Macau Business Daily April 12, 2016 by Business Daily

World Bank cuts outlook for East Asia economy Weak data Page 11

Tuesday, April 12 2016 Year V Nr. 1020 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm

www.macaubusinessdaily.com

Ho Chio Meng appeal denied

Recovery firming up Economy China’s consumer prices held steady in March. While producer prices showed signs of ending a run of negative readings. The Consumer Price Index, a main gauge of inflation, rose 2.3 per cent year-on-year. Page 8

Graft The ex-Prosecutor-General’s attempt to get out of jail has failed once again. With a recent application for a writ of habeas corpus declined by the same court he petitioned before. Ho is accused of colluding with local businessmen in the awarding of some 2,000 public contracts by the Public Prosecutor’s Office between 2004 and 2014. Page 2

Bottom falls out of loans market Real Estate In February 2016, new residential mortgage loans totalled MOP2.3 billion. A decrease of 29.5 pct m-o-m. Commercial real estate loans tumbled to MOP2.7 bln, representing a m-o-m fall of 49.6 pct. Page 4

Shaking the money tree The city’s young start‑ups and small and medium enterprises (SMEs) have been active. Picking up gov’t loans of MOP27.73 mln (US$3.5 mln) in March via three financial aid schemes. SMEs Page 4

22° 23° 22° 24° 22° 24° 22° 24° 22° 25° Today

Wed

Thu

Fri

Sat

Source: AccuWeather

Exports of zero‑tariff goods to Mainland hit MOP7.15 million Page 6

Gaming

Bernstein reports slow start to April ADR Page 6

Investment

Global slowdown

Guinea‑Bissau open for Chinese investment Page 5

HK Hang Seng Index April 11, 2016

Taiwan’s exports fall more than expected in March Page 9

20,440.81 +70.41 (0.35%)

China Shenhua Energy Co

+3.57%

Sino Land Co Ltd

+2.72%

MTR Corp Ltd

Li & Fung Ltd

+2.86%

Galaxy Entertainment Group

-0.90%

Bank of East Asia Ltd/The

-1.81% -2.32%

Source: Bloomberg

CEPA

I SSN 2226-8294

2 Business Daily Tuesday, April 12 2016

Macau Taxis

Taxi drivers up in arms over regulations

Nearly 30 local taxi drivers participated in a slow drive yesterday morning, protesting the government’s intention of tightening the city’s taxi regulations. The protest, staged by Taxi Drivers Rights Association, started from Avenida Norte do Hipódromo and ended in front of the Transport Bureau, near CEM. According to

broadcaster TDM Radio, participants urged police to increase transparency regarding enforcement of proposed regulations for taxi drivers, in addition to demanding a green light for charging extra fees during bad weather. Police counted 27 taxis, three cars, four motorbikes and two bicycles having joined yesterday’s protest, somewhat lower than the organiser’s initial prediction of 50 to 100 participants.

Graft Courts to follow standards established by Ao Man Long case

Top court rejects Ho Chio Meng’s appeal against custody The ex-top prosecutor’s attempt get out of jail failed once again after a recent application for a writ of habeas corpus was declined by the same court he went up against before. Kam Leong kamleong@macaubusinessdaily.com

he Court of Final Appeal has rejected an appeal filed by the allegedly corrupt former Prosecutor-General Ho Chio Meng (pictured), which sought to reverse the top court’s previous order putting him in detention. Judge Viriato Lima wrote in his judgement released last week that the final court’s decision of remanding the city’s ex-top prosecutor in custody is in line with the legal precedent set for the disgraced former Secretary for Transport and Public Works Ao Man Long. “After the Court of Final Appeals heard the case of the former Secretary [as if it were] by the first-instance court, the public would not understand or it may trigger social panic if it [the court] declined to hear the case of the former Prosecutor-General who is in a similar situation [to that of the former Secretary],” the judge wrote. This means that as the Court of Final Appeal was the first court in which the case was heard, denying the

Secretary the possibility to appeal to higher courts, allowing the former top prosecutor to appeal to lower courts would not adhere to the justice meted out to the former Secretary. He added that no appeal can be filed against the rulings or orders made by the city’s final court – even if it hears a case for the first instance.

Final ruling

“A decision made by the Court of Final Appeal is the final ruling. It does not accept any appeal against the decision,” Judge Lima stated, adding that only lawmakers had the power to add a possibility of appealing against the top court’s decisions, or to create new courts. The Judge also indicated that the former Prosecutor-General cannot be exempted from custody as his current official position does not enjoy the privileges granted by the Statue for Magistrates to magistrates. The Court of Final Appeal previously declined to entertain an application for a writ of habeas corpus filed by Ho Chio Meng at the beginning of March. The allegedly corrupt official, who was once seen as a possible candidate for the post of Chief Executive, was arrested by local anti-graft agents and detained by order of the top court at the end of February. He is accused of colluding with local businessmen of awarding some 2,000 public contracts of the Public Prosecutor’s Office by illicit means between 2004 and 2014. The Commission Against Corruption (CCAC) has said suspects in the case had illegally gained at least MOP44 million through the deals.

Courts

Public Prosecutor’s Office re‑opens Alan Ho case The Public Prosecutor’s Office has re-opened the file on the Hotel Lisboa prostitution ring defendants. The Public Prosecutor’s Office (MP) has decided to dust off the files on the six defendants in the Hotel Lisboa prostitution case, taking it to the Court of Second Appeal, Portuguese-language newspaper Hoje Macau reported yesterday. The MP’s office, in a response to the newspaper query, said that they were within their limitations on re-opening the case, as the term would only come up at the end of this week. The defendants - one of whom is Alan Ho (pictured), nephew of renowned casino mogul Stanley Ho - had their criminal association charges dropped but were accused of financially profiting from prostitution in a court decision on March 17. In its verdict the Court of First Instance (TJB) considered the MP accusation as only partially proven, absolving the defendants of criminal association charges, and even going as far as pointing to possible errors in the investigation of the case, the paper reported. The decision to re-open the case from the MP comes after Kelly Wang and Peter Lun - two defendants in the prostitution ring case - appealed their sentences, as reported by Business

Daily last week citing Radio Macau. Kelly Wang - the former assistant manager of the ‘Young, Single Ladies’ market at Hotel Lisboa - was sentenced to two years and five months in prison for her involvement and is the only defendant who, following her preventative prison sentence, still needs to serve time, one year and three months of sentence. Defendant Peter Lun was sentenced to five months and has already served 14 months. Defendants Qiao Yan Yan and Pun Cham Un were sentenced to seven months each for exploiting prostitution after helping Kelly Wang to find prostitutes and extort money from them, the paper reported, but like Lun were also freed following the trial, having served their time. Alan Ho, was sentenced to one year and one month in prison for one crime of prostitution exploitation but having already served 14 months of preventative prison time walked free following the verdict. No dates have yet been announced for the start of the hearings in the Court of Second Appeal. N.M.

Business Daily Tuesday, April 12 2016 3

Macau Each respectively received MOP8.7 million, MOP7.7 million, MOP3.5 million and MOP6.23 million from the scheme in the three months, accounting for 33.3 per cent, 29.5 per cent, 13.4 per cent and 23.8 per cent of the total. The credit guarantee scheme provides each beneficiary with a credit guarantee equal to 70 per cent of the loan approved by the participating banks, up to MOP 3.5 million.

Lending to young start‑ups jumps

SMEs

Gov’t funds start-ups, SMEs to tune of MOP27.7 mln in March Two official aid schemes granted a total of MOP18.7 million-worth of loans last month destined solely for small and medium-sized enterprises. Kam Leong kamleong@macaubusinessdaily.com

he city’s young start-ups and small and medium enterprises (SMEs) were approved a total of MOP27.73 million (US$3.5 million) in loans in March by the government via three different financial aid schemes, according to the latest data released by Macao Economic Services (DSE). Last month, the Bureau’s SME Aid Scheme granted loans totalling MOP16.7 million to 41 local small and medium-sized firms, representing a drop of 10.5 per cent compared to the MOP18.6 million disbursed in February. Meanwhile, 138 applications were approved loans during the first three months of the year, in the total amount of MOP55.8 million. The SME Aid Scheme, implemented since May 2003, offers interest-free

lending of up to MOP600,000 per applicant for different financial purposes. This year local retailers have been the biggest beneficiaries of the scheme so far. The subsidised retailers received MOP17.4 million-worth of loans from the government, which accounted for 31.1 per cent of the total. In addition, real estate agencies were granted loans of MOP8.75 million during the period, some 15.7 per cent of the total.

Another SME-targeted scheme of the Bureau - the SME Credit Guarantee Scheme - approved MOP2.1 million-worth in lending to one local firm last month, compared to MOP24 million granted to nine companies in February. During the first quarter of this year the scheme’s MOP26.1 million in grants was primarily shared by businesses engaged in four fields; namely, wholesale, construction and public works, F&B establishments and hotels, and real estate services.

3,160 applications filed for industrial property registration

DSE data reveals that the department received 3,160 applications from companies registering industrial property in the territory during the first quarter of this year, which represents a drop of 2.22 per cent quarter-on-quarter, or a fall of 16.3 per cent year-onyear. During the three months, nearly 96 per cent of

Meanwhile, the Young Entrepreneur Aid Scheme disbursed loans of MOP8.95 million to local young start-ups in March, which increased by 94.5 per cent compared to the MOP4.6 million advanced in February. Throughout the month, the Bureau received a total of 22 applications and green-lighted 37 applications that it had previously received. Between January and March, the Bureau approved total loans of MOP20.3 million to young start-ups through the scheme. Some 33.4 per cent of the total went to young entrepreneurs engaged in retail businesses, amounting to MOP6.79 million at the end of March. Cumulatively, the Bureau’s approved lending to young entrepreneurs totalled MOP155.98 million since the scheme was implemented in August 2013. The aid scheme offers interest-free loans of up to MOP300,000 (US$37,500) for young start-ups. Entrepreneurs aged between 21 and 44 are eligible for a loan for eight years, with repayments starting after 18 months.

the applications were filed for registering trademarks, which amounted to 3,019. In addition, some 90 applications were for extending current invention patents, while some 34 were for industrial design or model registration. The Bureau also received 17 applications for registering patents on inventions, utility patents and names and emblems of their establishments in the city during the quarter.

