Bombay Stock Exchange to go public next year IPO Page 16
Wednesday, April 6 2016 Year V Nr. 1016 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm
www.macaubusinessdaily.com
Gaming
Transportation
Reserves
Inflation
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Page 2
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19 gambled Bangladesh heist money in Manila casino
New Era to launch 14 and 18-metre buses but need routes to fit
Local residents’ deposits drop 0.9 pct m-o-m in February
State planner sees positive trend in Mainland prices
HNA deals approach touchdown Aviation China Conglomerate HNA. Reportedly buying Tysan construction company stake for US$340 mln. Links between Stanley Ho and Portuguese airline TAP converge on separate HNA deal. Page 6
Other side of the coin Exec. salaries Chinese authorities are curbing salaries. Of top executives at state owned enterprises. The pay difference between Chinese execs and their global peers is especially noticeable in the banking sector, with huge variation. Page 8
Finance
The biggest information leak ever. Mossack Fonseca clients are alleged to have laundered money, avoided taxation and dodged sanctions. Macau and China do not emerge unscathed. With fingers pointed at alleged involvement of Franco Dragone and Xi Jinping’s brother-in-law. Page 5
NagaCorp posts 35 per cent y-o-y growth Gaming Operator of resort casino in Cambodian capital records gross gaming revenue of US$153.8 million (MOP1.23 billion) for 2016 Q1. And posts a whopping 65 pct jump in CIP rolling chip turnover. Page 7
+3.55%
Tingyi Cayman Islands
+3.54%
Kunlun Energy Co Ltd
+1.05%
China Resources Land Ltd
+0.82%
China Mengniu Dairy Co
+0.49%
Belle International Hold-
-2.96%
Bank of Communications
-2.99%
Sands China Ltd
-2.99%
Hang Lung Properties Ltd
-3.00%
CNOOC Ltd
-3.16%
Sino Land Co Ltd
-3.17%
Galaxy Entertainment
-4.11%
PetroChina Co Ltd
-4.14%
Lenovo Group Ltd
-4.21%
21° 24° 20° 25° 20° 24° 20° 23° 20° 24° Today
Thu
Fri
Stabilisation the priority Secretary for Economy and Finance Lionel Leong says gov’t predictions for gross gaming revenue remain at MOP200 billion for the year. And reiterates Macau has to attract tourists via non-gaming offerings. DSE inaugurates Tai Kin Yip as new Director. I SSN 2226-8294
Economy Page 2
Sat
Sun
Source: AccuWeather
Cyber Trail Leads Panama Papers to China
Want Want China Hold-
Source: Bloomberg
HK HSI April 5, 2016 20,177.00 -321.92 (1.57%)
2 Business Daily Wednesday, April 6 2016
Macau Drugs
MOP 11 million-worth of cocaine confiscated
Judiciary Police (PJ) have busted a drug trafficker and seized 3.5 kilograms of cocaine - worth around MOP 11 million (US$ 1.3 million) on the black market according to a report by local TDM Chinese Radio. A Malaysian man, aged 29, was arrested at Macau International Airport on Sunday transporting the drugs. The man
had concealed cocaine in his luggage when passing from Malaysia to Dubai and then on to Macau. The PJ believe that the drug trafficking organisation uses the roundabout way to smuggle drugs to avoid being intercepted by police. According to authorities, TDM reports, on average the smugglers are paid less than MOP800 to carry the drugs and around MOP4,000 once they successfully enter Macau.
Economy Tai Kin Ip appointed new director of DSE
Lionel Leong: Gaming revenue drop within expectations Secretary for Economy and Finance emphasises non-gaming offerings. Annie Lao annie.lao@macaubusinessdaily.com
T
he decrease in gaming revenue in the first quarter of this year is still within the government’s expectations, said Secretary for Economy and Finance Lionel Leong Vai Tac on the sidelines of a public event yesterday. Macau raked in MOP17.98 billion (US$2.25 billion) in gross gaming revenue in March, the latest official figures released by the Gaming Inspection and Co-ordination Bureau (DICJ) show. This is a decrease of 16.3 per cent year-on-year, representing 22 straight months of slumping casino revenue in the city. The latest data also means that the accumulated gross gaming revenue for the three months of 2016 is MOP56.18 billion, 13.3 per cent lower than the same period in 2015. Lionel Leong said that these results are still in line with the government’s forecast for the whole of 2016, which foresees gross gaming revenue reaching MOP200 billion - representing a year-on-year drop of 13.5 per cent. The Secretary said that the problem Macau’s gaming sector is facing right now lies in the economic situation of neighbouring regions and believes that with the improvement in economies of these regions, Macau’s gaming sector will benefit. “For the healthy development of Macau’s gaming sector, or the general development of Macau’s economy, we need to uphold the principles of providing services of integrity and quality,” said Lionel Leong. “Especially for non-gaming offerings, they would help to attract
Secretary Lionel Leong (second from left) at inauguration of new DSE Director Tai Kin Ip (second from right).
potential tourists, such as more middle class tourists or families, to Macau for shopping and family entertainment.” The Secretary also revealed that the interim review of the local gaming sector is still being translated and he has urged relevant departments to hasten the process. He added that the report would discuss the possibility of elevating the requirements for joining the gaming promotion industry. With regard to the effect of the promotional campaign ‘Macau Loves Locals’ organised by six local gaming operators Mr. Leong said it is in place to let local citizens know more about non-gaming offerings in the city and
Aviation
Local airport passenger volume surged 20 pct in Q1 Plan for new route to Nha Trang in Vietnam. In the first quarter of 2016, passenger traffic volume at the Macau International Airport (MIA) amounted to more than 1.6 million, with an increase of 20 per cent year-on-year, according to a statement issued yesterday by airport operator Macau International Airport Co. Ltd. (CAM). Also in the first three months of the year, flight movements totalled 14,000, an increase of 7 per cent compared to the same period last year, according to CAM. This represents daily average traffic at the international airport of 18,000 passengers
believes that it has no direct effect upon gaming revenue.
New DSE Director
Mr. Leong made his comments on the sidelines of the inaugural ceremony, held yesterday afternoon, of two newly appointed officials. Tai Kin Ip was appointed as the new Director of the Macau Economic Services Bureau (DSE) while Lau Wai Meng was appointed Deputy Director of the DSE. The Director expressed the main agenda for the DSE as being strengthening internal management, providing better administrative services, promoting the development of e-commerce, supporting small and medium-sized enterprises (SMEs) and youth creative
industries during the economic adjustment, improving the economic development of the local community and the co-development of the regional economy in the Pearl Delta Region. “After taking the position, [I] will focus on enhancing the research and investigative abilities of the department and improve upon scientific administration,” said Tai Kin Ip at his inauguration ceremony yesterday. “With my 22 years of experience working in the economic field and with my 240 colleagues at DSE, we will internally improve the management and administration and [work] externally with other departments to conduct our duties actively and practically,” said the new Director.
Transportation
and 160 flight movements. The local airport operator added that over the four-day Easter holidays MIA processed over 80,000 passengers, a 24 per cent increase compared to the corresponding period of 2015. On March 28, Air Macau launched its new Macau-Fukuoka route. The service enriches the routes currently going to Japan, destined for Tokyo and Osaka. CAM says that due to the continuous increase in routes and load factor, Southeast Asia, Mainland China and China Taiwan recorded increases of 25 per cent, 8 per cent and 31 per cent in passenger volume, respectively, compared to the same period of last year. According to CAM, looking ahead, a Vietnam airline is planning to set up and operate a route from Nha Trang, a coastal resort city in southern Vietnam, to Macau. ‘With the new business partners joining the market, it is expected to bring more passengers to Macau and maintain the trend of growth,’ CAM’s Tuesday statement reads. J.K.
New Era to launch giant buses Longer buses to accommodate high number of passengers in MSAR. Local public bus company New Era is planning to introduce two types of new bus – reaching 14 metres and 18 metres in length. The company undertook to road test the new buses – set to be largest in the MSAR - over the weekend, according to a report by local TDM Chinese Radio. Currently, the longest public buses in Macau measure 12 metres and can hold up to some 90 passengers per bus. The new 14-metre bus should be able to accommodate about 120 passengers, while their bigger 18
metre brothers can take about 150 passengers per bus. The two new bus types can fit on most, although not all, of the public roads in Macau, according to Deputy General Manager of New Era, Abel Kwok, who said, “We have finished all the driving tests, so the next step is to discuss the possibility of launching the new service with the Transport Bureau to see which routes can fit the new buses and the amount of passengers in demand during peak hours to be considered”. Current bus routes might need to be slightly adjusted, New Era told Business Daily, given that the 18-metre buses will mainly operate during peak hours and only stop at certain bus stops in order to avoid causing traffic jams. The official launch date for the new buses has not yet been confirmed. A.L.
Business Daily Wednesday, April 6 2016 3
Macau Finance Resident deposits dropped 0.9 pct m-o-m in February
Money supply retreats As total deposits increased at a faster pace than total loans, the overall loan‑to‑deposit ratio of the banking sector dropped from a month earlier.
the second month of the year, increased 0.4 per cent from the previous month to MOP390.8 billion. Of these, MOP110.0 billion was MOP-denominated, MOP258.3 billion was denominated in HKD, MOP2.1 billion was denominated in CNY, and MOP17.0 billion was denominated in USD, representing 28.1 per cent, 66.1 per cent, 0.5 per cent and 4.4 per cent of the total, respectively.
456.6 Billion patacas Total Macau residents’ deposits at the end of February
Joanne Kuai joannekuai@macaubusinessdaily.com
I
n February, local resident deposits decreased 0.9 per cent from the previous month to MOP456.6 billion (US$57.16 billion), according to the monetary and financial statistics released yesterday by the Monetary Authority (AMCM).
Of the deposits, patacas (MOP), Hong Kong dollars (HKD), and renminbi (CNY) and other foreign currency deposits decreased at respective rates of 0.6 per cent, 0.6 per cent, 9.9 per cent and 2.6 per cent. Non-resident deposits rose 2.2 per cent to MOP269.4 billion. Public sector deposits with the banking sector increased 5.1 per cent to MOP136.5 billion. As a result, total deposits with
the banking sector grew 1 per cent from a month earlier to MOP885.6 billion. Shares of patacas, Hong Kong dollars, renminbi and United States dollars (USD) in the total deposits were 20.6 per cent, 44.5 per cent, 7.5 per cent and 24.3 per cent, respectively.
Lower pace in loans increase
According to AMCM, domestic loans to the private sector, also in
On the other hand, external loans dropped 0.1 per cent to MOP364.2 billion; of which, loans denominated in MOP, HKD, CNY and USD accounted for 1.7 per cent (MOP6.2 billion), 26.3 per cent (MOP95.8 billion), 18.5 per cent (MOP67.2 billion) and 47.6 per cent (MOP173.4 billion), respectively. With regard to money supply, data provided by AMCM also shows that currency in circulation and demand deposits dropped 1.0 per cent and 3.3 per cent, respectively. The measure of money supply defined as M1 thus decreased 2.9 per cent from one month earlier. Concurrently, quasi-monetary liabilities dropped 0.6 per cent. The sum of these two items (i.e.) M2 decreased 0.9 per cent to MOP469.6 billion.
