Macau Business Daily April 15, 2016

Anzac Day Observance in Macau Mon, 25 April 2016 │ 7:30am - 9am │ MGM Macau

ay zac D

Followed by Gunfire Breakfast from 8am

An

Singapore’s monetary authority unexpectedly eases policy Currencies Page 11

Friday, April 15 2016 Year V Nr. 1022 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Joanne Kuai Deals Tourism

Tourist price Index down 6.67 pct y-o-y in Q1 Page 2

McDonald’s to sell thousands of restaurants in Asia Page 4

www.macaubusinessdaily.com

Land

Region

Fitch Ratings is searching for new offices in Shanghai for its expanding business Page 8

DSSOPT recovers illegally occupied land in Pac On Page 5

The Big Freeze Asset freezing

In the works forever. But now an imperative. The local gov’t will acquire the capacity to freeze assets. Related specifically to individuals proven to be financing terrorism. The bill under preparation has built-in checks and balances, say authorities. Page 3

Transportation All about real-time information.

Mobile apps tracking bus movements and up-tothe-minute displays at bus stops. With GPS installation underway, and less stringent requirements to attract more bus drivers. DSAT has budgeted MOP19 mln for the transport makeover. Page 5

Mission match

Presidential woes South Korea’s ruling party has failed to maintain a majority in parliamentary elections. Heralding hardships for President Park Geunhye’s economic reforms. President Park’s five-year single term expires in early 2018.

Business Up and running.

The 2016 First Quarter Local SMEs Procurement Partnership Programme – Business Matching Session in Food & Beverage Category. Organised by Wynn Resorts (Macau) S.A. and Macau Chamber of Commerce. Matching SMEs to corporate clients. Page 6

South Korean elections Page 12 22° 24° 22° 25° 21° 25° 20° 23° 21° 24° Today

Sun

21,337.81 +179.10 (0.85%)

Lenovo Group Ltd

+3.71%

AIA Group Ltd

+2.47%

Ping An Insurance Group Co

China Life Insurance Co Ltd

+3.03%

Hang Lung Properties Ltd

+2.08%

Sands China Ltd

Belle International Holdings

+2.76%

HSBC Holdings PLC

+1.98%

Galaxy Entertainment Group

+1.86%

Cheung Kong Infrastructure

-0.81%

+1.82%

Link REIT

-1.05%

Li & Fung Ltd

-1.23%

+0.69%

Source: Bloomberg

HK Hang Seng Index April 14, 2016

Sat

I SSN 2226-8294

Mon

Tue

Source: AccuWeather

Moving buses

2 Business Daily Friday, April 15 2016

Macau Tourist Price Index Tourist price Index down 6.67 pct y-o-y in Q1

Getting cheaper DSEC says the decrease is attributable to lower charges for hotel accommodation, and reduced prices of handbags and women’s clothing.

Annie Lao annie.lao@macaubusinessdaily.com

M

acau’s Tourist Price Index (TPI) for the first quarter of this year decreased by 6.67 per cent year-on-year to 136.44, mainly due to the decrease of hotel accommodation costs, with a drop of 23.8 per cent year-on-year, according to the latest data released by the Statistics and Census Service (DSEC) yesterday.

TPI reflects the price changes of tourists purchasing goods and services in Macau.

Other contributing factors to the falling TPI were entertainment & cultural activities, and drop in prices of women’s clothing, with 2.35 per cent and 1.98 per cent decrease, respectively.

However, the price index of food, alcoholic beverages and tobacco rose 3.77 per cent, while transport and communication increased 2.31 per cent.

the first quarter fell by 3.43 per cent. With the rates of hotel rooms down, and discounted sales of handbags and winter clothing and footwear, the price index for accommodation

and clothing and footwear dropped 11.81 per and 5.7 per cent, respectively.

DECS further indicated that during the Lunar New Year airfares to and from Southeast Asia rose, which increased

the price index of transport and communication by 5.89 per cent compared to the last quarter of 2015.

Fourth quarter average drop

The average TPI for the last four quarters ended the first quarter of 2016 fell by 2.99 per cent from the previous period, including the price index of accommodation and clothing and footwear, falling 12.7 per cent and 3.5 per cent, respectively. Nevertheless, the price index of food, alcoholic beverages

and tobacco, dining and entertainment & cultural activities increased 4.49 per cent, 2.46 per cent and 2.3 per cent.

The goods and services’ categories based on the pattern of tourists’ consumption in Macau include food, alcoholic beverages and tobacco, clothing and footwear, accommodation, restaurant services, transport and communication, pharmaceuticals and personal care items, entertainment & cultural activities, and miscellaneous items.

Quarter-on-quarter fall

Compared to the fourth quarter of last year, TPI for

Tourism

MGTO team up with Travelport Travel Commerce Platform Macao Government Tourism Office to utilise Travelport’s Digital Media Solutions to target agents.

In order to help raise awareness and increase tourist traffic to Macau, the Macao Government Tourism Office (MGTO) has formulated a new marketing partnership with British company Travelport Travel Commerce Platform, the company’s press statement has announced.

The new partnership will make use of Traveloport Digital Media Solutions, tailored messaging system that targets travel agency desktops and promotes Macau as a must-see destination in Asia for the Middle Eastern and African markets.

Travelport specialises in driving more revenues from different sectors, such as payments, hospitality, advertising and mobile commerce, and their planned campaign will also include an online competition for travel agents, to be organised to help stimulate interest in and increase knowledge of Macau.

This comes as part of the MGTO efforts announced in the beginning of the year to attract more international visitors from emerging markets, in order to reduce dependence upon Mainland China and Hong Kong visitors.

According to MGTO data Macau welcomed a total of 2 million international visitors in 2015, with international overnight visitors spending of US$594 million. However, the number of Mainland Chinese visitors made up 66 per cent of the total number of visitor arrivals.

The good news is that the number of international visits during the first two months of this year has registered

a year-on-tear growth of 10.41 per cent to 635,756 from 577,338. No specific data on the number of arrivals from African and Middle Eastern countries was available.

“We are delighted to partner with Travelport to boost visitors from the Middle East and Africa – a new focus region for Macau. We look forward to capitalising on Travelport’s extensive knowledge, technology and global reach to showcase Macau as an exciting, prosperous and vibrant destination,” said Betty Fok, Head of the Destination Marketing Department of MGTO, as quoted in the Travelport announcement.

Travelport Travel Commerce Platform provides distribution, technology, payment, mobile and other solutions for the global travel and tourism industry in around 180 countries, according to company information. It specialises in business-to-business (B2B) connecting one of the world’s leading travel providers with online and offline travel buyers in a proprietary travel marketplace.

“Travelport’s Digital Media Solutions have a strong track record of delivering successful marketing campaigns and we are confident that Macau Tourism will see fantastic results following this push,” said Anna Au-Yeung, Global Head of Destination Marketing for Travelport in the company’s press release.

No information on the number involved in the contract had been released when the newspaper went to print. N.M.

Business Daily Friday, April 15 2016 3

Macau

Counter-Terrorism Asset freezing law needs to ensure appeal process

Legislative process hotting up on asset freezing bill Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

T

he local government will have the capacity upon approval of the asset freezing bill to follow through with the freezing of assets of individuals proven to be involved in the financing of terrorism, announced legislator Kwan Tsui Hang following a closed-door Legislative Assembly session yesterday.

The push for the completion of the law comes almost a decade after the mutual evaluation by the Asia Pacific Group found Macau was ‘partially compliant’ in its ability to execute the measures of asset freezing suggested by the Financial Action Task Force (FATF), according to the justifying note accompanying the proposed law.

Under the proposed law, the local government would freeze three types of assets: if mandated by the United Nations Security Council, based upon a locally elaborated list of individuals proven to be funding terrorism and by request from another jurisdiction; in the case of assets being frozen they would remain so for a period of two

years, after which they would be unfrozen if the individual is found to no longer be involved in terrorism financing; if the individual in question is still proven to be funding terrorism operations assets would remain frozen for the period of one year until the next evaluation.

“We are not confiscating the assets; this is only to avoid any use of the assets in the financing of terrorism” Kwan Tsui Hang, Legislator

“We are not confiscating the assets,” said the legislator. “This is only to avoid any use of the assets in the financing of terrorism.”

Freeze

Ms. Kwan noted that the commission is currently discussing methods of

appeal to allow for citizens whose assets have been frozen to be able to reverse the decision. “The interest of the commission is that Macau citizens don’t suffer based upon the application of the law,” Kwan said, noting that in any of the three cases leading to asset freezing the government must “verify the identity, the residence, and see if it is a similar name or the same person [in the case of a foreign request or UN security council mandate].” Kwan also noted that: “Macau has received requests before but has never found them to be the same person [as the individual linked to terrorism financing].”

With regard to a locally elaborated list the Chief Executive would “suggest” to the central government that individuals on the list have their assets frozen or unfrozen – based upon “criteria of reasonableness in the appreciation of the facts that support it, with special attention to the rights of those involved and the interests of third parties who could be harmed, not dependent upon the existence of a penal process” – according to the law proposal.

The Chief Executive would then propose that list to the “competent

international body” – who decides whether to freeze or unfreeze the assets. If designated for freezing the Chief Executive would issue a notice following the publication of which the assets would be immediately frozen, and the commission would notify the designated individual on the motives for freezing and the rights the individual has. The individual could then appeal to the Chief Executive, who would pass the appeal to the central government, “for the purpose of its submission with the relevant international entity”.

UN mandate

In the case of a UN Security Council mandate, Kwan says that Macau “just has to comply”, with local authorities to freeze the assets. Once frozen these assets can only be accessed if they are unfrozen by the Chief Executive based upon the following criteria: funds are necessary to cover basic expenses – such as food, bills and medicine; their destined exclusively for the payment of reasonable professional fees or for legal services, they’re exclusively for the payment of costs or taxes on maintenance of the frozen assets, used to cover extraordinary expenses or they’re needed for other payments expressly authorised in the asset freezing decision. In this case, an appeal can be submitted, the Chief Executive can consider “adequate conditions” and authorise the unfreezing or release of funds. In the case of a residence being the frozen asset “it can’t be sold, but it can be lived in,” says Kwan.

4 Business Daily Friday, April 15 2016

Macau Opinion

Pedro Cortés

Caught by the climate There is a great expression in Portuguese that goes along the lines of ‘apanhados do clima’, which, in William Shakespeare, George Gordon Byron, or simply Lord Byron’s language may have a translation that I ignore but in literal terms is ‘caught by the climate’.

With the recent days of fog shrouding Macau the expression is even more accurate and I’m already 88 per cent sure that the expression came from this tiny Pearl River Delta city, even if the history books neglect to say anything about it.

Yes, we’re all caught up by the climate we have in Macau. The non-appearance of the sun these days makes people turn to foolishness in a glimpse.

Thus, I recommend the Macau Government oblige residents and non-residents alike – let’s put all of them in the same Basic Law state – to travel abroad at least 20 days a year on a trip paid for by the Treasury. From those 20 days, 10 must be to a country of a different language.

The businesses linked to the air economy would flourish. We would surely have an even bigger airport and more airlines. We would have confidence that people are more prepared for the real world. Not that Macau is not a real world; it’s just that sometimes it seems more akin to a fantasy theme park, peopled by players who are merely decorative and have a say in nothing.

Hopefully, with such a policy, we would have people demanding more from the government. Better services, qualified public servants, intelligent people who know exactly what the future may bring and what it may expect from all of us, which cannot be so different from hard work and clever solutions for the problems, which are more than the trivial aspects of our lives where we sometimes say more than we should.

