Macau Business Daily May 10, 2016 by Business Daily

Court denies Galaxy brand appeal against Wynn Litigation Page 5

Tuesday, May 10 2016 Year V Nr. 1039 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Joanne Kuai Cyber heist

Technicians from SWIFT left Bangladesh Bank exposed to hackers, say police Page 8

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Curbing speculation

M&A rules

Foreign currencies trading on Mainland moves into the shadows Page 10

Beijing ready to adopt new stance easing shopping for companies abroad Page 16

A Degree of Discomfort Jinan donation

Local groups are to stage more protests. Urging the gov’t to rescind its 100 mln yuan donation to Jinan University. With calls for the top MSAR official to resign. And awarding legislators the power to review every grant for public projects that exceeds a certain amount. Meanwhile, local Jinan alumni and student associations have used local newspapers to support the donation. Page 2

PBOC moves Page 9

New plans for old age

Mug shot sales UnionPay Macau banks are requiring jewellery stores and pawnshops to upgrade UnionPay terminals. To those containing ID readers. All transactions will require customers to show ID for recording by the terminal. Page 3

Society Decision time. The Social Security Fund agrees with the recommendations of a consultant company. Which include exploring the establishment of a regular pension adjustment mechanism. And increasing contributions to the social security scheme. Page 4

24° 28° 24° 28° 24° 28° 24° 28° 25° 28° Today

20,156.81 +46.94 (0.23%)

Wharf Holdings Ltd/The

+3.08%

Link REIT

+2.06%

China Overseas Land &

-0.88%

Cathay Pacific Airways Ltd

-0.98%

Bank of East Asia Ltd/The

+2.91%

Hengan International Group

+1.82%

China Mengniu Dairy Co Ltd

+2.11%

Want Want China Holdings

+1.55%

China Merchants Holdings

-0.91%

China Resources Land Ltd

-1.10%

Tingyi Cayman Islands

-0.95%

Li & Fung Ltd

-1.12%

Source: Bloomberg

HK Hang Seng Index May 9, 2016

wed

thu

I SSN 2226-8294

fri

sat

Source: AccuWeather

Central efficiency A watchword for efficiency. The People’s Bank of China overshadows its counterparts in Japan, Europe and the U.S. in implementing monetary measures. The direct relationship between gov’t and domestic lenders multiplied the effect of such policies.

2 Business Daily Tuesday, May 10 2016

Macau

JINAN DONATION Local Jinan alumni and student associations support the 100-million yuan donation

Groups to protest Jinan donation on Sunday Four local groups are to stage protests urging the government to rescind its 100 million yuan donation to Jinan University but local alumni and student associations of the University have a different opinion.

official. Serving as the president of the trustees’ council of Macao Foundation, he has also been a vice chairman on the board of Jinan University since 2010. According to an announcement by New Macau, the demands for the Sunday rally would be the same as those for its petition on the same issue started last Friday which urges the SAR Government to rescind the donation, for the top official to resign, and to give legislators the power to review every grant for public projects that exceeds a certain amount.

Kam Leong kamleong@macaubusinessdaily.com

Love Macau to rally, too

inan University Macao Alumni Association posted a statement in at least nine local Chinese language newspapers yesterday backing Macao Foundation’s 100 million yuan (MOP123 million/US$15.4 million) donation to its Guangzhou-based alma mater, whilst at least four local activist groups announced protests for this Sunday urging the withdrawal of the donation. Local pan-democratic group New Macau Association announced yesterday that it would stage a demonstration against the donation from Tac Seac Square to the lawn in front of the Legislative Assembly Building at three o’clock in the afternoon on Sunday. The group queries the absence of beneficial treatment and regarding the donation of the Chief Executive Fernando Chui Sai On transferring benefits ‘to himself’, as the top

In addition, another local group Love Macau Association - headed by gaming-labour activist Cloee Chao is also staging a protest this Sunday against the donation. “Our rally will start at 3:00pm on Sunday from Tac Seac Square [and proceed] to Government Headquarters. There will be eight other associations joining us,” Ms. Chao told Business Daily in a phone interview yesterday. The Association submitted a petition to the Chief Executive yesterday, urging the official to withdraw the significant donation. “This donation reveals the government’s under-the-table operations and the situation of officials colluding with businessmen despite it being promoted as a transparent administration body,” the female activist told us, adding details of the protest would be announced today or tomorrow. Two other groups - the Bar-Bending Workers’ Association and Democratic

Action, which both petitioned to Macao Foundation yesterday, are also planning for protests on the coming Sunday. Last Wednesday, Jinan University announced that it had received a donation from the SAR Government worth 100 million yuan for the university’s two dormitories, which soon drew the public’s ire on the transparency of the Foundation’s grant of subsidies, as well as the Chief Executive’s integrity in avoiding conflicts of interest. The Government Spokesperson’s Office and Macao Foundation have both denied the allegations of transferring benefit to the Mainland institute last Saturday, stressing the donation is for cultivating local talent and would benefit Macau itself, in addition to urging the public to view the donation rationally.

Alumni group agrees with donation

Meanwhile, Jinan University Macao Alumni Association said in a statement in newspapers yesterday that the University’s application to Macao Foundation for the 100-million yuan donation meets the Foundation’s regulated procedures on granting subsidies. ‘As an alumni association, we fully support the SAR Government cultivating talent, as well as its principle of supporting education,’ it stated, adding the alumni group would establish a supervision group to oversee the use of the donation by the university. The group’s statement was signed by six other local student associations of the University.

‘The alumni association hopes more measures benefiting Macau students can be implemented in the future by communications with the University,’ it wrote. According to the Association, it claimed the amount of subsidies would be disbursed in two 50 million yuan instalments by Macao Foundation to the Mainland tertiary institute. The group, chaired by local businessman Ma Iao Hang, held a press briefing on Sunday stating the group’s stance on the donation, as well. In fact, Mr. Ma is one of the members of the trustees’ council of Macao Foundation that greenlighted the donation. The alumni association said on Sunday that the two dormitories that the donation is supporting are for Hong Kong and Macau students in the institute’s Guangzhou campus and Panyu new campus. The two dormitories, providing a total of 896 rooms, would be completed next March and next July, respectively.

Secretary Tam: Donation reasonable

Secretary for Social Affairs and Culture Alexis Tam Chon Weng commented yesterday that the amount of the donation is reasonable as it serves as the city’s ‘salute’ to the University which has cultivated a great number of local students. “After Jinan University has cultivated so much talent for the Special Administrative Region, to be frank, the 100 million yuan donation is not a high amount,” the Secretary told reporters on the sidelines of a public event yesterday. “For example, if we set up our own medical college in Macau, it would cost at least MOP10 billion. As such, in my opinion, donating this 100 million yuan to the University for educating Macau talent is worth it,” the official said.

Business Daily Tuesday, May 10 2016 3

Macau Transportation

289 taxi violations recorded in April

30.8 per cent of the total. The same The number of taxi violations reached announcement by the PSP reveals 289 in April, the Public Security Police that 35 drivers were prosecuted in the month for providing unlicensed taxi Force (PSP) announced yesterday. services. The police department added Of the total, 102 cases involved taxi that it would continue combating taxi drivers overcharging passengers, violations and illegal taxi services to which accounted for 35.3 per cent of the total, whilst drivers refusing to take ensure the rights and safety of local passengers accounted for 89 cases, or residents and tourists.

UnionPay

Finance

Tightened restrictions on UnionPay cards

Bank on a roll

Local banks are asking jewellery merchants and pawn shops to replace their UnionPay card terminals with new ones equipped with identification system as the city’s authorities tighten the restrictions of using the Mainland Chinese bank cards in Macau, Hong Kong Chinese language newspaper Economic Journal reported yesterday. The news outlet quoted local sources operating jewellery shops near casinos as saying that the replacement of card terminals required by Macau banks started recently. Meanwhile, Mainland Chinese customers using the UnionPay cards at shops with new card-terminals will have to show their identification documents, the details of which would be input into the new terminals.

The sources of the newspaper added that pawnshops in the city have also been required to change their card terminals, in addition to jewellery shops near casinos. They claimed every

UnionPay card transaction would now cost an extra 25 yuan service fee no matter the transaction is successful or not. In an email reply to Business Daily’s enquiry, the Monetary Authority of Macau (AMCM) referred to its statement dated last December, in

which it announced it would conduct a ‘new real-time monitoring system of Mainland bank cards’, implying a change of terminals was part of this implementation. AMCM’s December announcement indicated that the first phase of the implementation of the new system would focus on transactions related to UnionPay cards due to ‘comparatively high turnover incurred’, as well as on local jewellery and watches merchants. The authority also explained then that the new system would seek to ‘verify the genuine relationship between cardholder and the bank card in the process of acquiring goods or services in order to protect the lawful rights and interests of cardholders, merchants and banks’. K.L.

OCBC Weng Hang S.A., subsidiary of Singaporean bank group OCBC Wing Hang, saw a 13. 4 per cent yearon-year increase in profit after taxation for 2015, according to data published on the bank’s website. This increase amounted to MOP377 million, compared to the MOP332.5 million registered for the 2014 year. This comes after the parent company saw a 192 per cent increase in net profit for the same period – equating to HK$2.03 billion, reported Business Daily. The Macau-subsidiary – Banco Weng Hang, with 13 branches in the territory – along with Hong Kong’s Wing Hang Bank was acquired by the OCBC group in 2014 in a HK$38.4 billion deal, adding to the group’s current total of 94 branches and offices in Macau, Hong Kong and China under OCBC Wing Hang.

Operating income for the local subsidiary accounted for MOP777 million, with operating expenses amounting to MOP336.9 million, while interest income made up MOP874.5 million for the bank in the 2015 year. The group registered loans and advances to customers and other accounts totalling MOP22.44 billion and cash and balances with banks, central banks and other financial institutions amounting to MOP1.2 billion for 2015. Available-for-sale financial assets amounted to MOP1.85 billion and total assets amounted to MOP32.8 billion according to the 2015 data. Total liabilities amounted to MOP29.4 billion, with current, fixed, savings and other deposits of customers making up MOP28.38 billion over the year. Total equity equalled MOP3.4 billion at year-end.

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4 Business Daily Tuesday, May 10 2016

Macau Aviation

AACM inks agreement on delta region

to hold meetings and communicate with each other regularly to maintain closer ties in the coThe Civil Aviation Authority of ordination of air traffic management Macao SAR (AACM) signed an agreement on enhancing air traffic in the Region. According to AACM, the three regions have been holding management co-operation in the regular meetings to discuss the Pearl River Delta Region with the aeronautical authorities of Mainland long term development of air traffic China and Hong Kong yesterday in management in the delta region Hong Kong. The three parties agree since 2004.