4 Business Daily Wednesday, April 6 2016
Macau Film First Macau International Documentary Film Festival slated for April
Get real, get personal Festival organisers hope to introduce the documentary genre to locals in a ‘systematic and themed way’. Joanne Kuai joannekuai@macaubusinessdaily.com
T
he first Macau International Documentary Film Festival will run at the Cinematheque - Passion from April 22 to May 1. Organised by local arts organisation Comuna de Han-Ian and sponsored by the Cultural Affairs Bureau and Melco Crown Entertainment, the event - themed doMEmentary - will screen 18 films from more than 10 countries ranging from Asia to Europe to America. “Macau does have other film festivals but this is the first one that focuses on the documentary,” said Penny Lam, curator of the Festival and director of Comuna de Han-Ian. “We want to introduce this genre of films to local audiences in a systematic and themed way.”
“As a documentary filmmaker myself, I feel like sometimes Macau people are not very familiar with the concept of the documentary and often relate the genre to documenting animals or topics of big social issues, etc.,” Ms. Lam told Business Daily via phone interview yesterday. “That’s why we chose the theme ‘doMementary’. The ‘Me’ stands for ourselves. We would like to introduce to local audiences films using storytelling techniques in a private and personal way, and change the prejudice that documentaries are always boring.” The organiser said all documentaries to be screened at the 10-day event had been well received at major international film festivals. Screening highlights include the 65th Berlin International Film Festival Golden Bear winner Taxi (Iran), the Oscars 2016 Best Documentary Feature nominee The Look of Silence (Indonesia) and 2012 Golden Horse Film Festival Best Documentary winner China Heavyweight. Lam added that by documenting the directors’ intimate relationships with friends, families and neighbours, the selected films attempt to
tell stories from private perspectives thereby allowing Macau audiences to explore the world through these intimate stories.
Open call
Apart from the screening, the film festival will issue an open call for
“We would like to introduce to local audiences the films using storytelling technique in a private and personal way and change the prejudice that documentaries are always boring.” Penny Lam, Festival curator and director of Comuna de Han-Ian
documentary shorts. The Festival encourages local filmmakers and members of the general public to grab their recorder, camera or phone, to ‘document’ their life or surroundings and make them into mini-documentaries of less than three minutes. “Besides introducing fine documentaries through screening, what we want to do through the competition is to engage the people in documentaries,” said Ms. Lam. “We would like the public to know that documentaries can be something that are very close to us.” The five best films will be selected by a jury and win an award of MOP3,000 (US$376) each. Curator Penny Lam told Business Daily that the budget for the event is around MOP300,000 mainly attributable to expenses incurred by design, printing, and purchase of the copyright of films to be screened. Tickets for each screening are priced at MOP$60 –“more like a symbolic charge” with the objective of promoting the films and the documentary genre to local filmmakers and the general public, said Ms. Lam.
Screenshot from The Look of Silence by Joshua Oppenheimer.
Corporate
UN special advisor to speak at symposium
The 5th Anniversary of the Special Olympics Golf Masters, to be held in Macau, kicks off with a three-day conference. Welcoming keynote speakers include United Nations Special Advisor to the UN Secretary General for Sport Development and Peace Mr. Wilfried Lemke. The symposium, held from April 25 to 27 will take place at the Institute for Tourism Studies, MGM Macau and the Sheraton, and is organised by the Charity Association of Macau Business Readers. “We believe the conference might be one of the key events in the future,” said the VicePresident of the Association, Stefan Kuehn, remarking that the conference hopes to assist in “sharing experiences on methods and results to better integrate mentally challenged citizens”. The event welcomes the presence of Secretary for Social Affairs and Culture Alexis Tam and is supported by workshops in co-operation with local universities.
Business Awards of Macau accepting applications and nominations
The Business Awards of Macau, now in its 4th year, is accepting applications and nominations online at: www. awardsmacau.com until August 20. A showcase of outstanding businesspeople and organisations in Macau, the Awards are open to locally-based businesses to participate in one or more of ten award categories such as Most Valuable Brand, and Small and Medium Enterprises. This year two new categories will be introduced – the Merit Award and the Leading by
Example Award. Some 300 business leaders and local professionals are expected to attend the Awards Dinner, held in November this year, to celebrate the hard work, dedication and achievements of employers, employees and entrepreneurs. In inviting applications, Business Awards of Macau Chairman Paulo A. Azevedo said: “The Business Awards of Macau provide a great way of celebrating diversity in business, which in turn creates jobs, opportunities and revenue for the region. Long may it continue!”
Business Daily Wednesday, April 6 2016 5
Macau
A general view of the Hong Kong offices of Panama-headquartered law firm Mossack Fonseca. Finance Macau linked to leaked documents
Panama leaks allegedly finger House of Dancing Water Impressario The biggest data leak in history would not be complete without fingers pointed at Macau. Among those potentially affected by the leak is creator and director of the House of Dancing Water, Franco Dragone, for alleged ties to tax evasion and money laundering offences with links to the funding of the acclaimed Macau show. Nelson Moura nelson.Moura@macaubusinessdaily.com
T
he Belgian theatre director, known for his work on Cirque du Soleil and the local House of Dancing Water production, was one of the names revealed in what is being billed as the world’s biggest document leak, according to Belgian publication Le Soir. Dragone’s name was one of many to come to light after millions of confidential documents from a Panama-based law firm, Mossack Fonseca, were anonymously made available to German newspaper Süddeutsche Zeitung and shared by the International Consortium of Investigative Journalists and more than 100 media outlets worldwide. Franco Dragone had previously been indicted by Belgian authorities for fiscal illegalities such as tax evasion and money laundering. In the case of Dragone, the leaks allegedly state that the theatre director used an offshore enterprise - Lina International - to finance the production of the Macau-based House of Dancing Water show, the biggest aquatic production in the world. In addition, they claim that these finances were also used to hire the services of choreographer Giulano Peparini for the project. The aquatic-based show reportedly cost up to US$250 million (MOP1.99 billion) according to CNN and was developed by Dragone at his headquarters in La Louvière, Belgium over a period of 19 months. The project was plagued by delays in the construction of the 2,000-seat theatre, which took five years to build.
In response to inquiries by Business Daily, Melco Crown Entertainment said they have “no comment on market speculation” and that “Mr. Dragone and his related companies have NO involvement in the financing or funding of the show at all.” Ponto Final newspaper also reported that the Macau Trademark Association, a non-profit membership association of trademark owners, trademark agents and professionals, is also allegedly linked to the Panama law firm.
Fingers point to China
The leaks also point to offshore companies linked to the families of Chinese President Xi Jinping and other powerful current and former Chinese leaders, according to news agency Reuters. Of the eight prominent Chinese officials the leaks claim are linked to offshore deals through associates are President Xi Jinping, former Premier Li Peng, former senior party leader Jia Qinglin, all current or former Politburo Standing Committee members, and the now-imprisoned former Chongqing City Party Chief Bo Xilai.
“All those names that show up there, including the football players, including the mafia types, all of those are not our clients. They are clients of bank intermediaries[...]” Ramon Fonseca, Co-founder of Mossack Fonseca
Also implied is Deng Jiagui - brother-in-law of the head of China’s Communist Party, Xi Jinping. Deng is a real estate development mogul who became a prominent figure after marrying Qi Qiaoqiao, the older sister of the Chinese President. According to the journalist’s consortium that exposed the leaks an investigative report by Bloomberg News in 2012 revealed that Deng and his wife had amassed hundreds of millions of dollars in real estate, shareholdings and other assets.
Other leaked documents also mention the name of Li Xiaolin, daughter of Li Peng, the former Chinese Prime Minister between 1987 and 1990. Li was, together with her husband, a major shareholder in a Lichtenstein foundation controlled by a company registered in the British Virgin Islands, while her father was chief of state. The Global Times, a newspaper published by the ruling Communist Party’s official People’s Daily, suggested in an editorial on Tuesday that Western media, backed by Washington, used such leaks to attack political targets in non-Western countries while minimising coverage of Western leaders.
The Hong Kong connection
The leaks have also revealed that more than 22,000 clients from China and Hong Kong were involved in the ‘offshore’ scheme. Hong Kong tops the list of countries where intermediaries for the firm from whence the documents came operate, with over 2,200 intermediaries operating in the HKSAR, according to the ICJI. Second in line is Switzerland, followed by the United Kingdom. Banks, law firms, accountants, and related firms in the Hong Kong region were the most active, with 37,675 offshore companies. Deng Jiagui himself allegedly owns two offshore companies registered by Hong Kong based WBC Secretaries Limited, according to Next Web. Also implicated is famous martial arts movie star Jackie Chan for reputedly holding at least six companies through Mossack Fonseca, according to the ICIJ. The firm continues to deny they had any involvement and that the information leaked in the documents does not involve their clients. “We are a company with almost 40 years in the national market and the international market and we have never been found guilty of absolutely anything,” said Ramon Fonseca, co-founder of Mossack Fonseca. “All those names that show up there, including the football players, including the mafia types, all of those are not our clients. They are clients of bank intermediaries, that bought one of our incorporated companies, and sold it, and those people used it for who knows what,” he claimed.
Prominent tax evasion
The leaks have linked more than 140 important figures and relatives of world
politicians to tax havens, including heads of state such as Russian President Vladimir Putin, UK Prime Minister David Cameron and Saudi Arabia’s King Salman bin Abdulaziz Al Saud. The documents point to a money trail of more than US$2 billion leading back to Putin via friends and associates, including Putin’s best friend Sergey Roldugin, who controls assets to the tune of US$100 million, the Independent reported. United Kingdom Prime Minister David Cameron was also alleged to be involved after his deceased father Ian Cameron was mentioned to have used the Panama company’s services to shield his investment fund. In Iceland a political storm has surged after the country’s Prime Minister Sigmundur David Gunnlaugsson - who ran on a platform of sniffing out tax avoiders who use secret offshore companies after the 2008 banking crisis - was revealed by the leaks to have set up a company with his wife in 2007 in the British Virgin Islands through the Panama law firm. Gunnlaugsson is now facing calls for resignation and national protests. Prominent figures from the entertainment and sports industry were not above the scandal, with Oscar-winning Spanish director Pedro Almodovar and his brother and business manager Agustin Almodóvar both fingered for opening offshore accounts in the early 90’s. Barcelona football superstar Lionel Messi was also mentioned in the documents, for using an offshore company to evade taxes.
The International Consortium of Investigative Journalists (ICIJ) is a Washington-based network of reporters around the world who encourage anonymous leaks by whistleblowers. The consortium investigated 11.5 million documents spanning more than 40 years, revealing that financial group Mossak Fonseca, based in Panama, has set up more than 240,000 offshore companies for wealthy individuals and groups. The law firm allegedly provided the placement of fortunes in fiscal paradises for world celebrities, politicians and global players, allegedly facilitating money laundering, tax evasion and sanction avoidance.
