Macau Business Daily April 21, 2016 by Business Daily

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

ay zac D

Followed by Gunfire Breakfast from 8am

China spurs ships to use Arctic shipping route Logistics Page 10

Thursday, April 21 2016 Year V Nr. 1026 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Joanne Kuai Aviation

Hospitality

Jetstar resumes Macau-Da Nang service Page 2

Hotel occupancy dropping despite cheaper rack rate Page 2

www.macaubusinessdaily.com

Markets

MGM Growth Properties raises US$1.05 bln in IPO Page 7

Watchdog

Australian Gov’t will provide more funds to the markets regulator Page 11

Swingeing penalties proposed for smugglers Legislation Getting in line with international standards. The Legislative Assembly has approved a draft law combating the illegal trade in animals and plants threatened with extinction. Smuggling may now attract fines of MOP500,000 (US$62,568) rather than the current “outdated” MOP5,000. Page 3

Encouraging tech

Business battles The 2016 edition of Global Management Challenge has concluded in Macau. Some150 participants from 25 countries and regions competed. The competition mimics real world trading to train participants’ strategic management skills. Page 6

Taiwan exports Export orders declined in March but at a slower pace. The slump in orders from key markets China and the US narrowed. Orders for electronic goods increased 1.6 pct y-o-y. An encouraging sign for many large tech companies playing a key role in the global supply chain. Page 16

South South in the news Bribery More Panama Papers leaks. Macau billionaire Ng Lap Seng reportedly used self-owned media South South News sponsorship to win over UN officials. An Air China employee previously linked to Ng now faces her own case. Page 5

Happy birthday, Hengqin Up and running for one year. Hengqin FTZ has announced nine new measures to oil the wheels of commerce. Meanwhile, the draft policy enabling Macau cars to enter the island has been completed. With a launch date pending approval. Regional Page 2

23° 27° 23° 27° 22° 26° 23° 26° 24° 26° Today

Sat

21,236.31 -199.90 (0.93%)

Li & Fung Ltd

+2.89%

Swire Pacific Ltd

+0.66%

China Shenhua Energy Co

-2.62%

Hong Kong & China Gas Co

-2.92%

China Merchants Holdings

+1.50%

Cheung Kong Property

+0.48%

New World Development

+1.02%

Hang Lung Properties Ltd

+0.38%

Want Want China Holdings

-2.73%

China Unicom Hong Kong

-3.08%

China Mengniu Dairy Co Ltd

-2.76%

Tingyi Cayman Islands

-3.22%

Source: Bloomberg

HK Hang Seng Index April 20, 2016

Fri

I SSN 2226-8294

Sun

Mon

Source: AccuWeather

International competition

2 Business Daily Thursday, April 21 2016

Macau Property

Gov’t approves new 2-star hotel project in Barra

The government has approved Ellsworth Macau Limitada’s plan to build a 2-star hotel in Rua do Almirante Sergio in the Barra district of the city, the Official Gazette announced yesterday. The developer is allowed to build an 8-storey building, including one storey basement, in a 226 square metre area. The hotel project will

occupy a total area of 1625 square metres, with 75 square metres used for commercial purposes. Ellsworth Macau Limitada will pay a contract premium of MOP8,659,107 (US$1.08 million), with the rent per square metre during the development period set at MOP16 per square metre, and upon construction changing to MOP 8 per square metre and MOP 6 per square metre for the hotel and commercial area, respectively.

Hospitality

March hotel room rate lowest in 2016 Although 4-star hotels offered the cheapest average room rate, 3-star hotels still posted the highest average occupancy in March. Annie Lao annie.lao@macaubusinessdaily.com

espite Macau’s 4-star hotels offering the cheapest room rate of MOP711.1 (US$ 89.01) per night of all categories of hotel, also representing a drop of 18.1 per cent year-on-year, Macau’s 3-star hotels posted the highest increased occupancy rate, increasing 3.8 per cent year-on-year to 86.7 per cent, with an average room rate of MOP831.8, according to the latest data released by Macao Government Tourism Office (MGTO). The data, based on information provided by the Macau Hotels Association, revealed that the occupancy rate of local 4-star establishments reached 80.1 per cent last month - an increase of 1.1 per cent yearon-year, and the second highest - although local 4-star hotels had

the cheapest room rate of all hotel categories.

Performance compared to last year

Data released by MGTO shows that the occupancy rate for all categories of hotel was 77.8 per cent, 2.7 per cent lower than in 2015. The price on average was MOP1,245.1, some 15.8 per cent cheaper than the

MOP1,478.5 offered in 2015. The 5-star hotels suffered the biggest drop in occupancy rate of 5.7 per cent to 75.1 per cent from 80.8 per cent in 2015. However, the price drop in this category was the slightest at 13.6 per cent, making the average price MOP1,609.1 compared to MOP1,863.3 of a year before. The price for 4-star hotels suffered the biggest drop of 18.1 per cent to

MOP711.1 from MOP868 in 2015. The occupancy rate was the second highest among all hotel categories, however, reaching 80.1 per cent, a 1.1 per cent increase from 2015. The 3-star hotel room occupancy rate was 86.7 per cent, up 3.8 per cent from 82.9 per cent in 2015. The price dropped 14.6 per cent to MOP831.8 from MOP974.3 a year before.

Hengqin

Aviation

Hengqin FTZ now established one year

Jetstar resumes Macau‑Da Nang service

Hengqin authorities say the policy draft for Macau licence plate cars travelling to the island is complete, and merely awaits the Guangdong Government and its SAR counterpart’s announcement. The Hengqin Free Trade Zone (FTZ) in neighbouring Zhuhai City has been established for one year now. Nine innovative initiatives of Hengqin FTZ, including reforming visa policies, setting up a new mechanism for innovative enterprises regarding credit risk compensation, and a new approach to a 24-hour reporting system in an effort to fight corruption were

announced yesterday at its one-year anniversary press conference, according to a report by local TDM Chinese Radio. Hengqin will work closely with Mainland China authorities and Macau Customs, with the H986 inspection system to first be introduced by Hengqin to supervise small cars and trucks to ease the transportation of goods, announced the Hengqin authorities. The Director of the Adm i n i s t ra t i v e C o m m i ttee of Hengqin New Area, Niu Jing, said that the Free Trade area has now been established for one year, while newly registered businesses have reached 10,000 with a total capital investment of RMB400.2 billion (US$61 billion). The gross product of Hengqin, capital investment, public budgets and income all indicate the area is developing at high speed, said the Director.

Regional co-operation

The policies regarding Macau’s single licence plate

vehicles entering Hengqin Island has been completed, and awaits further announcement from the Guangdong Government and its SAR counterpart, according to the FTZ Director. Niu Jing says the hardware facilities are already built for Macau cars to enter Hengqin but the opening date is still awaiting further approval. The ‘Hengqin Card’ will be launched to provide mobile communication and online payment system available between Macau and Hengqin, according to Mr. Niu. With regard to the plan for Macau currency being used in Hengqin New Area, Mr. Niu said that Macau currency can only be used with an IC card for multi-currency transactions and only for a limited amount. He added that the banks are still working on the system but no big scale experiment on this policy has been conducted and no confirmed timeline for when such a policy will be implemented has been announced. A.L.

Low-cost carrier Jetstar Pacific Airlines has re-launched its flights connecting the city to Da Nang in Vietnam, the Aviation Authority of Macao confirmed to Business Daily yesterday. According to an Authority spokesperson, the airline had already obtained approval from the Authority to resume its flight service from April 18. The flight schedule on the official website of the Macau International Airport (MIA) shows Jetstar is providing twelve round-trip flights weekly between Macau and Da Nang between April 18 and October 29 this year. In addition, the same schedule indicates the budget airline is operating

two round-trip flights per week between Macau and the Vietnamese city of Cam Ranh. The carrier suspended its Macau-Vietnam routes on February 22 this year due to ‘business concerns.’ Prior to the suspension, it also operated flights connecting Macau to two other Vietnamese cities - Hai Phong and Ho Chi Minh City - in addition to Da Nang. Meanwhile, Indonesian low-cost carrier Lion Air commenced its charter flight service connecting the Special Administrative Region and Palau yesterday, airport operator Macau International Airport Company Ltd (CAM) has announced on its website. K.L.

Business Daily Thursday, April 21 2016 3

Macau Utilities

CEM to lower electricity tariff index

Benefiting from the continued low international fuel prices, local power generating costs have decreased. According to the calculation under the concession contract, the 2nd quarter Tariff Clause Adjustment (TCA) will be lowered to MOP0.36 cents per kWh, according to local sole power distributor CEM – Companhia de Electricidade de Macau. CEM says it will continue to offer a subsidy to Tariff Group A customers, who are

residential and Small & Medium Enterprises (SMEs) customers accounting for over 99 per cent of the total customer base. TCA will be reduced from the contractual calculated value of 36 cents to 34 cents per kWh, representing a reduction of 2 cents per kWh. The TCA for Tariff Group B, C and D customers will be at 36 cents per kWh in accordance with the contractual calculated value, 6 cents per kWh lower than in the previous quarter.

Legislation Gov’t: Law for animals and plants at risk of extinction “outdated”

Smuggling fines to increase a hundredfold Legislators passed the bill at first reading, representing Macau’s effort to further comply with international standards of animal and plant protection. Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

iven that the current measures in place are “outdated” according to Secretary for Economy and Finance, Lionel Leong Vac Tai, measures to “increase the fines” and “combat illegal operations” on smuggling wild fauna and flora were under discussion yesterday in the Legislative Assembly. The draft was passed yesterday by the legislators at its first reading, and will be moved on to the subcommittee. Questions regarding the proposed law largely revolved around the destination of living creatures apprehended under the scheme and responsible bodies for the care of living organisms. The Civic and Municipal Affairs Bureau (IACM) President of the Management Committee, José Maria da Fonseca Tavares, pointed out that given Macau’s lack of wildlife diversity in these cases, the animal in risk of extinction might “not be from this region” and may be at risk as they “may not survive for very long” requiring the Bureau to act as a scientific body and “adopt specific measures” for each case. To effectively apply the measures described in the proposed law three main government bodies must co-ordinate to effectively safeguard animals and plants at risk of extinction. The IACM would act as the ‘scientific body’, the Customs Bureau would act as the net to ensure no cross-border trafficking of plants and animals is effected, and the Economic Services Bureau (DSE) would act as the ‘administrative body’, according to the proposal of the law. Responsibilities for the DSE would include the issuance of licences and

certificates and the grant of exemptions for commerce and the moving of specimens and species inscribed on the annexes of the convention, the authorisation to introduce to the SAR specimens from the sea, and the organisation of the register of imports and exports, among others.