Pensions Gaming revenue decrease to affect old age pensions

Report: Future constraints on Social Security Fund

Following the report the Social Security Fund has reinforced its intention to implement the increased amount of contributions as soon as possible to increase the revenue of the Fund. Nelson Moura nelson.moura@macaubusinessdaily.com

report by financial advisory company Willis Towers Watson for the Social Security Fund (FSS) warns of possible future instability in pension funds created by falling gaming revenue in the MSAR and suggests changing the system regulating old age pensions. The report - titled ‘Extensive Study - Elderly Early Retirement Pension’ - indicates that the recent slowing down of gaming revenues will force the FSS to ‘adjust the government allocation amount [and] is a good example of how the single recipe can cause instability to the FSS’. The report mentions this in its section focused on the future development of social security in Macau. While in other countries when the pension system requires contributions by employers the pension amount is calculated as a percentage of salary, in the MSAR the FSS old age pension amount is calculated differently. In the MSAR, the old age pension for anyone aged 65 or above or people aged 60 or above but proved to show apparent signs of premature ‘slowing’ by the FSS medical board, has lived in Macau for at least seven years, and has made contributions to the fund for at least 60 months, will see his or her pension calculated by a coefficient involving the maximum amount of the pension multiplied by the total amount of months the applicant contributed. The report believes this fixed system will be affected by decreased government gaming revenue due to FSS’s dependence upon government money, and since the government increased the amount of pensions for

the elderly from MOP1,000 (US$125) in 1998 to MOP3,350 in 2015, despite the amount of contributions by employers and workers not increasing. The Social Security System in Macau is composed of an obligatory contribution system and arbitrary contribution system, with employees and employers who have employment relations required to make an obligatory contribution of a total of MOP45 per month to the FSS according to the fund website.

Government dependence

Last year, Business Daily reported how the FSS has seen its expenses for 2014 increase at a pace that is almost three times that of the revenue it received as the growth in gaming income slowed during that year. This annual report also reveals how revenue increased 8.61 per cent yearon-year to MOP14 billion (US$1.79 billion) while expenses spent mostly on supporting the pension and allowances increased 22.8 per cent totalling MOP2.85 billion for the year. The study reflects this dependence on government support by

“If both employers and employees fail to reach a consensus during the year, the SAR Government will make a governmentled decision on the premise of considering the comments from employers and employees and the interests of the majority of residents in overall society.” Social Security Fund

mentioning how the MSAR Government contributes 90 per cent of the FSS annual budget while employers and workers’ contributions comprise only 1 per cent, with the contribution by employers and employees only increasing by 2.32 per cent year-onyear to MOP184.34 million. Meanwhile, government funds and gaming revenue comprise 92 per cent of the old age pension funds while employers and workers’ contributions total only 8 per cent. However, no consensus was established between the employer and employee parties in the Standing Committee for the Social Co-ordination of Social Affairs regarding how to enhance the current contribution from MOP45 to MOP90, Business Daily reported last year. ‘In the future, due to the increase in the amount of pensions and other benefits caused by inflation and other elements, keeping the same amount of employers and workers’ contributions will reduce the value of the FSS, creating a possible total dependence upon the government,’ the consulting company reckons in the report. According to the report, old age pensions should take into account six main elements such as equity, sustainability and stability, meaning a pension system should be able to survive ‘economic, demographic, political, and external factors,’ while the current system in the MSAR doesn’t take into consideration economic stability and demographic factors. The report also stated how demographic alterations in Macau will pressure the FSS ‘since according to the Statistics and Census Bureau (DSEC) the proportion of the population over 65 years will increase to 23.7 per cent until 2036; while the active population between the ages of 15 and 64 will decrease to 61.4 per cent. Meaning that in the elderly retirement system the number of pension beneficiaries will increase while the percentage of contributors will decrease,’ the report added, stating if this tendency continues the elderly pension system will be progressively damaged.

Changing the pension formula

The financial advisory company believes the FSS should ponder ‘a

gradual increase in the amount of contributions until a set goal, maybe creating a plan for the next years,’ believing this way the new measures ‘will be easy to accept by the different sectors of society’ since the level of contributions hasn’t been raised for so long. The company suggests the FSS create a new method to calculate the old age pension amount, while evaluating the best amount of contributions by each sector of society. ‘We suggest the FSS adopt accumulated inflation as the base for a mechanism to decide old age pension increases,’ the consulting firm mentioned in the report, adding that denominators such as Consumer Price Index (CPI) and Gross Domestic Product (GDP) should also be taken into consideration. The report believes that the increase of old age pension could always be adjusted with regard to inflation, avoiding the necessity to reduce the pension amount in the event of deflation in the territory. This way the FSS will have a system to regulate the increase in old age pensions, regularly deciding the increase and the margin of increase of pensions according to these indicators. ‘It will then have a more transparent regime,’ reads the report.

Long-term protection

In response to a Business Daily enquiry, the FSS agreed with the two report proposals of gradual increase of contributions and a new mechanism for regulating the pension increase, claiming the FSS has been committed to co-ordinating both employers and employees in reaching a consensus on increasing the amount of contributions to MOP90, stating, however, that a difference still exists in the proportion of contributions between the two parts. FSS stated that increasing the amount of contributions is a manifestation of being responsible and shared responsibility and that society also expects to implement the increased amount of contributions as soon as possible and increase the revenue of the Social Security Fund in order to build a social security system that is stable and operates in a sustainable manner, thus providing long-term protection for residents. ‘For this reason, the SAR Government this year will carefully consider various factors, such as current economic development, the SAR Government’s overall labour policies and measures, as well as comments from employers and employees, making every effort to co-ordinate, narrowing the difference between employers and employees, thus facilitating the increase of contributions,’ said FSS. ‘If both employers and employees fail to reach a consensus during the year, the SAR Government will make a government-led decision on the premise of considering the comments from employers and employees and the interests of the majority of residents in overall society.’ The FSS also stated that the Chief Executive proposed last year a feasibility study on the establishment of a funding mechanism that links the Social Security Fund to the fiscal surplus which will be announced to the public in the second half of the year.

Business Daily Tuesday, May 10 2016 5

Macau E-payments

WeChat Pay accepted for hotel bookings

group the first integrated resorts in Macau to accept this smartphone payment Smartphone owners with service for room bookings, WeChat Pay will now be able to book hotel rooms for allowing visitors to use the popular Chinese app to Sands Resorts Cotai Strip stay at The Venetian Macao, Macao and Sands Macao hotels, according to a Sands Conrad Macao, Cotai Central, press release. The company Holiday Inn Macao Cotai Central and Sands Macao. says this will make the

SMEs

Shop visiting service supporting local SMEs Local SMEs express positive feedback on the shop visiting service by DSE and the Industry and Commerce Associations. Annie Lao annie.lao@macaubusinessdaily.com

acau SAR Government has been assisting the development of local SMEs by offering ‘shop visiting’ services to assist the SME’s development which has received positive feedback from them, according to a press release issued yesterday by the Macao Economic Services (DSE). DSE and the Industry and Commerce Associations have been visiting SMEs to introduce the support that the SAR Government can provide to them such as understanding their operational situations, needs and making suggestions. The service centres under each Industry and Commerce Association collects SME programme application materials and answers the applicants’ questions on the SME Assistance Programme. Since SMEs have been suffering from a shortage of human resources, this can help them to reduce pressure on sending people to hand in their applications in person. The services were launched

in November last year together with The Industry and Commerce Federation of Macau Central and Southern District, The Industry and Commerce Association of Macau Northern District and The Industry and Commerce Federation of Islands of Macau.

Positive feedback from SMEs

The business owners generally agree with the ‘shop visiting’ initiative that helps the SMEs understand various support programmes offered by the SAR Government. According to the owner of a shop located in the Central District in order to improve the shopping mall’s environment, the mall has adjusted its layout, and plans to move

the shops in the mall on the higher level to the lower level. While most of the shop owners are willing to co-operate with the move, the costs of relocation and renovation are not all affordable to each of them, causing some of them to have financial problems. The SME Assistance Programme and Youth Ent r e p r e n e u r s h i p As s i stance Programme offers MOP600,000 (US$75,044) and MOP300,000 free interest loans, respectively, to help with the renovation costs they need to pay, which can help to relieve the pressure on the shortage of funds that SMEs typically face. Currently, Macau’s economy has entered into a period

of adjustment and it has been affected by the regional business environment, which makes only relying on tourists very narrow, thus the business owners now have to rely on the neighborhood to support their businesses. Furthermore, shop rental expenditure puts pressure on their operational costs, while the shortage of human resources is also a long-term problem for SMEs. Some businesses said they would consider applying for the SME Assistance Programme and the Youth Entrepreneurship Assistance Programme following consultation during the ‘shop visiting’ by getting a better understanding of these programmes. Moreover, some other

businesses said that they have not got the time to submit the application in person so now the local Industry and Commerce Association send staff to reach out to them to collect their application forms, which can help save their time by going to the government departments to submit the forms, helping them focus more on their businesses. Some of the businesses from the Southern District and Northern District said that due to Typhoon Hagupit’s impact applications for the loans offered by DSE were numerous, and now all the loans issued have almost been repaid. As the SAR Government mentioned in its Policy Address, after repaying the first loan, the opportunity of getting a second loan is generally supported by the local business owners and they believe that the second loan can help them develop their businesses and reduce the pressure on operating costs.

Court

Tourism arrivals up 4.8 pct in May’s Golden Week

Court denies Galaxy brand appeal against Wynn

Visitors returning to Macau

The Court of Second Instance has denied an appeal by Galaxy Entertainment Licensing Limited (Galaxy) for an action against Wynn Resorts Holdings, LCC regarding brand confusion, according to a court statement released yesterday. The case dates back to 2013 when Wynn registered a trademark for the use of the ‘SW’ logo in drinks and food at the Intellectual Property Department of the Macao Economic Services (DSE). Galaxy contested the trademark on the grounds that the consumer would be induced to confuse the logo with that of StarWorld Macau Casino, belonging to the Galaxy group, an argument rejected by the Judiciary Council of Macau. Galaxy then appealed to the Court of Second Instance. The court considered

that although the brand comprises only two letters, they have enough distinctive capacity for a basic trademark, thus the ‘average consumer wouldn’t associate the ‘SW’ logo with the recurring image from ‘StarWorld’. In fact, in this case there is no cause or fundament to support the association since ‘SW’ can be the abbreviation for many words,’ reads the court statement. N.M.

MGTO director says the average occupancy in local hotels during the holidays was “encouraging”. Total visitor arrivals represent an increase of 4.8 per cent on May 1 year-on-year, to about 529,000 visitors in the city, said Helena de Senna Fernandes, Director of the Macao Government Tourism Office (MGTO), according to local media reports. According to Ms. Senna Fernandes, visitor arrivals from Mainland China, Hong Kong and Taiwan all registered increases during the holiday period, with the number of visitors from Taiwan increasing more than 10 per cent. “The number of Mainland Chinese visitors also increased by 7 per cent and visitors from Hong Kong increased by about 3 per cent. Since May 1 is not a traditional public holiday for foreign visitors, that’s why the amount of foreign visitors dropped,”

Ms. Senna Fernandes said. According to the MGTO head, 3 to 5-star hotels had an occupancy of about 90 per cent on average during the holidays, whereas the budget hotels had an occupancy rate of about 80 per cent. “It’s a very encouraging performance compared to last year, since the number of hotel rooms [have] increased and Macau still had a good occupancy rate, which is a very good result,” she remarked. The hotel room price fell by about 10 per cent year-on-year during the holidays, according to Ms. Senna Fernandes, who believes that the economic environment and other factors have affected the hotel industry enabling, as a result, cheaper hotel rooms and discounts for visitors. A.L.

