Anzac Day Observance in Macau Mon, 25 April 2016 │ 7:30am - 9am │ MGM Macau
ay zac D
Followed by Gunfire Breakfast from 8am
An
Indonesia’s plan to stabilise national markets faces funds’ reluctance Bond market Page 13
Monday, April 25 2016 Year V Nr. 1028 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Tourism Society
Public consultation on SAR’s five-year development plan launched tomorrow Page 2
30 pct drop in hotel room bookings for May holiday Page 3
Gaming
Wells Fargo sees no stabilisation or recovery on horizon Page 7
www.macaubusinessdaily.com PR campaign
Five global public relations companies pitch to Chinese Government for potential new campaign Page 10
UNited Nations Audit
Raises Red Flag
Graft
Complimentary travel and free iPads. And moving project goalposts. An internal audit report by the United Nations has uncovered a tangled web of companies owned by local businessman Ng Lap Seng. Which entered into partnerships or sponsorships with multiple UN departments. The audit body said ‘instances of non‑compliance with due diligence requirements’ could affect the UN’s ‘integrity, independence and impartiality.’ Page 6
Hengqin One year old and maturing fast. Tax rebates, simplified visa applications, and one-stop service for investors. Plus incentives for foreign investment in the Free Trade Zone. A Hengqin representative also revealed that Macau single licence plate vehicles may possibly enter Hengqin in one or two months’ time. Page 5
Export push paying dividends Global trade share A bigger piece of the pie. Data from the United Nations Conference on Trade and Employment shows the Mainland’s proportion of global exports increased to 13.8 pct last year. The highest share any country has enjoyed since the U.S. in 1968. Page 11
Domino effect
HK HSI April 22, 2016 21,467.04 -155.21 (0.72%) AIA Group Ltd
The Panama Papers leak has many jurisdictions looking over their shoulder. But Macau is complying where it can, Jorge Godinho tells Business Daily. The gaming law expert spoke of the insidiousness of money laundering, and Macau’s awareness and respect of international standards, and training. Saying corporations have compliance officers who report suspicious transactions to the gov’t – while international teams, in turn, continue to evaluate Macau. Interview Page 8&9
Hong Kong Exchanges and
+1.85% +1.49%
PetroChina Co Ltd
+0.90%
CLP Holdings Ltd
+0.14%
Kunlun Energy Co Ltd
0.00%
Power Assets Holdings Ltd
-2.31%
Sands China Ltd
-2.58%
Galaxy Entertainment
-2.83%
China Shenhua Energy
-2.93%
I SSN 2226-8294
Source: Bloomberg
Clear road ahead
2 Business Daily Monday, April 25 2016
Macau Chief Executive Chui Sai On takes legislators’ questions on government policy and social issues at a plenary session of the Legislative Assembly.
Politics CE: Five-year plan available for public consultation tomorrow
Blueprint for a better tomorrow Chief Executive vows to enhance accountability and to apply third-party evaluation to more than 50 public departments this year. Joanne Kuai Joannekuai@macaubusinessdaily.com
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public consultation on Macau’s first Five-Year Development Plan will be unveiled tomorrow, Chief Executive Chui Sai On said on Friday in the Legislative Assembly. “The preliminary plan sets out seven major targets, including maintaining stable economic growth, improving the structure of industries, improving the city’s role as an international tourist destination, improving the quality of life and the quality of education for residents, protecting the environment, strengthening the efficiency of the government and expanding the structure of the legal system,” said Mr. Chui. The government will pay particular attention to the opinions of residents regarding this developmental blueprint for Macau, he said, which covers a period from 2016 to 2020. The preliminary plan also prioritises infrastructure projects for the fiveyear period such as the construction of the light railway network, a fourth bridge linking Macau and Taipa, expanding the waste incinerator facilities, and building an electronic surveillance system. Mr. Chui added that the draft - over 37,000 characters long - would be issued to the public for their suggestions
and opinions. He indicated that the government is confident in achieving at least 70 per cent of the goals set out in the plan. The draft is made on the basis of the preliminary five-year plan unveiled in November 2015, which seeks to turn Macau into a World Centre of Tourism and Leisure by the mid-2030’s.
Portuguese training centre
The Chief Executive said the government aimed to gather opinions on how to help transform Macau into such a hub and into a commercial and trade co-operation service platform for China and the Portuguese-speaking countries - collectively known as the ‘One Centre and One Platform’ policies. Legislator Cheang Chi Keong pointed out that there is a large shortage of bilingual talent with a solid command of both Chinese and Portuguese, and questioned the Executive on how the government will address the issue. Chui Sai On acknowledged the problem by citing the government itself, saying that there is currently a shortfall of 126 translators. However, he stressed the government’s continuing efforts by stating that there is already a 20 per cent increase in the number of students studying Portuguese in Macau in the current school year. Chui said that Macau wishes to position itself as a Portuguese language training centre in the Asia Pacific region – one of the strategic objectives for regional development in the next five years. The Chief Executive added that while nowadays in Macau many students prefer to study English the government will introduce more
incentives such as extending the scope of scholarships, and stressed the necessity to invest in the teaching of Portuguese in non-tertiary education systems and also to support more private schools offering Portuguese language education.
Accountability issue
The Commission Against Corruption (CCAC) and the Audit Commission (CA) issued many reports in recent years, revealing that many public departments have violated laws and regulations when granting public contracts. As usual, many legislators addressed the issues of the administration and the accountability system. Legislator Kwan Tsui Hang said that government officials are neglecting the laws. She claimed that this negative trend is not limited to a single case and has been hurting the image of the administration. She questioned how the government would implement an accountability system, and how the reports and suggestions of the two commissions would be followed up. The Chief Executive promised to optimise public departments’ procurement procedures in his term whilst adhering strictly to the law. “Once any violation is detected, on the premise that the facts are clear, we will determinedly and firmly pursue administrative and criminal responsibilities,” said Mr. Chui. “Official accountability and performance management will be
“Once any violation is detected, on the premise that the facts are clear, we will determinedly and firmly pursue administrative and criminal responsibilities.” Chui Sai On, Chief Executive
combined and we will set up a scientific and standardised evaluation system and a reward/punishment mechanism.” In addition, the Chief Executive indicated three principles for public purchasing and outsourcing to the private sector relating to public service: the revision of regulations relating to public procurement; the strengthening of education on the rights and duties of leaders of government departments and the establishment of a mechanism to evaluate officials’ performance. Chui Sai On added that last year three government departments had introduced a third-party evaluation scheme. He added that this year the scheme would be applied to more than 50 government departments.
Bullish on long-term
In a session highly dominated by issues related to housing Chui Sai On revealed that the region will move forward with the review of legislation governing the allocation of houses to civil servants as well as affordable housing - which have been the subject of a number of ongoing disputes and claims. In addition, he observed that Macau should create paid paternity leave, suggesting that the city look to the examples of neighbouring countries and regions - where parents are entitled to a leave period of between three and 14 days following the birth of a child. Commenting on the economic situation – in which gross gaming revenue has fallen for 22 consecutive months - the Chief Executive said that it is “not as bad as one thinks”. He also said that with regards to this year’s economy the attitude would be “cautious in the short term, but optimistic for the longterm”, and predicts that this year the number of tourist arrivals to Macau would stablise at around 30 million, while unemployment would remain below two per cent and the decrease in GDP would narrow from a double-digit decline to a single-digit decline. In addition, Chui stressed that the territory will continue to study measures to support SMEs and to diversify the economy to make it less dependent upon gaming.
Business Daily Monday, April 25 2016 3
Macau Tourism
Hotel reservations, tour bookings, retail sales all down A combination of violent incidents involving Hong Kong’s package tours, anti-corruption activities and competition from other countries is leading to more promotions in the hotel and retail areas in an attempt to attract tourists for the upcoming three-day holiday. Annie Lao annie.lao@macaubusinessdaily.com
O
nly 30 per cent of available hotel rooms have been booked so far by tourists from Mainland China for the 3-day holiday stretching from April 30 to May 2, registering a fall of 30 to 40 per cent compared to last year says Chan Chi Kit, President of the Macau Hoteliers & Innkeepers Association. Mr. Chan noted that the supply of hotel rooms actually exceeds the demand of tourists, with more new hotels being built in the SAR, up by 16 per cent. As a result, the hotel sector is more cautious in increasing the price of rooms, and more casino hotels are offering discounted packages to attract guests. These include giveaways such as free meals and discounted tickets for entertainment events, Mr. Chan said, also noting that promotional advertising had increased since two years ago. Hotel room rates hit their lowest in March this year, according to the latest data from Macao Government Tourism Office (MGTO). The average hotel price was about MOP1,200 (US$150) last year, but now is around MOP600, he said. Chan expects these rates to increase little, even for the May 1 holiday, with hotels observing the amount of tourists arriving before May 1 before attempting to raise rates. He estimated that the maximum increase would be around 50 per cent. The highest increases in hotel room rates registered so far were in 2013 and 2014 – when prices hit double their normal rate. Chan noted that habitually Hong Kong tourists tend to choose 5-star hotels and resorts in Taipa as they like the facilities and the entertainment offerings.
Fewer package tours
Package tours from Hong Kong have dropped by 50 to 60 per cent mainly due to the anti-corruption campaign in China and a number of violent tour group incidents that occurred in Hong Kong last year, Chan notes, saying that tourists now prefer destinations such as Japan, Korea, Thailand and other countries. Due to this negative impact from Hong Kong, package tours coming to Macau from the neighbouring SAR have decreased. Last year, there was a 20 per cent drop in Mainland Chinese tourists to Hong Kong, which directly affected Macau’s tourism, Chan pointed out. Overall, travel tour groups have decreased by 30 per cent year-onyear, Andy Wu Keng Kuong, President of the Macau Travel Industry Council, told Business Daily, noting that package tours organised in Hong Kong to Macau have dropped by 80 to 90 per cent. However, some travel tour companies are offering ‘quality’ tours, which don’t involve shopping, to
encourage a longer stay in the city. Despite their kick-off last year they have yet to gain much ground in the Macau market, Mr. Wu claims. On another tack, travel agencies are now offering gourmet food tours in an attempt to tap another niche in the market, Mr. Wu says.
