals that among those respondents whose main purpose for visiting Macau was for leisure and vacation, visitors from Mainland China considered shopping (41 per cent) and visitors from Hong Kong (50 per cent) found cuisine the most attractive factor for their visit.

Visiting world heritage sites was the most attractive factor for visitors

from Taiwan (31 per cent), other Asian countries or regions (30 per cent) and Western countries (43 per cent), respectively.

Internet for information

The same report indicates that about 57 per cent of respondents

stayed overnight while 43 per cent were same-day visitors. For overnight-staying visitors, 81 per cent stayed or would have stayed 2-3 days in Macau.

About 77 per cent visited Macau in a group comprising 1 to 3 persons, while 19 per cent came in groups

Infrastructure

of 4 to 6 individuals. Of those interviewed, 61 per cent were repeat visitors, of whom 59 per cent had visited more than three times in the past 5 years.

For planning their trip to Macau, 50 per cent of visitors found that the Internet, especifically sites such as forums or blogs, was the most useful tool. Around 26 first-timers said friends or colleagues were their most informative source for planning their visit. While Hong Kong visitors mostly relied on past experience.

The research team says the data comes from field surveys of visitors conducted over a 9-day period between October and December 2015. Each survey date targeted a sample size of 114 visitors who had completed at least half of their visit at the time of interview.

Interview locations included major sites and terminals including the Border Gate, Ruins of St. Paul’s, Rua do Cunha in Taipa, Senado Square, the Hong Kong-Macau Ferry Terminal and the Macau International Airport.

The IFT team says that the survey seeks to provide tourism policy and decision makers, planners and members of the tourism and hospitality industry with regular, up to date and insightful information regarding the profile of visitors to Macau and how they have evolved over time.

Government

Government spends Fiscal surplus MOP85 mln on LRT station plummets 46.4 pct in February Total expenditure on the unfinished station for the Light Rail Transit (LRT) amounted to MOP85 million (US$10.64 million), reports local Chinese broadcast media TDM Radio following a Friday meeting of the Legislative Assembly’s Public Affairs Monitoring Committee. The figure was said to already have taken into

account penalties paid by contractors who were fined and terminated for not completing work on time, revealed committee president Mak Soi Kun after attending the meeting.

According to Mr. Mak, some of the contractors have already completed part of the works on the station for the LRT and the new design of the

building can still make use of a number of the materials from the previous contractors, including supplies such as steel. The second phase of the LRT station is still under design and will enter into public tender once all contracts are finalised. The LRT is reportedly scheduled to be up and running in 2019. A.L.

The fiscal surplus for the first two months of the year plunged to MOP8.55 billion (US$1.07 billion) from MOP15,96 billion one year ago. Government expenditure in the two months, however, increased by 40.4per cent year-on-year.

The city’s fiscal surplus plunged in the first two months of this year, amounting to MOP8.55 billion, in the wake of continuous declines in gaming taxes.

The latest update on the central account by the Financial Services Bureau (DSF) reveals that the fiscal surplus registered in the MSAR at the end of February had dropped by 46.4 per cent year-on-year compared to the MOP15.96 billion Macau had generated in the first two months of 2015.

The fall in fiscal surplus resulted from a decrease in revenues of about 21.7 per cent year-on-year, amounting to MOP15.93 billion.

Gaming taxes, accounting for 84.2 per cent of total revenues, dropped 20.9 per cent year-on-year during the first two months of the year, amounting to MOP13.41 billion.

Other direct taxes, meanwhile, decreased by 5.5 per cent, reaching MOP718.5 million, compared to the same period of last year. In addition, indirect taxes slumped 37 per cent year-on-year, amounting to MOP387.7 million.

Moreover, the accumulative expenditure of the government during the first two months increased by 40.42 per cent year-on-year, amounting to MOP7.37 billion. A.L.

Business Daily Monday, April 4 2016 3

Macau Start-up Spanish start-up targeting local booming hospitality industry

Guestperience Macau app to foster innovation The app aims to serve as a concierge, providing hotel guests a non-gaming offering in Macau.

Joanne Kuai joannekuai@macaubusinessdaily.com

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uestperience, a Spanish hospitality start-up, part of the Emprendetur Programme, a project promoted by the Spanish Official Tourism Office, has entered into a partnership with local online platform Follow Me Macau, in order to launch its Guest Mobile Solution in Macau and Hong Kong.

The application targets the local hospitality industry and aims to connect hotels with their guests, by “serving as a concierge”.

“There are some apps in the market, but mostly focusing on providing information. Guestperience is interactive which will enhance the guests to experience while helping the hotels improve the revenue per available room,” said Marco Duarte Rizzolio, Country Manager for Hong Kong and Macau of Guestperience, and also Founder and Managing Partner of Follow Me Macau.

Experience Macau

One of the key features of the app is that it would offer guests visiting Macau a wide rage of non-gaming components, such as trekking in Coloane, yoga, golf, shopping, cooking with a chef and more, according to the start-up.

“Our mission is to foster innovation within hospitality in Macau and connect with the new generation of Chinese tourists that are permanently

connected to the Internet,” Mr. Rizzolio told Business Daily in a phone interview yesterday. “We are also dedicated to offering a wide range of services to guests and promoting Macau with more entertainment and leisure activities.”

Jose Manuel Person, co-founder of Guestperience, added: “To have the possibility to access new markets with a local partner creates such an amount of synergies, which is just what we’re looking for. Following the success in Spain and watching some of our other projects coming to light soon, taking the leap to Macau and Hong Kong is the perfect step to consolidate our Guest Mobile project.”

Millennials

Mr. Rizzolio added that they are now targeting local 3 to 5-star hotels as potential clients, as well as

“The decrease in occupancy rates and rise of Millennials visitors will force the hospitality sector to redefine its strategy” Marco Duarte Rizzolio, Country Manager for Hong Kong and Macau of Guestperience

the boutique hotels coming, as these are the ones willing to invest in this type of technology in the face of an increasing millennial community in major markets.

“A change in China tourism demographics and habits is another point to watch. The decrease in occupancy rates and rise of Millennial visitors will force the hospitality sector to redefine their strategy, when promoting their offering to visitors,” said Mr. Rizzolio​

The manager pointed out that Macau’s major tourism market, Mainland China, had 31 per cent of the population fall in that demographic, representing the biggest millennial community globally, with 415 million young travellers aiming for the best experience ever. A new profile of guest with different habits has emerged, he maintains, along with the appearance of new mobile devices and the increasing connectivity, transforming the travel Ecosystem.

4 Business Daily Monday, April 4 2016

Macau Architecture

Architect of CoD’s fifth hotel tower passes away at 65 Annie Lao annie.lao@macaubusinessdaily.com

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orld- renowned architect and recipient of the prestigious Pritzker award Dame Zaha Hadid has passed away at the age of 65 from a heart attack. The Iraqi-born, London-based architect was being treated in a Miami hospital for bronchitis when she passed away on Thursday (EDT time) according to The Guardian.

Hadid’s far-flung projects included one in Macau – as architect and designer for the fifth hotel tower of Melco Crown Entertainment’s City of Dreams complex.

The project is currently under construction and is scheduled to open in 2018 – an opening unaltered by Hadid’s passing.

“We do not anticipate any impact on the construction progress of City of Dreams’ fifth hotel tower as the architectural designs are already in place and the construction will continue in close co-operation with Zaha Hadid Architects, other professional parties and contractors on the project,” Melco Crown Entertainment told Business Daily.

“We are deeply saddened by the news of Dame Zaha

Hadid’s passing and would like to extend our heartfelt condolences and sincere regards to her family and colleagues at Zaha Hadid Architects during these difficult times,” the company said. “Zaha Hadid Architects will continue the great work of Dame Zaha Hadid to make City of Dreams’ fifth hotel tower the iconic landmark in Macau”.

“We don’t anticipate any impact on the construction progress of City of Dreams’ fifth hotel tower.”

Melco Crown Entertainment

The new hotel tower will have 40 floors, occupy a gross floor area of 150,000 square metres, and will add approximately 780 guestrooms, suites and sky villas, meeting and event facilities, gaming rooms, lobby atrium, restaurants, spa and a sky pool to the property.

The development of the new hotel at City of Dreams commenced in 2013.

Architect Zaha Hadid.

Gaming

Annual Results

Wynn Palace facing ‘potential construction delays’

Shareholders scoop up HK$30.9 mln in 2015

Wynn Macau still targets opening for first half of 2016.

Wynn Palace, currently being built on the Cotai Strip, is still targeting an opening date of June 25 this year yet may face ‘potential construction delays’, according to Wynn Macau Ltd.’s annual report, filed with the Hong Kong Stock Exchange last week.

‘The company still expects to open Wynn Palace in the first half of 2016; however, potential construction delays could push the opening date into the second half of 2016,’ reads the filing.

On a separate note, Wynn Macau’s parent company Wynn Resorts is scheduled to hold an Investor Day next Wednesday, April 6 in Las Vegas for the first time in the last decade.

Brokerage Sanford C. Bernstein Ltd. analysts stated in a Friday note that they expect Mr. Steve Wynn to clarify the details of Wynn Palace’s

opening and its strategic focus in a stabilising Macau market.

“Investor sentiment could turn more positive on the back of management comments,” said analysts Vitaly Umansky and Simon Zhang.

In addition, Wynn Macau declared a special dividend of HK$0.60 per share for the 2015 fiscal year, compared to 2014’s final dividend of HK$1.05 per share.

Despite the dollar amount being lower than 2014, the company maintained the dividend payout ratio at around 140 per cent, the same as 2014.

Bernstein analysts say that “this dividend announcement is a positive surprise relative to our earlier estimate of a $nil dividend for 2015…We believe the dividend commitment speaks to management’s optimistic outlook on the Summer opening of Wynn Palace”. J.K.

Melco International Development Limited, parent company of Melco Crown Entertainment, announced a net revenue of US$4.0 billion for 2015 in a filing with the Hong Kong Stock Exchange on Thursday, reporting a ‘strong set of operating and financial metrics despite the difficult environment in Macau’.

A total profit attributable to owners of HK100.9 million was registered for the year, with a special final dividend of HK$2.0 cents per share, totalling HK$30.9 million going to shareholders ‘for their continuing support’, from year 2015.

The group owns 34.29 per cent of Melco Crown Entertainment, which contributed to the US$932.0 million EBITDA (earnings before interest, taxes, depreciation and amortization) recorded for the year.