One day, this all goes and what is important in a moment is not as significant as it really should ever have been.

The referred measures would also cope with the people whom the climate makes suffer distorted behaviour. Those that are hidden in the shadows of the mist like the vampires in horror movies.

Macau, I start thinking now, might be full of vampires so another good move would be to start cultivating garlic - but of the Mediterranean variety, not the type we find here that has a nice visual appearance but a not so strong flavour.

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

Society Macau Government ‘generally’ headed in the right direction

Human trafficking remains ‘a problem’ Kelsey Wilhelm Kelsey.wilhelm@macaubusinessdaily.com

sexual exploitation of migrant women’.

mong the major findings of the annual United States Department of State’s 2015 Human Rights recently released report was that human trafficking remains a problem in the MSAR, accompanying ‘limits on citizens’ ability to change their government, constraints on press and academic freedom, and failure to enforce fully laws regarding workers’ rights’. Additional concerns include ‘national security legislation could compromise various civil liberties’.

With regard to human trafficking, the State Department filed a separate report admonishing that ‘Macau authorities do not fully comply with the minimum standards for the elimination of tracking; however, they are making significant efforts to do so’. The report places Macau in tier 2 of its ranking system, alongside countries like Afghanistan, El Salvador and Turkey. The United States places itself and Portugal in tier 1.

With regard to child labour, the report found that ‘child labour occurred. Some children reportedly worked in family-operated or small businesses, while others were subject to commercial sexual exploitation’. Additionally, the report, without specifying details, stated that in the MSAR ‘there were reports of forced labor occurring in conjunction with commercial

Not good, not bad

A

The report found that Macau had ‘effective mechanisms to investigate and punish official abuse and corruption’, noting that the CCAC [Commission Against Corruption]“regularly detected fraud in the government and private sectors specifying the case of alleged bribery of Macau Prison officials.

In regard to court procedures, the State Department found that ‘due to an overloaded court system’, a period of up to a year often passed between the filing of a civil case and its scheduled hearing.

As to press freedom, the report found that ‘heavily subsidised major newspapers’ tended to ‘closely follow the PRC Government’s policy on sensitive issues’, although they ‘generally reported freely on the SAR, including

criticism of the SAR Government’.

It was noted that some academics reportedly practised self-censorship in relation to studies and comments and were dissuaded from pursing topics concerning the Mainland by university officials.

The view on Macau’s general election was that it was ‘generally credible’ although ‘the law limits citizens’ ability to change their government through credible periodic elections, and citizens did not have universal suffrage’.

When it came to arbitrary arrest and detention, denial of fair public trial, trial procedures, freedom of peaceful assembly and association, freedom of movement, internally displaced persons, protection of refugees, and stateless persons, and persons with disabilities, the report states that the Macau Government ‘generally respected’ the rights, boundaries and conditions involved.

“Macau authorities don’t fully comply with the minimum standards for the elimination of tracking; however, they are making significant efforts to do so” United States Department of State’s 2015 Human Rights Report

Deal talks McDonald’s targeting buyout firms as it seeks to sell North Asia stores

Fast food partnership The fast-food giant is targeting privateequity companies like Bain Capital and MBK Partners for the sale McDonald’s Corp is targeting private equity firms, including Bain Capital, MBK Partners, TPG Capital Management and Chinese statebacked conglomerate China Resources (Holdings) for its planned sale of 2,800 restaurants in North Asia, people familiar with the matter told Reuters.

The U.S. fast food giant is adopting a new business model in Asia, which is now the most intense battleground for global restaurant chains, by planning to bring in partners to own the restaurants within a franchise operation.

Several other global restaurant operators have switched to the so-called franchise model and

McDonald’s has also set a long-term aim of being 95 per cent franchised, the company said in a statement on March 31.

Oak Brook, Illinois-based McDonald’s has hired Morgan Stanley to run the sale of the restaurants in China, Hong Kong and South Korea, the people said. A formal sales process is expected to kick-off in about three to four weeks, one of the people said.

Ahead of that, McDonald’s and its advisor are drawing up a list of likely partners who will be approached to participate in the auction, the person added.

The franchise partners would likely end up owning a majority stake in the restaurants in each market, or even as much as 100 per cent, and be responsible for future capital spending. The precise structure of the deal is still to be decided, the sources said. In return, McDonald’s will get a one-time franchise payment and ongoing royalty fees, which usually range between 3-5 per cent of annual turnover.

Asia-focused Baring Private Equity Asia is the other buyouts firm likely to be invited to the auction process, banking sources familiar with the process said.

McDonald’s declined to add to the March 31 statement. China Resources, MBK, Bain, TPG and Baring all declined to comment. Morgan Stanley didn’t respond to an email seeking comment.

McDonald’s does not break out country-by-country revenue details.

It is China’s No. 2 fast food chain behind YUM Brands Inc, which operates the KFC and Pizza Hut chains.

McDonald’s is leaning towards finding separate partners in all the three markets and would likely offer a majority stake to make the deal appealing to buyers, the people added.

China Resources (Holdings), which is the parent of brewing company China Resources Beer Holdings, and operates Pacific Coffee chains in Hong Kong, China, Singapore and Macau, has previously expressed interest in expanding its retail footprint. Reuters

Business Daily Friday, April 15 2016 5

Macau Transportation MOP19 mln spent on new GPS system and mobile apps for public buses

Mobile apps to keep buses moving LRT: No plan for Northern District yet

Transport Advisory Committee first plenary meeting this year held yesterday.

New GPS system installed on buses, attracting more new bus drivers and adding new electronic display screens at bus stops are underway.

Annie Lao annie.lao@macaubusinessdaily.com

A

bout 800 public buses have already been installed with a new GPS system for the notification of real-time bus arrival at stops in Macau, said Transport Bureau (DSAT) Director Kelvin Lam Hin San after attending a closed door meeting of the Transport Advisory Committee yesterday.

The budget for the whole system is MOP19 million (US$2.3 million) including installation of the new GPS system in all the public buses in Macau and the creation of mobile apps.

Local residents and tourists can know through mobile apps run by the GPS system about the plate number of buses, average speed, and real-time information of a bus reaching the bus stop, etc., according to Mr. Lam. The accuracy rate of the GPS is

about 90 per cent as some places in the Northern district, where are many high-rise buildings, can affect the signal, Mr. Lam said. China Telecom is the main provider of the GPS system facilities, he added.

“We will continue to optimise the signal accuracy rate,” Mr. Lam said.

The new DSAT apps will be on a trial period starting at the end of May or early June and if proven successful the system will be officially launched in August, Mr. Lam said.

More real-time display

The first electronic display screens have been set up at bus stops at the Border Gate and Outer Harbour Ferry Terminal. “People can see the relevant information on display screens so they don’t need to use their mobile phones,” Mr. Lam said.

The project setting up electronic display screens will be open for public bidding and DSAT is planning to add another 30 new electronic display screens at bus stops, said the Head of Division of the Traffic Equipment Development of Transport Planning and Development from DSAT, Lai Kin Hou, following the meeting yesterday.

Hiring more bus drivers

The current road traffic regulations are being reviewed. Proposed changes include reducing the requirements for

LAND

DSSOPT: Pac On plot recovered Yesterday, the government reclaimed an 86,000-square metre plot of land next to Avenida do Cais de Pac On in Taipa that had been illegally occupied. This land will now be used to construct public infrastructure or the administration’s office facilities, according to a statement issued yesterday by the Land, Public Works and Transport Bureau (DSSOPT).

According to official information, the eviction of the occupants of the plot took place yesterday in order to avoid delaying the process of building the public housing.

‘Considering that part of the land was surrounded by fences, that there were many slum houses built with wooden materials inside, and a large portion of sand and many vehicles were kept on this plot the government decided to proceed today [yesterday] with the eviction process’, according DSSOPT. The government explained that prior to the eviction the unknown illegal occupants were told to submit relevant documents in September 2015 by public notice, and told to vacate the land in February of this year according to the legal proceedings.

DSSOPT says that since March 2009 the local government has recovered 60 plots of land illegally occupied, totalling more than 323,000 square metres.

bus drivers’ technical maintenance ability in order to attract more people to work as bus drivers. Other means also include simplifying the licensing process and introducing automatic buses, according to Mr. Lam. Currently, about 10 per cent of bus drivers will reach the retirement age of 65 in the near future. One driver is serving about 540 passengers per day on average. About 1,200 bus drivers are working in Macau, but in four years’ time there will be about 1,100 bus drivers, Mr. Lam explained.

“About 160 million passengers in total used public buses last year and we estimate the amount of passengers will increase in the future,” he said.

Restricted lane

The new restricted lane for public transport between A-Ma Temple and

There is no final route plan for the Light Railway Transit (LRT) for the city’s Northern District yet, according to the Secretary for Transport and Public Works, Raimundo Arrais do Rosário, who also attended the meeting of the Transport Advisory Committee yesterday.

The Secretary said that currently there are still a lot of problems to be solved with regard to the LRT system, while the route plan for the LRT’s northern line is not a priority. He said that currently the government is putting all its effort into resolving the problems regarding the LRT’s Taipa routes, including the depot.

Mr. Raimundo do Rosário indicated that for the next stage they will prioritise analysing the connection from Taipa route to Barra and then the extension to Seac Pai Van. Av. Marginal do Lam Mau is still on trial. The new restricted lane will officially become effective on May 7 on weekends during the peak hours, from 7:30 am to 9:00 am and from 4:30pm to 7:00pm, according to Mr. Lam. “We hope that bus drivers and users of public roads get familiar with the new restricted lane in one to two months’ time. In addition, we may put the restricted lane to run from Mondays to Fridays and expect to do it in mid-August.”

6 Business Daily Friday, April 15 2016

Macau SMEs Wynn hosts local SMEs procurement partnership meeting

Matchmaking Macau Food Businesses Wynn Macau and the Macau Chamber of Commerce hope to match local food businesses with corporate clients.

Kickstarting Macau’s businesses

Nelson Moura nelson.moura@macaubusinessdaily.com

T

he 2016 First Quarter Local SMEs [Small and medium-sized enterprises] Procurement Partnership Programme for Food and Beverages was held in the Grand Ballroom of Wynn Macau. Some 106 local businessmen were seeking business matching opportunities in the Food & Beverages category. Organised by Wynn Resorts S.A. in partnership with the Macau Chamber of Commerce (MCC) and supported by the Secretariat for Economy and Finance, it was attended by the Advisor to the Office for the Secretary for Economy and Finance, Mr. Lam Hou, and the Vice-President of the Board of Directors of MCC, Mr. Chui Yuk Lam. In her speech, Executive Director of Wynn Resorts (Macau) S.A. Linda Chen underlined how the MSAR Government’s recent initiatives seek to simplify bureaucracy and improve the SMEs’ business environment.

“Local SMEs play an important goal

“The network sessions are very useful to have a face-to-face with possible contractors with Wynn to showcase our products,” said Alves, mentioning the Macau Government support for SMEs has been very helpful to his company, such as the Support Plan for SME’s in Macau, which provides 70 per cent of solicited bank credit to a maximum of MOP$3.5 million (US$125,100), excluding interest and other credit fees.

in supporting the diversification of Macau’s economy. We also hope to face all challenges and create a new way of working through our long-standing quality and innovative spirit,” said Ms. Chen.