Retailers suffering
Sales dropped 30 per cent year-onyear in April according to Lee Koi Ian, General Manager of local jewellery retailer Seng Fung Jewellery Co. Ltd., but there is hope that sales will slightly improve over the threeday holiday as more promotions are being offered this year, including the retailer’s first lucky draw event. Mr. Lee noted that more middle-class visitors and families are coming to Macau to shop compared to the previous majority of wealthy tourists who came to purchase luxury products. This high-end spending by tourists has dropped significantly, Mr. Lee explained, noting that visitors are now buying jewellery and watches for their own use rather than as gifts. A significant reason for this drop in luxury products, according to Lee, is the rigorous anti-corruption crackdown.
Staying longer
A larger number of tourists were recorded as staying longer during March in Macau, according to the latest data released by the Statistics and Census Service (DSEC). Overnight visitors increased by 14.1 per cent year-on-year to 1,173,270, whereas same-day visitors dropped by 3.9 per cent to 1,193,671 year-on-year. Visitors stayed for an average of 1.2 days, up 0.3 days year-on-year. The same-day visitors - staying for 0.2 days on average – remained stable compared to last year, while overnight visitors stayed for 2.2 days on average, up 0.3 days year-on-year. Mainland Chinese visitors totalled 1,483,813 in March 2016, up 1.8 per cent year-on-year. Hong Kong visitors totalled 563,408 and Taiwanese visitors totalled 78,458 - up 10.5 per cent and 6.5 per cent, respectively, year-on-year. However, visitors from South Korea decreased to 41,675 and total Japanese visitors decreased to 27,814, down by 4.4 per cent and 2.3 per cent, respectively. Visitors from the United States, Australia, Canada, and the United Kingdom increased to 16,019, 8,185, 7,196, 5,482 - up by 5.2per cent, 10.5 per cent, 11.6 per cent and 3.4
per cent, respectively, year-on-year. In the first three months of 2016, total visitor arrivals were 7,457,106 - up by 0.6 per cent year-on-year. Overnight visitors increased by 9 per cent to 3,508,517 while sameday visitors were down by 5.8 per cent to 3,948,589. In the breakdown,
Mainland Chinese visitors dropped to 4,941,969 - down 1.7 per cent year-on-year - whilst visitors from Hong Kong, Taiwan and South Korea reached 1,559,681, 250,874 and 173,921, increasing by 3.6 per cent, 11.6 per cent and 3.1 per cent, respectively, year-on-year.
4 Business Daily Monday, April 25 2016
Macau Retail
S. Culture same-store sales down 2.1 pct in Q1
Footwear retailer S. Culture International Holdings Ltd. said its same-store sales had declined 2.1 per cent year-on-year for the first three months of this year, according to its filing with the Hong Kong Stock Exchange on Friday. The company added that it had reduced
its total number of retail outlets to 125 compared to 135 retail outlets as of last year-end. The retailer did not disclose any financial figures in last Friday’s filing. For last year, the company posted a net loss of HK$16.4 million (US$2 million) compared to a net profit of HK$13.4 million in 2014, with sales in Macau dipping 1.7 per cent year-on-year to HK$13.2 million.
Law
MICE
Sonia Chan pushes retroactive action on fugitives
IPIM accompanies 13 exhibitors to Frankfurt
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he Secretary for Administration and Justice, Sonia Chan (pictured), says the MSAR is pushing for a consensus between Hong Kong, Taiwan, Mainland China and the MSAR to retroactively apply for the surrender of fugitives, if court rulings against them are still valid when the proposed law – brought to the Legislative Assembly late last year – comes into effect. The Secretary made the remarks in an interview conducted by Portuguese-language broadcaster TDM news on Saturday. “When we think about creating a legislative measure of a mutual legal assistance agreement with Mainland China or Hong Kong or Taiwan, in the future, the legislative adaptation is not easy because of those [legal framework] differences,” Chan told the broadcaster.
With regard to convicted individuals sentenced before the agreement is signed the Secretary reasoned that: “According to our interpretation of that accord with Hong Kong, after the signing all sentences are valid which, from our perspective, means that once it takes effect, both parties can ask for it to be enforced.” This could be applied to two businessmen linked to the La Scala case involving former Secretary for Transport and Public Works Ao Man Long. Joseph Lau and Steven Lo were sentenced to five years and three months in prison for corruption and money laundering by the Macau courts but have yet to serve time in the territory. The Secretary pointed out to the broadcaster that negotiations with the Mainland, Taiwan and Hong Kong could still take time. K.W.
The Macau Trade and Investment Promotion Institute (IPIM) accompanied 13 local exhibitors to global MICE fair IMEX 2016 in Frankfurt, Germany from last Tuesday to Thursday. The Institute’s booth at the fair, occupying 96 square metres, titled the ‘Macao Pavilion’, was themed ‘Macao – Mega Events City’. According to IPIM, the city’s booth attracted more than 50 potential buyers and representatives of Europe’s MICE industry during the three-day event, with over 350 business matching sessions held. IPIM said in a press release that it would continue working with local MICE operators to promote the city’s MICE advantages in order to attract a higher number of international events to the territory.
Business Daily Monday, April 25 2016 5
Macau Investment Hengqin to lure more foreign investors
Hengqin ready to roll, says marketing GM Hengqin representative reveals that Macau single licence plate vehicles may enter Hengqin in one or two months’ time.
the whole process is [proceeding on] a normal timeline. I think when the policy is launched in maybe one or two months, it will be a very good piece of news for all of us,” said Queenie Huang, General Manager of Marketing of Hengqin FTZ Business Development Centre.
Joanne Kuai joannekuai@macaubusinessdaily.com
Business opportunities
T
he final draft of the policy that would allow Macau single licence plate vehicles to enter neighbouring Hengqin Island has been completed, as revealed by the Director-General of the Hengqin New Area Administrative Committee, Niu Jing, last week on the occasion of the celebratory one year anniversary of the establishment of the Hengqin Free Trade Zone (FTZ). Mr. Niu said that the plan is only awaiting a final decision from the Guangdong Government and its SAR counterparts to choose a day to announce and finally put the policy into action. Additionally, a representative of a government-backed company in charge of the development of Hengqin disclosed that such an announcement could be imminent, possibly in one or two months’ time. “It’s not a matter of whether the administrative efficiency is low or not. It’s really a significant policy that impacts a lot of sectors. I think
Ms. Huang spoke with Business Daily in Macau last week during an appearance as a guest speaker at a luncheon organised by the British Business Association of Macau (BBAM), where she shared her insights about investment opportunities with the audience. Among opportunities arising in the region for investors are cross-border e-commerce, exhibitions, cultural and creative industries, tourism and leisure, financial services, medicine and health, science education research and development, advanced and new technologies. “Of all these sectors, what we are focusing on right now is IT, as we have all the facilities on stand by for the businesses to kick off,” said Ms. Huang. “Hengqin, as a Free Trade Zone, offers many preferential policies that other places can’t offer. It will make things much easier for foreign investors.” Ms. Huang pointed out that the number of items on the new ‘negative list’ which regulates activities businesses cannot do in the FTZ has
dropped from 139 in 2014 to 122. With regard to manufacturing, the number was reduced from 50 to 17 in 2015. Industries that are completely open to foreign investors include agricultural food processing, manufacturing of liquor, tobacco, printing, and manufacturing of appliances of cultural, education, sports and stationery commodities.
Preferential policies
As indicated by Ms. Huang, enterprises that fall into the Preferential Catalogue for Enterprise Income Tax Preferences will enjoy a 15 per cent lower rate of business income tax in the FTZ. In addition, individuals registered as recognised talent in Hengqin will be entitled to a tax rebate by the government that ranges from 20 to 40 per cent of personal income tax. Moreover, enterprises that are headquartered in Hengqin are able to apply for subsidies to rent
“I think it’s really the right time for more and more investors to enter Hengqin.” Queenie Huang, General Manger of Marketing of Hengqin FTZ Business Development Centre
or purchase offices in the Hengqin New Area in accordance with certain relevant policies. Simplified administration and a one-stop service for investors were also highlighted as advantages of the Hengqin FTZ for foreign investors, with Huang commenting that while current visa applications to enter Hengqin have been eased, further easy access procedures to the island - including residency permits for registered foreign investment - are underway.
Perfect timing
The Hengqin Pilot Free Trade Zone was officially inaugurated on April 23, 2015. Located in the southern part of the city of Zhuhai in Guangdong Province it occupies an area of 106.46 square kilometres, with further permission granted to reclaim a 28-square kilometre plot of land on the southern tip of the island. The island also enjoys a geographic advantage. Upon completion of the Hong Kong-Zhuhai-Macau Bridge the island will become the only place in China directly linked to both Hong Kong and Macau SARs. When asked whether it’s too late to enter the zone - where drastic changes have occurred in the past few years - Queenie Huang said she believes it’s the perfect time. “I think it’s really the right time for more and more investors to enter Hengqin,” said Ms. Huang. “For the past five or six years, we just laid down a very good foundation. However, we’ve been developing much faster than before in the past year. At this moment, everything - including the facilities, policies, and human resources - are really ready. And everything is much more mature than before.”
6 Business Daily Monday, April 25 2016
Macau Graft Developer Ng Lap Seng’s six NGOs found to have interacted with six UN departments
Audit uncovers trail of ‘support’ An internal audit report by the United Nations found that the businessman was in partnerships or sponsorships with different UN departments for their events, which included offering iPads to UN staff members. Kam Leong kamleong@macaubusinessdaily.com
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ocal billionaire Ng Lap Seng made use of five non-government organisations (NGOs) which are all affiliated to his real estate investment firm Sun Kian Ip Group to interact with six departments of the United Nations in various ways - such as sponsoring their events and funding staff travel - discloses the latest published internal audit report by the Office of Internal Oversight Service (OIOS) of the United Nations (UN). The internal audit report, which was undertaken at the request of the Secretary-General of the UN and was released over the weekend, presents evidence that the local businessman’s attempts to curry favour with the UN could date back to 2008, when one of his NGOs was listed as a participant in the organisation’s Global Compact initiative (see table). According to OIOS, the five NGOs that Ng was using to interact with UN bodies are the Global Sustainability Foundation, International Organisation for South-South Co-operation,
World Harmony Foundation, SouthSouth News and Sun Kian Ip Group Foundation. Last October, the 68-year old businessman was charged with bribing Josh Ashe, former president of the UN General Assembly in 2013 and 2014 and a former ambassador of Antigua and Barbuda.