“Not commercial object”

Particular weight was given to the way specimens were preserved or handled, with a question raised as to whether non-living specimens, if proof was available, could be returned to their country of origin. IACM president José Tavares said, “When they’re returned to their country of origin they’re often destroyed also […] If the animals are alive we will work to get them home.” The Director of the Economic Services Bureau, Tai Kin Ip, brought up the case of the ivory in possession of the SAR. Of the 748 kilos apprehended by the Bureau, he said, “350 have been destroyed, 150 are in the process of being destroyed and another 200 kilos have gone to IACM or other entities for pedagogical purposes.” Legislator Perriera Coutinho pointed out the value of the potential apprehended objects and raised the question of how they would be guarded as well as a request that the government publish, on their departments’ respective websites, information regarding apprehended material, including photos and types of plant or animal life but excluding information on the individual or company apprehended. Secretary Lionel Leong said it would be taken into consideration. With relation to the cultivation or breeding of plant and animal life in the territory, IACM president José Tavares noted that “there are people who like to grow plants at risk of extinction. If this flower becomes commercialized than it would be necessary to register it; if not, that flower cannot be a commercial object,” said the IACM head. The bill previously introduced at the Executive Council also suggested that the fine for smuggling endangered species be raised to MOP500,000 (US$62,568) from the current MOP5,000. The Council has given the green light to a bill that will

Infrastructure

Gov’t invites bids for sewage contracts The government has launched public tenders for two service contracts, which are for the wastewater treatment plant on the Peninsula and for that in the Zhuhai-Macau Cross-Border Industrial Park, the Official Gazette announced yesterday. According to the dispatch by Environmental Protection Bureau Director Raymond Tam Vai Man, the service contract for the Peninsula sewage project, including the operation and maintenance services for the plant, will be valid for two years starting from October 1 this year.

Secretary for Economy and Finance, Lionel Leong Vac Tai.

Meanwhile, the contract for the wastewater treatment plant in the Cross-Border zone would be effective for five years. The future awarded contractor is required to upgrade the sewage facilities within 24 months of the contract starting, in addition to providing operation and maintenance services. No minimum bidding price is set for either of the tenders. But bidders of the two tenders would need to pay a temporary guarantee deposit of MOP5 million (US$625,000). The two tenders will close 90 days after yesterday’s dispatch. K.L.

allow a broader application of the Convention on International Trade in Endangered Species of Wild Fauna and Flora. The law will replace a law that has

been in place fore more than 30 years and gets the MSAR closer to international standards. The authorities want to prevent the territory from being used as a conduit for smuggling.

4 Business Daily Thursday, April 21 2016

Macau Retail

Retail

L’Occitane retail sales down 15.2 pct in SARs

Stelux expects annual net loss

rench retailer of skincare products L’Occitane International S.A. saw its total retail sales in Hong Kong and Macau drop 15.2 per cent for its fiscal year ended March 31, it informed Hong Kong Stock Exchange on Tuesday. According to the company, the drop in total retail sales in the two Special Administrative Regions is due to the decrease in Mainland Chinese tourists and the relatively strong Hong Kong dollar. It added that diminished traffic in the Greater China region is another factor. L’Occitane did not release the total retail sales it had reached for the year in Tuesday’s filing. But it said its net sales in Hong Kong and Macau amounted to 138.6 million euros (HK$1.22 billion/US$157.4 million) for the year, which, in fact, represents a slight increase of 3.3 per cent compared to 134.2 million euros one year ago. Meanwhile, the company’s same store sales growth in the two cities fell 17.2 per cent year-on-year, which is the worst same store performance recorded compared to its businesses in other major markets during the same period. For the year, the French retailer’s total net sales jumped 8.9 per cent year-on-year to 1.28 billion euros. Of the total, sell-out sales accounted for 75 per cent to 962.4 million euros, while sell-in sales totalled 320.2 million euros.

According to the filing, the growth in total net sales was mainly contributed by its non-comparable stores, coupled with contributions from wholesales, distributors, business-to-business and web partners. L’Occitane also saw its sales in China surge by 16.8 per cent compared

to 2014. The company said the climb is attributable to its sales through e-commerce channel T-mall in the country, as well as non-comparable stores there. As at the end of March, the retailer owned three retail stores in Macau and 33 in Hong Kong. K.L.

Watch and optical retailer Stelux Holdings International Ltd. expects the company to remain in the red for its whole fiscal year ended March 31, according to its filing with the Hong Kong Stock Exchange on Tuesday. The company explained the anticipated net loss for the fiscal year is primarily attributable to the decreased turnover and gross profit due to weak retail sentiment leading to negative operational leverage. In addition, borrowing costs of convertible bonds amounting to HK$56 million (US$7.2 million), an exchange loss and an impairment of its assets are also the factors dragging it into the red ink. The retailer, which owns City Chain and Optical 88, has already fallen into the red for the first half of its fiscal year, posting a net loss of HK$33.1 million (US$4.12 million) from the profit of HK$105.2 million one year ago. “Despite the anticipated loss, the Group is expected to report a positive operating profit in Hong Kong, Macau and Malaysia,” the retailer noted in Tuesday’s filing. For the first half in its fiscal year, the company’s turnover fell by 10.7 per cent year-on-year to HK$1.77 million due to lower turnover generated by its two major subsidiaries. K.L.

Business Daily Thursday, April 21 2016 5

Macau Bribery

Ng Lap Seng reportedly used news outlet to ingratiate himself with UN The businessman’s self-owned news outlet South South News has reportedly sponsored United Nations events on at least three occasions. Kam Leong kamleong@macaubusinessdaily.com

re-evaluating South South News’ authorisation.

OCAL real estate de veloper Ng Lap Seng has been trying to win United Nations (UN) favour by reporting on and sponsoring the organisation’s events through his self-owned online news outlet South South News, Hong Kong media reported on Tuesday night. Recent leaks from the Panama Papers have disclosed that the local businessman set up a company in the British Virgin Islands in May 2010. Originally called Nan Nan International News Group Limited, the company’s name was subsequently changed to South South News International Group Ltd. Hong Kong online news media HK01 claimed it had obtained the part of Panama Papers related to Hong Kong with two other news companies, Ming Pao and Next Media, from the International Consortium of Investigative Journalists (ICIJ). According to HK01, the documents it obtained show South South News has sponsored large-scale UN conferences in Hong Kong and Macau on at least three occasions. In addition, the news outlet was one of the authorised media of the UN’s Department of Public Information for covering the organisation’s events and press briefings. The Hong Kong online media quoted a spokesperson of the UN as saying that the organisation is now

Teaming up

Last year, Ng was charged with bribing John Ashe, a former ambassador of Antigua and Barbuda to the United Nations General Assembly from 2013 to 2014 through intermediaries, including Francis Lorenzo,

who is a deputy UN ambassador from the Dominican Republic. The website of South South News, despite not mentioning Na Lap Seng by name, said in a press release this February that Francis Lorenzo ‘co-founded the company in 2010 and has served as its honorary president ever since.’

The same release also announced the resignation of Lorenzo from the company, claiming the involvement of the suspended deputy UN ambassador in the operations of the company ‘was greatly reduced following his indictment by a federal prosecutor last October.’ Another press release from the Federal Bureau of

Investigation of the United States on the bribery case last October stated Ng’s close relationship with Lorenzo on South South News. ‘Since in or about 2010, in addition to being the Dominican Republic’s representative to the UN, Lorenzo has also been the ‘Honorary President’ of a New Yorkbased non-governmental organisation created by Ng, which purportedly is a ‘21st Century media platform’ whose mission is to advance the implementation of the UN’s Millennium Development Goals,’ the FBI asserted. South South News introduced itself on the website as ‘a 21st Century media platform dedicated to covering the stories of global development from the United Nations, governments, the private sector, and civil society.’

Screenshot of South South News website as of yesterday.

Crime

Air China employee linked to Ng Lap Seng faces own case The U.S. citizen, was charged with structuring deposits at two banks to evade currency transaction reporting requirements. An employee of a Chinese airline, who came onto the radar of U.S. authorities as they probed the activities of Macau billionaire Ng Lap Seng accused of bribing a U.N. General Assembly president, is now facing legal troubles of her own. The Federal Bureau of Investigation earlier this month searched

the home of Air China Ltd employee Ying Lin, seizing 100 items, including computers and jewelry, her lawyer said last week at a hearing in federal court in Brooklyn, New York. The search comes eight months after Lin, a U.S. citizen, was charged with structuring deposits at two banks in amounts less than US$10,000 to evade currency transaction reporting requirements over a five-year period beginning in August 2010. At the April 12 hearing, Assistant U.S. Attorney Alexander Solomon, who belongs to a national security and cyber crime unit, said prosecutors may bring more charges based on the search against Lin, who has pleaded not guilty. The exact nature of the probe into Lin could not be determined. No claims have been made involving Air China, where Lin has worked for 14 years and is its Newark station manager. Lillibeth Bishop, a spokeswoman for the state-run carrier, in a statement said it was “Air China’s policy not to comment on matters that involve the U.S. federal authorities.” The investigation is not the first time that Lin has been in the FBI’s crosshairs. According to a person familiar with

the matter and court filings, Lin was also as early as 2014 drawn into a separate investigation into Ng Lap Seng, a real estate developer from Macau who heads Sun Kian Ip Group. Ng, who last year had a US$1.8 billion net worth, and his assistant, Jeff Yin, were arrested in September for allegedly making false statements to customs officials about why they brought US$4.5 million into the United States from China. They were charged in October along with others for engaging in a scheme to pay US$1.3 million in bribes to John Ashe, a former U.N. ambassador from Antigua and Barbuda who was U.N. General Assembly president from 2013 to 2014. Ng, Yin and Ashe have pleaded not guilty. Lin, who lives in New York City, is not identified by name in court papers in the case against Ng in Manhattan federal court. Her lawyer, Deborah Colson, as well as representatives for U.S. Attorney’s offices in Manhattan, which is prosecuting Ng, and in Brooklyn, which brought Lin’s case, declined comment on any connection between the two cases. But a source confirmed she is the person referred to as “Individual-1” in court papers in the case against Ng.