Public contract Contract amount fivefold of previous agreement

Water

Gov’t extends Taipa wastewater treatment contract for Waterleau

Water rebate programme conserves 1.6 million cubic metres

The government will pay the joint venture of Waterleau and Beijing GSS a total of MOP52.3 million (US$6.54 million) for the operation and maintenance services of the wastewater treatment plants in Taipa and in the Airport for the next two years, according to yesterday’s Official Gazette. A dispatch by Chief Executive Fernando Chui Sai On indicates that the amount will be paid by the Macau Government in two instalments to the joint venture in the amount of MOP48.2 million and MOP4.1 million for this year and 2017, respectively. The contract value has increased by more than five

times the initial amount offered - MOP8.48 million - in a similar service contract awarded to the same consortium for the 2014 to 2015 year. The MOP8.48 million contract even included an upgrade of services for the two sewage treatment plants in addition to operation and maintenance services. Previous dispatches by the Chief Executive also show that the government only paid the joint venture MOP5.4 million for the same services for 2014 and 2013, and another MOP8.9 million for 2012 and 2013. Business Daily contacted the Environmental Protection Bureau for the reasons

for the notable increase in the amount for such services for this year and next but had received no reply from the Bureau before this story went to press. Waterleau Macau Lda is a subsidiary of Belgium’s Waterleau Global Water Technology NV, in which the city’s disgraced former Secretary Ao Man Long owned a 20 per cent stake. The stake was transferred to the SAR Government in 2013 following the local top court’s decision that such shares were offered as a bribe to Ao in order to ensure that the Belgian company won contracts for wastewater treatment plants in Coloane. K.L.

Over 36,000 households and businesses reach their water saving targets. Data on the City Water Conservation Rebate Programme, undertaken by the Marine and Water Bureau (DSAMA) from October of last year until March 2016 reveals that around 36,000 households and businesses have reached their water saving targets, according to the Government Information Bureau (GCS) yesterday. This represents an increase of around 400 successful households and businesses and accounts for total savings of around 1.6 million cubic metres of water, according to the DSAMA. Units that reach their water saving targets enjoy a one-off

rebate on their upcoming water bills, which ranges from MOP30 to MOP250, representing overall distributed savings of MOP330 million. Water users in Macau are eligible for the rebate as long as they have reduced their water usage by one to three per cent compared to the same period in last year’s water bills – for the duration of the programme. DSAMA launched the seventh City Water Conservation Rebate Programme with the objective of encouraging households and businesses to save water as well as addressing the threat of salinization. A.L.

4 Business Daily Tuesday, April 12 2016

Macau Education

MSAR unifies higher education subsidies

Chinese broadcaster TDM radio. This unifies values at MOP3,800 for students studying in the Mainland, Macau and Taiwan. Student subsidies for loans and For those studying in Hong Kong the scholarships for higher education have seen an across-the-board rise, according to monthly subsidy has risen 3.5 per cent, the Official Gazette yesterday. The monthly according to the broadcaster, to MOP5,800. subsidies for students studying abroad and Apart from these three regions, students from low-income households have risen by from low-income households studying 35.7 per cent for higher education students in ‘other countries and regions’ are also entitled to a MOP5,800 subsidy or loan. A.L. studying in Mainland China, according to

Real Estate

Borrowing bonanza fizzling out In February 2016, new residential mortgage loans totalled MOP2.3 billion, while commercial real estate loans totalled MOP2.7 billion. Annie Lao annie.lao@macaubusinessdaily.com

ew residential mortgage loans dropped to MOP2. 3billion (US$280 million) in February, amounting to a decrease of 29.5 per cent month-on-month. Of these loans, 91.8 per cent were approved by Macau banks to local residents, according to the latest official data released yesterday by the Monetary Authority of Macau (AMCM). When compared to the same period last year, new residential mortgage loans dropped by 57.1 per cent. In terms of loan value, local residential loans decreased by 31.9 per cent whilst non-residential loans fell 17.1 per cent month-on-month. The approval of equitable mortgages - residential loans collateralised by uncompleted units - also posted a month-on-month decrease of 14.9 per cent in February 2016, amounting to MOP700 million. This amounted to a 23.2 per cent drop compared with the same period last year.

In terms of value, new commercial mortgage loans approved for residents fell by 55.6 per cent whilst those to non-residents soared 2,326.5 per cent month-on-month mainly

caused by new loans granted to enterprises with business premises put up as collateral. At the end of February 2016 the gross balance of residential mortgage loans reached MOP174 billion, which remained unchanged month-on-month while increasing by 11.6 per cent year-on-year. Meanwhile, commercial real estate loans totalled MOP166.1 billion at end-February, increasing 1 per cent

month-on-month and 30 per cent year-on-year. At the same time, the delinquency ratio for residential mortgage loans was 0.09, up by 0.01 percentage points month-on-month and yearon-year, while that for commercial real estate loans remained virtually unchanged month-on-month, and down 0.04 percentage points yearon-year.

Commercial mortgages down

New approvals for loans by local banks for commercial real estate reached MOP2.7 billion in February representing a month-on-month fall of 49.6 per cent, and a year-on-year drop of 43.4 per cent.

Economy

Ferry

Yu calls for solidarity Chinese economy has “potential, tenacity and leeway”. difficulties the country’s basis is still solid and will prosper since it has “potential, tenacity and leeway”, Xinhua reported. Yu also appealed to the solidarity of Chinese communities worldwide to help the country’s development. The meeting celebrated donations from Hong Kong and Macau residents and businesses who contributed relief funds in the wake of the Sichan Province earthquake in 2013. N.M.

The development of China will open up more economic development opportunities for Macau and Hong Kong, said Yu Zheng Sheng, president of the Chinese People’s Political Consultative Conference (CPPCC), at a meeting in Beijing organised by the Overseas Chinese Affairs Office of the State Council, reports Xinhua agency. The Chinese politician also added that although China’s economy is facing

TurboJet provides Taipa-Tuen Mun ferry service from today Ferry operator TurboJet started providing one daily round-trip ferry service connecting the Taipa Temporary Ferry Terminal and Tuen Mun in Hong Kong from today following the launch of its Macau-Tuen Mun route on January 28 this year. The new ferry route departs from Taipa at 08:10 and returns from Tuen Mun at 16:10 every day. Meanwhile, the company’s current Macau-Tuen Mun route has been reduced to six round trips daily. The company said in a press release that the adjustment was ‘in response to the various travel needs of passengers.’

Corporate

CEM to hold ‘Experience Life without Electricity Camp’

Applications are now open for Form 4 and Form 6 full-time secondary school students to participate in an electricityfree camp to be held in August and organised by CEM. The activity is to be held in the Coloane Power Station and aims to teach students about electricity generation and local generation, the

facilities of CEM, learning to deal with power outages and team spirit. Students can join a team of five to six people, with a maximum of 48 participants divided between eight teams. Participants can win cash prizes of MOP4,000, MOP2,000 and MOP1,000 for their participation as well as round-trip tickets to Taiwan and two sets of Hong Kong Disneyland tickets.

The St. Regis Macao named ‘Best New Hotel in Macau’

The St. Regis Macao won ‘Best New Hotel in Macau’ at the 9th Annual TTG China Travel Awards 2016 in Shanghai. “The St. Regis Macao is thrilled to receive the prestigious accolade of ‘Best New Hotel in Macau’ from the TTG China Travel Awards 2016,” said Janet McNab, Managing

Director of Sheraton Grand Macao Hotel and The St. Regis Macao. Currently, The St. Regis Macao provides 400 guestrooms and suites ranging from 53 to 477 square metres in Cotai. “As the newest addition to the Cotai Strip, The St. Regis Macao offers a much more diversified experience for a new generation of luxury traveller,” she claimed.

Business Daily Tuesday, April 12 2016 5

Macau Foreign Investment Macau and Guinea-Bissau could be the bridges for business between China and West Africa

Out of Africa IPIM president Jackson Chang sees Macau as a stepping stone for Portuguesespeaking countries looking at China. Nelson Moura nelson.moura@macaubusinessdaily.com

he annual Forum for Economic Co-operation between China and Portuguese-speaking Countries, held in the Guinea-Bissau capital from Friday drew to a close yesterday. Some of the 280 participants cemented a number of trade and infrastructure agreements, reports Portuguese-language publication Lusa. Among the trade partnership agreements signed was a Memorandum of Understanding on the construction of an airport by the Guinea-Bissau Government and the China Machinery Engineering Corporation (CMEC), including expansion work on the existing international airport, reports Lusa. Additionally, the company plans to build a power transmission station, a deep-water harbour, and infrastructure - including roads, bridges and social housing - in the capital of Bissau, the newswire reported. Macao Trade and Investment Promotion Institute President Jackson Chang said during the event that Macau could serve as the perfect platform for companies trying to

expand to China, with Guinea-Bissau acting as proxy for companies from the Mainland and SARs trying to break into West Africa, the news agency reports. “Guinea-Bissau is a totally new country for us. We waited a long time to come here and finally the companies’ meeting was made here,” Chang told Lusa. The IPIM president underlined the tourism, cashew and fishing sectors as the most attractive for business opportunities, dismissing fears of political instability, “I didn’t even think about it, and all delegates are happy to be here,” he told Lusa.

China on Guinea-Bissau’s side

The tourism sector was also considered extremely attractive by the director of the China Chamber of Commerce, Han Meiqing, but misgivings still remain as the director admitted at the Forum that Chinese investment could take time due to the current slowdown of the Chinese economy and results may only be achievable in “one or two years”, reported the newswire. Han noted that “current studies” are underway to determine the best countries for Chinese business investment, Lusa reported. China is “completely open and available” to help in development through “concrete action” stated the Chinese ambassador to Guinea-Bissau, Wang Hua, at the close of the ceremony. The ambassador assured the country of its continued help, stating: “The Chinese Government has always been on Guinea-Bissau’s

Cashew nuts are one of Guinea-Bissau’s most important exports.

side, as well as of businessmen from other Portuguese-speaking countries. Now it all depends upon the Guineans,” reported the news agency.

Build and they will come

In the opening speech of the Forum Guinea-Bissau President José Mário Vaz presented the African country as a “handful of opportunities” for China and for the community of Portuguese-speaking Countries, Portuguese newspaper Ponto Final reported. Speaking directly to Chinese businessmen, the Guinea-Bissau President praised the political will to build an economic partnership with China.

“We are convinced that the dynamic, quality of the tools China puts [forward] today on all co-operation factors will help make the pillars of our national economic development building more robust,” Ponto Final reported. According to the most recent data from China Customs presented on the Macau Forum website, trade between China and Guinea-Bissau in the first month of 2016 totalled US$1.907 million (MOP15.24 million), while trade between Portuguese-speaking Countries topped US$6.158 billion, a decrease of 24.38 per cent from a year earlier and an 18.69 per cent drop from the previous month.

6 Business Daily Tuesday, April 12 2016

Macau Gaming Bernstein anticipates weaker than expected ADR for April

Bets are on Sands Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

hannel checks by Bernstein indicate that Macau’s gross gaming revenue for the first 10 days of April (1-10) amounted to around MOP5.5 billion, implying an average daily rate (ADR) of MOP550 million. This, when compared to the average daily rate of MOP580 million of March and the MOP673 million of February caused the firm to rank Macau’s ADR as ‘weaker than expected, particularly in light of two weekends being captured during this period’, states their report. Based upon a continuance of the rate so far seen this month, the analysts predict April’s gross gaming revenue will be MOP16.5 to MOP17.1 billion. This would represent a yearon-year decline of 11 per cent to 14 per cent. However, hopes are up for the last week of April – leading into the long Labour Day weekend - to exhibit a strong ADR.