IPads offered for ‘paperless event’
The UN audit body stated in the report that Sun Kian Ip Group had offered iPads to all participants for a co-sponsored event titled ‘High Level Multi Stakeholder Strategy Forum on South-South and Triangular Co-operation’ in the Special Administrative Region last August. The local developer contributed US$1.5 million (MOP12 million) to the United Nations Development Programme (UNDP) for the event, which was attended by a number of UN Secretariat staff, OIOS said. The report reads that the proffered iPads all had 64GB capacity and were engraved with the logo of the organisers on the back. ‘They received the iPads at the
registration desk upon arrival, where they were informed that the forum was a ‘paperless event’; all documents relating to its meetings or presentations had been pre-loaded in the device for their use,’ OIOS wrote, adding that ‘there was no attempt by the organisers to take back the iPads’ when the event was concluded. According to the audit department, three UN staff members who attended the forum only handed over the devices after the commencement of the audit. In particular, one from the Global Compact Office stated to the audit body that he kept the iPad for himself.
Funding travel for UN staff
The UN audit also found that Ng’s self-owned news outlet South-South News had funded travel for a staff member of the UN Department for General Assembly and Conference Management for two seminars in Hong Kong and Macau last April and August, respectively. The two seminars were both on the topic of ‘South-South Co-operation’. Another staff member of the United Nations Human Settlements Programme (UN-Habitat) was funded by the news company to participate in a high-level meeting in Hong Kong in April 2012. The audit report stated that the UN-Habitat later signed a memorandum with South-South News as a media partner for co-operation on the ‘World Urban Campaign’ in July 2012. South-South News had actually been accorded media accreditation and provided office space in the UN secretariat by the UN Department of Public Information since 2010, the report claimed. Recent leaks from the Panama Papers have disclosed that such a
company of the local businessman was established in the British Virgin Islands in May 2010, indicating the news outlet had sponsored UN events on at least three occasions. Furthermore, the UN audit unit claimed Ng’s Global Sustainability Foundation had contributed US$60,000 to a memorial event of the UN titled ‘Permanent Memorial to Honour the Victims of Slavery and the Transatlantic Slave Trade’. The body added that the NGO had originally committed to a contribution of US$100,000. Nevertheless, OIOS stated that all the contributed amount by Ng Lap Seng had been utilised for the intended purposes in accordance with the organisation’s financial regulations and rules.
Lack of checks
In the report, OIOS highly criticised the lack of due diligence checks by UN departments in selecting their partners, allowing the organisation to be involved with parties ‘whose interests may be at odds with those of the UN’. ‘Various resolutions of the General Assembly have recognised the importance of developing partnerships with the private sectors, NGOs and civil society… However, engaging in partnerships requires that a robust due diligence process is established and consistently applied to ensure that the attendant risks are mitigated,’ the audit body said. ‘The above instances of non-compliance with due diligence requirements exposed the organisation to the risk that it could get involved with external parties whose interests may be at odds with those of the United Nations – particularly its integrity, independence and impartiality,’ it concluded.
From ‘business incubator’ to ‘meeting centre’
The local businessman allegedly paid John Ashe more than US$500,000 in exchange for the organisation’s support of the Sun Kian Ip Group for an expo and meeting centre project in Macau. Ashe is reported to have submitted a document to the UN General Assembly stating ‘Sun Kian Ip Group of China has welcomed the initiative and will serve as the representative for the implementation of the Permanent Expo and Meeting Centre for the countries of the South.’ The latest UN audit report disclosed that the content belongs to a new version of the document submitted to the Assembly, indicating this new version has ‘significant modifications’ from the original. According to the body, the original letter only referred to a ‘Global Business Incubator’ not a ‘Permanent Expo and Meeting Centre’. Meanwhile, the report revealed that Ashe describes the meeting centre in the new version of the document as “one of the first centres in a network of incubator centres in a public-private partnership with the support of leading partner South-South News.”
NGOs affilated to Sun Kian Ip Group NGO
Department/office with whom interacted
Activities/interactions with the Secretariat
United Nations Office for Partnerships
contributing US$60,000 towards a fundraising luncheon for the anti-slavery memorial in December 2014
Global Sustainability Foundation Department of Public Information
International Organisation for South-South Cooperation
World Harmony Foundation
sponsoring an exhibition titled “The Transformative Power of Art” at United Nations Headquaters in June 2015
Department of Economic and Social Affairs
co-organising three events with support from the department in September 2013, April 2014 and September 2014, respectively
Global Compact Office
listed as a participant in the Global Compact initiative in December 2008 yet status was indicated as “non-communicating” as of December 2015
Department of Public Information
indirectly associated with the department through the “Friends of the United Nations”
Department for General Assembly and Conference Management
funding the travel of a Secretariat staff member to attend two seminars in Hong Kong and Macau last April and last August, respectively
Global Compact Office
listed a participant in the Global Compact initiatve in December 2010 yet was expelled in 2012 due to failure to communicate progress
Department of Public Information
accorded media accreditation and provided office space in the Secretariat since 2010, covering various UN events in the media
Department of Economic and Social Affairs
signing a MOU to cooperate with the department in June 2010 to facilitate capacity-buidling in the courntries of Caribbean and Latin American region
South-South News
United Nations Human Settlements Programme
Sun Kian Ip Group Foundation
sponsoring the event “Unveiling of the ‘Ark of Return’ Permanent Memorial” in March 2015
Unknown
funding the travel of a staff member to participate in a high-level meeting in Hong Kong in April 2012 signing a MOU as a media partner with the department in July 2012 for cooperation on the “World Urban Campaign” co-sponsoring the “High Level Multi-Stakeholder Strategy Forum on South-South and Triangular Cooperation” in August 2015 based on the original table published in the Report 2016/021 of the Office of Internal Oversight Services of the United Nations
Business Daily Monday, April 25 2016 7
Macau Gaming
Wells Fargo: Gaming revenues to drop at least 12 pct this month The brokerage firm does not see any stabilisation, or another recovery. Kam Leong kamleong@macaubusinessdail.com
T
he city’s gaming revenues may post a year-on-year drop of between 12 per cent to 14 per cent for this month, brokerage firm Wells Fargo predicts, which suggests gaming revenues would amount to between MOP17.2 billion (US$2.15 billion) and MOP16.8 billion for last month. In its weekly update report published over the weekend the firm estimated that the local gaming industry would generate between MOP540 million and MOP570 million for the rest of this month and, on a month-on-month comparison, the firm predicts that total April revenues would remain flat or up slightly from March. ‘We estimate April revenues
are pacing down 7 per cent versus March, 1 percentage point higher than the average 6 per cent drop from March to April,’ Wells Fargo noted. Last April, total gaming revenues in the city amounted to MOP19.2 billion. In addition, casinos raked in a total of MOP17.98 billion in revenues this March, amounting to a year-on-year decrease of 16.3 per cent, according to official data published by the Gaming Inspection and Co-ordination Bureau (DICJ).
Not stabilising
Meanwhile, the brokerage firm noted in the report that it does not think that the local gaming industry is stabilising or that there is any recovery coming soon. ‘While market conditions feel better and the bottom seems closer than [the fourth quarter of] 2015, we maintain that we haven’t seen stabilisation yet, and we don’t expect another V-shaped recovery when we do see it. We continue to believe the liquidity
bubble of the past five years is still deflating,’ the report reads. The firm also quoted its industry contact as saying that the SAR Government would maintain a cap on the annual number of Chinese visitors at 21 million ‘as reduced visitation has eased pressure of overcrowding on local residents.’ ‘Investors are questioning whether Macau’s mass market can continue to grow without meaningful visitation growth, and with significant supply coming online in the next two years,’ it claimed. Meanwhile, despite a bill implementing a full smoking ban inside local casinos still under discussion in the Legislative Assembly (AL) Wells Fargo believes that such a bill will eventually be implemented in the city. ‘Ultimately, we believe the market is going to a full smoking ban, and think its implementation will crimp VIP revenues by 10 to 15 per cent when it happens,’ wrote the firm’s analysts Cameron McKnight, Robert J. Shore and Daniel Adam.
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8 Business Daily Monday, April 25 2016
Greater China
Financial System Interview Gaming Law expert Jorge Godinho shares his views on the Panama Papers, gaming law ref
In the shade of Panama As a researcher of gaming law and a visiting professor at the University of Macau Jorge Alexandre Fernandes Godinho has a vast knowledge of Macau’s legal system, obtained through five years with the Monetary Authority of Macau (AMCM) and 20 years research into Criminal Law, International Law and European Criminal Law (in particular money laundering, confiscation, asset freezing and detection mechanisms). In an interview with Business Daily, Godinho avers Macau has made important steps in improving transparency in its financial system but that the city can never guarantee that money laundering and offshore dealings never occur here. Nelson Moura nelson.moura@macaubusinessdaily.com
The recent Panama Papers scandal revealed the existence of 22 beneficiaries and 233 shareholders in offshore accounts established by Mossack Fonseca. Where does Macau find itself in this web of offshore banking and money laundering?
Th e m a i n q u est i o n i s w h e th e r Macau should be considered an offshore jurisdiction. Are we in that league? Macau has some characteristics of offshore havens - such as a low level of income tax, but ‘full’ tax havens don’t even have income taxes. In any event, Macau’s tax base is the gross gaming revenue of casinos.
Is there any industry in Macau that you consider as having a larger prevalence of offshore account use? These revelations by Mossack Fonseca from my perspective are nothing new. Everybody knows about offshore arrangements. It was already on the radar of institutions dealing with international money flows and globalisation. We have known for many years that certain
jurisdictions have excessive levels of confidentiality and allow corporate structures to have a nominee board of directors and shareholders, with the real beneficiaries hidden behind. This can serve many different purposes and the biggest problem internationally is in terms of legislation to prevent organised crime, money laundering, corruption, etc. For that, many efforts
Business Daily Monday, April 25 2016 9
Greater China
reform and offshore accounting
Bangladesh cyber heist
In the beginning of March cybercriminals managed to spirit US$81 million from Bangladesh’s account with the New York Fed to accounts in the Philippines, which was later allegedly moved to onshore accounts owned by Rizal Commercial Banking Corporation and then laundered through casinos via junket promoters, according to Forbes.