6 Business Daily Tuesday, May 10 2016

Macau Opinion

David Fickling

Vegas is an ace in the hole for Macau casino operators It’s great having a hand full of aces if that’s the highest card in the deck. If the rules change and it reverts to being the lowest, you’re in trouble. That’s a lesson that Macau’s casino operators have been learning during the long descent for gambling spending that followed the peak at Lunar New Year in 2014. Exposure to the territory’s gaming tables used to be a cherished asset. These days it looks increasingly like a liability. For an illustration of how things have changed, take a look at Las Vegas. MGM’s vast Bellagio hotel, with its art gallery, Cirque de Soleil shows, and almost 4,000 rooms, has been a bellwether for the city’s pursuit of the mass market ever since it opened in 1998. For the past five years, EBITDA has trailed that from the 579-room MGM Macau, thanks in large part to high-roller rooms where HK$772 billion (US$99 billion) was wagered during 2014. The tables have now turned again: The American resurgence is in line with a trend that’s played out across the six major casino companies operating in Macau. With no way to shield themselves against the slump in gambling volumes, the Hong Kong-traded casinos have suffered the sharpest drop in earnings . SJM’s EBITDA has fallen 69 per cent since peaking in the six months through June 2014, while Galaxy Entertainment’s is down 47 per cent. Casinos with U.S. listings or parent companies have other irons in the fire and have performed somewhat better. Melco Crown and Las Vegas Sands, which have resorts in Manila, Singapore and the U.S., are down 38 per cent, while Wynn Resorts has dropped 39 per cent. MGM Resorts, the least Macauexposed of the four U.S.-traded companies, has slipped a mere 7.9 per cent. While there have been some signs that Macau’s prospects are improving, don’t expect its difficulties to disappear anytime soon. Hotel occupancy has been the wrong side of 80 per cent for most of the past year, and the pressure will only increase: Sands, MGM, Wynn, and SJM plan to add more than 8,000 rooms to the existing stock of 32,000 by the end of 2017, which ought to depress room rates. Meanwhile, casinos’ investment plans were based on projections of robust gambling growth that’s showing no signs of re-emerging, though revenues appear now to be stabilizing after a Chinese government crackdown in 2014. China would like the territory to reorient toward family-friendly mass tourism. Vegas carried out that switch years ago, and gambling accounts for only 35 per cent of revenue these days. Investors willing to bet that casino destinations can make the switch from sin city to convention playground need not wait for Macau’s plans to come to fruition. They may be better off focusing on the town that’s already performed that maneuver. Bloomberg

Gaming Local operations weigh down parent company

Wynn hedges Palace bets Kelsey Wilhelm kelsey.wilhelm@macaubusinssdaily.com

ynn Resorts Ltd. continues to shoot for an opening date in ‘the third quarter of 2016’, given that ‘the general contractor is obligated to substantially complete the project in the first half of 2016 for a guaranteed maximum price of HK$20.6 billion,’ the company announced in a filing on the Hong Kong Stock Exchange yesterday. Despite the fact that the general contractor has requested the reversal of liquidated damages, additional compensation and extensions of time, the casino resort giant notes that ‘the performance of the general contractor is backed by a full completion guarantee given by CIMIC Group Limited (formerly Leighton Holdings Limited), the parent company of the general contractor, as well as a performance bond for 5 per cent of the guaranteed maximum price’. Wynn Macau SA and Palo signed a guaranteed maximum price construction (GMP) contract with Leighton Contractors (Asia) Limited in mid-2013, making the contractor responsible for both the construction and design of the Wynn Palace project and the company states that they ‘view our assessment of liquidated damages as fully supported by the terms of the GMP contract and we view the general contractor’s requests as unfounded and intend to adhere to the terms of the GMP contract as agreed with the general contract’. The group incurred pre-opening costs related to Wynn Palace in the first

quarter of 2016 amounting to US$26.3 million, compared to the US$9.5 million in the same quarter last year. The developer, owner and operator owns 72 per cent of Wynn Macau, Limited, for which it saw net revenues of MOP608.2 million in the first quarter of this year, ‘continue to experience a significant slowdown in activity from our premium customers with a reduction in overall visitation to our Macau Operations,’ pointing out a 13.9 per cent decrease in casino revenues year-on-year to US$571.8 million. Wynn Macau Limited and its subsidiaries held, in the first quarter of this year ‘US$857.5 million in cash’.

Macau down

Room revenues for the operator increased 2.7 per cent to US$135.6 million for the quarter ending March 31, compared to the same period last year, due to an increase of US$5.5 million ‘driven by an ADR [average daily rate] increase of 5.3 per cent

offset by a decrease of US$2.0 million’ from Macau operations, states the filing. Occupancy for the first quarter stood at 94.8 per cent for Macau operations, with total revenue accounting for US$30.45 million and average daily rates of US$324. Local food and beverage revenues for the operator saw a US$2.1 million drop for the quarter, due to a ‘decline in revenues at our restaurants, with overall entertainment retail and other revenues for the group seeing a 9.3 per cent drop to US$82.0 million ‘primarily due to a decline in revenue from retail shops at our Macau Operations’ The group expects that ‘our Macau Operations will fund Wynn Macau SA and Wynn Macau Limited’s debt service obligations with existing cash, operating cash flow and availability under the Wynn Macau Credit Facilities’. However, the group notes that it ‘cannot assure’ shareholders ‘that operating cash flows will be sufficient to do so,’ noted the filing.

Gaming

Union Gaming: Junkets not in loop on VIP proxy betting ban The enforcement of the proxy betting ban ‘will be essentially up to the casino concessionaires to self-police,’ according to a report published by Union Gaming yesterday. The group found that ‘the directive was given directly to casino concessionaires […] rather than junkets […] some of whom were taken by surprise’. The group states that ‘it doesn’t appear the concept of banning proxy betting

had come up in any meaningful way as part of the ongoing discussion the junkets are having with Macau’s gaming regulators,’ noting that the directive also is not a direct ban on proxy betting, rather a ‘backdoor ban’ on the ‘use of mobile phones […] at any gaming table in Macau – mass or VIP’. Given current conditions, the analysts see that the burden falls on the

operators to notify the Gaming Inspection and Co-ordination Bureau (DICJ) if customers are using phones at a table, making it ‘self-compliance’, which the groups sees ‘likely suits some operators more than others.’ The group predicts that Sands China will have ‘virtually zero’ exposure to the changes, given its self-ban in 2014 and that ‘VIP GGR exposure’ for US operators ‘to proxy is likely in the low single digit range of VIP GGR’ whereas ‘Asian operators could have exposure in the mid-single digits+ range’. K.W.

Business Daily Tuesday, May 10 2016 7

Macau

Savan Vegas Hotel and Casino. Gaming

Lao Holdings N.V. files three legal actions against Lao Gov’t. Locally established company seeks damages for holding company in impending Lao casino resort sale. Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

ao Holdings N.V. has filed three separate legal actions ‘in response to specific illegal actions by the Government of Laos and its agents’ in regard to Lao Holdings’ investments in Laos – specifically related to the Savan Vegas Hotel and Casino, Ferry Terminal and Lao Bao Slot Clubs, according to a press release by the company. Lao Holdings owned 80 per cent of the casino hotel complex through its 100 per cent stake in Sanum Investments Limited - a company established in Macau in 2005 and acquired by the holding company in 2012; with the remaining 20 per cent ownership of Savan under control of the Laos Government. The first of the actions seeks to reopen a claim dating to 2012 for US$890 million, disputed under the arbitration rules of the International Centre for the Settlement of Investment Disputes (ICSID). Lao Holdings, according to the press release ‘brought that claim against Laos because the government had violated its investor agreements by assessing huge taxes on their investment, Savan Vegas, and was threatening to seize the hotel as payment.’ The ‘huge taxes’ mentioned included ‘the adoption of an overwhelmingly expropriatory 80 per cent tax on gaming revenues (90 per cent when coupled with Laos’s VAT rate), which would have applied exclusively to Claimant [Lao Holdings via Sanum] as all other similarly-situated gaming businesses were operated under flat tax agreements,’ states the notice

of arbitration, ‘and would have put Savan Vegas casino out of business.’

Lost promises

The group agreed to suspend the arbitral claim against the government in exchange for ‘certain promises’ made between the ‘Government, Lao Holdings and Sanum, all of which the government breached,’ information provided by the company states. The ‘parties agreed that the Savan Vegas Casino and two slot clubs’ owned by Lao Holdings would be sold to a third party, ‘with Claimant [Lao Holdings] to receive its share of the proceeds,’ states the arbitration notice. This implied three key elements, according to information from the company: the three-province ‘gambling business monopoly’ extension by 50 years, a ‘fair and reasonable flat tax agreement’ for 50 years and the right for the new owner to develop the airport to attract international customers – all of which the company claims the government failed to guarantee, resulting in a potential sale ‘nowhere close to the maximum selling price guaranteed by the settlement’. In addition to the above, the holding company claims that the government

100 Million USD Sought in San Marco case for ‘monetary harm’

also stated that it would revive the tax claims it waived in the settlement in order to ensure that the investors received nothing for the sale of their property.

Second claim

The second claim levelled by the holding company requested a new arbitral tribunal to investigate whether ‘Lao Government actions undertaken since the settlement was concluded in 2014 breach the Netherlands-Laos Treaty’, including the seizure of the casino by the government in April 2015, which the group states is a clear violation of international law and ‘breaches of the specific agreements that Laos made with these investors’ including the method of conduct on the sale, ‘failure to discontinue criminal and tax investigations’, ‘failure to forgive and waive all pre-settlement taxes and fees’ and ‘failure to negotiate in good faith’ a separate land concession and development, specified in the 2014 treaty.

San Marco

The sale of the Savan Vegas Hotel and Casino and the two slot clubs is meant to be completed ‘in the coming month according to the reports and leads to the third of the three suits, filed in the United States District Court, against San Marco Capital Partners LLC ‘and its sole owner and employee Kelly Gass’ who according to information published by Lao Holdings, ‘since the Government seized Savan Vegas,’ has ‘operated it, and is currently conducting a bidding process to sell it, for the Government’s sole benefit,’ reads the report. Gass received ‘nearly US$2 million of Sanum and Lao Holdings’ money’, having been hired by the ‘Lao Government in April 2015’ – the time of the alleged seizure of the casino (part of the second legal action leveled by Lao Holdings) ‘to operate and sell the gaming assets’, reads information provided by the holding company. Under the original agreement, Sanum ‘shall have the right to continue to manage and operate the Gaming

Assets in compliance with applicable laws through the completion of the Sale’ and that if a deadline of 10 months after the agreement – June 15, 2014 – was not reached or a memorandum of understanding was signed (providing an additional 90 days on the deadline) then ‘the Claimants and Laos shall have the right to appoint RMC Gaming Management [a gaming oversee – a full service casino management and consulting firm involved in other aspects of the 2014 dispute] or any other qualified gaming operator […] provided that such gaming operator shall have a fiduciary duty to each the Claimants and Laos,’ notes the deed of settlement. According to the complaint filed by Sanum Investment Ltd. and Lao Holdings: ‘as demonstrated by the outrageously excessive compensation paid to Gass and San Marco – US$1.8 million per year and 6 per cent of the sale price of the Gaming Assets reasonably expected by Sanum to be in the hundreds of missions of dollars if the terms of the Settlement had been respected – it is now obvious that Gass was bought by the GOL [Government of Laos] to act solely in its interest. Worse, the GOL bought Gass with Plaintiffs’ [Sanum and Lao Holdings] money, seizing Sanum’s assets in Laos, and allowing Gass to pay herself from the income of the Casino, owned 80 per cent by Sanum,’ states the case. The case also claims that ‘under Gass’ management, the financial reporting regarding Savan Vegas is opaque at best’ with ‘millions of dollars of unexplained disbursements’ of which Sanum ‘receives nothing’. The group claims ‘significant monetary harm’ which should be determined at trial but is ‘exceeding US$100 million’ as well as ’80 per cent of the net revenues of the Casino and 60 per cent of the net revenues of the Slot Clubs’ and ‘demand a jury trial’. In regard to the three current court actions: ‘Sanum and Lao Holdings will continue to evaluate the situation and take actions as required to protect their interests,’ the group stated in a press release.