6 Business Daily Wednesday, April 6 2016
Macau Finance Hainan Airlines owner purchases 66 pct stake in construction company
HNA to buy Tysan stake from Blackstone for US$340 Million
C
hinese conglomerate HNA Group Co. agreed to buy a controlling stake in Tysan Holdings Ltd. for about US$340 million to expand in construction and property development, prompting shares of the target company to jump to the highest level in 25 years. HNA will pay HK$2.62 billion (US$340 million), or HK$4.53 a share, to an arm of Blackstone Group LP for a 66 per cent stake in Tysan, the construction company said in a filing to the Hong Kong Stock Exchange. The price is about 11 per cent more than Tysan’s closing level on March 31. Trading was suspended April 1. The acquisition would help HNA, the owner of Hainan Airlines Co. as well as hotel, infrastructure, logistics and aviation-maintenance businesses, extend its foothold outside mainland China
“The market may be expecting HNA needs to raise the bid to something more expensive.” Mark Jolley, Equity strategist at CCB International Securities
after agreeing to buy a stake in Brazilian airline Azul Linhas Aereas Brasileiras SA and acquiring airport luggage handler Swissport International Ltd. for about US$2.7 billion. China has urged its companies to expand overseas to improve competitiveness, helping result in US$97 billion in deals in the first quarter.
Tysan gained as much as 9.3 per cent to HK$4.47 in Hong Kong, the highest since at least April 1991, after trading resumed Tuesday. The stock traded at HK$4.37 as of 1:24 p.m. in Hong Kong. The shares gained 60 per cent in the 12 months before trading was suspended April 1, compared with a 17 per cent decline for the city’s benchmark Hang Seng Index.
Expansion
“The market may be expecting HNA needs to raise the bid to something more expensive,” Mark Jolley, equity strategist at CCB International Securities, said by phone. Under the terms, Blackstone would receive 58 per cent more than the HK$2.86 a share it paid to buy the Tysan stake in a deal completed in 2014, according to data compiled by Bloomberg. Tides Holdings II, the Blackstone arm, will still
own 9 per cent of Tysan after the sale of the 577.3 million shares, equivalent to 66 per cent of the company. HNA’s purchase will trigger a mandatory unconditional offer to buy the remaining shares in Tysan, according to the statement issued Monday after the market’s close. HNA also signed a letter of intent to buy 40 per cent of Tysan Foundation (Hong Kong) Ltd. from Fortunate Pool Ltd., a wholly owned company of Tysan’s vice chairman and managing director Victor Fung, for HK$836.6 million. The remaining 60 per cent is owned by Tysan Group. The conglomerate was also said to be one of the bidders for London City Airport this year, before losing out to a consortium led by Ontario Teachers’ Pension Plan Board.
Strong foundation
China has undertaken a so-called “ One Belt, One Road” initiative, a US$40 billion strategy that aims to strengthen economic and transport ties across Eurasia, while raising the world’s second-biggest economy’s profile as a global power. The project is part of Chinese President Xi Jinping’s efforts to revive the ancient trade route and finance infrastructure construction there. Tysan Group’s main business is in foundation piling, accounting for about three
Aviation
Stanley Ho crosses paths with TAP again A Chinese conglomerate with connections to Stanley Ho is looking to acquire capital in the public Portuguese air company TAP.
C
hineseconglomerate HNA is seeking to acquire a share in Portuguese airline company TAP, bringing Macau businessman Stanley Ho - founder of HK Express airline company, which TAP purchased 45 per cent of - to cross paths once again with the company with whom a previous deal turned sour, reported Portuguese publication Público yesterday. According to the Public newspaper HNA is currently trying to arrange a US$136 million (MOP1.08 billion) indirect bond loan through Azul, a Brazilian airline company in which the
HNA group holds 24 per cent. Azul was founded by David Neeleman, one of the members of a consortium which currently controls TAP – the Portuguese aviation company – Atlantic Gateway. In 2006, Mr. Ho acquired, through his venture capital firm Geocapital, 85 per cent of VEM, a maintenance company belonging to the Brazilian airline company VARIG, reported the publication. In the following year, TAP then acquired a premium of 20 per cent of VEM in a deal that is currently being investigated by the Portuguese Government’s Prosecutor’s Office, with TAP president Fernando Pinto being looked into.
VEM has since been redefined and rebranded as Brazilian airline M&E Brasil, which was expected to return the TAP investment in eight years but has so far cost the Portuguese airline hundreds of millions of dollars in judicial and labour court cases left behind by Varig’s administration, reported Público. Now Diogo Lacerda Machado, one of the administrators at Geocapital at the time of the VEM deal, has been appointed by the Portuguese Government as the government’s representative in the deal between TAP and Atlantic Gateway – the private consortium HNA is using to secure a foothold in TAP. N.M.
Stanley Ho.
quarters of revenue in the fiscal year ended March last year, according to data compiled by Bloomberg. The company was involved in construction projects such as laboratories at the Chinese University of Hong Kong and Cathay Pacific Airways Ltd.’s air cargo terminals at the city’s airport, according to its website. It also took part in works in the expansion of Sands casino in Macau and a tower development at the Venetian.
2.62 Billion HKD Price HNA Group Co. will pay for 66 pct stake in Tysan Holdings Ltd.
Its operations include property development, a business that accounted for about 20 per cent of revenue, according to data compiled by Bloomberg. It has completed at least two projects in Shanghai, with two more under construction, its website shows. The Tysan transaction is subject to a definitive sale and purchase agreement and terms and conditions, and there is no certainty the deal will proceed, Tysan said. Tides Holdings II had said March 9 that it was in talks with an independent third-party regarding a sale of Tysan shares. Bloomberg
Business Daily Wednesday, April 6 2016 7
Macau Heist US$30 million of heist money gambled in Manila casino
Network of 19 gamblers to be focus of Philippine heist hearing
H
ow a network of 19 people gambled US$30 million of the US$81 million stolen from Bangladesh’s foreign reserves at a Manila casino will be a major focus for Philippine lawmakers when a Senate hearing into the heist resumes on Tuesday. The players gambled for five weeks under two foreign junket operators at Solaire Resort & Casino, which is owned and operated by Bloomberry Resorts Corp., according to reports submitted to the Senate Blue Ribbon Committee and gaming regulator seen by Bloomberg News. Silverio Benny J. Tan, compliance officer at Bloomberry, said in the reports casinos were made “a scapegoat in this unfortunate affair.” “The casinos seem to be washing their hands of this mess,” said Benito Lim, a political science professor at the Ateneo de Manila University. “They’re depicting themselves as victims. But the government must plug the law’s loopholes by including casinos in the coverage of the Anti-Money Laundering Act.” In one of the largest bank
heists in modern history, the thieves hacked into the Bangladesh Bank’s account at the U.S. Federal Reserve, routed the funds to Philippine bank accounts and then laundered the money in at least two local casinos. A further US$20 million that the hackers managed to transfer to a Sri Lankan bank was recovered. The Philippine Anti-Money Laundering Council said it wants Congress to include casinos on the list of institutions required to report suspicious transactions.
Frozen Funds
At the Philippine casino, the entire 1.37 billion pesos (US$30 million) was used to buy premium non-negotiable chips, the reports showed. Solaire stopped the gamblers on March 10 after five weeks, and froze 107.4 million pesos remaining from six people, according to the document. Another 1.35 million pesos in cash was also confiscated. Bloomberry’s Tan didn’t return calls to his office seeking comment. Another focus of the hearings will be local remittance company Philrem Service Corp., which has said it either wired or physically delivered bundles of stolen cash
to the casinos and their junket operators in February. Philrem’s President Salud Bautista said she didn’t know the funds were the fruits of a crime. “We’ve already answered that allegation at the Senate hearing,” Philrem lawyer
Cambodia Casino
Analyst: Strong growth “not surprising” The 35 per cent growth in casino revenue was led by a 65 per cent jump in CIP rolling chip turnover. NagaCorp - the operator of NagaWorld, and the only casino resort in Cambodia’s capital of Phnom Penh - recorded gross gaming revenue of US$153.8 million (MOP1.23 billion) for the first quarter of 2016, according to a Monday filing on the Hong Kong Stock Exchange. Strong results recorded in VIP, mass and slots backed the increase of 35 per cent year-onyear in growth. According to the voluntary announcement, the augment was a result of 65 per cent in VIP rolling chip turnover, which totalled US$2.79 billion for the quarter. In addition, mass electronic gaming machine bills-in totalled US$381.1 million in the first quarter of 2016, up 32 percent in year-on-year terms. Moreover, mass public floor table buy-ins recorded a growth of 15 per cent to US$149.9 million, according to the same filing. However, the firm didn’t specify its profit, as well as not providing comments on the reasons for the growth in the gross gaming revenue during the first three months of the year.
Different stories
In a Tuesday note following the company’s announcement, Union Gaming analyst Grant Govertsen stated that NagaCorp’s first quarter numbers “not surprisingly” show very strong growth. However, as VIP volume growth in the first quarter was exceptional
compared to the 25 per cent increase predicted, the analyst says they would not expect the growth rate to continue through the second quarter. Mr. Govertsen pointed out that the growth was “driven primarily by the legacy Southeast Asian junkets, with the Macau names providing an extra boost via special event weekends.” With regard to mass table revenue, the analyst attributes it to the growth of investment in Phnom Penh in general, as well as the recent ability to exchange cash for chips at the table (rather than at the cage), and also from the Bassaka Air flights that began operating in December and targeting Mainland China Tier 2 cities. The research firm says they would look for mass table growth to remain strong for the balance of the year and maintain a full-year forecast of 16 per cent volume growth.
153.8 Million USD Naga gross gaming revenue for Q1
In general, the Union Gaming analyst stressed that they maintain their higher-than-consensus expectations, as “its VIP story is clearly still intact despite the continued weakness in markets like Macau.” “Naga remains unique in its positioning in IndoChina capturing an outsized share of wallet from still-booming tourism growth, especially on the part of mass market Mainland China consumers visiting Cambodia,” the Tuesday note reads. J.K.
Howard Calleja said by telephone, referring to Bautista’s denial last week that the company had pocketed as much as US$18 million of the stolen funds. Kim Wong, the Philippine gambling junket operator dubbed the “missing link”
in the case, told the Senate hearing last week that he was willing to return as much as US$14.3 million he received from two Chinese nationals linked to the stolen funds. He returned US$4.6 million on Thursday and another 38 million pesos on Monday. Bloomberg
8 Business Daily Wednesday, April 6 2016
Greater China
Jiang Jianqing, chairman of ICBC, made less than US$85,000 in total compensation last year. That was only 0.3 percent of the US$27 million total compensation received by JPMorgan Chase & Co Chief Executive Jamie Dimon.
Wages evolution
Top bankers’ salaries halved in 2015 Beijing is aiming to transform executive compensation at its biggest state firms.