“Melco has stayed on course in

2015 to strengthen its market presence in Asia and overseas, amidst a challenging market environment,” said Chairman and CEO of Melco Mr. Lawrence Ho in the filing. Mr. Ho lauded the opening of the Tigre de Cristal hotel and casino in Russia and the “successful launch of City of Dreams Manila,” which the CEO described as a validation of the company’s “full commitment to optimising our portfolio of assets to drive revenues, while bolstering our industry presence to become a global market-leading operator.”

The group is also currently in a consortium which has been shortlisted as one of three bidders in a tender process for an integrated casino resort in Cyprus.

The group is also pursuing a premium integrated resort next to Barcelona. In Asia, through the company’s 64.84 per cent stake in Entertainment Gaming Asia Inc., it recorded a 40.6 per cent year-on-year spike in consolidated revenue – up to US$31.5 million for 2015 – spearheaded by its slot operations in Cambodia and the Philippines, contributing to US$13.4 million in revenue for the year. K.W.

Corporate

Viva La Broadway premieres

Broadway Theatre has kicked off its seven-week run of Viva La Broadway, the new variety show featuring acts ranging from comedy to cowboys. Some of the main acts included in the high-octane show include the Crazy Rouge – a group of dancers from the United Kingdom and former semifinalists in Britain’s Got Talent 2014 – plus singer Katie Shepard, ‘Laserman’ Dario Falzari, crossbow-wielding Mr. & Mrs. G, and comedian Eric Boo, formerly of the Moulin Rouge in Paris.

Showing at Broadway Macau, next to Galaxy Macau, performances run until May 19 and cost between MOP180 for general admission and MOP380 for VIP tickets.

Macau Tower supports Autism Awareness Day

Macau Tower was lit up blue on Saturday and will continue to be throughout the month of April in support of Autism Awareness. April 2 marked World Autism Awareness Day with the Macau chapter of the ‘Light It Up Blue’ initiative - introduced by autism advocacy organisation Autism Speaks - gaining support and lighting up monuments blue since 2010. The Macau Tower joins a list including the Empire State Building in

New York, Christ the Redeemer statue in Rio de Janeiro, Brazil and China Central Television Tower in Beijing.

Macau Tower welcomed over 20 children from the Macau Association for the Mentally Handicapped (AMHA) for afternoon tea with their families on the day as well as supporting an art exhibition and a concert featuring, among others, Life Band – a group comprised of autistic and mentally disabled members from the Fuhong Society of Macau organised by the Macau Autism Association.

Business Daily Monday, April 4 2016 5

Macau Waste Management MIECF comes to a close

Keep calm and save energy Macau still lacking infrastructure and services for recycling and waste management.

Nelson Moura newsdesk@macaubusinessdaily.com

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he second day of the 9th Macao International Environment Co-operation Forum focused on technological applications of waste management and possibilities in the sector for creating business opportunities.

In the day’s keynote presentation - ‘Enhancing Waste Management through Internet

Plus’ - Swiss Professor Walter R. Stahel underscored how the Internet and a sharing economy can help benefit from secondary waste materials (recycling) to release itself from a dependence upon virgin materials.

“Resource management can bankrupt any nation; if virgin resources are scarce re-using is essential, so Macau can only take advantage [of] the re-using and sharing of services like cars, washing machines, anything,” Stahel

told Business Daily.

As Founder-Director of The Product-Life Institute in Geneva and as Laureate of the Mitchell-Prize Competition on sustainable societies Stahel has long preached his ‘reuse, repair, remanufacture and upgrade technologically’ philosophy and in his seminar showed how it can be applied to cities like Macau.

“A change in local mentality could help create jobs, keep money in Macau and reduce waste,” he said.

The director pointed to Uber as an example of replacing a non-necessity or purchase like buying a car with a practical and functioning option like carpooling or ride services.

“The car industry is not fighting with arguments, they are fighting with emotion. If you can convince consumers that what they need is function in mobility, which has worked in Europe and the United States, [you will be successful]” he said.

A further recommendation by the Swiss professor to the Macau Government is to tax any waste of resources and not direct funds to sustain unemployment, claiming it can stifle innovation.

Regional co-operation

Also present for the environmental conference was the CEO of CESL Asia, António Trindade, who pointed to the poor state of Macau’s performance in terms of waste management, energy consumption and improving environmental standards.

The CESL head also echoed Stahel’s beliefs that Macau shouldn’t add more automobiles to its system, and should turn to more energy-efficient models, with cleaner combustion.

Waste management was also a focus of the second seminar of the day: Solid Waste Management Policies and Technology in the PanPearl River Delta. Moderated by the Secretary-General of the Guangdong Association of the Environmental Protection Industry (China), it included the participation of Mr. Hong Cheong Fai, representative of the Macau Association of Environmental Protection Industry, together with environmental protection representatives from Fujian, Jiangxi, Guangxi and Ghizou provinces as well as Hong Kong, in accompaniment with the ‘9+2’ policy for interregional development.

“We need to promote hazardous waste management through a strong accountability system and more inter-department co-operation,” said Ni Zhongmin, Chairman of the Jiangxi Association of Environmental Policies, in a session that showcased different methods of cleaning the Pearl River Delta of food, building and construction waste.

The Environmental Forum hosted by the Macao SAR Government, attracted exhibitors from 20 countries and regions, 156 from the Macao SAR, presenting solutions sharing methods for environmental industry development. Last year’s convention clocked 9,600 visitors over three days, with this year’s edition predicted to surpass that number.

TM

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6th Ad - Conference outlined.indd 1

4/1/2016 9:14:57 AM

6 Business Daily Monday, April 4 2016

Gaming Revenues March gross gaming revenue totalled MOP18 bln, 16.3 pct drop y-o-y

Gaming revenues fall for 22nd consecutive month

Analysts say volatility remains high in the VIP sector and that it’s “too early to call stabilisation” Joanne Kuai joannekuai@macaubusinessdaily.com

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n March, gross gaming revenue fell from a year earlier for the 22nd consecutive month - to MOP17.8 billion (US$2.25 billion) - data from the Gaming Inspection and Co-ordination Bureau (DICJ) revealed on Friday.

A near two-year tumble in gaming revenue in the MSAR, renowned as the world’s largest casino hub, continued in March with a 16.3 per cent fall as visits by big-spending high-rollers became even more infrequent.

The continued decline was in line with the 13 per cent to 16 per cent decline predicted by gaming analysts, according to data gathered by Business Daily.

“We’re still looking out to June as the most likely month to see a return to year-on-year growth.”

Grant Govertsen, Analyst at Union Gaming Research Macau Ltd.

The Special Administrative Region on China’s southern coast is dependent upon gaming revenue but revenue started to fall following the introduction of the Beijing Government’s campaign against conspicuous spending by public officials, accompanying a slowdown in economic growth on the Mainland - home to the overwhelming majority of Macau’s customers.

Revenue has since hit five-year lows.

The data also means that accumulated gaming revenue for the first quarter of 2016 amounted to MOP56.18 billion, a 13.3 per cent dip

compared to the same period of last year.

“Too early to call stabilisation”

Analysts say volatility remains high in the VIP sector due to the government campaign as well as tighter regulations in Macau, the only Chinese territory where casino gambling is legal.

“We reiterate our view that gaming revenue in Macau is likely to decline 0 to10 per cent in 2016, given policy headwinds and the structural shift to mass market customers from high rollers,” said Standard & Poor’s credit analyst Sophie Lin. “We believe many investors are taking the view that revenues have stabilised versus our view that it’s too early to call stabilisation,” said brokerage Wells Fargo Securities LLC analyst Cameron McKnight in a note issued following the release of the official data. “Since early 2015, we’ve maintained that we won’t see another V-shaped recovery as the huge liquidity bubble of the past five years continues deflating, and nothing in our latest checks changes our view.”

To be continued

The Wells Fargo analyst also pointed out that the macro summary is very mixed, the anti-corruption campaign “is here to stay”, forward room rates are “at the lowest levels we’ve seen”, and the analyst forecasts a 15 per cent year-on-year drop in April revenues.

In addition, Deutsche Bank Securities Inc. said in a report issued on Friday that over the last three years the win per day in April, on average, has been down roughly 7.7 per cent from March.

“If we were to assume a 7.7 per cent sequential decline from the March win per day, for the 30 days in April, we would expect a 16 per cent year-on-year decline for the month. Using the average of the last 5 years sequential change implies a decline of 12 per cent year-on-year in April,” said analyst Carlo Santarelli.

However, Union Gaming Research Macau Ltd. seems more optimistic, as “March, despite the negative weather impact, represented the seventh month (out of eight) where gross gaming revenue was within a range of MOP17 billion to MOP18 billion in months that didn’t have a major Mainland holiday.”

DICJ: “Worst is over”

Paulo Martins Chan, the new director of Macau’s Gaming Inspection and Co-ordination Bureau (DICJ), believes Macau’s revenue declines will slow through the remainder of the year, with the sector starting to show signs of stabilisation.

In an interview with local public broadcaster Portuguese TDM Radio last week, Mr. Chan said that “the most difficult times are now behind us. I think that if there’s a decline this year it will be a slight decline.”

The head of Macau’s gaming regulator said he expected gaming revenue for the full 2016 year to fall “about 10 per cent” compared to the previous year.

However, analysts from Wells Analyst Grant Govertsen forecasts that April gross gaming revenue will hit MOP17.3 billion, representing a decline of less than 10 per cent on a year-on-year basis.

“We’re still looking out to June as the most likely month to see a return to year-on-year growth, which would be exactly two years after the first year-on-year decline in June 2014,” said Mr. Govertsen in a note released on Friday.

Visa impact

On March 29, China’s Ministry of Public Security announced a new administrative policy for Mainland visitors applying for visas to visit the SARs. Effective on the first day of this month, eligible individuals can now apply for their Hong Kong or Macau visa, Chinese passport and Taiwan visa in the city in which they reside instead of the one their residency is registered in.

17.8 Billion patacas March casino revenues

Fargo issued a note following Mr. Chan’s comment saying: “We do note historically the government’s forecasts haven’t always been very accurate.”

The regulator also sees the need for additional strings attached to gaming licences. This would entail higher financial capability in addition to the existing suitability criteria.

