G2E celebrates 10th anniversary, 12,000 visitors expected Expo Page 4
Monday, May 16 2016 Year V Nr. 1043 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Dog racing
Irish greyhounds stopped at airport as pressure from activists mounts Page 5
www.macaubusinessdaily.com
Financial sector
China’s banking regulator requests banks to clear bottlenecks slowing lending to private firms Page 10
Regulator
Beijing seeks advice from U.K. on financial super‑regulator Page 11
Time for change Exclusive Interview
Going once, SOLD! Macau Legend purchases the Savan Vegas Hotel and Entertainment complex from the Lao Govt. for US$42 mln. Despite ongoing lawsuits filed by the integrated resorts’ former operator against the govt. Meanwhile, the group’s plans to develop a separate integrated resort on another plot are in ‘preliminary discussions’.
Gaming Page 5
1,100 protest donation
Overcapacity a problem
Politics Residents took to the streets in protest yesterday. Sparked by the MOP123 mln donation by the Macao Foundation to Jinan University. Calling for the Chief Executive to stand down due to conflict of interest. Some 1,100 protestors marched from Vasco da Gama Garden to Gov’t HQ. Page 2
April data China’s economy slowed in April. Weighed down by overcapacity industries such as steel and coal. Following a rocky start to 2016 marked by a sliding yuan, capital outflows and tumbling shares, China’s economy stabilised and even picked up in March. Page 10
22° 27° 23° 26° 24° 27° 24° 27° 24° 27° Today
19,719.29 -196.17 (0.99%)
Belle International Holdings
+9.37%
China Merchants Holdings
+0.94%
Kunlun Energy Co Ltd
-2.90%
Sun Hung Kai Properties Ltd
-3.33%
Tingyi Cayman Islands
+3.04%
Hengan International Group
+1.36%
Power Assets Holdings Ltd
+0.73%
Lenovo Group Ltd
-2.91%
China Shenhua Energy Co
-3.36%
Tencent Holdings Ltd
+0.58%
CLP Holdings Ltd
-3.18%
Li & Fung Ltd
-3.71%
Source: Bloomberg
HK Hang Seng Index May 13, 2016
Tue
Wed
I SSN 2226-8294
thu
fri
Source: AccuWeather
Lionel Leong sends a clear signal to gaming operators. Gaming tables will not be divided equally. And will depend upon investment in non‑gaming activities and other factors. Macau is now leaning towards a new financial leasing model to diversify its unique role - and conferences are currently the strongest sector of the MICE industry. Pages 6&7
2 Business Daily Monday, May 16 2016
Macau Protest Groups rally in streets against Jinan donation
Vocational training
Local activists demand resignation of CE
Business and Admin most popular training course
Some New Macau Association members pushing to petition at the residence of the CE were warned of unlawful assembly by the police.
A
ctivist groups took to the streets yesterday in protest, demanding the withdrawal of a 100 million yuan (MOP123 million/US$15.4 million) donation by the Macao Foundation to Guangzhou-based Jinan University. The organisers claim that around 3,300 people participated in the rally, while the figures from the Public Security Police (PSP) claim that 1,100 people from an original four groups, which splintered into two, marched on the streets yesterday. The group doubts the absence of beneficial treatment regarding the donation by the Foundation as the Chief Executive (CE) Fernando Chui Sai On allegedly transferred benefits ‘to himself’, as the top official. Serving as the president of the trustees’ council of Macao Foundation, the CE has also held the position of vice chairman of the board of Jinan University since 2010. The groups started off at around 3:00pm from various locations in Macau, concentrating in the Vasco da Gama Garden, and marched to Government Headquarters, brandishing
placards and chanting slogans like “Withdraw the donation!”, “Chui Sai On, step down!”, and “Public review of fund allocation!” The protest “caused transport paralysis, influencing transport use and pedestrians,” noted a spokesperson. While some groups such as the Love Macau Association and the Workers’ Self-help Association arrived at Government Headquarters after one hour of marching and handed in their petition, other groups engaged in conflict with police. The PSP “provided 200 agents to maintain public order,” in the protest, says a spokesperson. The PSP indicated that some protesters had taken routes not in the plan previously authorised to “unlawfully” gather on Penha Hill. Some members of the New Macau Association marched to the CE’s residence
on the hill and tried to petition but were not welcomed. Some flew paper planes into the Chui residence. Police warned them of ‘illegal assembly’ and had to set up barriers to block the protesters. The rally ended peacefully with protesters retreating from the location around 7:00pm. Earlier this month, 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 public ire regarding the transparency of the Foundation’s grant of subsidies, as well as the Chief Executive’s integrity in avoiding conflicts of interest. The Chief Executive, the SAR Government, and Macao Foundation have all denied the allegations of transferring benefit to the Mainland institute, stressing the donation is for cultivating local talent and would benefit Macau itself, in addition to urging the public to view the donation rationally.
In 2015, some 42 institutions offered 1,508 vocational training courses. The number of participants totalled 55,841, up 6 per cent year-on-year, according to the Survey on Vocational Training 2015 released by the Statistics and Census Service (DSEC). Most participants attended Business & Administration courses, accounting for 34 per cent of the total, reaching 19,058. It’s also two per cent more than those of 2014. Second in line were courses in language and computing, for which the number of participants for both groups accounted for 13 per cent, at 7,135 and 7,018, respectively. The health sector also attracted more interest, experiencing a 34 per cent increase in the number of participants to 3,397 in 2015 from 2,536 in 2014. Participants attending courses in tourism, gaming & events, however, decreased by 20 per cent year-onyear to 2,120 from 3,064 a year ago. Hotels and catering also posted 15 per cent fewer participants at 3,402. According to DSEC, the course completion rate was 87 per cent, down 1 percentage point year-on-year. Health courses had the highest completion rate at 97 per cent, followed by Social Services courses at 95 per cent; the completion rate for Electronic & Electrical Engineering courses was just 65 per cent. Completion rates represent the number of completions as a percentage of the total number of participants, while participants who have passed the final examination for the course are considered to have completed the course; if no examination is required, it refers to those who have an attendance rate of not less than the prescribed requirement. J.K.
