Anzac Day Observance in Macau Mon, 25 April 2016 │ 7:30am - 9am │ MGM Macau
ay zac D
Followed by Gunfire Breakfast from 8am
An
Exchange reserves fall 0.5% Treasury Page 2
Monday, April 18 2016 Year V Nr. 1024 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Health Gaming
Interblock inks deal with Sands for 248 stations Page 2
Herbalife chairman says unhealthy lifestyles greatly impact economy Page 3
www.macaubusinessdaily.com
Global Economy
E-Commerce
World leaders meeting in Washington during weekend showed central banks’ concerns Page 11
Online retail industry in East Asia to become a battleground after Lazada acquisition Page 13
Uber: ‘Making the city better’
Transportation Uber GM Trasy Lou tells Business Daily the company’s ride-sharing service is a winner. Benefiting local residents, tourists, and the city itself. An overburdened public transport system, speedy response times, driver background checks, and rating system have carved out a credible market niche for the app service, she says. Pages 6-7
Soft landing likely China’s reform The economy continued to slow in 2016 Q1. Although several key indicators point to signs of stabilisation, official data showed on Friday. China’s GDP grew 6.7 pct y-o-y to reach 15.9 tln yuan (US$2.4 tln) according to the National Bureau of Statistics. Page 8
Air Macau expands talent pool Aviation A programme to train eight to 10 local pilots over the next two and half years. At ENAC flight school in France. For some MOP1.8 to MOP2 million each. The company aims to increase its ratio of local pilots. Seen as a ‘sign of a healthy company’. Page 4
Gaming Page 5
20° 25° 21° 23° 22° 25° 23° 27° 22° 26° Today
China Mengniu Dairy Co Ltd
Wed
21,316.47 -21.34 (0.10%)
+4.15%
Hengan International Group
Want Want China Holdings
+2.19%
Swire Pacific Ltd
+0.66%
Cheung Kong Property
+1.47%
Link REIT
+0.64%
+1.17%
China Merchants Holdings
-1.65%
Belle International Holdings
China Petroleum & Chemical
-1.85%
China Resources Power
-2.88%
China Shenhua Energy Co
-2.23%
Kunlun Energy Co Ltd
-2.89%
-2.69%
Source: Bloomberg
HK Hang Seng Index April 15, 2016
Tue
I SSN 2226-8294
Thu
Fri
Source: AccuWeather
Same old story VIP gaming revenue down 19.35 pct in Q1. At MOP30.38 bln (US$3.8 bln) vis-a-vis the same period in 2015. Mass market gross gaming revenue, including mass table games, slots and live multi games, fell 4.8 pct y-o-y to MOP25.79 bln.
2 Business Daily Monday, April 18 2016
Macau Transportation
250 taxi licences up for grabs Individual claims that MOP8.8 million (US$1.1 million) bid was a mistake and should have been MOP881,680.
Gaming
Junket operators possibly subject to increase in security deposit SAR Government still gathering opinions but increase “is right and recognised by the industry”, according to the Secretary for Economy and Finance. Annie Lao annie.lao@macaubusinessdaily.com
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possibility of increasing the amount junket operators need to provide as a security deposit to be allowed to operate in the MSAR is
under consideration by the MSAR Government and seeks to meet the needs of operators in the gaming industry, reports Chinese language broadcaster TDM radio. “According to current legislation, gaming promoters need to go through background checks. In the past, we have seen some situations that we don’t want to see from the gaming promoters. Therefore, we think requiring a security deposit to increase the threshold for them to enter the gaming promotion industry is needed,” Secretary for Economy and Finance of Macau Lionel Leong Vai Tac told the broadcaster. The strong development of the gaming industry relies upon compliance with the law and building up the level of integrity in order to
healthily develop the gaming industry, Mr. Leong stated. When asked whether the government will follow the suggestion given by some junket operators to increase the security deposit up to MOP10 million (US$1.2 million), Leong’s response was that the MSAR Government still needs to gather more and different opinions from the industry and society, nevertheless saying, “This direction of raising the threshold for junket operators to enter the gaming promotion industry is right and is recognised by the industry”. Kwok Chi Chung, president of the Association of Gaming and Entertainment Promoters of Macau, told Business Daily that current legislation only requires junket operators to pay MOP100,000 security deposit.
No rush decisions should be made as the gaming industry plays a key role in Macau’s economy, thus reaching a balance between operation and development by listening to different opinions is vital, according to the Secretary. With regard to the establishment of a database on loans offered by gaming promoters, the Secretary noted that the advantages and disadvantages of various methods should be taken into consideration. Leong emphasised that the protection of personal information laws, meeting the needs of the industry, and upholding the principles of integrity are crucial for setting up a database on gaming operator’s client loans in order to sustain the overall economic development of Macau.
A new batch of 250 taxi licences valid for eight years were put up for auction yesterday, according to a report by local TDM Chinese Radio. The Transport Bureau (DSAT) received a total of 755 bids for the licences, with the highest bidding price hitting MOP8.8 million and the lowest MOP870,000. The highest bidder, a Ms. Chan, made an immediate declaration that she had made an error in filling in the bid amount as she claimed MOP8.8 million was mistakenly written instead of the intended MOP881,680. Following a closed-door meeting on the subject the bidding Committee decided to cancel the MOP8.8 million bid. According to current auction rules, bidders are not allowed to change the bidding amount after submitting the bidding price. Ms. Chan can appeal to the DSAT to resubmit her bid up to 10 days after the auction. In addition, if a successful bidder decides to give up a taxi licence, the MOP50,000 deposit will not be refunded. Additional factors expressed in the auction bids included decreases in tourists coming to Macau and the city’s economic adjustment. Some bidders at the auction were not taxi drivers themselves but bid for a taxi licence mainly for investment purposes while others were taxi drivers bidding for a taxi licence because their family members wanted to join the taxi industry in future. A.L.
Currency
Earthquake
Gaming
Exchange reserves fall 0.5%
Travel warning following Fukuoka earthquakes
Interblock inks deal with Sands for 248 stations
An official travel warning has been issued by the Chinese Consulate in Fukuoka, Japan warning Chinese citizens to ‘cautiously consider’ their plans if travelling to the Kyushu zone and warning them to ‘not go to Kumamoto Prefecture’. The announcement came in the wake of an earthquake measuring 6.5 on the Richter scale occurring in Kumamoto on Thursday evening followed by a 7.3 tremor on Saturday morning, according to the Government Information Office (GCS) and published by the Tourism Crisis Management Office (GGCT) on Saturday. Two female Macau residents who were staying in the remote area of Aso, in the Kyushu zone, have been confirmed safe and are returning to Macau today on an Air Macau flight. The residents departed the zone on Sunday morning from Oita Airport destined for Osaka. In addition, two Macau tour groups of 40 people were in Fukuoka on Saturday but there is no indication that they have been affected. Three Macau tour groups comprising 100 people originally scheduled to leave on April 18 and 19 for Fukuoka will be cancelled.
Interblock Gaming has announced a deal with The Venetian Macao and Sands Macao to install its Diamond Product line in both properties. The deal brings 21 Diamond Roulette units, with 8 stations and 10 Diamond Sic-Bo units with 8 stations to the properties. Installation is set to begin in the second quarter of this year, according to a press release. “Interblock’s luxury electronic table games (ETGs) were the first ETG solution of its kind introduced to the Macau region when Sands Macau first opened its doors in 2005,” said Interblock’s Senior Vice President of Asia Pacific Cameron Louis in the release. The company’s Global CEO, John Connelly, announced his thanks to the operator, saying that Interblock, “see this deal as a significant catalyst for Interblock’s re-entry into the Macau Market. We will continue to invest heavily in this region, while adding the necessary resources and infrastructure to further support the increased level of growth we are experiencing throughout the Asia Pacific region.”
AMCM has revealed that exchange reserves and the MOP exchange rate have gone down month-on-month but increased year-on-year. Estimates for the exchange reserves for March show a 0.5 per cent drop compared to the month before, according to a press release by the Monetary Authority of Macao (AMCM) on Friday. Preliminary estimates show exchange reserves fell from MOP153.2 billion (US19.13 billion) at the end of February to MOP152.5 billion (US19.09 billion) at the end of March. However, the data shows a year-on-year increase of 11.38 per cent. When it comes to the trade-weighted effective exchange rate index - used to compare the exchange rate of Macau against the exchange rate of its major trading partners - the index dropped 0.48 points month-on-month but rose 0.74 points year-onyear to 105.93 in March 2016, implying that like the exchange reserves the MOP depreciated against the currencies of Macau’s major trading partners on a monthly basis but appreciated on an annual basis. N.M.
Business Daily Monday, April 18 2016 3
Macau
Health Obesity and unhealthy diets having a negative impact on the economy
Get healthy or pay the price Being overweight and engaging in unhealthy diets will have a large impact upon Asia Pacific economies according to the chairman of international nutrition and wellbeing company Herbalife. Nelson Moura nelson.moura@macaubusinessdaily.com
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besity and unhealthy lifestyles in Asia will have a large impact upon local economies according to chairman of the Herbalife Nutrition Institute and the Nutrition Advisory board David Heber. His remarks came at a seminar on April 15 as part of Herbalife’s Macau stop on the Herbalife Asia-pacific Wellness Tour 2016. Dr. Heber was one of the main guests of the event, and is considered by Thomson Reuters as one of the most influential minds of 2014, and repeatedly included in ‘The
Expanding Herbalife
Herbalife is an American multinational multi-level marketing corporation that develops, markets and sells nutrition supplements, weight management, sports nutrition and personal care products. According to its 2015 annual report it operates internationally and distributes its products in 95 countries through a network of approximately 4 million independent distributors with a total revenue through worldwide sales of US$4.4 billion. “Herbalife has been present in Macau for 14 years with a current 3,000 members in the city, and is very active in helping the community,” Herbalife Senior Country Manager for Hong Kong and Macau Steven Sze told Business Daily. In China and Macau only 0.1 per cent of the population is involved with Herbalife, with the health and nutrition company seeing it as a market with great possibility for expansion.
Best Doctors in America’ and ‘Who’s Who in America’. As a leading figure in obesity research, Dr. Weber has made it his main topic of study how to effectively prevent obesity and understanding the relationship between obesity and ageing. The chairman shared his take on how these issues affect Macau, Hong Kong and China. “Obesity and [being] overweight has a tremendous impact upon local economies. Obesity associated diseases are a major factor in total health expenditure. In Hong Kong about 60 per cent of gross product is spent on healthcare and in the United States we currently spend US$200 million per year, on obesity associated diseases,” according to Dr. David Heber, chairman of the Herbalife Nutrition Institute and the Nutrition Advisory board. “This is because we’re only treating these diseases after they are
“We’re only treating these diseases after they are diagnosed.” David Heber, Chairman of the Herbalife Nutrition Institute and Nutrition Advisory board
diagnosed,” says the doctor, “and there are 132 obesity-related diseases. All that causes a big strain on healthcare finances.”