No smoking

Based on a customer survey conducted by Bernstein, the group states that ‘although an expanded smoking ban may have some negative impact on GGR, the magnitude of such impact would likely not be significant,’ according to responses by around 1,200 Chinese gaming visitors to Macau. Less than 30 per cent of them would be ‘significantly impacted by a smoking ban’, says the report. Additionally, the report found that ‘nearly 50 per cent of visitors claim to not

smoke at all and another [around] 23 per cent either do not smoke at gaming tables or only do so rarely.’ The survey also found that only 1 per cent of customers would choose to avoid a casino that did not permit smoking, while 15 per cent might spend less time gambling.

Bernstein proposes that the Macau Government ‘allow sufficient lead time for casinos to adjust to the policy change’ as well as installing smoking balconies ‘if feasible and routing to outdoor areas’, and ‘communicating with customers about the change’. The group also sees a ‘limited risk of implementing a full smoking ban in the near term.’

Investment

Although the group still sees the Macau gaming industry as ‘volatile over the near-term’ they see secular growth possibilities as ‘driven by the paradigm shift from VIP to mass’. On

the upside the group predicts that ‘mass will be the driver of rejuvenated growth beginning in 2016 and continuing through the rest of the decade,’ helped by ‘improvements in transportation infrastructure and the opening of large scale integrated resorts between 2015-2018.’ The group ‘remains inclined towards Sands China (due to mass dominance, critical mass on Cotai and focus on return of capital)’ and ranks the group ‘Outperform’. Additionally falling into the ranking of ‘Outperform’ is Melco Crown, Wynn Macau, MGM China and Galaxy, with SJM ranked ‘Market-perform’.

Trade

CEPA exports to China surge 24 pct in March Local exports of zero-tariff goods to Mainland China under the Closer Economic Partnership Arrangement (CEPA) soared some 24 per cent month-on-month to MOP7.15 million (US$893,573) last month, the latest official data released by the Macau Economic Services (DSE) reveals. In March, the city’s exports value of CEPA zero-tariff goods to the Mainland registered an increase of MOP1.38 million compared to MOP5.76 million recorded in February. Meanwhile, for the first quarter of the year, local exports to China under the agreement totalled MOP21.4 million. Cumulatively, total CEPA exports to the country reached MOP688.7

million since the agreement between the two parties came into effect in January 2004. Official data also show that the number of granted ‘Macau Service Supplier’ certificates - which allow local firms to expand their businesses on the Mainland and enjoy zero-tariff treatment - remained at 594 as at the end of March, suggesting the economic bureau did not grant any new certificates during the month. Currently, half of all issued certificates have been granted to companies engaged in the transport industry, such as those operating freight forwarding agencies, and businesses related to logistics, storage and warehousing. K.L.

Business Daily Tuesday, April 12 2016 7

Macau Aviation Billionaire Cheng Feng buys up aviation assets worldwide

HNA agrees to buy airline caterer Gategroup for US$1.5 billion

hinese conglomerate HNA Group Co. agreed to buy Swiss airline catering company Gategroup Holding AG for 1.4 billion francs (US$1.5 billion/ MOP11.99 billion), as billionaire Chen Feng continues on an acquisition spree of aviation assets around the world. Shareholders would get 53 francs (MOP444) a share as well as the previously declared 30 centimes (MOP2.52) per share dividend, HNA said in a statement Monday. The offer is about 20 per cent more than the closing price Friday. The acquisition builds on the airline and aviation assets the hotels-to-supermarkets conglomerate has made from Brazil to Switzerland. Private companies in China are starting to rival state-owned enterprises in heeding the government’s call to go global. Chinese buyers have announced plans to spend more than US$77 billion this year through February, according to data compiled by Bloomberg. Purchasing an established airline catering network may add to a group’s profits as the returns on the business can be good, said Um Kyung A, an analyst at Shinyoung Securities Co. in Seoul.

some of the know-how into China and help improve the service quality of its airlines.” Gategroup had a loss of 63.4 million francs (MOP531.6 million) in the year ended December, giving the company a 24.5 per cent negative return on equity. Hainan Airlines Co., HNA Group’s flagship carrier, had a 10.1 per cent return on common equity. Singapore-based SATS Ltd., Asia’s biggest airline caterer, had a 13.7 per cent return on equity in the fiscal year ended March 2015, according to data compiled by Bloomberg. Last year, Gategroup said it will cut 300 jobs from places such as Zurich, London and Reston, near Washington, as losses widened. Some airline caterers have struggled in a new operating environment as airline consolidation boosts carriers’ bargaining power and a switch to low-cost flights on short-haul routes

means a lower proportion of passengers take meals. The Swiss company came up with the Gategroup 2020 plan to revive itself.

HNA Acquisitions

Upon completion of the public tender offer, HNA intends to delist Gategroup, according to the statement. The public offer is subject to a minimum acceptance level of 67 per cent and regulatory approvals, according to the statement. Gategroup shares rose 0.8 per cent to 44.10 francs (MOP369.7) on April

11.99 Billion patacas Price HNA Group Co. is paying for Gategroup Holding AG

8. They are little changed this year. The Swiss company’s directors unanimously supported the offer, according to the statement. Credit Suisse Group AG acted as the financial adviser and Homburger AG as legal adviser to Gategroup, according to the statement. UBS Group AG is acting as financial adviser to HNA. HNA and related companies have announced acquisitions and investments worth at least US$19 billion since 2009, according to data compiled by Bloomberg. It bought Swissport International AG for 2.73 billion Swiss francs (MOP22.89 billion) in July 2015, and was said to be among bidders for London City Airport earlier this year. The latest deal would add to the Chinese group’s existing airline-catering business that now falls under its HNA-Caissa Travel Group Co. unit, said Cao Xuefeng, an analyst with Huaxi Securities in Chengdu, China. “It will help HNA cover more ground in airline services, particularly after its Swissport acquisition last year, and expand their footprint globally,” Cao said. Bloomberg

Catering Business

“Catering business can be very good if you have the volume,” Um said. “The acquisition will help address the growing need for catering as more and more people travel by air. In the long run, HNA can bring in

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8 Business Daily Tuesday, April 12 2016

Greater China

Monetary policy

Producer price deflation eases, currency support may slow Economists said the slower fall in producer prices was driven by recovering global commodity prices.

hina’s producer prices fell less than expected in March while consumer inflation stabilised, a sign that strong deflationary pressures in the country’s industrial sector may be lessening. Some economists said receding worries over factory gate price declines might point to less aggressive monetary easing in the coming months. They have been watching how inflation evolves this year following a prolonged easing campaign by China’s central

bank beginning in late 2014, which has boosted credit, but has yet to result in substantial price increases. Producer prices in March fell 4.3 percent from a year earlier, extending their decline to a full four years, but at a slower rate than a median forecast in a Reuters poll of a 4.6 percent decline. Economists said the slower fall in producer prices was driven by recovering global commodity prices and also the uptick in construction activity at home. “PPI has benefited from a pick-up in real estate and infrastructure investment and new orders from the government,” said Yang Zhao, Chief China Economist at Nomura Bank in Hong Kong. “Overall the data is a good combination for financial markets. CPI was flat and so there shouldn’t be much concern on

policy tightening.” Consumer prices in March rose 2.3 percent, below a forecast 2.5 percent but similar to February’s rate of 2.3 percent. The prior month’s figure represented the fastest rise in more than a year but the increase was driven largely by sharp gains in food prices following an unexpectedly harsh winter.

Easing momentum may slow

Economists broadly agreed that stable consumer price gains around 2 percent were unlikely to deter further easing by the central bank, although some said the pace of easing might now be slower. “Today’s data suggest that the PBOC will be less aggressive in monetary easing, and we now see just one further cut of RRR (reserve requirement ratio) in 2016, instead of three,” ANZ said in a research report.

But Julia Wang, Greater China Economist at HSBC in Hong Kong, noted non-food price inflation was still quite sluggish and there was still room for adjustments. “We still expect full-year CPI to be comfortably below the 3 percent target set by the PBOC this year which means there should be ample room for monetary easing if needed.” Chinese equities were up broadly in early morning trade,

Key Points China March CPI +2.3 y/y vs Reuters poll +2.5 pct March producer prices -4.3 y/y vs poll -4.6 pct PPI in deflation for four years, but declines softening Some economists say pace of monetary easing could slow

led by financial, mining and manufacturing stocks. A key factor supporting consumer prices, which have trended sideways around 1.5 percent year-on-year since late 2014, has been the relative strength of the labour market. However, recent data paints a mixed picture on conditions for China’s workers. While the official manufacturing purchasing managers’ index (PMI) for March showed job losses slowing, a separate private survey from Caixin showed deteriorating labour market conditions in both the manufacturing and service sectors. China grew at its slowest pace in more than two decades in 2015, as the economy struggled with an extended correction in the real estate market, weak global demand and high corporate debt levels. Reuters

State owned companies

China Railway Materials suspends debt trade The Communist government has been allowing some statebacked firms to miss payments at a time when it is trying to shrink and reform the state sector. State-owned China Railway Materials Co Ltd said yesterday it has sought to suspend trade in 16.8 billion yuan (US$2.60 billion) worth of its debt instruments as the company struggles to make payments. The company is the first enterprise owned by the central government to

request a suspension in trading of its debt due to repayment problems. It is not, however, the first centrally stateowned enterprise (SOE) to encounter repayment difficulties. Initial market reaction to the announcement yesterday was limited, with money market yields and spreads largely stable. China’s debt market has witnessed an increasing number of defaults over the past year as the economy slows. In China a distinction is drawn between companies owned by the central government and those in the hands of local governments, with many analysts believing centrally owned SOEs have stronger implicit backing of the government and are therefore less likely to default. But the Communist government has been allowing some state-backed firms to miss payments at a time when it is trying to shrink and reform the state sector and draw down a mountain of debt. The debt instruments that China Railway Materials highlighted include short-term commercial paper, medium-term notes and private placement debts - bond types which have all experienced previous defaults by other companies.

China Railway Materials cited on-going business difficulties as the reason for payment difficulties. “In recent years, the company’s business has been shrinking continuously, while operating performance has been sliding,” it said in a statement published on the website of the interbank market operator, China Foreign Exchange Trade System. Zheng Lianghai, an analyst at Dongxing Securities, said China Railway Materials’ case shows China’s debt problem is getting bigger and spreading from private firms to the state sector. “We’re seeing an escalation of the debt problems,” Zheng said. “But so far, the problem is still sporadic, rather than widespread, and is limited to mainly industries suffering from overcapacity and cyclical weakness.” According to Zheng, China Railway Materials has a total debt of over 34 billion yuan, including both bonds and bond lending, and it was possible that the company could address repayment issues through the government’s debt-to-equity swap schemes. China Railway Materials said that it was discussing major issues regarding company restructuring and debt payment, and wished to halt trading in its debt instruments to protect investors.