“Regarding the junkets, we are looking into demanding additional capability on top of the suitability requirements which have always been of paramount importance when granting junket licences,” said Mr. Chan as quoted by TDM. “As nowadays junkets are engaged in large-scale financial operations, financial capability is a crucial factor.”

“We believe this simplified administrative policy is positive in expanding potential base mass visitors to Macau,” analysts Vitaly Umansky and Simon Zhang from brokerage Sanford C. Bernstein Co. LLS said in a note released on Friday. “We believe this easing policy will benefit the mass segment in Macau gradually over a prolonged period of time.”

In fact, MSAR Chief Executive Chui Sai On has expressed that Macau is not “actively requesting” to expand the Individual Visa Scheme (IVS) policy, in consideration of “the living quality of local residents”.

Mr. Chui made the comments last week following questions about his comments in the recent statement released by the State Council, titled ‘9+2’, aiming to “deepen regional co-operation in the Pan Pearl River Delta”, which indicates a plan to “optimise and adjust IVS policies” without specifying details. However, the Bernstein analysts remain optimistic.

“While we believe an outright expansion of IVS cities could have been beneficial in the short-term, the Macau Government’s focus on improving the holiday experience of the existing visitor pool and increasing penetration level of the Chinese population can provide sufficient force to drive Macau’s paradigm shift to become a mass-focused tourism destination over the long-term,” Bernstein analysts posited.

Business Daily Monday, April 4 2016 7

Gaming Las Vegas Sands Local court rules lawsuit seeking profit from 2004 to 2022 can proceed

Las Vegas Sands’ former partner sues for 70 pct of profits

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Macau court has ruled that a former business partner of Las Vegas Sands Corp, the world’s biggest casino company, can proceed with a lawsuit seeking billions in damages for breaking the terms of their former partnership agreement.

In a filing made on March 16, a court in the Chinese southern territory denied Las Vegas Sands a motion to dismiss the lawsuit, which alleges that the company, headed by U.S. billionaire Sheldon Adelson, misused trade secrets obtained during their venture.

The former partner, a company called Asian American, which is headed by Taiwanese businessman Marshall Hao, is asking for just over 70 percent of Las Vegas Sands’ profits from 2004 to 2022. Even before taking into account future profits, that would exceed US$8 billion on reported profits to 2015, according to Reuters calculations.

Las Vegas Sands, which has taken legal action in Nevada and Macau to try and stop the suit, said: “The company has consistently maintained that this case has no merit. We have confidence that ultimately the Macao judicial process will reach the same conclusion.”

Hao’s lawyer Jorge Menezes said the court had not yet set a date, but a hearing should take place in the coming months.

He said he could not comment further due to the legal proceedings.

The split

The partnership of Las Vegas Sands and Asian American submitted a bid for a gaming concession in 2001 in Macau, which has since become the world’s largest gambling hub.

During the process, Las Vegas Sands switched partners, and instead teamed up with Hong Kong group Galaxy Entertainment, a venture that went on to win a license in the former Portuguese colony over a decade ago.

Asian American claims that Las

“We are delighted and looking forward to seeing this dispute adjudicated on the merits for the first time. We have walked a long and difficult path to reach this goal.”

Marshall Hao, Chairman of Asian American Entertainment Corp.

Vegas Sands terminated its joint venture and then made a near identical bid submission with Galaxy, using details that were exclusive to their previous partnership.

“We are delighted and looking forward to see this dispute adjudicated on the merits for the first time. We have walked a long and difficult path to reach this goal,” Hao told Reuters.

Bad timing

For Las Vegas Sands, which faces a number of lawsuits in Macau, including breach of contract for work done helping obtain its casino license and unlawful dismissal claims, the case could bring unwanted attention as the territory’s government decides whether to extend the six operators’ licenses as they start to expire in 2020.

The case also comes at a difficult time for gambling revenues in the former Portuguese colony, which have slumped to five-year lows, as China’s anti-corruption campaign has deterred conspicuous consumption by high rollers and as economic growth in the world’s second-largest economy slows.

Analysts have nevertheless remained relatively bullish on Sands’ operations relative to the other Macau operators - Galaxy, Wynn Macau, MGM China, SJM Holdings and Melco Crown - due to its focus on mass-market visitors and its large footprint.

The company is due to open the Parisian casino in Macau this year, featuring a half-size replica of the Eiffel tower. Reuters

8 Business Daily Monday, April 4 2016

Macau Music Industry Interview An uphill struggle with no music industry in sight

Blademark battles to be a successful band in the MSAR Blademark vocalist Fortes Pakeong Sequeira (pictured standing) speaks to Business Daily about the band’s experiences and how they tie in with the state of the cultural and creative arts industry here. The artist describes some of the elements that comprise the group’s documentary as well as a viewpoint that the Macau situation is changing. With more active audiences and management companies, and more value attributed to those who shape the industry.

Bami Lio bami.lio@macaubusinessdaily.com

How much did the documentary cost to make?

It was produced with subsidies from the Macao Cultural Affairs Bureau. We had MOP200,000 (US$25,000) approved, which was not enough, especially since we had many crews that worked to make it happen and MOP50,000 was retained by some of the administrative officers. It is a super low budget at MOP150,000 to cover all the necessary processes and to hire the professionals necessary. More than 20 crews participated in this film and pro-bono stuff [situations] always happened (the documentary also points out that a

number of assistants on the project were unpaid). Now we’re enhancing the audio system to 5.1 and re-filming some shots. I don’t know how much extra is added, but the film is now more presentable, from an even more macro perspective. After all, MOP150,000 is a cost so low that no one believes it.

When is the next screening of the documentary?

It will be playing in Cinema Alegria from April 14 to 20.

CDs as cultural products What was it like for your band to release a CD here?

Previously we generally waited for government subsidies to launch new projects, products like CDs and activities. Some people helped us apply [for] them. The sales and revenues aspect of musical products like CDs were not focused here in the past. It [the product] was kept in the store and maybe no one actively followed up on the sale or promotion when the products were made. I was also asked by a shop owner why no-one was taking stock of our CDs or collecting the revenues for one to two years. That means no-one continued to follow-up and run the process. CD shops sell our CD, but they are not entitled to only promote our CD as we are not especially famous, we are not Jay Chou or [suchlike]. It’s very common in the commercial market.

What are your future plans for music – any other CDs you’re working on?

Our target is to issue five CDs in three years. We were actually very slow in these ten years, although some may say it’s a good record. We want to move faster. More types of music will be included in the new five CDs, including acoustic - to introduce Blademark in

other ways which may bring us to more places, shows and concerts. We may even work out some background music for movies. We want to reform Blademark to be a culture that participates in many kinds of things. Music needs to merge with other things in order to be industrialised. We will mix, reproduce and record again all the songs in the 2009 and 2012 albums with our current teammates, probably finishing by the end of this year. We want to issue this album although the songs already exist. It is to respect our current colleagues, and there is [no] problem concerning copyright. Most of the songs and lyrics were written by me, so the copyright of creating them belongs to me.

Will there be an online offering of the CD? I think we should go all the way like CD and iTunes. Of course, we sell on iTunes. Actually, it adds a lot to our cost to issue CDs, but we will not give up physical musical products.

If it costs, why keep issuing physical copies?

It’s better for more people to issue more CDs – that way the process and history can be seen. I went through the eras of tapes, LD, CD and now MP3 or digital, all of them memorable. Now everything goes digital; it lacks the sense of presence and it’s not realistic. You cannot even look at it in your own home.

‘When there are enough resources for a real talent who works fast, things can be done very quickly.’

I want to do something about this, although I think people usually put the CD into ‘play’ and use it once only. I even considered issuing tapes or vinyl records. The value and quality of vinyl records has improved these days. The design of these types of products is very important; it’s good that we have two people in our band working on design, Raymond and me. We’re going to put more efforts into design. The value of a CD depends not only on the quality of songs themselves, but also the value as being a collectible. As well as the value [including] graphic design and the aspect of touch.

Festivals and opportunities with gaming operators How active are you in pursuing opportunities to perform in casinos or hotels?

We sing to express ourselves. Those who listen to Blademark, or those who choose this kind of music do it simply because it has resonance. It’s about what we express with the meaning and content of our songs - the characteristics or image. If gaming operators want to include Blademark in their music, events or stage, there’s no problem and we won’t reject them. But we’re not actively creating these kinds of opportunity. This is [generally done via] invitation by others and is only one source of our income. We also performed in The Venetian (with Hong Kong hip-hop group LMF and Brazilian rapper Gabriel o Pensador); we play in many events of this kind.

What kind of opportunities are you pursuing?

When we talk about events, we’re generally referring to music festivals in or outside Macau. We look for many performance types aside from heavy

Business Daily Monday, April 4 2016 9

Macau they contribute or input like money, daily expenses and expenditures like electricity and rental fees are greater burdens for bands. Comparatively speaking, bands should have more guarantees.

What difficulties do local bands face?

For many artists in Macau, not only Blademark, what we basically need is a place. It’s not only the problem of money, we may not rent any suitable place to gather people even if we do have money. We cannot be united by our phones only. Band rooms are different - we currently rent one with poor conditions at around MOP4,000 monthly. It’s noisy because different bands are practicing in band rooms nearby. Besides, the competition is great in Hong Kong. How many artists can one company contract? Let’s say four. How should the resources be located and shared? This is also true for some local agencies. When there are enough resources for a real talent who works fast, things can be done very quickly.

Future of the creative and cultural industries

metal in Macau and we can also play electronic music. New opportunities like nightclubs or bars. Additionally, we submitted a proposal to the government for an acoustic performance in Dom Pedro V Theatre. New places or channels like schools or charity are considered. We really want to attract new audiences. I think there are at most two to three events per year which can include heavy metal in Macau. Most organisers [already] think of Blademark, so we don’t worry much. But as a professional and fulltime band, it’s not enough for us to have only three events a year, so we need to develop and create new channels.

You cannot wait to see, as if one day the chances will appear by themselves.

Instead of continuing to wait, why not just go and do it? It appears on Earth earlier if you take one step.

Your documentary revealed that someone received MOP75 for a show.

What’s the situation regarding the income of singers in Macau?

I think it’s all about the mechanism that the middlemen or agents have too much share. They hold an event as a production unit or sometimes a co-organiser is only responsible for bringing or introducing bands. Then it tells the band that you’re going to have a show on a particular date and that the whole team - like five people - will have a part of the total amount.