Do you believe the gaming industry has a role in offshore accounting or money laundering? Taxation is on the gross gaming revenue so there is no way to evade the tax bill. It is an aggressive system which checks revenue straight from the source from each table and slot machine, making sure that all is accounted for. This system is tailor-made to avoid any kind of tax evasion. If taxation was on company profits then you would have much more work; that’s why most jurisdictions tax the gross gaming revenue. Of course, as in any sector, it is possible that cases of money laundering may occur. This can happen in gaming, banking and any other [industry]. No bank or casino can say with a straight face that there is no money laundering whatsoever going on in our company; that is impossible to guarantee! There are millions of bank deposits, thousands of transactions every hour, and no bank can be 100 per cent sure it checks what every one of its clients is doing or what each transaction represents. The same thing happens in gaming, where thousands of people go to the casinos every day - it’s just the way things are. So the real issue is whether the necessary steps to prevent money laundering are being taken, and whether the mechanisms required by the rules are in place? In the case of Macau, yes, there is awareness, respect of international standards, training. Companies have compliance officers and they report suspicious transactions to the government, while [simultaneously] international teams have been evaluating Macau. In law there is a distinction between obligation of means and obligation of results. The latter is when someone is forced to guarantee a concrete result. In this matter we have an obligation of means; that is, an obligation to try our best to make sure that there is no money laundering. But nobody can guarantee that money laundering will never happen.
have been made in the last years - such as those by the Financial Action Task Force, an international group that in 2000 started to issue a ‘blacklist’ of non-cooperative countries and jurisdictions, especially those offering offshore banking. After those lists were published many of the countries that were named and shamed rushed to change their laws and correct their systems, but
‘No bank or casino can say with a straight face that there is no money laundering whatsoever going on in our company.’
after September 11 world attention shifted to terrorist financing. It is a pendular movement, and we are now coming back to offshore financial centres. What has the Macau Administration done to try and improve transparency in the local economy? In fact, Macau has made efforts in the last years to distance itself from the offshore jurisdictions group; it abolished bearer shares, for example, with an amendment to the Commercial Code last year. The justification provided for this at the time was exactly the issue we are discussing now: to create a more transparent system. Other steps are information sharing with the European Union on tax matters. Therefore, should Macau worry about the Panama Papers? I think in global terms maybe not. Of course, there may be one or two local companies implicated in the scandal but that can happen anywhere.
So would you say Macau has loopholes in the law that can be explored? Well, some jurisdictions have serious loopholes – like the case that happened in the Philippines showed (with US$81 million being stolen in a cyber heist from the Bangladesh Central Bank and laundered in two casinos) because gaming there simply doesn’t have the regulations we just talked about. That is more than a loophole, it’s a huge omission. The truth is that no jurisdiction is 100 per cent in compliance with the very ambitious international standards of FATF (Financial Action Task Force). Another example is lawyers in the United States, who are simply not subject to anti-money laundering rules. Those of Macau are. What could be changed in current gaming law? At the moment we’re waiting to see what
Banco Espirito Santo
In Portugal, 240 people were mentioned in the Panama Paper leaks, some of whom were managers of the Espirito Santo Financial Group - owners of Portuguese bank Banco Espirito Santo, which, according to Portuguese media, kept an offshore fund for 21 years with
the direction for the industry is that the interim review will point to, and it will generate considerable debate for sure. Aside from that, the main transformation that should happen is that the monopoly for sports betting should end. I’ve been saying for years that this monopoly no longer makes sense. At a time in which the revenue from casinos is decreasing, the revenue from sports betting could increase considerably. What kind of impact will the Panama Papers leak have on the future? They definitely are having quite an impact now. It’s a bit sad that sometimes we need a big scandal to make things happen. Especially because we have known about these issues for a long time. Whether there will be a long-lasting impact remains to be seen but for now it’s too early to tell. In one or two years from now, after the dust has settled and when this matter is out of the public eye, we’ll be able to see whether something significant has actually been done. The media sometimes focuses on a topic and that’s all people talk about for a while until it disappears. It seems the ICIJ (International Consortium of Investigative Journalists) will make more revelations about the Macau companies involved. Honestly, I don’t like the way the media has been revealing the information drop by drop. In Portugal, we feel like every week there’s going to be blood. One week it’s the Banco Espirito Santo Case (the Panama Papers showed Mossack Fonseca helped managers of the Portuguese bank maintain 300 offshore companies ), another week it’s another. It bothers me a bit. It’s understandable to give a chance to those involved to comment but I also believe that if the media keeps [revealing] news about the Panama Papers every month, people will lose interest.
Offshore legality At what point does offshore go from legal to illegal? Let’s not forget there are legal uses for offshore [accounts]. It’s important to understand that these confidentiality issues come [from] way back and are part of history. It all started in Switzerland and then everybody followed suit; and why did bank confidentiality start in Switzerland? Because people were hiding money from the Nazis, which is a cause that I think we can all sympathise with. If there’s a criminal government committing crimes, [it’s] much worse than with asset seizing, people will have a way to protect their money. The problem is [when] that practice evolves to other uses, where multinationals are the ones that know the best way to manage the system, placing a company in a different jurisdiction, getting revenue from another jurisdiction, placing factories in another. It’s a problem of social justice, something a lot of left-wing political parties have been talking about a lot because for a low-wage worker [he or she] doesn’t have any way of avoiding taxes [or] in the Portugal situation - pays his taxes to the last cent and if he misses something the IRS is right on top of him. I’m not even talking about legality here but about social justice - which is the force behind the indignation around the Panama Papers case - regarding the way that the wage gap is becoming increasingly bigger worldwide; it’s scandalous to see the difference of treatment by authorities when it comes to paying taxes between bigger companies and individual workers.
amounts of up to 300 million euros and received help from Mossack Fonseca to manage 300 offshore companies. The same offshore [setup] could potentially have been used for illegal money transfers made to the ex-Prime Minister of Portugal Jose Socrates, according to Portuguese news website o Observador.
10 Business Daily Monday, April 25 2016
Greater China Public relations
Beijing auditions foreign agencies to polish nation’s brand China has been criticised internationally for not communicating clearly with financial markets, particularly in foreign exchange. Engen Tham and Matthew Miller
Five global public relations firms have made pitches to the Chinese government for a potential new campaign, four sources said, as Beijing tries to communicate more effectively with the West. The competition by the leading Western PR companies comes amid intensifying scrutiny of Chinese companies abroad, a crackdown on dissent at home and rising tensions in the South China Sea. The State Council Information Office (SCIO), the government’s information and propaganda arm, has heard presentations from Hill+Knowlton, Ketchum, and Ogilvy Public Relations, according to four people and company communications seen by Reuters. FleishmanHillard and Edelman also participated in the audition, one source said. The presentations were preliminary. No contracts have been awarded, the sources said. They were not aware if any Chinese public relations firms were asked to make a presentation. China’s President Xi Jinping, who has called for Beijing to take a bigger role in a global governance system, has cranked up the state machinery
to project China’s “soft power” and better communicate China’s message to the world since taking power in November 2012.
‘Unfairly treated’
China’s leadership recognises it needs to communicate more effectively to Western audiences, said an executive at one of the agencies that made presentations. “They feel they’re being unfairly treated by foreign media,” the executive said. China’s SCIO maintains contact with foreign media, think tanks and public relations firms, aiming to encourage a better understanding of China, an official in its press department said when asked about the presentations. A spokesman for WPP, which owns Hill+Knowlton declined to comment. Ketchum also declined to comment.
FleishmanHillard Inc, Ogilvy Public Relations and Edelman did not respond to messages requesting comment. The SCIO asked the public relations firms to give presentations, in separate meetings, on China’s most pressing image problems and demonstrate their expertise on managing new forms of media, according to an internal email and sources. This isn’t the first time the Chinese
‘The proposed campaign comes at a crucial time for China’s leadership both at home and abroad’
government has turned to Western PR firms to burnish its image. For instance, the Chinese government hired Hill+Knowlton to promote the 2008 Summer Olympics, amid an international outcry over China’s handling of an uprising in Tibet. Protests dogged the traditional passage of the torch across the world that year. U.S. firm Weber Shandwick Worldwide also advised China during the 2008 Olympics.
Facing scrutiny
The proposed campaign comes at a crucial time for China’s leadership both at home and abroad. Chinese companies, many of them state-backed are on an overseas buying spree. They often face scrutiny from the Committee on Foreign Investment in the United States (CFIUS), which is charged with assessing the national security implications of foreign acquisitions. China has been criticised internationally for not communicating clearly with financial markets, particularly in foreign exchange. Premier Li Keqiang has said China is working to improve its communication with markets. The PR campaign under consideration also comes as the government strengthens its control over domestic media and public speech at home. In January, ambassadors from United States, Canada, Germany, Japan jointly signed a letter expressing concern over a new counter terrorism law, and draft laws on cyber security law and management of foreign non-governmental organizations (NGOs), which includes widespread censorship. At the SCIO presentations in February, government officials showed more interest than in previous engagements with foreign PR agencies, said one executive familiar with the meetings. He did not elaborate. Reuters
Commerce strategy
Stock markets
Ex-official says “New Silk Road” faces difficulties
Dalian Wanda offers 12 pct return in take-private plan
China has dedicated US$40 billion to a Silk Road Fund.
The company unhappy with its share performance in HKEx and preferring to place its bets on an upcoming Shanghai listing.
China may be facing big financial losses from its high-profile programme of overseas investment but the policy is necessary as an outlet for excess industrial capacity, a former top government tax official has said. The comments from Xu Shanda mark a rare public airing by a Chinese official, current or retired, of difficulties facing the “New Silk Road” programme, a key policy of President Xi Jinping aimed at helping countries build energy and transport links with the Middle East and Europe. “In previous years, China made large investments in the energy sector. Looking at it now, these investments were useful in ensuring energy supplies, though financial losses were large,” Xu wrote about the New Silk Road initiative in an article published in an online journal by the website ifeng.com. “If we do not go this route, external demand will shrink, which will put tremendous pressure on domestic production and exacerbate the over capacity problem. So, despite the difficulties, we need to stick to this overseas economic strategy.” Xu, a former deputy director of the State Administration of Taxation, first proposed a plan for China
to invest in neighbouring countries in 2009 as a way to promote demand for its goods and services. Under the initiative, announced by Xi in 2013, and also known as the “One Belt, One Road” programme, China aims to invest in infrastructure projects including railways and power grids in central, west and southern Asia, as well as Africa and Europe. China has dedicated US$40 billion to a Silk Road Fund and the programme was the driving force behind the establishment of the US$50 billion Asian Infrastructure Investment Bank. Xu also said cutting excess capacity was the most difficult challenge for China’s supply-side reform agenda due to an insufficient social safety net in the face of a rise in unemployment and the problem of how to deal with shrinking state-owned assets due to moth-balled production facilities. Xu said China’s strategy to increase the proportion of household income in national income had been “soft” as there were no details on how that proportion would be increased and at whose expense. The adjustment was going on but progress has been slow, Xu said. Reuters
Clare Jim
Chinese billionaire Wang Jianlin is offering to pay investors up to 12 percent annual interest if his Dalian Wanda Group fails to re-list its Hong Kong quoted property arm in Shanghai within two years of taking it private, documents seen by Reuters show. In a presentation document reviewed by Reuters, Dalian Wanda has given interested investors until Monday to pay a deposit as it seeks to raise fund to privatise Dalian Wanda Commercial Properties, China’s largest commercial developer. Dalian Wanda, owned by China’s richest man Wang, is taking its Hong Kong unit private just 15 months after its stock market debut, unhappy with its share performance and preferring to place its bets on an upcoming Shanghai listing. A source with knowledge on the fund-raising exercise, which is being done through special purpose vehicles, said Dalian Wanda’s offer has already been oversubscribed.