It said it has nine debt instruments outstanding, with one due to mature on May 17. In October, centrally owned Sinosteel Corp Ltd delayed a payment on one of its bonds maturing in 2017 and asked bondholders not to exercise a put option for early redemption. It has since repeatedly extended the formal registration period for investors to exercise their put, but analysts are divided on whether the matter constitutes a formal default. Earlier this month, China’s top economic planning agency ordered issuers of so-called enterprise bonds and their underwriters to assess the risks of default and report back to the government in a nationwide campaign to limit systemic financial risk, people familiar with the matter told Reuters. Enterprise bonds, like Sinosteel’s 2017 debt, are typically issued by large state-owned enterprises, and have yet to experience a formal default aside from the matter with Sinosteel which remains unresolved. In April 2014, unlisted Baoding Tianwei Group Co Ltd became the first Chinese state-owned firm to formally default in China’s onshore bond markets. Reuters

Business Daily Tuesday, April 12 2016 9

Greater China Homeward bound firms

Alibaba-backed deals rekindle US$39 billion national buyout debate Forty Chinese companies have received offers to delist from American exchanges over the last year. When it comes to the record US$39 billion buyout spree of U.S.-traded Chinese companies, there has been a lot of talk without much action in the past 12 months. The debate is heating up now after Alibaba Group Holdings Ltd.-backed companies said last week they’ll join a buyout for Momo Inc., raising the odds that the dating app maker will complete a go-private process that had stalled after it began in June. Online video operator Youku Tudou Inc., which was acquired by Alibaba, and budget hotel chain Homeinns Hotel Group were delisted from U.S. last week. While 40 Chinese companies have received offers to delist from American exchanges over the last year, only seven have completed the process. Opinions about where the trend is headed are split. One school of thought is that the stock market rout in China and increasing policy uncertainty have made a local listing less attractive, causing the U.S. go-private deals to fall apart. The other is that the revival of the bid to take Momo private is a sign of renewed interest among Chinese investors to push similar buyouts forward. The buyouts have primarily targeted U.S.-traded Chinese companies because they’re cheap compared with their mainland peers. A Bloomberg index of American depositary receipts of Chinese companies trades at a median forward price-to-earnings ratio of 16, compared with a multiple of 68 for shares on the Shenzhen Composite Index.

Investors boosted bets in the U.S. last week that the ADR deals will get done. Shares of the buyout targets last week sold on average for 7 percent less than the offering prices, down from 15 percent before the Alibaba news. That compares with an average discount of 2.6 percent in the 31 completed deals in the past three years. Momo and Renren Inc. trade at about a 20 percent discount to the offering prices, down from more than 50 percent and 30 percent the week before, the biggest spread in the group.

“There are always ways to go home if you want to. But what you don’t know is whether the long wait is worthwhile” Jun Zhang, Oversees China research at Rosenblatt Securities

Time may be running out for the analysts who forecast a mass sprint to wrap up all the unfinished buyout business as investor groups take inspiration from Alibaba’s lead. Takeover bids of Chinese ADRs have taken an average of 252 days to finish, according to data compiled by Bloomberg

on completed deals since 2012. As for the 33 pending offers, they have already lingered 216 days since they were announced. “I suspect that most of the proposed deals never happen or take so long to happen that they take place at much lower valuations,” David Riedel, president of New York-based Riedel Research Group Inc., said by e-mail.

Policy risks

Momo and Youku may just be outliers because both companies are backed by Alibaba, indicating that “there is not a deep pool of potential investors into these deals,” he said. Both sides of the buyout debate agree that the combination of lengthy re-listing processes and increasing policy uncertainty in China may eclipse the outlook for the migration from an American exchange to a domestic one. Youku’s Chairman and Chief Executive Officer Victor Koo said on Wednesday that he is eyeing a local stock sale within three years, according to a China Daily report., a long time in a volatile market where regulation changes frequently. The Chinese government has recently gone silent on a plan to introduce a strategic emerging industries board. The much-anticipated exchange that was scheduled for a rollout this year had been expected to carry lower listing requirements and offer a fresh fund-raising venue for technology companies. If that signals the government’s intention to suspend the plans for a tech-friendly bourse, then it would create more uncertainty about how U.S.-listed Chinese companies find a way back to public markets at home. Bloomberg News

Taiwan March exports fall, raising chance of Q1 GDP contraction The government in mid-February forecast that on an annual basis, the economy likely would shrink 0.64 percent in the first quarter.

Taiwan’s exports fell more than expected in March, increasing the chances the trade-reliant economy did not escape a third straight year-on-year contraction in the first quarter. The island’s exports, considered a gauge of global demand for gadgets worldwide, in March had their 14th straight month of decline. The drops have been double-digit since June last year as global economies, particularly China, slowed. “Taiwan’s trade with China is doing very badly,” said Iris Pang, a senior economist at research firm Natixis. March’s 11.4 percent fall in exports from a year ago was steeper than a 9.6 percent retreat seen in a Reuters poll, and only a fractional improvement from February’s 11.8 percent drop.

M&A

Fosun to buy Dead Sea cosmetics maker Chinese conglomerate said it has agreed to buy Dead Sea cosmetics manufacturer Ahava for 290 million shekels (US$77 million), a deal that will help it to tap increasing demand for health-focused and personal care products in China. Fosun will wholly own Ahava, which makes skin care products from Dead Sea minerals and mud. The deal comes after some setbacks for Fosun, whose huge appetite for M&A has seen it amass interests in sectors from pharmaceuticals to mining and hospitality. An investor in Ahava, B. Gaon Holdings had flagged the deal size last week, but did not name the buyer. Capital flow

National investment in Australia growing Chinese investment in Australia last year returned to positive growth and is rising strongly with a record number of deals bringing Chinese investors into new industries, according to a yesterday report by KPMG Australia and The University of Sydney. Mega deals, with seven involving A$500 million or more during the year, helped bring the total value of investment to A$15.09 billion (US$11.1 billion), a 32.9-percent increase from the previous year in USD terms (or a 59.5-percent increase in Australian dollars), according to the report. Green cars

Xinjiang to promote cheap electric vehicles Northwest China’s Xinjiang Uygur Autonomous Region hopes to introduce 100,000 low-cost electric vehicles in its southern and eastern parts by 2020, said local authorities. The scheme will cover prefectures of Aksu, Kashgar, Hotan and Kizilsu Kirgiz in southern Xinjiang, as well as Turpan and Hami cities in eastern Xinjiang, said Zhao Shengcheng with the regional commission of economy and information technology. Zhao said the electric motor vehicles, with price tags of between 30,000 to 50,000 yuan (US$4,600 to US$7,700), are affordable in those areas and can run for about 15 km on one yuan.

Trade figures

J.R. Wu and Roger Tung

In Brief

First quarter exports were 12.1 percent below January-March 2015. Exports in the second quarter will also contract, but the fall could be a single-digit percentage, said Yeh Maan-tzwu, the statistics chief for the finance ministry, which issued the data yesterday. The government in mid-February forecast that on an annual basis, the economy likely would shrink 0.64 percent in the first quarter, the third straight quarter of year-on-year fall. Preliminary first quarter economic data will be announced on April 29. Exports to China, Taiwan’s largest trading partner, fell 14.2 percent in March, steeper than February’s 13 percent contraction. “The global economic outlook is unclear while industry competition is intensifying,” the ministry said, adding that China’s aims to become

self-sufficient in its supply chain are “all interfering with Taiwan’s exports prospects.”

Some mild improvements

In March, Taiwan’s exports to other key trading partners showed mild improvements, though shipments to the U.S. and Europe still fell, albeit at a slower pace. Imports fell 17 percent from a year earlier, their biggest drop in five months. March had a trade surplus of US$4.5 billion, above the poll’s US$4.29 billion and the highest since October. Data released so far on March reinforces expectations that Taiwan’s first quarter was weak. Wholesale prices last month were nearly 5 percent below a year earlier, even though consumer prices were about 2 percent higher. Pang said that deflation in wholesale prices “highly likely” points to a March contraction in industrial production, which will be announced on April 22. Natixis is forecasting another 12.5 basis point cut to Taiwan’s policy discount rate this year. Between September 2015 and last month, the central bank made three consecutive interest rate-cuts of that size, lowering the key rate to 1.5 percent. Reuters

Ecology enforcement

20 prosecuted for dumping toxic waste Procurators in north China’s Hebei Province have filed lawsuits against 20 people for discharging toxic waste and causing the death of a restaurant owner. The suspects from two gangs dumped more than 3,400 tonnes of waste acid and alkali in Hebei’s Lixian County, according to the regional people’s procuratorate. On May 18, 2015, Li, owner of a restaurant in the county died after inhaling poisonous gas from his kitchen sewer. Investigations found that a nearby parking lot was used as a dumping ground, with a tank specifically for that purpose.

10 Business Daily Tuesday, April 12 2016

Asia Secondary sector data

Falling Japanese machinery orders moderate but strong yen clouds outlook Orders from manufacturers fell 30.6 pct from the previous month. Stanley White

apan’s core machinery orders fell less than expected in February in a sign that capital expenditure is starting to stabilise, but a strong yen, which can hurt corporate earnings, clouds the outlook. The 9.2 percent monthly decline in core orders, a highly volatile data series regarded as a leading indicator of capital spending in the coming six to nine months, was

less than economists’ median estimate for a 12.4 percent month-on-month fall, Cabinet Office data showed yesterday. Japan’s policymakers are counting on capital expenditure to create more jobs and raise wages. However, if recent gains in the yen continue, companies could curb investment plans on worries that corporate profits will fall. “On the whole, capital expenditure is rising gradually, but the momentum this fiscal

year may be slower than last fiscal year,” said Shuji Tonouchi, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities. “The Bank of Japan’s negative interest rates have not boosted lending, and a strong yen threatens corporate profits.” Orders from manufacturers fell 30.6 percent from the previous month, which was the largest decline on record. Orders from the services sector rose 10.2 percent, marking the biggest increase since September. In January, core machinery orders jumped 15.0

percent from the previous month, the biggest gain since January 2003, due to large orders from the steel industry, and economists said this led to the pull-back in February. The Cabinet Office said

Key Points Feb core orders -9.2 pct m/m vs forecast -12.4 pct Core orders -0.7 pct yr/yr vs forecast -2.7 pct Cabinet Office keeps assessment unchanged

machinery orders are showing signs of picking up, unchanged from its assessment last month. The yen has gained more than 10 percent against dollar this year, as investors seek the currency as a safe haven. A rising yen tends to worry Japanese companies because it lowers exporters’ earnings. The Bank of Japan stunned markets in January by deciding to add negative interest rates to its massive asset-buying programme, but the move has failed to boost stock prices or arrest an unwelcome rise in the yen. Reuters

Tech start-ups snap at the heels of Asian private bankers So-called ‘robo-advisers’ automate wealth advisory roles, calling into question the value of traditional banker/client meetings. Jeremy Wagstaff and Saeed Azhar

Scanning a bank statement into a computer may not sound particularly high-tech, but it’s unsettling some of Asia’s private bankers. By aggregating all the monthly statements mailed to high net worth individuals on the multiple accounts they hold at different institutions, Singapore start-up Mesitis offers clients a single window on their holdings. “There’s a need for this,” says Pooja Gurbani, a Singaporean in her 30s who handles tens of millions of dollars of family money. “It makes us see more, it makes us more intelligent investors.” With 4.7 million high net worth individuals - typically those with US$1 million in liquid financial assets - Asia-Pacific is the largest and fastest growing wealth region, according to Cap Gemini and RBC. But its private banking industry is only slowly waking up to the demands

of a new, tech-savvy generation of wealthy clients and family offices, creating opportunities for financial technology, or fintech, start-ups. Gurbani said she was so impressed with the Mesitis service that she ditched her private banker and even invested in the firm, one of a handful of start-ups across Asia looking to disrupt the traditional wealth management business. For sure, sending statements to a third party and viewing holdings online won’t appeal to everyone, especially ultra high net worth individuals - those with at least US$30 million of investable assets - and Mesitis says it is not regulated.