Macau case study
A study by the US National Library of Medicine National Institutes of Health on metabolism showed that in Macau 34.6 per cent of adult males between 18 and 44 years of age were overweight or obese and 36.6 per cent had high blood pressure. According to data from the Financial Services Bureau (DSF) the MSAR dedicated a total of MOP 7.753 billion in 2016 to its budget for health related expenses, a 20.5 per cent increase from 2015 and, according to Dr. Heber, [the condition of] overweight and unhealthy diets will end up creating a larger effect on Macau’s economy as health care expenses increase. The Herbalife nutrition expert also gave his take on Macau’s problems vis-a-vis lifestyle and dieting, noting that around 39 per cent of the working population in Macau in 2016 was employed in the casino and hotel sectors, according to employment surveys by the Government of Macao Special Administrative Region Statistics and Census Service, with hectic shifts, night work and unhealthy diets implied in the work environment. “People who are stressed become addicted to fast food or sweet foods as a stress releaser. Also abnormal sleep is another risk factor, since if you don’t have a good night’s sleep you tend to eat more. Daily exercise with a good diet is one of the best ways to reduce stress,” Dr. Heber told Business Daily. “According to the survey from the new Nutrition at Work Survey, in the Asia Pacific area, nine out of 10 workers (85 per cent) spend at least six hours a day sitting at their desk, with five out of 10 eating lunch at their work desk two to five times per week,” he stated.
Keys to change
Heber described how the majority of the workforce – around 83 per cent - in the Asia Pacific region exercise less than three times per week,
with six out of 10 getting less than 30 minutes of physical activity a day at their workplace - a trend in a market that has been recording rising obesity rates in recent years. “In the Hong Kong, Macau and China area 50 per cent of the population has body fat and [a] high risk of chronic age related diseases, including diabetes, heart diseases and cancer. The population of China is 1 billion people, with 500 million people at risk of chronic age diseases.” The doctor described how, with increased economic development in the Asia Pacific area, more people are moving away from the rural world and a farming lifestyle to an urban lifestyle and embracing less healthy habits. “Nowadays, most people in China are inside their car, everybody is in heavy traffic all the time, sitting in their car. Also, [there are] more people sitting in office jobs than performing physical jobs, and our survey shows 9 out of 10 workers in the Asia Pacific [area] spend more than six hours per day sitting down; even more amazing 14 per cent spend 10 to 12 hours sitting down,” he said. “Sitting down is actually considered a disease, called a sedentary lifestyle, and it’s a risk factor as big for heart disease and cancer as smoking.”
Key Points MOP7.753 billion in 2016 budget for health related expenses, a 20.5 per cent y-o-y increase United States spends US$200 million per year on obesityassociated diseases 9 out of 10 workers in Asia Pacific spend more than 6 hours per day sitting down 34.6 per cent of adult males aged 18-44 are overweight or obese 36.6 per cent have high blood pressure
4 Business Daily Monday, April 18 2016
Macau Aviation Air Macau to increase local pilot ratio by half
Come fly with me The SAR flag carrier has a budget or MOP20 mln to train a batch of 10 local pilots over the next two and a half years. Joanne Kuai joannekuai@macaubusinessdaily.com
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he city’s flag carrier, Air Macau Co. Ltd., plans to invest MOP20 million (US$2.5 million) to train a batch of eight to 10 local pilots over the next two and a half years, said the Chief Executive Officer of Air Macau and President of the Executive Committee Mr. Chen Hong. The training will primarily take place at the flight school ENAC in France given that it’s seen as: “A fine option as proved by recently recruited pilots graduating from there”, and will be mainly subsided by the company. Tuition for each candidate will cost around MOP1.8 million to MOP2 million, according to Air Macau. The airline hosted two sessions of share talks open to the public on Saturday in the Cultural Centre Meeting Room. The event was well received by a full house of interested individuals. “Now the ratio of locals in our pilot team is a bit too low,” said Mr. Chan Hong at a press conference prior to the public event. “Of course, we welcome people from all over the world to join us and the fact is that
20 Million patacas Amount Air Macau to invest in training 10 local cadet pilots
the current [pilot] team is very international. But a certain percentage of local staff will guarantee a more stable team and is a sign of a healthy company. The [local cadet pilot] programme targets a structural change for the long-term.” The deadline for application is 15th May this year. The selection period will run from April to June and only candidates who have been short-listed will be notified in June. The training will start in September 2016, with the first batch of qualified and competent pilots expected to start working by early 2019.
Definition of ‘local’
As listed on the company’s official website, one of the requirements for this recruitment campaign is that the candidate must be a ‘holder of a Macau permanent ID with valid passport’. Previously, whether a candidate must be a holder of a Macau SAR passport has raised concerns that such a programme might exclude all residents that are not of Chinese nationality. Yesterday, the CEO of Air Macau clarified that “the definition of ‘local’ here means Macau permanent ID holder.” Mr. Chan said that Macau is a unique place with many nationalities and “as long as you are a local permanent resident and meet other requirements, you should be eligible to apply.” When asked whether the recruitment programme targeting locals has anything to do with the local government’s policy of protecting the local labour force and limiting quotas for hiring non-resident workers, Mr. Chan denied such an intention but indicated that nurturing local pilots has long been a tradition in the aviation business, as with the company’s counterparts in Hong Kong, Singapore and Mainland China - where
such programmes have been conducted for decades. Mr. Chan explained that currently local pilots account for 15 per cent to 18 per cent of the team, with the aim to raise the ratio to at least one third or half. As further explained by the Vice President of Air Macau, Mr. Du Goufu, the percentage was about local born and raised Macau pilots. However, the percentage of Macau permanent ID holders among the pilot team is around 40 to 50 per cent.
“A certain percentage of local staff will guarantee a more stable team and is a sign of a healthy company” Chen Hong, Chief Executive Officer of Air Macau
According to data provided by Air Macau, as of 11th April 2016, some 174 pilots were working for the airline, of whom 91 are captains and 93 first officers. Only 21 of them are Macau Chinese nationals, and the number of Macau Chinese captains is as low as five. By place of origin, the whole pilot team comprises 35 nationalities, with 12 per cent of Macau Chinese nationals, 13 per cent from Portugal, 10 per cent from France, 7 per cent from Brazil, 4 per cent from Mainland China and 54 per cent from other countries.
Top Gun life
Captain Sonny Lao is one of the five Macau Chinese national captains that serve at Air Macau. While on stage
sharing his experiences of becoming a pilot, he was asked questions by the audience such as “What is the lifestyle of a pilot like?” and “How much do you earn?” While admitting that the working schedule can be a bit disruptive compared with office jobs, Mr. Lao says he has no complaints about the wages and “people who take up a career as a pilot have a passion for flying”. “I was once a flight attendant at Air Macau and I saw many foreign pilots and came to think why can only foreigners be a pilot,” Mr. Lao told Business Daily. “Then, with a group of friends that shared the same interest, I signed up for a flight school in Australia and later become a pilot.” “Back then, I actually had to pay for my own training. That’s why I highly encourage local youth to seize this chance,” said Mr. Lao. “It’s a good initiative from the company to integrate its core mission into its corporate social responsibility while contributing to the community. It also aims to encourage youths to explore and learn the aviation world. The first stage targets the nurturing of pilots; the next training programme may be staged for local engineers and maintenance professionals.” Vice President of Air Macau Du Goufu declined to disclose more details of the contracts to be signed between the company and future candidates, such as remuneration, but indicated that a certain number of years of service after graduation would be mandated. He added that the programme will be hosted yearly from now on with an annual budget of MOP20 million. Besides being local, other requirements for cadet pilots include physical and mental fitness that meet AACM [Macau Aviation Authority] requirements; a university degree or higher qualification - preferably with a major in science or technology; a good command of written and spoken English with a minimum TOEFL score of 71 or IELTS score of 6 and good visual acuity of at least a 1.0 or 20/20 and no colour blindness.
Business Daily Monday, April 18 2016 5
Macau
Gaming revenue VIP gaming revenue in Macau casinos down 19.35 pct y-o-y in Q1
Slowing decline Mass market casino gross gaming revenue has experienced a relatively milder yearly decline of 4.8 pct. Joanne Kuai Joannekuai@macaubusinessdaily.com
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evenue from VIP gaming in Macau casinos fell 19.35 per cent in the first quarter of the year, at MOP30.38 billion (US$3.8 billion), compared to the same months in 2015, according to official data released on Friday. The figure is indicated by VIP baccarat gross gaming revenue, a breakdown of the revenue per gaming product segment, provided by the Gaming Inspection and Co-ordination Bureau (DICJ). The latest data also shows that mass market gross gaming revenue, including mass table games, slots and live multi games, fell 4.8 per cent year-on-year in the first three months of this year to MOP25.79 billion. The decline in the corresponding period of last year was 27 per cent. Also, in the first quarter of 2015, VIP
baccarat revenue declined 42.1 per cent year-on-year. The high rollers continue to be the source of most of the revenue from Macau casinos, amounting to 54.1 per cent of the total in the first quarter. Yet, its weight also continues to fall, as in the same period in 2015 VIP game weighting was 58.15 per cent. In comparison with the last quarter of 2015, VIP gaming revenue increased 2.68 per cent, while mass games grew 2.21 per cent between January and March, the period covered by a week of celebrations for the Chinese New Year accounting for more betting in Macau casinos. As reported by DICJ on April 1, for the first quarter of 2016 total gross gaming revenue in the SAR fell 13.3 per cent year-on-year to MOP56.18 million.
we estimate that after adjusting for this effect, mass / slots gross gaming revenue actually grew around 3 per cent to 4 per cent year-on-year in the first quarter of 2016,” the analyst said in a note released on Friday. “We are looking for this trajectory to continue through 2016 and we remain biased to the upside as it relates to our forecast for 7 per cent to 8 per cent mass market gross gaming revenue growth in 2016,” Mr. Govertsten added.
Reclassification
The Union Gaming analyst also indicated that he estimates combined mass market and slots gross gaming revenue eclipsed VIP gross gaming revenue for the third consecutive quarter and looks for this trend to continue for the foreseeable future with a current forecast for mass / slots to capture 57 per cent of the gross gaming revenue pie in 2016. Mr. Govertsten also pointed out that baccarat “only” accounted for 88 per
Table games reclassification has resulted in VIP gross gaming revenue declines being understated, and have overstated declines in the mass market, according to analyst Grant Goversten of brokerage Union Gaming Securities Asia Ltd. “However, given that table games reclassification have understated mass performance by 700 basic points to 1,000 basic points since late 2014,
54.1 Per cent Proportion of VIPs accounting for 2016 Q1 total gross gaming revenue
cent of total gross gaming revenue in the first quarter, representing the fourth consecutive quarter at this level. Prior to this, baccarat accounted for 91 per cent or 92 per cent from 2010 onwards. “This suggests to us a slightly more diverse customer base,” said the analyst.
Reliance
Revenues from casinos have been falling since mid-2014 and, being the main industry of the Special Administrative Region, have fueled the fall of Gross Domestic Product (GDP). In 2015, Macau’s GDP fell 20.3 per cent, in what was the first annual contraction of the economy since 1999 when the administration of the territory was transferred from Portugal to China. The forecasts of the International Monetary Fund (IMF) released last week point demonstrate a further decline of Macau’s GDP this year of about 7.2 per cent. However, the IMF forecast for the region’s economy predicts a return to growth in 2017. The drop in gaming revenue has been linked to the anti-corruption campaign launched by Beijing, which seems to have removed the high rollers from Macau casinos, the only region in China where gambling is legal. The authorities in Macau and Mainland China have advocated the diversification of the regional economy to make it less dependent upon the industry and, within this, less dependent upon high rollers.