Another source said most of the interest was from offshore Chinese funds. Investors willing to participate must pay a 20 percent deposit by Monday. “If the company fails to list in an onshore main board within two years of de-listing, or by August 31, 2018 (whichever later), Dalian Wanda Group will buy back all shares (of the special purpose vehicle) from offshore investors with 12 percent interest and onshore investors with 10 percent interest,” the document said. Contacted by Reuters, Dalian Wanda declined to comment. In the document, Dalian Wanda estimated the company would be valued at 9.6 times earnings in 2016 if listed on China’s domestic “A share” market, compared with 8.6 times on the “H share” market of Hong Kong-listed mainland firms.
“Wanda Commercial’s H shares are seriously undervalued, and have a rather large gap with price-to-earnings and price-to-book ratios of comparable companies in A shares,” the document said, adding that returning to a mainland exchange would offer investors “rather large room for arbitrage”. Mainland-listed firms typically command higher valuations than those in Hong Kong, helped by a large pool of mainland retail investors. An index tracking dual-listed companies, shows mainland listings trade at an average 34 percent premium to the same company listed in Hong Kong. Dalian Wanda Commercial Properties will offer no less than HK$48 per share to take the itself private, a level in line with its pricing for its IPO, which raised about US$4 billion. According to the document, Dalian Wanda will resort to an offshore syndication loan to fund the delisting if it does not raise enough capital from the special purpose vehicles. Reuters
Business Daily Monday, April 25 2016 11
Greater China In Brief Monetary plans
Central bank releases priorities for 2016
Trade
Exporters seize biggest share of global market in almost 50 years At the same time, China’s imports from other countries fell sharply. Elias Glenn and Pete Sweeney
C
hinese exporters have found a silver lining in weak global demand by seizing market share from their competitors - good news for China but an expansion that is aggravating trade tensions. China’s proportion of global exports rose to 13.8 percent last year from 12.3 percent in 2014, data from the United Nations Conference on Trade and Employment shows, the highest share any country has enjoyed since the United States in 1968. The success belies widespread predictions rising costs for Chinese labour and a currency that has increased nearly 20 percent against the dollar in the last decade would cause China to lose market share to cheaper competitors. Instead, China’s manufacturing infrastructure built during the country’s industrial rise of recent decades is keeping exports humming and providing the basis for firms to produce higher-value products. “China cannot be replaced,” said Fredrik Guitman, formerly China general manager for a Danish maker of silver products, adding that reliable delivery times were more important than price. “If they say 45 days, it will be 45 days.” Still, even as Chinese firms compete in more sophisticated product lines, they are unloading overstocked inventory from entrenched industrial overcapacity in sectors like steel, an irritant in global trading relationships. The United States and seven other countries this week called for urgent action to address a steel supply glut that many blame on China. At the same time, China’s imports from other countries fell sharply down over 14 percent in 2015 - leading some economists to suggest China was deploying an “import substitution” strategy that is pushing foreign brands out of its domestic markets. On Wednesday, Beijing rolled out fresh measures to support machinery exports, including tax rebates, and encouraged banks to lend more to exporters. Machinery and mechanical appliances make up the biggest portion of China’s exports. Such policies may not be welcomed in the United States, where Republican presidential hopeful Donald Trump has called for 45 percent tariffs on Chinese imports - a message that appears to resonate with American voters.
The risk is that the Chinese firms successfully moving up the value chain will see their overseas profits destroyed by a trade war if Trump’s ideas find place in policy.
Advantage
Chinese firms’ tenacity in overseas markets is largely built on the country’s investment in a massive and integrated supply chain infrastructure, which makes them faster and more reliable to foreign companies that outsource all or some of their production. “Reliability and speed is more important than price,” Guitman said. “An out-of-stock product will hurt much more than a slightly higher price.” This manufacturing playground is allowing companies that make their own original goods to tinker with their products and branch out. “China’s export structure may not be as sophisticated as that of high-income economies, but with a better educated labour force and increasing investment in innovation, the country’s products are now generally of a higher unit value and require more skilled labour,” HSBC economists said in a report. Critics say much of China’s move up the value chain has been the result of pressure on foreign firms to transfer technology combined with a systematic and sustained campaign of industrial espionage targeting foreign technology. The legions of mid-sized Chinese companies that now make drones, high-tech labels, smart home devices, and wind power equipment may lack the cachet of Chinese social media firms like Tencent, but they are a far greater combined threat to complacent foreign competitors, analysts say. Privately owned SZ DJI Technology Co Ltd, a drone maker, is an example of how far Chinese exporters have
Key Points China export share highest of any country since 1968 In part, rise credited to highervalue exports Some export gains raise trade tensions, such as in steel Foreign trade outlook “complicated and gloomy”, China says
come. The company has taken advantage of the smartphone component manufacturing ecosystem in the southern city of Shenzhen to take 70 percent market share in the United States, a report by investment bank Oppenheimer & Co says. A DJI spokesman credited the availability of skilled labour as its key advantage. The playground has also offered hope to firms in oversaturated industries. Shanghai-based ReneSola, for example, was once one of a herd of Chinese solar panel manufacturers, stuck in a glutted industry and heavily in debt. But the company’s investment in LED, or light emitting diode, is now paying off, giving it a fresh product line to export to the United States. The LED line boasts gross margins of over 30 percent, compared to low single digits for solar modules, the company’s financial statements show. ReneSola’s U.S. marketing head Naveed Hasan said that the firm’s position in China was an advantage. “We are able to use our brand and leverage the great number of contract manufacturers.”
The price challenge
But while China has expanded its share, that share is of a shrinking pie and the country’s firms have yet to develop the branding power of the likes of an Apple or Louis Vuitton. Much of Chinese industrial innovation has focused on process and production improvements to make products at lower cost but acceptable quality. That has some worried rising labour costs and a stronger yuan, or renminbi (RMB), will have an impact. “This has put pressure on firms to upgrade,” Li Jian, head of foreign trade research at the Chinese Academy of International Trade and Economic Cooperation, the Commerce Ministry’s think-tank, said. China’s producer pricing power has been falling for four years and the Chinese government sees more rough weather ahead. “The circumstances surrounding foreign trade this year remain both complicated and gloomy,” Commerce Ministry spokesman Shen Danyang said on Tuesday. More than half of 3,000 companies surveyed by the ministry “believe the situation this year is increasingly grim.” Reuters
The People’s Bank of China (PBOC), the country’s central bank, has unveiled its prioritized tasks for 2016. The PBOC said monetary policy will help slash overcapacity, cut stockpiles, reduce leverage, lower costs of doing business and fix shortcomings, with a focus on reducing steel and coal overcapacity. The central bank will continue to give differentiated housing loan policy to different regions based on their market conditions. The monetary authority will work to widen bank loan collateral for rural residents and guide financial institutions to give more agriculture-related loans to boost rural development. Results
Biggest travel agency posts 7.86 pct rise China International Travel Service Ltd., the country’s biggest travel agency, posted a 7.86-percent increase in profits in the first quarter of 2016. Net profits stood at 696.76 million yuan (US$107.36 million) from January to March, according to the company’s quarterly report filed to the Shanghai Stock Exchange. Revenues jumped 4.7 percent year on year to 5.23 billion yuan. Earnings per share was 0.71 yuan, compared with 0.66 yuan at the end of December, the report said. The company’s steady profit growth was attributed to the country’s booming tourism industry, which is expected to rake in 4.55 trillion yuan this year. Regulator warning
HK insurance products unprotected in mainland China’s insurance regulator issued a warning to mainland residents on Friday about purchasing insurance products in Hong Kong. The China Insurance Regulatory Commission said in a statement posted on its website that insurance products issued by Hong Kong insurers were not protected by mainland laws. Investors also face potential interest rate and foreign exchange policy risks, and there were uncertainties about the yields from these insurance products, the regulator said. Reuters reported in March that China had further tightened restrictions, sources said, narrowing another loophole in the capital account seen as a potential gateway for capital flight. Shareholders
AccorHotels says Jin Jiang can help it grow The head of AccorHotels said on Friday that having Chinese hotel giant Jin Jiang as its top shareholder would help the French hotelier accelerate its expansion. Sebastien Bazin told the annual shareholders meeting it would be “a good thing” if Jin Jiang, which has built a stake of nearly 15 percent in Europe’s largest hotel group, eventually won seats on the board though the matter had not been discussed. “The presence of Jin Jiang in the capital of AccorHotels is another positive element for the development of AccorHotels in China and elsewhere,” Bazin told shareholders.
12 Business Daily Monday, April 25 2016
Asia
Household spending in March likely fell 4.2 percent from a year earlier. Private poll
Bittersweet March forecast for Japan Core CPI seen falling, factory output to modestly rebound. Kaori Kaneko
J
apan’s consumer prices likely fell for the first time in five months in March and factory output probably rebounded moderately, a Reuters poll showed, keeping the Bank of Japan (BOJ) under pressure to roll out more stimulus to support the economy. A slew of economic data this week, including consumer spending related data, will determine whether the economy averted recession in the first quarter following a contraction in the final quarter last year.