8 Business Daily Tuesday, May 10 2016

Macau cyber heist

Technicians from SWIFT left Bangladesh Bank exposed to hackers-police The US$81 million that was successfully stolen was sent to the Philippines to accounts at the Rizal Commercial Banking Corp (RCBC) held by two Chinese nationals who organize gambling junkets in Macau and the Philippines.

angladesh’s central bank became more vulnerable to hackers when technicians from SWIFT, the global financial network, connected a new bank transaction system to SWIFT messaging three months before a US$81 million cyber heist, Bangladeshi police and a bank official alleged. The technicians introduced the vulnerabilities when they connected SWIFT to Bangladesh’s first real-time gross settlement (RTGS) system, said Mohammad Shah Alam, the head of the criminal investigation department of the Bangladesh police who is leading the probe into one of the biggest cyber-heists in the world.

to SWIFT. In February, hackers sent fraudulent messages, ostensibly from the central bank in Dhaka, on the SWIFT system to the New York Fed seeking to transfer nearly US$1 billion from Bangladesh Bank’s account there. Most of the transfers were blocked but about US$81 million was sent to a bank in the Philippines and much of that money remains missing. A spokesman for Bangladesh Bank declined comment on the investigation into the heist. He said, however, that RTGS continued to work well, noting that a large number of countries use SWIFT messaging for similar systems. “There is no inherent risk in this,” he said. According to the Bangladeshi police, the technicians linked the RTGS to SWIFT computers on the same network as about 5,000 central bank computers that are accessible from the open Internet. Instead, they should have set up a separate local area network, or LAN, that could not connect to the rest of the bank or the Internet, police said. The technicians also failed to install a firewall between the RTGS and the SWIFT room so that the bank could block malicious traffic from coming into the facility. When they installed a networking switch to control access to SWIFT, they chose to use a rudimentary old one they had found unused in the bank, rather than a more sophisticated, managed switch that gave the bank the ability to control access to the network, police said.

Remote access “We found a lot of loopholes,” Alam said in an interview in Dhaka. “The changes caused much more risk for Bangladesh Bank.”

He and a senior central bank official said the SWIFT employees made missteps in connecting the RTGS to the central bank’s messaging platform. The technicians did not appear to have followed their own procedures to ensure the system was secure, according to the Bangladesh Bank official, who said he was not authorised to publicly comment because of the on-going investigation. Because of this, SWIFT messaging at the central bank was widely accessible, including remote access with only a simple password, police said. It had no firewalls and only a rudimentary switch. “It was the responsibility of SWIFT to check for weaknesses once they had set up the system. But it does not appear to have been done,” said the bank official. SWIFT’s chief spokeswoman Natasha de Teran said she had no comment on the allegations by authorities in Bangladesh. She also declined comment on any aspect of the Bangladesh project, including whether the firm had deployed any employees or outside contractors to Bangladesh Bank. Reuters was not able to independently verify the allegations by Bangladeshi officials about the SWIFT technicians. If they are validated, however, that could undermine confidence in the cooperative that is the backbone of global financial transactions. The officials in Dhaka discussed their findings with Reuters ahead of a meeting this week in Basel, Switzerland where Bangladesh Bank officials have said their governor and a lawyer appointed by the bank will discuss recovery of about US$81 million stolen by the hackers with the head of the Federal Reserve Bank of New York and a senior executive from SWIFT. Bangladesh Bank officials have said they believed SWIFT, and the New York Fed, bear some responsibility for the February cyber heist. SWIFT has declined comment on that claim.

“No inherent risk”

The RTGS, which enables domestic banks and the central bank to settle large transfers between themselves, was installed at Bangladesh Bank in October last year and then connected

During the job, the technicians set up a wireless connection so they could access computers in the locked SWIFT room from other offices inside the bank. When they finished, they failed to disconnect the remote access, which was only secured with a simple password, police and the bank official said. They also failed to disable a USB port on the computer attached to the SWIFT system, as is usual for critical networks to prevent malicious software from being installed through a tainted thumb drive, police said. Police did not provide any evidence for any of the assertions. But another central bank official familiar with the SWIFT room operations confirmed that the port was “active” until the heist came to light. He had no explanation. The hackers used malicious software to modify the SWIFT messaging software to help hide their tracks. Bangladeshi police said they have asked SWIFT to facilitate interviews with the SWIFT technicians. “Whether it is intentional or negligence, we are trying to find out,” said Alam. SWIFT, or the Society for Worldwide Interbank Financial Telecommunication, is used by about 8,000 banks around the world to order funds transfers and other communications. It is connected to RTGS systems installed at scores of banks worldwide, and there have been no reports of problems elsewhere with connections between those two systems. The U.S. FBI, which is leading investigations into the case, has made no comment so far. New York Fed executive Richard Dzina said at a conference last week that bank workers “acted properly” in releasing the funds. The system was penetrated, he said, because the hackers had acquired valid credentials to order the transfers Former central bank governor Mohammed Farashuddin, who is heading an internal probe by Bangladesh Bank into the heist, said SWIFT needed to review its technology in the wake of the heist. “It seems to be a case of extreme carelessness,” he told Reuters. He declined to provide more details saying a final report was due in the next few weeks. Reuters

Business Daily Tuesday, May 10 2016 9

Greater China State lenders

Beijing revamps credit expansion as PBOC balance sheet shrinks Each 1 yuan the central bank pumps into the economy generates 4.1 more. Malcolm Scott and Enda Curran

ometimes it helps to have a command economy. While central bankers in Japan, Europe and the U.S. have struggled in recent years to stoke credit growth even as they grew their balance sheets to unprecedented size, the People’s Bank of China is succeeding, with a very different approach. For all the Communist Party’s rhetoric about giving a decisive role to markets, China’s financial system remains dominated by state-owned lenders. That’s come in handy as policy makers loosened monetary policy since 2014 to shore up a slowing economy. Officials can direct banks to make new loans or roll over existing ones. The PBOC has also been expanding support for “policy banks” that support government objectives. What’s perhaps most striking is China’s lending machine is humming even as the PBOC downsizes. Its balance sheet has been shrinking some as it sold off foreign-exchange reserves in the past year to shore up the yuan’s value. The PBOC’s effectiveness is seen in the money multiplier, which was at 5.1 in March, according to a report from the central bank Friday. That means each 1 yuan the central bank pumps into the economy generates 4.1 more through the process of loans generating new deposits that then create further loans, and so on. By contrast, developed-world central banks have found that while it’s easy to create money, it’s hard to get that money to be lent onwards. Much of the Bank of Japan’s (BOJ) money pumping has ended up right back at the BOJ, because banks have failed to find attractive borrowers to lend to. And democracies essentially can’t order banks to lend. “It’s more powerful and effective, as the PBOC and State Council have more power over banks,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong, referring to the central bank and the cabinet. “The money multiplier in China is under direct influence by the government and is

much higher than other countries.” Besides relying on the multiplier effect, PBOC Governor Zhou Xiaochuan and his colleagues have had to adapt their money-creation strategy. Before 2014, when most investors and traders anticipated sustained longterm gains in the yuan, the PBOC used to limit its appreciation through purchases of foreign currency - creating new yuan through the process. At the time, the challenge was more often how to mop up some of that new domestic liquidity, to prevent excessive inflation. With bets on the yuan shifting, the reserves have fallen. They were US$3.22 trillion yuan in April, down from just under US$4 trillion in mid2014, data released Saturday showed.

“Despite the interest-rate liberalization, the Chinese economy still responds better to quantitative measures” Hao Hong, Chief China strategist at Bocom International Holdings

The PBOC has turned to the use of special loan programs for banks, including the policy banks, to inject liquidity. It’s also made more use of money market instruments to pump funds into the economy. The problem is, this isn’t where the PBOC had really wanted to head in terms handling yuan devaluation and capital outflow pressure, though it was positive for the central bank’s shift of its monetary policy. The central bank’s stated objective has been to shift to a framework that, as in most developed nations in the past, uses measures of borrowing costs as the key policy tools - a so-called price-based approach, rather than a quantity-based one. As part of that transition, lending and deposit rates have been

liberalized and a new money-market-linked interest rate corridor is falling into place. “The way China manages its monetary policy is still different from the West,” said Hao Hong, chief China strategist at Bocom International Holdings Co. in Hong Kong. “Despite the interest-rate liberalization, the Chinese economy still responds better to quantitative measures - such as RRR, loan quota, money-supply growth target etc., than price-based measures, such as interest rates.” RRR refers to banks required reserve ratio. One reason for the desire to shift to a price-based policy was to move away from a volume-focused system that created the danger of too many loans going bad. While some of the lending - especially through the policy banks - can be targeted to desired goals such as shanty-town redevelopment and the upgrade of urban utilities, other lending can end up in undesirable places - like stock or commodity-market speculation. The current set-up still offers the PBOC one advantage: money-creation through the build-up of reserves was difficult to manage. Capital inflows largely determined how much the central bank had to buy in foreign currency, and how much to create in local currency. Now the PBOC has more control. What’s less clear is whether the lending that’s being spurred is good for the economy. In developed nations, the practice of credit checks by banks is designed to limit the danger of bad loans - though this famously failed to work in the subprime-mortgage disaster. Efficient capital allocation is crucial given China’s total debt is now about 2.5 times annual economic output a level that’s in line with advanced economies and well below Japan but looks high given that China is still a developing market. “As the Chinese economy develops and becomes more complex, the disciplining nature of independent financial-sector decisions becomes increasingly important - and government-led credit stimulus is more likely to lead to bad debt,” said Louis Kuijs, chief Asia economist at Oxford Economics in Hong Kong. Bloomberg News

In Brief Stock markets

Regulator approves IPO plan for rural bank Zhangjiagang Rural Commercial Bank has received the regulatory nod for an initial public offering, the China Securities Regulatory Commission (CSRC) said in a statement. The offering is set to raise at least 2.3 billion yuan (US$354 million), the China Securities Times newspaper said, adding that it is the fifth China rural bank to have its IPO plans approved this year. According to an abstract previously posted on the website of the CSRC, the bank intends float up to 25 percent of its shares in Shenzhen. Auto industry

Nissan sticks to 2016 sales target in mainland Nissan Motor Co yesterday said sales in China were flat last month, as its no-frills brand Venicia struggles to compete with other small low-cost vehicles that are taking off in the world’s biggest auto market. Nissan and its Chinese partner sold about 96,200 vehicles in China last month, up 0.7 percent from a year earlier, the Japanese automaker said. The joint venture’s sales for the first four months of this year inched up 0.8 percent to 394,800 vehicles. Nissan said it was still aiming to sell 1.3 million vehicles this year in China.