Corporate
E-Commerce Association visits CTM
The Guangdong E-Commerce Association recently visited CTM to promote and discuss the development of e-commerce in Macau, in addition to working on introducing innovative information technology and expanding the network infrastructure. During the visit the vicesecretary of the association, Ebel Cham, spoke about promoting the development of a ‘Digital Macau’. Ebel said that CTM had taken the lead to launch the 4G+
service, achieved 100% fibre network coverage across Macau, expanded wi-fi network coverage to the public transport system, and launched the ‘M.wallet+’ digital payment service, working to solidify the foundation of network infrastructure for the development of a Digital Macau. Both parties exchanged views on the development of e-commerce and Cloud services as well as working together to promote and diversify the e-commerce and IT industries through further co‑operation.
Clube de Ténis Civil celebrates 90 years
To celebrate its 90th anniversary, the Clube de Ténis Civil held an exhibition match featuring Secretary for Social Affairs and Culture Alexis Tam, ITF Young Seniors World Finals (40s) Captain of Team U.S.A. Mr. Michael Sheng Yang Chang, Mr. Jose K. M. Tang, and National Coach of Macau Tennis Juniors Mr. Gani Limbaga. The matches featured a singles and doubles match, with Mr. Tam and Mr. Chang facing
off against Mr. Tang and Mr. Limbaga in doubles and in singles Mr. Chang versus Mr. Limbaga. Mr. Kok Vai Kei, President of the Board of Directors of Clube de Ténis Civil de Macau, said, “As one of the oldest tennis clubs in town, we are committed to promoting and developing the growth of tennis in Macau. On this 90th anniversary, we share our joy with the Macau people, and bring the Club closer to the community through our support of the needy in society.”
6 Business Daily Monday, April 18 2016
Macau Transportation Interview
Uber Macau: ‘Ride-sharing should be regulated for the city’s sake’ Trasy Lou, general manager of car-hailing application Uber in Macau, perceives the company’s ridesharing service would not only benefit local residents but also tourists and even the city itself. Despite the operation being lambasted ‘illegal’ by the SAR Government, the Uber executive told Business Daily in an exclusive interview that she believes the authorities will eventually realise the worth of Uber and regulate its service. Kam Leong kamleong@macaubusinessdaily.com
Uber has been operating here for almost six months, since October 22. How is the app’s popularity faring? When we first launched, riders were able to get a car [via Uber] within 20 to 30 minutes whilst there were not many places with Uber cars around. But now, riders can probably get a car within five to ten minutes in most places. This is a very important indicator showing how successful we are. We’re very happy with the progress we’ve made so far. In the past five months, we’ve had a lot of touching stories from our riders and drivers, [which] I think is something good for the local community. How many drivers and users in total does Uber Macau have? Well, we’re not able to really disclose those numbers... Can the current supply of Uber cars fulfil demand? I’d say that we’re always striving to increase both supply and demand at this moment. As we keep growing, for sure we’ll grow to a point where we don’t have sufficient [amounts of] one for the other. But in Macau, there’s always demand, as we have 30 million tourists coming every year, in addition to almost 700,000 residents. What we will do is make sure that Uber is a transparent platform for our driver-partners. In fact, everyone can be our partners. I’m not so worried about whether we would not have enough supplies to grow with the demand, but whether we can fulfil our drivers and have more join us.
“Bringing benefits to the city”
Cheong Kam Ka
Nevertheless, for now, we’re quite good in balancing both. Who are the major users of Uber Macau at the moment? Based on our observation, most users are [young people]. Meanwhile, there are a lot of elderly who can’t really stand on the street or go on the bus [who are] using our service as well. These elderly are around 70 to 80 years old. It’s usually their children hailing Uber cars for them so that they are able to get out from or go to the hospital. Another major group of users is pregnant women as they usually find it hard to stand on the
Local resident Trasy Lou was born and raised in Macau, and decided to take up the position of general manager for Uber Macau as she believes the service can change the city for the good. Having worked in the hospitality industry for a decade, she told Business Daily that she has witnessed the changes of Macau driven by the gaming industry – one of which is that local transportation is becoming insufficient in meeting demand. “I used to drive in Macau but then I sold my car when I was going to exchange in Madrid during my Master’s course. That was the time I realised it was so hard to get around the city without a car,” she said. “One time, I travelled to the United States [and] got to know the great service of Uber . . .That made me think our lives would have been much better if Macau had this service,” the local manager claimed.
street or to get on the bus. In addition, many locals that don’t drive or find it hard to look for a parking space use Uber. As such, Uber is quite popular among people in their mid-twenties to mid-thirties.
Good service comes first Is it hard to recruit local driver-partners? To be honest, I don’t see a lot of difficulties. To give you some idea, our drivers can be categorised into three groups – those who want flexible working hours so that they
According to Ms. Lou, she was later told by a friend from Harvard University that Uber was looking for Macau locals in a job fair there to oversee the operation in the Special Administrative Region. She decided to give it a try. “I think I can really change Macau, help local people get around the city and enhance the tourism image of Macau via Uber - by offering efficient and sufficient transportation,” she believes. Facing opposition about the local operation from the authorities, Ms. Lou says she does not have any worries or concerns regarding “legal pressure”. “Of course, there will be a lot of challenges and difficulties along the way but we believe [the service] is good for our city. We’re going to fight for it and we’re going to do whatever we need to do to make the government realise that Uber is bringing benefits to the city,” she said.
can pursue their actual dreams; entrepreneurs who may not earn as much as they used to due to the economic downturn and now use Uber as a platform to earn more money; causal drivers who actually feel very fulfilled by contributing to the local community. Of course, money is one of the factors driving drivers to join Uber. But for some, they feel [joining Uber] can actually contribute to society by helping the elderly or pregnant women get around the city more conveniently. Hence, Uber provides drivers many benefits - not just monetary ones. Meanwhile, we’re a very flexible platform that everybody can join anytime they want, and they can also quit anytime they want. How does the company ensure the service provided by its driver-partners is good and safe? We hold very high standards for our drivers. For example, all our drivers need to go through background checks, which means that they need to submit a criminal record from the government. That’s the basic requirement for drivers to become our partners. The second is that they need to be locals and they cannot have any drink-driving record. In addition, we have a pretty good rating system - if anything happens to riders during the trip, such as the driver driving too fast, they can always report it to
Business Daily Monday, April 18 2016 7
Macau support@uber.com about the experiences and we can educate our drivers on what they could have done better. This is how we close the loop - by having a good rating system, having good background checks. We feel we are responsible for the safety of our drivers and riders. With the increasing number of Uber drivers, is it getting more difficult to control the quality of services provided by various drivers? I wouldn’t say it’s getting harder. But we need riders to tell us which driver is good or which driver is bad. That’s why we have the rating system. When we actually have bad drivers, such as those making serious mistakes, they will not be able to get back on our platform no matter how much we need drivers. We uphold very strict standards. Regardless of how many drivers we have, we will not change that standard. Or regardless of how much we want drivers to join us, we won’t change it. As good service is one of Uber’s selling points we won’t change that.
Legal battles Recently, legal complaints have been filed with the Commission Against Corruption (CCAC) . . . The complaints are still in progress. I’m not in a position to talk about that because our legal team is still working on it. And it’s quite sensitive to disclose information as it’s still in progress. Nevertheless, regarding legality, we’ve actually been working with the government, we’ve been meeting legislators. We want the ride-sharing industry to be regulated. We want it to be regulated in a way that actually works for ride-sharing. For example, Uber is in over 400 cities. In a lot of these cities, governments there found that Uber is actually benefiting their people and they’ve implemented regulations for ride-sharing after Uber has operated for some time; examples are Singapore, Australia and the Philippines. What is encouraging is that the Chinese Ministry of Transport has said it would work with ride-sharing applications, such as Uber, Didi and Kuaidade to understand how ride-sharing [services] can be regulated in China. So Uber Macau is actually in negotiation with the government? Or is it just meeting with legislators? We’re basically meeting different key
people in Macau. Unfortunately, we cannot disclose who we have met but I can say that the responses from these people are quite good. Our job is to make sure they understand our business, and how it can be regulated to benefit the city and local residents. How do you see the government’s current enforcement against Uber drivers? As long as we believe in the product and the benefits it brings citizens I believe that [the resistance] is just a process [of the government] to understand the benefits of Uber. As I said, we want locals to get around the city very conveniently. After launching our operations for five months, we’ve seen that we benefit tourists as well. So far, we have users from over 150 cities who have taken Uber in Macau, like those from Hong Kong, Guangzhou, Shanghai and Taipei and more. Uber can really enhance the tourism industry of Macau. With Uber, tourists don’t need to wait in line on Avenida de Almeida Ribeiro for an hour just to get transportation. But are you confident that the SAR Government will implement regulations for a ride-sharing service? I would say ride-sharing is the trend. When we look at the past, we didn’t have [private delivery service companies] such as S.F. Express and DHL in Macau. We only had our official postmen delivering our mail. Because of the mentioned companies making the process more efficient, it [the private service] is regulated. I think we’re going to repeat history in that way. Even China is now moving in that direction. Macau is part of China; I am confident that Macau will go in that direction one day as well. But the question is just when.
‘Riders can probably get a car within five to ten minutes in most places. This is a very important indicator showing how successful we are.’
Some taxi drivers feel their business is threatened by the operation of Uber in Macau . . . As I said, Macau has 30 million tourists, as well as nearly 700,000 residents. But we only have around one thousand taxis. The buses are not enough, especially for peak hours and weekends. Uber will be an alternative transportation option, especially for locals. To be honest, we’re very focused on the local market right now. Our ultimate goal in Macau is to make sure every local can call a car in five minutes, in any part of the city, even in Coloane. That’s the mission that we’re going for. Taxis are more focused on tourists. They can always line up at casinos and get some customers. We’re here to complement that and fulfil the [other] demands in the market. In that way, would you see that the government’s re-issue of special taxi licences, aka radio taxis, is bringing competition to Uber? What the government is doing is to achieve the same goal we are – which is to ensure that locals and tourists can get around the city very conveniently. But the radio taxis will only number around 100 or so . . .