Searching for the food entrepreneurs

During the session, the heads of the Food Department at Wynn Macau presented attending SMEs with an introduction to basic operations, food safety standards and procurement procedures, and organised a follow-up discussion.

The Bank of China (Macau), Industrial and Commerce Bank of China (Macau) and Banco Nacional Ultramarino (BNU) were also present to provide business information to SMEs, and face-to-face networking

sessions were provided to businessmen during the afternoon, including a chance to speak with representatives from Wynn Macau.

“We believe that buyers would have a deeper understanding of the suppliers’ offers following the product introduction session hosted by the organisers, which in turn creates more business opportunities for both parties,” said Mr. Chui Yuk Lam, stressing how the MCC hopes that by partnering with large corporations SMEs could “improve and strengthen themselves”, while supporting the creation of new companies.

One of the invited local entrepreneurs was Rui Alves, a Portuguese national who’s been a Macau resident for 15 years and nine years ago created Nata Ltd., a Portuguese-style egg tart bakery.

The Wynn and MCC partnership focuses on three major types of local businesses: small and micro enterprises, ‘Made in Macau’ companies, and companies created by young Macau entrepreneurs, with 36 different projects planned to be launched, said the project statement.

“The next Partnership Programmes will focus on the Hotel and Service sectors, Facilities and Others,” Ms. Chen told Business Daily, adding briefly that the opening of the new Wynn Palace Cotai is on schedule for the end of July or the beginning of August.

The event also showcased the five finalists from the procurement Platform Mobile App Design Competition, a part of the SMEs Procurement Partnership programme launched in January this year as a collaboration between Wynn Resorts S.A. and the MCC, with the support of Macau and Productivity and Technology Transfer Centre (CPTTM).

The competition has the ultimate goal of finding a platform that would allow local SMEs to access business opportunities by larger corporations, fostering the growth of the local technology industry, and encouraging creativity among local enterprises, according to the Wynn statement.

Business Daily Friday, April 15 2016 7

Macau In Brief Stock

Deutsche Bank downgrades Wynn to ‘Hold’ Deutsche Bank Securities has changed its recommendation on Wynn Resorts from ‘Buy’ to ‘Hold’ as the Macau market has not yet seen any major improvement. “If visitation trends were more encouraging, as the market continues to transition to mass, we believe more optimistic mass forecasts could be rationalised, but relying on sharp accelerations in spend per visitor or a dramatic change in visitor volume seems challenging at this stage,” said analysts Carlo Santarelli and Danny Valoy in a Wednesday note. The analysts noted that broader macro concerns have abated as have concerns surrounding currency devaluation, while gaming fundamentals have been largely as expected through the first quarter of 2016.

Gaming dividends

Genting Malaysia Bhd final dividend up 22.9 pct Casino operator Genting Malaysia Bhd saw a 22.9 pct rise in its final single-tier dividend in 2015, hitting RM0.043 (US$0.01) per ordinary share compared to its RM0.035 (US$0.008) per ordinary share in 2014, reports Asia Gaming Brief. The final dividend will be payable to shareholders on record as of June 30 of this year and will be paid out on July 26, AGB reports. Genting Malaysia says throughout March it has doubled its planned investment in order to update facilities at its Resorts World Genting.

This accounts for an increase to RM10.38 billion (US$2.46 billion) from its original RM5 billion on the ten-year Genting Integrated Resort Tourism Plan, AGB reports.

The upgrade will introduce new hotel capacity, shopping and tourism facilities as an overhaul of the ageing structure and act as the main driver for growth, according to analysts. Genting Malaysia saw an 11 per cent increase in the final quarter of last year, with total revenue equaling RM2.3 billion, AGB reported.

Junkets

Macau’s casino middlemen said to face stricter capital rules One proposal under consideration includes raising capital requirements for new junket operators to MOP10 mln from MOP100,000 according to sources.

M

acau’s government is working with gaming promoters on a proposal that would see capital requirements for new operators increasing 100-fold, according to people familiar with the matter. If passed, the move could further squeeze revenue for Wynn Macau Ltd. and other casino companies.

One proposal under consideration includes raising capital requirements for new junket operators to MOP10 million (US$1.3 million) from MOP100,000, and the inclusion of at least one Macau resident as a shareholder, said one of the people, who asked not to be identified because

the deliberations are private.

Junket operators -- companies that bring in high-stakes gamblers and lend them money -- plan to discuss the proposal as early as this month, said the person. The new rules won’t affect the 141 existing, licensed providers.

The change could be another blow to the world’s largest gambling hub, tightening money flows as Macau’s casino industry struggles with 22 months of revenue slump. Chinese President Xi Jinping’s anti-graft campaign, as well as heightened scrutiny of junket operators and curbs on illicit money out of mainland China, have sent gambling revenue plunging. Operators such as Sands China Ltd. and Galaxy Entertainment Group Ltd. are now turning to tourists by building new resorts.

About US$46 billion of market value was wiped out last year from the city’s six gambling houses as casino revenue sunk to the lowest level in five years. Sands China has gained 48 per cent since hitting a four-year low in January, while MGM China Holdings Ltd has gained 24 per cent this year.

The Gaming Inspection and Coordination Bureau in Macau did not immediately respond to requests for comment. Promoters are also working with the government to establish a shared “blacklist” of players considered to be at high risk of defaulting on gambling loans, said the people.

Gambling middlemen have found it increasingly difficult to recoup their loans to VIP players, who in 2015 contributed to about 55 per cent of Macau casinos’ gaming revenue. The city’s junket industry, which includes Jimei International Entertainment Group Ltd, Iao Kun Group Holding Co Ltd and Golden Resorts Group, also saw its reputation further hurt by scandals involving employees of promotion companies accused of stealing customers’ money.

Macau’s Gaming Inspection and Coordination Bureau, the industry regulator, has been studying stricter disclosure rules for owners of junket operators, including making public their directors, shareholders, key employees and collaborators, according to a statement from the government last September. Bloomberg

Ivey, a 10-time victor of the World Series of Poker bracelet, won the money playing Punto Banco at Crockfords casino in London in 2012.

He admitted using a technique called “edge sorting,” which involves arranging cards to take advantage of slight design differences or flaws to give a player a better idea of high and low-value cards. He said it was a legitimate tactic to gain an advantage over the casino.

denies it knew what “edge sorting” was, and had it known it would’ve taken steps to protect itself.

Ivey, a Las Vegas resident, has career winnings of more than US$20 million, according to his spokesman. Ivey and a companion unfairly influenced a croupier to move and deal the cards in certain ways without her knowing what she was doing, Judge John Mitting said in his 2014 ruling.

Bluffing or dishonest?

Innocent agent

Gaming

Delta Corp to operate new casino in India Within two to three months Delta Corp, an India-based gaming operator, says it will operate a new casino in Sikkim, in northwest India, reports Asia Gaming Brief (AGB). The operator, according to insider sources, will lease the live casino in Gangtok under the Hotel WelcomHeritage Denzong Regency, joining the two current casinos in operation in the region – Casino Mahjong and Casino Sikkim.

Delta, according to AGB, currently operates two offshore casinos and a land-based casino in Goa and is awaiting an offshore licence for its resort in Daman. Given the new operation in Sikkim, this could consolidate Delta’s position as the market leader for gaming in India, according to Jay Sayta from GLaw. “Sikkim may become the preferred location for the gaming industry, overtaking Goa, where the casino industry has been reeling,” Sayta said, according to AGB.

Courts

Poker Pro Ivey asks U.K. court to decide what is cheating Professional poker player Phil Ivey is asking a London appeals court to decide when playing your cards correctly crosses the line into cheating.

Ivey, a 40-year-old American, is trying to overturn a 2014 ruling that his attorney calls “unusual.” While the lower court found he cheated to win 7.8 million pounds (US$11 million) at a form of Baccarat, Richard Spearman, his attorney, said Ivey didn’t act dishonestly and the judge found him to be truthful.

“For a long, long time cheating has been regarded as involving dishonesty,” Richard Spearman, Ivey’s lawyer, said in a London court Wednesday.

The gambler’s bid to recoup money a Genting Bhd. casino withheld has taken almost six years.

“There are a lot of games in which deception, certainly in the sense of bluffing, is integral to the game,” Spearman said. Ivey “would not act dishonestly.” The appeals court will have to decide the legal definition of cheating and what it constitutes.

“Baccarat is a game of pure chance,” Christopher Pymont, Genting’s lawyer said in court. “It is not a game of skill, it is not a game of mixed skill and chance.”

“You are not supposed to know what is coming out of the shoe,” he said. “Those are the rules.” The casino

The judge described him as one of the “world’s finest poker players.” Ivey cheated “by using the croupier as his innocent agent or tool,” Mitting said at the time.

Ivey, who was present in court, says he is as an “advantage player,” someone who is highly skilled at trying to tip the odds in his favor.

“It is not in my nature to cheat which is why I was so bitterly disappointed by the judge’s decision,” Ivey said through a spokesman in November after he was given permission to appeal. Bloomberg

8 Business Daily Friday, April 15 2016

Greater China Currencies

PBOC cuts fixing most in three months Asian currencies also fell along with the Singapore dollar after the central bank unexpectedly adopted 2008 crisis policy.

T

he People’s Bank of China weakened the daily yuan reference rate by the most in three months after the dollar strengthened and

a surprising easing by Singapore that weighed on Asian currencies.

The central bank set the daily fixing of the local currency at 6.4891 to the dollar yesterday, the lowest level in more than two weeks.

The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 peers, extended Wednesday’s rebound from a nine-month low, as traders weighed chances of interest-rate increases by the Federal Reserve after retail sales and wholesale prices unexpectedly slumped last

month. Asian currencies also fell along with the Singapore dollar after the central bank unexpectedly adopted 2008 crisis policy.

“… is a reflection of the overnight dollar recovery” Tommy Xie, Singapore-based economist at OverseaChinese Banking Corp

The weaker fixing “is a reflection of the overnight dollar recovery,” said Tommy Xie, a Singapore-based economist at Oversea-Chinese Banking Corp. “Still, it’s slightly weaker than expected, making me feel like there is still a weakening bias.”

The yuan traded offshore slid 0.21 percent to 6.4986, also falling for a third day.

Currency basket

Singapore’s policy move could indicate that regional central banks, including the PBOC, aren’t willing to maintain

currency strength after recent gains, Zhou Hao, Singapore-based senior economist at Commerzbank AG said. A Bloomberg replica of the CFETS RMB Index, which tracks the yuan against 13 exchange rates, rose 0.09 percent to 97.39, halting three days of declines.

Chinese economy is showing signs of a rebound, with data on factory-gate prices, foreign trade and manufacturing activity all coming in higher than forecast. The government this month outlined a package of fiscal measures including railway spending and tax relief to help create jobs and support the economy.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, gained three basis points to 2.44 percent, according to data compiled by Bloomberg. People are expecting the PBOC’s easing pace will be less aggressive following better-than-expected data recently, said David Qu, Shanghai-based rates strategist at Australia & New Zealand Banking Group Ltd. The central bank injected a total 285.5 billion yuan (US$44 billion) into 17 financial institutions on Wednesday. That compares with 551 billion yuan of such loans expiring this month.

The seven-day repurchase rate, a benchmark gauge of interbank funding availability, fell four basis points to 2.34 percent, according to National Interbank Funding Centre prices. Bloomberg News

Aircraft sector shift

Utility trumps luxury as Mainland private jet buyers fly economy Until recently mainland Chinese buyers have favoured larger cabin jets.