Agriculture production

Corn output to fall as stockpiling ends

China’s corn production in 2016 is expected to decline 2.9 percent from last year to 218 million tonnes, as farmers in the northeast are expected to switch crops, a state-backed think tank said yesterday. China decided in March to end a corn stockpiling programme that supported domestic prices for farmers and at the same time spurred imports of cheaper substitutes like sorghum and distillers’ grains. The China National Grain and Oils Information Center (CNGOIC) said it expected the policy change to bring output down by 6.58 million tonnes this year, with demand already weakening. Oil imports

Qingdao port sees unprecedented congestion East China’s Qingdao, one of the world’s busiest ports, has seen unprecedented congestion, with crude oil tankers waiting for days to be unloaded, industry insiders said. More than ten tankers were anchored off Qingdao port each day, waiting to dock, said Su Peng, an official with Qingdao Shihua Crude Oil Terminal Co., adding that the situation is something he had never seen before. The continuous arrival of large vessels this year has led to a severe jam at the terminal, said Qingdao Shihua’s general manager Liu Jin.

10 Business Daily Tuesday, May 10 2016

Greater China Currencies

FX trading moves into shadows as Beijing tightens screws Traders estimate that offshore yuan volumes have dropped to around US$3 billion to US$5 billion a day. Saikat Chatterjee and Michelle Chen

he Chinese central bank’s clampdown on bearish yuan speculators that stunted offshore trading has inadvertently injected new life into the sleepy non-deliverable forwards (NDF) market. Over-the-counter NDFs, which became side-lined after China started promoting the deliverable offshore yuan market six years ago, are a less risky channel now for hedge funds to bet on yuan/ dollar volatility, traders said. And more erratic daily midpoint fixings - since the People’s Bank of China (PBOC) indicated it would manage the exchange rate within a trade-weighted basket of currencies - have also helped to rekindle activity in the shadowy but deep markets of NDFs traded globally, benefitting banks and companies who do business in China and need alternative ways to hedge currency exposure. Wider use of NDFs, however, will be a setback for those hoping offshore yuan will hasten the internationalisation of the renminbi. “The dollar/yuan NDF market is becoming more attractive to speculators such as hedge funds these days as there’s no central bank intervention there and it’s easier for them to bet on the

yuan’s movement,” said Wang Ju, a senior strategist at HSBC in Hong Kong. “They don’t have to worry about the different ways the PBOC used to intervene in the CNH (offshore yuan) market and possible liquidity shortages. As long as they can find counterparties, they can trade in the NDF market.” Wang said real money investors may also find N D Fs a p p ea l i n g w h e n

interventions increase in the offshore yuan, although that remains the main venue for hedging currency risk. The central bank’s attempts to deter speculation on the Chinese currency in the last few months have depressed a range of yuan assets offshore, including yuan-denominated “dim sum” bonds. Traders estimate that offshore yuan volumes have dropped to around US$3

billion to US$5 billion a day, half of the peak they used to reach. In contrast, daily trading volume of dollar/yuan NDFs has roughly doubled, rising to between US$1.5 billion to US$2 billion. Faced with mounting capital outflows, the PBOC acted through state-owned banks in January to buy up CNH to check the yuan’s slide and narrow the gap between offshore and onshore prices. To

make it harder to short the yuan, it also ordered banks to set aside a portion of offshore yuan deposits as reserves. The head of strategy at an Asian hedge fund, who declined to be named because of compliance reasons, said CNH has ceased to reflect onshore market fundamentals. NDFs are now pricing in 3 percent weakness for the yuan in a year’s time in contrast to onshore forwards pricing in only 1 percent weakness over the same period.

CNH fallout

The PBOC’s interventions might have managed to stamp out market volatility but its actions have led to a loss of confidence in the CNH market. Hong Kong is the biggest market for offshore yuan and shrinking demand has hurt banks’ fees and commissions and even affected jobs, as some institutions had set up dedicated CNH trading desks. Exporters and importers may also trickle back to NDFs to avoid excessive volatility in CNH, analysts say. Many companies were caught off guard this year by the PBOC’s yuan buying operations in Hong Kong, which erased the yuan’s discount to the onshore rate and jacked up yuan borrowing costs. In January, the threemonth borrowing rate in the offshore currency soared to more than 10 percent before falling back to under 3 percent. “Investors lost money in the offshore deliverable market as the central bank intervened several times, which pushed some to the NDF market where they only need to bear the fixing risk,” said a trader at a Chinese Bank in Hong Kong. Unless there is a big increase in the offshore CNH liquidity pool, interest in CNH may stay lukewarm for a while. Reuters

Flagging risks

Warning on debt comes via Communist Party mouthpiece China needs to be proactive in dealing with rising bad loans, rather than delaying or hiding them, a report says. China’s leading Communist Party mouthpiece acknowledged the risks of a build-up of debt that is worrying the world and said the nation needed to face up to its nonperforming loans. High leverage is the “original sin” that leads to risks in the foreign-exchange market, stocks, bonds, real estate and bank credit, the People’s Daily said in a full-page interview with an unnamed “authoritative person” starting on page one and filling

the second page yesterday. China should put deleveraging ahead of short-term growth and drop the “fantasy” of stimulating the economy through monetary easing, the person was cited as saying. The nation needs to be proactive in dealing with rising bad loans, rather than delaying or hiding them, the report said. The pace of China’s accumulation of debt and dwindling economic

returns on each unit of credit have fuelled concern that the nation is set for either a financial crisis or a Japanese-style growth slump.

Sounding warnings

The Bank for International Settlements warned late last year of an increased risk of a banking crisis in China in coming years. Brokerage CLSA Ltd. was the latest to sound an alarm, saying on Friday that the nation’s true level of nonperforming loans may be at least nine times higher than the official numbers, suggesting potential losses of at least Us$1 trillion. “A tree cannot grow up to the sky - high leverage will definitely lead to

‘“Zombie” companies beyond salvage should be allowed to fail, according to People’s Daily commentary’

high risks,” the person was cited as saying. “Any mishandling will lead to systemic financial risks, negative economic growth, or even have households’ savings evaporate. That’s deadly.” China’s accumulation of debt has been the fastest of Group of 20 members over the past decade, according to Tom Orlik, an economist for Bloomberg Intelligence. Debt has climbed to 247 percent of gross domestic product, Bloomberg Intelligence estimates. Volatility in stocks and the foreign-exchange market early this year had partly reflected the vulnerability of the financial system, the article said. The newspaper piece touched on the topic raised by Premier Li Keqiang of banks swapping debt for equity to cut excess borrowing by Chinese firms. While bankruptcies should generally be avoided, “zombie” companies beyond salvage should be allowed to fail because debt-to-equity swaps would be costly and self-deceiving, the commentary said. Supply-side reform will remain the focus of economic policies for the near future, the report said. Bloomberg News

Business Daily Tuesday, May 10 2016 11

Asia

Japanese Finance Minister Taro Aso.

Finance minister

Japan ready to intervene if yen moves too volatile Japanese policymakers sought to gain informal consent to act against an unwelcome yen rise during a G20 meeting. Leika Kihara

apanese Finance Minister Taro Aso said yesterday that Tokyo is ready to intervene in the currency market if yen moves are volatile enough to hurt the country’s trade and economy. Aso also said he did not think the

United States considered Japan’s currency policy to be inappropriate, but acknowledged the two countries differed in their views on what would be deemed excessive yen rises that justify intervention. “For Japan, excessive volatility in yen moves that affect Japan’s trade, economic and fiscal policies - be it yen rises or yen falls - is undesirable. If such moves occur, Japan is ready to intervene in the market,” Aso told parliament. The dollar hit an 18-month low of 105.55 yen last week after the United States added Japan to a list of countries it was monitoring over foreign exchange policies.

Some investors interpreted the move as a warning to Tokyo against conducting yen-selling market intervention. The dollar regained some ground to hover above 107 yen in Asia yesterday. Japanese policymakers sought to

Key Points Don’t think U.S. sees Japan’s FX policy as inappropriate-Aso Adds Japan, U.S. had frequent phone talks over yen moves Five-yen spike in 2 days was too much for Japan-Aso

gain informal consent to act against an unwelcome yen rise during a G20 finance leaders’ gathering in Washington late last month. But the United States offered a cool response with Treasury Secretary Jack Lew describing yen moves as “orderly” a day after Aso conveyed to him Toyko’s strong concern over what it saw as “one-sided” yen rises. Aso said Japanese and U.S. policymakers had frequent phone conversations on exchange rates, particularly when the Japanese currency gained 5 yen in two days last month. “If the yen was gaining 5 yen in two days, it might gain 10 yen in four days. That would be too excessive and if such trend continued, it would be the kind of excessive currency volatility that G20 nations agreed was undesirable,” Aso said. “The U.S. side, on the other hand, argued that it was still a 5-yen rise” and so did not meet the threshold for currency action, Aso said. Reuters

Panama Papers

Report alleges NZ prime place for rich to hide money Prime Minister John Key dismissed concerns that international tax avoidance was rife in New Zealand. Wealthy Latin Americans are using secretive, tax-free New Zealand shelf companies and trusts to help channel funds around the world, according to a report yesterday based on leaks of the so-called Panama Papers. Pressure is mounting on Prime Minister John Key to take action after local media analysed more than 61,000 documents relating to New Zealand that are part of the massive leak of data from Mossack Fonseca, a Panama-based law firm. The papers have shone spotlight on how the world’s rich take advantage of offshore tax regimes. Mossack Fonseca actively promoted New Zealand as

a good place to do business due to its tax-free status, high levels of confidentiality and legal security, according to a joint report by Radio New Zealand, TVNZ and investigative journalist Nicky Hager. Opposition Labour Party Leader Andrew Little said the government must act to “preserve New Zealand’s reputation by shutting down the system that sees our country implicated in a massive global network of tax avoidance.” The New Zealand government said last month it would begin a review of its foreign trust laws after the Panama Papers highlighted vulnerabilities in its legal framework

that made it a possible link in international tax avoidance structures because its foreign trusts are not subject to tax. Green Party Co-leader James Shaw said that review doesn’t go far enough. He called on Key to “stop defending the tax avoidance industry” and demanded a full inquiry. UnitedFuture leader Peter

Key Points Mossack Fonseca promoted NZ as good place to do business -report Confidential, tax-free NZ trusts used by wealthy Latin Americans NZ PM John Key under pressure to do more to address concerns

Dunne, who was Ministry of Revenue from 2005 to 2013, called on the government to take action by reviewing its current disclosure rules and broadening its network of tax information exchange agreements. “These revelations challenge the identity of New Zealand - we do not want to be seen as a country that enables tax evasion,” he said. Key dismissed concerns that international tax avoidance was rife in New Zealand. “New Zealand is barely ever mentioned, it’s a footnote,” Key told TVNZ in reference to the Panama Papers.