Still not after profits Are your promotion strategies – such as the reward scheme for drivers to introduce more drivers, or the discounts regularly offered to riders – effective in terms of attracting more users? Yes, they are. One of our missions is to partner with local small and medium-sized enterprises (SMEs) through the Uber platform. For example, we’ve teamed up with Original Technology to offer Apple products; we have co-operated with Hello Kitty Obrigado to promote their egg tarts. For me, as a local, I really want local brands to be promoted among the locals as I found them usually not big-scale companies, while we are a good platform for them to promote their products. This is one of the marketing strategies that I would like to continue doing as it really helps SMEs to grow. Is the company’s profitability affected by these discounts or marketing strategies? At the moment, we’re not really looking at making a profit but how to make the city better. We’re looking at making sure everybody has the chance to try, looking at building our
awareness among locals. So we haven’t really looked at profits, especially when we’ve only been operational for some five months. Uber also recently teamed up with Club Cubic to provide discounts . . . Yes, we did partner with Club Cubic because we want to promote safe driving. I understand that people still drive themselves when they go to karaokes or clubs since it’s so hard to get around the city. That’s why we partnered with Cubic on New Year’s Eve so that riders could get home safely. In Seattle, in the United States, cases of drink driving have reduced by 10 per cent since Uber was launched there. I want to make this happen in Macau as well. There are so many people that die because of drink driving. With Uber, we can reduce that number. Any upcoming co-operation with local companies you can share with us? We’re actually in talks with a few right now. But we cannot disclose their names as it’s not yet confirmed. What about future plans for Uber’s operations in Macau? As mentioned, our plan is to enable every local to call a car within five minutes anywhere in Macau. The second plan is to help people with disabilities. Uber has a service called uberASSIST. All drivers for the service will be trained by hospital staff on how to take care of seniors and people with disabilities, such as those in wheelchairs. Hong Kong has just launched this service. When the Macau market becomes more mature, this is something we want to do as well. The third plan is Uber launched technology a few years ago to allow deaf people to drive to earn more money. This is quite interesting. After the first two plans, we aim to team up with the Macau Deaf Association to help local deaf people learn another way of making a living. The fourth goal is to ensure tourists can get around Macau pretty conveniently. It’s quite bad to see tourists spending one hour in Avenida de Almeida Ribeiro to come out to Taipa. This is not good for tourists, not good for Macau and not good for the tourism industry. So we want to build the awareness of Uber Macau among tourists as well. But this plan can only be focused after local residents fully embrace the product. I’m a local; I want locals to enjoy the benefits first.
Cheong Kam Ka
8 Business Daily Monday, April 18 2016
Greater China In Brief Starting operation
BRICS bank okays first loans The New Development Bank (NDB), formed by the BRICS group of emerging nations, has approved its first loans - US$811 million for renewable energy projects in Brazil, China, India and South Africa, Russian news agencies reported on Saturday. The BRICS bank, with authorised capital of US$100 billion, started work last year on funding initiatives for infrastructure projects in emerging markets and in its initial foray has lent US$300 million to Brazil, US$81 million to China, US$250 million to India and US$180 million to South Africa, RIA news agency said. Regulation
Tough new rules on hedge funds China’s hedge fund operators can expect more stringent regulation from their self-regulatory industry body in an intensifying crackdown on “Wild East” fraud and illegal money raising, the Asset Management Association of China (AMAC) said. AMAC, the self-regulatory body that oversees private funds, said late on Friday the new rules were intended to further protect investors’ legal rights and to regulate the private fund management industry, described by some insiders as a “Wild East” rife with fraud. Hedge funds have attracted increased scrutiny in China amid fears the relaxed registration-based licensing regime has allowed fraudsters and shadow-lenders to proliferate.
Official visit
Australian prime minister urges greater openness Turnbull said Chinese Premier Li Keqiang told him how he was trying to boost the small business sector in China.
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ustralian Prime Minister Malcolm Turnbull invoked the spirit of late reformist leader Deng Xiaoping on Friday to urge China to continue opening up to the outside world, as he addressed concerns about Internet freedoms and market access for foreign firms. Turnbull’s China visit, leading a delegation of 1,000 business leaders, the largest ever by an Australian leader, comes amid a slowing of growth in the Chinese economy, which is crucial for Australian jobs. Earlier this month, China raised taxes on goods bought on overseas
e-commerce platforms, then sparked more confusion with a last-minute list that restricted some products from being sold through these channels, leading to sharp share price gyrations by firms in close trade partners like Australia. Asked about the new e-commerce restrictions, as well as China’s tightening controls on the Internet and human rights issues in general, Turnbull said Australia and China have regular and very open discussion about rights.
“The truth is, as I said in Shanghai, the more open China is the stronger it is” Malcolm Turnbull, Australia’s Prime Minister
“The truth is, as I said in Shanghai, the more open China is the stronger it is,” Turnbull told reporters. “Deng Xiaoping said, in the days when China was open to the world it was strong; when it became closed it became weak,” he added, citing the man who ushered in China’s landmark economic reforms more than three decades ago. Turnbull said Chinese Premier Li Keqiang told him how he was trying to boost the small business sector in China. “Premier Li explained how he saw enabling the small business sector, giving the small business sector the freedom to incorporate new businesses,” Turnbull said. “So he recognises as part of his economic plan the freedom of businesses to incorporate, to get on and have a go as we would say, is critical to job creation and developing that more diverse economy that he aspires to. Of course we will all benefit from a stronger Chinese economy.” Reuters
M&A
Autohome gets US$3.57 bln buyout offer Autohome Inc has been made an offer to be acquired by a consortium that includes its chief executive in a deal that values the Chinese automobile information website operator at US$3.57 billion. The non-binding offer values Autohome at US$31.50 per American Depository share, a discount of 2 percent to the stock’s close on Friday, according to a statement from the consortium. The consortium includes Autohome Chief Executive James Qin, private investment firms Boyu Capital and Sequoia China as well as investment firm Hillhouse Capital. M&A
HNA buys currency exchange firm ICE Chinese conglomerate HNA Group has agreed to buy British bureau-de-change operator International Currency Exchange (ICE), the companies said on Friday, the latest takeover in a European investment spree aimed at expanding its business outside Asia. The acquisitive Global Fortune 500 company, which secured an all-cash US$1.5 billion purchase of Swiss airline caterer Gategroup Holdings on Monday, has not disclosed terms of the transaction. Founded in 1973 and headquartered in London, ICE is one of the world’s largest currency exchange retailers, with a network of over 350 branches and bureaux in 70 airports and multiple other locations in 19 countries.
Chinese Premier Li Keqiang (C-R) speaks with Australian Prime Minister Malcolm Turnbull (C-L) during a signing ceremony at the Great Hall of the People in Beijing.
Expansion
China Eastern to expand fleet to over 800 aircraft Mainland’s airlines are adding flights to New York, Paris and Sydney from inland cities. China Eastern Airlines plans to expand its fleet of aircraft to more than 800 by 2020, up from 561 as of the end of 2015, its president Ma Xulun said in an interview on Friday. The plans to acquire hundreds of new planes come as China Eastern seeks to boost long-haul traffic to and from the United States after a US$450 million equity deal with Delta Air Lines Inc. last year. Delta agreed to buy 3.55 percent of China Eastern, becoming the first U.S. carrier to own part of a Chinese airline.
Code-share routes between the two carriers have now topped 400, compared to about around 300 previously, including routes in respective domestic markets, Ma said. Spurred by growing demand for overseas travel, Chinese airlines are adding flights to New York, Paris and Sydney from inland cities and flying to smaller cities in North America, Europe and Australia. Seats offered by Chinese carriers exceeded those offered by American carriers last year for the first time, fuelling worries about overcapacity and falling yields. Ma said he is not worried about overcapacity on the U.S.- China route. Over 2.6 million Chinese went to the United States last year and the number is estimated to top 3 million this year. Many customers in south east Asia and northeast Asia are also heading to U.S. cities via Pudong airport in Shanghai where China Eastern is based. Transfer passengers at Pudong airport
totalled 11.15 million last year and the figure is estimated to rise to 30 million this year. “We are optimistic on the growth potential of the China-U.S. market,” he said. Earlier this week, China Eastern forecast a 60-70 percent jump of its first quarter earnings thanks to low fuel price and strong air travel demand. He declined to share estimates for full year earnings but said he was optimistic on that too. In March 3, China Eastern converted its Beijing-based full service carrier, China United Air, to a budget carrier, making it the first state carrier to tap the booming low-cost flying potential. China United is planning to expand in north, southwest and the south of China to tap the rapidly growth segment, Ma said. When asked whether China Eastern would bring more outside investors after Delta, he said: “We always keep an open mind about investors”. Reuters
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Greater China Measures impact
Economy shows signs of recovery Official data on Friday showed China’s gross domestic product grew at an annual rate of 6.7 percent. Kevin Yao and Sue-Lin Wong
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hina posted its slowest economic growth since 2009 but a surge of new debt appears to be fuelling a recovery in factory activity, investment and household spending in the world’s second largest economy. That’s good news in the near-term, economists say, but many worry it marks a return to the old playbook used during the financial crisis, when Beijing hand-cranked its economy out of a slowdown through massive stimulus, rather than structural reform. Official data on Friday showed China’s gross domestic product grew at an annual rate of 6.7 percent in the first
quarter of the year, easing slightly from 6.8 percent in the fourth quarter as expected. However, other indicators released showed new loans, retail sales, industrial output and fixed asset investment were all better than forecast. While analysts say the data is evidence of a bottoming out in the economy’s slowdown, some warn that the first quarter of 2015 got off to a similarly glowing start before a stock market crash later that year. “What this shows is a stabilisation of the old economy,” said Raymond Yeung of ANZ, pointing to recovery in industrial production and fixed asset investment. “I would still be a bit cautious about headline growth... last year’s 6.9 percent figure was underpinned by a massive contribution from financial services, and the strong loan and credit growth recently and the recent resumption of IPO activity suggests this could still be a big contribution.” The National Bureau of Statistics said in a press conference in Beijing on Friday that
A construction worker sits in front of a billboard displaying the China Central Television (CCTV) Tower in Beijing, China.
while main economic indicators showed positive changes, “downward pressure cannot be underestimated.” It did not distribute quarterly GDP figures as it has in the past, saying it needed more time to calculate the figure. Global financial markets took the data in stride, but domestic stocks fell slightly, as analysts said the strong data implied the likelihood of a slower pace of monetary easing. The CSI300 index of the largest listed firms in Shanghai and Shenzhen closed 0.1 percent lower. Forex markets were largely flat with the offshore rate and the onshore rate trading around 6.5 per dollar.
Recovering demand
Beijing hopes a recovery - even a credit-fuelled one - can be sustained to avoid the need for
more aggressive stimulus that could reinflate asset bubbles and make it more difficult to retrain Chinese firms to move up the value chain. Chinese banks extended 1.37 trillion yuan (US$211.23 billion) in net new yuan loans in March, nearly double the previous month’s lending of 726.6 billion yuan, suggesting renewed appetite for investment among wary Chinese corporates. China’s retail sales growth quickened to 10.5 percent in March from 10.2 percent, slightly above forecasts, while fixed-asset investment growth rose to 10.7 percent year-onyear in the first quarter from 10.2 percent, beating market expectations of 10.3 percent. Industrial output growth leapt up to 6.8 percent from 5.4 percent, surprising analysts who expected a rise of
5.9 percent on an annual basis. The NBS also noted that official unemployment remained low in March, around 5.2 percent, despite moves to cut capacity in bloated industries like coal and steel. Critics, however, point out that many laid-off workers from old-economy sectors have been shifted into lower-paying government jobs, cleaning up offices - good for political stability but bad for wage growth and consumer spending. At the same time official retail spending figures capture a lot of government purchases; elsewhere in the economy there are signs that ordinary consumption remains weak. March export figures released earlier this week also staged an unexpected recovery, although some economists caution that seasonal effects from last year’s late Lunar New Year holiday could be a factor. “Today’s released data ought not to distract from the fact that the structural issues facing China’s economy remain unresolved,” wrote Economist Intelligence Unit economist Tom Rafferty in a research note. “It has taken considerable monetary and fiscal policy loosening to stabilise economic growth at this level and this effort has distracted from the reform agenda that is fundamental to long-term economic sustainability.” Reuters
10 Business Daily Monday, April 18 2016
Greater China Stock markets
London bourse to launch trading in Mainland depositary receipts The two exchanges have not yet signed a formal agreement.