Fang Yan and Siva Govindasamy

M

akers of private jets for China’s elite are shifting their focus from luxury to convenience, as a cooling economy and long-running crackdown on corruption prompt customers to demand smaller planes and even consider second-hand deals.

Utility is the watchword, say industry insiders, as buyers who once enlisted feng shui masters to help them design cabin interiors that might feature mahjong tables or karoake areas now look for functional desks to work at and rest areas to sleep.

China’s richest businessmen remain Asia’s top owners of luxury aircraft: the greater China region had 466 private jets in 2015, according to consultancy Asia Sky Group, compared with 65 in 2007. Mainland China accounted for 300 of those.

But for manufacturers such as Bombardier, Dassault, Embraer and General Dynamics’ subsidiary Gulfstream the market is cooling, especially for new aircraft, forcing them to prioritise efficiency, keeping production costs low and speeding up aircraft delivery times.

“The economy is weak and there are different political forces, as you know,” said Bill Schultz, senior vice president of business development in China at Textron, which manufactures Cessna and Beechcraft-branded aircraft. “It’s impacted jet sales, there is no question about that.”

Against that backdrop the mood was subdued as plane makers, charter firms and buyers gathered this week for one of the industry’s biggest annual air shows in Shanghai. Interest in specialised firms who manage, charter or refurbish planes was high.

Keeping under the radar

President Xi Jinping’s three-year-old campaign against official corruption has discouraged conspicuous consumption in China, hitting discretionary spending on everything from fine wine and jewellery to luxury cars, yachts and casino trips.

“Ten years ago, if you bought a business jet, you would show your shiny new plane off to reporters,” said one China-based business jet broker, who has been helping wealthy individuals buy and sell aircraft for more than 15 years.

“These guys have seen their peers being hauled up, and they don’t want any scrutiny of their wealth and business interests. So they would rather keep a low profile,” said the broker, who did not want to be named due to the sensitivity of the issue.

Asia Sky Group put China’s fleet growth in 2015 at 6.6 percent - from highs of more than 49 percent when

the market hit its peak in 2012. With orders slowing, growth is set to dip further.

Schultz said that Textron, which has built its Caravan turboprop plane and the Citation XLS+ in China as part of a joint venture with state-owned aerospace firm AVIC, was focusing on the market for smaller jets and utilitarian turboprop craft.

Until recently mainland Chinese buyers have favoured larger cabin jets, even including retrofitted versions of the Airbus A320 and Boeing 737 that can cost up to US$90 million at list prices and another US$10-15 million for fitting.

Now there is more interest in smaller aircraft.

“Instead of using too big a plane, people are flying in a smaller plane,” said Fernando Grau, director of airline market analysis at Brazilian manufacturer Embraer, which uses actor Jackie Chan to sell its planes in China.

Of course, countering China’s domestic slowdown is its push to do deals abroad, spending more than US$100 billion in 2015 - a boom that has more top executives forced to consider fast, convenient and efficient options as they travel more frequently beyond the country’s borders.

“We position the business jets also as a productivity tool,” said Khader Mattar, who oversees sales for Bombardier in the Middle East, Asia Pacific and China.

Reduce, reuse, recycle But visible in Shanghai’s exhibition halls this year has been the rising interest in second-hand deals, long frowned upon in China, and in companies that manage and charter flights.

A 14-seater Gulfstream jet, for example, can be chartered for roughly 50,000 yuan (around US$7,700) an hour, making it reasonably affordable for China’s rich entrepreneurs.

While many charter trips in the past

Business Daily Friday, April 15 2016 9

Greater China In Brief

Expansion

Alibaba’s financial arm seeks overseas partners

Ratings expansion

Fitch Shanghai office hunt flags fast market growth Fitch also expects to expand the team in Hong Kong to 100 within three years from about 70 now.

Kwong Li, head of Greater China at Fitch Ratings Ltd., is looking for a bigger office in Shanghai. The company expects to double its headcount in the nation within three years as the corporate bond market grows.

Fitch may increase its headcount in its China offices in the financial hub and in Beijing to about 60 from 31 in three years, Li said in an interview in Shanghai. The expansion would include employees on its research and business

development teams. China’s outstanding corporate and government bonds have more than quadrupled in the past 10 years to 36.6 trillion yuan (US$5.7 trillion), according to Chinabond data.

“We are optimistic about the potential development of China’s bond market,” Li said. “The central bank wants to allow more foreign investors into the nation’s bond market. Investors will become more diversified and more companies can issue bonds.”

Premier Li Keqiang is seeking to accelerate expansion of the world’s third-biggest corporate note market as Chinese companies struggle with debt payments amid the weakest economic growth in a quarter century. The central bank said in February that most types of overseas financial institutions will no longer require quotas to invest in the interbank bond market, which accounts for the bulk of debt in the nation.

Information sought

“When more foreign investors buy bonds in China’s market, they may

require more information about international rating agencies’ ratings and views on those issuers so that they can compare bonds they invest in here with bonds they invest in elsewhere,” Li said.

More than 60 percent of Chinese locally rated AAA bonds issued by listed firms may have default risk consistent with what Bloomberg’s quantitative, independent default risk model deems below-investment-grade companies.

Fitch also expects to expand the team in Hong Kong to 100 within three years from about 70 now.

China said in July it plans to allow international ratings companies to publish their credit scores on local government securities.

Rising debt defaults in China have driven investors to seek opinions from global rating companies, said Li. At least seven firms have missed local note payments this year, already reaching the tally for the whole of last year. Bloomberg News

Results

were for leisure or “unnecessary tours” said Fang Xinyu, vice-president at Beijing-based Deer Jet which manages more than 80 aircraft that are available for charter, these days it’s strictly business.

Executives estimated second-hand planes now account for 30 percent of sales, still less than in a more mature market like the United States but up from 10 percent just three years ago.

A Gulfstream G550, one of the most popular business jets on the market, manufactured in 2010, for example, can be bought for half of the roughly US$60 million it would have originally cost.

Prospective owners can spend another US$2-3 million to retrofit the cabin with Gulfstream’s latest interior.

“Compared to the price of a brand new plane, they are cheaper to buy and refurbish,” said Jason Liao, CEO of China Business Aviation Group, which helps individuals buy and manage jets.

“They are great value.” Reuters

Taiwan’s TSMC forecasts sales below estimates The company also reported first-quarter results yesterday, with net income slumping 18 percent to NT$64.8 billion.

David Ramli and Justina Lee

Taiwan Semiconductor Manufacturing Co. forecast second-quarter sales below analyst estimates as decelerating smartphone demand and sliding personal computer shipments hit revenue.

Sales will be between NT$215 billion (US$6.6 billion) and NT$218 billion in the second quarter, the world’s largest contract maker of microchips said yesterday. That compares with analysts’ projections for NT$225 billion.

TSMC, which competes with Samsung Electronics Co. to make processors for Apple Inc., is dealing with the dual impact of slowing demand and fallout from a February earthquake that held up production. Earnings have fallen for three straight quarters as profit margins have been crimped.

The company also reported first-quarter results yesterday, with net income slumping 18 percent to NT$64.8 billion.

The February temblor in southern Taiwan had prompted the company to cut margin forecasts that month. Gross margin was 44.9 percent in the first quarter, down 4.4 percentage points and trailing the 46.8 percent average of estimates. It blamed the quake for about half that drop.

“February sales missed our expectation due to earthquake damage,” Ethan Chen, an analyst with Sinopac Financial Holdings, wrote before earnings were released. That impact was exacerbated by a relatively long Chinese New Year break, he said.

Revenue from the computer segment fell by 7 percent, thanks in part to a global slowdown in PC shipments, while the company said it will keep its capital expenditure budget of between US$9 billion and US$10 billion over the full year.

TSMC is grappling with the most pronounced slowdown in global mobile demand on record. Apple has predicted its first revenue decline in more than a decade and worldwide smartphone sales in 2016 are expected to rise by a single-digit percentage for the first time, according to Gartner Inc. Yesterday, TSMC cut its forecast for growth in 2016 smartphone demand to 7 percent from 8 percent previously.

To offset the market decline, the Taiwanese company is shifting toward more advanced 16-nanometer chip manufacturing. That gives it an edge against rivals such as China’s Semiconductor Manufacturing International Corp.

TSMC had previously reported an 8.3 percent slide in first-quarter sales to NT$203.5 billion, marginally beating estimates for NT$201.1 billion. Bloomberg News

“February sales missed our expectation due to earthquake damage” Ethan Chen, Analyst with Sinopac Financial Holdings

Ant Financial, the financial arm of Internet commerce giant Alibaba, said it is discussing working with online service companies in several countries.

“We are seeking to cooperate with several companies in Southeast Asia, Japan, the Republic of Korea and Europe,” said Peng Yijie, director of international business at Ant Financial. China has over 400 million mobile payment users and more people increasingly rely on convenient payment services such as Alibaba’s Alipay. Bolstered by experience in the Chinese market, companies like Alibaba are now seeking expansion in the overseas market.

Poverty fight

Gov’t targets relief at Luoxiaoshan China will offer greater poverty relief support to the Luoxiaoshan Mountainous area, a former Chinese revolutionary base, the Ministry of Civil Affairs announced yesterday. At an inter-ministerial meeting to discuss poverty relief in the region, Gong Puguang, deputy minister of civil affairs, said greater efforts will be made to improve the local social security net, including basic allowance, medical and ad hoc assistance, and support to extremely needy people. Government assistance will act as a safety valve for those unable to work or those temporarily living in poverty, Gong said.

Power development

State Grid wins bid in Brazil China’s State Grid Brazil Holding on Wednesday won bids on two power transmission lines in Brazil, said the Brazilian Electricity Regulatory Agency (Aneel).

The company won the rights of two lots located around the Paranatinga town in Mato Grosso, west Brazil, at 334.5 million reais (US$95.6 million) and 61.4 million reais (US$17.5 million) respectively. On Wednesday, over 10 companies got 14 transmission lines stretching across 3,402 km, with bid price totalling 6.87 billion reais (US$1.96 billion), said Aneel. And the companies winning the bidding will earn up to 2.5 billion reais (US$715 million) annually over the 30 years of the concession.

Commodities

Dalian exchange to adjust coal trading limit China’s Dalian Commodity Exchange will adjust the trading limit on some futures contracts, including coking coal and coke, the bourse said yesterday. The new trading limit for coking coal and coke products contracts will be set at a 6 percent move in either direction, it said in a statement. The minimum margin for these products contracts will be set at 8 percent. All the adjustments are effective on April 18.

10 Business Daily Friday, April 15 2016

Greater China GMO industry

Beijing to ‘facilitate’ new GM crops after years of waiting GM crops are sometimes found being grown illegally in the country.

C

hina will “facilitate” the planting of genetically modified corn and other plants on an industrial scale in the next five years, officials said, after not authorising any new commercial GM crops for a decade.

The controversial science is a key trade issue with the US, whose biotechnology giant Monsanto is a global leader in the field, while its rival Syngenta has agreed a US$43 billion takeover offer by Chinese state-owned firm ChemChina.

Only two GM crops are currently commercially cultivated in the country - a type of cotton approved in 1996, and a virus resistant papaya authorised in 2006.

GM soya, corn, cotton and rape can be imported as raw materials and as ingredients in processed products. Processed sugar beet imports are also allowed.

Beijing is pro-biotechnology as it has long been concerned over the world’s most populous country’s ability to feed itself - a fear that factored into the introduction of its controversial one-child policy.