According to those papers, Yin escorted Ng from an April 2014 flight into New York, in which Ng brought US$300,000 in cash with him authorities say he falsely claimed was for gambling in Las Vegas or buying art and antiques in New York. Ng claimed he did not know the individual personally, the complaint said. But the complaint said Lin had “business dealings” with Ng and Yin prior to their trip involving more than just her relationship with the airline. When Ng and Yin were arrested on September 19, Lin was holding onto a bag belonging to Yin containing a Chinese passport, credit cards, US$15,000 in cash and a key to a safe deposit box containing US$430,000, prosecutors said. Prosecutors said the bag’s contents demonstrated that Yin intended to flee. He was initially denied bail, but later was released from jail. During a bail hearing on September 29, Sabrina Shroff, Yin’s lawyer, said the woman who held onto the bag was facing charges in Brooklyn. Shroff declined to comment for this article. Lin has not been accused of wrongdoing in the Ng case. It remains unclear if that case relates to the bank structuring allegations against Lin. Ng’s lawyer did not respond to requests for comment. Reuters

6 Business Daily Thursday, April 21 2016

Macau Opinion

Ashley Sutherland-Winch Lost Opportunities In today’s commercial market the immediate impulse of the consumer is to search for a company online. As we become more and more mobile, search enquiries on smartphones can define a company’s continued success by its ability to be ‘found’ by the consumer. Local search engine optimization (SEO) is crucial on mobile devices and many Macau businesses appear to be missing out. Digital maps in Macau are often incomplete and inconsistent. Residents and tourists alike are unable to visit many businesses because the name or address of the company is missing from their favourite map application like Apple, Google Maps or Bing Local. As a resident of Macau, transplanted from the United States, I’m puzzled when I hear of a new restaurant or I require a business service and I cannot find their presence on the Internet. My online searches begin with one of the big three: Google, Yahoo or Bing. If my intended business does not appear in my search, I will attempt again but this time I will translate the company name or service into Cantonese or Portuguese. Frequently, I am unsuccessful in my searches, leading me to then identify another company with an SEO presence who will ultimately get my business. Are many Macau businesses not taking search engine optimization seriously? Are they not registering their company names and addresses in English, Portuguese and Cantonese? What is the disconnect? Ideally, in today’s marketplace, companies should complete keyword optimization in at least English or Cantonese to ensure that their enterprise can easily be identified by local consumer online searches in Macau. Social media can also assist with increasing Internet presence but must be executed correctly. For instance, if you create a Facebook or WeChat page for your company and include a physical address, the function of the address URL link is only adequate if it corresponds with digital map applications. There is a famous American sports film ‘Field of Dreams’ in which the quote, ‘if you build it, they will come’ features. I can associate this quotation with Macau businesses, ‘If you register your company on major websites and connect with their digital maps, we, the consumer, can come!’ I encourage all Macau businesses to check both their online presence and their company’s existence on smartphone map applications. Are you popping up on searches or are you losing opportunities? Ashley Sutherland-Winch is a Marketing and Public Relations Consultant and frequent contributor to this newspaper.

Management 2015 edition of Global Management Challenge concluded in Macau

Virtual companies to train future leaders Some 150 participants from 25 countries and regions join the world’s largest strategic management competition. Nelson Moura nelson.moura@macaubusinessdaily.com

ome 150 participants from 25 countries and regions participated in the 33rd Global Management Challenge (GCM) held in Macau over the past three days. Macau didn’t make it to yesterday’s Global Management Challenge (GCM) final as the local team failed to pass the semi-final. ‘Strong Fighter’, a team comprising students from the Macau University of Science and Technology, was up against China, Latvia, Kenya, Slovakia, Czech Republic, Russia and Brazil in the last event held at Sofitel Hotel. “The other teams are very powerful and strong in their last decisions; there are a lot of details to control and strategy implied and you need to make decisions really quickly. The traditional strong teams - China and Russia - are probably the best contenders to go and win it,” Charles Tang, a member of the Macau team, told Business Daily. Nevertheless, ‘Strong Fighter’ won the GMC Macau qualification round in January in a pool of 100 local

participants, gaining the right to represent Macau in the world’s biggest Strategy and Management Competition. The GMC tournament was created in 1980 by Portuguese simulator and model company SDG, in partnership with the weekly Portuguese newspaper Expresso, and organised in Macau by the Macau Management Association (MMA).

Honing management skills

Participants in the GMC have to take charge of a simulated company and manage different aspects of a simulated business environment, making management decisions based upon a simulated company history and the world financial situation in the preceding five years. By mimicking real world trading situations and business risks, the simulator provides realistic challenges and problems for the participants. “We believe the competition can help participants with their career, since the certificate works as a certificate of their management ability, so it will make it easier, specially for students, to find a job in the future,” Sasa Choi, MMA Senior Executive, told Business Daily. “It’s a shame the Macau and Hong Kong teams didn’t go through to the final but China went through and we hope they can get a good result,” Ms. Choi added. Although the Macau team hailed from a student background, participating teams can also include professionals from the management

world, who consider the challenge a great experience to improve their management skills. Such participants include Russian team members Alexey Chuvaev, an investment management teacher, and Vladislav Zarianin, a manager and financial director. “The simulator is really efficient and we found that in this competition it can make a result subjectively, not too objectively, and you can get a response very quickly, and then understand yours and the competitors’ mistakes and best decisions,” Chuvaev told Business Daily. Macau won the GCM in 2007 and placed second in last year’s edition in Prague after losing to Russia, eight time competition winners and favourites to win this year. “Management competitions in Russia are really big and there are a lot of teams from different regions, so we have a really competitive environment in our country, therefore we get good results. But in the finals China, Brazil, Latvia and the Czech Republic are always strong opponents,” added Zarianin. “The competition provides a great amount of knowledge for us who work in different spheres of the management world about finance, investments, providing tools that can help you understand financial and investment management. Macau is a very interesting city, a Las Vegas of Asia, but we haven’t had a chance to go to the casinos - but maybe today to the MGM Gala!”. In the end, the Russian team brought home the title of International Winner.

Business Daily Thursday, April 21 2016 7

Macau Crime

Chip-stealing croupier sentenced to jail

A dealer working in a casino within the Galaxy Entertainment Group has been sentenced to jail for stealing chips worth HK$775,000 (US$99,904) according to a court statement released yesterday. The case, dating back to 2013, indicates that the dealer stole the chips over the course of 16 days in 91 separate actions.

The Court of First Instance sentenced the dealer to five years in jail, rounding up 16 embezzlement cases in the workplace with each violation liable to one year and three months jail term. While the defendant argued that the crime should be considered as continuing actions hence shorter jail sentence the Court of Second Instance denied the appeal and upheld the previous verdict of 5 years behind bars.

IPO

MGM Growth raises US$1.05 billion in IPO The trust owns a portfolio of casino resort properties carved out of MGM Resorts International Inc, which has a market capitalization of roughly US$13 billion.

eal estate investment trust MGM Growth Properties LLC said on Tuesday it had raised US$1.05 billion in its U.S. initial public offering, in the latest sign that investors are becoming more receptive to new stock market flotations. MGM Growth’s successful pricing follows exchange operator Bats Global Markets Inc’s offering last week as the second major IPO of the year. With stock market jitters having all but frozen the IPO market this year, the two successful share offerings are fostering new optimism among IPO hopefuls. “I don’t think one IPO a

market makes, but these are all good things in the context of what’s going on in the equity market,” said Daniel Klausner, managing director at PwC. Other IPOs are also attempting to brave the market this week. Outpatient dialysis company American Renal Associates Holdings Inc is expected to price its IPO on Wednesday, while SecureWorks Corp, a cyber security firm owned by Dell Inc, is expected to price its IPO on Thursday. MGM Growth Properties priced 50 million shares at US$21 per share, the top end of its previously indicated range of US$18 to US$21,

according to a statement. MGM Growth Properties owns a portfolio of casino resort properties carved out of MGM Resorts International Inc, which has a market capitalization of roughly US$13 billion. Six of its properties are on the Las Vegas Strip, including Mandalay Bay

and the Mirage. MGM Resorts shareholders will own roughly 76 per cent of MGM Growth Properties. MGM Resorts launched the real estate investment trust after pressure from activist fund Land and Buildings , which cited a similar separation from Penn National

Gaming Inc of Gaming and Leisure Properties Inc GLPI’s strong stock performance and recent success in selling new shares to the public helped generate enthusiasm for MGM Growth, said an investor in the IPO, who asked not to be named because the matter is confidential. The company’s established business model and wellknown, sizable parent also buoyed interest, according to the source. Shares of MGM Growth Properties are due to list on the New York Stock Exchange on Wednesday under the ticker “MGP.” The company will use the proceeds to pay down debt. BofA Merrill Lynch, J.P. Morgan, Morgan Stanley, Evercore ISI, Barclays, Citi and Deutsche Bank are the joint bookrunners on MGM Growth Properties’ IPO. Reuters

8 Business Daily Thursday, April 21 2016

Greater China Business strategy

HSBC in charm offensive to woo domestic sceptics For some Asian-based investors with a long-term view, HSBC’s focus on China is precisely the reason to invest in the bank. Lisa Jucca and Sinead Cruise

attling against sceptical Western investors, HSBC, is on a mission to explain why its push into a slowing China is good for the global bank’s future growth. HSBC which reported flat annual pretax profit in 2015, is betting that the Pearl River Delta region in southern China is succeeding in rapidly upgrading its economy from low-value manufacturing to high-growth industries, creating big opportunities to provide banking services. But overall negative sentiment towards China has meant its shares, have dropped 26 percent over the past year. In the run up to its annual shareholder meeting in London on Friday, HSBC took analysts and investors on a three-day tour of the Pearl River Delta, an area with 60 million people just across the border from Hong Kong. It’s UK-based board went on a similar tour of the region last year, according to people familiar with the situation. HSBC, which is the largest bank in Hong Kong and currently has 65 bank outlets in Guangdong province, which includes the Pearl River Delta, is hoping to produce US$1 billion a year in pre-tax-profit from the area. But some investors are doubtful given

the economic slowdown in China and a spike in Chinese bad bank debt. HSBC’s growth plan envisages adding 4,000 employees to the Pearl River Delta area over the next three-to-five years, and it also plans to redeploy capital from other regions into Asia, though it is unclear how much of that will target southern China. It currently has around 1,500 bank employees and 13,000 IT and support staff in the Pearl River Delta. Citi analyst Andrew Coombs, who was on the trip, says HSBC is looking to grow its branch network in the region to 100 outlets, but HSBC will not comment on that.

“The China strategy is important. But for many of the investors, who don’t look at it that closely, it may be too esoteric” Hugh Young Managing director at Aberdeen Asset Management Asia

“The bank’s Pearl River Delta strategy is perfectly sensible,” said Ian Gordon, who heads bank research at Investec bank and was on the trip. “However it will likely be three-plus years before we see any meaningful incremental contribution. It does nothing to soften the impact of nearterm headwinds.” Last year, HSBC made 83.5 percent of its unadjusted pre-tax profits in Asia and 52 percent in Hong Kong alone. Its mainland China banking

profits, excluding associates, stood at US$1.05 billion.