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he chairmen and presidents of China’s five biggest banks saw their 2015 compensation slashed by a record 50 percent, the lenders’ annual reports showed, after Beijing-mandated pay reforms for executives of state-owned firms were implemented last year. Jiang Jianqing, chairman of Industrial and Commercial Bank of China (ICBC), the
world’s biggest lender by assets, made less than 550,000 yuan (US$85,000) in total compensation last year, down 52 percent from 1.1 million yuan in 2014, according to the bank’s latest annual report. That was only 0.3 percent of the US$27 million total compensation received by JPMorgan Chase & Co Chief Executive Jamie Dimon in 2015. It was also a fraction of the 14.3 million Swiss francs (US$14.8 million) that UBS Chief Executive Sergio Ermotti received in total compensation for 2015. The hefty pay cuts for its top bankers came as China’s weak economy pressured the
lenders’ profits. China’s big banks last month reported their weakest profit growth in a decade, with interest margins shrinking in the face of successive interest rate cuts, and non-performing loans at a 10-year high. Beijing is aiming to transform executive compensation at its biggest state firms by cutting salaries, curbing misuse of non-salary benefits and holding managers responsible for the performance of their firms, as part of the government’s stateowned enterprise reform efforts. Under the plan, which is being implemented from
2015, top bosses at 72 central government-owned firms, which also includes wellknown conglomerates such as PetroChina Co Ltd, China Petroleum & Chemical Corp (Sinopec) and China Mobile Ltd face pay cuts of as much as 50 percent.
‘China’s big banks last month reported their weakest profit growth in a decade’
China Construction Bank, the country’s second-biggest lender, slashed chairman Wang Hongzhang’s annual compensation to less than 600,000 yuan in 2015 from 1.2 million yuan in 2014, the bank’s annual report showed. The chairmen at another three major Chinese state lenders - Agricultural Bank of China, Bank of China and Bank of Communications also only pocketed half of what they earned in 2014, their annual reports showed. Besides the chairmen of the lenders, their presidents also saw their compensation halve in 2015, the reports showed. Reuters
Inflation forecast
Bank expansion
State planner sees consumer, property prices rising
Credit Suisse targets bigger presence in mainland
Annual consumer inflation edged up to 2.3 percent in February China’s consumer prices are likely to rise modestly this year while property prices in some major cities could climb, the state planner said in a report published in the China Securities Journal yesterday. “Consumer price rises will not be too large as economic growth will continue to steadily slow,” the price monitoring centre of the National Development and Reform Commission (NDRC) said in the report. China aims to keep consumer inflation at around 3 percent in 2016 to reflect factors such as rising labour costs, price fluctuations of agricultural products and the impact of further price reforms. China’s producer prices will continue its clear downward trend, but the extent of its decline will be reduced, the report added. Annual consumer inflation edged up to 2.3 percent in February - the fastest pace since July 2014, while producer prices slowed their slide for a second straight month, taking
some pressure off policymakers to rush out more monetary easing. The government aims to keep annual consumer inflation around 3 percent this year. Property prices in some of China’s second-tier cities may rise significantly, and prices in Beijing, Shanghai and Shenzhen will also continue to rise, it said. Real estate in third and fourth-tier cities will continue to face downward pressures, the report said, but prices in some third and fourth-tier cities may rise. Municipal authorities in Shanghai have tightened mortgage down payment requirements for second home purchases, in a move to cool an overheating property market and reduce fears of a bubble. The Chinese yuan is likely to face slight depreciation pressures in 2016, with fluctuations increasing as the U.S. dollar strengthens, the report said. Wage rises will slow as the economy continues to slow, profit growth decreases and more businesses lose money or go bankrupt, the report said. Job opportunities will also decrease as China tackles overcapacity and automation increases. Reuters
The bank currently lacks an onshore licence to operate wealth management business in China, but is considering securing one. Denny Thomas and Lisa Jucca
Credit Suisse Chief Executive Officer Tidjane Thiam said yesterday the Swiss bank has been “underweight” in China and would look to build its wealth management capabilities in the world’s second-biggest economy, despite slowing growth. Thiam told a media briefing on the side-lines of the annual Credit Suisse Asian Investment Conference in Hong Kong that he was not concerned by the slower economic growth in China. The CEO said he saw this as a natural development as the country transforms itself into a consumption-driven economy rather than one led by investment. “We have been underweight (in) China and will continue to invest,” said Thiam, 53, who joined the Zurich-based bank in July 2015. The banker said he would be spending five days in China as part of his current Asia trip, meeting
clients and seeking to develop his understanding of their needs. Thiam’s focus on China comes at a time when Credit Suisse has made wealth management a key plank for its future growth. The bank is also shifting its focus to the Asia-Pacific region, where it already has an important presence in Southeast Asia: Thiam aims to more than double Asia-Pacific pretax income to 2.1 billion Swiss francs (US$2.19 billion) by 2018. China’s blistering economic growth over the past decade has made it home to a million high-net-worth individuals, according to consultants Bain & Co, twice as many as in 2010. For foreign banks, Asia - and China in particular has become the new battleground in developing wealth management business. But making money onshore in China has proved a challenge for most foreign banks, hampered by the heavily protected nature of China’s financial services sector. Credit Suisse currently lacks an onshore licence to operate wealth management business in China, but is considering securing one. “Our strategy is primarily driven by wealth management and private banking,” Thiam said. “We have a good customer base. Today we are offshore, but ultimately we will be onshore.” Reuters
Business Daily Wednesday, April 6 2016 9
Greater China M&A
Domestic firms shopping spree shows fear of weaker yuan China Inc.’s shopping spree poses a dilemma for authorities trying to stem capital outflows. Kyoungwha Kim and Jonathan Browning
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hina Inc. can’t buy foreign companies fast enough, and the yuan’s trajectory helps explain why. The Chinese currency will weaken 3.3 percent versus the dollar by year-end, a Bloomberg survey of strategists found, with the world’s largest foreign-exchange trader Citigroup Inc. forecasting a 7 percent slide through 2017. The projections show the potential cost of delaying instead of deal making, and China’s firms are getting the message. The value of their offshore acquisitions reached US$97.4 billion this year, already 80 percent of 2015’s record, data compiled by Bloomberg show. “A lot of people in China are saying the yuan is going to weaken against the dollar so they take it out and put money into U.S. dollar investments,” Mark Mobius, chairman at the Templeton Emerging Markets Group, said in an interview last week, forecasting “mild” depreciation of the currency. “There’s no question that Chinese companies want to become world class, which is why acquisitions make a lot of sense.” China National Chemical Corp. and Qingdao Haier Co. are among corporations snapping up everything from appliance makers to film studios and chip technology. Even as China’s authorities seek to stem a mass exodus of capital, President Xi Jinping’s government is encouraging foreign deal making to win know-how and global market share. “The yuan’s moves do act as a driver for Chinese acquirers,” said Samson Lo, head of Asian mergers and acquisitions at UBS Group AG. “That’s why they’re moving forward now, because they’re concerned about the longer term.”
Weakening yuan
The yuan stopped being a one-way bet in 2014 after the currency’s appreciation against the dollar in all but one year since a peg to the dollar ended in 2005 made it the world’s best-performer after the Swiss franc. The yuan lost 6.8 percent in the two years through ChemChina’s US$43 billion purchase of Switzerland’s Syngenta AG tops the list of acquisitions this year.
December, encouraging companies to speed up overseas expansion as growth in the world’s second-largest economy slowed. After the worst start to a year in two decades drove the yuan to a 2011 low this January, the currency has climbed 1.9 percent to 6.4699 a dollar. The exchange rate will decline to 6.7 per dollar by year-end, according to the median estimate of 43 strategists in a Bloomberg survey. Citigroup forecasts the yuan will weaken to 6.97 by the end of 2017.
Shopping spree
For Chinese companies worried about devaluation, “the time to go global is right now,” said Zhao Longkai, an associate professor of finance at Peking University’s Guanghua School of Management. “Chinese firms will try to hedge the currency, and so it makes sense to diversify some assets abroad.”
“Chinese firms will try to hedge the currency, and so it makes sense to diversify some assets abroad” Zhao Longkai, Associate professor of finance at Peking University’s Guanghua School of Management
ChemChina’s US$43 billion purchase of Switzerland’s Syngenta AG tops the list of acquisitions this year, followed by the US$6 billion buyout of Ingram Micro Inc. by an arm of HNA Group Co. and Haier’s US$5.4 billion takeover of the appliances business of General Electric Co. Cash held on Chinese corporate balance sheets increased 8 percent to US$3.78 trillion in the past two years, according to Bloomberg-compiled data, and mainland-listed companies trade at a 7.7 percent premium to peers in other emerging markets.
Government dilemma
“Assets are cheap abroad, borrowing costs are low globally, and expectations for further renminbi depreciation are probably encouraging more companies to buy foreign assets,” said Ken Hu, chief investment officer of Asia-Pacific fixed income at Invesco Hong Kong Ltd.
Still, “the impact on capital outflows will be much smaller than the headline number shows” as foreign deals are often funded overseas. ChemChina got US$50 billion in financing for its purchase of Swiss pesticides producer Syngenta, including US$35 billion that’s being or will be syndicated offshore, people familiar with the matter have said. Chinese offshore borrowers took out US$17.3 billion of loans in the first quarter, accounting for about 37 percent of North Asia loan volume, according to Bloomberg-compiled data. Even with some of the money coming from outside the nation’s borders, China Inc.’s shopping spree poses a dilemma for authorities trying to stem capital outflows while also making progress on a long-term goal of allowing businesses to go global and become international champions. “The Chinese government will probably be reluctant to see too much of this happening because the amount is big, in billions of dollars,” Mobius said. “There’s a dilemma as on one hand, they want companies to become world class and on the other hand, they don’t want to see huge amounts of money flowing out of the country.” Mobius echoed Hu’s view, saying almost half of the investments will be funded overseas.
Sustainable trend
After the yuan’s first quarterly advance in a year, the case for depreciation hasn’t gone away. Chinese economic growth, which clocked in at 6.9 percent in 2015, the slowest in 25 years, will decelerate to 6.5 percent this year and 6.3 percent in 2017, according to forecasts compiled by Bloomberg. A Bloomberg replica of the CFETS RMB Index, which the People’s Bank of China uses to track the yuan against 13 exchange rates, fell below 98 for the first time since 2014 last week. Governor Zhou Xiaochuan pledged in February to keep the yuan stable against its peers while increasing volatility versus the dollar. “The overseas allocation of Chinese capital will continue, either from a currency diversification or a geographical diversification perspective,” said Hao Hong, chief China strategist at Bocom International Holdings Co. in Hong Kong. “It is consistent with the consensus expectation for a weaker yuan ahead.” Bloomberg News
In Brief Banks
Regulator stresses tightening overseas risk control China’s banking regulator said yesterday that lenders should tighten risk controls in their overseas branches, after some of the country’s top banks have come under foreign scrutiny for alleged compliance failings. Banks should clarify the responsibilities of staff in overseas branches, strengthen judgment of risk and make sure adequate checks are made on clients, the China Banking Regulatory Commission (CBRC) said in a statement on its official website. “Banking institutions should strictly follow ‘know your customer’ requirements,” said the CBRC. “They should not fully rely on third-party or borrowers to provide information,” it added. Food safety
Six arrested over fake infant formula Chinese authorities have arrested six people for making and selling fake infant formula as the popular US brand “Similac”, marketing the counterfeit product across seven provinces, a Shanghai government body said. Abbott, maker of Similac, said separately yesterday that the case came to light in December and the fake goods had been traced and seized by the end of last year, according to a statement on its verified Chinese microblog. The case is the latest scandal involving food safety in China. The Shanghai Municipal Food and Drug Administration said it was also tracking Internet sales of the fake milk powder.