NZ contact

According to the report, Mossack Fonseca’s main contact in New Zealand was allegedly Robert Thompson, co-founder and director of accountant firm Bentleys

New Zealand, the registered office of Mossack Fonseca New Zealand. Thompson was listed in more than 4,500 Panama paper documents, the report said. The number of foreign trusts in New Zealand has surged to almost 10,700 this year from less than 2,000 ten years ago, according to Inland Revenue figures quoted in the report. Thompson said in his experience, the use of trusts for tax evasion was not common and his firm did not assist people to illegally hide assets. “I think the assumption that all New Zealand foreign trusts are being used for illegitimate purposes is unfounded and based largely on ignorance,” Thompson was quoted as saying by Radio New Zealand. When contacted by Reuters, Bentleys New Zealand said Thompson was not in the office. Reuters

12 Business Daily Tuesday, May 10 2016

Asia Government’s policy

Nepal’s annual programme focusing on post-quake reconstruction The government prioritized post-quake reconstruction of all damaged infrastructures within five years.

epalese President Bidya Devi Bhandari on Sunday unveiled the government’s annual policy and program for the fiscal year 2073-2074 (2016-2017) focusing on speedy post-quake reconstruction and economic development. Presenting the government’s policy and programs at Legislature Parliament, President Bhandari said that the next fiscal year will be a year of constitution implementation and rule of law, noting that the much-awaited elections of local bodies will be held in mid-December this year. “This will help ensure democratic exercise at people’s level, rule of law and leadership of people’s representatives in local development ending the condition of absence of people’s representatives at local bodies,” the President said.

Program” in earthquake affected areas which will be gradually expanded to other sectors. It has claimed that 50,000 youths will be self-employed every year through the Youth Self-Employment Program.

Economic development

Giving special attention to economic prosperity, the government has declared the upcoming year as “ the year

of departure towards prosperity”. Stating that the next five years will be the period of development for this Least Developed Country, the government has aimed to move towards prosperity in the next 10 years. Considering the economic loss from the earthquake and border blockade, the government has decided to move toward self-reliance- oriented, multi-interdependent economic system to meet the challenges of excessive dependence on one country in trade and investment. “Now the government will move ahead toward self-reliance in essential goods and services while diversifying trade relations and transactions. The country will move towards building sustainable, independent, self-reliant and just economy,” the president announced.

Energy and agriculture

The policy and program has highlighted self-reliance in energy sector

Post-quake reconstruction

The government in its annual program has prioritized post-quake reconstruction of all damaged infrastructures within five years through the National Reconstruction Authority. In addition to the Rs 200,000 (about US$2,000) announced to each family whose house was destroyed in the quake as housing reconstruction fund, the government has also decided to provide soft loan of Rs 300,000 (about US$3,000) to each of the displaced families without collateral. Similarly, heritage sites, schools and hospitals will be rebuilt with priority. The government has also introduced “One House, One Employment

Last year’s tremor devastated the nation.

through the production of hydropower and use of renewable sources. For this, it has planned to produce 10,000 megawatt of electricity within the next 10 years.

“The country will move towards building a sustainable, independent, self-reliant and just economy” Bidya Devi Bhandari, Nepalese President

The government has prioritized commercialization of agriculture and mobilization of cooperatives with special focus on irrigation projects. “The farmers will be gradually brought to the social security net by building social security fund with their own participation,” President Bhandari said. In line with the agreements signed recently with the Chinese government, the government has focused on the operation of transit facility, expansion of electric transmission line, construction and up-gradation of roads connecting border point Rasuwagadi and Kimathanka. President Bhandari said “Tatopani customs point will be brought in operation along with the up-gradation of the Araniko Highway”. The government has further said construction work of the Gautam Buddha International Airport and Pokhara Regional International Airport being built under the Chinese aid will be expedited and completed within a specified time. Meanwhile, a 10-year National Strategic Tourism Plan will be implemented by the government in the coming fiscal year to attract tourists from neighbouring countries. The government has planned to observe the year 2018 as “Nepal Visit Year” with the goal of bringing in 1 million tourists. Xinhua

Real estate

New Zealand exporters call for action on housing prices Central bank governor Graeme Wheeler said the exchange rate remained higher than appropriate given New Zealand’s low commodity export prices. New Zealand manufacturers and exporters yesterday called on the government to discourage investors in the country’s overheated housing market so the central bank can tackle the high exchange rate. The government needed to send a clear signal to property investors that it considered the current situation to be unsustainable and that it was determined to take effective measures to address it, said New Zealand Manufacturers and Exporters Association (NZMEA) chief executive Dieter Adam. Soaring home prices were discouraging the Reserve Bank of New Zealand (RBNZ) from cutting interest rates to tackle low inflation - which has been tracking near zero

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- and the high exchange rate, said Adam. While increasing housing supply was a core issue, correcting tax incentives should play a part in the solution on the demand side, Adam said in a statement.

“Over time, correcting any tax advantage could help encourage more investment into productive enterprise over housing and property,” said Adam. “Our manufacturers and exporters are still paying the price for the government’s inaction when higher interest rates than necessary keep our exchange rate high,” he said. “This also hits the wider economy, hurting our

ability to pay our way in the world through exports - not to mention those people for whom purchasing their own home or finding affordable accommodation has become an ever more vanishing prospect.” The latest NZMEA Survey of Business Conditions out

“The exchange rate remains high, and worryingly, this has been increasing instead of following the expected downward trend” Dieter Adam, New Zealand Manufacturers and Exporters Association’s chief executive

yesterday showed total sales in March increased 1.28 percent year on year, with export sales up by 5.31 percent and domestic sales down by 5.03 percent. “The exchange rate remains high, and worryingly, this has been increasing instead of following the expected downward trend,” said Adam. At its last six-weekly review of the official cash rate on April 28, the RBNZ held it at 2.25 percent, but indicated cuts were imminent as inflation remained below the bank’s 1-percent to 3-percent target range. RBNZ governor Graeme Wheeler said the exchange rate remained higher than appropriate given New Zealand’s low commodity export prices. Wheeler also warned that house price inflation in the largest city of Auckland appeared to be picking up and housing market pressures were building in other areas. Xinhua

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 Tuesday, May 10 2016 13

Asia GDP forecast

Consumer spending to suffocate Japan’s growth A poll of analysts found the current account balance is expected to post a surplus of 3.0 trillion yen in March. Kaori Kaneko

apan’s economy is expected to have barely grown in the first quarter, a Reuters poll showed yesterday, as stagnant consumer spending and wobbly financial markets keep expectations for more government stimulus measures alive. Gross domestic product (GDP) was seen to have expanded at an annualised rate of 0.2 percent in January-March, according to the poll of 19 analysts, after a 1.1 percent contraction in October-December. That would translate into a quarterly expansion of 0.1 percent, the

poll showed, following a 0.3 percent decline in the final quarter last year. Analysts say the slight growth was due to the extra day in the quarter from the leap year and that the economy may have even contracted without that factor. “The GDP data will probably show the actual economy lacks strength,” said Takumi Tsunoda, senior economist at Shinkin Central Bank. “There are signs of a pickup in exports and corporations keeping firm capital spending plans, which support the economy, while private spending

Key Points Q1 annualised GDP f’cast +0.2 pct vs -1.1 pct in Q4 2015 March current account surplus seen largest since 2007 GDP due at 2350 GMT May 17

stays at a standstill.” The poll found private consumption, which accounts for roughly 60 percent of GDP, likely grew 0.2 percent in the first quarter after a 0.9 percent fall in the previous quarter. Capital spending fell 0.8 percent after rising 1.5 percent and external demand contributed 0.1 of a percent point to growth in the first quarter, according to the poll. The Cabinet Office will announce GDP data on May 18 at 8:50 a.m. (2350 GMT, May 17). The poll of analysts also found the current account balance, which will be published on May 12, is expected to post a surplus of 3.0 trillion yen (US$27.95 billion) in March, the largest surplus since March 2007. Slides in imports largely due to oil price falls and income from investments overseas at Japan’s fiscal yearend likely bolstered the balance of payment, marking 21 straight months of surplus. Reuters

In Brief South Korea

Park’s approval rating increases South Korean President Park Geun-hye’s job approval rating increased 4.9 percentage points from a week earlier, according to a poll released by polling agency Realmeter yesterday. The poll showed 35.9 percent of people approved of Park’s job, while 59.9 percent disapproved of her performance, down 4.5 percentage points from a week before. The approval rating edged up after Park’s recent visit to Iran and amid lingering tensions on the Korean Peninsula. Park’s job approval rating slumped to 31 percent in the fourth week of last month following an election rout by her ruling Saenuri Party in mid-April. FDI

Myanmar reveals foreign investment target Government has targeted US$8 billion foreign investment in the present fiscal year of 2016-17, according to the Directorate of Investment and Company Administration yesterday. The country drew US$9.5 billion foreign investment in the last fiscal year of 2015-16 which ended in March, up from 2014-15. The increased investment was due to that injected into the sectors of oil and gas, manufacturing and telecom. Myanmar received US$1.413 billion foreign investment in 2012-13, US$4.107 billion in 2013-14 and over US$5 billion in 2014-15. China topped the foreign investors line-up with US$18.072 billion. Results

CBA Q1 cash profit, bad loans rise

Shady mortgages

Westpac, ANZ investigating suspected home loan fraud The alleged fraud is another headache for the country’s major banks as they battle slowing earnings growth. Swati Pandey

Two of Australia’s biggest banks yesterday said they are investigating suspected fraud involving false declarations by a number of home loan borrowers who rely on foreign income. ANZ Banking Group and Westpac Banking Corp said the alleged fraud was discovered during internal investigations and posed no credit risk.

The announcement follows moves by ANZ, Westpac and Commonwealth Bank last month to clamp down on mortgage lending to non-residents, following regulatory concerns about lax lending standards and soaring house prices driven partly by foreign investment. The alleged fraud is another headache for the country’s major banks as they battle slowing earnings growth, and could fuel calls for political action to improve housing affordability with a general election looming on July 2. “When fraudulent activity is discovered we take action against those involved, including the broker, which normally results in termination,” Westpac spokesman David Lording told Reuters in an email. “Our delinquency rate on foreign income loans is lower than the portfolio average, and a large proportion of these loans are ahead on repayments.” ANZ and Westpac discovered they had each approved hundreds of home loans backed by fraudulent

Chinese income documents, allegedly manufactured with the help of mortgage brokers, The Australian Financial Review (AFR) newspaper reported. The banks did not say whether the suspected fraud was linked to Chinese clients, some of the biggest buyers of Australian property. China has become the largest source of foreign investment in Australia, overtaking the United States, according to official figures. “We have identified issues with the income documentation of a small percentage of Australian resident borrowers who rely on foreign income,” an ANZ spokesman said in an email to Reuters. “Policy changes have been made to address this and we are also reviewing a number of brokers.” The AFR noted that the total value of ANZ and Westpac loans afflicted by allegedly fraudulent income information is likely to be less than A$1 billion, or 0.12 per cent of their combined A$837 billion of residential mortgages. Reuters

Commonwealth Bank of Australia, the country’s No. 2 lender, posted third-quarter cash profit of A$2.3 billion (US$1.70 billion), on track for an annual record, but charges for soured loans jumped in the wake of a mining downturn. Australia’s biggest mortgage lender reported a loan impairment expense of A$427 million, or 25 basis points of total loans, it said yesterday in a limited trading update without giving year-ago comparisons or further details. The ratio was 17 basis points at the end of December. Total troublesome and impaired assets rose to A$6.3 billion during the quarter. Justice

India needs 70,000 judges to clear pending cases Expressing serious concern over the poor judge-population ratio in the country, the chief justice of India has said that India needs more than 70,000 judges to clear the pending legal cases. “While the Law Commission of India in 1987 had suggested for having 44,000 judges to effectively tackle the then number of pending cases, the country today has only 18,000 judges,” Chief Justice T. S. Thakur said at a legal function in the eastern state of Odisha’s Cuttack town Sunday.