The nation’s core consumer price index (CPI), which includes oil products but excludes volatile fresh food prices, is forecast to have slipped in March by 0.2 percent from a year earlier, the Reuters poll of 21 economists showed, falling for the first time in five months. “The main factor behind (core CPI falls) was a further slide in energy prices but also a slowdown in firms moving to raise prices of food and daily necessities due to a strong yen and weak consumer spending,” said Takumi Tsunoda, senior
economist at Shinkin Central Bank. The internal affairs ministry will announce core CPI at 8:30 a.m. (local time) on April 28 (2330 GMT April 27). The BOJ is likely to debate expanding monetary stimulus at its April 27-28 rate review, as sluggish global demand and weak wage growth hurt exports and private consumption, sources have told Reuters. The poll also found industrial production rose 2.9 percent in March from the previous month, the fastest pace since March 2011 when a devastating earthquakes
disrupted the supply chain. Monthly output dropped 5.2 percent in February. “Factory output probably rebounded from the previous month’s falls, but the pace of recovery in electronic parts and devices will not be strong,” said Yusuke Konishi, senior
Key Points March core CPI seen -0.2 pct yr/yr vs flat reading in Feb Factory output f’cast +2.9 pct m/m vs -5.2 pct CPI due at 2330 GMT Wed, factory output at 2350
economist at Mizuho Research Institute. Retail sales in March likely declined 1.5 percent from a year earlier after a revised 0.4 percent gain in February, the poll showed. The trade ministry will release factory output and retail sales at 8:50 a.m. (local time) on April 28. Household spending in March likely fell 4.2 percent from a year earlier as unstable financial markets weighed on consumer sentiment. The jobless rate was expected to remain at 3.3 percent in March and the jobs-applicants ratio at 1.28, the poll showed. The internal affairs ministry will release jobs related data and household spending figures at the same time with CPI on Thursday. Reuters
GDP forecast
South Korea’s Q1 growth seen slowing A considerable slowdown from the start of the year would translate into more pressure on the Bank of Korea to cut interest rates again in coming months. South Korea’s economic growth during the first three months of the year was expected to slow from the final quarter of 2015, a Reuters poll found on Friday, as Asia’s fourth-largest economy was hit by tumbling exports and weak capital investment at home. The local economy is expected to have expanded by just 0.5 percent over January-March in seasonally adjusted sequential terms, according to the median forecast of a Reuters
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poll. On a yearly basis, respondents predicted a median 2.7 percent rise. In the fourth quarter of last year, the economy expanded 0.7 percent in seasonally adjusted quarterly terms, while on-year, it grew 3.1 percent. “As much as the first quarter was markedly affected by low growth, GDP expansion was likely capped by extremely weak trade and sluggish capital investment,” said Na Jung-hyeok, economist at Hyundai Securities in Seoul. Na said it was likely that consumer and government spending enhanced first-quarter growth only slightly. A considerable slowdown from the start of the year would translate into more pressure for the Bank of Korea to cut interest rates again in coming months. Kim Doo-un, an analyst at Hana Financial Investment, said if manufacturing was held back by the weak economy, expectations of an interest rate cut from the current record-low 1.50 percent would be bolstered.
New threat
Weakness in exports is nothing new - shipments have fallen continually since the start of last year.
Declining capital investment has emerged as the latest threat to South Korea’s economy, with monthly indicators showing it falling since November. The index for capital investment fell 7.5 percent in annual terms in February, which was the sharpest decline since late 2014. Since the collapse in exports, the economy has been relying on
“As much as the first quarter was markedly affected by low growth, GDP expansion was likely capped by extremely weak trade and sluggish capital investment” Na Jung-hyeok, Economist at Hyundai Securities in Seoul
domestic consumption, which is now in danger of fading because of South Korea’s weak capital investment. Finance Minister Yoo Il-ho expressed his concerns over soft capital investment earlier last week, saying it could hold back South Korean businesses competing in the global market. “If you consider the fact that South Korea’s companies’ cash reserves amount to nearly 40 percent of our GDP, it’s inevitable domestic consumption and the job market will have a stunted recovery,” said Kim at Hana Financial Investment. A March survey by the country’s biggest trade lobby showed South Korea’s 30 representative groups like Samsung Group and Hyundai Motor Co planning to increase capital investment by 5.2 percent this year compared to 2015. However, more than 80 percent of the respondents had a negative outlook for management conditions, while more than half said the economy would only start improving after 2018, which could hinder future investment plans, the survey said. Reuters
Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Joanne Kuai; Nelson Moura; Annie Lao; Kelsey Wilhelm Group Senior Analyst José I. Duarte Design Francisco Cordeiro Web & IT Janne Louhikari Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily. com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com
Business Daily Monday, April 25 2016 13
Asia Stabilization policy
Indonesia’s bid to put a floor under its bond market looks shaky For reasons ranging from unattractive yields to lack of access to bond auctions, domestic pension funds aren’t buying bonds. Fransiska Nangoy and Vidya Ranganathan
I
ndonesia’s plan to stabilise its often-volatile bond market faces derailment as the country’s pension funds struggle to comply with a directive to jack up their bond purchases. In January, Indonesia’s Financial Service Authority (OJK) instructed all domestic pension funds to invest at least 30 percent of their money in the government bond market within two years. The directive was welcomed by investors. It would mean the US$121 billion market would be part-owned by long-term investors, like in most major debt markets. Their presence would reduce volatile swings in a market dominated by foreigners, who on April 20 owned 44 percent of bonds other than sukuks, up from 38 percent a year earlier. But for reasons ranging from unattractive yields to lack of access to bond auctions, domestic pension funds aren’t buying bonds. “We have very limited cash to buy bonds,” said Sri Murtiningsih, president-director of state forestry firm Perhutani’s pension fund. “The cash we have is only enough to make benefit payments every month.”
She said another problem for her are returns. The forestry firm targets its pension fund to generate an 11 percent annual return, far above the average 8 percent yield on longer term bonds. The OJK has given funds until December 31 to make bonds 20 percent of their portfolios, and until end-2017 to lift that to 30 percent. Insurance firms received a similar mandate. The regulator has said executives of funds that fail to meet the requirements will have their licenses revoked, which could bar them from working again in the industry. According to the regulation, executive of funds that fail to meet the requirements will be banned from holding senior positions or being shareholders at pension firms. The Indonesian Pension Funds Association has written to the regulator to ask for one-year delays, so funds would have till end-2018 to meet the 30 percent figure. It said there’s been no reply yet from OJK. The regulator could not be reached on Friday for comment. An association survey that’s so far drawn responses from 77 of 232 members found that more than half of them had less than 10 percent of their portfolio in bonds.
Market ‘too expensive’
“Pricing in the secondary market has become too expensive with everybody buying, which means the yield has
come down. Foreign funds are coming in so heavily,” said association chairman Mudjiharno Sudjono. Yields on the benchmark 10-year bonds, are currently around 7.4 percent, compared with close to 9 percent late last year. Much of that rise in bond prices has been powered by foreign investors lured by the promise of Indonesia’s structural economic reforms, relatively low inflation and the rupiah’s stability in an environment of zero or negative rates in much of the developed world. The pension ruling has also been a factor. “The recent reform around pension fund holding of local currency debt is likely to be supportive and likely to lead to the bond market being in fairly safe hands over time,” said Ian Pizer, head of investment strategy at Aviva Investors. Aviva has $427 billion in assets globally and Indonesia is one of the few markets where its flagship fund owns local currency bonds. While the foreign bid crowds out local investors in the secondary market, the primary bond auctions are out of reach for many smaller pension funds because of the minimum bid size at auctions. Murtiningsih of the forestry company fund said meeting the deadlines for bond holdings “can’t be forced”. Asked about the possible penalty for not complying, she replied “Well, I’ll just have to face the consequences.” Reuters
First deadline: December 31
At present, only 2 percent of the firm’s pensions portfolio of 700 billion rupiah (US$53 million) is invested in government bonds.
Myanmar plans to triple exports within 5 years Myanmar’s new government targets to boost the country’s export volume three times higher within five years with the agricultural sector, said newly appointed Minister for Commerce Than Myint at his first meeting with local exporters Saturday. The Ministry of Commerce will cooperate with the Ministry of Agriculture, Livestock and Irrigation and Ministry of Industry to boost local production in agricultural sector and small and medium enterprises, through supporting technology, financing and absolving some regulations, Than Myint added. Myanmar’s export value stood by over US$11.04 billion in the fiscal year 2015-2016 while It was over US$12.4 billion in 2014-15. Budget
Japan may increase disaster relief spending Japan is considering compiling a supplementary budget in the parliament session to June 1 to fund reconstruction in its quake-hit south, senior ruling party officials said on Saturday. Typically, the government takes up a supplementary budget at an extraordinary session later in the year but the earthquakes a week ago, which killed about 50 people, prompted quick action on a separate budget, they said. The officials, from the Liberal Democratic Party and the Komeito Party, which form the ruling coalition, asked not to be identified because they are not authorised to speak to the media.
Australia to track graft funds
Pension funds directed to lift govt bond holdings Managers say they face money, other obstacles Association asks regulator to delay deadlines
Easing lending
Two Thai banks cut more rates to help consumption Despite small and medium-sized businesses being mostly responsible for a worrying 22 per cent jump in non-performing loans.