From old to new

The Pearl River Delta, which has played a crucial role in China’s opening up to the world since the late 1970s, accounts for one quarter of the nation’s trade and has been known as the ‘workshop of the world’ for its production and export of massive amounts of garments, electronics and other products.

International anti-graft fight

Beijing suspends G20 anti-corruption task force Sources said they had continued their work behind the scenes in the expectation Germany, the next G20 president, will revive the body. Michelle Price

China suspended an international anti-corruption task force earlier this year after taking over the G20 presidency, according to six individuals in the group, who called it a setback to global efforts to crack down on shell companies used to conceal assets. The so-called “Business 20” Anti-Corruption Taskforce, comprising businesses and civil society groups, had been drawing up G20 policies for increasing transparency of offshore financial structures, among other work, but the body was scrapped in late January because Chinese companies declined to participate, according to the sources. China is one of several countries under pressure to share data on paper companies after the “Panama Papers”, documents from Panamanian law firm Mossack Fonseca, revealed how the rich and powerful use such structures to avoid taxes and in some cases conceal ill-gotten gains.

The B20, the G20’s business outreach arm, and its various task forces are by convention led by companies from the nation holding the presidency. The state-run China Council for the Promotion of International Trade (CCPIT), this year’s head of the B20, did not provide an explanation for suspending the anti-corruption task force and did not respond to several emails, faxes and phone calls requesting comment. But three people who had worked on the task force, who represented international, U.S. and European institutions, said the trade group could not persuade a Chinese company to take on the role of leading the task force, even though around 150,000 Chinese businesses are effectively state-run. The sources cited the CCPIT as saying a one-off anti-corruption convention to be held later this month would be a sufficient substitute, despite strong counter-lobbying from international businesses and NGOs. “It’s a disappointing indictment on the environment in China that no company was willing to step forward,” said one of the sources. “This is a critical agenda and we had built up momentum, and this decision has taken the wind out of the sails.” Chinese Foreign Ministry spokeswoman Hua Chunying did not answer directly when asked why China had

China’s Finance Minister Lou Jiwei in a speech during a G20 meeting.

suspended the task force, but said China attached a lot of importance to G20 anti-corruption cooperation and had held meetings on this. “At the same time, China will, at the G20 business summit, which is under the framework of the B20 you mention, hold an anti-corruption forum, to promote and create a sound and clean business environment,” she told a daily news briefing, without elaborating. The forum is scheduled to be held on April 27 in Beijing.

Reluctant to help

China has been trying to get increased international cooperation to hunt down suspected corrupt officials who have fled overseas since President Xi Jinping began a war against deeply-rooted graft more than three years ago. But Western countries have

‘Some of the participants on the task force however said they believed the Chinese government wanted to sharpen its focus this year’ been reluctant to help, not wanting to send people back to a country where rights groups say mistreatment of criminal suspects remains a problem, and also complaining China is unwilling to provide proof of their crimes.

Some of the participants on the task force however said they believed the Chinese government wanted to sharpen its focus this year, and remained committed to clamping down on corruption. “We are very happy with the functioning of the anti-corruption work-stream within the B20 process,” said Andrew Wilson, global communications director at the International Chamber of Commerce (ICC), which had several executives on the task force. According to the B20 2016 official web site, anti-corruption efforts would comprise the forum, which would “continue previous efforts toward enhancing anti-corruption international cooperation, assisting anti-corruption efforts at enterprises and increasing anti-corruption dialogue between G20 and B20.” A section on the page called “Taskforce Structure” was left blank. The three sources and three other people on the task force said they had continued their work behind the scenes in the expectation Germany, the next G20 president, will revive the body. A spokesman for Germany’s finance ministry who deals with G20 matters declined to comment. A spokesman for Bundesverband der Deutschen Industrie, Germany’s representative body within the B20, also did not comment. Reuters

Business Daily Thursday, April 21 2016 9

Greater China In Brief formal procedure to repossess assets when clients default, makes it hard for people to truly judge the health of the financial system.” Citi, which rates HSBC as its top pick among UK banks, says HSBC currently only makes $100 million in the Pearl River Delta. HSBC is the biggest foreign player in China, where collective market share by foreign banks remain below 2 percent.

Dividend

The region, particularly around the city of Shenzhen, is now turning into a hub for innovation and technology, as well as developing a services sector that includes law, design and accounting. Its US$1.1 trillion in annual gross domestic product is already bigger than Indonesia’s. During the road show, participants were introduced to local HSBC clients such as appliances maker Midea and telecoms giant Huawei, according to the trip’s agenda.

Other HSBC customers in the region include DJI, a Shenzhen-based manufacturer that supplies three quarters of the global market for commercial drones thanks to its Phantom model. “The Pearl River Delta is a natural area for (HSBC) to be operating in,” said Joost de Graaf at Amsterdam-based Kempen Capital Management, which owns shares in HSBC. “But the issue that the majority of investors will have is that (China) is not a transparent market, and the lack of bankruptcy law or

To retain investors and attract funds that focus on dividend-paying stocks, HSBC distributed about US$10 billion of its 2015 profit in dividends, offering a chunky 8 percent yield, one of the highest in the global banking world. Gulliver told Hong Kong shareholders at the bank’s informal annual meeting on Monday that the bank is also studying the possibility of a buy back of its shares, which are now trading below book value. “My major concern, as I am sure it is to other investors, would be whether they are able to maintain their dividend policy and balance sheet ratios during the Asian Pivot,” said Tony Jordan at EFG Asset Management (UK), which owns HSBC shares. A securities joint venture due to be launched in China, which HSBC will majority own, will give it the chance to offer services ranging from investment banking and domestic securities trading, where it faces stiff competition from local lenders. For some Asian-based investors with a long-term view, HSBC’s focus on China is precisely the reason to invest in the bank. “We re-entered HSBC with our Asian funds four years ago on the basis of its return to its Asian roots,” said Hugh Young, managing director at Aberdeen Asset Management Asia. “The China strategy is important. But for many of the investors, who don’t look at it that closely, it may be too esoteric.” Reuters

Stock exchange

HKEx to launch more yuan currency futures The Hong Kong Exchanges and Clearing Limited plans to introduce additional Renminbi currency futures contracts by June to provide more instruments to hedge foreign exchange risk. These new contracts will include euro-yuan, yen-yuan, Australian dollar-yuan which will be settled in the yuan, and yuan-US dollar futures that will be settled in the U.S. dollar, the bourse said in a statement. “Cash-settled yuan currency futures are part of our plan to expand our product portfolio across asset classes,” said Romnesh Lamba, the stock exchange’s co-head of market development. Monetary measures

Beijing may be more cautious with easing China’s future monetary policy will avoid encouraging companies to take on more debt and will consider the impact of money supply on prices, an influential central bank economist was quoted saying by the Financial News yesterday. “Aside from continuing to support steady economic growth, future monetary policy will focus on guarding against macroeconomic risks, especially avoiding rapid growth in companies’ leverage, and will also consider the impact of increased loans on the cost of living and real estate prices,” Ma Jun told the official newspaper of the People’s Bank of China. Financial

EximBank completes sale of dual currency bonds

Primary sector

Australia to defer decision on land deal until after election Treasurer said the offer, led by China’s Hunan Dakang Pasture Farming Co Ltd and Shanghai CRED Real Estate Stock Co Ltd, would be subject to an extensive independent review. Colin Packham

The Australian government is deferring until after an upcoming federal election a politically sensitive decision on whether to allow the sale of one of the country’s biggest cattle empires, S. Kidman & Co, to a Chinese-led consortium. Australian Treasurer Scott Morrison rejected a previous foreign-led offer for the ranching company - which owns agricultural lands equivalent in size to South Korea - just six months ago on the grounds of national interest. Ownership of farmland is a sensitive issue in Australia amid concerns that foreign buyers are snapping up properties to cash in on a boom in food demand from Asia. Morrison said the current A$371 million (US$288 million) offer, led by China’s Hunan Dakang Pasture Farming Co Ltd and Shanghai CRED Real Estate Stock Co Ltd, would be subject to an extensive independent review taking up to 90 days. That means a decision by the Foreign Investment Review Board (FIRB) and the treasurer would likely come after a federal election expected to be held on July 2. “It is a very big transaction and it is important we do the right thing by the national interest and that’s what I intend to do,” Morrison told reporters in Canberra. “I want to be absolutely confident when I finally consider this matter

that Australians have every opportunity to be participating in this process.” Prime Minister Malcolm Turnbull, meanwhile, played up the benefits of foreign investment that is not contrary to the national interest. “Our goal is to ensure always that Australia’s national interest is advanced but remember we do benefit from foreign investment,” Turnbull told radio station 5AA.

“It’s very important that foreign investors, upon whom we depend for many of the jobs in Australia, see Australia as a safe place to invest in and a place where their applications will be considered carefully and methodically.” The previous offer for S. Kidman by two Chinese companies, Genius Link Asset and Shanghai Pengxin, had raised red flags because Kidman’s Anna Creek cattle station in South Australia state is close to an Australian military rocket test site. Kidman has agreed under the new deal to remove Anna Creek from the sale. “The (Chinese) consortium and Kidman have complied with all requests that have been made by the FIRB and we believe the sale will secure the longterm future of the Kidman enterprise,” Kidman Chairman John Crosby said in a statement on Tuesday. Reuters

The Export-Import Bank of China has completed its issuance of US$3 billion dual currency senior notes, its second direct issuance of offshore debt since its dollar senior notes issued in 2014. The orderbook amounted to US$8.3 billion and investors include central banks, sovereign wealth funds, commercial banks and insurance companies from South Asia, Middle East, Europe and South America. The US$1.25 billion five-year U.S. dollar tranche carried a coupon of 2 percent and the US$1 billion ten-year tranche at 2.875 percent. For the euro part, the 650 million euro (US$738.92 million) three-year tranche was priced at 0.375 percent. Stock markets

Shenzhen-Hong Kong link approval before July Chinese officials may announce the approval of the anticipated stock-trading connection between Shenzhen and Hong Kong exchanges in the next two months, according to people familiar with the matter. Official approval and a starting date for the connect, which would be the second link between the mainland and the city, may be unveiled before July, said the people, possibly to coincide with one of several events taking place in the coming months. One such event is the May visit to Hong Kong of Zhang Dejiang, a member of the 7-person politburo standing committee, according to the people.