The LSE Group declined to comment. The SSE did not respond to requests for comment. Britain and China said in September they had asked the LSE and SSE to launch a feasibility study into building a trading link, with the aim of emulating the landmark “Stock Connect” between the Hong Kong and Shanghai bourses launched in 2014. Last month the Shanghai bourse said the exchanges had reached a preliminary agreement on a “cooperation framework” for the link, but did not provide further details.
Lukewarm feedback
Michelle Price and Engen Tham
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he London Stock Exchange (LSE) will launch trading of global depositary receipts (GDR) of Chinese companies next year, kicking off a partnership between the bourse and its Shanghai counterpart, sources with knowledge of the matter said. The move, which will see GDRs of Shanghai-listed companies traded during London hours, would serve as an alternative to a cross-continent, direct equity trading link being studied by the LSE and the Shanghai Stock Exchange (SSE) but which is unlikely to be pursued due to the
technical challenges involved, the sources told Reuters. “Starting with GDRs would be a relatively easy and straight-forward way for the exchanges to deepen ties,” said Anish Puaar, a London-based market structure analyst at brokerage Rosenblatt Securities. “GDR listings give investors easier access to overseas companies without having to go through the complexity of connecting via a direct trading link. The LSE has already had success with this model, particularly in Russian names,” Puaar said. The two exchanges have not yet signed a formal agreement on the GDR plan but hope to do so in the
Key Points Shanghai-listed firms to be allowed to issue GDRs in London Plan will deepen ties without technical issues of direct link Exchanges hope to reach formal agreement in second half second half, two sources briefed on the matter said. While an agreement would lay the framework allowing the Chinese companies to issue the GDRs, any actual issuance will depend on the companies’ needs.
One source with direct knowledge of the matter said London had received lukewarm industry feedback on a proposal for a direct equity trading link due to the differences in time-zones. The Shanghai market closes as the London market opens, creating significant liquidity, clearing and settlement problems for a direct equity trading link, several sources said. “With GDRs, you don’t have all the infrastructure issues that you’d have with a direct link,” said one source with direct knowledge of the discussions. GDRs are bank-issued certificates representing ownership of a set number of company shares that can be listed and traded independently from the underlying stocks. They are often used by emerging market companies to raise capital overseas. The LSE group has a well-established depositary receipts business providing trading in companies from 44 countries, and has long been home to the most actively traded depositary receipts of Russian companies, such as Gazprom. The exchanges are also discussing the prospect of the SSE listing and trading depositary receipts of London-listed companies, although the bourses are concerned that China’s retail-dominated domestic investor base would not be comfortable trading unfamiliar London stocks, said two sources briefed on the matter. One option would be for the Shanghai exchange to list GDRs on the more than 60 London-listed Chinese companies, although this has not been decided, the same sources said. Reuters
Commerce environment
U.S. business lobby says Beijing’s policies conflict with reform goals China has repeatedly vowed to open its market more widely to foreign investment. China’s national security regulations and industrial policies are at odds with its reform goals, a U.S. business lobby said on Friday, urging Beijing to rein in protectionism and keep the country competitive in the global economy. The American Chamber of Commerce in China said
in its annual China business climate paper that such policies had “led to doubt about the government’s intentions to reform and open the economy”. “Our members implore the government to move forward in developing an environment that encourages fair
and market-based innovation,” chamber chairman James Zimmerman said in the paper. China has repeatedly vowed to open its market more widely to foreign investment, though business groups complain progress has been slow.
Beijing has also put forward so-called Internet Plus and Made in China 2025 strategies, which aim to make Chinese firms world technology leaders and call for progressive increases in domestic components in priority industries such as robotics. Those policies, concerns over antitrust investigations and a series of new and draft security laws and regulations have heightened fears of protectionism. “If you really do have policies that are going to favour
“… There needs to be a new mechanism to have a higher degree of transparency and predictability” Premier Li Keqiang has said China will ramp up efforts to bolster intellectual property rights protection to attract more foreign investment.
Randal Phillips, Vice chairman of American Chamber of Commerce in China
the (domestic) champions at the risk of shutting people out of the market, that’s discrimination,” Zimmerman told reporters at a briefing on the paper. Zimmerman also said internet restrictions were hampering business and that free flow of information was critical to China’s effort to promote innovation. Chinese officials say their policies do not unfairly target foreign companies. Premier Li Keqiang has said China will ramp up efforts to bolster intellectual property rights protection to attract more foreign investment. Chamber members remained “disappointed” with the slow pace of reform and perceptions that there have been “limited efforts” to truly open the market, the paper said. The chamber has said that the economic slowdown was hitting profits at foreign firms and nearly half of its members in a 2016 survey expect growth this year to be lower than 6.25 percent. Frustration has also been mounting over slow progress on a U.S.-China investment treaty that would shrink the number of sectors closed to American investors. China has missed deadlines to submit offers for the treaty. Reuters
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Asia G20 Finance Ministers and Bank Governors posing for a group photograph at the IMF Headquarters in Washington DC, 15 April 2016.
Currencies
Japan’s pitch for FX action meets cool G20 In a communiqué issued on Friday, the G20 finance leaders maintained a warning to countries to refrain from competitive currency devaluation. Leika Kihara
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apan’s efforts to seek informal consent to act against an unwelcome yen rise bore little fruit, with the United States offering a cool response to concerns voiced by Tokyo that the currency’s gains are too sharp and may justify intervention. A lack of G20 sympathy for Tokyo’s appeal may embolden yen bulls to test the currency’s 17-month highs against the dollar hit earlier this month, keeping Japanese policymakers on edge to contain the damage on a fragile, export-reliant economy. U.S. Treasury Secretary Jack Lew said on Friday he did not see any disorderly moves in the currency market, a day after his Japanese counterpart Taro Aso conveyed to him Tokyo’s “strong
concern” over what it saw as “one-sided” yen rises. “At a time of slow and uneven global growth, avoiding beggar-thy-neighbor exchange rate policies is particularly important,” Lew said in a statement to the International Monetary Fund’s steering committee on Saturday. “Surplus countries especially have a responsibility to adopt stronger adjustment measures to avoid reliance on the exchange rate to support demand,” he said, signaling that Washington was in no mood to allow Tokyo to conduct yen-selling intervention. In a communiqué issued on Friday, the G20 finance leaders maintained a warning on countries to refrain from competitive currency devaluation and signaled that markets have calmed
from the past few months of turbulence. The G20 also reiterated that excess currency volatility was undesirable, but only after heavy lobbying by Japanese delegates who want to use the language to justify stepping into the market if they see yen gains as excessive. Tokyo won’t be engaging in competitive currency devaluation as long as any yen-selling intervention is brief and aimed at smoothing abrupt yen rises, a senior Japanese finance ministry official told reporters after the G20 gatherings.
Little sympathy
European Central Bank officials share Japan’s unhappiness over the dollar’s weakening, though they accept it as a natural consequence of the Federal Reserve’s cautious economic outlook and see no reason to act to weaken the euro. Others also did not see broad dollar falls as a concern. “We are in a situation where the world is working
its way through a lower commodity price scenario and that’s where we’ll have countries that are exporters have (their currencies) tend to decline, and those that import ... tend to rise,” Bank of Canada Governor Stephen Poloz said on Friday. Credit Suisse sees a high bar to direct currency intervention by Japan. “It is hard to call the current market a dysfunctional one that requires the BOJ to provide entry into yen positions at reasonable prices via intervention,” it said in a research note. With its hands tied on intervention, the government
Key Points Japan tells U.S. concerned about yen rises U.S. Lew doesn’t see disorderly FX moves Japan lobbies to keep G20 warning vs excess volatility Onus to keep yen rises in check may fall on BOJ
may lean on the Bank of Japan to deploy another blow of monetary stimulus as early as its next rate review on April 27-28. BOJ Governor Haruhiko Kuroda waded into the currency debate to describe past yen rises as “excessive,” and reiterated his pledge to take additional monetary easing steps if yen moves hurt the economy. While many BOJ officials are wary of acting again so soon after having deployed negative interest rates in January, Kuroda may be ready to pull the trigger, some analysts say. U.S. economist Nouriel Roubini, who claims to have spoken to Japanese central bankers, signaled on Friday the BOJ may be nervous enough about the yen’s rise to ease even before the April meeting. “I don’t think it’s going to happen, but if the dollar were to keep on weakening and the euro and yen keep appreciating... they may have to act earlier because this is becoming a serious issue.” Reuters
Production forecast
Vietnam’s H1 2016 rice exports may edge up Vietnam could follow Thailand to restructure rice cultivation by reducing planting areas. Ho Binh Minh
Vietnam could export more than 3 million tonnes of rice in the first half of 2016, up 12 percent from the previous year, on rising demand from China and other Southeast Asian nations, amid supply concerns caused by drought, the government said on Friday. Rice shipments in the three months ending June are projected at 1.6 million tonnes, including sales to
China, the government reported on its website citing the Vietnam Food Association (VFA). However, the VFA lowered their projection by 11 percent amid a drought in Vietnam’s main rice-growing region, the government said. (baochinhphu.vn) Vietnam, the world’s third-largest rice exporter after India and Thailand, shipped 1.55 million tonnes of rice in the January to March period, up 38 percent from a year ago, according to Vietnam Customs data released on Wednesday. The Southeast Asian country has been fighting the worst drought and sea water intrusion in 90 years in its Mekong Delta food basket, brought on by climate change and El Nino weather pattern. The El Nino typically brings hot, dry conditions to Southeast Asia. The drought conditions have led other countries in the region to bolster rice imports. Late last year, Vietnam sold 1 million tonnes of rice to Indonesia and another
450,000 tonnes to the Philippines for delivery by the end of the first quarter of 2016. The disasters have lowered the first-quarter growth of Vietnam’s agriculture sector, reducing the Delta’s winter-spring paddy output while lifting the country’s rice export prices to a five-month high in late March. “Given the relatively high prices, VFA reckons that rice exports could lose their competitive edge and market share in the coming time,” the government report said.
Key Points Vietnam’s H1 rice exports seen up 12 pct y/y at 3 mln T Buying demand amid supply concerns lend support Vietnam’s 2016 rice output to fall 1.5 pct - FAO Annual exports seen at 8.7 mln T - FAO
Vietnam’s paddy output could fall 1.5 percent this year to 44.5 million tonnes due to Mekong Delta’s crop losses, while the annual export would be 8.7 million tonnes, unchanged from a previous projection, the U.N. Food and Agriculture Organization (FAO) said in its April rice market report. BMI Research forecasts global rice production to decline in 2015/2016, the first in seven seasons, and a global rice deficit of 13 million tonnes could emerge for 2015/2016 after consistent surpluses in the crop years from 2005/06 to 2013/14. Vietnam could follow Thailand to restructure rice cultivation by reducing planting areas and switching to other crops which requires less water, said Le Anh Tuan, deputy head, Research Institute for Climate Change under Can Tho university. “Scientists and the authority should reassess the direction for Delta and should not race into rice production,” Tuan told Reuters. Reuters
12 Business Daily Monday, April 18 2016
Asia Monetary meeting
Bank of Korea seen holding rates in April The Bank of Korea will release its revised economic forecasts for this year and 2017 on Tuesday.