Digital integration

Feeding paper statements into a scanner may seem low-tech, but it gets around the lack of application programming interfaces (APIs) that many banks and financial institutions in the United States offer to allow third-party access to data.

That level of digital integration hasn’t taken off in Asia, prompting regulators such as the Monetary Authority of Singapore (MAS) to prod banks to do more. “You don’t really have a choice because we’re already here,” Mesitis’ co-founder and CEO Tanmai Sharma told a recent banking event hosted by the MAS. “This is do-able and absurdly easy.” Sharma’s company is now running trials at three private banks to integrate its software into their systems, but he says most of his firm’s business is directly with banks’ clients. Private banks are cautiously taking note. Clients in Asia are digitally tuned-in and the region’s billionaire wealth will overtake that of the U.S. within a decade, a UBS study predicts. UBS, the world’s biggest wealth manager, is evaluating Mesitis’ Canopy service, Ketan Samani, chief digital officer at UBS Wealth Management APAC, told Reuters. Indeed, UBS and others such as Standard Chartered are building their own fintech teams. Inside a colonial-era building that once served as the British military headquarters in Singapore, UBS is lab-testing new technologies to serve its wealthy clients in Asia. Credit Suisse has a mobile app tailored for its Asia-Pacific private banking clients. Samani sees the main threat from socalled fintech disrupters in payments, lending and credit cards. “All those are under attack now. Non-traditional players have come in and the barriers have lowered to some degree,” he said.

But UBS and other private banks hope their core advisory business built around face-to-face meetings - will escape the onslaught. “We are moving towards being paid for advice, with new products coming in regardless of the number of transactions the clients are making and so on,” said Geoffroy De Ridder, operating head for UBS Wealth Management in Asia Pacific.

Chipping away

Offering advice may not, however, be as safe as it looks. So-called ‘robo-advisers’ automate wealth advisory roles, calling into question the value of traditional banker/client meetings, and potentially threatening an important source of bank income. Some Asian bankers are dismissive. “They’re kind of just algorithms in the sky, they’re pretty dumb,” said Neal Cross, chief innovation officer for DBS, a Singapore bank which spends close to US$700 million a year on technology. He was speaking in December. Mesitis’ Sharma, a former managing director at Deutsche Bank, believes the opposite. He says start-ups will chip away at both businesses by aggregating customers’ data and offering smarter insights on their investments. “Robo is a logical offshoot of the aggregation business we do,” said Sharma. “We have the data anyway, so using that data to make efficient investment portfolios is a logical next step.” Reuters

Business Daily Tuesday, April 12 2016 11

Asia In Brief Fiscal policy

Indonesia considering cutting corporate tax Indonesia is considering cutting the corporate income tax rate to 20 percent from 25 percent in the upcoming revision to the income tax law, the finance minister told lawmakers yesterday. “We are still doing our review, but 20 percent looks adequate,” Bambang Brodjonegoro said in a meeting with the parliamentary commission overseeing taxes. Last week, he said the government planned to also cut income tax rates for individuals, but did not disclose details. The current income tax brackets for individuals range from 5 percent to 30 percent. Industrial data

Malaysian factory output up

Regional outlook

World Bank trims 2016, 2017 East Asia growth forecasts Economies in the region face possible risks including a weaker-than-expected recovery in high-income economies.

he World Bank trimmed its 2016 and 2017 economic growth forecasts for developing East Asia and Pacific, and said the outlook was clouded by risks such as uncertainty over China’s growth prospects, financial market volatility and further falls in commodity prices. The Washington-based lender now expects the developing East Asia and Pacific (EAP) region, which includes China, to grow 6.3 percent in 2016 and 6.2 percent in 2017, slowing from 6.5 percent growth in 2015. Its previous forecast in October was 6.4 percent growth in 2016 and 6.3 percent in 2017. The expected slowdown in the region is mainly due to the continued moderation of growth in China, which is likely to see growth slow to 6.7 percent in 2016 and 6.5 percent in 2017, from 6.9 percent in 2015, the bank said. The growth forecasts for

China were unchanged from October. “The fundamentally positive base case for growth and poverty reduction in the region is subject to elevated risks,” the World Bank said in its latest East Asia and Pacific Economic Update report yesterday. Possible risks include a weaker-than-expected recovery in high-income economies, a faster-than-expected slowdown in China, as well as increases in financial market volatility that could cause monetary conditions to tighten and have adverse effects on the real economy, the bank said. “In particular, vulnerabilities created by the interplay between high levels of indebtedness, price deflation, and slowing growth in China bear close monitoring, as do corporate and financial sector vulnerabilities across much of the region.” A further fall in commodity prices would have a negative impact on major commodity exporters and reduce the space for public spending and investment, the bank added. Growth in Malaysia was likely to come in at 4.4 percent in 2016 and 4.5 percent in 2017, down from 5.0 percent in 2015, as weaker demand from China and low commodity prices constrain growth and public spending, the bank said.

Growth in Thailand was seen at 2.5 percent in 2016 and 2.6 percent in 2017, down from 2.8 percent in 2015, with weaker external demand and policy uncertainty likely to weigh on private investment. Indonesia is likely to see growth accelerate to 5.1 percent in 2016 and 5.3 percent in 2017, from 4.8 percent in 2015, despite low commodity prices and headwinds to external demand. “However, this outlook is contingent on the implementation of an ambitious public investment programme, and the success of recent reforms to reduce red tape and uncertainty for private investors,” the bank said, regarding Indonesia. Growth is expected to firm in the Philippines to 6.4 percent in 2016 from 5.8 percent in 2015, on the back of accelerated implementation of the existing pipeline of public-private partnership projects, and spending related to the May 2016 presidential election, the bank said. Reuters

Key Points Developing East Asia Pacific 2016 growth seen at 6.3 pct Growth forecast for 2016 lowered from 6.4 pct in October World Bank keeps 2016 China growth view steady at 6.7 pct Growth seen picking up in Indonesia, Philippines in 2016 Malaysia, Thailand expected to see slowdown in growth

Tax haven

New Zealand launches review of foreign trusts after Panama Papers The nation has long been identified by lawyers and legal experts as offering a trust regime popular with the offshore trust business. Charlotte Greenfield

New Zealand’s government yesterday said it would begin a review of its foreign trust laws after leaked documents from a Panamanian law firm highlighted vulnerabilities in its legal framework that made it a possible link in international tax avoidance structures. “Ministers decided that in light of the ‘Panama Papers’ being released

last week, it’s worth looking at whether the disclosure rules are fit for purpose and whether there are practical improvements we can make,” said Finance Minister Bill English in a statement. The Panama Papers showed how offshore companies often tout New Zealand trusts as a secretive way to create a non-taxed vehicle in the South Pacific nation. English said the review would focus on disclosure rules for foreign trusts, including the way information was recorded and exchanges of information with other tax jurisdictions. The Panama Papers, shared by the International Consortium of Investigative Journalists with a number of other media outlets, showed that Mexican businessman Juan Armando

Hinojosa and Malta’s energy minister Konrad Mizzi had been using New Zealand-based foreign trusts, though there was no evidence that either had done anything illegal. New Zealand has long been identified by lawyers and legal experts as offering a trust regime popular with the offshore trust business because its foreign trusts are not subject to tax. The country’s tax department recommended in 2014 that there be a review of taxation of foreign trusts. Former PricewaterhouseCoopers chair John Shewan had been asked to conduct the review and would have to report back to the government by June 30. In the initial wake of the Panama Papers release the government initially denied New Zealand might have problems with its trust regimes. “It is ridiculous to suggest that New Zealand is a tax haven, as tax havens thrive on secrecy,” said Tax Minister Michael Woodhouse in a statement on April 4. Reuters

Malaysia’s February industrial production rose 3.9 percent from a year earlier supported by strength in the electricity, manufacturing and mining sectors, government data showed on Monday. The figure was slightly below the 4.0 percent rise forecast in a Reuters poll. Electricity output expanded 10.5 percent in February from the same month last year, data from the Statistics Department showed. Factory output in January had beaten market expectations at 3.2 percent from a year earlier, supported by growth in the manufacturing, mining and electricity sectors. Results

LG Electronics posts surprise Q1 earnings LG Electronics, South Korea’s No.2 maker of smartphones, posted a surprise first-quarter earnings result on the back of strong sales of refrigerators, air conditioners and TVs, a regulatory filing showed yesterday. Preliminary figure for operating profit reached 505.2 billion won (US$440 million) in the three months ending March 31, up 65.5 percent from a year earlier. It was 44.8 percent higher than the previous three-month period. Revenue amounted to 13.36 trillion won in the first quarter, up 4.5 percent from a year ago. Going public

Reliance Worldwide to raise up to US$693 mln in IPO Australian plumbing services company Reliance Worldwide Corp plans to raise up to A$919 million (US$692.6 million) in an initial public offering of shares, according to an offer document filed with the regulator yesterday. This will make it the biggest IPO fund-raising since health insurer Medibank raised A$5.7 billion in late 2014. Reliance Worldwide Corp, which is riding a construction boom in the country, will offer 315-367.5 million shares at an indicative price range of A$2.27 to A$2.50, it said in an IPO prospectus. JPMorgan and Macquarie are the joint lead managers of the IPO.