10 Business Daily Thursday, April 21 2016

Greater China Expansion plans

CCBI plans Singapore asset management firm CCBI is the investment services flagship of the country’s second‑largest bank, China Construction Bank. Michelle Chen and Hongmei Zhao

hina Construction Bank International (CCBI) plans to step up its internationalisation by setting up an asset management firm in Singapore this year and will launch more yuan-denominated products abroad to support China’s push for wider use of its currency, its chief executive said. “The slower pace of yuan internationalisation is only temporary and the long-term trend is certainly for yuan internationalisation to continue,” Hu Zhanghong, also chairman of CCBI, told Reuters. “We’ll further expand our yuan

business amid this big trend and setting up a Singapore asset management firm this year probably will help with this though it also has other functions,” Hu said, adding the date will depend on regulatory approval. The asset management firm in Singapore will be its first outside of Hong Kong. CCBI is the investment services flagship of the country’s second-largest bank China Construction Bank and is a pioneer in taking offshore yuan products beyond Asia. It launched the first Renminbi Qualified Foreign Institutional Investor (RQFII) money market ETF denominated in yuan in the euro zone on Euronext Paris last June,

soon after its first RQFII yuan ETF was listed on the London Stock Exchange in March. The Chinese lender also sold 1 billion yuan (US$154.5 million) of offshore yuan bonds in London late last year to broaden the investor base of the so-called dim sum bonds. Hu said there was still room to improve yuan product trading globally by listing the same product in different time zones to make it available to investors 24 hours a day. “We’ll consider launching relevant products in America at an appropriate time,” Hu said. After rapid growth in recent years, yuan internationalisation lost momentum last year as China’s cooling economy and weak currency dampened foreign investor appetite for yuan-based assets. Yuan deposits in Hong Kong, the

world’s biggest offshore yuan hub, fell in February to their lowest since October 2013; while dim sum bond issuance also saw its first yearly decline in 2015. CCBI completed its purchase of a 75 percent stake in Britain’s Metdist Trading Limited earlier this month, becoming the second Chinese company to gain access to the London Metal Exchange (LME) trading floor. “Chinese financial institutions’ involvement in the global metals trading market as brokerages was not high before, which was a sharp contrast to Chinese companies that accounted for 30-40 percent of its daily trading volume,” Hu said. The acquisition will help enhance Chinese companies’ pricing ability and trading efficiency on Metdist, a trading platform among the nine toptier LME members with access to the exchange’s open-outcry trading floor. In addition to its asset management and offshore yuan business expansion plans, Hu said the bank will explore business opportunities arising from big differences in liquidity and valuations of mainland A shares and their counterparts offshore. Reuters

Logistics

Authorities spur ships to use Arctic shipping route COSCO ships travelled that route in 2013 and 2015. China is looking to exploit the Northwest Passage, the fabled short-cut from the Pacific to the Atlantic, state-run media said yesterday, with the world’s biggest trader in goods publishing a shipping guide to the route. The seaway north of Canada, which could offer a quicker journey from China to the US East Coast than via the Panama Canal or Cape Horn, was sought by European explorers for centuries, including by the doomed Franklin expedition of 1845. Even now it remains icebound for much of the year, but global warming and the retreat of Arctic sea ice are making it more accessible, and Beijing sees it as an opportunity to reshape global trade flows.

China’s Maritime Safety Administration earlier this month published a 356-page, Chinese language guide including nautical charts and descriptions of ice conditions for the Northwest Passage, said the China Daily

newspaper, which is published by the government. “There will be ships with Chinese flags sailing through this route in the future,” it quoted administration spokesman Liu Pengfei as saying.

“Once this route is commonly used, it will directly change global maritime transportation and have a profound influence on international trade, the world economy, capital flows and resources exploitation,” he added. Last year, Chinese shipping company COSCO said

it plans to launch regular services through the Arctic Ocean to Europe by way of the “Northeast Passage”, another Arctic shipping route north of Russia. COSCO ships travelled that route in 2013 and 2015. State-owned COSCO has since merged with another company, China Shipping Group. “Many countries have noticed the financial and strategic value of Arctic Ocean passages. China has also paid much attention,” Wu Yuxiao, one of the co-authors of the new guide, was quoted by China Daily as saying. China does not border the Arctic and has no territorial claim to any of it, but joined the Arctic Council as an observer two years ago. Observers say Beijing recognises the area’s potential for scientific research and its strategic value. AFP

Business Daily Thursday, April 21 2016 11

Asia Empowering watchdog

Australia gives market regulator more resources Australian Securities and Investment Commission is seen as weaker compared to Western regulators. Swati Pandey and Wayne Cole

ustralia announced reforms for its markets watchdog on Wednesday, forcing banks to pay for increased resources, but opposition and some ruling party lawmakers saw the measures as an attempt to avoid an inquiry into the scandal-hit banks. The Australian Securities and Investment Commission (ASIC) will get additional funding of A$127 million (US$99 million) to modernise technology, equip it with data analytics and surveillance capabilities and make it a proactive regulator. The moves, aimed at heading off malfeasance at financial institutions before it occurs, come amid growing calls to hold an inquiry into the country’s biggest banks following a series of revelations about misconduct. Any inquiry by the Royal Commission would probably drag on for months, stirring more controversy for the banks and the government in the run up to an election expected in July. “The debate on whether we need a Royal Commission will inevitably continue,” said Ian Ramsay, director of Melbourne Law School’s Centre For Corporate Law And Securities Regulation. ASIC is perceived to be “timid” and “hesitant”, according to a 2014 Senate Inquiry. It is also seen as weaker compared to Western regulators in terms of the small fines it levies and other penalties it brings to bear. It is now trying to rebuild confidence, in part by taking two of Australia’s biggest banks - ANZ Banking Group and Westpac Banking Corp - to court after failing to reach a settlement over allegations of benchmark interest rate rigging. ASIC secured A$149 million in compensation and remediation in the six months to December 2015, according to a report published last

Key Points Banks to pay for increased ASIC resources - Treasurer Reforms include better technological, surveillance powers ASIC, banking association welcome reforms

“We want an ASIC that prosecutes,” Treasurer Scott Morrison said.

month. That compares with nearly A$25 million in the year-ago period. “We want an ASIC that prosecutes,” Treasurer Scott Morrison told reporters at a press conference. The four major banks - ANZ, Westpac, Commonwealth Bank and NAB were all in the red, down between 0.3-1.3 percent on Wednesday in a firm broader market.

Funding boost

The increased funding will help ASIC enhance data analytics capabilities, surveillance and enforcement in financial advice, lending, life insurance and breach reporting as well as modernise its data management systems.

The funding increase effectively reverses cuts that ASIC suffered in the 2014 federal budget, but opposition leader Bill Shorten insisted a public inquiry was still needed. “The truth of the matter is asking the regulator to investigate themselves isn’t going to fix anything,” said Opposition leader Bill Shorten. “What we need is a proper examination of the widespread health of the banking sector.” ASIC welcomed the “significant reforms” that would also give it an additional commissioner with expertise in prosecution. “I want them (companies) to believe that there is a tough cop on the

beat...and we are willing to take you on no matter how big you are,” Medcraft told reporters in Sydney. The banking industry also supported the move to have an expanded regulator, and to pay for it. “A well-resourced regulator keeps the industry accountable and helps to underpin a healthy, stable economy,” ABA Chief Executive Steven Münchenberg said. “We support the introduction of a new industry funding model for ASIC. It’s important that contributions are transparent and that the amount of fees levied matches the level of regulation and resources required for ASIC.” Reuters

Analysts say the quakes could cause a sharp drop in the country’s factory output of cars and other goods in April - an unwelcome development for a flagging economy - although the impact may be short-lived if the supply chain is repaired quickly. The Ministry of Finance said exports fell 6.8 percent in the year to March, versus a 6.9 percent drop expected by economists, and followed a 4.0 percent fall in February. Exports to China - Japan’s largest trading partner – fell 7.1 percent

in March, while the U.S.-bound shipments also dropped 5.1 percent year-on-year. Exports to Asia, which accounts for more than half of Japan’s shipments, fell 9.7 percent. But exports to the European Union grew 12.1 pct in March, the biggest year-on-year gain since Feb 2011, driven by exports of ships to Italy and Greece, which grew fivefold from a year earlier, although that development is seen by the Ministry of Finance as a temporary blip. In the Reuters Tankan taken April 1-15, exporters of cars and electronics complained about the rapid yen rise, which could dim Japan’s recovery prospects and delay its recovery from two decades of deflation and stagnation. The dollar so far this year is down about 10 percent on expectations that the United States would go slow in raising interest rates, prompting verbal warnings from Japanese policymakers against investors pushing up the yen too fast. Reuters

Trade

Japan’s exports fall as yen rises Weak indicators should add pressure on the government and the Bank of Japan to do more to stimulate growth. Tetsushi Kajimoto

Japan’s exports fell for a sixth straight month in March as slowing growth in China, soft demand for electronic components for products such as the iPhone and a strengthening yen threatened to hold back the country’s economic recovery. Japanese electronics makers are unlikely to get much solace when Apple Inc reports its March quarter earnings next week. Analysts expect Apple to post its

biggest-ever quarterly decline in iPhone shipments and present a weak sales forecast for the current quarter. “A delayed recovery in the U.S. economy, slowdown in China, and sluggish demand for electronics parts on a cut in iPhone production were factors behind weak exports,” said Hidenobu Tokuda, senior economist at Mizuho Research Institute. The trade news came hard on the heels of a Reuters poll suggesting that although confidence at Japanese manufacturers rose in April it was expected to worsen again in the coming three months, reflecting worries over the strong yen and tepid overseas demand. Weak indicators should add pressure on the government and the Bank of Japan (BOJ) to do more to stimulate growth, while a series of earthquakes that struck a southern manufacturing hub in the past week could hamper supply chain and economic activity ahead.

Key Points March exports -6.8 pct yr/yr roughly in line with forecast March imports -14.9 pct yr/yr; trade balance 755 bln yen Business sentiment seen worsening ahead -Reuters Tankan Exports may put a drag on Q1 GDP –Analyst

12 Business Daily Thursday, April 21 2016

Asia Flexible solutions

South Korean finance minister says ‘policy mix’ needed against risks The finance minister reiterated earlier guidance that he did not see any immediate reason for a supplementary budget.

outh Korea’s finance minister said a combination of policy measures, including a supplementary budget, would be needed if the economy faced massive downside risks. “If there are serious downside risks, I think we should call for other measures in addition to an additional

budget,” Finance Minister Yoo Il-ho told reporters in embargoed comments yesterday. “These are extreme examples but we could consider these if China’s GDP growth falls below 5 percent or crude prices fall below US$20.” Yoo was holding a press conference at the government’s complex in Sejong City to mark his 100th day in office. “If massive downside risks occur

suddenly then I think we should launch a policy mix including a supplementary budget.” The finance minister reiterated earlier guidance that he did not see any immediate reason for a supplementary budget. When asked if there was a mismatch between government and central bank policies, he said the Bank of Korea (BOK) determined interest rates independently.