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outh Korea’s central bank is expected to keep interest rates unchanged next week before it lowers them at least once more in coming months to tackle a torpid economy, a Reuters survey found on Friday. Many analysts have been forecasting a rate cut for early this year, mostly nominating April, but the central bank chief’s cautious views on the effects of rate cuts and subtle signs of improvement in the economy have led some to push back the timing of another cut. Twenty-one of the 27 analysts polled in a Reuters survey said the Bank of Korea (BOK) would keep its monetary policy rate unchanged at the current record low of 1.50 percent next Tuesday, while the remaining six saw a cut to 1.25 percent. Fourteen of the respondents who saw a hold, however, said the bank would cut rates again, with most of
them saying it would take place before end-June. The remaining 7 analysts saw no change through year-end. The Bank of Korea will also release its revised economic forecasts for this year and 2017 on Tuesday. Poll respondents generally expect the forecasts to be downgraded, but not to any great extent. “A sharp growth slowdown may have been avoided for Q1, thanks to inventories that bolster the GDP numbers. This should allow the BOK to argue that the growth path doesn’t deviate too much from expectations, the output gap is slightly negative, and monetary policy is accommodative enough to support the economy,” said Ma Tie-ying, economist at DBS Bank. “But rate cuts will remain likely in the coming months. The final demand in the economy - consumption, investment and exports - is broadly weak.”
The Bank of Korea’s current GDP forecasts for this year and 2017 put growth at 3.0 percent and 3.2 percent, respectively. Governor Lee Ju-yeol has said this year’s forecast faces downside risks. The economy has been struggling to recover as exports remain weak while domestic consumption is showing signs of a slowdown. The central bank is expected to to closely monitor the fallout from Wednesday’s parliamentary election,
Key Points 21 out of 27 analysts see base rate frozen this week Last policy meeting for 4 board members Timing pushed back, but majority still see a cut
as the ruling party suffered an upset defeat. Parliament does not have a direct say in interest rates but can urge the central bank to act. Also likely to stay the BOK’s hand is the departure of four board members whose terms end the day after the policy meeting. Successors have already been selected and analysts are keen to see what stance they are likely to take, they said. In previous years, new members have been known to keep a cautious stance and voice no change in the rate for a while after taking office. But given that a large proportion of the board is being replaced, they may have no choice but to move quickly if circumstances demand. “The new members are fully capable of cutting rates and there is a need to approach this issue from a macro-economic point,” said Moon Hong-cheol, a fixed-income analyst at Dongbu Securities. Reuters
The Bank of Korea’s (headquarters pictured) current GDP forecasts for this year and 2017 put growth at 3.0 percent and 3.2 percent, respectively.
Monetary guidance
Indonesia to use new policy benchmark to lead rates The new benchmark, if not changed by August 19, will probably be 5.50 percent for seven-day reverse repo. Gayatri Suroyo and Hidayat Setiaji
Indonesia’s central bank announced it will use the seven-day reverse repurchase rate as its benchmark policy rate, starting August 19, in a bid to better guide market rates. Bank Indonesia (BI) Governor Agus Martowardojo said in a teleconference from Washington on Friday that the change will help deepen the country’s inter-bank market and
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guide the money market rates from overnight to 12-month tenure. “This strengthening of the monetary operation does not change our current policy stance,” Martowardojo said. At monthly meetings between now and August 19, BI will continue to announce as benchmark the rate currently in use, which is not tied to the money markets directly. This year, the central bank has cut that 12-month rate three times, by a total of 75 basis points, to 6.75 percent. The new benchmark, if not changed by August 19, will probably be 5.50 percent, the rate BI offered for oneweek reverse repo contracts at its latest auction. The overnight deposit and lending facility rates will be pegged 75 basis points below and above the new benchmark, Martowardojo said. So if the new benchmark starts at 5.50 percent, the lending facility rate will be 6.25 percent, not the current 7.25 percent. “Inflation (outlook) looks good, current account good... this is the
right time to return to the best practice, which is a policy rate that reflects market conditions, especially shortterm,” BI Senior Deputy Governor Mirza Adityaswara said.
Slow economic growth
BI’s rate cuts this year have been aimed at spurring economic growth, which in 2015 was 4.8 percent - Indonesia’s slowest rate in six years. But the central bank has said many commercial banks have not followed suit and reduced their lending rates. ANZ called Friday’s announcement “a change in target, not an easing”, and said it is an attempt to “bolster the efficiency and effectiveness of the monetary policy transmission mechanism”. In a note on Thursday, brokerage Bahana Securities said the change might pressure commercial banks’ net interest margins for years, thus it recommended not to buy bank stocks. OCBC economist Wellian Wiranto wrote on Thursday that said Indonesian banks are sitting on an excess reserves amounting to over 4 trillion
Key Points New benchmark to become effective on Aug 19 Many banks have not followed suit after c.bank rate cuts BI Gov: Benchmark change does not change our policy stance It’s the ‘right time’ for new benchmark - deputy BI gov rupiah (US$303.72 million), concentrated among the bigger banks. BI’s plan to guide the pricing across the tenure for money markets would encourage more banks to lend more to each other and solve the liquidity issue in smaller banks, Wiranto said. “In turn, this should get the money to circulate more freely between banks - and thus ultimately facilitate more lending by banks to consumers and businesses. In short, credit growth should improve and so should economic growth in the longer run,” he wrote. Reuters
Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Michael Armstrong; Óscar Guijarro; Kam Leong; Joanne Kuai; 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 Monday, April 18 2016 13
Asia E-commerce revolution
Komodo commerce: e-tailers battle it out in Southeast Asia The region has dozens of other e-commerce players but no one platform controls more than a fifth of the market, according to Bain & Co. Aradhana Aravindan and Eveline Danubrata
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ith its US$1 billion buy of online retailer Lazada, Alibaba has signalled Southeast Asia as a regional e-commerce battleground - with 600 million people, and no shortage of logistical headaches. The region has the potential to help global retailers offset slowing growth momentum in their core markets, but it comes with complex regulatory, logistical and language barriers. Internet connections can be slow and the vast archipelago landscape can prove daunting to even hardened logistics experts. In an interview in October, Lazada’s chief operating officer Pierre Poignant highlighted some of the hurdles in delivering packages in the Philippines, for example. “In some places, there’s just no address. It’s like ‘take the house on the left’. And in many places you have to take a boat to get there... It can be several days or even weeks to reach some very remote island,” he told Reuters. A study by CLSA last year showed that almost a quarter of the online orders it placed in the Philippines failed to arrive, and multiple delivery delays were reported. Such obstacles mean the market is highly fragmented, with no dominant force. Start-up funds say international companies wanting to get in are likely to follow Alibaba’s route by buying existing operators rather than trying to go it alone. “The strategy of coming in, looking for a local player who has shown traction and buying them in order to get a foothold is a very good one, and we will see more of that,” said Vinnie Lauria, a founding partner
at Golden Gate Ventures which is invested in marketplace Carousell and online grocer Redmart. “Lazada has done a very good job of operating in multiple countries. That’s not something Alibaba is familiar with.” Headquartered in Singapore, Lazada also operates in Malaysia, Indonesia, the Philippines, Thailand and Vietnam.
“Komodo in the jungle”
Though Lazada more than tripled the number of active customers to 7.3 million, its losses more than doubled last year, and experts warn that investors should be prepared for a long wait before the industry turns a profit. The region has dozens of other e-commerce players, including Amazon.com, Tokopedia, OLX, Qoo10, Zalora, Cung Mua, Blibli and Etsy but no one platform controls more than a fifth of the market, according to Bain & Co. And the list keeps growing, with payment start-ups such as Fastacash, Xoom and GoSwift aiming for a foothold in the region. Lauria said it would be easier for an international player to acquire rather than “copy and paste”, especially for online marketplaces. For those companies already scrapping it out for a small slice of the market, consolidation may be the route to survival. “The (market) shares of smaller players are definitely going to get smaller with Alibaba jumping into the region,” said Cris Duy Tran, a consultant at Frost & Sullivan. “One way to survive is to partner with some
of the other players to get bigger.” A person with direct knowledge of the Lazada deal said Alibaba reviewed several targets before the acquisition. “(Lazada) gives them scale. Organically, it would have taken a lot of time to build,” the person said. An Alibaba spokesman in Hong Kong said the e-commerce giant sees the Lazada deal as a “win-win investment.” “We see SE Asia as a strategic piece of our globalization strategy. It’s a market that shows significant e-commerce potential,” with a robust economic environment, attractive demographics, low e-commerce penetration and some 33 million Chinese, who hold potential for cross-border commerce, he said in an emailed response to Reuters enquiries. Another source with direct knowledge of the Lazada deal said Alibaba would likely not stop at just one acquisition in the region. “It’s a US$200 billion company ... doing a US$1 billion deal in one segment of e-commerce. Does that mean the end of it? I don’t think so. They still have appetite,” the person said. Other existing firms were primed for more competition. “I say today that Tokopedia is the komodo in the 17,000-island archipelago,” said William Tanuwijaya, co-founder and CEO of SoftBank-backed Tokopedia, in response to Alibaba Chairman Jack Ma’s one-time description of his e-commerce group as a crocodile in the Yangtze river. “Fighting in a river, the komodo will lose, but fighting in the jungle on one of our islands, the komodo has a pretty good chance to win,” Tanuwijaya said. Reuters
WTO
Indian steel policy draws Japanese-led criticism The U.S. representative at the WTO meeting also raised concerns about India’s import tariff increases on 96 budget lines. India’s decision to put minimum prices on imported iron and steel and to impose emergency “safeguard” tariffs on some steel imports drew wide criticism at a meeting of the World Trade Organization’s Goods Council on Friday, a WTO official said. Japan led the criticism of India, and its concerns were echoed by Taiwan, Canada, Australia, the European Union and South Korea. China, the world’s biggest steel producer, commented on India’s restrictions on trade in apples but did not join the criticism on steel, the official said. Japan’s representative told the closed-door meeting that the
minimum import prices announced by India on February 5 on more than 170 products had significant adverse impact on Japan’s exports, and were clearly inconsistent with WTO rules, the official said. Japan also criticised the “safeguard” tariff that India imposed on hot-rolled flat products to protect its own industry from a damaging surge in imports of those products. The world steel market has been hit by massive oversupply from China, by far the world’s dominant producer, coupled by falling demand around the world. Chinese crude steel output hit a record 70.65 million tonnes in March, while exports were up 30 percent from a year ago. Meanwhile Indian steel imports jumped 18.2 percent, adding to pressure on the government from firms such as JSW Steel, Tata Steel and Kalyani Steels to step up protection against competing supplies from China, as well as Russia, Japan and South Korea.