Fiscal policy
Li says tax reforms to create 10 million jobs Chinese Premier Li Keqiang said he expects tax reforms will lower the cost of innovation and help create jobs for more than 10 million university and vocational school graduates, according to a statement on the government’s web portal on Monday. That figure would well exceed estimates of layoffs as China reforms its industrial sector to eliminate excess capacity and inefficiency. Sources told Reuters last month China planned to lay off up to 6 million workers in state-owned companies over the next two to three years in the reform effort. Savings figures
Hong Kong yuan deposits down Yuan deposits in Hong Kong, the world’s biggest offshore yuan centre, fell 5.7 percent to 803.9 billion yuan (US$124.25 billion) in February from the previous month, according to the Hong Kong Monetary Authority. Cross-border trade settlement stood at 279.8 billion yuan for the month, compared with 480.1 billion yuan in January.
10 Business Daily Wednesday, April 6 2016
Greater China Bad debt
Loan-equity swaps plan in the fast lane China’s policymakers are seeking ways to clean up mounting bad loans at the nation’s banks.
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hina m a y a p prove as soon as this month a plan to make it easier for banks to convert soured debt into equity, according to a person with knowledge of the matter. The government may allow conversions of as much as 1 trillion yuan (US$155 billion) of bad loans under the plan, said the person, who
asked not to be named because the information isn’t public yet. Caixin magazine reported on the potential size of the conversions over the weekend. “ Th e p r o g r ess o f th e loan-to-equity swap policy might be faster than expected,” Luo Yi, a Shenzhen-based analyst at Huatai Securities Co., wrote in a note yesterday. Conversions of that magnitude may reduce the banking industry’s nonperforming ratio by one percentage point and may lift banks’ annual net profit by an average of 4 percent, according to Luo. China’s policymakers are seeking ways to clean up mounting bad loans at the
nation’s banks, which are at their highest levels in a decade amid slowing economic growth and government moves to curb overcapacity in manufacturing. Premier Li Keqiang said at last month’s National People’s Congress that the country may use debt-equity swaps to cut the leverage ratio of Chinese companies and to mitigate financial risks.
Weaker profits
The Finance Ministry, the People’s Bank of China, and the China Banking Regulatory Commission didn’t immediately reply to faxed queries seeking comments yesterday. Bad debt in China’s banking
industry jumped 51 percent last year to 1.27 trillion yuan, data from the bank regulator show. Mounting provisions for soured credit is crimping earnings growth at the largest banks and hurting their ability to pay dividends, profit reports showed last week. Industrial & Commercial Bank of China Ltd., Bank of China Ltd. and Agricultural Bank of China Ltd. posted their weakest annual profit growth in at least a decade, their filings showed. China
‘Bad debt in China’s banking industry jumped 51 percent last year to 1.27 trillion yuan’
Construction Bank Corp.’s 2015 net income barely increased. Some of those lenders had previously expressed caution over the swap plan amid a lack of clarity about how exactly the government will proceed with the conversion of bad loans - owed to the banks mostly by state-owned enterprises - and also about the level of state support that will be available.
Taxpayer funds
When asked about the proposal at the Boao Forum last month, Construction Bank Chairman Wang Hongzhang said he needs to think of his shareholders and wouldn’t want to see a plan that simply converted “bad debt into bad equity.” Bank of China Chairman Tian Guoli said at the same forum that it’s “hard to evaluate” how effective debt-equity swaps will be, as so much has changed in China since the tool was used to bail out the banking system during a previous crisis in the late 1990s. At the time, government support came in the form of four special asset-management firms, which were set up with taxpayers’ money to buy about 1.4 trillion yuan of soured debt from the banks at face value. That protected the lenders from losses and relieved state-owned companies of their debt burdens. About 30 percent of those bad loans were swapped into equity as directed by the government. Chin a Huaron g Asset Management Co., one of the four bad-loan managers, is actively pitching for a role in any new round of debt-equity conversion. The government should provide 1 trillion yuan to 3 trillion yuan of funding support, with banks, SOEs and asset managers sharing the risks, Lai Xiaomin, chairman of Huarong, said in a proposal to the top legislature last month. Bloomberg News
Markets
IMF: global market shocks from Mainland will only increase A report says markets will be increasingly influenced by the sheer size of China’s economy. David Lawder
Global market spillovers from China’s economic shocks will only increase in coming years as the country’s financial influence grows and the yuan’s use as a funding currency broadens, the International Monetary Fund said on Monday. In a portion of its latest Global Financial Stability Report, the IMF said developments in emerging
markets now account for onethird to 40 percent of the variation between stock market returns and exchange rate fluctuations worldwide. Slowdowns in China’s economic growth and industrial output reverberated through global financial markets last year, causing prices of equities and commodities to plunge in both emerging markets and advanced economies.
The IMF said markets have become extremely sensitive to the economic signals coming from China and that policymakers there must not send mixed messages. “As China’s role in the global financial system grows, clear and timely communication of its policy decisions, transparency about its policy goals, and strategies consistent with achieving them will be increasingly important to avoid volatile market reactions with wider reverberations,” the IMF said
“Beyond the continued growth in importance of the Chinese economy, the size of financial market spillovers is also likely to grow” IMF Global Financial Stability Report
New York Stock Exchange brokers.
in parts of the report released on Monday. Markets will be increasingly influenced by the sheer size of China’s economy, more financial linkages, such as the listing of Chinese companies on international stock markets and the growth of the yuan’s use in international transactions. The IMF said modelling of equity returns in 13 other emerging markets and 25 advanced economies found that shock impacts from China turned statistically significant shortly after the 2007-2009 financial crisis. Growth surprises from other major market economies did not share the significant nature of China’s impact on global equity prices. “Beyond the continued growth in importance of the Chinese economy, the size of financial market spillovers is also likely to grow because of the transition to a more market-based financial system and a decline in market segmentation,” the IMF said. “Moreover, the challenge of engineering a smooth transition will make global financial markets more sensitive to changes in China’s economic and financial conditions and policies.” Reuters
Business Daily Wednesday, April 6 2016 11
Asia
Monetary policy
India cuts interest rate to lowest since 2011 But in a surprise move the central bank also raised the reverse repo - or the rates lenders charge to the central bank. Suvashree Choudhury and Rafael Nam
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he Reserve Bank of India cut its policy interest rate by a quarter percentage point yesterday, reducing it to a more than fiveyear low while dangling the prospect of another cut later this year if inflation trends stay benign. The RBI cut the repo rate by 25 basis points to 6.50 percent - the lowest since January 2011, in a move widely anticipated by analysts polled by Reuters. Controlling inflation is the
central bank’s priority, but Prime Minister Narendra Modi’s government would welcome any move to improve business conditions for industrialists who, despite data depicting India as one of the world’s fastest growing economies, remain hesitant to invest. The RBI said its policy would remain “accommodative”, raising the prospect of another 25 bps rate cut later this year. “The stance of monetary policy will remain accommodative. The Reserve Bank will continue to watch macroeconomic and
financial developments in the months ahead with a view to responding with further policy action as space opens up,” the central bank said in the statement following the policy review. The RBI also took steps to ensure more availability of cash in the banking system by reducing the cash proportion of their daily reserve requirements that banks must keep with the RBI, while pledging to inject more longterm liquidity. But in a surprise move, the RBI also raised the reverse repo - or the rates lenders charge to the central bank
- by 25 basis points to 6.0 percent. The moves attempt to a fine balancing act: injecting enough liquidity, while
Key Points RBI cuts repo rate by 25 bps Rate at 6.50 pct, lowest since Jan 2011 RBI raises reverse repo rate by 25 bps, narrowing rate corridor RBI says policy to stay ‘accommodative’
ensuring banks have enough incentives to place surplus cash with the RBI to prevent cash from flooding the system. The RBI had cut its repo rate by 125 basis points last year, and most analysts had anticipated the latest reduction as inflation has slowed to 5.18 percent in February and the government’s 2016/17 budget kept borrowing and spending in check. But banks, complaining of tight cash conditions, have only lowered their lending rates by around 60 bps, preventing the RBI’s rate cuts from feeding through to the broader economy. “Perhaps more important at this juncture is to ensure that current and past policy rate cuts transmit to lending rates,” the RBI said. The benchmark 10-year bond fell as much as 9 basis points to 7.34 percent from levels before the decision although shares fell, with the NSE index down 0.8 percent. Reuters
Interest rates
Three Thai banks cut lending rates to try to aid growth Thai consumer confidence fell to a five-month low in March, a university survey showed yesterday. Three of Thailand’s four biggest banks cut interest rates yesterday in moves they said would help the country’s flagging economy, and the central bank said it expects more banks to follow suit. The cuts were the first by Thai commercial banks since May 2015, after the last policy rate trim by the Bank of Thailand (BOT). It was unclear if the banks came under pressure to reduce rates from the BOT, which last month cut its 2016 growth forecast and said Southeast Asia’s second largest economy was losing steam. BOT Assistant Governor Jaturong Jantarangs said in a statement the rate cuts should help smaller businesses and are in line with
its easy monetary policy. He also said he expects more banks to cut rates. Thailand’s third-largest lender by assets, Siam Commercial Bank, said yesterday it has cut its minimum lending rate (MLR) by 15 basis points (bps) to 6.375 percent, with immediate effect. The bank said it is “determined to help drive Thailand’s economy forward and alleviate our clients’ financial burdens”. “We’ve thus decided to take the initiative and announce a rate deduction,” it said. Fourth-ranked Kasikornbank said it is cutting its MLR by 25 bps to 6.25 percent, effective on Thursday. Kasikornbank said this should help small and
medium-sized enterprises, which have struggled to get credit the past two years after commercial banks tightened lending criteria. Later yesterday, second-largest lender Krung Thai Bank cut its MLR by 25 basis points to 6.275 percent
Struggling farmers, consumers
Thai banks have sought to reduce exposure in the agricultural sector as low farm prices and the worst drought in more than 20 years have hurt farmers. The cuts may help Thai consumers struggling to clear record levels of household debt, which has been a drag on the economy. Thai consumer confidence fell to a five-month low in
March, a university survey showed yesterday. At its last policy meeting in March, the BOT kept rates steady but cut its 2016 economic growth projection to 3.1 percent from 3.5 percent. Growth was 2.8 percent in 2015.