Finally, each of the members received MOP75. This is real and the lowest offer that I’ve heard of. But it’s more than for a free performance - which is very common in Macau.

How much did you receive for the Broadway gig?

The organiser gave MOP20,000 for the show in Broadway as I remember [and] the organisers also play music themselves as a band. They found Blademark for the show and, of course, they probably have commissions [taken off] on top. That means Broadway found the organiser to handle this event. It was like we asked the organiser would it be okay for us to have MOP20,000 and they said no problem. I think it’s healthy that everyone should be taken care of and can live. It’s about the value. The duration of the show was one hour for us alone, but they also had other bands including the house band for the whole night that had been singing for Broadway for the long-term.

Aki mentioned in the documentary that little communication and co-operation is found between bands who are underground in Japan and those who are more mainstream. What’s the situation here?

I see no path for full-time music professionals in Macau, but there are some people taking this path and living with similar identities or lifestyle. But it’s all about how we define living; we can live on lavish meals or just biscuits. Music doesn’t work as our main income. And we should consider how we define ‘singer’: we don’t have enough jobs in the entertainment industry, which actually doesn’t exist in Macau now.

But I think it’s possible for someone to become a singer in the bars although they may not prefer Chinese. It’s weird that singers from the Philippines or

Full time and part-time

Blademark is a metal band formed in Macau in 2005, with members originating from the MSAR, Japan and Canada who have played across Asia and Australia, performing in Sydney, Taiwain, Beijing, Shanghai, Guangdong, Yunnan and Hong Kong as well as rock events throughout Macau. The group has launched two albums to date: an EP in 2009 and an album in 2012.

Last year, the group finalised work on a documentary tracing the group’s history, struggles, changes, growth and success. Titled ‘The First Decade of Blademark’, the work also closely accompanies the development of the

‘We sing to express ourselves.

Those who listen to Blademark, or those who choose this kind of music do it simply because it has resonance.’

Taiwan can participate in these [areas]but not the singers from Macau.

The most seious problem in Macau is that one takes all kinds of jobs such as wedding parties, programmes on the radio and TV, shows in hotels. Our income is okay but I wonder if it is okay for individuals to fight in this way. Otherwise, if we want an agent or a manager, the income has to be divided and we may not have enough.

What do you think is needed for singers or bands then?

The examples of free performance or for MOP75 a show means that there’s still not a very good amount for, or basic measures to secure, the deserved income. Actually, a band needs more guarantees than an ordinary singer.

The practice and rehearsal of a singer can be simple, in that you can sing or practise in many places. But what a band needs is co-ordination. A band always talks about creation and you need to find a place to create music or jam. Indeed, bands need more support because the time and mind

creative and cultural industries in the MSAR. Frontman Fortes Pakeong Sequeira - an illustrator, visual artist and commercial photographer by day – is a vocalist and song and lyric composer by night. Drummer Darren Kopas is also involved in the entertainment arena as an entertainment and audio-visual manager, while Akitsugu Fukushima, the group’s lead guitarist, works in arranging, recording and producing songs. Bassist Raymond Nogueira also works in the arts as a graphic designer and a multi‑media designer.

What are your future promotional plans?

When we talk about the cultural industries in Macau, [it’s] not only [about] products [that] are subsidised by the government. The city was so passive that our CD was only kept in store after being published and the songs or videos were not screened everyday. We should do something like discussing advertising with TDM or some Hong Kong agents. The selling spots should be extended. We have channels to spread information about products only when there is some commercial competition. In Macau promoting something is like throwing it on the floor where people are stepping on it. While it works and people snatch musical products up in some other places like Hong Kong with the same promotional resources or methods, this means that the market in Macau is not mature. People in Macau snatch up the products if people in Hong Kong also do so.

Do you see any changes in the relationship between agencies and musicians?

We’re living in the most messy era in Macau, but I see some music management companies starting to change their relationship with artists and have them fully paid as employees. These companies even refine them and look for hairstyle and fashion sponsors. It will be healthy for the whole entertainment industry to work in this way.

Some offer high wages but I don’t know the extra amount. Artists receive a basic salary with bonus from sponsors and perform in shows. In the past, artists complained about [agency] companies for not having enough jobs and exposure in the media. We [as artists] cannot do so many things; actually, we’re only working on music and attending shows. In fact, these are the responsibilities of a management company in a real operating model. The cultural or entertainment industry should work like investments, not only creativity - we want to have data on sales and gains. Then the company will push the artists, refine them and get more jobs here and there.

What criteria should agents or management companies have?

The organiser or agent should be conscious of value. We’re not only talking about the creation of Macau bands or singers. We’re talking about the value of creativity in nature. When creative talent cannot make a profit out of their products no-one will do it. We will have nothing to sell because no-one is creating the products. It is of no use to hold any musical festival or night party. This is it and you have to buy things from outside or bring in other people. Macau really needs someone in the middle to create the market.

10 Business Daily Monday, April 4 2016

Greater China Digital Shift

Central bank introduces new rules on corporate billing Key Points

The upgrade comes after recent reports of bill fraud at Agricultural Bank of China.

All issues of commercial paper over 3 mln yuan to be electronic by 2017 - sources

C

Follows report of alleged bill of exchange scam at major state bank

hina’s central bank is introducing new rules to the country’s corporate bills market requiring banks to shift to electronic forms of issuance, sources with direct knowledge of the matter told Reuters, a move that follows a recent case of fraud in the sector.

The directive comes from the People’s Bank of China’s (PBOC) payment and settlement department and requires corporate bill issues with a face value of more than 3 million yuan (US$464,065) to be executed electronically as of next year, two sources told Reuters.

The upgrade comes after recent reports of bill fraud at Agricultural Bank of China Ltd., which domestic media allege originated as a scam by two of the bank’s employees.

China’s commercial paper market is highly fragmented, with transactions conducted mainly through dozens of regional centres.

The absence of a centralised system has meant poor liquidity and limited trading participation, which is mostly conducted by the People’s Bank of China, commercial banks, industrial companies and businesses that focus solely on discounting and rediscounting.

Converting bills into an electronic format could help reduce the risk of forgery and other forms of manipulation, and also make secondary transactions easier to monitor.

Neither the central bank nor Agricultural Bank of China immediately commented when contacted

by Reuters.

By 2018 China plans 80 pct of commercial paper to be electronic – sources The sources said the minimum issue size requiring electronic execution would be lowered to 1 million yuan from 2018. By the end of 2018, at least 80 percent of all commercial paper business at each financial institution must be completed electronically, the sources said.

A source at a regional branch of the PBOC told Reuters bills with face values of more than 3 million and 1 million yuan make up a relatively small share of the market at present.

Central bank vice governor Pan Gongsheng said the bank was working on a plan to centralise the commercial paper market through an electronic system, Shanghai Securities News reported in early March.

In 2015, Chinese banks and other corporates issued a combined 22.4 trillion yuan (US$3.45 trillion) in commercial bills, up 1.3 percent from the previous year, according the central bank’s fourth-quarter monetary policy report.

Orient Securities bank industry analyst Wang Jian said a large proportion of commercial paper business is still done manually and offline, which currently makes risk-mitigation difficult.

Commercial paper, sometimes known as corporate bills in China, refers to short-term obligations with maturities typically up to 270 days and issued by banks, corporations and other borrowers to investors with temporarily idle cash. Reuters

Fiscal policy

Grey luxury market threatened by new tax regime Luxury consumption fell 2 percent in 2015.

Farah Master and Astrid Wendlandt

China is raising fees on packages ordered from abroad and cracking down on smugglers who carry in suitcases full of luxury goods, in a concerted effort to encourage shopping at home and squeeze a grey market that shoppers use to avoid tax.

Although Chinese shoppers account for a third of global

sales of luxury goods, sales that actually take place in mainland China account for only a fifth.

The rest are purchases made abroad - either ordered from overseas websites, bought by Chinese tourists, or smuggled in by “personal shoppers” known as daigou, who fill suitcases with luxury items and sell them back home in person or online.

That costs the Chinese

government tax revenue, and also discourages the domestic consumption sector, particularly for higher quality goods, that Beijing has long been trying to boost to rebalance its economy away from exports.

“China wants to attract the outbound purchases back and cultivate a domestic luxury consumption market which is also consistent with the target to develop a

consumption driven economy,” Yating Xu, an economist for HIS Global Insight said.

Luxury items like the latest Dolce & Gabbana bag can be around 50 percent cheaper in Milan or in Paris than in mainland China, although some brands like Chanel lowered Chinese prices last year to close the gap.

Some Chinese also prefer to buy expensive items abroad because they can be more certain the goods are genuine, and can get better choice or service than at home.

Luxury firms have invested in opening boutiques in China, but they sometimes sit idle, potentially damaging their brands.

The problem has gotten worse over the past year, according to figures provided by the consultancy Bain & Co, which found that luxury consumption in mainland China fell 2 percent in 2015, even as purchases by Chinese buyers rose 251 percent in Japan, 31 percent in Europe and 33 percent in South Korea.

The parallel market, mostly conducted online, is crowding out bricks-and-mortar shops, said Roth Lai, deputy editorial director at Elle China, speaking at a conference on luxury in Paris this week.

“E-commerce has become really the main driving force in the luxury goods market in China,” he said.

Penalties, taxes

To combat the daigou, the Chinese government last week increased penalties for false declarations and tightened customs controls.

Officials are catching more and more Chinese travellers at the airport with suitcases full of luxury goods and slapping taxes on them.

Beijing also said that from April 8 it would increase taxes imposed on a range of goods either imported via the Internet or carried in by daigous.

Tariffs on watches ordered from abroad were increased to 60 percent from 30 percent and on jewellery to 15 percent from 10 percent.

“We expect an adverse impact on overseas purchases

by Chinese daigous and tourists alike,” said Exane BNP Paribas analyst Luca Solca.

China has also tightened the use abroad of UnionPay cards, the government-supported payment card network. As of January, there is an annual withdrawal limit at overseas cash machines of 100,000 yuan (US$15,471.49) per card. Reuters

Business Daily Monday, April 4 2016 11

Greater China Industry Data

Official factory activity unexpectedly expands Book quarterly survey showed firms cutting back sharply on hiring and wage hikes, risking a blow to domestic consumption that could hamper any further recovery.

Sources have told Reuters that China is expecting to lay off 5-6 million state workers over the next two to three years as it tries to cut bloated industrial capacity and pollution, though officials say many of those can be retrained for jobs being created in the services sector.