South Korean Finance Minister Yoo Il-ho.

“If massive downside risks occur suddenly then I think we should launch a policy mix including a supplementary budget” Yoo Il-ho, South Korean Finance Minister

Yoo added, however, that he and BOK Governor Lee Ju-yeol had a common understanding about the state of the economy and that the government and central bank’s policies aligned. The BOK held interest rates at 1.50 percent for a 10th straight month yesterday but lowered growth forecasts for this year, keeping expectations for a rate cut alive. Meanwhile, Yoo expressed concerns the on-going drag in capital investment, sparked by global uncertainties and poor exports, could create a drag on South Korean businesses competing in the global market. According to government data, capital investment fell for a fourth straight month by 7.5 percent in February in annual terms, which was the sharpest decline since October 2010. Yoo stressed on-going structural reforms should take place in a timely manner to overcome this hardship. To aid the economy in its slow recovery, the government is considering having public companies spend more money as “fiscal reinforcements” in the second half of the year, Yoo stated. Regarding next year’s budget, the minister said it would focus on new industries for economic growth, supporting structural reform and creating new jobs. Yoo added that an expansionary budget is likely to produce another fiscal deficit next year, although whether it would be more expansionary than this year’s 386.4 trillion won (US$341.83 billion) budget remains to be decided. Reuters

M&A

Tycoons jostle for stakes as Vietnam’s buy-Thai market booms Last year’s US$4 billion worth of mergers and acquisitions was the highest ever. $3.1 billion in Vietnam Dairy Products JSC, or Vinamilk. His Fraser and Neave already has an 11 percent share in Vietnam’s top listed firm and is tipped to raise that if the government proceeds with the sale.

My Pham

hrough supermarkets, malls, dairy and beer, Thai tycoons are pursuing deals in Vietnam that could break mergers and acquisitions records in the upwardly mobile market of 90 million people, at the expense of their Asian rivals. Vietnam’s swelling middle-class sees Thai products as better and more affordable than Japanese and Korean imports, and vastly preferable to the cheap but unpopular goods that flood across the border from giant neighbour China. “I prefer Thai goods. I don’t have to worry if they’re contaminated,” Thai import shop customer Hong Anh said in Hanoi, reflecting the widely held view that Chinese goods are not only low-quality but hazardous as well. Billionaire beer magnate Charoen Sirivadhanabhakdi is leading the Thai charge into Vietnam through his Thai Charoen Corp (TCC), which has finalised a 655 million euro (US$876 million) purchase of German retailer Metro’s Vietnam chain. TCC subsidiary Berli Jucker is among the bidders for Casino Group’s Big C supermarkets in Vietnam, worth about US$1 billion.

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Big drinkers

“We fully expect Thai companies to continue to view Vietnam in a favourable manner and to continue to invest and grow through M&As,” said John T Ditty, managing partner at tax advisory firm KPMG. “The Thai economy has been somewhat flat,” he added, with Moody’s expecting Thailand’s real GDP growth to fall to about 2.5 percent this year from 2.8 percent in 2015 in the wake of paralysing anti-government protests and a military coup. In Vietnam, by contrast, things are looking up. Average incomes have quadrupled during 15 years of economic growth at over 5 percent. Retail sales will hit US$179 billion by 2020, from less than US$110 billion last

year, reckons VietinBank Securities. Action like that is driving M&A deals to record levels. Last year’s US$4 billion worth of mergers and acquisitions was the highest ever, boosted by Thai tycoon Santi Bhirombhakdi-linked Singha Asia’s US$1.1 billion worth of deals. Many analysts expect Thai firms to help smash that record in 2016. Dealmakers say Thais are among those awaiting new offers and drawn-out state divestments, betting on Vietnam’s demographics and hedging against political and economic uncertainty back home. Charoen is also expected to show interest in a mooted sale of an up to 45 percent government stake valued at

Charoen could be in the mix again if his Thaibev, maker of Beer Chang, succeeds in tapping into what is Asia’s third-biggest beer market after China and Japan. Thaibev has shown interest in US$2 billion brewery Sabeco, of which the government will sell 53 percent. . And rival Singha beer could enter the Vietnam market via the distribution network of consumer goods firm Masan Group, after a US$1.1 billion investment by Singha Asia Holdings in December. Retail giant Central, run

Key Points Beer billionaire Charoen Sirivadhanabhakdi leading charge Thai products enjoy good reputation vs cheaper Chinese fare Last year’s US$4 bln M&A record set to be broken analysts Thais hedging against uncertainty at home

by Thailand’s third-richest family, the Chirathivats, is expanding its Robinson Department Store and has declared interest in Big C, adding to its US$200 million purchase of a 49 percent stake in electronics retailer Nguyen Kim. Thai firms won’t have it all their own way, however, as the likes of South Korea’s Lotte, Japan’s Aeon, China’s Parkson and local firms Vingroup and KIDO expand. But that’s unlikely to deter Thais, said Chokedee Kaewsang, the deputy chief of Thailand’s Board of Investment, who expects Thai firms to double or triple their Vietnam presence by 2019. “They like Thai products, and the Thai brand,” he said of Vietnamese. What’s more, the communist country’s smalltime capitalists are willing partners. Hanoi businesswoman Bui Thuy Nga deals only in Thai goods and saw her small store quickly transform into a wholesaler with a dozen-page client list. It feeds a boom in Thai-only stores, which Nga estimates have tripled since 2012, selling anything from shampoo and stationary to plastics and toothpaste. “Our business struggled at first and we didn’t expect the market could grow that much,” she said. Reuters

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Business Daily Thursday, April 21 2016 13

Asia In Brief Prices evolution

Malaysia’s annual inflation rate falls Malaysia’s consumer price index was 2.6 percent higher in March than a year earlier, government data showed yesterday. The index’s increase was below the median forecast of 3.6 percent in a Reuters poll, and sharply down from February’s 4.2 percent, a seven-year high for inflation. March’s inflation pace reflected rising costs of alcohol and tobacco products as well as consumer goods, according to data from the Statistics Department. The inflation rate steadily rose from November to February. It is expected to be moderate after the first quarter, reflecting a higher base from a year earlier. Japanese Prime Minister Shinzo Abe.

Mining sector

ELECTIONS

Prime Minister Abe not expected to call snap election Speculation has simmered that he could call an election on the same day as an upper house poll is due in July.

apan’s top government spokesman said yesterday he did not think Prime Minister Shinzo Abe would call a snap election although it was up to him to decide. Speculation has simmered that Abe might dissolve parliament’s lower house and call an election on the same day as an upper house poll is due in July. But the Sankei newspaper reported yesterday that Abe was unlikely to do so after earthquakes in the south last week killed nearly 50 people and caused considerable damage. “The premier has been saying he was not thinking at all of dissolving (the lower house), so I don’t think he will,” Suga told a news conference when asked about the report. “But it is the prime minister’s jurisdiction and it is up to him to decide.”

The Sankei said a double election would put a burden on the quakehit area as it seeks to reconstruct its economy and help survivors return to normal life. More than 100,000 people on Kyushu island remain in evacuation centres after the series of quakes measuring up to 7.3 hit late last week. Suga repeated that the government would increase a sales tax as planned next April, barring a major financial crisis or natural disaster on the scale of an earthquakes and tsunamis in 2011, which killed about 20,000 people. Asked if the quakes in the southern island qualified as such as disaster, Suga said that was not the case at present.

Key Points Situation after Kyushu quakes not similar to March 2011 No change to government plan for sales tax increase now Government has not considered raising tax gradually

“There is no change at all at the moment,” he said, referring to the plan to increase the levy to 10 percent from 8 percent. Suga also said the government had never considered raising the tax in stages starting with one percentage point, after the ruling Liberal Democratic Party’s policy chief said in an interview with the Nikkei business daily that such a move was possible if the economy was weak. “It is the policy chief’s thinking. I don’t think there is any change in the environment basically,” regarding the tax increase, he said. Abe is expected to announce a final decision on the tax increase at around the time of a May 26-27 Group of Seven summit that he will host. The premier had been expected to delay the tax increase, even before the latest earthquakes. Some private economists said a postponement was even more likely. The ruling coalition was also expected to postpone ratification of the Trans-Pacific Partnership (TPP) trade agreement until the next session of parliament, the Sankei and other media have said. Reuters

Central bank chief

Rajan won’t be euphoric if India is fastest-growing large economy Without citing specific instances, Governor Rajan said previous governments had become too complacent by periods of high growth. India should find ways to support higher economic growth on a sustainable basis and not fritter away gains as it did in the past, central bank Governor Raghuram Rajan said yesterday. Prime Minister Narendra Modi’s two-year old government is seeking to bolster an economy which grew 7.3 percent, among the fastest growth rates in large economies, but below the 8 percent growth needed to generate jobs for millions of Indians joining the workforce every year. Rajan said the government had created a platform “for strong sustainable growth,” but said it would need to ensure it stays on that path. The Reserve Bank of India governor has cut interest rates by 150 basis points since the start of 2015

to a more than five-year low, but is under pressure to ease further. “As a central banker who has to be pragmatic, I cannot get euphoric if India is the fastest-growing large economy,” Rajan said in a speech to banking and finance students in the western city of Pune. “Our current growth certainly reflects the hard work of the government and the people of the country, but we have to repeat this performance for the next 20 years.” Without citing specific instances, Rajan said previous governments had become too complacent by periods of high growth, saying India still remained a relatively poor country. “We cannot get carried away by our current superiority in growth, for as soon as we believe in our own

superiority and start distributing future wealth as if we already have it, we stop doing all that is required to continue growing,” he added. “This movie has played too many times in India’s past for us to not know how it ends.” Rajan also defended a comment widely cited by local media last week in which he compared India’s fast-growing economy to being a oneeyed king in the land of the blind which was seen by some government officials as denigrating India’s success. Finance Minister Arun Jaitley was quoted by CNBC-TV 18 as saying “any other country in the world would be celebrating” with the rate of growth being posted by India. Rajan noted his intent was to signal that India’s “outperformance was accentuated because world growth was weak,” while also chastising those who stir controversy by misinterpreting his comments. “Speakers have to be more careful with words and not be gratuitously offensive. At the same time, listeners should not look for insults everywhere, and should place words in context so as to understand intent,” he said. Reuters

BHP Billiton weighs getting out of Indonesian coal BHP Billiton is considering quitting its coal assets in Indonesia, where it recently started shipping steel-making coal from a small mine, amid uncertainty over Indonesian regulations and a weak outlook for coal. BHP owns a 75 percent stake in the IndoMet Coal project, having sold the rest to Indonesia’s Adaro Energy in 2010 for US$335 million. Coal asset prices have collapsed since then, and analysts said BHP would be lucky to fetch US$200 million now for the stake in a largely undeveloped resource. Bank of Japan

Kuroda signals readiness to top up ETF purchases Bank of Japan (BOJ) Governor Haruhiko Kuroda said yesterday the central bank’s presence in the exchange-traded fund (ETF) market is “not too big,” signalling that topping up purchases of ETFs could be a real, near-term option. The BOJ buys ETFs, as well as government bonds and trust funds investing in property, as part of its massive stimulus programme. It held about 7.8 trillion yen (US$71.6 billion) of ETFs as of September 2015, roughly half the size of Japan’s market. “I don’t think the BOJ’s presence in the (ETF) market is too big,” Kuroda said. LNG

Japan’s imports fall 6.2 pct from record high Japan’s liquefied natural gas (LNG) imports fell 6.2 percent in the fiscal year ended March 31 from a year earlier to 83.571 million tonnes, preliminary trade data showed yesterday, marking the first drop in six years as some nuclear reactors restarted. The decline was also the first since the Fukushima nuclear disaster, a massive quake in 2011, drove purchases to successive records. Thermal coal imports rose 1.7 percent to a record high of 112.139 million tonnes, while crude oil imports climbed 2.9 percent to 3.42 million barrels per day, customs-cleared data by the Ministry of Finance showed.