Two of Thailand’s biggest banks said they plan to cut more lending rates, seeking to head off further loan defaults from small businesses and retail customers hit hard by the country’s flagging economy. The plans come on top of cuts to minimum lending rates by the nation’s top four lenders this month, which had been a surprise move as it had not been preceded by any rate cuts from Thailand’s central bank and because the cuts will dent profits. K a s i k o r n b a n k , T h a i l a n d’ s fourth-biggest lender, said on Friday it will reduce its minimum retail and minimum overdraft rates by 25 basis points on April 25, in line with its cut to the minimum lending rate and following a similar move by Bangkok
Commerce push
Fighting corruption
Key Points
Khettiya Jittapong and Manunphattr Dhanananphorn
In Brief
Bank a day earlier. Thai small and medium-size businesses (SMEs), which represent 40 percent of the economy, have been mostly responsible for a worrying 22 percent jump in non-performing loans in the banking sector last year to 337.5 billion baht (US$9.6 billion). Bankers have also said they expect bad loans to rise further this year. Last year, SME loans amounted to 4.7 trillion baht (US$135 billion) or 35 percent of total bank lending, according to central bank data. “Cutting the minimum retail and minimum overdraft rates will help expand our assistance to all business sectors,” Kasikornbank President Predee Daochai told Reuters. Kasikorn is the sector’s leader in loans to SMEs, accounting for 30 percent of the market. Predee said that if all lenders in
Thailand’s banking sector follow suit, the combined benefit of all the rate cuts could be equivalent to as much as 1 percent of GDP, adding that the rate cuts also had the potential to increase loan demand. The minimum lending rate is primarily used by large multinational or local conglomerates, while the minimum overdraft rate is used by a wider range of companies with sound financial standing. The minimum retail rate is for small business and retail customers. Thailand’s economy has been stumbling since the army seized power in May 2014, hurt by weak exports and sluggish domestic demand. The first rate cut came days after the central bank reduced its growth forecast for this year to 3.1 percent from 3.5 percent. “With sign of further economic slowdown, banks need to step in to help clients and we don’t want their debt to turn into non-performing loans,” said Chaiyarit Anuchitworawong, executive vice president Bangkok Bank. Before this month’s rate cuts, Thai banks had introduced several measures to help clients, including extensions of debt repayment periods. Reuters
Australia will crack down on corporate corruption, Prime Minister Malcolm Turnbull said on Saturday, promising to spend A$15 million (US$11.6 million) on boosting the capability of anti-graft agents to track down money at home and abroad. Graft has become a politically charged issue in Australia, with both the government and opposition promising to crack down on multinational tax avoidance and impose extra regulations on the banking sector as the country heads toward an early election - expected in July. Tax authorities are investigating more than 800 people for possible tax evasion in connection with a law firm based in the tax haven of Panama. Oil market
Reliance looking at longterm supplies from Iran Reliance Industries, India’s biggest oil refiner, said it is looking to buy more crude from Iran as the company seeks to rebuild ties to benefit from shorter shipping distances. The company had made small purchases from Iran in the current quarter and was currently engaged in talks for bigger supplies, indicating that it could also get into a longterm supply contract, said V Srikanth, Reliance’s joint chief financial officer. India is set to import at least 400,000 barrels per day (bpd) of Iranian oil in the year from April 1.
14 Business Daily Monday, April 25 2016
International In Brief U.S. relations
Cuba lifts sea ban for citizens Cuba said on Friday it would lift a ban on Cuban-born citizens entering and leaving the Caribbean island by commercial vessels, opening the way for U.S. cruise operator Carnival Corp to set sail for the country from Miami next week. The decision is a sign that steps to normalize relations between the two countries continue despite anti-U.S. rhetoric from Cuba’s leaders seeking to reassure hardliners following U.S. President Barack Obama’s historic visit to the island. Obama has made it easier for U.S. citizens to travel to Cuba, but has not totally lifted restrictions. Sovereign borrowing
IMF says Mozambique admits hidden debt The International Monetary Fund said on Saturday that Mozambique has admitted to having over one billion dollars of undisclosed debt and the two sides were now evaluating the implications of this disclosure. The IMF learned of the undisclosed borrowing last week but Mozambique’s Finance Minister Adriano Meleiane initially dismissed the suggestion, speaking only of “some confusion”. Prime Minister Carlos Agostinho do Rosario then flew to the United States earlier this week to meet with IMF Managing Director Christine Lagarde and a finance ministry team worked with the IMF Mozambique staff to explain the borrowing. Creditors’ victory
Argentina paying holdouts after 14 years Argentina paid creditors on Friday who had refused debt restructurings after a record 2002 default, closing the book on nearly a decade of messy litigation as new President Mauricio Macri embraces global financial markets. U.S. District Judge Thomas Griesa in Manhattan confirmed the payments and issued an order allowing Argentina to resume servicing its renegotiated bonds, lifting an injunction that had triggered another default in 2014. “This payment agreement will allow us to reconnect with the world,” Finance Minister Alfonso Prat-Gay said in a statement. Restructure
Halliburton says it cut 6,000 jobs in Q1 Halliburton Co said it cut more than 6,000 jobs in the first quarter, during which revenue slumped 40.4 percent and it took a US$2.1 billion restructuring charge mainly for severance costs and asset write-offs amid the prolonged slump in oil prices. Halliburton also postponed its earnings conference call to May 3 from April 25 to accommodate the April 30 deadline to close its acquisition of Baker Hughes Inc, the company said in a statement after the U.S. market closed on Friday. The No.2 oilfield services provider is scheduled to report first-quarter results today.
President Barack Obama takes part in a town hall meeting at the Lindley Hall in London, 23 April 2016. Referendum positioning
Obama says post-Brexit UK-U.S. trade deal could take a decade He added that Britain would not get preferential treatment over the EU when it came to negotiating a new trade deal.
A
trade deal between Britain and the United States could take five to 10 years to negotiate if Britain votes to leave the European Union in a June 23 referendum, U.S. President Barack Obama told the BBC in an interview broadcast yesterday. Obama, who is in the final nine months of his presidency, has spent the last three days in London urging Britons to stay in the EU as the British
public prepares to vote on whether to remain a member of the bloc. “It could be five years from now, 10 years from now before we’re actually able to get something done,” Obama told the British broadcaster, adding to his earlier warning that Britain would find itself at ‘the back of the queue’ for a new trade deal with the United States if it left the EU. Obama’s visit and decision to intervene in the EU debate has angered the Eurosceptic “Out” campaign, which has repeatedly argued that Britain could easily negotiate deals and get better terms outside the EU. Answering that criticism, Obama said that his involvement had been justified because of the two countries’ special relationship, and that he hoped he had been able to persuade some British voters.
“My hope is, is that this is something that would have some influence on how voters think,” he said. Obama added that Britain would not get preferential treatment over the EU when it came to negotiating a new trade deal. “The UK would not be able to negotiate something with the United States faster than the EU,” Obama said. “We wouldn’t abandon our efforts to negotiate a trade deal with our largest trading partner, the European market.” He said he hoped to conclude talks on the Transatlantic Trade and Investment Partnership - a trade deal between the EU and the United States - by the end of his term in office, although he said the agreement may not be ratified by the U.S. Congress before he leaves his post. Reuters
Eurozone
EU finance ministers to consider focusing on spending cap The ministers were also in favour of shifting the focus of budget plans more to the medium term from a year-by-year assessment. European Union finance ministers agreed on Saturday to discuss whether they can regain some control over a morass of EU budget rules by focusing mainly on an annual spending cap as the best measure of compliance. Years of changes and additions to EU rules, called the Stability and Growth Pact, have made meeting targets extremely complex, prompting an attempt to simplify them, European Commissioner Vice President Valdis Dombrovskis told a news conference after the meeting of EU finance ministers. “We did not discuss how to change the Pact, just how to choose the indicators to assess the compliance with the Pact,” Dutch Finance Minister Jeroen Dijsselbloem said. The Dutch, who currently preside over the EU, proposed that the ministers consider using a single indicator with which to judge budgetary compliance, called the expenditure rule. It already exists in EU law as one indicator to be used to judge the fiscal performance of an EU country, but has so far been more in the background. The focus until now was on the development of the structural budget balance, a measure that strips off changes to budget revenue and expenditure stemming from the phase of the business cycle as well as all one-offs.
Because the structural deficit is a complex and volatile indicator, the Dutch instead proposed putting more emphasis on the expenditure rule, which says a government cannot increase annual spending more than its medium-term potential growth rate. “It is directly in the hands of finance ministers. It gives us more guidance in the process of designing the budget. It says in advance what you have to do, and you have the control in your hands,” Dijsselbloem said. He said that while the structural deficit, which is the key indicator mentioned in EU economic legislation, was a valuable theoretical concept, it could not be directly controlled by finance ministers. Dijsselbloem said EU deputy finance ministers would further work on what measurement to use to better assess compliance and the ministers would return to the discussion in the third quarter of 2016. The aim of the EU budget rules, created in 1997, is to keep nominal budget deficits below 3 percent of gross domestic product and public debt below 60 percent. But as the rules were revised in 2005, 2011 and 2013 to take account of economic and political realities and to incorporate intergovernmental treaties, they became more and more complex.
“The sheer number of indicators in the current framework poses a massive challenge for the national implementation of the fiscal framework,” the Dutch presidency said in a paper prepared for the ministers’ meeting. “It contains targets, upper limits and benchmarks for the nominal balance, structural balance, expenditure growth and debt development,” the paper said. The structural budget balance is important because EU laws oblige governments to strive towards a budget close to balance or in surplus in structural terms. But it is complicated because it has to strip out commodity price shocks, housing, stock and other asset price cycles, output composition and absorption effects and one-off factors. The Organisation for Economic Cooperation and Development pointed out that changes in revenues as a result of oil price changes, or interest payments as a result of debt growth, are neither cyclical nor discretionary and yet they are part of the structural balance. The ministers were also in favour of shifting the focus of budget plans more to the medium term from a year-by-year assessment. Reuters
Business Daily Monday, April 25 2016 15
Opinion Business Wires
Times of India A break-up of credit numbers shows that growth in debt is being driven by the personal loan segment, particularly housing and credit card outstanding. Within industries, credit growth shows a concentration of risk in stressed sectors like iron and steel, and power and telecommunications in the infrastructure segment. The outstanding per credit card stood at Rs 8,668 as of February 2016 — a rise of 15.5% year-on-year. This has happened despite wholesale prices not going up during this period. Even if consumer price inflation is factored in, the rise in debt is significant.
Philstar Fitch Ratings said the completion of the merger between Land Bank of the Philippines and Development Bank of the Philippines would likely face delay with the scheduled change in leadership in June. “More tangible progress on the merger could lead Fitch to reassess the sovereign’s propensity to provide support, although we see significant uncertainty around merger completion in light of presidential elections next month,” the debt watcher said. President Aquino, who is scheduled to step down on June 30, issued EO 198 approving the merger of Landbank and DBP to create the country’s second largest bank.
The Korea Herald South Korean construction companies are set to sign a series of big development projects in Iran when a business delegation visits the Middle Eastern nation next month to promote bilateral economic ties, industry officials said Saturday. President Park Geun-hye is to visit Iran from May 1-3 to discuss ways to promote business ties between the nations, leading a delegation of some 200 businesspeople... Leading Korean builders plan to set memorandums of understanding and preliminary agreements on building railway, dam, petrochemical plant and hospitals, with the value of contracts estimated around 15-20 trillion won (US$1317 billion), according to industry officials.
Taipei Times Representatives of the pig farming industry reiterated their opposition to imports of US pork containing traces of the leanness-enhancing agent ractopamine, and threatened to stage a large protest if the government lifts a ban on imports of pork containing the drug. Swine Association secretary-general Chang Sheng-chin said the group has been consistent in its objections to any imports of pork containing traces of ractopamine… Canada and the US sell pork with and without traces of the additive, and the two countries should continue to only export ractopamine-free pork to Taiwan, he said.