In meeting minutes released yesterday, the BOT said risks to the economy were “skewed to the downside due to the fragile outlook for the global economy and the impact of the drought that could be more severe than expected”. Reuters
12 Business Daily Wednesday, April 6 2016
Asia Negative rates
Bank of Japan Governor says ready to ease more Kuroda said developments in financial markets, as well as in the economy and in prices, would be key factors to expand stimulus. Leika Kihara
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ank o f J a p a n (BOJ) Governor Haruhiko Kuroda stressed yesterday his readiness to expand monetary policy still further, saying that market moves would be key factors the central bank would examine in deciding when and how it might next expand stimulus. Kuroda maintained his optimism that Japan’s economy was recovering moderately, despite last week’s “tankan” survey that showed business mood souring on weak emerging market demand.
But he reiterated the BOJ’s readiness to ease again if risks threatened prospects for accelerating inflation, now at a dead halt, toward its 2 percent target. “For now, the effect of negative interest rates is very strong so we’d like to steadily proceed with this policy,” Kuroda told parliament. The BOJ would not hesitate to take action either by accelerating asset purchases, buying more risky assets or pushing interest rates deeper into negative territory, he said. Neither would the BOJ pre-determine what steps it would take or how it could combine measures were it to ease again, Kuroda said, noting that the best move would depend largely on economic and price developments at the time. “We won’t necessarily chose a rate cut just because it’s easier to do so (than other policy means),” he said. Kuroda said developments
in financial markets, as well as in the economy and in prices, would be key factors for the BOJ when deciding whether, when and how it would expand stimulus. “We need to take a comprehensive look at various factors in deciding (the best mix of steps) at the time including market moves, particularly those in Japan,” he said. The BOJ stunned markets in January by deciding to add negative interest rates to its massive asset-buying programme in a fresh attempt to reflate the economy out of the doldrums, but the move has failed to boost stock prices or
Key Points Kuroda upbeat on economy despite weak tankan BOJ won’t pre-determine next policy means-Kuroda Adds won’t cut rates just because it’s easier
Bank of Japan Governor Haruhiko Kuroda.
arrest an unwelcome rise in the yen. Japan’s business sentiment worsened in the three months to March and companies’ inflation expectations weakened, a quarterly BOJ tankan survey showed, keeping pressure on the central bank to do more. Companies have also been reluctant to boost capital expenditure and wages, clouding the outlook for the success of premier Shinzo Abe’s “Abenomics” stimulus policies.
Wages rose for the first time in four months in February but only at 0.4 percent from a year earlier, data showed yesterday. Japan’s economy shrank in October-December last year on weak exports and consumption. Many analysts expect it to show another contraction in January-March, posting two straight quarters of negative growth and meeting the technical definition of a recession. Reuters
Education
Australia’s booming education sector lures investors The sector could help underpin Australia’s home building boom. Ian Chua
Australia’s student housing market is shaping up to be the next big thing as an influx of foreign scholars entices investors into a neglected sector, reinvigorating a home building boom that is providing vital support to the wider economy. An English-speaking country at the doorstep of Asia and offering an enviable quality of life, Australia now sits with the United States and United Kingdom as a top destination for foreign students.
Goldman Sachs has seen the potential in student housing, partnering with investor Blue Sky to launch a A$1 billion (US$763 million) fund to invest in the sector. “The expanding Asian middle class story is a big one for our market,” said Adam Vaggelas, director and head of real estate investing at Blue Sky Private Real Estate, a subsidiary of Blue Sky Alternative Investments. “The time zone differentials and proximity and the quality of our tertiary institutions help a lot in terms of attracting international student intake.”
The sector could help underpin Australia’s home building boom, which is coming off the boil as redhot property prices start to cool. Highlighting its growing clout in the wider economy, construction was a major driver of growth in the fourth quarter, helping offset a big drag from a mining downturn. The numbers of students need to find housing in Australia add up rather nicely, jumping by 10 percent in 2015 from 2014, to nearly half a million, led by students from China and India. Yet a national census of university student accommodation providers the University Colleges Australia showed Australia had fewer than 80,000 student accommodation beds as at November 2014. International estate agent Savills said growth in number of student beds provided has been a glacial 4.3 percent over the 15 years to 2014. It is expected to pick up to an annual rate of 4.7 percent by 2018, but that’s still well off the number of beds needed. “Undersupplied, the sector offers significant potential,” Savills said, noting development will be focused on the major metropolitan cities of Melbourne and Sydney in which most of the big universities are located.
Overcrowded
University of Melbourne.
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Living expenses are a major cost for international students and the mismatch of supply and demand has led to stories of overcrowding and exploitation by unscrupulous landlords. Nineteen-year-old Ruby Meredith found herself in an overcrowded apartment with Chinese and French students when she moved
to Melbourne from her hometown of Geelong some 80kms away. The inner city two-bedroom apartment had no less than seven people living in it. She has since moved out to the suburbs. “Of course, I would prefer to live in the city but that place was ridiculous... It was unliveable,” said Meredith, who studies music at the Melbourne Polytechnic. Nicole Sim, a 23-year old communications student from Singapore used to pay A$395 (US$300) a week for a one-room studio apartment near RMIT University in Melbourne city, but had to settle for cheaper accommodation in the suburbs. “I would like to live in the city, closer to university. I do wish there was cheaper housing in the city,” she said. Blue Sky plans to fund up to 10,000 student beds across Australia and New Zealand by 2019. UK-based GSA Group has opened a Sydney office in February, laying the groundwork to have 25,000 student accommodation beds under management by 2025.
“We are in a growth mode” Simon Hickey, Campus Living Villages CEO
“We see that Australia has all of the market fundamentals to develop into a more institutional-grade asset class given the world-leading universities, real estate market and the large and growing international student population,” said Simon Loveridge, managing director of GSA’s Asia Pacific arm. Sydney-based Campus Living Villages Pty Ltd, the world’s biggest developer of student accommodation by number of beds, is considering a market listing to raise A$1 billion over the next three years to pay for new developments in Australia, the U.K. and the U.S. Reuters
Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Michael Armstrong; Óscar Guijarro; Kam Leong; Joanne Kuai; Annie Lao; Kelsey Wilhelm; Nelson Moura Group Senior Analyst José I. Duarte Design Francisco Cordeiro Web & IT Janne Louhikari Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily. com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com
Business Daily Wednesday, April 6 2016 13
Asia In Brief Automotive industry
Australia new vehicle sales dip
Australian new vehicle sales dipped slightly in March after a couple of strong months, though there was little sign of any cooling in consumers’ love for sports utility vehicles. The Australian Federal Chamber of Automotive Industries’ VFACTS report yesterday showed total sales were 104,512 in March, down 0.5 percent on a year earlier. Sales were 8.4 percent higher than in February. Sales for the year so far were 2.8 percent ahead of the same three months in 2015. Australians spend around A$20 billion on vehicles annually, equal to almost 9 percent of household consumption. Partnership
Toyota expands Microsoft links
Monetary policy
Australia’s central bank holds rates Inflation figures for the first quarter are due on April 27 and a low result would provide a perfect domestic excuse to cut. Wayne Cole
A
ustralia’s central bank held interest rates steady for a 10th straight policy meeting yesterday, citing evidence of continued growth at home despite an unhelpful rise in the local dollar. Bucking the worldwide charge toward negative rates, the Reserve Bank of Australia (RBA) kept its cash rate at 2 percent in a widely expected decision. Again the door was left open to an easing should developments in inflation, unemployment or the global
economy warrant it, but there was little sign a move might be imminent. “The Board judged that there were reasonable prospects for continued growth in the economy,” RBA Governor Glenn Stevens said in a brief statement. “Continued low inflation would provide scope for easier policy, should that be appropriate to lend support to demand.” In a Reuters poll of 41 analysts, all had expected no change in the cash rate this week. The one major change to the statement was to note that the Aussie dollar had risen recently, in part due to policy easing by other central banks. “Under present circumstances, an appreciating exchange rate could complicate the adjustment under way in the economy,” said Stevens. Some investors had wagered he would offer a more full-throated protest at the rise in the currency, which climbed 7 percent against a broadly weaker U.S. dollar in March. Stevens’s reticence might reflect a judgement that Australian yields were always going to be attractive when so much of the world was going sub-zero. Australian 10-year debt pays 2.45 percent while Japan offers a return of minus 8 basis points. Much the same is happening in neighbour New Zealand. The Reserve Bank of New Zealand shocked many by cutting rates early
Key Points RBA keeps rates at 2 pct, sees room to cut if needed Notes a rising A$ “complicates” the economic outlook Markets imply around 50-50 chance of easing by August in March, complaining that its currency was unjustifiably high. Yet after an initial slide, the kiwi soon rallied and ended the month higher than where it began. Still, investors suspect a further rise in the Aussie, say above 80 U.S. cents, could force a rethink on rates. Inflation figures for the first quarter are due on April 27 and a low result would provide a perfect domestic excuse to cut. Interbank futures imply around a 32 percent probability of an easing in May, rising to 66 percent by August. “It’s critical that trade-exposed sectors like tourism and higher education contribute to growth over the year ahead but the rise in the Aussie is a threat to this,” said Shane Oliver, head of investment strategy and chief economist at AMP Capital. “The best way for the RBA to check the threat is to ramp up its jawboning to get the Aussie down again and to ultimately cut interest rates.” Reuters
Econom rebound
Vice finance minister of South Korea highlights downside risks He reiterated the finance minister’s comments that the government may announce some changes to its existing capital controls by the end of June. South Korea has shown signs of a rebound from February onward, but a clear upward trend has still to emerge and there are increasing downside risks, the country’s vice finance minister said on Monday. “We saw a sluggish first quarter as the effects of year-end policies to boost growth expired, but towards the end of the first quarter we noted signs of a rebound, especially in February,” Vice Finance Minister Choi Sang-mok told a news conference in the city of Sejong, south of Seoul. “However, it is difficult to say that we are on a firm rebound trend.” The government acknowledges the fragility of the economic recovery, but it has no plans yet to revise its
2016 GDP forecast of 3.1 percent, the vice minister said, without elaborating the on the risks South Korea faces. The finance ministry will release its next economic forecasts mid-year. The Bank of Korea, however, is set to revise its forecasts later this month, and it is widely expected to cut its current growth forecast of 3.0 percent as the governor said last week that GDP growth this year is likely to fall under that level. Choi also reiterated the finance minister’s comments from earlier this year that the government may announce some changes to its existing capital controls by the end of June, in case of possible outflows.