But signs of improvement in the economy, however modest, could give Beijing more breathing room to keep those reforms on track.

Nathaniel Taplin and Pete Sweeney

A

ctivity in China’s manufacturing activity unexpectedly expanded in March for the first time in nine months, an official survey showed on Friday, adding to hopes that downward pressure on the world’s second-largest economy is easing.

But while output rose and new orders from home and abroad returned to growth, factories still shed jobs at a significant rate, highlighting the risks for leaders in Beijing as they try to cut industrial overcapacity without sparking massive layoffs.

The official Purchasing Managers’ Index (PMI) rose to 50.2 in March, up from February’s 49 but still only marginally above the 50-point mark separating growth from contraction.

The findings handily beat expectations for a further contraction.

Economists said a more than oneyear blitz of stimulus measures may finally be showing some dividends, particularly steps to revive the ailing property market, with now surging home sales boosting demand for materials from cement to steel.

A government spending spree on infrastructure, while slower to get going, now seems to be having a similar effect.

However, China watchers said more support will still be needed from Beijing and the central bank in the form of higher spending and interest rate cuts as the economy is likely to remain weak.

Indeed, a similar private survey

by Caixin and Markit, which focuses on smaller firms, showed manufacturing activity shrank again in March, though at the slowest pace in 13 months.

“The output and new order categories rose above the neutral 50-point level, indicating that the stimulus

Tough transition policies the government has implemented have begun to take hold,” noted Caixin chief economist He Fan. “However, considering current conditions remain uncertain, the government needs to continue with moderate stimulus measures to reinforce market confidence.”

The private Caixin/Markit Manufacturing Purchasing Managers’ index (PMI) found that output, total new orders and output prices all returned to growth for the first time in well over half a year.

“It does seem to indicate manufacturing is warming up a bit, new orders were...a very strong figure,” said Raymond Yeung, senior economist at ANZ in Hong Kong.

“We think there are basically two factors driving the recovery: the first is a possible acceleration in infrastructure spending; the second is a broader pickup in external demand.”

Yeung said China’s economy could grow 6.5 percent in the first quarter from a year earlier, cooling from 6.8 percent in the fourth quarter but better than many had expected just a month or two ago. First-quarter data is due on April 15.

Job losses in focus

Both the official and private factory readings showed manufacturers continued to shed jobs last month, but disagreed on whether layoffs were moderating.

The official survey suggested the rate of job losses may be slowly easing, with the reading at the highest since June, but the Caixin survey showed manufacturers shedding staff for the 29th straight month and at almost the same pace as in February.

Data from the recent China Beige

Hopes that the long-suffering manufacturing sector may be bottoming out were fuelled by recent data which showed industrial profits rose 4.8 percent in the first two months of 2016 from a year earlier, ending seven months of decline.

China’s real estate investment rose 3 percent in the first two months of 2016 in year-on-year terms, quickening from an increase of just 1 percent in all of 2015, though a huge overhang of unsold homes could keep further market gains in check.

Global energy and commodity prices also have staged a limited recovery in recent weeks, which may have bolstered flagging profits at oil and mining firms and reduced strains on their balance sheets.

In addition to the boost from a pickup in construction activity at home, cash-starved Chinese mills have also been exporting large amounts of steel, which has sparked accusations of dumping from some of its top trading partners.

Finally, some analysts say business confidence may have improved as fears of a sharp depreciation in the value of the yuan currency have eased.

Adding to the cautiously optimistic mood, growth in China’s services sector expanded strongly.

The official non-manufacturing Purchasing Managers’ Index rose to 53.8 in March from the previous month’s 52.7.

That is good news for China’s leaders as they try to overhaul the economy into one less dependent on exports and rust-belt industries and more driven by domestic consumption.

With manufacturing in a prolonged slump, services have been a crucial source of growth and jobs for China over the past year. Reuters

Investment opening

Beijing misses deadline for ‘negative list’ offer to U.S. China’s Vice Foreign Minister Zheng Zeguang said that Obama and Xi Jinping pledged to step up the investment negotiations.

David Lawder

Chinese officials have missed their own March deadline to submit a new offer for a proposed investment treaty that would shrink the number of sectors closed to American investors, U.S. officials and China trade watchers said on Friday.

The lack of a new “negative list” proposal could make it more difficult to complete the bilateral investment treaty negotiations with Beijing before President Barack Obama leaves office in January.

“We did not receive a revised negative list from China this week,” a spokeswoman for U.S. Trade Representative Michael Froman said in a statement.

“The negotiating teams are continuing to engage closely to work toward a high-standard bilateral investment treaty, as agreed by Presidents Obama and Xi in September of last year.”

That was when the last investment treaty proposals were exchanged between the two sides. U.S. business groups have said that China wants to keep too many sectors of its economy off-limits to U.S. investment, while Beijing has complained that the United States too often singles out Chinese companies and investors for national security reviews.

Earlier this month, the USTR spokeswoman had said a third negative list exchange would be an important milestone in the talks.

“To facilitate further progress and the successful conclusion of the treaty, China will need to significantly narrow its proposed negative list and demonstrate a substantial liberalization of the Chinese investment market, as well as addressing other key priorities,” the spokeswoman said.

Despite the lack of a new proposal, China’s Vice Foreign Minister Zheng

Zeguang said on Thursday that Obama and Chinese President Xi Jinping pledged to step up the investment negotiations after the two leaders met on the side-lines of a nuclear security summit in Washington.

“The two sides agreed that they would continue to expedite the talks in seeking to arrive at a China-U.S. investment agreement that is mutually beneficial and win-win at an early date,” Zheng told reporters.

Erin Ennis, senior vice president of the Washington-based U.S.-China Business Council, expressed disappointment at the missed deadline said the longer Beijing waits, the chances that differences can be worked out with the Obama administration will diminish.

“With limited information at this point, it is difficult to assess what exactly is behind the missed deadline,” Ennis said in a statement. Reuters

In Brief Property

Home prices extend gains in March Growth in China’s new home prices quickened in March, two private surveys showed on Friday, evidence that housing prices are continuing to heat up even amid government cooling steps. Prices of new homes in 288 cities in March rose an average 5.6 percent from a year earlier, the eighth straight month of gains, a poll by property services firm Real Estate Information Corporation (CRIC) showed. The rise in March was faster than an increase of 4.3 percent in February. Against the previous month, home prices in March were up 1.2 percent.

Steel

Cameron urges talks on capacity at G20 Britain’s Prime Minister David Cameron wants Britain and China to work together to tackle over-capacity in the steel industry and that the G20 could be a good forum to address it later in the year, his spokesman said on Saturday. Cameron, who spoke to Chinese President Xi Jinping during a Nuclear Security Summit in Washington, is trying to salvage Britain’s steel industry after Tata Steel put its British plants up for sale, putting thousands of jobs at risk.

The government has said it is working to broker a deal with potential buyers.

Disasters forecast

“Severe” flooding expected on Yangtze Severe floods are expected on China’s Yangtze River this year due to a strong El Niño weather pattern, state media said, raising the risk of deaths and damage to property and crops along the country’s longest waterway.

The El Niño conditions are the strongest since records collection began in 1951, and resemble a 1998 weather pattern that flooded the river and killed thousands, the official Xinhua news agency said on Friday, citing vice minister of water resources, Liu Ning.

M&A

XIO Group vies for J.D. Power-sources The China-based buyout firm is seeking to acquire J.D. Power and Associates, a unit of McGraw-Hill Financial Inc, according to people familiar with the matter, in the latest example of Chinese money targeting U.S. companies. XIO Group is facing competition from Western private equity firms, including Advent International Corp, in the auction for J.D. Power, which is best known for its car quality and reliability ratings, the people said this week. There is no certainty that XIO Group will emerge as the buyer of J.D. Power, which could be worth as much as US$1 billion, the people added.

12 Business Daily Monday, April 4 2016

Asia Key Points March exports -8.2 pct y/y, imports -13.8 pct y/y Exports see boost from steel, smartphones Shipments to China, U.S. both decline in March Exports to neighbouring China, South Korea’s biggest market, fell for a ninth straight month in March, the data showed. Shipments to the United States fell again after posting a brief rise in February.

Oil products continued to place a drag on exports as they plunged 41.6 percent last month in annual terms.

The trade ministry said oil products, petrochemical goods and ships accounted for 69 percent of the exports decline in March.

Rate cut uncertainty

Trade

South Korean March exports fall by slowest in 4 months Many market participants expect the Bank of Korea (BOK) to reduce its policy interest rate from an already record low of 1.50 percent.

I

mproved shipments of smartphones and steel in March helped South Korea post its slowest decline in exports for four months government data showed on Friday, but weakness in sales to China remained a worry for the world’s sixth largest exporter.

Exports in March fell by a less-than-expected 8.2 percent from a year earlier to US$42.98 billion, the Ministry of Trade, Industry and Energy said. It was the slowest fall in exports since November last year.

The ministry said steel exports had rebounded by 14.7 percent in

March on-year, while shipments of smartphones had surged 19.9 percent, mainly thanks to the release of Samsung Electronics Co Ltd’s new Galaxy S7.

Imports dropped 13.8 percent to US$33.16 billion to result in a US$9.82 billion surplus, the Ministry of Trade, Industry and Energy said. The fall in imports was the slowest since June.

The trade performance beat median forecasts for declines of 10.4 percent and 13.1 percent for exports and imports respectively in a Reuters survey of 17 analysts.

Despite the improvement, the data failed to remove analysts’ doubts about a rebound in global demand as the average export value per working day stood at US$1.79 billion in March, less than US$1.82 billion seen in February, Thomson Reuters calculations showed.

With exports plunging from last year, the economy is now leaning on the sole crutch of domestic consumption, which has been showing a fragile recovery.

Many market participants expect the Bank of Korea (BOK) to reduce its policy interest rate from an already record low of 1.50 percent in a bid to boost the economy, and possibly weaken the won currency.

The won strengthened 8.2 percent against the dollar in March, posting its biggest monthly gain in seven years as it rebounded after sharp falls earlier in the year.

The BOK chief has been sceptical in recent months over the effectiveness of rate cuts, though chances of a significant fiscal stimulus also appears some way off as the finance minister has said there is no need for a supplementary budget at this point.