But large-scale cultivation of GM crops remains sensitive as environmentalists and some scientists warn against the technology’s as-yet-unknown long-term consequences for biodiversity and human health.

“During the 13th five-year plan, we will... push forward the industrialisation of major products including new types of insect-resistant cotton and corn,” Liao Xiyuan, a senior official with the Chinese agriculture ministry, told reporters.

Corn is the top grain in China by both production and sown area much of it used for animal feed - with rice only in second place, followed by wheat, official data shows.

The government will continue research on GM rice and wheat over the next five years, Liao said at a press conference Wednesday.

GM crops are sometimes found being grown illegally in the country and Liao said had authorities “rooted out” GM rice in the central province of Hubei. Last year they also destroyed a total of 73 hectares of GM corn in several areas.

“Sporadic illegal planting of (GM crops) does exist in some areas and we will crack down harshly on it,” Liao said. AFP

“During the 13th five-year plan, we will push forward the industrialisation of major products including new types of insect-resistant cotton and corn” Liao Xiyuan, Senior official with the Chinese agriculture ministry

Auto industry

Operation “L”: Geely to launch new car brand New factories will be set up to make cars for the new brand.

Jake Spring

C

hinese automaker Geely will launch a new brand next year, codenamed “L”, with cars based on joint architecture developed with Volvo, three people with knowledge of the matter told Reuters.

The brand will launch with a sport-utility vehicle - the first model based on the Compact Modular Architecture (CMA) platform developed

by Zhejiang Geely Holding Group and Volvo, the Swedish automaker it bought from Ford in 2010. A sedan is also under development for the new brand.

Spokesmen for both Geely and Volvo declined to comment.

Launching a new car brand when China’s economic growth is at its slowest in a quarter of a century may

seem ambitious, but Geely, under chairman Li Shufu, beat the industry growth rate last year and has turned around Volvo’s fortunes.

Geely sales rose 22 percent to around 510,000 cars last year, and Volvo earnings tripled, with the Swedish automaker predicting record sales for 2016.

Car sales in China, the world’s biggest market, are forecast to grow by around 6 percent this year, according to the China Association of Automobile Manufacturers.

The aim is for L-brand cars to compete with Chinese-foreign venture brands, such as those produced jointly by General Motors and SAIC Motor Corp. That would leave Volvo to focus on the luxury market, and Geely to go up against domestic Chinese brands, two of the people said.

The new brand would launch into an already crowded Chinese market where at least a dozen foreign automakers and more than 20 local passenger car manufacturers, many with multiple brands of their own, compete.

“The last thing the Chinese automotive world needs is another brand,” said James Chao, Asia-Pacific chief of consultancy IHS Automotive. “The elimination of more brands in China should be the route.”

Launching a new brand can cost hundreds of millions of dollars, if not billions, require years of patience and even then would need to be a truly groundbreaking product to succeed, Chao said.

But the potential return could be substantial if Geely can pull it off.

SAIC GM’s budget Baojun cars, launched in China in 2011, sold nearly half a million vehicles last year. But other new brands, including Toyota Motor’s Scion sub-brand aimed at younger buyers in the United States, have failed to gain traction. Scion was

Key Points Geely, Volvo developing joint platform across brands New brand to compete vs China/ foreign ventures - sources To launch with SUV; sedan also under development - sources China already has too many car brands – HIS

axed as a standalone brand earlier this year.

Qoros Automotive, backed by Kenon Holdings and China’s Chery Automobile, was founded in 2007 and sold just 14,250 cars last year.

Strategy u-turn?

The new L-brand is something of a U-turn for Geely, which said only two years ago it would eliminate three sub-brands and only sell under the Geely logo, consolidating its sales network in the process.

L-brand cars will be sold through Geely’s existing dealership network, said one individual with direct knowledge of the plan, unlike previous Geely sub-brands that were sold through separate exclusive dealerships.

New factories will be set up to make cars for the new brand, codenamed after the marque’s first initial, and once it is established in China it will export to other markets, the person said.

China Euro Vehicle Technology AB, a Geely subsidiary that coordinates research and development with Volvo, is leading the work on the CMA platform from its headquarters in Sweden, with some operations in China.

Developing the CMA platform is part of Geely’s preparations for a push into European and U.S. markets, sources previously told Reuters.

The platform will allow all three brands - Volvo, Geely and L-brand - to design new models from a common base. Reuters

Business Daily Friday, April 15 2016 11

Asia Monetary measures

Singapore unexpectedly eases policy as growth stalls Analysts expect more downside for the Singapore currency given the weak outlook for growth.

Masayuki Kitano and Jongwoo Cheon

S

ingapore’s central bank unexpectedly eased policy yesterday after growth stalled in the first quarter and as slackening global demand darkened the outlook for the trade-dependent economy, sending the local dollar tumbling to its worst loss in eight months.

The move comes as the affluent city state has struggled to motor on in the face of collapsing exports, a depressed manufacturing sector and low inflation - a toxic combination that has seen global policy makers scrambling to restore momentum through aggressive easings.

In its third policy easing in 15 months, the Monetary Authority of Singapore (MAS) said it will set the rate of appreciation of the Singapore dollar NEER policy band at zero percent - starting on Thursday - and shift to a neutral policy stance.

It marked the first time the MAS has moved to ‘neutral’ since the global financial crisis, and compares with its previous policy stance of a “modest and gradual” appreciation of the Singapore dollar.

“This is a surprise move to neutral in response to what they see as more modest growth this year,” said Khoon Goh, senior currency strategist at ANZ in Singapore.

“I think it’s quite possible that on-going downside risk to global growth and weakness in the U.S. dollar and the decline in the RMB (renminbi) effective exchange rate might have also prompted this easing move by MAS.” Singapore manages monetary

policy via changes to the exchange rate rather than interest rates because trade flows dwarf the US$290 billion economy.

Against a backdrop of sluggish global demand and low inflation, the MAS eased monetary policy twice last year, once in an unscheduled policy review in January 2015.

The deteriorating external conditions over recent months have also prompted the U.S. Federal Reserve to signal a more measured approach to future rate increases.

Darkening outlook

“The Singapore economy is projected to expand at a more modest pace in 2016 than envisaged in the October policy review,” the MAS said in its semi-annual policy statement.

“Core inflation should also pick up more gradually over the course of 2016 than previously anticipated,” it said.

Official data released yesterday showed that Singapore’s economy failed to post growth in the first quarter from the previous three months - gloomy figures that follow 2.0 percent growth in 2015, the weakest in six years.

Singapore’s manufacturing sector has also taken a hit from falls in global oil prices, which have dampened demand for oil rigs built by the city-state’s large rig industry.

“I think it’s the right policy move.

Growth is definitely weakening,” said Michael Wan, an economist for Credit Suisse.

Singapore dollar tumbles

The central bank decision was pounced on by Singapore dollar bears, sending it down to 1.3636 on the U.S. dollar - its weakest since March 29 and the biggest fall since August last year.

Worryingly, domestic borrowing costs climbed after yesterday’s policy move, with the 1-year swap rate rising 8 basis points to 1.42 percent.

A softer Singapore dollar can put

Singapore manages monetary policy via changes to the exchange rate.

Key Points MAS shifts to zero pct appreciation of S$NEER policy band Eases policy for third time since January 2015 MAS cites a more moderate growth outlook Core inflation likely to pick up more gradually

EMPLOYMENT

Australian jobless rate at 30-mth low Leading indicators of labour demand, such as vacancies, suggest the outperformance should continue this year.

Australia’s unemployment rate surprised by falling to 30-month lows in March as the economy generated more part-time work after a run of meagre months, leading investors to lengthen the odds on another rate cut.

Yesterday’s report from the Australian Bureau of Statistics showed the jobless rate dipped to 5.7 percent in March, the lowest since September 2013, when market forecasts had been for a rise to 5.9 percent.

Some 26,100 net new jobs were created in March, again topping forecasts of 20,000,

though all the gains were in part-time work as full-time employment slipped 8,800.

Annual jobs growth stayed healthy at 2 percent.

The monthly jobs numbers are notoriously volatile and the Reserve Bank of Australia (RBA) tends to focus on shifts in the unemployment rate to gauge the health of the labour market.

Yet an apparent slowdown in jobs growth over the turn of the year has given policymakers pause, with RBA Governor Glenn Stevens recently calling the data “more ambiguous”.

Key Points Employment +26,100 in March vs forecast of +20,000 Unemployment dips to 5.7 pct, when 5.9 pct expected Markets lengthen odds on rate cut in next few months

Markets assumed the pickup in jobs in March combined with the drop in the unemployment rate would likely offer some comfort to the central bank and pared back the chance of a further cut in the current 2 percent cash rate.

Interbank futures imply a 14 percent probability of an easing in May, down from 24 percent before the data.

The chance of a move by August was still 50-50, in part because aggressive stimulus by other central banks had shoved the local dollar higher in a way that could hinder exports.

The uncertain world outlook has made the resilience of the local labour market all the more important and, so far, brisk growth in service jobs has helped offset the drag from a struggling mining sector.

“It is particularly encouraging to see the employment index point towards on-going strength in the labour market, supported by signs the recovery is broadening into previous trouble spots such as manufacturing,” said NAB chief economist Alan Oster. Reuters

upward pressure on local interest rates as investors seek higher yields as compensation for holding the weakening currency.

“The big picture is that we expect Singapore’s economy to grow at a fairly sluggish rate of just 2 percent this year and next,” said Daniel Martin, senior economist at Capital Economics.

“In the short-term growth will be held back by rising local interest rates, which track the Fed funds rate closely.” Reuters

12 Business Daily Friday, April 15 2016

Asia Private poll

Japan likely averted recession in first quarter Key Points

Ten of 16 analysts in the poll said Prime Minister Shinzo Abe’s ‘Abenomics’ stimulus policies were supporting the economy to some degree.

Weak economy, strengthening yen to prompt more BOJ easing Many economists expect BOJ to ease in April or July Abenomics helping economy “to some extent”

The world’s thirdlargest economy is seen expanding an annualised 0.5 percent in Q1.

Kaori Kaneko

J

apan’s economy is expected to have narrowly avoided another recession at the start of 2016 but economists in a Reuters poll also predicted that growth and inflation will remain tepid this year,

held back in part by the recent sharp rise in the yen.

The Bank of Japan (BOJ) surprised in a split January decision to implement a tiny negative interest rate, -0.10 percent. But the yen has rallied by more than 10 percent against the dollar since then, spurring debate over whether it was a good move.

Half of the 16 analysts surveyed on April 6-12 said the BOJ, which has been struggling for nearly two decades to beat back deflation, will further ease already-aggressively loose monetary policy

at its April 27-28 meeting.

Three said the central bank would ease policy at its following meeting, in June, and the remaining five picked July as the likely date.

Asked what steps the BOJ will take, 10 analysts said the central bank will adopt a combination of cutting rates deeper into negative territory and boosting its asset purchasing, bringing one of the policy rates to -0.30 percent by the third quarter at the latest, from -0.10 percent now.

The BOJ’s surprise move to adopt negative rates is an

effort to encourage banks to lend to businesses and consumers instead of hoarding reserves with the central bank. That, in turn, is supposed to lift demand as well as inflation.

But many already see negative rates as a risky policy.

Nearly three-quarters of Japanese companies in the latest Reuters Corporate Survey, published late last month, said the BOJ’s negative rate policy was a bad move.