14 Business Daily Thursday, April 21 2016

International In Brief

Former Yukos head Mikhail Khodorkovsky.

Labour bill

French prime minister hits back at bosses chief French Prime Minister Manuel Valls criticised yesterday the head of France’s main employers’ group (Medef) who has threatened to derail talks about unemployment insurance unless the government backtracks on alterations to a proposed labour reform bill. Medef had initially backed the project, which was designed to simplify a complex employment code and encourage companies to hire permanent staff. But the government removed some pro-business measures after unions and student groups protested. Medef’s chief Pierre Gattaz gave the government until mid-May to get back to the initial version of the bill. Producers’ talks

Venezuelan minister warns oil prices may collapse Venezuelan Oil Minister Eulogio Del Pino warned yesterday that global oil stocks were nearly full and the oil price could collapse if producers did not resume talks about freezing output levels. He said oil inventories were 90 percent full, while producers continue to produce about 1.5-2.0 million barrels per day of oil more than the market demands. Del Pino was speaking at an oil conference in Moscow, just days after leading oil producers failed to reach an agreement on freezing their output levels in order to help support weak oil prices. The minister said a price of US$60-70 per barrel was required to allow producers to resume investing. Healing budget

Saudi Arabia close to securing loan Saudi Arabia is close to securing a US$10 billion loan from banks, sources told Reuters yesterday, as the world’s top oil exporter seeks to fill a record budget deficit caused by low crude prices. The kingdom had initially been seeking to raise between US$6 billion and US$8 billion through a loan lasting for five years for its first foreign borrowing in more than a decade. But the Ministry of Finance raised the amount after drawing significant demand. The sources said the loan should be signed before the end of April. Brexit

SME’s UK firms face 35.6 billion pound hit Uncertainty surrounding Britain’s vote on whether to stay in or leave the European Union has left small and medium-sized British companies facing a 35.6 billion pound currency risk, a report said yesterday. It is the amount of international payments potentially exposed to foreign exchange market swings because British SMEs have not committed to long-term currency contracts ahead of the June 23 referendum. The study of 730 British SMEs by international payments firm World First and pollsters YouGov showed that despite a 75 percent rise in sterling volatility during the first quarter SMEs only extended the length of their FX protection by 35 percent.

Jurisdiction rebuffed

Dutch court overturns US$50 billion Yukos award against Russia The district court in The Hague said Russia had never ratified the treaty under which the Permanent Court of Arbitration had claimed jurisdiction in the affair.

n a victory for Moscow, a Dutch court yesterday overturned an order that Russia pay US$50 billion to shareholders in defunct oil company Yukos, saying that the Hague-based Permanent Court of Arbitration had no jurisdiction. Former Yukos shareholders said they would appeal the surprise decision, which could impact earlier rulings in Belgium and France that four former shareholders were entitled to seize Russian state assets to compensate them for the loss of the oil giant. Once controlled by Mikhail Khodorkovsky, then one of Russia’s richest men, Yukos was bankrupted after Khodorkovsky fell out with Russian leader Vladimir Putin and the government began demanding payment of huge sums in back taxes. State oil company Rosneft got most of its assets. In July 2014, the Permanent Court

of Arbitration (PCA) in The Hague ruled that the four plaintiffs - not including Khodorkovsky - were entitled to compensation for the loss of the company, entitling them to seize Russian state assets. But in yesterday’s ruling, the district

“We will appeal this surprise decision by The Hague Court and have full faith that the rule of law and justice will ultimately prevail” Tim Osborne, Director of GML, the company representing the four plaintiffs

court in The Hague said Russia had never ratified the treaty under which the PCA had claimed jurisdiction in the affair. “The court quashed the judgments by the international arbitrators on the ground that they had no power to intervene in these matters as arbitrators,” the ruling said. A key moment in Putin’s consolidation of power in Russia, the 2003 Yukos affair led to Khodorkovsky being imprisoned on fraud and tax evasion charges just as he had appeared set to emerge as a political rival to Putin. He was released suddenly in December 2013 and now lives in exile. “We will appeal this surprise decision by The Hague Court and have full faith that the rule of law and justice will ultimately prevail,” said Tim Osborne, director of GML, the company representing the four shareholders. Reuters

Panama Papers

IMF, World Bank, UN, OECD form new group to stop tax erosion Finance ministers and central bank governors from the Group of 20 major economies last week also pledged to penalize countries that fail to cooperate. David Lawder

The International Monetary Fund and the World Bank said on Tuesday they are joining forces with other international organizations to cooperate on tax issues and develop new tools and standards to halt tax base erosion and evasion. The new grouping, which will also include the United Nations and the

Organization for Economic Cooperation and Development (OECD), will focus particularly on building effective tax systems in developing economies, the partners said. The effort was announced just weeks after the release of the socalled “Panama Papers” stirred outrage at the widespread use of tax haven countries and shell companies by wealthy global elites and corporations to hide assets and avoid paying taxes. The Panama Papers could create a rare moment to break down secrecy, Robert Stack, a U.S. Treasury Department deputy assistant secretary, said in New York on Tuesday. “I don’t think one could underestimate the at least short-term impact that the release of the Panama Papers has on the issue of transparency,” Stack said at the NYU/KPMG Tax Lecture, separate from the IMF and World Bank announcement. U.S. authorities are in a “funny position” if they criticize Panama given the United States’ own lack of transparency, he added. Global finance leaders at the IMF and World Bank spring meetings in Washington last week pledged to crack down on tax evasion and base erosion, as well as to fight the

exploitation of tax law mismatches and boost the sharing of tax information. Finance ministers and central bank governors from the Group of 20 major economies last week also pledged to penalize countries that fail to cooperate in these efforts by implementing “defensive measures.” The decision by the four international organizations to create a cooperation platform predates the release of the Panama Papers, but an IMF official said the group welcomed the heightened attention on tax issues that the controversy has stoked. “This effort comes at a time of great momentum around international tax issues,” the group said in a statement. Among the new group’s goals is to develop appropriate policies for the taxation of multinational enterprises. It aims to provide “toolkits” to help developing countries implement measures developed under a previous G20/OECD tax effort, known as the “Base Erosion and Profit Shifting” project. The group also aims to help emerging market countries to develop policies for the “informal” sectors of their economies that operate in cash transactions outside the tax system. Reuters

Business Daily Thursday, April 21 2016 15

Opinion Business Wires

Philstar The Philippines posted its biggest balance of payments (BOP) surplus in over a year in March amid strong inflows from foreign direct investment and cash remittances from Filipinos abroad. Data released by the Bangko Sentral ng Pilipinas (BSP) yesterday showed the country booked a BOP surplus of US$854 million in March, a complete reversal of the US$244 million deficit registered in the same month last year. Last month’s BOP surplus was the highest since the US$985 million surplus recorded in February last year.

Germany’s costly fiscal fetish The Straits Times More people were laid off last year than the year before, a Manpower Ministry report on redundancy released yesterday (April 20) showed. A total of 15,580 workers were laid off last year, 2,650 more than in 2014 and the fifth year in a row that redundancies rose. The overall unemployment rate, however, remained low at 1.9 per cent. Layoffs rose in all broad sectors last year, in particular manufacturing. The fall in global oil prices and a slowdown in demand in the marine and construction sectors caused the industry to shed 5,210 workers, 1,240 more than in 2014.

Bangkok Post Thailand will remain a notable solar outperformer in Southeast Asia over the next 10 years, BMI Research has projected. The country’s solar capacity will total 3.7 gigawatt by 2025, largely because of the government’s support programme, as Chinese solar companies look for opportunities in Thailand, said BMI. However, the lack of additional procurement plans from the government is expected to curb future growth in the long term. BMI said Thailand emerged as a key solar market in the region with total solar power generating capacity expected to reach 2.6GW by the end of this year. That would be double its 1.3GW total from 2014, as Thailand’s solar capacity would dwarf all other countries in the region.