Meanwhile, separate data showed March inflation eased to 1.0 percent in annual terms, slowing from February but higher than January this year. Reuters

Nippon Inc

Japanese business mood sours to 3-year low The gloomy survey will add pressure on the BOJ to do more to prop up growth.

Leika Kihara and Tetsushi Kajimoto

Business sentiment among Japan’s big manufacturers deteriorated to the lowest in nearly three years and is expected to worsen in the coming quarter, a closely watched central bank survey showed on Friday, heightening pressure on

Prime Minister Shinzo Abe and the Bank of Japan (BOJ) to do more to shore up the ailing economy.

Big firms also plan to cut capital expenditure plans in the current fiscal year, underscoring the challenges the BOJ faces in aggressively printing money to nudge risk-shy companies into boosting spending.

To keep the economy afloat, Abe may have to delay yet again a sales tax hike scheduled for next year.

The weak reading will also keep the BOJ under pressure to loosen monetary policy further when it reviews its quarterly forecasts later this month, some analysts say.

The headline index gauging big manufacturers’

To keep the economy afloat, Japanese Prime Minister Abe may have to delay yet again a sales tax hike scheduled for next year.

Business Daily is a product of De Ficção – Multimedia Projects

sentiment stood at plus 6 in March, half the level seen three months ago and worse than a median market forecast of plus 8, the survey showed.

It was the lowest reading since June 2013, as exporters felt the pinch from sluggish emerging market demand and yen rises that erode their competitive advantage overseas.

Big non-manufacturers’ sentiment dropped to plus 22 from plus 25 three months ago, deteriorating for the first time in six quarters, as spending by overseas visitors moderated.

Sentiment soured for manufacturers and non-manufacturers big and small for the first time since June 2014, when Japan was reeling from the blow of a sales tax hike in April of that year.

Both big manufacturers and non-manufacturers expect sentiment to worsen in the coming three months, underscoring companies’ concern over the murky global economic outlook.

The yen’s rise is also expected to hurt profits.

Big manufacturers based their business plans on the assumption the dollar would average 117.46 yen in the current fiscal year, higher than recent levels around 112 yen, suggesting that corporate profits could be revised down ahead.

In a sign uncertainty over the global outlook is hurting companies’ spending plans, big firms plan to cut capital expenditure by 0.9 percent for the current fiscal year from year-before levels.

Japan’s economy shrank in October-December due to weak exports and consumption. Many analysts now expect it to have contracted again in January-March, which would put the country back into recession, commonly defined as two straight quarters of negative growth.

The gloomy survey will add pressure on the BOJ to do more to prop up growth, though many central bankers are reluctant to ease again soon with financial institutions still struggling to digest the impact of January’s controversial decision to adopt negative interest rates. Reuters

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Business Daily Monday, April 4 2016 13

Asia Deficit

Australian prime minister says budget fix is “long-term project” A report set out A$15 billion in revenue measures and A$2 billion in spending reductions to bring the budget back to surplus.

A

ustralia is prioritizing growth over deficit reduction in its economic program, Prime Minister Malcolm Turnbull said, signalling he expects to close the gap through rising tax receipts from faster expansion.

The prime minister, a month out from the budget, signalled no plans to try to accelerate a return to the black - despite eight years of deficits and a projected four more to come.

His comments also imply a rejection of a panel of senior economists and former high-ranking officials who Tuesday put forward a strategy to return to surplus in three years.

“It is a long-term project,” Turnbull said of restoring the budget in an interview with Sky News Sunday.

“The critical thing that we have to do is to ensure we maintain strong economic growth.”

Turnbull’s assessment is grounded in economic and political calculations. He’s betting the economy, already adjusting to weaker commodity prices and an unwinding of mining investment, will be put at risk by a further hit to demand from deep cuts in government spending.

He’s also struggling with an electorate unwilling to accept tax increases or a reduction in services - an impasse that has bedevilled his predecessors since the global financial crisis in 2008.

Australia in December forecast an underlying cash deficit of A$37.4 billion (US$28.7 billion) in the fiscal year through June, and a A$26.1 billion larger than previously anticipated shortfall in the four years through June 2019.

Economy strengthened

Meanwhile, recent data showed the economy strengthened in the final three months of 2015, chalking up a record jobs gain and expanding at a solid 3 percent for the year.

“The bigger picture is, if you can grow your economy at a faster rate than your spending then over time your tax receipts from a bigger economy will make up the work,” Turnbull said, citing Prime Minister John Key of New Zealand as having successfully implemented a similar strategy.

The Committee for Economic

Thai March consumer prices fall Thailand’s annual headline consumer prices fell for a 15th consecutive month in March, mainly due to declining oil prices, giving the central bank leeway to cut interest rates if needed to support weak domestic growth. The index, published by the Commerce Ministry on Friday, dropped 0.46 percent in March from a year earlier. A Reuters poll forecast a 0.42 percent fall. The core inflation rate, which strips out raw food and energy prices, was at 0.75 percent in March, the same as in the poll.

Bangladesh reserves hit record Malcolm Turnbull, Prime Minister of Australia.

Development of Australia on Tuesday released a report compiled by a panel of experts that included three former secretaries of the Department of Prime Minister and Cabinet, Reserve Bank of Australia board member John Edwards and the country head for credit ratings company Standard & Poor’s. It suggested measures such as halving the capital-gains tax discount, scrapping tax concessions on private pensions and increasing levies on alcohol, tobacco and luxury cars to plug the deficit.

“Australia’s deficit problem is particularly alarming because despite a quarter century of sustained economic expansion, we have had eight years of deficit, with four more to go,” CEDA National Chairman Paul McClintock said.

Financial crisis

Successive Australian governments have struggled with deficits since the global financial crisis: first as the currency soared to a post-float record of US$1.10, driving some exporters out of business; and then as commodity prices tumbled and wage growth slowed to recession-era levels, national income was cut and fewer people moved into higher tax brackets.

Yet critics point out that in three months’ time Australia will have avoided recession for 25 years, and the government should be in a better budgetary position to respond to an inevitable downturn. The economy

“There is no question, we have no hope of getting back into balance unless we can maintain strong economic growth. That’s the fundamental premise” Malcolm Turnbull, Prime Minister of Australia

Analysts say the company will find it tough to raise financing for the project due to a prolonged downturn in the global coal market. approvals “with the clear aim of commencing construction in calendar year 2017”.

Progess would depend on resolving legal challenges from environmentalists, a company spokesman told Reuters.

The company has battled opposition from green groups since starting work on the project five years ago.

Environmentalists continue to fight Adani’s project on numerous fronts and are lobbying banks not to provide loans.

They cite potential damage from port dredging, shipping and climate change stoked by coal from the mine.

Two legal challenges to the project are currently before courts.

The Australian Conservation Foundation said in a statement the mine

Foreign exchange reserves hit a record US$28.27 billion at the end of March, the central bank said yesterday, thanks to steady exports and slow import growth due to falling global commodities prices. The reserves, sufficient to cover eight months’ worth of imports, were 22.6 percent higher than at the same period last year.

Rising garment exports and steady remittances from Bangladesh nationals working overseas, two mainstay revenue generators for the impoverished country of 160 million people, have helped foreign exchange reserves grow steadily in recent years.

Prices

has also been stimulated by record-low interest rates at 2 percent and a weaker currency.

“As a player in the global economy, running a large deficit means we have no flexibility to respond to unexpected economic shocks,” McClintock said.

Turnbull, meanwhile, is trying to turn the lack of fiscal space to his advantage in an election year, pointing out that the leader of the opposition Labour party Bill Shorten will have to lay out how he plans to finance new programs.

“He needs to really hike taxes unless he is proposing to plunge us further and further into deficit and debt,” Turnbull said Sunday. Bloomberg News

Adani wins state approval for Australian coal project

India’s Adani Enterprises Ltd was granted approval by Australia’s Queensland state government yesterday to proceed with its proposed A$10 billion (US$7.7 billion) Carmichael coal project in the Galilee Basin.

Queensland Premier Annastascia Palaszczuk said the approvals gave Adani permission to mine coal reserves estimated at 11 billion tonnes and to build roads, workshops, power lines and pipelines associated with the mine.

“Some approvals are still required before construction can start, and ultimately committing to the project will be a decision for Adani,” Palaszczuk said in a statement.

Adani said in a statement it would continue to finalise second tier

Inflation

Forex

Mining

Tom Westbrook

In Brief

was “inconsistent with Australia’s international obligations” to protect the Great Barrier Reef as coal from the mine would stoke global warming and drive coral bleaching.

Several international banks have said they will not provide financing for coal mining in the Galilee Basin, while Standard Chartered and Commonwealth Bank of Australia pulled out of the project in August.

Analysts say Adani will also find it tough to raise financing for the project due to a prolonged downturn in the global coal market.

Adani’s spokesman said that tough market should not put pressure on the project because most of its coal is already earmarked for Adani-owned power plants in India, rather than for sale on the open market. Reuters

Indonesia wants end-2016 inflation at 4-4.5 pct The deputy governor of Indonesia’s central bank Mirza Adityaswara said on Friday that Bank Indonesia wants to manage inflation around 4-4.5 percent at the end of this year.

Indonesia’s annual inflation in March was 4.45 percent, the statistics bureau said earlier on Friday.

The central bank’s official target for inflation is 3-5 percent. Adityaswara told reporters inflation may cool this month after the government cut fuel prices and ordered transportation tariffs to be lowered.

But Bank Indonesia also expects price pressures to increase as the harvest season ends and demand rises ahead of the Muslim fasting month in June, he added.

Tobacco industry

Indian cigarette makers halt production Indian cigarette makers including ITC Ltd, partowned by British American Tobacco, suspended production on Friday over what they said was ambiguity in the government’s new health warning rules for packs, a leading industry body said. Rules that mandated 85 percent of a cigarette pack’s surface to be covered in health warnings, up from 20 percent, kicked in from Friday after being delayed for a year. But cigarette makers failed to comply, with packs with smaller warnings still being sold in the capital New Delhi.

14 Business Daily Monday, April 4 2016

International In Brief U.S. campaign

Trump sees country headed for huge recession Republican presidential candidate Donald Trump said the U.S. is headed for a “very massive recession” and that’s it’s a “terrible time right now” to invest in the stock market, according to an interview with the Washington Post. Unemployment is much higher than official figures suggest, Trump said in the interview conducted on Thursday and published on Saturday. Trump said he would be able to get rid of the nation’s national debt “over a period of eight years,” according to the report. I think we’re sitting on an economic bubble - a financial bubble, Trump told the newspaper.