“In a situation where corporate sentiment has peaked out and the expected

inflation rate is also on the decline, recent progress in the yen’s appreciation will make it difficult for Japan to beat deflation,” said Atsushi Takeda, chief economist at Itochu Economic Research Institute.

“Further (BOJ) easing will be unavoidable to stop the trend of returning to deflation,” Takeda said.

The world’s third-largest economy is seen expanding an annualised 0.5 percent in the first quarter, almost half the already-weak 0.9 percent projection made last month, according to forecasts from 28 respondents in the poll.

In the final quarter of 2015, the economy shrank an annualised 1.1 percent, hurt by weak consumer spending, and worries remain there could be a second straight quarter of contraction - the definition of a technical recession.

Ten of 16 analysts in the poll said Prime Minister Shinzo Abe’s ‘Abenomics’ stimulus policies were supporting the economy to some degree, while two said they was helping substantially. Four said the policies were “not really contributing”. Reuters

ECONOMIC FORECAST

A private survey shows India’s growth to hold strong Economists assigned a 70 percent probability of a rate cut at some point this year India’s growth rate is set to remain one of the fastest in the world this year with inflation running just slightly above 5 percent, leaving the Reserve Bank of India on the sidelines for at least another six months, a Reuters poll showed yesterday.

The RBI is forecast to cut the repo rate to 6.25 percent in the last three months of the year, according to a poll of more than 40 economists taken April 6-13, but much will depend on the inflation outlook.

The same poll forecasts inflation, which has risen to 4.83 percent from a recent low of 3.69 percent last July and a series low of 3.27 percent in late 2014, to average 5.3 percent this fiscal year. That is the same level seen in a January survey.

Since then, the RBI has cut the repo rate once to 6.50 percent, the lowest since 2011, and 1-1/2 percentage

Business Daily is a product of De Ficção – Multimedia Projects

points below a peak of 8.0 percent in January 2015.

Prime Minister Narendra Modi’s government has also since delivered, in February, a budget that provides some economic stimulus to farmers and pledges a substantial rise in investment in crumbling infrastructure.

Even with that in the pipeline, economists assigned a 70 percent probability of a rate cut at some point this year. But with the economy doing relatively well and the inflation rate on the rise, clearly the central bank is not in a hurry.

However, a significant minority of economists in the poll, 16 of 37, anticipate no further rate cuts this year.

If RBI Governor Raghuram Rajan does deliver another cut, it will be welcomed by the government, which is two years into a mandate that heralded major economic reform but is still faced with the challenge of kick-starting an investment cycle.

One main obstacle is an on-going reluctance by commercial banks to

pass on lower benchmark rates to customers. So far, banks have passed on less than half of the 150 basis points’ of RBI repo rate cuts since January 2015.

One of the biggest unknowns about inflation this fiscal year will be determined by the monsoon rains between June and September, crucial in a country where most of the population depends on agriculture.

On the other hand, a nearly 25 percent hike in salaries and pensions for about 10 million current and former

government employees under a oncea-decade federal government review could bump up inflation.

But analysts in the latest poll appear confident about growth. They expect the economy to expand 7.8 percent in the fiscal year ending March 2017, a prediction that has remained largely unchanged over the past six months.

That is even higher than the latest Reuters poll forecasts for the official growth rate in China, expected at 6.5 percent in 2016 and then 6.3 percent in 2017. Reuters

Key Points Central bank seen cutting rates to 6.25 pct by end Q4 2016 Consumer inflation expected to average 5.3 pct in FY 2016/17 Economy to grow 7.8 percent in fiscal year ending March 2017

If RBI Governor Raghuram Rajan does deliver another cut, it will be welcomed by the government.

Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Michael Armstrong; Óscar Guijarro; Kam Leong; Joanne Kuai; Bami Lio; Annie Lao; Kelsey Wilhelm Group Senior Analyst José I. Duarte Design Francisco Cordeiro Web & IT Janne Louhikari Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@‌projectasiacorp.‌com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily. com Advertising advertising@‌macaubusinessdaily.‌com Subscriptions sub@‌macaubusinessdaily.‌com Online www.‌macaubusinessdaily.com

Business Daily Friday, April 15 2016 13

Asia In Brief Palm oil industry

Indonesia to probe palm producers’ pledge

Kim Moo-sung (2-L), chairman of the ruling Saenuri Party, announces his resignation as chairman, in Seoul yesterday.

Elections results

South Korea ruling party routed as weak economy saps support Ruling Saenuri Party Chairman Kim Moo Sung resigned yesterday.

Sam Kim

P

resident Park Geun Hye’s ruling party was routed in South Korea’s parliamentary elections as voters frustrated over rising joblessness and the president’s leadership denied her a majority and dampened her economic reform plans.

The opposition Minjoo Party won 123 seats in the 300-seat National Assembly on Wednesday, edging out the ruling Saenuri Party’s 122 seats, according to final results from the National Election Commission.

Pre-election polls showed Saenuri extending its hold, with some media outlets projecting the possibility of a 180-seat super-majority that would’ve let Park fast-track legislation. The People’s Party secured 38 seats.

“Angry, young Koreans made yesterday a judgment day for the Park administration,” said Oh Jung Gun, an economist at the Korea Economic Research Institute in Seoul.

The Saenuri Party’s setback will likely make it harder to pass structural reforms, and that would be credit negative, said Steffen Dyck, vice president and senior credit officer for the sovereign risk group at

Moody’s. “If legislative delays worsen ahead of Korea’s next presidential election, due in December 2017, it would reduce the government’s effectiveness,” he said.

The People’s Party - a group that broke off from Minjoo - may be the biggest winner. The party almost doubled its current 20 seats, likely making it key to governing and increasing the chances that its leader, businessman-turned-politician Ahn Cheol Soo, will make a run for the presidency next year. Park is limited to one term.

Ahn, a former professor, gave up his presidential bid in 2012 despite polls suggesting he could beat Park.

Shares of anti-virus software company Ahnlab Inc., which he founded, have risen more than 27 percent since the parliamentary campaign began on March 31.

‘No jobs’

Park’s hard-line approach toward North Korea didn’t register with voters while a slumping economy may have weighed more heavily on their minds. South Korea’s youth unemployment rate hit a record in February and exports have fallen for 15 consecutive months.

“I feel that the economy isn’t doing well,” said Jeong Myung Hwa, 29, who works at a marketing company.

Jeong said she supported the People’s Party led by Ahn because the two main parties seemed hungry for power rather than being focused on improving the economy.

Saenuri Party Chairman Kim Moo Sung resigned yesterday. Park spokesman Jung Youn Kuk said yesterday that the results reflected popular demand for a “renewed National Assembly that takes care of the livelihoods of the public and works for the people.”

Saenuri pledged quantitative easing steps during the campaign while Park has tried to push through bills to reform the labour market, boost service industries and enhance cybersecurity. She has blamed parliamentary gridlock for the failure to pass her legislation and called for change in economic policies amid North Korea’s nuclear threat and global economic uncertainty.

“The result fell far short of Saenuri’s initial ambition,” said Miha Hribernik, a senior analyst at risk consultant Verisk Maplecroft. “Park will now find it almost impossible to implement major economic changes during the rest of her time in office.” Bloomberg News

Equity funds

Australians return to New Zealand armed with cash New Zealand’s 50-share benchmark index has risen 7 percent year-to-date.

Swati Pandey and Rebecca Howard

Heeding the call of a cheaper kiwi, Australian private equity funds are rushing back to New Zealand, joining a larger wave of foreign investors expected to boost the country’s inbound M&A deals to an all-time high this year.

The Australian dollar has risen more than 10 percent against its New Zealand counterpart from a historic low in April last year. The weaker kiwi dollar helped boost investment by Australian PE funds in New Zealand businesses to A$85 million ($65 million) in the year ended June from a mere A$3 million a year earlier, data from the Australian Private Equity & Venture Capital Association shows.

Industry experts expect total foreign M&A inflows to top NZ$9.8 billion in 2015. In February, New Zealand software company Diligent Corp agreed to a NZ$941 million (US$651 million) buyout offer from a U.S. investment firm. Later this year, shareholders of resins and coating firm Nuplex Industries Ltd will vote on a NZ$1.05 billion takeover bid from a Belgian chemicals maker.

Apart from the weaker kiwi dollar, Australian PE funds are also drawn to cheap valuations for assets that investors say can offer returns of at least 6 percent. That compares to benchmark interest rates of around 2 percent in Australia and negative stock market returns in Sydney.

“We will be delighted to do more stuff in New Zealand,” said Justin Ryan, managing partner at Sydney-based Quadrant Private Equity.

“It’s not a large market (and) that presents some challenges, but there are certain areas in the economy that they’re very good at. Branded consumer products is one.”

Quadrant Private Equity is scouring for “good quality assets” in New Zealand, Ryan said, after what he called successful investments in retailer Kathmandu Holdings and retirement village Summerset Group Holdings.

New Zealand’s 50-share benchmark index has risen 7 percent yearto-date - among the best performing indices in the developed world. By contrast, Australia’s benchmark index is down 4.55 percent.

Two of Australia’s biggest private equity firms Pacific Equity Partners

and Archer Capital late last year made acquisitions in New Zealand’s education, pharmaceutical and agribusiness sectors. Interest is also strong in the utility and healthcare space.

Common systems

Australian investors also find comfort in similar legal and regulatory systems in New Zealand.

“Population growth in New Zealand is strong, the yield on a lot of investments is attractive, and we have confidence in the regulatory and political systems,” said Andrew Chambers, senior research analyst at Martin Currie Australia who helps manage A$5 billion (US$3.83 billion) in assets.

The interest from Australian PE firms and fund managers, historically strong investors in assets across the Tasman sea, comes at a time when investment from home-grown kiwi funds are shrinking.

Besides, Australian funds have more firepower to execute larger deals compared to their smaller NZ counterparts, said Tim Tubman, partner at New Zealand law firm Chapman Tripp. Reuters

Indonesia will investigate suspected cartel practices by palm oil companies that are signatories to the Indonesian Palm Oil Pledge (IPOP), an agreement aimed at curbing deforestation, the country’s anti-monopoly agency (KPPU) said. “The IPOP agreement has the potential to become the means of a cartel that will give rise to monopoly practices and or unhealthy business competition,” KPPU spokesman Dendy Sutrisno said in a statement issued late on Wednesday. “Because of this, the KPPU states that the IPOP agreement cannot be implemented.”

Finance ministry

S.Korea has no plans for a supplementary budget South Korea’s government has no current plans for a supplementary budget, a spokesman at the finance ministry told Reuters yesterday, reiterating its previously stated stance.

The comments came after Finance Minister Yoo Il-ho said in a media interview on the side-lines of international meetings in the U.S. that the government could draw up a supplementary budget if the economic situation changes. Another senior finance ministry official told Reuters the current economic situation does not meet the legal conditions needed to draw up an additional budget.

New Zealand

Restaurant Brands reports slightly higher profit New Zealand fast-food operator Restaurant Brands Ltd yesterday reported a slight increase in net profit as total group store sales continued to rise. The company, which operates the KFC, Starbucks, Pizza Hut and Carl’s Junior franchises in New Zealand, reported a net profit of NZ$24.1 million (US$16.66 million) for the year ended February 29, up 1.0 percent on the year. Total group store sales were NZ$387.6 million, up 7.8 percent on the prior year with continued strong growth from KFC and the impact of acquisitions in the Carl’s Jr. brand, the company said.