Recent fluctuations in global financial markets were not South Korea’s problems alone and government officials were watching developments, Choi said. The vice minister added that the real estate market is unlikely to show any sharp price movements this year, taking a breather after the government launched a number of policies in 2015 to revive activity in the housing market. Separately, Choi confirmed a Reuters report from last week that South Korea’s central bank will likely select two local banks to handle clearing and settlement services ahead of the launch of a yuan-won market in Shanghai. Reuters
Toyota Motor Corp is expanding a five-year-old partnership with Microsoft Corp to develop new internet-connected vehicle services for owners and dealers, Toyota said on Monday. The automaker has established Toyota Connected at its U.S. headquarters in Plano, Texas, to consolidate its existing connectivity services and serve as the company’s “data science” hub. Microsoft has a 5 percent stake in the venture. The new organization “will make lives easier,” said Zack Hicks, Toyota Motor North America’s chief information officer who will serve as Toyota Connected’s chief executive. Trade deal
South Korea seeks agreement with Mexico South Korea is looking to sign a new bilateral trade deal with Mexico, the country’s top commercial partner in Latin America, President Park Geun-hye said in an interview with newspaper El Universal on Sunday as she began a three-day state visit. “My expectation is to complete a free trade agreement between our two nations that will open a new door to the markets of northeast Asia for Mexico and provide better access to markets in Latin America and North America for Korea,” said Park. Budget
Japan to set target for front-loading public spending Japan’s government aims to sign contracts for 80 percent of public works spending allocated under the new fiscal year’s budget by the end of September as part of efforts to revive a flagging economic recovery, government sources said on Monday. The target would mean front-loading most of the roughly 12 trillion yen (US$107.5 billion) in funds set aside for public works projects under the state budget for the fiscal year that began on April 1. By moving up most of the spending to the first half of the fiscal year, the government hopes to give an early boost.
14 Business Daily Wednesday, April 6 2016
International In Brief Intellectual property
U.S. Senate approves trade secrets bill
International Monetary Fund President Christine Lagarde attends the Seminar on International Financial Questions at the French Economy and Finance Ministry in Paris, France, 31 March 2016.
The U.S. Senate on Monday approved legislation to give companies greater legal protections for their commercial secrets and allow them for the first time to sue in federal court if they are stolen. The Defend Trade Secrets Act passed 87-0, amid strong White House backing. Supporters hope the unanimous vote will boost the bill’s prospects in the House of Representatives. Theft of intellectual property, including trade secrets, costs U.S. businesses more than US$300 billion a year, according to a 2013 report by the Commission on the Theft of American Intellectual Property. Industry figures
German factory orders decline in February German industrial orders, a key measure of demand for goods in Europe’s top economy, declined in February, weighed down by falling foreign demand, the economy ministry said yesterday. Provisional official data showed a decrease in orders of 1.2 percent monthon-month in February, following an increase of 0.5 percent in January. Analysts polled by financial services firm FactSet had pencilled in a modest increase of 0.3 percent for February. The drop was attributable to weaker foreign demand for German‑made goods. Lawsuit
Kazakhstan files claim against BG-Eni venture Kazakhstan has filed a US$1.6 billion claim against a group led by BG Group Plc and Eni SpA which is developing the Karachaganak gas condensate field, Russia’s Lukoil, also a consortium member, has said. The dispute relates to a formula which determines how profit from the development is split between the companies and the government, Lukoil said, noting the parties were in talks on a possible settlement and it did not believe any settlement would have a material adverse effect on its finances. It did not say when Kazakhstan had filed the lawsuit, when it expected a settlement to be reached and what the likely cost implications would be.
IMF
Lagarde ramps up call to boost global growth She called for accelerating structural economic reforms, increased fiscal support and continued accommodative monetary policy.
I
nternational Monetary Fund Managing Director Christine Lagarde yesterday turned up the volume on her calls for stronger action by the world’s economies to boost growth, warning that downside risks were increasing without decisive action. In a speech at Frankfurt’s Goethe University, Lagarde prescribed specific moves, including for the United States to raise its minimum wage, for Europe to improve job training and for emerging economies to cut fuel subsidies and boost social spending. She said recovery from the 20072009 global financial crisis “remains too slow, too fragile and risks to its durability are increasing.” “Let me be clear: we are on alert, not alarm. There has been a loss of
growth momentum,” Lagarde said in her prepared remarks. “However, if policymakers can confront the challenges and act together, the positive effects on global confidence - and the global economy - will be substantial.” Her remarks come less than two weeks before senior ministers, central bankers and other policymakers from the Fund’s 188 member countries gather in Washington for the IMF and World Bank Spring Meetings to assess the health of the world economy. While the U.S. recovery has been gaining momentum and some emerging markets such as Mexico have performed well, the IMF has warned that growth in Europe and Japan has been a major disappointment, while China’s slowing growth has hurt oil and commodity exporting countries, including Brazil and Russia. To counteract those headwinds, Lagarde called for accelerating structural economic reforms, increased fiscal support and continued accommodative monetary policy. For the first time, she prescribed some specific policy actions in these areas. A higher minimum wage, expanded
Rate Hikes
Fed’s Evans says market more pessimistic than central bankers
GMO
Burkina Faso seeks compensation from Monsanto Burkina Faso’s cotton association is seeking 48.3 billion CFA francs (US$83.91 million) in compensation from U.S. seed company Monsanto after it said genetically modified cotton led to a drop in quality, association members said on Monday. In an effort to increase yields, the Inter-professional Cotton Association of Burkina (AICB) began introducing Monsanto’s Bollgard II trait into Burkinabe cotton varieties beginning in 2009 as protection against caterpillars. However, the AICB believes the trait has increased levels of short fibres in its cotton, reducing its market value.
tax credits for the working poor and improved family leave benefits changes championed by President Barack Obama and Democratic Party presidential candidates - could help increase the U.S. labour force, she said. Republican lawmakers who control the U.S. Congress, however, have blocked these proposals from advancing. Lagarde said Euro area countries should implement better training and employment-matching policies to help reduce unemployment for young people. She also called for better tax incentives to encourage research and development investments and more public spending in this area, citing IMF research showing that a 40 percent increase in R&D spending in advanced economies could yield a 5 percent increase in GDP over 20 years. With current spending low, this would entail a small fiscal cost of about 0.4 percent of GDP per year, she added. Countries with high and growing debts and elevated borrowing costs should pursue further fiscal consolidation, Lagarde said. Reuters
Evans also said the Fed has to be proactive and aggressive to reach its inflation target. Saikat Chatterjee
Financial markets are more pessimistic than the U.S. central bank in their pricing of U.S. interest rate hikes, Chicago Fed President Charles Evans said yesterday. “Market expectations are pricing in a 20 percent likelihood of things deteriorating from here,” said Evans during an investor conference in the Asian financial hub, citing recent surveys. “I don’t have that outlook. In general, financial market expectations are more pessimistic than ours.” Evans, a top Federal Reserve policymaker, also repeated his call for just two U.S. interest-rate hikes this year, saying that the risks to his forecast for economic growth are weighted to the downside.
However, financial markets as evident from federal fund futures contracts, are pricing roughly one more rate hike for the remainder of the year. “A very shallow funds rate path, such as the one envisioned by the median FOMC participant, is appropriate,” Evans said in a copy of the speech delivered to the Credit Suisse Asian Investment Conference. The FOMC, or Federal Open Market Committee, is the Fed’s policy-setting body; in March the FOMC’s median forecast called for two rate hikes this year. Evans also said the Fed has to be proactive and aggressive to reach its inflation target. “We expect inflation to stabilise by end of the year and edge higher
next year, so we are looking at two rate hikes by end of the year. As far as timing, there may be one in the middle of the year and one towards the end but we cannot be sure.” U.S. inflation measures have shown some recent strength, with the Fed’s preferred annual measure flat at 1.7 percent in February, though still below its target of 2 percent. After having raised rates for the first time in a decade in December, the U.S. central bank stood pat in January and again in mid-March, when it cited weakness overseas and an early-year market sell-off that has since reversed. Evans repeated that risks to the economy are tilted to the downside. He also said China’s economic slowdown would likely prove a stiff test to Beijing’s leaders. “The China economic outlook is a challenging one. It’s very difficult for any economy over a long period of history to see that kind of transition without it being bumpy.” Evans does not have a vote on policy this year, but does take part in the Fed’s regular policy-setting meetings. Reuters
Business Daily Wednesday, April 6 2016 15
Opinion Business Wires
Vietnam News The shortage of long-term capital coupled with low competitiveness should be blamed for the rising number of firms going bankrupt and temporarily halting operations in the first quarter of 2016. According to Trần Hoàng Ngân, a member of HCM City National Assembly Delegation, there were increases in new firms and shut-downs, reflecting a trend of firms being founded for seasonal business rather than for long-term investment. The General Statistics Office revealed that the number of firms closing down reached more than 2,900 in the first quarter of this year.
The Korea Herald Exports of Korean seafood edged up 1.5 percent in the first three months of 2016 from a year earlier on brisk demand from the United States and China, the maritime ministry said yesterday. The country’s outbound shipments of fish, shellfish and seaweed was valued at US$435 million during the January-March period, up from US$429 million tallied a year ago, according to the Ministry of Oceans and Fisheries. In particular, exports reached US$183 million in March, marking the highest monthly value since April 2015, added the ministry.
Bangkok Post The Bank of Thailand’s Monetary Policy Committee (MPC) is closely monitoring an oversupply in the property sector, saying the slow economic recovery and delays in infrastructure investment have caused demand to ebb. High household debt and financial institutions wary of providing property loans have caused the ratio of unsold condominiums to remain high, particularly those along the Purple Line valued at 1-5 million baht. February’s property sector outlook in Bangkok and suburbs declined from the previous month because of a continued dip in demand.
The Age New vehicle sales dipped slightly in March after a couple of strong months, though there was little sign of any cooling in consumers’ love for sports utility vehicles. The Australian Federal Chamber of Automotive Industries’ (VFACTS) report yesterday showed total sales were 104,512 in March, down 0.5 per cent on a year earlier. Sales were 8.4 per cent higher than in February. Sales for the year so far were 2.8 per cent ahead of the same three months in 2015. Australians spend about A$20 billion on vehicles annually, equal to almost 9 per cent of household consumption.
When things fall apart
A
ll over the world today, there is a sense of the end of an era, a deep foreboding about the disintegration of previously stable societies. In the immortal lines of W.B. Yeats’s great poem, “The Second Coming”:
Anatole Kaletsky Chief Economist and Co-Chairman of Gavekal Dragonomics and the author of Capitalism 4.0, The Birth of a New Economy.