12 Business Daily Tuesday, April 12 2016

Asia Sentiment index

Japan’s household inflation expectations hit 3-year low Eighty percent of the total number of households surveyed expect inflation to pick up five years from now. Leika Kihara

apanese households’ sentiment worsened in the three months to March and their expectations of inflation fell to levels before the Bank of Japan (BOJ) deployed its massive asset-buying programme three years ago, a central bank survey showed. The survey’s bleaker outlook keeps alive expectations of additional monetary stimulus even as BOJ Governor Haruhiko Kuroda maintained his optimism that the world’s third-largest economy was

recovering moderately. Kuroda, however, warned that he was closely watching how a recent surge in the yen and slumping Tokyo stock prices could affect the outlook. “Global financial markets remain unstable as investors are becoming increasingly risk averse due to uncertainty over the outlook of emerging and resource-exporting economies,” Kuroda said in a speech at an annual meeting of trust banks yesterday. “The BOJ won’t hesitate to take additional easing steps if needed to achieve

its inflation target,” he said. The BOJ’s quarterly survey on people’s livelihood showed the ratio of households who expect prices to rise a year from now stood at 75.7 percent in March, down from 77.6 percent in December and the lowest level since March 2013. Eighty percent of the total number of households surveyed expect inflation to pick up five years from now, down slightly from December, the survey showed yesterday. That level was the lowest since December 2012. A separate index measuring

households’ confidence about the economy stood at minus 22.5 in March, worsening from minus 17.3 in December to the lowest level since March 2015. The gloomy outcome underscores the dilemma the BOJ faces as it battles mounting external headwinds for the economy with its dwindling policy tool-kit. The BOJ’s adoption of a massive asset-buying programme, dubbed “quantitative and qualitative easing,” in April 2013 was intended to spur public expectations that prices will rise, and in turn, encouraging households and firms to spend. That has failed to materialise, forcing the central bank to add negative interest rates to QQE in January in a fresh attempt to accelerate inflation toward its ambitious 2 percent target. The move has failed to

arrest a worrying spike in the yen or boost business confidence, underpinning market expectations the BOJ may top up stimulus in the coming months. A separate poll by private think tank Japan Centre for Economic Research, among the most comprehensive surveys conducted on Japanese analysts, showed 39 of the 44 analysts surveyed projecting that the next BOJ move would be further monetary easing. Of those forecasting more easing, 13 analysts expect the BOJ to act in April and 14 in July, the poll showed yesterday. Japan’s economy contracted in October-December last year and analysts expect it to post only feeble growth, if any, in January-March. Inflation has also ground to a halt, keeping the BOJ under pressure to ease again in coming months. Reuters

Visitors increase

Tourist arrivals in February up in Philippines China provided 130,916 visitors, some 11.99 per cent share of the total. Tourist arrivals for the month of February 2016 hit 549,725 visitors, up 20.42 percent from 2015, the Philippine Tourism Department announced yesterday.

El Nido touristic spot in Philippines.

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The Department cited this achievement as the highest growth rate and the biggest volume of visitor arrivals during the 62 months under the Aquino Administration.

“The biggest change during this Administration is that we now have the Filipino people more enthusiastic about tourism itself. And the growth that we see today is precisely the result of our people’s renewed confidence. We, as a country, believe that we can deliver an experience to tourists that is more fun because we allow visitors to take part in our joy. And the whole world is as convinced that more people should visit and revisit the Philippines,” said Tourism Secretary Ramon R. Jimenez Jr. January arrivals also increased by 13.17 percent placing the number of inbound visitors during the first 2 months of 2016 at 1,091,983 or a 16.71 percent growth from the same period in 2015. By regional grouping, East Asia is the country’s biggest source of arrivals with 565,971, constituting more than half of the total visitor volume.

South Korea continues to supply the biggest arrivals to the country with a total of 284,763 arrivals. This market accounted for 26.08 percent which is more than one fourth of the total arrivals. China has the biggest growth of 107.88 percent from its arrivals of 62,976 in 2015 to 130,916 this year. Another high growth market is China’s Taiwan which posted an increase of 30.89 percent. The United States of America ranked as the 2nd visitor-generating market with 155, 796 visitors, constituting 14.27 percent of the total and recording a 9.54 percent increase from its arrivals of 142,226 in the same period of 2015. China which provided 130,916 visitors secured the 3rd spot, with a 11.99 percent share to the total. Japan followed by contributing 92,531 visitors, comprising 8.47 percent of the total inbound traffic. The 5th major market was Australia with 43,712 arrivals, comprising 4 percent of the total. Xinhua

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Business Daily Tuesday, April 12 2016 13

Asia South Korean President Park Geun Hye.

In Brief Lee Kuan Yew’s legacy

Open spat between Singapore’s premier and his sister

Reform challenges

Korean election brings Park’s labour-law overhaul to a crossroad Opponents contend that the bills would strip away important protections for workers and ultimately hurt the economy. Cynthia Kim and Sam Kim

he fate of President Park Geun Hye’s effort to spur economic revival through an overhaul of labour laws hangs in the balance this week as South Koreans go to the polls for a parliamentary election. Her package of four bills to cut back restrictions on hiring contract workers has been the subject of heated debate in the National Assembly since it was submitted last year. Getting the legislation passed is central to her goals of raising the employment rate and boosting economic growth to 4 percent. “Time isn’t on her side,” said Kwon Nam Hoon, a professor of economics at Konkuk University in Seoul. Park, who is more than half way through her single five-year term, needs support from both her ruling Saenuri party and opposition members in the legislature for the proposed changes. Supporters of the package point to the high youth jobless rate and the struggles that older Koreans have in finding new roles in the workforce. By allowing more industries to use temporary employees and reducing restrictions on dismissing workers, Park wants to raise the employment rate to 70 percent, from just under 59 percent now. Voting on Wednesday is likely to determine if Saenuri increases its majority by enough to force the bills through the assembly, or whether they continue to be blocked by the opposition, with vocal support from labour unions.

Estimates vary on the likelihood of Park’s party winning a super-majority of 180 in 300-member parliament, which would allow Saenuri to unilaterally fast-track the package. Most analysts estimate it will take 150 to 180 seats, compared with the 146 it holds now in a chamber that has 292 sitting members. Saenuri’s support rating rose two percentage points to 39 percent on Friday, while the main opposition’s stayed the same at 21 percent, according to a poll by Gallup Korea. About 20 percent of respondents were undecided. “Manufacturers are one example of where companies can’t respond flexibly to volatile economic conditions because they’re banned from hiring temporary workers at their production units,” said Kim Dong Wook, a spokesman for the Korea Employers Association.

Unintended consequences

Opponents contend that the bills would strip away important protections for workers and ultimately hurt the economy because people with lower wages and little job security spend less. A fifth bill that would have allowed companies to employ contract workers for longer than the current maximum of two years was put on the back-burner in January amid opposition from labour unions. Still, there is almost 84 percent approval for letting companies hire older workers on temporary contracts, according to a survey of 1,000 people by the Maeil Business Newspaper

and Hankook Research. Many older Koreans have insufficient savings to fully retire and need to work to supplement their income. At the same time, their economic contributions are becoming increasingly important as the birth rate drops and the population ages.

Legislative balance

While Park has won parliamentary approval for laws to encourage corporate restructuring by offering tax cuts for mergers and simplifying legal procedures, other economic measures have stalled, including bills aimed to boost the medical, tourism and education sectors. At the moment, Saenuri needs the support of about 30 opposition lawmakers to bring bills to a vote. “Public opinion is very much split,” said Kim Hyeon Wook, an economist at SK Research Institute. “But companies should be able to increase jobs at a lower cost.” Bloomberg News

Key elements of Park’s labour package Allowing manufacturers to hire temporary workers Making it easier to employ workers aged 55 and over on temporary contracts Tightening requirements for claiming jobless benefits Giving employers more leeway to extend maximum work hours

The rupee, down 0.4 pct this year in Asia’s worst performance, slumped to a record in August 2013. Kartik Goyal

Reserve Bank of India Governor Raghuram Rajan is going all out to build up the nation’s foreign-exchange reserves as he seeks to augment the rupee’s defences. The stockpile grew to an unprecedented US$359.76 billion in the

week to April 1, Reserve Bank of India data showed Friday. The reserves surged as Governor Raghuram Rajan bought dollars to take advantage of US$4.1 billion of inflows into stocks, the biggest in three years, that unwound some of the outflows in January and February. Rajan is boosting reserves to counter any volatility in outflows amid slowing growth in China and prospects that the Federal Reserve will consider raising U.S. interest rates. The rupee, down 0.4 percent this year in Asia’s worst performance, slumped to a record in August 2013 as indications the U.S. would curtail monetary stimulus spurred investors to pull back from emerging markets. “With flows coming back into the market, the RBI has been there and buying at every dip,” said Rohan

Key indicator

Indonesian motorbike sales up Indonesia’s motorcycle sales grew 3.1 percent from the previous year in March, the first growth in six months, data from an industry association showed yesterday. Sales on a monthly basis rebounded 7.3 percent in March to a total of 563,341 units. Motorcycles are hugely popular in Southeast Asia’s biggest economy and their sales are a key indicator for consumption. Sales were led by Honda Motor Co Ltd, Yamaha Motor Co Ltd and Kawasaki, the data showed. Customs data

South Korea expected to post export fall South Korea is expected to post the longest falling trend in exports, which account for about half of the export-driven economy, in April, customs data showed yesterday. For the first 10 days of April, the country’s exports amounted to US$10.53 billion, according to Korea Customs Service (KCS). The figure was down 25.7 percent compared with the same period of last year, heralding the country’s longest export fall this month. In March, the exports declined 8.2 percent compared with a year earlier, posting the falling trend for 15 months in a row. Infrastructure

India to develop Iran’s Chabahar port

Monetary policy

Central bank of India builds record reserves

A spat between Singapore Prime Minister Lee Hsien Loong and his younger sister has blown into the open, one year after the death of their father Lee Kuan Yew, who brooked no discord within the city-state’s political world. Lee’s sister accused the prime minister in a Facebook post of abusing his power and forming a political dynasty, a highly unusual public comment in Singapore. It has sparked an online debate in a country where the Lee family is mostly held in high regard and where several of its critics have been sued for defamation.

Lasrado, Mumbai-based head of foreign-exchange trading at RBL Bank Ltd. “Speculators who see that the RBI has the firepower will not try to depreciate or take advantage of the situation, compared to earlier times when reserves were low and India saw outflows.” Under Rajan’s leadership, currency reserves have swelled from a three-year low in September 2013 as he spurred inflows by offering discounted currency swaps to banks. Foreign funds increased holdings of local debt by 22 billion rupees (US$331 million) in March, the biggest increase five months, data from the National Securities Depository Ltd. show. The yield on notes due January 2026 was little changed at 7.45 percent, according to prices from the RBI’s trading system. Reuters

India has expressed its intention to invest US$20 billion to develop Iran’s Chabahar port and sought land from Tehran in the port’s special economic zone, local media reported yesterday. This was conveyed by Indian Petroleum Minister Dharmendra Pradhan at a meeting with his Iranian counterpart Bijan Zangeneh in Tehran Saturday, nearly two years after India and Iran had inked a pact to jointly develop the port, reports said. “Dharmendra Pradhan conveyed to Iranian side that Indian companies could invest up to US$20 billion,” the media quoted a statement by stateowned Oil and Natural Gas Corporation.