Drought

Venezuela’s dams close to critical low Venezuela will reduce power generation if the key Guri dam, which supplies around half of the blackout-hit country’s electricity, falls below a minimum level that is fast approaching, an official said on Friday. A severe drought, coupled with what critics say is a lack of investment and maintenance in energy infrastructure, has hit the South American nation which depends on hydropower for 60 percent of its electricity generation. The massive Guri dam in Venezuela’s central jungle is now at just 244 meters - its lowest level ever and just 4 meters from a critical point where water cannot feed its turbines.

Oil production

Russian output highest in 30 years Russia’s oil production rose 0.3 percent to 10.91 million barrels per day in March, its highest level in nearly 30 years, raising questions over Moscow’s commitment to freeze output ahead of a producers’ meeting in Doha later in April. Energy Ministry data on Saturday showed that in tonnes, oil output reached 46.149 million in March versus 43.064 million, or 10.88 million bpd, in February. Leading oil producers, including Russia, are due to meet in Doha on April 17 for talks on how to freeze oil output at the average levels reached in January to support the global market.

Debt leaks

Greece demands IMF explanation over talk’s transcript Greece demanded an explanation from the International Monetary Fund on Saturday after an apparent leaked transcript suggested the IMF may threaten to pull out of the country’s bailout as a tactic to force European lenders to more offer debt relief. EU/IMF lenders will resume talks in Athens on Greece’s fiscal and reform progress next week aiming to conclude a bailout review that will unlock further loans and pave the way for negotiations on long-desired debt restructuring. The review has been adjourned twice since January due to a rift among the lenders over the estimated size of Greece’s fiscal gap by 2018.

Employment

Firming U.S. jobs market lures discouraged workers Manufacturing, however, lost 29,000 jobs, the most since December 2009, despite signs of stabilization in the factory sector.

U

.S. employment increased strongly in March, underscoring the economy’s resilience, but an influx of Americans into the labour market could temper nascent wage growth and keep the Federal Reserve cautious about further interest rate increases.

Nonfarm payrolls rose by 215,000 last month and the unemployment rate edged up to 5.0 percent from an eight-year low of 4.9 percent, the Labour Department said on Friday. The jobless rate increased as more people continued to enter or re-enter the labour market, a sign of confidence in the job market.

Average hourly earnings gained seven cents after slipping in February. The labour market has largely shrugged off slowing global economic growth, a robust U.S. dollar that has hurt manufacturing exports and the drag on energy sector profits from cheap oil.

Economists see a limited impact on monetary policy in the near-term from the strong jobs report, as the growing number of people entering the labour market supported Fed Chair Janet Yellen’s view that hidden slack remained in the jobs market.

The Fed also appears to be more focused on international developments. Yellen said last week that slowing world growth and lower

oil prices posed a downside risk to the U.S. economic outlook, adding that she considered it appropriate for policymakers to “proceed cautiously in adjusting policy.”

Fed officials last month downgraded their economic growth expectations and forecast only two rate hikes this year. The U.S. central bank raised its benchmark overnight interest rate in December for the first time in nearly a decade.

Financial markets see a 27 percent chance of a hike at the Fed’s June policy meeting, a 52 percent chance of such a move in September and a 65 percent probability at the December meeting, according to CME FedWatch.

Economists polled by Reuters had forecast nonfarm payrolls increasing 205,000 in March and the unemployment rate holding steady at 4.9 percent. The economy created 1,000 fewer jobs in January and February than previously reported.

Other data on Friday showed manufacturing activity expanded in March for the first time in six months as new orders surged, suggesting the worst of the factory rout was over.

The Institute for Supply Management said its index of national factory activity rose 2.3 points to a reading of 51.8 in March.

Separately, auto sales slowed sharply in March to a 16.57 million-unit rate from a 17.54 million-unit pace in February, according to Autodata.

Wages bounce back

Wages increased last month, with average hourly earnings rising 0.3 percent. That lifted the year-on-year earnings gain to 2.3 percent from 2.2 percent in February, a welcome development after the recent wobble in consumer sentiment.

Economists say wage growth of between 3.0 percent and 3.5 percent is needed to lift inflation to the Fed’s 2.0 percent target. Though the Fed’s preferred inflation measure is currently at 1.7 percent, Yellen has expressed scepticism over the sustainability of gains, citing transitory factors.

The labour force participation rate, or the share of working-age Americans who are employed or at least looking for a job, rose a tenth of a percentage point to a two-year high of 63 percent in March.

It has increased 0.6 percentage point since dipping to 62.4 percent in September. About 2.4 million people entered or re-entered the job market since September, the second-largest increase in the labour force over a six-month period on record.

Participation rose across nearly all age groups as well as among men and women. The employment-to-population ratio increased to a seven-year high of 59.9 percent from 59.8 percent in February.

However, a broad measure of unemployment that includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment rose to 9.8 percent last month from a more than 7-1/2-year low of 9.7 percent.

Mining purged 12,000 more jobs last month. Mining payrolls have declined by 185,000 jobs since peaking in September 2014, with three-fourths of the losses in support activities.

Construction payrolls rose 37,000, increasing for a ninth straight month.

Retail employment surged 47,700 after rising strongly in January and February despite weak sales. Government payrolls increased 20,000 last month. Reuters

Spending restrictions

Oil price evolution leads Mexico to cut 2017 budget The budget cuts are necessary for Mexico to reduce its fiscal deficit to zero as a percentage of GDP. Nacha Cattan

Mexico plans to cut spending next year in order to meet its zero deficit target as manufacturing exports slowed and lower oil prices weighed on revenue.

After slashing 2016 spending by 132 billion pesos (US$7.6 billion), Mexico estimates a 175 billion-peso reduction in outlays next year compared to this year’s budget, the

Finance Ministry said in a report to congress. Latin America’s second-largest economy will grow 2.6 percent to 3.6 percent next year, down from the 3.5 percent to 4.5 percent range forecast in a September budget report, according to the document that lays out initial parameters for next year’s budget.

The measures come a day after Moody’s Investors Service cut stateowned Petroleos Mexicanos’ credit rating to the cusp of junk and reduced Mexico’s outlook to negative amid subdued growth and the possibility Pemex will need financial help from the government.

The budget cuts are necessary for Mexico to reduce its fiscal deficit to zero as a percentage of GDP, excluding investment in “high impact

projects,” Friday’s report states. Including those investments, 2017’s deficit will shrink to 2.5 percent of GDP from 3 percent this year. In addition, the largest measure of debt will begin contracting in 2017, the ministry said.

The report predicts an average export price of Mexican crude of US$35 per barrel next year, up from US$25 this year. Mexico’s government has hedges that give it the right to sell its 2016 crude exports at US$49 per barrel, and Finance Minister Luis Videgaray has said he will seek price protection for next year.

The Mexican government expects oil output of 2.12 million barrels per day this year. Production will fall to 2.03 million barrels a day in 2017, according to the report. Bloomberg News

Business Daily Monday, April 4 2016 15

Opinion Business Wires

Thanh Nien News Vietnam plans to gradually reduce rice production and switch to other more profitable crops, a plan that experts say makes sense since the country grows so much paddy and is a massive exporter of the unprofitable crop. The National Assembly’s Economic Committee recently agreed with the government’s proposal to reduce the area under paddy by 270,000 hectares to 3.76 million hectares by 2020. Another 400,000 ha of land in places where seawater is salinizes rivers during the dry season will be used for other crops, but could revert to growing paddy if required.

The Korea Herald Domestic car sales by the five Korean carmakers soared 17 percent to 148,888 units in March from the same period last year, bolstered by the “new car effect” and the extension of tax cut benefits on car purchases by June, data compiled by each company said. But the five companies with production lines here - Hyundai, Kia, General Motors Korea, Renault Samsung and Ssangyong Motor – saw their overseas sales drop 4.3 percent on-year last month, the data showed.

When it comes to domestic sales, the three smaller automakers, in particular, performed better than Hyundai and Kia.

Philstar The substantial increase in infrastructure spending over the past five years is expected to help maintain the country’s (Philippines) investment grade rating, the Department of Budget and Management said. Data from the agency showed infrastructure spending has grown significantly over the past five years to P760 billion this year from only P165 billion in 2010. Budget Secretary Florencio Abad said the infrastructure program for 2016 makes up five percent of the country’s gross domestic product (GDP), which is considered the international benchmark for infrastructure spending.

The Times of India A large number of jewellery shops across the country remained closed on Saturday as gold traders continued their protest against one per cent excise duty on non-silver jewellery. Gold traders, jewellers and artisans have been observing strike since March 2, demanding roll-back of the budgetary proposal that has impacted the trade. Meanwhile, the government has constituted a panel under former chief economic advisor Ashok Lahri to look into the demands of jewellers. The panel, which has been asked to submit its report in 60 days, will look into issues related to compliance procedure for the excise duty.

Unconventional monetary policy on stilts

W

ith most advanced economies experiencing anaemic recoveries from the 2008 financial crisis, their central banks have been forced to move from conventional monetary policy – reducing policy rates via open-market purchases of short-term government bonds – to a range of unconventional policies.

Although the zero nominal bound on interest rates – previously only a theoretical possibility – had been reached and zero-interest-rate policy (ZIRP) had been implemented, growth remained anaemic. So central banks embraced measures that didn’t even exist in their policy toolkit a decade ago. And now they are poised to do so again.

The list of unconventional measures has been extensive. There was quantitative easing (QE), or purchases of long-term government bonds, once short-term rates were already zero. This was accompanied by credit easing (CE), which took the form of central-bank purchases of private or semi-private assets – such as mortgage- and other asset-backed securities, covered bonds, corporate bonds, real-estate trust funds, and even equities via exchange-traded funds. The aim was to reduce private credit spreads (the difference between yields on private assets and those on government bonds of similar maturity) and to boost, directly and indirectly, the price of other risky assets such as equities and real estate.

Then there was “forward guidance” (FG), the commitment to keep policy rates at zero for longer than economic fundamentals justified, thereby further reducing shorter-term interest rates. For example, committing to maintain zero policy rates for, say, three years implies that interest rates on securities with up to a three-year maturity should also fall to zero, given that medium-term interest rates are based on expectations concerning short-term rates over the next three years.

Capping things off, there was unsterilized currency-market intervention to boost exports via a weaker currency.