The U.S. representative at the WTO meeting also raised concerns about India’s import tariff increases on 96 budget lines, including manufacturing inputs and across the information technology sector, the WTO official said. India had also raised the customs duty on medical devices and pharmaceuticals, put compulsory registration orders on some electronic products, and required that some foreign products get re-tested in India to standards that were identical to foreign standards, the U.S. representative told the meeting. India’s representative said India took its WTO obligations very seriously and said it was premature to bring up minimum import prices at the WTO’s Goods Council before discussing it at subsidiary committees, the WTO official said. The concerns about safeguards and tariff increases would be relayed to New Delhi, India’s representative said. Reuters
In Brief Forex
S.Korea foreign exchange deposits rise Foreign exchange deposits at South Korea’s banks rose by 13 percent in March from the previous month to the highest level since November 2015, central bank data showed on Friday. Foreign exchange bank deposits stood at US$60.57 billion at the end of March, the Bank of Korea said, up from US$53.47 billion in the previous month. The gain reversed what had been a four-month drop from November 2015 to February 2016. A Bank of Korea official said a steep increase in dollar holdings due to local companies depositing import and export payments was chiefly responsible for the rise. Military sector
India says talks on Rafale jet deal in final stage Negotiations for India to buy 36 French Rafale fighter jets are nearing the finish line, the Indian defence ministry said, with sources saying the price will be set at around US$9 billion. Both sides had hoped to wrap up the strategic order during President Francois Hollande’s visit for India’s Republic Day celebration in January, but hard bargaining on price stalled a final result. A ministry source said the price agreed for the Dassault Aviation jets was around 600 billion rupees (US$9 billion), although a spokesman declined to confirm this on the record. Electronics industry
Apple extends iPhone production cut Apple Inc will continue its reduced production of iPhones in the quarter ending June in light of sluggish sales, the Nikkei business daily reported, citing parts suppliers notified of the plan. Apple apparently does not plan to make enough of the newly launched iPhone SE model, the Nikkei report said. The company’s shares fell 1.8 percent to US$110.05. Shares of some Apple suppliers also fell following the report. Skyworks Solutions Inc was down 1.4 percent, Broadcom Ltd fell 2.4 percent while Jabil Circuit lost 1.7 percent. Business restructure
Singapore’s Ezra plans to sell offshore vessel Singapore’s Ezra Holdings Ltd, one of the city-state’s many oilfield service firms hit by a challenging market, plans to sell its stake in a floating production, storage and offloading vessel, seeking to strengthen its financial position. Ezra and its unit EMAS Offshore said they would sell their combined 78.4 percent holding in PV Keez Pte, which owns the vessel, to a global infrastructure investment firm. Terms of the deal and the name of the buyer were not disclosed. Ezra also said on Friday that it posted a loss of US$282.6 million for its second quarter ended February.
14 Business Daily Monday, April 18 2016
International In Brief Deutsche Boerse
Brexit risks LSE bid options A British vote to leave the European Union could be a threat to any rival bidder from the United States for the London Stock Exchange but would not undermine the planned US$30 billion merger between Deutsche Boerse and LSE, the German exchange’s finance chief said. “The merger makes sense regardless of Brexit. That is why it is not a risk for us,” Deutsche Boerse finance chief Gregor Pottmeyer said. “It could be a risk for U.S. exchanges, which could present a counter offer for the LSE,” he said, adding that a British exit from the EU would mean that a U.S. exchange would no longer have a bridge to the bloc. Law aftermath
Saudi Arabia could sell American assets The Saudi Arabian government has threatened to sell of hundreds of billions of dollars’ worth of American assets should the U.S. Congress pass a bill that could hold the kingdom responsible for any role in the September 11, 2001 attacks, the New York Times reported on Friday. The newspaper reported that Saudi foreign minister Adel al-Jubeir told U.S. lawmakers last month that “Saudi Arabia would be forced to sell up to US$750 billion in Treasury securities and other assets in the United States before they could be in danger of being frozen by American courts.” Exxon investigations
U.S. state prosecutors met with climate groups A coalition of U.S. state attorneys general received guidance from well-known climate scientists and environmental lawyers in March as some of them opened investigations into Exxon Mobil for allegedly misleading the public about climate change risks, documents seen by Reuters showed. Peter Frumhoff of the Union of Concerned Scientists, which has urged action on climate change, and Matt Pawa, who litigated against Exxon in a global warming case, were listed as presenters at a March 29 meeting of more than a dozen state prosecutors, according to emails between the offices of attorneys general in New York and Vermont. Partners wanted
Senegal creates new national airline Senegal has created Air Senegal, a new national airline intended to replace the West African nation’s now defunct, heavily indebted carrier Senegal Airlines, the minister of tourism and air transport said on Friday. Maimouna Ndoye Seck said the new company was formed with capital of 40 billion CFA francs (US$69 million) aimed at making the new airline operational as quickly as possible as it seeks “a strong strategic partner”. Senegal stateowned television said late on Friday that Turkish Airlines was the front-runner to take a stake in Air Senegal.
International Monetary Fund (IMF) Managing Director Christine Lagarde arrives for a plenary session of the International Monetary and Financial Committee (IMFC) at the IMF Headquarters in Washington. Monetary meeting
IMF members urge “growth-friendly” spending Lagarde described the weekend G20 and IMF gatherings as “collective therapy” to deal with the gloomy prospects David Lawder
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he International Monetary Fund’s steering committee on Saturday urged member countries to boost “growth-friendly” spending and said the Fund should explore new lending tools to help deal with slowing global growth. IMF Managing Director Christine Lagarde said that calmer markets since February had reduced the stress level at the IMF and World Bank spring meetings here, but the outlook was still fraught with downside risks from weak demand, a potential UK exit from the European Union and low oil and commodity prices. “There was not exactly the same level of anxiety but I think there was an equal level of concern, and a collective endeavour to identify the solution and the responses to the global economic situation,” Lagarde told a news conference.
She described the gatherings, along with a Group of 20 finance ministers and central bank governors meeting on Friday, as “collective therapy” to deal with the gloomy prospects. The IMF cut its global growth forecasts earlier this week for the fourth time in a year. The International Monetary and Financial Committee (IMFC) said in its statement: “Downside risks to the global economic outlook have increased since October, raising the possibility of a more generalized slowdown and a sudden pull-back of capital flows.” Echoing sentiments from the G20 statement, the 24-member IMFC said countries should “refrain from all forms of protectionism and competitive devaluations, and to allow exchange rates to respond to changing fundamentals.” The committee said a more “forceful and balanced policy mix” was needed to stimulate growth and avoid deflation and emphasized that monetary policy alone was not enough. “Growth-friendly fiscal policy is needed in all countries,” it said, adding that accommodative monetary policies should continue in several advanced economies and structural reforms should be implemented with policies that support demand and help displaced workers.
Swiss National Bank Chairman Thomas Jordan said he thought the need for more fiscal stimulus and structural reforms in Europe, Japan and China was finally sinking in with policymakers “This is easier said than done,” he told a news conference. “These structural reforms are difficult to pass through parliaments...there is a certain risk that this will be postponed.” The committee called on the Fund to review its lending tools “to explore ways to strengthen its approach to helping members manage volatility and uncertainty - including through financial assistance, also on a precautionary basis.” The statement gave membership backing to Lagarde’s campaign for a stronger global financial safety net - a broader set of precautionary financing tools such as IMF credit lines that would reduce reliance on costly reserves for many emerging markets. The panel, chaired by Mexican central bank governor Agustin Carstens, also said that a new formula for the Fund’s voting shares, due for completion by October 2017, is likely to increase the share of emerging market and developing countries. Reuters
Pay-out measures
Russian ministry suggests keeping dividends of state firms Several state-controlled companies have asked the government for permission to pay less than 50 percent of their profit in dividends. The dividend pay-outs of state-controlled Russian companies should be kept at no less than half of their profits until 2019, with no exceptions, the finance ministry proposed on Saturday. But there were mixed messages on the policy, with Deputy Prime Minister Arkady Dvorkovich saying some firms could be let off higher dividend payments on their profits from last year. Russia, searching for ways of boosting budget revenue to offset the effects of lower oil prices and Western sanctions, has already proposed raising the dividend pay-out ratio for state companies to 50 percent of profit this year from a previous 25 percent. They should keep paying at least half of their annual profit in dividends in 2017-2019, news agencies quoted finance minister Anton Siluanov as saying on Saturday. “This encourages companies to pursue their activities more effectively
and yet shareholders should also benefit from the ownership of these shares,” Interfax news agency quoted Siluanov as saying. Siluanov was quoted as saying the state budget may receive up to 1.5 trillion roubles ($US22.6 billion) in 2016-2017 from the sale of stakes in oil giant Rosneft, mid-size oil producer Bashneft, diamond producer Alrosa and possibly VTB bank, Russia’s No. 2 lender. Several state-controlled companies have asked the government for permission to pay less than 50 percent of their profit in dividends for 2015 because they need to continue their investment programmes, Dvorkovich said on Saturday. “The final decision is yet to be taken,” RIA news agency quoted Dvorkovich as saying. “The general principle is 50 percent. Of course, there can be individual decisions,” he added. This view contradicts Siluanov’s position, who said that the rule
on dividends should not allow exceptions. The state holding Rosneftegaz, which accumulates part of the dividend payments from oil giant Rosneft and state monopoly Gazprom, is currently excluded from this rule, Interfax quoted a source familiar with situation as saying. Dvorkovich told RIA the government is yet to take the final decision on the size of Rosneftegaz payments. The largest dividend payers to the state budget are Gazprom, Rosneftegaz, Alrosa and Bashneft. Russian state companies often calculate profit under both domestic and international accounting standards, but until now have often paid dividends based on lower profit numbers under domestic standards. Siluanov’s deputy, Alexei Moiseev, was quoted as saying state companies should use the higher of the two numbers when calculating their 2015 dividends. Reuters
Business Daily Monday, April 18 2016 15
Opinion Business Wires
The Korea Herald South Korea’s jobless rate dropped to 4.3 percent in March from the previous month’s 4.9 percent, with the number of newly employed people rebounding to over 300,000 last month, a government report showed Friday. The unemployment rate for young adults also edged down to 11.8 percent last month from an all-time high of 12.5 percent in February, but the figure is the highest youth unemployment rate on record for March, the report compiled by Statistics Korea said, raising concern that the sluggish economy is still failing to create more jobs for school graduates.
The truth about Chinese unemployment rates Philstar Singapore-based DBS Bank Ltd. remains bullish about the economic growth prospects of the Philippines despite the continued decline in the country’s merchandise exports. Latest data released by the Philippine Statistics Authority (PSA) showed merchandise exports fell for the 11th consecutive month to US$4.3 billion in February on lower earnings across five major export commodities including apparel and clothing accessories, chemicals, other manufactures, metal components, and coconut oil. “Exports may have taken a tumble, but robust private consumption and investment growth provide enough reasons to stay optimistic on the Philippines’ GDP growth outlook,” the investment bank said.
Vietnam News The largest local commercial bank, Vietcombank (branch office pictured), will increase their charter capital to over VNĐ39.7 trillion (US$178.1 billion), said chairman Nghiêm Xuân Thành at the bank’s general shareholder’s meeting yesterday. Thành said the added capital of VND9.3 trillion was from the issuance of 933 million bonus shares at the rate of 35 per cent for the existing shareholders of the bank. He said that after raising charter capital, the bank will offer foreign investors about 360 million shares or a 10 per cent stake, which will be taken from its two biggest shareholders, the State and Mizuho Bank of Japan.
Taipei Times OBI Pharma Inc chairman Michael Chang was yesterday morning released after posting NT$1 million (US$30,914) bail, as prosecutors listed him as a defendant on insider trading charges. Chang and four other OBI Pharma executives were summoned for questioning at the Shilin District Prosecutors’ Office in Taipei on Friday, after judicial investigators searched the company headquarters and its laboratories to gather evidence earlier that day. Prosecutors said they had made breakthroughs in the investigation and therefore questioned the other four company executives, … , to gather information related to the case.