14 Business Daily Tuesday, April 12 2016

International In Brief OECD

Indicator flags easing growth in key economies Growth is seen easing off in major advanced economies, the OECD said yesterday, with the outlook continuing to deteriorate in the United States and Britain while the German economy is losing steam. The Paris-based Organisation for Economic Cooperation and Development said its monthly leading economic indicator, a measure designed to flag turning points in the world economy, showed signs of stabilisation in China, India and France. The euro zone economy remained at 100.5 in its latest review of conditions. The U.S. reading edged lower, to 98.9 from 99.0, while the UK reading dipped to 99.1 from 99.2.

Financial sector evolution

U.S. banks’ dismal first quarter may spell trouble for 2016

Monetary policy

IMF defends negative interest rates The IMF on Sunday defended negative interest rates set by central banks, given “significant risks” of slow growth, while acknowledging potential for dangerous boom-andbust cycles. Six central banks, notably the European Central Bank and the Bank of Japan, have taken the unprecedented measure, aimed at loosening the reins on credit to help spur consumer spending and investment. “Although the experience with negative nominal interest rates is limited, we tentatively conclude that overall they help deliver additional monetary stimulus and easier financial conditions,” three top officials at the International Monetary Fund wrote in a blog. Banking sector

Kenya’s central bank to extend credit The Central of Bank of Kenya said on Sunday it would extend credit to any bank or micro finance institution that comes under liquidity pressure, in order to boost the stability of the banking sector. CBK Governor Patrick Njoroge told a media briefing in the capital Nairobi that the move follows public anxiety triggered by the placing into receivership of Chase Bank last week. “From Monday we will avail a credit facility to any bank or micro finance institution that comes under liquidity pressure arising from no fault of their own.

Earnings season kicks off with JPMorgan Chase & Co on Wednesday.

Bank executives have already warned investors to expect major declines across other areas as well.

t is only April, but some on Wall Street are already predicting a rotten 2016 for U.S. banks. Analysts say it has been the worst start to the year since the financial crisis in 2007-2008 and expect poor first-quarter results when reporting begins this week. Concerns about economic growth in China, the impact of persistently low oil prices on the energy sector, and near-zero interest rates are weighing on capital markets activity as well as loan growth. Analysts forecast a 20 percent decline on average in earnings from the six biggest U.S. banks, according to Thomson Reuters I/B/E/S data. Some banks, including Goldman Sachs Group Inc, are expected to report the worst results in over ten years. This spells trouble for the financial sector more broadly, since banks typically generate at least a third of their annual revenue during the first three months of the year. “What’s concerning people is they’re saying, ‘Is this going to spill over into other quarters?’” Goldman’s lead banking analyst Richard Ramsden said in an interview. “If you do have a significant decline in revenues, there is a limit to how much you can cut costs to keep things in equilibrium.”

Investors will get some insight on Wednesday, when earnings season kicks off with JPMorgan Chase & Co, the country’s largest bank. That will be followed by Bank of America Corp and Wells Fargo & Co on Thursday, Citigroup Inc on Friday, and Morgan Stanley and Goldman Sachs Group Inc on Monday and Tuesday, respectively, in the following week. Banks have been struggling to generate more revenue for years, while adapting to a panoply of new regulations that have raised the cost of doing business substantially. The biggest challenge has been fixed-income trading, where heavy capital requirements, new derivatives rules, and restrictions on proprietary trading have made it less profitable, leading most banks to simply shrink the business. Citigroup Inc CFO John Gerspach said to expect trading revenue more broadly to drop 15 percent versus the first quarter of last year. JPMorgan Chase & Co’s Daniel Pinto

“The first quarter is going to be ugly and we don’t think that necessarily gets recovered in the back half of the year” Jerry Braakman, Chief investment officer of First American Trust

said to expect a 25 percent decline in investment banking. Several bank executives have warned about declining quality of energy sector loans. Global investment banking fees for completed merger and acquisitions, and stock and bond underwriting, totalled US$15.6 billion in the first quarter, a 28 percent decline for the year-ago period, according to Thomson Reuters data. Volatility in stock prices and plunging commodities prices caused trading volume to dry up during most of the quarter. Trading activity picked up slightly in March but was not strong enough to offset declines during the first two months of the year. Analysts have been lowering first-quarter estimates over the last month in light of business pressures. They now expect JPMorgan to report adjusted earnings of US$1.30 per share, Bank of America to report 24 cents per share, Wells Fargo to report 99 cents per share, Citigroup to report US$1.11 per share, and Morgan Stanley to report 63 cents per share. Goldman is expected to report $3.00 per share, the lowest first-quarter earnings since before the financial crisis. Matt Burnell, a Wells Fargo banking analyst, said in a research note Friday that capital markets weakness may extend at least into the second quarter. Analysts said there may be some loan growth outside of the energy sector, and a small uptick in net interest margins, a measure of loan profitability, but overall, the tone was less-than-optimistic. Reuters

PANAMA PAPERS

Automotive industry

Germany’s finance minister urges global push to fight tax cheats

Jaguar Land Rover (JLR) launched a technology business yesterday which aims to create apps for services such as car-sharing, the latest automaker to explore ways of tapping demand for cheaper and greener ways of making short journeys. The InMotion venture will begin testing products including car-sharing in North America, Europe and Asia from next month before broader testing by the public. Automakers are trying to appeal to younger consumers in major global cities who are less likely to buy a car and have been attracted by new services such as car club Zipcar and ride‑service Uber.

The revelations have prompted a number of governments to launch tax fraud and money laundering probes.

Jaguar Land Rover launches tech venture

German Finance Minister Wolfgang Schaeuble on Sunday pleaded for countries to work together in the fight against tax cheats and money launderers by sharing national lists naming the beneficiaries of shell companies. The proposal is part of a 10-point plan by Schaeuble, detailed in the Handelsblatt and Die Welt newspapers, to clamp down on tax havens in the wake of the “Panama Papers” scandal which revealed how offshore companies are used to hide wealth.

“The registers should be drawn up at the national level and linked up,” Schaeuble told ARD television. Countries who refused to share tax-related information should face penalties, he added. “We would put them on a blacklist and certain financial operations would no longer be possible with them.” Journalists and non-profit groups should also have access to the information, he said. The European Union has already set out to work on a joint blacklist of such tax havens, according to Handelsblatt. “We need total transparency,” Schaeuble told Bild newspaper, adding that he intended to present the plan in the coming week. The minister told German media however that he was not calling for a ban on anonymous shell companies. His action plan also moots ending

Germany’s statute of limitations for tax fraud. “Tax evaders should no longer be able to find shelter in the statute of limitations,” the document says. The head of the Organization for Economic Cooperation and Development (OECD) Angel Gurria earlier this week called Panama “the last major holdout” allowing funds to be hidden from tax and law enforcement authorities. The Central American nation has since said it was prepared to step up its exchange of information with the OECD. The “Panama Papers” controversy has shone a global spotlight on tax evasion after 11.5 million documents were leaked from Panamanian law firm Mossack Fonseca detailing the offshore financial dealings of the rich and powerful. AFP

Business Daily Tuesday, April 12 2016 15

Opinion Business Wires

Phnom Penh Post

Republican presidential candidate Donald Trump has proposed slapping a 45% tax on Chinese imports into the US.

Cambodian conglomerate the Royal Group is in talks with two foreign stateowned petroleum companies to conduct feasibility studies for an oil pipeline that would run from Sihanoukville to Phnom Penh, a government official has confirmed. Meng Saktheara, secretary of state at the Ministry of Mines and Energy, said the Royal Group was engaged in discussions to develop Cambodia’s downstream capabilities via a pipeline. He said the company had recently been approached by a state-owned Chinese company and Pertamina, an Indonesian state-owned oil and natural gas corporation.

The Times of India India has offered to invest up to US$20 billion oil, petrochemicals and fertiliser projects in joint venture with Iran if Teheran offered certain concessions and cheap gas, even though there was no sign yet of an agreement on the long-pending rights to develop Farzad-B gas field in the Persian Gulf discovered by staterun ONGC Videsh. The investment offer was made by oil minister Dharmendra Pradhan during a meeting with his Iranian counterpart Bijan Namdar Zanganeh in Teheran on Saturday. Iran has been replaced by Iraq as India’s second largest crude supplier after Saudi Arabia.

Anti-trade America?

T New Zealand Herald Prime Minister John Key is to visit China this month to discuss upgrading the free trade agreement between the two countries that was signed almost eight years ago. Key will meet President Xi Jinping and Premier Li Keqiang in Beijing but will also visit Xi’an and Shanghai. He said the FTA had been a success for both parties - “two-way trade between New Zealand and China has more than doubled, reaching almost US$19 billion. An FTA upgrade would allow us to modernise the agreement and ensure it continues to drive our relationship forward.”

Bangkok Post Collapsing global oil prices are expected to push domestic fuel demand by 8-10% this year, according to PTT Plc, the country’s oil and gas conglomerate. Demand normally rises by 4-5% a year but lower oil prices have made motorists switch from liquefied petroleum gas (LPG) to petrol and diesel. Demand for LPG has also dropped with the removal of government subsidies since October 2014. Demand for petrol rose by 13% last year while demand for diesel grew by 4%. This year, demand for petrol will rise by 10% and demand for diesel will increase by 4%, he said.

he rise of anti-trade populism in the 2016 US election campaign portends a dangerous retreat from the United States’ role in world affairs. In the name of reducing US inequality, presidential candidates in both parties would stymie the aspirations of hundreds of millions of desperately poor people in the developing world to join the middle class. If the political appeal of anti-trade policies proves durable, it will mark a historic turning point in global economic affairs, one that bodes ill for the future of American leadership. Republican presidential candidate Donald Trump has proposed slapping a 45% tax on Chinese imports into the US, a plan that appeals to many Americans who believe that China is getting rich from unfair trade practices. But, for all its extraordinary success in recent decades, China remains a developing country where a significant share of the population live at a level of poverty that would be unimaginable by Western standards. Consider China’s new five-year plan, which aims to lift 55 million people above the poverty line by 2020, a threshold defined as just CN¥2,300, or US$354, per year. This compares with a poverty line of around US$12,000 for a single person in the US. Yes, there are significant cost-of-living differences that make direct comparisons dubious, and, yes, poverty is as much a social condition as an economic one, at least in advanced economies; but the general point that inequality between countries swamps inequality within countries is a very powerful one. And China’s poverty problem is hardly the world’s worst. India and Africa both have populations roughly comparable to China’s 1.4 billion people, with significantly smaller shares having reached the middle class. Democratic presidential candidate Bernie Sanders is a far more appealing individual than “The Donald,” but his anti-trade rhetoric is almost as dangerous. Following prominent left-leaning economists, Sanders rails against the proposed new Trans-Pacific Partnership (TPP), even though it would do much to help the developing world – for example, by opening up Japan’s market to Latin American imports. Sanders even hammers his opponent Hillary Clinton for her support of earlier trade deals such as the 1992 North America Free Trade Agreement (NAFTA). Yet that agreement forced Mexico to lower its tariffs on US goods far more than it forced the US to reduce its already low tariffs on Mexican goods. Unfortunately, the resounding success of Sanders’s and Trump’s anti-trade rhetoric has pulled Clinton away from her more centrist position, and might have the same effect on many members of the House and Senate. This is a recipe for disaster. The TPP does have its flaws, particularly in its overshoot on protection of intellectual property rights.