These policies did indeed reduce long- and medium-term interest rates on government securities and mortgage bonds. They also narrowed credit spreads on private assets, boosted the stock market, weakened the currency, and reduced real interest rates by increasing inflation expectations. So they were partly effective.

Still, in most advanced economies, growth (and inflation) remained stubbornly low. There was no shortage of reasons for this. Given deleveraging from high private and public debts, unconventional monetary policies could prevent severe recessions and outright deflation; but they could not bring about robust growth and 2% inflation.

Moreover, the policy mix was suboptimal. While monetary policy can play an important role in boosting growth and inflation, structural policies are needed to increase potential growth and keep firms, households, banks, and government from turning into zombies, chronically unable to spend because of too much debt. And fiscal policies were also necessary to support aggregate demand.

Unfortunately, the political economy of most structural reforms – with their front-loaded costs and back-loaded benefits – implies that they occur only slowly. At the same time, fiscal policy has been constrained in some countries by high deficits and debts (which jeopardize market access), and in others (the eurozone, the United Kingdom, and the United States, for example) by a political

Nouriel Roubini Chairman of Roubini Global Economics and Professor of Economics at New York University’s Stern School of Business.

backlash against further fiscal stimulus, leading to austerity measures that undermine short-term growth. So, like it or not, central banks became and still are the only game in town when it comes to supporting aggregate demand, lifting employment, and preventing deflation.

As a result, unconventional monetary policies – entrenched now for almost a decade – have themselves become conventional. And, in view of persistent lackluster growth and deflation risk in most advanced economies, monetary policymakers will have to continue their lonely fight with a new set of “unconventional unconventional” monetary policies.

Some have already been implemented. For example, negative interest policy rates (NIRPs) are now standard in Switzerland, Sweden, Denmark, the eurozone, and Japan, where the excess reserves that banks hold with central banks as a result of QE are taxed with a negative rate. Policymakers have shifted from working on the quantity of money (QE, CE, and foreign-exchange intervention) to working on the price of money (first ZIRP, then FG, and now NIRP). Nominal interest rates are now negative not only for overnight debt, but also for ten-year government bonds.

Indeed, about US$6 trillion worth of government bonds around the world today have negative nominal yields.

The next stage of unconventional unconventional monetary policy – if the risks of recession, deflation and financial crisis sharply increase – could have three components.

First, central banks could tax cash to prevent banks from attempting to avoid the negative-rate tax on excess reserves. With banks unable to switch into cash (thereby earning zero rates), central banks could go even more negative with policy rates.

Second, QE could evolve into a “helicopter drop” of money or direct monetary financing by central banks of larger fiscal deficits. Indeed, the recent market buzz has been about the benefits of permanent monetization of public deficits and debt. Moreover, while QE has benefited holders of financial assets by boosting the prices of stocks, bonds, and real estate, it has also fuelled rising inequality. A helicopter drop (through tax cuts or transfers financed by newly printed money) would put money directly into the hands of households, boosting consumption.

Third, credit easing by central banks, or purchases of private assets, could broaden significantly. Think of direct purchases of stocks, high-risk corporate bonds, and banks’ bad loans.

If unconventional unconventional monetary policies sound a little crazy, it’s worth remembering that the same was said about “conventional unconventional” policies just a few years ago. And if current conditions in the advanced economies remain entrenched a decade from now, helicopter drops, debt monetization, and taxation of cash may turn out to be the new QE, CE, FG, ZIRP, and NIRP. Desperate times call for desperate measures.

“If unconventional unconventional monetary policies sound a little crazy, it’s worth remembering that the same was said about “conventional unconventional” policies just a few years ago”

Project Syndicate

16 Business Daily Monday, April 4 2016

Closing Commerce

Mainland-HK trade down 10 pct in first two months

Trade between the Chinese mainland and the Hong Kong Special Administrative Region (HKSAR) totalled US$39.3 billion in the first two months of this year, down 10.5 percent year on year. Statistics from the Ministry of Commerce (MOC) showed that mainland-Hong Kong trade during the period accounted for 7.7 percent of the mainland’s total overseas trade volume. The figures revealed

that while mainland exports to Hong Kong have decreased by 13.1 percent, its imports from the HKSAR surged by 78 percent on a year-on-year basis. The number of projects the mainland has approved for investment from Hong Kong as well as the actual use of Hong Kong investment also declined by more than 20 percent. In terms of actual use of investment, Hong Kong accounted for 50.8 percent of total overseas investment in the mainland as of the end of February, according to the MOC. Xinhua

Monetary policies

How long will ‘currency wars’ truce last?

The European Central Bank seems to have thrown in the towel at its March 10 monetary policy meeting.

Alice Dore

A

truce appears to have emerged in the undeclared global “currency war”, but analysts question whether central banks have really given up manipulating exchange rates to prop up their economies.

“The currency war is in reality a war between central banks who are battling to support their own interests and taken into account what their rival central banks are doing,” said Sylvain Loganadin, an analyst at online foreign exchange broker FXCM. Meanwhile analysts at HSBC bank said they believe “a truce has broken out in the global currency war”.

“Exhausted by the battle, it seems the ECB has given up the fight to continually engineer higher inflation through a weaker exchange rate. The Bank of Japan has also come to realise the limits of currency war following the failure of a shift to negative rates to foster (yen) weakness.”

The European Central Bank seems to have thrown in the sponge at its March 10 monetary policy meeting.

With global financial markets roiled by volatility in the first two months of the year, the ECB seemed to give up targeting a lower level for the euro, instead announcing new measures to ease access to credit in order to support recovery of the eurozone economy.

“Central banks innovate and adjust narrative,” noted economists at Barclays bank.

The ECB turned its “emphasis to credit easing and stimulating domestic demand away” from an implicit strategy to weaken the euro while in a speech this past week US Federal Reserve chief Janet Yellen “also surprised markets, albeit in a different way.”

Instead of emphasising the strength of the recovery of the US economy, Yellen highlighted global economic and financial risks, with the dollar falling in value as fewer hikes in interest rates are now likely this year.

Secret deal in Shanghai?

Barclays economists went as far as saying that the ECB and Fed moves, following the turbulent start of the year, “could suggest a potential ‘implicit accord’ between core policymakers” was made at the Group of 20 meeting in Shanghai at the end of February.

For HSBC, the narrow range of the movement of the euro against the dollar means that some market participants now see greater coordination of central bank policy.

But if there is such an accord, “why should it be secret”, asked Capital Economics economist Julian Jessop.

“If policymakers genuinely thought

that exchange rates had moved dangerously out of line with (economic) fundamentals and that the strength of the dollar was becoming a major problem, why not say so?”

He noted policymakers have talked publicly of other risks to the global economy, and that a verbal intervention might have been enough to bring the dollar down.

Moreover, coordination is complicated by signs that the interests of central banks are not aligned as the BOJ, ECB and Fed each would like to see their currency weaken against its counterparts.

“The aim of devaluing the currency is to boost exports to make up for flagging growth and boost inflation by increasing the price of imports,” said market analyst Jasper Lawler at CMC Markets.

And given that influencing the exchange rate is an easy means for central banks to achieve their policy

Blackout

RMB

Power outage cripples Manila airport

Central bank injects more money into market

A rare power outage plunged a major section of the Philippine capital’s main airport into darkness overnight, forcing flight cancellations that stranded thousands yesterday.

As many as 78 flights by the country’s largest carrier Cebu Pacific were cancelled, affecting nearly 14,000 passengers, the company said in a statement.

Flag carrier Philippine Airlines also said some of its flights were cancelled or delayed but could not immediately say how many.

The blackout hit Terminal 3, which services mostly domestic flights, late on Saturday and power was not restored until before dawn yesterday.

Exhausted passengers sprawled on the floor as check-in counters and luggage carousels shut down. Long queues formed outside the terminal as entrances were closed until power was restored.

Terminal 3 of Ninoy Aquino International Airport, named after the assassinated father of incumbent President Benigno Aquino, handles an average of 350 domestic and international flights daily, according to data from the transportation ministry. AFP

China’s central bank continued to pump money into the market to ease a liquidity strain last week.

The People’s Bank of China (PBOC) conducted 395 billion yuan (US$61.16 billion) of seven-day reverse repurchase agreements (repo) from Monday to Friday, a process in which central banks purchase securities from banks with an agreement to resell them in the future.

The reverse repos were all priced to yield 2.25 percent.

This week’s injections have resulted in a net 15 billion yuan pumped into the market, offset by 380 billion yuan in maturing reverse repos.

This follows a net injection of 180 billion yuan into the financial system last week.

The continuous injections showed that the country’s money supply was a bit tight, analysts said.

On Friday’s interbank market, the benchmark overnight Shanghai Interbank Offered Rate (Shibor), which measures the cost at which Chinese banks lend to one another, fell to 2.014 percent.

The rate reached 2.017 percent on Thursday, the highest level in a month. Xinhua

objectives, it will be difficult for policymakers to abstain from using it.

Loganadin noted that result wouldn’t be desirable.

“If currencies weren’t controlled any longer by central banks, we’d have market movements similar to those with Bitcoin with periods of intense speculation followed by burst bubbles, which would have a dramatic effect on the real economy with alternating periods of hyperinflation and deflation,” said Loganadin.

But the prospect for any truce is at the mercy of China, which still controls its currency.

China’s central bank “has a tendency to go it alone and adopt surprise measures” that have effects on the United States and Europe, noted Loganadin.

That unpredictability from the world’s second largest economy is a source of concern for currency traders. AFP

UK-EU

Aerospace, defence industry opposes Brexit The majority of British aerospace, defence, security and space companies believe that the country should stay in the European Union, the latest business group to come out in favour of staying in the bloc.

The economic impact of a ‘Brexit’ is one of the key issues for voters ahead of a referendum on Britain’s EU membership on June 23.

ADS Group, the industry body for aerospace, defence, security and space companies in Britain, said that 70 percent of its members believe it would be better for their business if the country stayed in the EU. “Our members recognise the benefits of the UK remaining part of the EU; access to integrated European supply chain; R&D funding which enables the UK to compete globally, and the ability to influence and shape EU regulation,” ADS Chief Executive Paul Everitt said.

The industry’s view echoed the comments of bosses at more than a third of Britain’s biggest companies including major oil firms Shell and BP and its largest telecoms group BT who warned in February that leaving the EU would put jobs and investments at risk. Reuters