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ince 2002, China’s economy has undergone significant changes, including a shift from acceleration to deceleration of GDP growth. Yet the official urban unemployment rate, jointly issued by the National Bureau of Statistics (NBS) and the Department of Labour and Social Security, has remained remarkably steady, at around 4-4.1%. Since 2010, it has stood at precisely 4.1%. This is surprising, to say the least – and has led some to ask whether the NBS could be fudging the numbers. The NBS is not lying; it simply lacks data. The unemployment rate that the NBS provides reflects how many members of the registered urban population have reported to the government to receive unemployment benefits. But, unlike in developed countries, China’s piecemeal unemployment insurance and underdeveloped reemployment programs weaken the incentive for people to seek assistance. As a result, the NBS unemployment figures are far from accurate. China’s government has moved to remedy this, by carrying out urban unemployment surveys. But, despite having been collected a decade ago, those statistics have yet to be released. In lieu of convincing official figures, some economists have taken matters into their own hands, using data from the urban household survey (UHS) to estimate the real unemployment rate. Extrapolating from UHS data gathered in six provinces, Jun Han and Junsen Zhang, for example, concluded that, in 2005-2006, Chinese unemployment stood at around 10%. Using UHS data from almost all of China, Feng Shuaizhang, Hu Yingyao, and Robert Moffitt calculated an average urban unemployment rate of 10.9% from 2002 to 2009 – the highest estimate ever produced. But these estimates are just that – estimates. Because UHS data are not freely available, different people obtain results for different years and provinces from the various sources they could access. This has caused considerable frustration for researchers, and has resulted in estimates with ranges so wide as to be statistically insignificant. In our own research at Fudan University in Shanghai, my two PhD students, Liheng Xu and Huihui Zhang, and I managed to obtain a reasonably broad supply of official statistics: the 2005-2012 data for four provinces, the 2005-2009 data for three provinces, and monthly data for 2010-2012 for four of these seven provinces. While the sample is technically small, the provinces for which we acquired data represent the coastal, inland, and northeast regions. With the right adjustments and processing, we were able to infer the unemployment rates in different kinds of provinces and municipalities, thereby estimating the real nationwide unemployment rate. We found that, although China’s urban unemployment rate was probably quite high in 2005, standing at 10.7%, it has most likely dropped over the last decade, reaching 7% in 2012. That puts the annual average for the 2005-2012 period at 8.5%. (These and our other findings correlate with a cross-sectional analysis of the official data, meaning that the data for registered unemployment, subjected to such an analysis, might serve as a proxy for the real unemployment rate.) Moreover, while rapid GDP growth contributed to falling unemployment in, say, 2007,
Zhang Jun Professor of Economics and Director of the China Centre for Economic Studies at Fudan University.
unemployment continued to decline even after the global financial crisis of 2008 began to weaken economic performance. Most economists would assume that declining unemployment amid falling GDP growth is related to a decline in labour-force participation. But our calculations, based on the UHS data, show that labour-force participation in China actually increased slightly after 2008, as the proportion of workers exiting the labour market decreased. In other words, China’s employment growth has accelerated in recent years, even as GDP growth has slowed. This can be explained partly by an on-going structural shift in the Chinese economy, from a manufacturing-driven growth model to a services-led model that empowers private innovators. And, indeed, as UHS data show, this shift led to continuous job creation in the services sector from 2005 to 2012. What has not happened is significant destruction of jobs in the state sector and manufacturing industries, especially since 2009. As the UHS data suggest, the average time it takes an unemployed worker to find a new job in the services and non-state sectors is shorter than in the manufacturing and state sectors. If the manufacturing and state sectors do begin to lay off more employees, urban unemployment rates are bound to rise. The reason that hasn’t already happened is that the government has, to some extent, been propping up these sectors since the global financial crisis, by implementing massive stimulus packages focused on investment in infrastructure and real-estate development. This has sustained the rapid growth of the secondary sector (especially manufacturing and construction), which has thus been absorbing large numbers of lowskill workers. In fact, upon closer examination of the UHS data, we found that the least-educated workers largely accounted for the decline in overall unemployment. This stimulated infrastructure and real-estate construction boom has also led to the expansion of heavy industry, including state-owned steel, cement, chemicals, glass, and other enterprises, causing employment growth to accelerate from 2005 onward. The NBS data show that the employment growth rate in the state sector was negative before 2009, when it turned positive. The fact that the unemployment rate is declining while GDP growth slows suggests that China’s labour productivity is actually worsening – a trend that is likely to lower China’s long-term potential growth rate. Since the effects of the stimulus obviously cannot last, the sectors that were being propped up will soon begin to shed more workers, causing the unemployment rate to rise. Only further government intervention could prevent this outcome; but that might mean delaying structural reforms that are needed to sustain productivity growth. China’s leaders are thus being confronted with a difficult choice: higher near-term unemployment or slower long-term growth. Project Syndicate
“The fact that the unemployment rate is declining while GDP growth slows suggests that China’s labour productivity is actually worsening”
16 Business Daily Monday, April 18 2016
Closing Monetary measures
PBOC governor says China to implement appropriate policy
China should be flexible in implementing appropriate monetary policy and maintain reasonably ample liquidity, China’s central bank governor Zhou Xiaochuan said at a meeting in Washington over the weekend. Zhou also called for all sides to take forceful measures to promote global recovery, including refraining from the use of various forms of trade and investment protectionism. China’s economy is off to a good start in 2016, with economic indicators seeing an obvious pick up and the growth of the
services sector outpacing that of the manufacturing industry, Zhou said in remarks delivered at a meeting of the International Monetary and Financial Committee. He added that China should vigorously push forward supply side structural reform, as well as better balance the areas of economic growth, structural adjustment and risk prevention. At a separate G20 meeting in Washington last week, Zhou said that China’s foreign exchange market has stabilized, the yuan’s recent trend reflects market supply and demand, and it has held steady against a basket of currencies. Reuters
Quake damage
Japan auto, electronics manufacturing face disruption Toyota said it would suspend operations in stages at most of its vehicle assembly plants across Japan beginning today.
Local government workers and Japanese Self Defence Force earthquake relief personnel unload boxes of bottled water from a military chopper after a second major earthquake hit Aso city.
Naomi Tajitsu and Makiko Yamazaki
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oyota Motor Corp said yesterday it would suspend production at plants across Japan after earthquakes in the country’s south disrupted the automaker’s supply chain, while other manufacturers extended stoppages due to damaged factories. Japanese companies have been affected by supply chain disruptions caused by natural disasters in the past few years, most notably when a devastating earthquake and tsunami in northern Japan in March 2011 temporarily knocked out part of the auto supply chain. Some manufacturers have since adjusted the industry’s “Just in Time” production philosophy to limit any repeat of that costly disruption, but the weekend warnings showed some sectors remained vulnerable. Toyota said it would suspend operations in stages at most of its vehicle assembly plants across Japan beginning today as it was unable to source parts from some of its suppliers in southern Japan following the deadly earthquakes in the region. Electronics giant Sony Corp said production would remain halted at its image sensor plant in Kumamoto, which has been pummelled by a series of powerful earthquakes since Thursday, as the electronics giant assessed structural and equipment damage.
Sony said it had resumed full operations at its plants in nearby Nagasaki and Oita which also produce image sensors - used in smartphone
Key Points Toyota, Sony keep plant operations suspended after Japan quake Supply disruption to halt most Toyota assembly plants in Japan Sony keeps one sensor plant closed, Renesas chip output on hold
Hinkley Point
cameras, including Apple Inc’s iPhone. Toyota, the world’s biggest-selling automaker in 2015, said a shortage of parts for doors and engines produced by its affiliates Aisin Kyushu and Aisin Kyushu Casting were contributing to a bottleneck in its supply chain. It was checking the status of damages at its other suppliers, the automaker said. Also yesterday, semiconductor manufacturer Renesas Electronics Corp confirmed it had sustained damage to some equipment at its plant in Kumamoto which produces microcontroller chips for automobiles.
Financial markets
Having suspended operations following the first earthquake on Thursday, the chipmaker said it would assess damage at the entire facility before deciding when to resume production. Renesas, which suffered significant damage at its semiconductor plants in north-eastern Japan following the 2011 quake, has previously said it had not been stocking extra inventory for risk management purposes since that disaster. However, it has begun to standardize more parts across various models to enable in house production at alternative plants during emergencies. Reuters
Workers strike
Macron says France finalising Argentina to borrow cash 15 Kuwait’s crude output years after default UK nuclear plant deal drops 60% French Economy Minister Emmanuel Macron repeated his government’s commitment yesterday to plans by state-owned company EDF to build a controversial next-generation nuclear plant in Britain, saying the deal was being finalised. Questions have been raised about the financial viability of the £18-billion (US$25.5 billion) Hinkley Point project, which will use largely untested technology. EDF, which is 84-percent owned by the French government, is already struggling with a debt pile of more than 37 billion euros and trade unions have called for the project to be delayed. In an interview with BBC television, Macron confirmed the government’s commitment to the project, financed in part by China General Nuclear Power Corporation (CGN). “We back Hinkley Point project, it’s very important for France, it’s very important for the nuclear sector and EDF,” Macron said. “Now we have to finalise the work, and especially the technical and industrial work, very closely with EDF, with the British government, to be in a situation to sign in the coming weeks or month.” He had previously said that EDF would take a final decision at the beginning of May. AFP
Argentina seeks to end 15 years of financial isolation today when it sets out to borrow cash on international credit markets for the first time since a 2001 default. The country is looking to boost its struggling economy and settle a 15-year lawsuit by US investment funds which its ex-president Cristina Kirchner branded “vultures.” This week’s debt issue “is an important, epoch-changing event,” said Gaspard Estrada, a specialist at French Latin America affairs observatory OPALC. “It serves partly to pay the vulture funds, to finalize an agreement with the remaining creditors, and to give the government room to manoeuvre to restart the country’s economy.” Economist Marina Del Poggetto warned however that the country will also have to lower its public deficit - currently six percent of output - and strengthen the economy. “In the long term, it will have to correct imbalances because going into debt is not a strategy in itself,” Del Poggetto said. Now that a US court has cleared the way for Argentina to start borrowing again, the government plans to issue up to US$15 billion in bonds today and tomorrow. AFP
Kuwait’s crude production tumbled by 60 percent and its refineries scaled back operations as the state oil company took emergency measures to cope with a labour strike. Output in OPEC’s fourth-biggest producer dropped to 1.1 million barrels a day yesterday, Saad Al-Azmi, spokesman for Kuwait Oil Co., said in posts on Instagram and Twitter. Natural gas production stood at 620 million standard cubic feet a day, he said. Kuwait Petroleum Corp., the parent company for KOC and other operating units, will continue to provide fuel to the local market and can meet demand from international customers for exports, it said on Twitter. The country’s oil and gas refineries are processing 520,000 barrels a day of crude, said Khaled Al-Asousi, spokesman for Kuwait National Petroleum Co. The state-owned refinery unit reduced processing rates at the country’s three oil plants, which have a combined capacity of about 900,000 barrels a day, he said. Members of the 13,000-strong Oil & Petrochemical Industries Workers Confederation are protesting cuts in their wages and benefits, Saif Al Qahtani, the union’s leader, said. About 6,000 workers walked off the job when the strike began yesterday, CNBC Arabiya cited him as saying. Bloomberg News