“Things fall apart; the centre cannot hold Mere anarchy is loosed upon the world… The best lack all conviction, while the worst Are full of passionate intensity… And what rough beast, its hour come round at last Slouches towards Bethlehem to be born?” Yeats’ wrote those lines in January 1919, two months after World War I ended. He instinctively felt that peace would soon give way to even greater horrors. Almost 50 years later, in 1967, the American essayist Joan Didion chose Slouching Towards Bethlehem as the title of her collection of essays on the social breakdowns of the late 1960s. In the 12 months following the book’s publication, Martin Luther King, Jr. and Robert Kennedy were assassinated, inner cities across the United States exploded in riots and French student protesters began the rebellion that toppled President Charles de Gaulle a year later. By the mid-1970s, America had lost the Vietnam war. The Red Brigade, the Weather Underground, the Irish Republican Army, and Italian neo-Fascist terrorists were staging attacks across the US and Europe. And President Richard Nixon’s impeachment had turned Western democracy into a laughing stock. Another 50 years have now passed, and the world is again haunted by fears about the failure of democracy. Can we draw some lessons from those earlier periods of existential self-doubt? In the 1920s and 1930s, as in the late 1960s and 1970s, and again today, despair about politics was linked to disillusion with a failed economic system. In the inter-war period, capitalism seemed doomed by intolerable inequalities, deflation, and mass unemployment. In the 1960s and 1970s, capitalism appeared to be collapsing for the opposite reasons: inflation and a backlash by taxpayers and business interests against the redistributive policies of “big government.” To note this pattern of recurring crises is not to claim that some law of nature dictates a near-collapse of global capitalism every 50 or 60 years. It is, however, to recognize that democratic capitalism is an evolving system that responds to crises by radically transforming both economic relations and political institutions. So we should see today’s turmoil as a predictable response to the breakdown of one specific model of global capitalism in 2008. Judging by past experience, a likely outcome could be a decade or more of soul-searching and instability, leading eventually to a new settlement in both politics and economics. This is what happened when the elections of Margaret Thatcher and Ronald Reagan followed the great inflation of the early 1970s, and when the American New Deal and the “rough beast” of European rearmament emerged from the Great Depression. Each of these post-crisis settlements was marked by transformations in economic thinking as well as politics. The Great Depression led to the Keynesian revolution in economics, alongside the New Deal in politics. The inflationary crises of the 1960s and 1970s provoked Milton Friedman’s monetarist counter-revolution, which inspired Thatcher and Reagan. It therefore seemed reasonable to expect the breakdown of deregulated financial capitalism to trigger a fourth seismic change (Capitalism 4.0, I called it in 2010) in both politics and economic thinking. But if global capitalism really is entering a new evolutionary phase, what are its likely characteristics? The defining feature of each successive stage of global capitalism has been a shift in the boundary between economics and politics. In classical nineteenth-century capitalism, politics and economics were idealized as distinct spheres, with interactions between government and business confined to the (necessary) raising of taxes for military adventures and the (harmful) protection of powerful vested interests. In the second, Keynesian version of capitalism, markets were viewed with suspicion, while government intervention was assumed to be correct. In the third phase, dominated by Thatcher and
Reagan, these assumptions were reversed: government was usually wrong and the market always right. The fourth phase may come to be defined by the recognition that governments and markets can both be catastrophically wrong. Acknowledging such thoroughgoing fallibility may seem paralyzing – and the current political mood certainly seems to reflect this. But recognizing fallibility can actually be empowering, because it implies the possibility of improvement in both economics and politics. If the world is too complex and unpredictable for either markets or governments to achieve social objectives, then new systems of checks and balances must be designed so that political decision-making can constrain economic incentives and vice versa. If the world is characterized by ambiguity and unpredictability, then the economic theories of the pre-crisis period – rational expectations, efficient markets, and the neutrality of money – must be revised. Moreover, politicians must reconsider much of the ideological super-structure erected on market fundamentalist assumptions. This includes not only financial deregulation, but also central bank independence, the separation of monetary and fiscal policies, and the assumption that competitive markets require no government intervention to produce an acceptable income distribution, drive innovation, provide necessary infrastructure, and deliver public goods. It is obvious that new technology and the integration of billions of additional workers into global markets have created opportunities that should mean greater prosperity in the decades ahead than before the crisis. Yet “responsible” politicians everywhere warn citizens about a “new normal” of stagnant growth. No wonder voters are up in arms. People sense that their leaders have powerful economic tools that could boost living standards. Money could be printed and distributed directly to citizens. Minimum wages could be raised to reduce inequality. Governments could invest much more in infrastructure and innovation at zero cost. Bank regulation could encourage lending, instead of restricting it. But deploying such radical policies would mean rejecting the theories that have dominated economics since the 1980s, together with the institutional arrangements based upon them, such as Europe’s Maastricht Treaty. Few “responsible” people are yet willing to challenge pre-crisis economic orthodoxy. The message of today’s populist revolts is that politicians must tear up their pre-crisis rulebooks and encourage a revolution in economic thinking. If responsible politicians refuse, “some rough beast, its hour come at last” will do it for them. Project Syndicate
“In the 1920s and 1930s, as in the late 1960s and 1970s, and again today, despair about politics was linked to disillusion with a failed economic system.”
16 Business Daily Wednesday, April 6 2016
Closing Consumption index
Indonesian consumer confidence dips in March
index affected the March consumer confidence index, the survey of about 4,600 respondents in Indonesian consumer confidence slipped slightly 18 major cities in Indonesia showed. Consumers said they expected inflationary pressures to in March from February as concerns about pick up in June, in line with price increases income and the availability of jobs lingered, for processed food, beverages, cigarettes and a central bank survey showed yesterday. The tobacco, due to demand during the fasting central bank’s consumer confidence index fell month of Ramadan. Indonesia’s annual inflation to 109.8 in March from 110.0 in February. A rate in March was barely changed at 4.45 reading above 100 indicates respondents are percent from 4.42 percent in February. Reuters still optimistic. A fall in the present situation
Bourse biz
Bombay Stock Exchange likely to list next year BSE’s profit in the three months through December rose 56 percent. be accountable, listing is one way to achieve that.” Deutsche Boerse and SGX declined to comment. Overseas investors own about 30 percent of BSE, which competes with local rival National Stock Exchange (NSE). The remaining equity is owned by local corporate entities including banks and insurance firms and brokers. BSE’s profit in the three months through December rose 56 percent to 525 million rupees (US$7.9 million). The combined market capitalisation of the companies listed on the exchange totals US$1.4 trillion.
Ownership rules
Sumeet Chatterjee
B
ombay Stock Exchange Ltd (BSE) aims to list next year, its CEO said, in a deal that will raise the profile of Asia’s oldest bourse at a time of industry consolidation, as investors such as Deutsche Boerse AG get the opportunity to cash out. The exchange expects to file a prospectus for its initial public offering (IPO) and get regulatory approval within six to nine months, Chief Executive Ashishkumar Chauhan told Reuters in an interview. The comment comes just weeks after the Securities and Exchange Board of India said it would allow BSE to apply. Chauhan declined to comment
on BSE’s valuation or the likely size of the IPO, but investment bankers involved in the process said the exchange could be valued at US$750 million to US$1 billion. Founded in 1875, BSE, whose first venue for broker meetings was under a banyan tree in the financial capital Mumbai, has long considered an IPO. However, lack of clarity on rules for the listing of stock exchanges has delayed the process. The revival of BSE’s IPO hopes comes against a backdrop of recent exchange tie-ups and attempted takeovers, with Deutsche Boerse and London Stock Exchange Group PLC agreeing to merge in a US$30 billion deal. Chauhan said BSE’s IPO would not involve the issuing of new shares, and would see existing shareholders,
Key Points Expects regulatory approval within 9 months -CEO Could be valued up to US$1 bln -bankers Listing will allow investors such as Deutsche Boerse, SGX to cash out -CEO Deutsche Boerse has shown interest in raising stake -BSE CEO which include Deutsche Bourse and Singapore Exchange Ltd (SGX), selling some of their holdings. “BSE has a large balance sheet and it doesn’t require capital (via the IPO),” he said. “BSE operates like a public utility and all public utilities should
In February, Finance Minister Arun Jaitley announced the raising of the investment ceiling for a foreign investor in local stock exchanges to 15 percent from 5 percent, as part of government efforts to attract foreign capital. Bankers said the move could enthuse foreign shareholders in Indian exchanges to raise ownership, and also attract new overseas investors ahead of BSE’s IPO. BSE is currently not in talks with any existing or potential investor, Chauhan said. But he said Deutsche Boerse had expressed interest in raising its stake before the IPO from a little under 5 percent. Deutsche Boerse would then be able to profit on the sale of shares during the IPO. Though ownership rules have eased, Indian bourses are not expected to play a role in the global wave of mergers-and-acquisitions due to government reluctance to give control of the two top exchanges to foreign investors. “Indian exchanges operate in a different framework. We are highly regulated. The role of exchanges as a public utility is much more prevalent here,” Chauhan said. Reuters
Economy poll
Construction sector
Executive changes
Eurozone activity ticks up after sharp fall
Land sales slow in China
ZTE names new management
Land sales slowed sharply in China last year, as the property market cooled and the country faced economic headwinds, the Ministry of Finance (MOF) said yesterday. Land sales by local governments amounted to 3.37 trillion yuan (US$520.5 billion), plunging 21.6 percent year on year, according to a statement posted on the MOF website. Sales fell year on year by 23.6 percent in east China, by 17.3 percent in central China, and by 21.2 percent in the west. Only a handful of cities and provincial-level regions saw sales growth, with Shenzhen rising the most - by 36.9 percent year on year. Dalian saw land sales dive the most, with a fall of 56.4 percent. Ningbo in east China’s Zhejiang Province, and Inner Mongolia Autonomous Region in the north were both down by more than half, according to the statement. A total of 221,400 hectares of land hit the market last year, down 18.6 percent year on year. Land areas for commercial use and residential development fell 24.7 percent and 19.1 percent year on year, the statement said. Land prices grew mildly last year in the 105 cities monitored by the MOF. Xinhua
China’s ZTE Corp, in a routine management reshuffle, has replaced three senior executives alleged to be the main signatories to documents purportedly showing the company made efforts to dodge sanctions against Iran. The change in personnel was made just weeks after the U.S. government released the documents and imposed tough export restrictions on the telecom equipment maker. The U.S. government has since said it would ease the restrictions until the end of June and could further ease them if ZTE cooperated in “resolving the matter”. Yesterday, ZTE said it had named current Chief Technology Officer Zhao Xianming as its new president, effective immediately, replacing Shi Lirong, who had been in the role since 2010. The company also appointed seven executive vice presidents, but this list did not include Tian Wenguo or Qiu Weizhao, both of whom served in that position until Tuesday’s shake up. Shi, Tian and Qiu, the only people dropped from ZTE’s top management, were also the only member’s of the firm’s senior executive bench named in the documents released by the U.S. Reuters
Eurozone private sector business activity ticked up in March after a sharp fall in February, a closely watched survey showed yesterday, but the outlook remains clouded. Data monitoring company Markit said its March Composite Purchasing Managers Index (PMI) inched up to 53.1 points from a revised 53 points in February. The PMI measures companies’ readiness to spend on their business and so gives a good idea of how the underlying economy is doing. The March figure was initially given as 53.7 points but revised down largely because of fresh weakness in the struggling French and Italian economies, Markit said in a statement. The reading was however still above the 50-point boom-or-bust line, showing the 19-nation eurozone continued to expand at a modest pace but well short of what was expected after the European Central Bank launched a massive stimulus programme early last year. Based on yesterday’s figures, the economy would have grown about 0.3 percent in the three months to March, unchanged from the third and fourth quarters of 2015, he said. AFP