Kenneth Rogoff Former chief economist of the IMF, is Professor of Economics and Public Policy at Harvard University.

But the idea that the deal will be a huge job killer for the US is highly debatable, and something does need to be done to make it easier to sell high-tech goods to the developing world, including China, without fear that such goods will be instantly cloned. A failure to ratify the TPP would almost certainly condemn tens of millions of people in the developing world to continued poverty. The right remedy to reduce inequality within the US is not to walk away from free trade, but to introduce a better tax system, one that is simpler and more progressive. Ideally, there would be a shift from income taxation to a progressive consumption tax (the simplest example being a flat tax with a very high exemption). The US also desperately needs deep structural reform of its education system, clearing obstacles to introducing technology and competition. Indeed, new technologies offer the prospect of making it far easier to retrain and retool workers of all ages. Those who advocate redistribution by running larger government budget deficits are being short sighted. Given adverse demographics in the advanced world, slowing productivity, and rising pension obligations, it is very hard to know what the endgame of soaring debt would be. Do pro-deficit progressives realize that the burden of any future debt crises (or financial-repression measures) are likely to fall disproportionately on poor and middle-income citizens, as they have in the past? Simple redistribution of income through taxes and transfers is far more direct and more potent, and would certainly serve to expand aggregate demand. Anyone who portrays the US as a huge loser from the global economic status quo needs to gain some perspective on the matter. I have little doubt that a century from now, Americans’ consumption-centric lifestyle will no longer be viewed as something to envy and emulate, and the country’s failure to implement a carbon tax will be viewed as a massive failure. With under 5% of the world’s population, the US accounts for a vastly disproportionate share of carbon-dioxide emissions and other pollution, with much of the blame falling on America’s middle class. But the idea that trade fuels inequality is a very parochial perspective, and protectionists who shroud themselves in a moralistic inequality narrative are deeply hypocritical. As far as trade is concerned, the current US presidential campaign is an embarrassment of substance, not just of personality. Project Syndicate

“The right remedy to reduce inequality within the US is not to walk away from free trade, but to introduce a better tax system”

16 Business Daily Tuesday, April 12 2016

Closing Cargo figures

China’s rail freight volume down

The volume of freight carried on China’s railways dropped during the January-March period as economic activity remained subdued, official data showed yesterday. Railways transported 788 million tonnes of cargo in the first quarter of 2016, down 9.43 percent year on year, according to data from China Railway Corporation. Dragged by a housing slowdown, softening domestic demand and unsteady exports, China’s economy expanded 6.9 percent year on year in 2015, the weakest

reading in around a quarter of a century. With China’s pro-growth fiscal and credit policy gradually sinking in, the economy is showing increasing signs of stabilizing. The official purchasing managers’ index for the manufacturing sector came in at 50.2 in March, up from February’s 49 to its highest level since August. An earlier report by government think tank the National Academy of Economic Strategy forecast the economy to expand by around 6.7 percent in the first quarter before gradually stabilizing in the second quarter to around 6.8 percent. Xinhua

Wall Street

Financial managers’ wages double in 25 years Despite the increase in total wages, attracting talent is a problem. Jenny Surane

ear Wall Street: Stop complaining about your pay. Five years after Occupy Wall Street protesters took over Zuccotti Park in downtown Manhattan, spawning a national discussion about the divide between America’s highest and lowest earners, the pay gap has only gotten wider. Now, even as bankers bemoan their declining bonuses and job prospects, it’s helping fuel the campaigns of Donald Trump and Bernie Sanders. The spread is even more pronounced over the past 25 years. When adjusted for inflation, wages for investment bankers and securities-industry employees, including salary and bonuses, increased 117 percent from 1990 through 2014, according to U.S. Bureau of Labour Statistics data. Over the same period, wages for all other industries rose just 21 percent, to US$51,029 in 2014, about one-fifth of the US$264,357 that bankers and brokers earned that year. Presidential candidates have been quick to capitalize on the gap. Front-runners for both parties - Democrat Hillary Clinton and Trump, the billionaire Republican - have targeted a law that

allows financial managers to have their income taxed at a lower rate. Sanders, a Vermont Senator, has proposed taxing Wall Street speculators to pay for his proposal to make public colleges free. Texas Senator Ted Cruz has mocked Manhattan money and said he’d let big banks go bankrupt. “This wage differential is right at the top of both Trump’s and Sanders’s agendas as one of the issues that most resonates with the public,” said John Challenger, chief executive officer of Chicago outplacement company Challenger, Gray & Christmas. “The end result is in the anti-Wall Street current that’s been rumbling around the U.S.”

Income inequality

The gap is even bigger in New York City, according to data compiled by State Comptroller Thomas DiNapoli based on income-tax records. The average annual wage in the securities industry in the city in 2014, including salary and bonus, was US$404,800, almost six times as much as the US$72,300 average for all other private-sector jobs, the data show. That’s wider than the margin in 2011, the year of the Occupy protests, when average wages in the securities industry in New York were about five times

“There’s almost like a hangover from the financial crisis, and the perception has changed pretty dramatically since then” Patrick Curtis, Founder of the online forum Wall Street Oasis

as much as those for all other non-government employees. One change since the financial crisis has led to grumblings on Wall Street: Firms have curbed bonuses for New York City securities-industry employees by 35 percent from their peak in 2006, adjusting for inflation, according to the comptroller’s data. Wall Street’s average bonus fell to US$146,200

in 2015, a 9 percent drop from the previous year.

Less popular

Despite the increase in total wages, attracting talent is a problem. Securities-industry employees are leaving to try their luck in Silicon Valley, and banks have failed to halt a decline in popularity among business students. At Columbia and Harvard business schools, the median base salary for graduates entering investment banking rose to US$125,000 last year, a 25 percent increase from 2011, data compiled by Bloomberg from school reports show. During the same period, the percentage of students entering the industry fell to 16 percent from 27 percent at Columbia and to 5 percent from 10 percent at Harvard. “Are people going to hold a charity benefit for Wall Street? That’s probably not going to happen - you’re not going to buy those raffle tickets,” said Alan Johnson, managing director of Johnson Associates, which designs executive-compensation programs for financial firms. “But

business school graduates are not wanting to go into financial services. They’re wanting to go do something else. We’re below an equilibrium. If pay does not increase in certain parts of financial services, the industry will not get the right talent. It will not be as competitive.” For now, though, it doesn’t look like the public has much sympathy for the investment-banking industry, the second-highest-paying in the U.S. in 2014 behind only portfolio management, according to the BLS, which compiles information from quarterly reports filed by almost every U.S. employer. “You had that heyday of Wall Street, where it was excess and craziness, and that’s been gone for a while, but it’s like the financial crisis was the final hammer,” said Patrick Curtis, founder of the online forum Wall Street Oasis, which maintains a compensation database on major financial institutions. “There’s almost like a hangover from the financial crisis, and the perception has changed pretty dramatically since then.” Bloomberg News

Disinvestment

Spend forecast

M&A

Standard Chartered said to start Asian asset sale

China’s bankcard consumer Daily Mail confirms talks confidence rebounds with potential Yahoo bidders

Standard Chartered Plc is seeking to sell at least US$4.4 billion of assets in Asia, people with knowledge of the matter said, as the lender pares its balance sheet after booking record impairments. The London-based bank is speaking with potential buyers for about US$1.4 billion of stressed loans extended to Indian companies including GMR Infrastructure Ltd., according to the people, who asked not to be identified as the information is private. Standard Chartered has also started a sale of around $3 billion of assets in the rest of Asia, one of the people said. Chief Executive Officer Bill Winters has pledged to review all of Standard Chartered’s business lines and customer relationships, ranking their risk and returns, with the aim of restructuring or jettisoning about US$100 billion of assets. In February, the bank posted its first annual loss since 1989 as revenue fell and loan impairments nearly doubled to the highest in its history. Special-situations funds including Hong Kong’s SSG Capital Management have expressed interest in the stressed Indian loans being sold by Standard Chartered, which include borrowings in both rupees and U.S. dollars, the people said. Bloomberg News

China’s consumer confidence rebounded in March as bankcard users spend more on hotels, entertainment, transportation, medical services and education, an index showed yesterday. The Bankcard Consumer Confidence Index (BCCI), compiled by Xinhua News Agency and China UnionPay, a national bank card association, edged up 0.49 from February to 81.08 last month, reversing an 1.67 month on month drop registered in February. A higher index reading shows an increase in consumers’ desire to spend. A report released along with the index attributed the rebound to rising consumption of daily necessities. Consumption on hotels, gasoline and rail tickets in March rose by 28.8 percent, 28.7 percent and 51.6 percent from February, respectively. The consumption of home appliances increased 24.6 percent month on month in March buoyed by a gradually warming real estate market. The report forecast that consumer confidence would rise steadily encouraged by positive readings from the purchasing managers’ index (PMI) in March and a slew of government policies to secure economic growth. Xinhua

The parent group behind British tabloid Daily Mail revealed yesterday that it is in talks with “a number of parties” over a potential bid for struggling US Internet giant Yahoo. “Given the success of DailyMail.com and Elite Daily, we have been in discussions with a number of parties who are potential bidders” for Yahoo, a spokesman told AFP, confirming media reports. “Discussions are at a very early stage and there is no certainty that any transaction will take place. “We have no further comment at this time. Further updates will be provided as appropriate.” The Daily Mail newspaper and its globally popular online news website, as well as US website Elite, are owned by British media publishing giant Daily Mail and General Trust (DMGT). Sunday’s Wall Street Journal had reported that DMGT was in discussions with a “wide” group of interested companies regarding a possible bid for Yahoo. Struggling Yahoo has been briefing prospective buyers of its core assets, according to previous US media reports that indicated the list of suitors also included US telecommunications titan Verizon, Google-parent Alphabet, and Time Inc. AFP