Restructure

Macquarie lays off 15 pct of U.S. investment banking Australia’s Macquarie Group Ltd shed close to 15 percent of its U.S. investment banking workforce this month to replenish its ranks with star performers in North America, according to people familiar with the matter. Earlier this week, Japan’s Nomura Holdings Inc, for example, laid off more than two-thirds of the bankers working at its leveraged buyouts group.

Like Nomura, Macquarie has focused in the last few years on advising on and financing private equity deals, as a way to gain investment banking market share with corporate America.

14 Business Daily Friday, April 15 2016

International In Brief Political change

Ukraine approves new Premier Ukraine’s parliament speaker was approved as prime minister in a bid to end a political crisis that’s threatened to trigger early elections and has jeopardized the flow of billions of dollars in international financing. After weeks of deliberations among the dominant parties, Volodymyr Hroisman, an ally of President Petro Poroshenko, was confirmed by parliament yesterday as Arseniy Yatsenyuk’s replacement. He was backed by a slimmed-down ruling coalition made up of the parties of Poroshenko and Yatsenyuk, as well as independent lawmakers lured by the president’s bloc to achieve a majority.

Euro-area

Prices unexpectedly stagnate in March A renewed decline in euro-area consumer prices has proved short-lived after data for March was revised to show stagnation. The inflation rate in the 19-nation bloc was unchanged, the European Union’s statistics office in Luxembourg said yesterday, revising an earlier reading of minus 0.1 percent. Prices fell an annual 0.2 percent in February. Inflation remains well below the ECB’s goal of just under 2 percent, which it hasn’t been near since 2013, and a moderate economic recovery has been insufficient to counteract falling oil costs.

The ECB has expanded its debt purchasing to fight deflation, stepping up monthly bond purchases to 80 billion euros from 60 billion euros.

Oil glut

IEA sees oversupply almost gone in second half Oil prices, which sank to 12-year lows in January amid a global surplus, have climbed 30 percent in the past two months.

Grant Smith

G

lobal oil markets will “move close to balance” in the second half of the year as lower prices take their toll on production outside OPEC, the International Energy Agency said.

The world surplus will diminish to 200,000 barrels a day in the last six months of the year from 1.5 million in the first half, the agency said in a report yesterday. Production outside the Organization of Petroleum Exporting Countries will decline by the most since 1992 as the U.S. shale oil boom falters. The glut is also being tempered as Iran restores exports only gradually with financial barriers to sales persisting even after the lifting of international sanctions.

“There is no doubt as to the direction of travel for the supply-demand balance,” the Paris-based adviser to industrialized nations said.

Oil prices, which sank to 12-year lows in January amid a global surplus, have climbed 30 percent in the past two months as OPEC and Russia work on a plan to limit their crude production. Still, without any proposal to reduce supply, there will be little real impact from the accord, due to be finalized in Doha this weekend, the IEA said. Brent crude futures traded near US$43 a barrel yesterday, close to a four-month high.

Outlook shift

The latest outlook represents a shift for the agency, which as recently as February raised its estimates of the global surplus and warned that the potential for further price losses had intensified. The prospect of markets re-balancing before year-end is gaining traction among analysts, with Credit Suisse Group AG predicting on Wednesday that stockpiles will contract in the third quarter.

Supplies outside OPEC will decline by about 700,000 barrels a day this year to an average of 57 million a day. While U.S. shale output “has been more resilient to lower prices and the drop in drilling activity than expected,” there’s growing evidence “that output declines are accelerating,” the IEA said. The nation’s crude production fell below 9

million barrels a day last week for the first time in 18 months, the Energy Information Administration reported on Wednesday.

Consumption growth

The IEA, which said last month it may lower oil demand forecasts amid slowing economic activity, said it remained confident that world fuel consumption will increase by 1.2 million barrels a day in 2016, or 1.2 percent. India is close to surpassing China as “the main engine of global demand growth,” according to the agency.

OPEC continues to pump about 1.2 million barrels a day more than the average required in the first half of the year, the report showed. The group’s 13 members produced 32.47 million barrels a day in March, a decrease of 90,000 a day from February because of disruptions in Nigeria, the United Arab Emirates and Iraq.

Iran, which saw three years of oil sanctions lifted following a deal on its nuclear program in January, has boosted output 400,000 barrels a day since the start of the year to 3.3 million. Still, on-going financial sanctions mean the pace of its return is “more measured than some expected,” the IEA said.

Bloomberg News

Libor rigging

UK regulator seeks to ban ex-UBS trader Britain’s markets regulator is seeking to ban former UBS trader Arif Hussein from the financial services industry for allegedly attempting to rig Libor benchmark interest rates - an accusation described by Hussein as a “gross misrepresentation”.

The Financial Conduct Authority (FCA), which has banned six people and fined a string of banks as part of a global inquiry into how the London interbank offered rate (Libor) was set and policed, said Hussein had acted recklessly and lacked integrity when trading derivatives at UBS between January and March 2009.

Panama Papers

Local authorities seizes files, makes no arrests Panamanian authorities seized scores of digital files after a 27-hour raid on the offices of Mossack Fonseca, the law firm at the centre of the “Panama Papers” leaks scandal, but have made no arrests, officials said on Wednesday. The government said it was seeking evidence of any illegal activities at the firm. The leak of the papers has generated public outrage over how the rich and powerful can hide money to avoid taxes. Javier Caraballo, the prosecutor in charge of the raid, said officials now had access to 100 “virtual servers”.

March figures

U.S. economic activity expanded Several regions see pickup in wage growth.

Lindsay Dunsmuir

The U.S. economy continued to expand from late February to early April and low unemployment appears to be spurring an uptick in wage growth, the Federal Reserve said on Wednesday.

Pay increased in all but one of the Fed’s 12 regional bank districts and several reported signs of a pickup in wage growth, the U.S. central bank said in its Beige Book report of anecdotal information collected from business contacts nationwide.

The Fed has signalled caution in lifting interest rates this year as it waits to see if the nation’s economy can shrug off slowing global growth and risks posed by a strong

dollar and sustained period of low oil prices.

Stagnant wages have also hindered inflation, which is running below the 2-percent rate policymakers would like to see.

The report gave cause for both optimism and caution on the U.S. economic outlook. Consumer spending increased only modestly in most districts and while capital spending increased on balance, there was only scattered reports of spending for capacity expansion.

Manufacturing increased in most districts but expectations for future growth were mixed. One particular bright spot in the employment picture was the healthcare sector, which grew at a solid pace in a number of districts, the Fed said.

Boston, Cleveland and St. Louis Fed districts cited “sizeable” wage increases for jobs in information

technology services, skilled construction and manufacturing.

In Philadelphia, firms “indicated they had raised their starting wages in order to attract higher-quality workers” while in Chicago more contacts had increased wages for low-skilled, entry-level workers, the Fed said.

Several districts also reported difficulties filling certain low- and highskilled jobs, including retail positions in Boston and construction work in Cleveland, Richmond, Atlanta and San Francisco.

Fed policymakers next meet on April 26-27. The Fed dialled back expectations on further hikes this year, after it raised interest rates by a quarter percentage point from near zero last December.

The Beige Book was compiled by the Chicago Fed with information collected on or before April 7, 2016.

Reuters

Business Daily Friday, April 15 2016 15

Opinion Business Wires

The Times of India RBI has warned that the country’s forex reserves will see some wild fluctuations in the first half of FY17. It said that initial months will see forex reserves soar, but it will dip again after September. The central bank also said that it is taking specific measures to ensure liquidity when special deposits raised under a foreign currency scheme come up for redemption.

The dollar deposits - amounting to nearly US$26 billion - were raised in September 2013 under a special three-year foreign currency non-resident scheme to support the rupee.

What’s wrong with negative rates?

I The Jakarta Post Indonesia plans to reaffirm its partnership with the United Kingdom to boost the creative economy industry, including music, film, fashion, art and digital development. “We want to merge culture and the economy in the country. So it could be monetized and increase people’s welfare,” Creative Economy Agency head Triawan Munaf said. The five-year partnership will be stipulated in the amended memorandum of understanding (MoU), initially signed by Tourism and Creative Economy Minister Mari Pangestu in October 2012, under the Yudhoyono administration.

Taipei Times Lawmakers on the legislature’s Finance Committee said they are unhappy with the Financial Supervisory Commission’s reluctance to shed light on information related to recent controversies surrounding biotechnology company OBI Pharma Inc. At a closed-door meeting with the commission officials, lawmakers across party lines demanded to know the identities of investors and institutions who had sold short on OBI shares. KMT Legislator William Tseng, the former commission chairman, had listed the identities of beneficial owners of two offshore entities found among OBI Pharma’s top 10 stakeholders, as well as investors and institutions involved in a spike in short interest in the company as prospects turned sour.

Bangkok Post The Excise Department estimates its tax revenue collection will exceed its 496-billion-baht target by 18 billion baht this fiscal year after collection in the first six months surpassed the target by 9 billion baht. The department raked in 46.8 billion baht in March alone, eclipsing the target by 3.57 billion or 8.25%, up by 3.32 billion baht or 7.63% from the same period last year. Excise tax on beer was 1.63 billion baht or 20.5% higher than the target in March, and that on liquor beat the target by 1.69 billion or 24.5%.

wrote at the beginning of January that economic conditions this year were set to be as weak as in 2015, which was the worst year since the global financial crisis erupted in 2008.

And, as has happened repeatedly over the last decade, a few months into the year, others’ more optimistic forecasts are being revised downward.

The underlying problem – which has plagued the global economy since the crisis, but has worsened slightly – is lack of global aggregate demand. Now, in response, the European Central Bank (ECB) has stepped up its stimulus, joining the Bank of Japan and a couple of other central banks in showing that the “zero lower bound” – the inability of interest rates to become negative – is a boundary only in the imagination of conventional economists.

And yet, in none of the economies attempting the unorthodox experiment of negative interest rates has there been a return to growth and full employment. In some cases, the outcome has been unexpected: Some lending rates have actually increased.

It should have been apparent that most central banks’ pre-crisis models – both the formal models and the mental models that guide policymakers’ thinking – were badly wrong. None predicted the crisis; and in very few of these economies has a semblance of full employment been restored.

The ECB famously raised interest rates twice in 2011, just as the euro crisis was worsening and unemployment was increasing to double-digit levels, bringing deflation ever closer.

They continued to use the old discredited models, perhaps slightly modified. In these models, the interest rate is the key policy tool, to be dialled up and down to ensure good economic performance.

If a positive interest rate doesn’t suffice, then a negative interest rate should do the trick.

It hasn’t. In many economies – including Europe and the United States – real (inflation-adjusted) interest rates have been negative, sometimes as much as -2%. And yet, as real interest rates have fallen, business investment has stagnated. According to the OECD, the percentage of GDP invested in a category that is mostly plant and equipment has fallen in both Europe and the US in recent years. (In the US, it fell from 8.4% in 2000 to 6.8% in 2014; in the EU, it fell from 7.5% to 5.7% over the same period.) Other data provide a similar picture.

Clearly, the idea that large corporations precisely calculate the interest rate at which they are willing to undertake investment – and that they would be willing to undertake a large number of projects if only interest rates were lowered by another 25 basis points – is absurd. More realistically, large corporations are sitting on hundreds of billions of dollars – indeed, trillions if aggregated across the advanced economies – because they already have too much capacity. Why build more simply because the interest rate has moved down a little?

The small and medium-size enterprises (SMEs) that are willing to borrow couldn’t get access to credit before the ECB went negative, and they can’t now.