The post-crisis economy’s long debt hangover
T
he meeting of G-20 finance ministers and central bank governors in Washington, DC two weeks ago concluded on a sour note. Small wonder: Global growth prospects have dimmed amid a variety of risks now emanating from both advanced and developing countries. The meeting’s participants addressed – yet again – the need for greater policy coordination, more fiscal stimulus, and a variety of structural reforms. And that discussion has become more urgent, given the widespread view that monetary policy may not have much ammunition left, and that competitive devaluations would do more harm than good. But with the largest economies, nearly eight years after the global financial crisis, burdened by high and rising levels of public and private debts, it is baffling that comprehensive restructuring does not figure prominently among the menu of policy options. Indeed, for the global economy, debt restructuring is the proverbial elephant in the room. In the early stages of the financial crisis of 2008-2009, Kenneth Rogoff and I noted that recovery from severe financial crises are protracted affairs, as it takes time for households and firms to work down the debts accumulated during the boom. At the same time, banks, faced with a surge in nonperforming loans and compromised balance sheets, may be unable or hesitant to engage in new lending. Delays in cleaning up balance sheets are among the factors that impede recovery and make post-crisis recoveries different from typically sharper business-cycle rebounds. In a follow-up study, we documented the trajectory of per capita income following the 100 worst financial crises since the 1860s. We found that it took a little more than seven years, on average, for the advanced economies (as they are defined today) to reach the pre-crisis level of income; the median recovery took about six years. The decline in per capita income from its peak at the onset of the crisis to its trough at the recession’s bottom averaged about 9.6% for this group. Crisis-related output collapses for emerging markets were worse. How does the modern post-crisis experience compare to its historical counterparts? The International Monetary Fund’s latest World Economic Outlook, which offers projections for per capita GDP growth (among numerous other indicators) through 2021 for most of the world’s economies, facilitates the appraisal.
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Carmen Reinhart Professor of the International Financial System at Harvard University’s Kennedy School of Government.
France, Germany, Greece, Iceland, Ireland, Italy, Netherlands, Portugal, Spain, the United Kingdom, and the United States all had systemic financial crises. Two of the 11 (Germany and the US) had a shorter road to recovery than the historical experience for the advanced economies. Ireland and the UK are next in recouping lost income (see table). If the IMF projections are taken at face value, the median time it takes to reach the pre-crisis level of income for the 11-country group will be about nine years. By 2021, Greek and Italian per capita income will stand at about 14% and 9%, respectively, below their 2007 level. The Greek crisis, which is far from over, is tied for tenth place among the worst 100 historical crises. Even setting aside the more charged and controversial restructuring of sovereign debt, the write-off of private debt incurred during the boom (often under a very rosy set of assumptions about borrowers’ future income and wealth) has been an integral part of the resolution of banking crises through much of known history. Notable exceptions include the “evergreening” of bank loans through the years in the aftermath of Japan’s crisis in the early 1990s and Europe’s on-going crisis, which is fast approaching the decade mark. The anaemic recovery in many advanced economies (even when compared to other severe crises) owes much to the prevailing “extend and pretend” approach to debt. European banks since the crisis have largely been kept busy buying government debt and evergreening (in Ponzi-scheme fashion) private pre-crisis loans. As difficult as the foreclosure episode was in the US, it enabled borrowers and banks to adapt to the collapse of the housing bubble and to move on. Earlier episodes, ranging from the Scandinavian crises of the early 1990s to the Asian crisis of 19971998, produced a much faster pace of deleveraging. One can only hope that China’s approach to dealing with its internal private and sub-sovereign debt does not adhere to the Japanese-eurozone timetable. Project Syndicate
The anaemic recovery in many advanced economies (even when compared to other severe crises) owes much to the prevailing “extend and pretend” approach to debt.
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16 Business Daily Monday, April 25 2016
Closing Plug-in automobiles
Toyota to launch hybrid cars in China in 2018 plug-in hybrid versions of the Toyota Corolla and Toyota Motor Corp plans to sell heavily electrified, so-called plug-in hybrid cars in China starting in 2018, its head of China operations, Hiroji Onishi, said yesterday. The plan is aimed at taking advantage of generous purchase incentives made available to Chinese consumers buying such fuel efficient nearall-electric cars, along with all-electric battery cars in China. Onishi told a media event ahead of the Beijing auto show that the Japanese carmaker plans to launch
Levin in China in 2018. “Our decision to launch plug-in hybrid versions of the Corolla and the Levin reflects the depth of our resolve and commitment to the Chinese market,” Onishi said. He did not say whether Toyota plans to produce those cars in China, but the company officials at the announcement said that was a possibility. To qualify for China’s incentives for plugin hybrids, Toyota officials at the event said it would have to meet certain conditions. Reuters
Kingfisher Airlines case
India revokes tycoon Mallya’s passport over loan probe The Enforcement Directorate has reportedly accused him of siphoning off money from Kingfisher to buy property abroad.
I
ndia’s government has revoked embattled former airline boss Vijay Mallya’s passport, after he failed to appear before investigators over a loan probe, the foreign ministry said yesterday. Mallya, a part-owner of the Force India Formula 1 team who used to run a liquor empire and Kingfisher Airlines, left India on March 2 despite calls for his arrest and is believed to be in Britain. The 60-year-old, once dubbed the “King of Good Times”, had his diplomatic passport suspended earlier this month after he failed to appear before India’s financial crimes agency in connection with the loan case. Ministry of External Affairs spokesman Vikas Swarup said the decision to pull the passport was taken after Mallya’s unsatisfactory reply to three notices served by the Enforcement Directorate (ED) agency. “After having considered replies by Vijay Mallya, MEA revokes his passport under Passports Act,” Swarup said. The ED is looking into the finances
of Kingfisher Airlines, which ceased operating in 2012 leaving millions of dollars in unpaid bills, including of salaries of workers. An Indian court last week issued an arrest warrant for Mallya after he failed to appear for questioning at the ED, which is seeking his extradition from Britain.
The agency’s investigation relates to loans which the state-run IDBI bank made to Kingfisher Airlines, despite allegedly knowing it was suffering financial troubles - leading the bank to sustain huge losses. Mallya inherited United Breweries Group (UBG) from his father at the age of 28 and turned it into one of the world’s largest spirit makers, hosting extravagant yacht parties with Bollywood stars and politicians along the way. His profile rose further when he acquired a stake in the Force India F1 team and ownership of the Royal Challengers Bangalore cricket team. The Enforcement Directorate has reportedly accused him of siphoning off money from Kingfisher to buy property abroad - a claim the company denies. Separately, he is being chased by a group of mostly state-run banks
over US$1.34 billion in unpaid loans made to the airline. Earlier this month the banks rejected his offer to repay US$600 million and told the Supreme Court they wanted him to return to India so they could negotiate with him personally over the total owed. His massive debt has become a symbol of Indian banks’ vast volume of bad loans - those already in default or close to it - which are seen as a threat to financial stability in Asia’s third largest economy. Critics say the government has not done enough to tackle the issue of wealthy individuals such as Mallya, who obtain huge loans which they later fail to repay. The businessman, who is also a member of India’s parliament, has denied absconding and has criticised the media for what he has called a “witch hunt”. AFP
Vijay Mallya used to run a liquor empire and Kingfisher Airlines.
‘Mallya left India on March 2 despite calls for his arrest and is believed to be in Britain’ Australian pre-election
Mourning departed
Rana Plaza collapse
Turnbull bets on property votes, decries tax plan
Nepal focusing on reconstruction
Bangladesh workers demand justice
Australia’s government ruled out curbing a tax break for property investors as it woos homeowners ahead of an expected July election. Prime Minister Malcolm Turnbull confirmed there will be no reform of so-called negative gearing, which allows investors to deduct the costs of owning a rental property, including mortgage interest payments, from their taxable income. That counters the opposition Labour party’s proposal to remove the break on existing properties from 2017, which the government says will savage the entire housing market. Turnbull is betting that Australians will recoil at the prospect of any threat to their house values, in one of the world’s most privately indebted nations. With his governing coalition neck-and-neck with Labour in recent polls, and his own popularity on the slide, the Prime Minister has mounted a campaign warning homeowners that removing negative gearing will be a significant blow to their personal wealth. The government has taken more than two months to announce its official stance on negative gearing, following the release of Labour’s policy in early February. Bloomberg News
Nepalese Prime Minister KP Sharma Oli offered tributes to those who lost their lives in the April 25 earthquake last year and prayed for the peace of departed souls yesterday, marking the first anniversary of the 7.9 magnitude devastating quake. Nepal is marking the first anniversary of the earthquake as per the Nepalese calendar by organizing rallies, condolence meetings and various memorial programs. Prime Minister Oli led a minute’s silence at a memorial program in the capital to remember those who lost their lives, sustained injuries and lost homes and livelihoods in the devastating quake. Nearly 9,000 people were killed in the quake. Deputy Prime Ministers, ministers, high-level government officials, representatives of diplomatic missions, security officials, among others, participated in the memorial function organized at historical nine-storey tower Dharahara premise, which completely collapsed in the quake and killed over 100 people. The government is conducting special programs from April 24 to 26 in 14 worst-hit districts focusing on post-disaster reconstruction. According to Post Disaster Needs Assessment report, the Himalayan country requires nearly US$7 billion for recovery. Xinhua
Thousands of Bangladeshi garment workers demanded justice on the anniversary yesterday of one of the world’s worst industrial disasters, the collapse of the Rana Plaza factory complex that claimed over 1,100 lives. Survivors of the disaster, many of whom lost limbs when the nine-storey building came crashing down three years ago, laid flowers at the site and wept as they remembered the dead. Relatives of those killed, including some whose bodies were never found, recited verses of the Koran and prayed after gathering from early morning at Savar just outside Dhaka. “Three years have passed and still we don’t see any justice. No one has been held to account for one of history’s worst man-made disasters,” union leader Abul Hossain said as he led the protest. Police have arrested and charged the owner of the building with murder, along with 40 others - including factory officials and government inspectors who certified the flimsy complex as safe. But no one has yet been convicted over the disaster, which occurred after thousands of textile workers were forced to enter the building to start their shifts despite cracks appearing in its pillars one day before. AFP