14 Business Daily Tuesday, May 10 2016

International In Brief Finance minister

Switzerland says extra cuts needed Switzerland must cut an additional 3 billion Swiss francs (US$3.1 billion) from budgets in 2018 and 2019, Finance Minister Ueli Maurer was quoted saying yesterday. “The situation is strained,” he said in an interview with Swiss newspaper Aargauer Zeitung. “At the end of May we will present a stabilisation programme. Beyond that, it needs new savings programmes in 2018 and 2019 each of around 1.5 billion francs.” Cuts could come in budgets for foreign relations, the army, agriculture and, to some extent, education, the paper quoted Maurer, who has been in his current role since January, as saying. Canada blaze

Fears about crude supplies deepen Oil producers and refiners braced yesterday for further supply constraints from the wildfires that have shut one half of Canada’s vast oil sands capacity and forced BP and other big oil firms to warn they would not be able to deliver on some contracts. While Sunday’s cooler weather, light rain and favourable winds helped control the advance of the blaze that razed neighbourhoods in Alberta’s oil sands boomtown, Fort McMurray, regional energy firms continued to shut facilities as a precaution, sending futures prices up 2 percent in early trading.

Industrial production

Strong foreign demand pushes up German factory orders A breakdown for sectors showed bookings for capital goods and consumer products surged. Michael Nienaber

erman industrial orders rose more than expected in March due to buoyant foreign demand especially from countries outside the euro zone, data showed yesterday, in a sign that a solid start to the year for Europe’s biggest economy may extend into the second quarter. Contracts for ‘Made in Germany’ goods were up 1.9 percent on the month, the biggest increase since last June, the Economy Ministry said yesterday. That beat a Reuters consensus forecast for a rise of only 0.7 percent. While domestic orders fell by 1.2 percent, foreign demand rose by 4.3 percent, with orders from euro zone countries edging up by 1.1 percent and bookings from countries outside the currency bloc soaring by 6.2 percent. “The solid economic development in the U.S. is currently an important pillar of (German) domestic

industry,” said VP Bank economist Thomas Gitzel, adding that companies also seemed to be benefiting from recent positive economic news from China. “So after today’s data, we all can breathe easily,” he said. Dirk Schlotboeller, economist at DIHK Chambers of Commerce, said that weak domestic investment remained a problem for the German economy. “Domestic orders are again disappointing, the trend is still pointing downward,” Schlotboeller said. A breakdown for sectors showed bookings for capital goods and consumer products surged, while demand for intermediate goods was weaker than in February. The data for February was revised up to a fall of 0.8 percent from a previously reported drop of 1.2 percent. For the whole first quarter, industrial orders rose by 0.5 percent on the

Key Points Industrial orders rise 1.9 pct in March Gain beats forecast of 0.7 pct increase Buoyant demand from non-euro zone countries

quarter, with bookings from abroad increasing by 2.0 percent and domestic orders falling by 1.3 percent.

Strong start

The surprisingly strong March figure suggests that industrial output is likely to pick up in the coming months after making a solid start to the year. “Despite the overcast foreign trade environment, German industry was able to post a noticeable increase in orders from abroad,” the Economy Ministry said in a statement, adding it expected industry to continue its moderate growth pace. Leading economic institutes have said the German economy probably expanded by around 0.6 percent on the quarter in the January-March period - twice as much as in the fourth quarter. Preliminary data for German gross domestic product (GDP) in the first quarter is due to be published on Friday. In 2015, the economy grew by 1.7 percent, the strongest rate in four years, driven mainly by strong private consumption and higher state spending on refugees. It is expected to grow by around the same amount this year, despite slacking exports due to an economic slowdown in China and other emerging markets. Reuters

Fiscal targets

Greek lawmakers pass painful reforms

Common market

World Bank to assist EAC achieve integration The World Bank said on Sunday it will work with the East African Community (EAC) partner states to help the economic bloc achieve full regional integration. World Bank Program Manager for South Sudan Jean Lubega-Kyazze told Xinhua in Nairobi that the project will begin before the end of 2016 and will take three years to complete. “The project aims at helping the EAC overcome the constraints that have prevented full implementation of the EAC Common Market protocol,” Lubega-Kyazze said. EAC member states include Kenya, Uganda, Tanzania, Rwanda, South Sudan and Burundi. U.S. pre-campaign

Trump changes tune on tax hikes for wealthy Americans U.S. Republican presidential candidate Donald Trump said on Sunday he was open to raising taxes on the rich, backing off his prior proposal to reduce taxes on all Americans and breaking with one of his party’s core policies dating back to the 1990s. “I am willing to pay more, and you know what, the wealthy are willing to pay more,” Trump told ABC’s “This Week.” After effectively sealing the Republican nomination for the November 8 presidential election last week, Trump has used speeches and interviews to offer more details on his policy positions.

Tsipras’ government drew fire from the political opposition during the debate, on grounds that the pension cuts and tax hikes will prove recessionary. George Georgiopoulos and Renee Maltezou

Greek lawmakers yesterday passed a package of unpopular pension and tax reforms that the country’s leftist-led government hopes will persuade official creditors to unlock bailout cash. The approval came just hours before euro zone finance ministers were due to discuss Greece’s reform progress and whether it had met terms of a multi-billion euro bailout. A positive sign-off on the reform review will unlock more than 5 billion euros to ease Greece’s squeezed finances and make debt repayments maturing in June and July. Greece also hopes that the signoff will also launch discussions on debt relief. “We have an important opportunity before us for the country to break this vicious cycle, and enter a virtuous cycle,” Prime Minister Alexis Tsipras told lawmakers. Earlier, thousands of demonstrators protested outside parliament. Police used teargas when isolated groups hurled petrol bombs in a central Athens square. A combination of social security reform and additional taxation aims to ensure Greece will attain savings to meet an agreed 3.5 percent budget surplus target before interest payments in 2018, helping it to regain bond market access and make its debt load sustainable. The vote was a test of the ruling coalition’s cohesion, given its wafer-thin majority of three lawmakers in the 300-seat parliament. All of the coalition’s 153 lawmakers voted in favour. Tsipras’ government drew fire from the political opposition during the debate, on grounds that the pension cuts and tax hikes will prove recessionary,

dealing another blow to a population fatigued by years of austerity. “Mr. Prime Minister, you promised hope and turned it into despair,” said Fofi Gennimata, leader of the opposition PASOK socialists. Tsipras’ government was re-elected in September on promises to ease the pain of austerity for the poor and protect pensions after he was forced to sign up to a new bailout in July to keep the country in the euro zone. “The measures will be a tombstone for growth prospects,” said Kyriakos Mitsotakis, leader of the conservative New Democracy party which leads in opinion polls. The package aims to generate savings equivalent to 3 percent of GDP, raising income tax for high earners and lowering tax-free thresholds. It increases a so-called ‘solidarity

tax’ and introduces a national pension of 384 euros a month after 20 years of work, phases out a benefit for poor pensioners and recalculates pensions. More taxes could be in the offing, newspapers reported yesterday. Greece plans to increase its value added tax, introduce additional taxes on fuel and tobacco, hotel overnight stays and internet use, the reports said. Finance Minister Euclid Tsakalotos defended the reforms, saying lower pension replacement rates would affect the rich and not the poor. “Our word is a contract. We have done what we promised and hence the IMF and Germany must provide a solution that is feasible, a solution for the debt that will open a clear horizon for investors,” Tsakalotos told lawmakers. Reuters

Lawyers shout slogans during a protest against reforms to the tax and pension system last weekend.

Business Daily Tuesday, May 10 2016 15

Opinion Business Wires

JAKARTA GLOBE Indonesian Crude Price, or ICP, the price index for crude oil from Indonesia, rose to US$37.2 per barrel in April from US$34.19 per barrel in March, the Ministry of Energy and Mineral Resources said in a statement. It was the third consecutive month of increase since January, when the ICP reached a record low of US$27.49 per barrel. In February, the benchmark price rose to US$28.92 per barrel. Still, oil price in the country has yet to return to the giddy heights of May 2015 when it traded at US$61.86 per barrel.

Measuring the value of free NEW ZEALAND HERALD Air New Zealand has agreed to settle a cargo cartel case in the United States for NZ$52 million. The airline said it settled rather than take the risk of a potentially “very material commercial liability” by continuing to defend its position. “This is purely a question of mitigating an unacceptable risk created by the US class action system... There was no credible evidence that any Air New Zealand employee participated in any conspiracy, but the potential for an unexpected verdict was not an acceptable commercial risk for the airline,” said John Blair, Air New Zealand’s general counsel.

THE ASAHI SHIMBUN Online retailer Rakuten Inc. has put air deliveries at golf courses on the fringe of reality. The company on May 9 will start using drones to provide food and drinks to players at a (Japanese) golf course. The unmanned flying vehicles can also give extra balls to duffers who can’t seem to stay on course. Players can receive goods weighing up to 2 kilograms if they download a special app and enter their coordinates on the golf course. The drones that will be used were developed by Chibabased Autonomous Control Systems Laboratory Ltd.

VIETNAM NEWS The Ministry of Industry and Trade planned to officially announce in midJune results of the inspection to scrutinise seven multi-level marketing companies following the Liên Kết Việt scandal that defrauded 60,000 victims, officials said. Nguyễn Phương Nam, the ministry’s deputy head of Competitive Management Department, said there had been no official conclusion to the inspection so far as it was a complicated issue. In the near future, the department would focus on three areas including enhancing checkups on multi-level marketing companies, increasing people’s awareness, and revising some legal documents related to the issue. The department submitted to the Government that they should revise the Decree No 42 on multi-level marketing companies.

eliable economic statistics are a vital public good. They are essential to effective policymaking, business planning, and the electorate’s ability to hold decision-makers to account. And yet the methods we use to measure our economies are becoming increasingly out of date. The statistical conventions on which we base our estimates were adopted a half-century ago, at a time when the economy was producing relatively similar physical goods. Today’s economy is radically different and changing rapidly – the result of technological innovation, the rising value of intangible, knowledge-based assets, and the internationalization of economic activity. In light of these challenges, UK Chancellor of the Exchequer George Osborne asked me ten months ago to assess the United Kingdom’s current and future statistical needs. While my research focused on the UK, the challenges of producing relevant, high-quality economic statistics are the same in many countries. Recent technological advances have radically altered the way people conduct their lives, both at work and at play. The advances in computing power underpinning the digital revolution have led not only to rapid quality improvements and product innovation, but also to new, connectivity-driven ways of exchanging and providing services. One particular challenge for economic measurement stems from the fact that an increasing share of consumption comprises digital products delivered at a zero price or funded through alternative means, such as advertising. While free virtual goods clearly have value to consumers, they are entirely excluded from GDP, in accordance with internationally accepted statistical standards. As a result, our measurements may not be capturing a growing share of economic activity. Consider the music industry. Downloads and streaming services have now largely replaced CDs, the dominant medium in the 1990s. And yet the money has not followed; the industry’s revenues and margins have both plummeted. As a result, its contribution to GDP (as we currently measure it) may be falling, even as the quantity and quality of services are increasing. Two methods can give us a rough estimate how much digital economic activity we are failing to capture in our measurements. We can use average wages to estimate the value of the time people spend online using free digital products, or we can adjust telecommunication services output to account for the rapid growth in Internet traffic. Both approaches suggest that accounting for these types of activities could add between one-third and two-thirds of a percentage point to the average annual growth rate of the UK economy over the past decade.