Simply put, most firms – and especially SMEs – can’t borrow easily at the T-bill rate. They don’t borrow on capital markets. They borrow from banks. And there is a large difference (spread) between the interest rates the banks set and the T-bill rate. Moreover, banks ration. They may

Joseph E. Stiglitz Nobel laureate in Economics, is University Professor at Columbia University and Chief Economist of the Roosevelt Institute.

refuse to lend to some firms. In other cases, they demand collateral (often real estate).

It may come as a shock to non-economists, but banks play no role in the standard economic model that monetary policymakers have used for the last couple of decades. Of course, if there were no banks, there would be no central banks, either; but cognitive dissonance has seldom shaken central bankers’ confidence in their models.

The fact is that the eurozone’s structure and the ECB’s policies have ensured that banks in the underperforming countries, and especially in the crisis countries, are very weak. Deposits have left, and the austerity policies demanded by Germany are prolonging the aggregate-demand shortfall and sustaining high unemployment. In these circumstances, lending is risky, and banks have neither the appetite nor ability to lend, particularly to SMEs (which typically generate the highest number of jobs).

A decrease in the real interest rate – that on government bonds – to -3% or even -4% will make little or no difference. Negative interest rates hurt banks’ balance sheets, with the “wealth effect” on banks overwhelming the small increase in incentives to lend.

Unless policymakers are careful, lending rates could increase and credit availability decline.

There are three further problems. First, low interest rates encourage firms to invest in more capital-intensive technologies, resulting in demand for labour falling in the longer term, even as unemployment declines in the short term. Second, older people who depend on interest income, hurt further, cut their consumption more deeply than those who benefit – rich owners of equity – increase theirs, undermining aggregate demand today. Third, the perhaps irrational but widely documented search for yield implies that many investors will shift their portfolios toward riskier assets, exposing the economy to greater financial instability.

What central banks should be doing is focusing on the flow of credit, which means restoring and maintaining local banks’ ability and willingness to lend to SMEs. Instead, throughout the world, central banks have focused on the systemically significant banks, the financial institutions whose excessive risk taking and abusive practices caused the 2008 crisis. But a large number of small banks in the aggregate are systemically significant – especially if one is concerned about restoring investment, employment, and growth.

The big lesson from all of this is captured by the familiar adage, “garbage in, garbage out.” If central banks continue to use the wrong models, they will continue to do the wrong thing.

Of course, even in the best of circumstances, monetary policy’s ability to restore a slumping economy to full employment may be limited.

But relying on the wrong model prevents central bankers from contributing what they can – and may even make a bad situation worse. Project Syndicate

“If central banks continue to use the wrong models, they will continue to do the wrong thing”

16 Business Daily Friday, April 15 2016

Closing Jobs swindle

Shanghai police uncover Disney recruitment scam

to police. He said he quit his taxi business after the Disney job offer, for which he paid 13,000 yuan to the broker. However, the management position that was Shanghai police have busted a gang they accuse offered by the brokerage turned out to be a cleaning of having used fraudulent job ads for Shanghai job. According to police, one of the suspects confessed Disneyland to con 3 million yuan (US$463,000) in that he pretended to be a senior Disney executive broker’s fees from more than 200 applicants. to recruit staff. The June opening of the Disney park Police announced the arrest of three suspected gang leaders yesterday, two months away from the opening in Shanghai has triggered a sales rush after tickets of Disney’s first theme park on the Chinese mainland. A became available in March. Park passes for the resort’s taxi driver surnamed Li was the first to report the scam opening day were snapped up in minutes. Xinhua

Mastering stocks

China’s stock-market king agency reveals its trading secrets The agency is a top 10 shareholder in more than 600 companies, including almost all of China’s Inc.’s biggest names.

Fox Hu

I

n China’s financial circles, they call it the King - a state-run investing behemoth with unmatched power to move the world’s second-largest stock market.

Its tactics, shrouded in mystery since authorities armed the agency with more than US$480 billion last summer, have been the subject of fierce speculation among copycat investors and short sellers alike.

Now, thanks to mandatory shareholder disclosures in hundreds of Chinese companies’ annual reports, the clearest picture yet of China Securities Finance Corp. (CSF) - as the King is officially known - is coming into view.

The filings suggest CSF’s nickname is more than just hype. The agency is a top 10 shareholder in more than 600 companies, including almost all of China’s Inc.’s biggest names.

It favours banks, state-owned enterprises and consumer firms that dominate benchmark indexes, while shunning small-cap stocks with less market impact. It’s a disciplined investor, too, targeting firms with above-average profitability and limiting its holdings in any one company to about 3 percent of the shares outstanding.

“It can give you a little bit more insight into what the government strategy is,” said Pauline Dan, head of Greater China equities at Pictet Asset Management in Hong Kong, which oversees about US$159 billion worldwide. “They’re not exactly very forthcoming with disclosure or what they’re going to do.”

Market rally

Given CSF’s firepower, knowing which stocks it favours has become

a big focus of local investors seeking a tailwind from state buying. Bearish traders, meanwhile, are trying to avoid betting against the agency, which became the government’s main tool for supporting share prices after China’s US$5 trillion market crash last summer. The Shanghai Composite Index has rallied 16 percent from a one-year low in January, helped along by state purchases and speculation that economic growth is stabilizing. It rose 0.5 percent at the close yesterday.

“Investors keenly watch the CSF’s changing positions and guess when and what it may be buying or selling,” said Ronald Wan, chief executive at Partners Capital International in Hong Kong. “The state fund has a double mission: to support the market and to make a profit.”

Unsurprisingly, CSF’s biggest holdings are in financial companies, whose heavy weightings in benchmark indexes make them prime candidates for government campaigns to prop up the US$6 trillion market. Lenders including Industrial & Commercial Bank of China Ltd. and Agricultural Bank of China Ltd. comprised eight of CSF’s 10 largest positions at the end of December, according to data compiled from about 1,500 annual reports released

by Chinese companies so far.

Strategic silence

More than 80 percent of CSF’s 100 biggest holdings are state-owned enterprises, including CRRC Corp., a maker of high-speed trains. The agency is also warming to consumer-oriented companies, which accounted for nearly half of its 29 disclosed stake increases during the fourth quarter. CSF held 2.6 percent of Kweichow Moutai Co., the distiller of fiery liquor, at the end of

December and 3.1 percent of Inner Mongolia Yili Industrial Group Co., one of the country’s biggest dairy producers.

While CSF has remained silent on its strategy, its managers do appear to care about the financial performance of their investments. The agency’s top 100 holdings, which account for more than 70 percent of its disclosed portfolio value, have a median return on equity of 15 percent, double that of the overall market.

“Investors keenly watch the CSF’s changing positions and guess when and what it may be buying or selling” Ronald Wan, Chief executive at Partners Capital International in Hong Kong

Valuations seem to matter, too. CSF doesn’t show up as a top 10 holder of small-cap firms in the ChiNext index, which has a price-to-earnings ratio four times higher than that of the Shanghai Composite. (Some smaller funds associated with CSF, however, have appeared as major ChiNext stakeholders.)

Share transfers

Other details on CSF are coming to light in Chinese media. The agency, which was originally formed to provide margin trading and securities lending services to brokerages, doubled its earnings and revenue in 2015, the government-owned 21st Century Business Herald reported on

Wednesday, without saying where it got the information.

CSF has been transferring some of its shares to other state-controlled entities as partial repayment for loans, China Business News said this week, which may help explain why the agency’s reported holdings in corporate filings fell by about 65 billion yuan in the fourth quarter to 550 billion yuan. That figure likely understates the size of its total portfolio because it excludes stocks where CSF owns a stake, but isn’t a top 10 shareholder.

A Beijing-based spokesman at CSF declined to comment.

Holdings limit

Investing in CSF’s favourite stocks doesn’t always pay off. Chinese banks, for example, have gained just 0.7 percent on average in mainland trading over the past three months, trailing the Shanghai Composite by more than 3 percentage points. The ChiNext, meanwhile, has jumped 11 percent despite evidence that CSF is shunning small-caps.

For many analysts, CSF is too big to ignore. While the agency doesn’t disclose financial details, people familiar with the matter said in July that it had access to as much as 3 trillion yuan of funding. CSF sought another 2 trillion yuan in August, people with knowledge of the matter said at the time.

One key finding from the annual reports is the apparent cap on CSF’s holdings in individual stocks. None of the filings examined by Bloomberg showed a position exceeding 3.03 percent of shares outstanding, with stakes in at least 115 companies coming in just below that level.

For investors looking to ride CSF’s coattails, that makes stocks already at the 3 percent threshold less attractive than those in which it has more room to add.

The filings “might give insight into which shares may get targeted going forward,” said Sandy Mehta, chief executive officer of Hong Kongbased Value Investment Principals Ltd. “It’s a must for professional investors to know the ownership structure.” Bloomberg News

President’s phone-in

Business mission

Opening markets

Putin shares Russians’ pain over economy

Singapore to explore opportunities in mainland

PBOC says foreign c.banks may freely remit money

President Vladimir Putin assured ordinary Russians yesterday that he was trying to relieve the hardships they face, with the economy in recession and consumer prices pushed up as a consequence of the Kremlin’s standoff with the West.

Putin used a televised phone-in, an annual event when he fields questions from ordinary citizens around the country, to strike a conciliatory tone on foreign policy, saying Russia wanted friendly relations with the rest of the world.

Early questions to Putin focused on the economy, which shrank 3.7 percent last year, a result of falling prices for oil made worse by the effects of international sanctions imposed on Russia over the conflict in Ukraine.

“I understand it’s difficult,” Putin said in response to a question about inflation, which was 12.9 percent in 2015. Prices were pushed up by an embargo on food imports from Europe that the Kremlin adopted in retaliation for the Ukraine sanctions.

“The rise in food prices is a temporary phenomenon. Prices will stabilise,” he said. Reuters

Singapore Business Federation (SBF) and International Enterprise (IE) Singapore will jointly lead a delegation of 29 companies to explore business opportunities in China’s Chongqing from today to Sunday, said SBF and IE Singapore in a joint press release yesterday.

This is the largest Singapore business delegation to visit the Chinese municipality since the Chongqing Connectivity Initiative (CCI) was launched in November 2015, according to the release.

The Singapore delegation comprises almost 50 senior representatives of companies from the financial services, aviation, transport and logistics, as well as information and communications technology (ICT) sectors, which are the focus sectors for the CCI. Also on the trip are the Industry Advisors to the CCI, who will lend their corporate and professional industry expertise to the project.

During the three-day mission, the Singapore delegation will meet local government officials and enterprises, develop a better understanding of Chongqing’s business environment, as well as gain insights to the CCI. Xinhua

The People’s Bank of China (PBOC) said that foreign central banks investing in the domestic interbank market will be able to freely remit funds without regulatory approval, in a further step to open up its debt markets.

China announced last year it would allow foreign financial institutions to invest in its massive interbank market, home to its primary bond and foreign exchanges, without quota restrictions.

The details, in a set of documents published on the central bank’s website yesterday, come as China tries to attract more foreign capital into its domestic bond market.

The rules yesterday said they applied to central banks and “similar institutions,” without further specification as to whether institutions such as pension funds or insurers would be included.

While some analysts have estimated that liberalisation may lead foreigners to pour as much as US$600 billion into China’s interbank market, some argue that lack of clarity on taxation, concerns about a flood of upcoming issuances and worries about legal recourse for foreign investors will put a cap on flows. Reuters