Taipei Times The legislature on Tuesday approved the referral of draft legislation for promoting transitional justice to a legislative review committee, overcoming opposition from the Chinese Nationalist Party (KMT) caucus. The draft of the transitional justice promotion act had been referred on April 1 to the Judiciary and Organic Laws and Statutes Committee for deliberation, but the KMT caucus called for a “reconsideration” of the referral during a general assembly meeting on Tuesday last week with the aim of blocking the referral of the bill.

he European Central Bank is under heavy attack in Germany, a country that has long prided itself on defending the principle of central-bank independence. Indeed, it was Germany that pushed for this principle’s inclusion among the criteria set out in the Maastricht Treaty, which established the conditions for membership in Europe’s monetary union (EMU). For many EMU members, making their central banks independent in order to join the euro meant a change in political regime. For example, in France’s 1992 referendum to ratify the Maastricht Treaty, the prospective autonomy of the French central bank was one of the strongest points in the campaign against adopting the euro. By contrast, in today’s Germany, putting pressure on the central bank has become standard practice. For a couple of months now, even Finance Minister Wolfgang Schäuble has been commenting regularly on the ECB’s monetary policy. Schäuble’s interventions touch the core of central-bank independence. While he is not seeking to redefine the objective of monetary policy (the “price norm,” to use the old Bundesbank lingo), he is making suggestions on which tools the ECB should wield, and how it should wield them, in order to achieve that goal. It happened before. In 1998, Germany’s then-finance minister, Oskar Lafontaine, gave good advice to the ECB’s first president, Wim Duisenberg, on how to conduct monetary policy. (Lafontaine’s objective was ultimately to create a target zone for exchange rates.) Duisenberg, a laconic Dutchman, responded that it was not uncommon for politicians to offer their opinion on monetary policy. (In Germany, it was very uncommon.) “However,” he added, “it would be very abnormal for the suggestions to be listened to.” Respecting monetary-policy independence has long been a core plank of Germany’s Stabilitätskultur (stability culture). The foundation stone for the Bundesbank’s sternly independent reputation was its repudiation of Chancellor Konrad Adenauer’s calls to refrain from raising interest rates in 1956. France, at that time, was different. Charles De Gaulle was about to create the very presidential Fifth Republic, with the Banque de France reporting to the finance ministry. But that was then. In the wake of EMU’s varied crises, monetary policy is being drawn increasingly into substituting for fiscal policy. Is the old dogma out-dated? Europe remains very vulnerable; the EMU’s median citizen has already lost a decade, and the distance to distress is worryingly low. The United States, however, is doing better. Cumbersome political gridlock notwithstanding, it managed to address the macro problem it faced (a lack of aggregate demand) by implementing expansionary fiscal and monetary policies. The US also dealt more effectively with its banking problems, which, initially, had been substantially more severe than those in Europe. (Obviously, there is a strong interaction between both policy domains. More robust economies mean less vulnerable, more profitable banks that are better able to serve their purpose: funding the economy.) But the ECB’s independence is less threatened by good advice from finance ministries, as problematic as this might be, than it is by a lack of popular support. Indeed, the Bundesbank’s famous autonomy rested less on its legal status than on

Hans-Helmut Kotz Visiting professor of economics at Harvard University and a senior fellow at the Centre for Financial Studies at Goethe University.

the unwavering (performance-based) support it enjoyed from the German public. The ECB is experiencing exactly the opposite. There are public calls, especially in Germany, to put additional pressure on it. But the biggest threat to the ECB’s autonomy stems from the unsustainable burden placed upon it. The less fiscal policy does to stabilize output, the more central banks are de facto strong-armed to carry the load (unless, of course, they are prepared to let nature take its course, by allowing the economy to get stuck in stagnation, or worse). The political upshot of this pattern has been a significant regression toward nationalism, of the left and the right, in all EMU countries, including Germany. Indeed, the rise of nationalism is an almost logical corollary of the policies pursued. It is endogenous. And here, too, Germany is leading the charge with its obsession about achieving a schwarze Null, a balanced budget, come hell or high water. In Germany, deficits are widely viewed as morally, not only arithmetically, negative, even though this flies in the face of conventional economic reasoning and sound corporate practice. In the late nineteenth century, leading German public-finance scholars, including Albert Schäffle and Adolph Wagner, developed a “golden rule,” according to which current expenditures should be funded, on average, out of current revenues. Public expenditures, and the resources needed for them, should be justified by their usefulness. This also meant that productivity-enhancing investments – capital expenditures – could be funded with debt, which would be serviced by growing income and its associated revenue base. This classical line of thought was institutionalized by a useful concept: the distinction between current expenditures and the capital account, still in use at the municipal level in Germany (and Austria). That is crucial, because about 50% of Germany’s public-sector capital expenditures are run at this level (down from almost two-thirds in the early 1990s). These expenditures are pertinent in terms of supporting the competitiveness of Germany’s mittelstand firms. But relative to the early 1990s and in constant prices, capital expenditures are down some 15%. For more than a decade now, they have not sufficed to maintain the capital stock. This is not preparing for the future; it is undermining productivity and well-being. In short, the schwarze Null fetish is self-defeating. Crumbling infrastructure (admittedly not as bad in the US) has become a real issue in Germany. Moreover, Germany’s leaders’ fiscal frugality entails cross-border spillover effects that are amplified in a monetary union, where there is no exchange rate to accommodate for national idiosyncrasies. To be sure, Europe’s monetary union is imperfect. But scapegoating the one institution that is “doing whatever it takes” to get the EMU back on track is ill-advised. A much better strategy would be for governments to use fiscal space, where it exists, to relieve the pressure on the ECB. Such space is certainly available in Germany. Project Syndicate

“In Germany, deficits are widely viewed as morally, not only arithmetically, negative”

16 Business Daily Thursday, April 21 2016

Closing ADB head comments

Asian currencies stable amid reversal of dollar strength

yuan are more stable now than before. China must not hurry to loosen its existing regulations against capital outflows and Asian Development Bank President Takehiko Nakao (pictured) it may intervene to an extent” to support the yuan, Nakao told Reuters in an interview in Tokyo. Nakao said expectations for said yesterday that the “correction” of the dollar strength since the start of this year is unlikely to cause market turmoil, higher dollar interest rates have been digested in the market, causing the dollar strength to be “corrected”, while investors with the yuan and other Asian currencies stabilising. The bet the United States will go slow in raising interest rates. “I head of the Manila-based lender also gave a sanguine view don’t expect the correction of dollar strength to cause a big on China, saying that the world’s second largest economy turmoil in financial markets. I have not heard concerns about will avoid a hard-landing as it rebalances from investment a currency war in Asia,” said Nakao. Reuters to consumption-led growth. “Asian currencies including the

Trade rebound

Taiwan export orders fall again but trend moderates

Taiwan Semiconductor Manufacturing Co, the world’s largest contract chipmaker, said last week it remained cautious about where global tech demand was headed.

Orders for electronics goods in March rose 1.6 percent from the same month a year earlier, the first growth since March last year. J.R. Wu and Emily Chan

aiwan’s export orders fell for the 12th month in a row in March but growth in electronics and a slower pace of decline in key markets provided a ray of hope for the island’s manufacturers. March export orders fell 4.7 percent from a year earlier, its narrowest decline in six months and better than the 8.7 percent drop forecast in a Reuters poll. The slump in orders from key markets China and the United States narrowed in March, although they steepened from Europe and Japan, data from the economics ministry showed yesterday. Orders for electronics goods in March rose 1.6 percent from the same month a year earlier, the first growth since March last year, an encouraging sign for Taiwan’s many large tech companies who play a key role in the global supply chain. The ministry said companies surveyed for their outlook for April mostly said the value of orders this month

would likely be lower compared with US$36.6 billion racked up in March. Economists said still-weak economic activity meant the authorities will keep monetary conditions loose to support growth. “Until demand recovers in a big way, we expect the central bank to continue to cut rates at their second quarter meeting,” said Andrew Tsai, economist with KGI Securities

Key Points March export orders -4.7 pct, smallest decline in 6 months Orders from China -7.5 pct y/y; from U.S. -2.2 pct Orders from Japan -26 pct y/y; from Europe -4.1 pct

Investment Advisory in Taipei. The government will issue its preliminary reading for gross domestic product in the first quarter next week; in mid-February it estimated a 0.64 percent year-on-year contraction. The island economy has seen three successive rate cuts since late September, as quarterly GDP has contracted year-on-year since the third quarter of last year. Taiwan’s export orders, which are dominated by orders for components used in smartphones, consumer electronics and computing gadgets, are an indication of the strength of Asian exports and of global demand for technology. While recent export data from China also showed green shoots in recovery in Taiwan’s largest trading partner, tech bellwether Taiwan

Semiconductor Manufacturing Co, the world’s largest contract chipmaker, said last week it remained cautious about where global tech demand was headed. Orders from China in March fell 7.5 percent from a year earlier, better than the 12.1 percent slump in February, while the contraction in orders from the United States halved to 2.2 percent compared with February’s 4.5 percent. Orders from Japan fell a larger 26 percent and the ministry said the massive quake in Japan this month is an uncertainty ahead for orders if it disrupts the supply chain. All other orders product categories, except electronic goods, fell in March, including orders for information communications goods, which were down 2.8 percent. Reuters

Real estate

Logistics group

China’s property loans continue to grow

Container shippers to form EU opens new Google battle Asia-focused Ocean Alliance with Android charges

Loans to China’s real estate sector continued to rise at a steady pace as the property market began to show signs of recovery, data from the central bank showed yesterday. By the end of March, financial institutions in China had lent 22.51 trillion yuan (US$3.46 trillion) to the property sector, up 22.2 percent year on year, according to a report from the People’s Bank of China (PBOC). The growth was 1.3 percentage points faster than the rate at the end of 2015, according to the report. Outstanding loans for real estate development amounted to 5.22 trillion yuan as of the end of March, while loans for individual purchases jumped 25.5 percent to 15.18 trillion yuan, up 2.4 percentage points from the end of 2015. The data came as China’s sluggish housing market started to pick up on the back of a string of government support policies. Of 70 large and medium-sized cities surveyed in March, 62 saw new home prices increase month on month, up from 47 the previous month, the National Bureau of Statistics (NBS) said Monday.

France’s CMA CGM and China’s COSCO Container Lines are to form a four-way vessel-sharing alliance with Evergreen Line and Orient Overseas Container Line focused on Asia routes, CMA CGM said yesterday. Container shipping has seen route-sharing develop in response to a severe downturn in the market, and a rejigging of alliances had been expected in recent months after COSCO merged with China Shipping Group and CMA CGM agreed to acquire Singapore’s Neptune Orient Lines (NOL). The new tie-up, called “Ocean Alliance”, would begin operations in April 2017, subject to regulatory approval, for an initial period of five years, CMA CGM said in a statement. The partnership would involve a fleet of 350 container ships covering Asia-Europe, Asia-Mediterranean, Asia-Red Sea, Asia-Middle East, Trans-Pacific, Asia-North America East Coast, and transatlantic routes, CMA CGM said. In a first stage, the operations would offer more than 40 services, mostly connected with Asia, it said. Reuters

Xinhua

Smartphones market

The EU opened a new front against Google yesterday, slapping the US giant with anti-trust charges alleging it had abused the dominance of its Android mobile phone operating system. The charges are a massive blow to one of the Google’s most strategic businesses and could alter a global smartphone sector that is fast taking over traditional PCs as the biggest segment in the world of computing. Competition Commissioner Margrethe Vestager said Silicon Valley giant Google had used practices such as making manufacturers pre-install its market-leading search engine as the default in phones. “The preliminary conclusions from our investigations is that these practices breach EU competition law,” Vestager. She said Brussels believed that “Google has abused its dominant position”, adding: “We have found that Google pursues an overall strategy on mobile devices to protect and expand its dominant position in Internet search.” The case is the second attack by the EU against Google after Vestager last year formally charged the company for abusing its dominance of the search engine market in Europe. AFP