“

Charles Bean Former Deputy Governor for Monetary Policy and Chief Economist of the Bank of England, is Professor of Economics at the London School of Economics.

The digital revolution is also disrupting traditional business models. The reduced search and matching costs offered by a range of online platforms are unlocking the market for skills (known as the “gig economy”) and the market for underutilized assets (known as the “sharing economy”). This, too, causes conceptual and practical measurement challenges for established GDP calculus. The traditional statistical distinction between productive firms and consuming households leaves little room to account for households as value creators. Measuring GDP, it turns out, is like trying to hit a moving target. The digital revolution is likely to be followed by yet another wave of disruptive technology, including advances in materials science, artificial intelligence, and genetic engineering. As the economy evolves, so must the frame of reference for the statistics we use to measure it. Consequently, internationally agreed statistical standards will almost always be somewhat out of date or incomplete, as they are bound to lag behind changes in the economy. National statistical offices should explore measurement issues that go beyond the prevailing standards, rather than use compliance as an excuse for their failure to innovate. One solution would be to establish a continuing program of research into the measurement implications of emerging economic trends, conducting one-off studies at first to gauge their potential quantitative importance. This could then guide the development of experimental statistics capturing the new phenomena. New techniques of collecting and analysing big data, such as web scraping, text-mining, and machine learning, provide an opportunity for statisticians. Governments already hold some administrative data, but their use for statistical purposes often requires legislative changes. Unlocking this trove of information would extend statistical samples to near-census size, increase their timeliness and accuracy, and reduce the respondent costs to businesses and households. Ensuring that data accurately reflect a changing economy is one of the hardest tasks faced by national statistical institutes worldwide. Success requires not only understanding the limitations of traditional measurements, but also developing a curious and self-critical workforce that can collaborate with partners in academia, industry, the public sector, and other national statistical institutes to develop more appropriate methods. The UK is by no means alone in facing these challenges. But we need to act quickly. Otherwise, the speed of economic change will render our statistics irrelevant to modern life. Project Syndicate

Ensuring that data accurately reflect a changing economy is one of the hardest tasks faced by national statistical institutes worldwide.

”

16 Business Daily Tuesday, May 10 2016

Closing Trade

Taiwan exports fall again in April

Taiwan’s exports fell for the 15th straight month in April, denting hopes of a recovery in the island’s economy and cementing expectations of further central bank interest rate cuts in coming months. The island’s exports, seen as a gauge of global demand for gadgets, beat expectations for April, in part due to a rebound in commodity prices. Taiwan’s exports shrank by 6.5 percent in April, compared with an 8.35 percent contraction

predicted in a Reuters poll. It was the first singledigit decline since last May, but the data did not raise levels of optimism about the economy. The central bank is expected to cut interest rates at least twice more this year, having shaved them three times in a row in 12.5 basis point moves since September to 1.5 percent. “We forecast two 12.5 bp policy rate cuts, one each at the June and September quarterly policy meetings,” ING’s chief Asia economist Tim Condon said in a note. Reuters

Shopping Inc rules

Simpler merger code to further boost overseas M&A push New rules are expected to come into force soon after a consultation on May 13. Michelle Price and Denny Thomas

hina is planning to remove the need for State Council approval for large, sensitive outbound deals and will allow Chinese companies to vie for the same target, a move likely to further boost record overseas acquisitions by Chinese companies. China’s chief outbound investment regulator, the National Development and Reform Commision (NDRC), has published draft rules aimed at both speeding up approvals and allowing head-to-head competition between Chinese bidders. Under the proposed rule changes, Chinese companies seeking to carry out a deal of US$2 billon or more in sectors or countries that China deems sensitive will no longer need approval from the State Council, or to provide proof of financing. The State Council, China’s cabinet, is chaired by Premier Li Keqiang and includes the heads of major departments and agencies. Sensitive deals will still need the approval of the NDRC and the Ministry of Commerce, or MOFCOM, China’s other investment regulator. The State Council, NDRC and MOFCOM did not respond to Reuters’ requests for comment. The NDRC has also proposed reducing the role its regional bureaus play in approving regular deals, a move that should strip out an extra layer of red tape faced by companies based in far-flung provinces. The draft was published online in early April, just as China’s outbound push seemed to have stalled following Anbang Insurance Group Co’s decision to drop a US$14 billion bid for Starwood Hotels, but has not been widely reported.

A draft was published online in early April, just as China’s outbound push seemed to have stalled following Anbang’s decision to drop a bid for Starwood Hotels.

The proposal would also remove the NDRC’s discretionary power to operate an informal policy of giving one Chinese company the exclusive right to bid for an overseas deal. This policy was aimed at preventing competition among Chinese bidders at the expense of the state, but has been criticised by market participants. “The new proposal is very encouraging, as it shows the NDRC is moving away from this regime and more towards a market-driven process,” said Xiong Jin, international partner at law firm King & Wood Mallesons in Beijing. The new rules are expected to come into force soon after the consultation closes on May 13.

M&A frenzy

The NDRC proposal is the latest move by the Chinese government to relax its outbound investment rules after

it began an overhaul of the opaque and complex regime in 2014 in a bid to spur Chinese companies to buy up strategic assets in sectors including food and technology. The overhaul helped trigger an M&A frenzy that saw Chinese buyers delivering a record US$104 billion of outbound deals last year, nearly double that of 2014, according to Thomson Reuters data. The tally so far this year is US$97 billion. In a landmark change, Beijing moved in 2014 to a filing-based registration system for outbound investments. That meant that a vast majority of China overseas M&A no longer required approvals, but only a registration with the NDRC and MOFCOM, with filing confirmations typically issued in around seven working days. Only investments in sensitive sectors such as media and telecoms, or sensitive countries such as those under sanctions, remained subject to

review and approval by the NDRC and MOFCOM, with deals of US$2 billion or more needing the blessing of the State Council. “Over the past two years, the government has been relaxing the outbound investment rules to push more Chinese companies to go global, but the rules are still not very straightforward and there can be some ambiguity around the thresholds for approvals,” said Nanda Lau, a partner at law firm Herbert Smith Freehills in Shanghai. “The latest NDRC proposal should simplify and expedite the approval process, and will also level the playing field increasing competition between bidders.” The NDRC and MOFCOM approval process normally takes around 20 business days, but this can extend up to three months if State Council approval is required. But China’s need to keep a lid on capital outflows means Chinese investors cannot expect an entirely smooth ride, even under the proposed new regime. Funding arrangements will still need to be registered with the State Administration of Foreign Exchange (SAFE), which is carefully watching outflows. About US$175 billion left China during the first quarter of the year compared with a record US$674 billion for all of 2015, according to data from the Institute of International Finance. SAFE did not respond to a request for comment. SAFE has in recent months tightened up the process for approving funds, requiring extra paperwork and ad hoc meetings, to ensure transactions are genuine, lawyers and bankers said. “China will continue to ease the outbound M&A rules, but there will be some bumps in the road,” said Andrew McGinty, Shanghai-based partner at law firm Hogan Lovells International. “Recent developments around sharp outflows may temporarily hold up that process, but the mid-to-longer term direction in favour of liberalisation is set to continue.” Reuters

Investors sentiment

Trade

China-Indonesia

Euro zone Sentix index edges up in May

Taiwan exports fall less than expected

High-level economic dialogue kicks off in Jakarta

Sentiment in the euro zone improved marginally in May, a survey showed yesterday, but expectations remained subdued suggesting stimulus from the European Central Bank is failing to offset worries about global growth. The Frankfurt-based Sentix research group’s index, tracking morale among investors and analysts in the euro zone, rose to 6.2 from 5.7 in April. Analysts polled by Reuters has expected a reading of 6.1. “Although the euro zone remains in the range of a moderate upturn, the manner of the development indicates a burden from global economic development,” Sentix said in a statement. “Despite the ample injection of liquidity and negative interest rate, a self-supporting upturn in the euro zone is not happening,” Sentix said. The European Central Bank surprised many in March with a volley of interest rate cuts, additional monthly bond purchases and more cheap loans for banks designed as an incentive for them to lend more but left policy unchanged in April. Sub-indices showed investors viewed the euro zone’s current conditions rising to 7.0 from 6.0 in March. Expectations remained stable at 5.5. Reuters

Taiwan’s exports fell less than expected in April, data showed yesterday, but the contraction still keeps the possibility of further central bank interest rate cuts in coming months on the table. The island’s exports, seen as a gauge of global demand for gadgets, have been declining for 15 months in a row, compounding worries about the trade-reliant economy, which shrank more than expected in the first quarter. Weak demand from China and other global markets meant that Taiwan’s exports contracted by 6.5 percent in April. That compared with an 8.35 percent contraction predicted in a Reuters poll earlier this month. But having posted double-digit drops since June last year, the downtrend in exports seems to be slowing down in line with finance ministry expectations. Exports to China, Taiwan’s largest trading partner, fell 6.8 percent in April, compared with March’s 14.2 percent contraction. Exports to the U.S. market dropped 12.7 percent and to Japan fell 4.8 percent. Imports slipped 9.6 percent from a year earlier, while the trade surplus was US$4.8 billion. Three 12.5 basis points cuts since September have brought key interest rate to 1.5 percent. Reuters

The second meeting of China-Indonesia High-level Economic Dialogue, which was co-chaired by Chinese State Councillor Yang Jiechi and Darmin Nasution, Indonesian Coordinating Minister for Economic Affairs, was held yesterday. The two sides hailed the progress achieved in bilateral cooperation after the first meeting in January last year, had an in-depth exchange of views and reached a comprehensive agreement on the cooperation in trading, investment, financing, infrastructure, energy and agriculture. Both officials agreed that the two countries, which share development goals, should work together to deal with the global economic challenge and to promote further cooperation. Yang said China and Indonesia are good neighbours, good friends and good partners, seeing a momentum of bilateral relations. China is willing to implement the consensus between Chinese and Indonesian leaders and synergy the development strategies and achieve common development with Indonesia, said the Chinese official. Commenting on the Indonesia-China relation, Darmin said China is Indonesia’s important cooperation partner. Xinhua