Five-Year Plan
Five-year logistics Representatives from the logistics sector air their views on the Five-Year Development plan. Logistics associations believe that more effort should be injected into promoting regional co-operation, improving the speed of Customs services in Macau, and making the best use of the industrial area between Zhuhai and Macau, in opinions expressed at a hearing session planned by the Government’s Policy Research Office (GEPG) for the logistics sector. Some 20 representatives from the logistics, international transport and charterers associations attended the meeting, presided over by GEPG Director Lau Pun Lap. Two of the seven key points presented by the Five-Year Development plan include maintaining stable economic growth and improving the structure of industries. During
the session the logistics sector representatives suggested the MSAR Government reinforce support for the development and diversification of the territory’s economy and the creation of a fund for the logistics sector in the next five years, according to a GEPG dispatch. These measures should be complemented by a focus on human resources in the sector, and the concession of tax breaks for the purchase of eco-friendly transport vehicles for goods. Other specific measures should be enforced, noted association representatives, such as a study of better uses for the Hong Kong-Zhuhai-Macau Bridge artificial island and of Hengqing New Area. The representatives also believe negotiations should be conducted in China to improve the advantages of China’s One Belt, One Road initiative, with the number of flight routes passing through the MSAR increased. In his closing remarks, Lau Pun Lap thanked the participating association members for their opinions and hoped the sector could continue to provide insights into the future. More hearing sessions related to the Five-Year Development plan for associations and citizens will take place up to the end of June, according to the GEPG. N.M.
Business Daily Monday, May 16 2016 3
Macau Monetary Reserves
Monetary exchange reserves dip 0.4 pct m-o-m in April
Retail
Chow Tai Fook shares hit month-low as profit to miss estimates
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how Tai Fook Jewellery Group Ltd.’s shares fell to the lowest in a month after it said full-year profit fell as much as 50 per cent as weak Chinese consumer demand undercut revenue and the world’s largest jewelry retailer posted hedging losses on gold loans. Profit for the year that ended March 31 decreased 40 per cent to 50 per cent compared to the previous year, the company said in a Hong Kong stock exchange filing Thursday, citing a preliminary review. Analysts had estimated a 36 per cent decrease in net income before the profit warning, according to data compiled by Bloomberg. The company issued a similar warning in
November for first-half earnings, which plunged 42 per cent from a year earlier due to weaker sales in Hong Kong and Macau. Chow Tai Fook fell as much as 3 per cent to HK$4.92 in Hong Kong trading, the lowest intraday level since April 13. It rose 1.4 per cent this year through Thursday, compared to a 9 per cent drop for the benchmark Hang Seng Index. “The main focus for the company in the near future is when can consumption sentiment in Greater China recover,” said Zhang Jialin, an analyst at ICBC International Research Ltd on Friday. The profit drop is not a surprise as it’s similar to Chow Tai Fook’s estimate for the first-half, he said.
China’s economic slowdown and anti-corruption campaigns have hurt luxury retailers in Hong Kong and Macau, as Chinese tourists, who account for almost a third of luxury spending globally, are skipping the shopping mecca for other travel destinations. Hong Kong retail sales fell 12 per cent in the first quarter, with jewelry and watch sales plummeting nearly double that. If hedging loss on gold loans and foreign exchange fluctuations were excluded, the company’s profit is expected to decrease 20 per cent to 30 per cent, according to the statement. The retailer reported last month first quarter sales for stores open a year or more in mainland China fell 25 per cent. Bloomberg
A preliminary estimate from the Monetary Authority of Macao (AMCM) shows that the MSAR’s foreign exchange reserves at the end of April 2016 amounted to MOP151.8 billion (US$19 billion), 0.4 per cent down from the month prior. According to data released at the end of April local foreign exchange reserves accounted for 12 times the currency in circulation, or 106.9 per cent of the monetary portion defined as M2, in MOP, for the period. ‘M2’ refers to the segment of the money supply that includes physical coins and currency, as well as readily liquid assets such as on-demand bank deposits and money held in checking accounts plus all time-related deposits, savings deposits, and non-institutional money market funds. Regarding the trade-weighted effective exchange rate index used to compare the exchange rate of Macau against the exchange rate of its major trading partners the local currency decreased 1.04 points monthto-month and 0.04 points year-on-year to 104.89 in April, with the pataca depreciating against the currencies of Macau’s major trading partners over the course of last year. N.M.
Insurance
Dah Sing gets five bids for insurance unit, top offer about US$1.3 billion - sources Dah Sing Financial Holdings Ltd has received at least five bids for its life insurance unit, including offers from Canada’s Sun Life Insurance Inc and Chinese property developer Country Garden Holdings Co, people familiar with the matter said. The highest bid in the final round for the insurance business of one of Hong Kong’s last remaining family-run banks was close to HK$10 billion (US$1.3 billion), about 30 per cent more than initially expected, they said, declining to be identified disclosing confidential information. China Taiping Insurance Holdings Co Ltd, unlisted Qian Hai Life Insurance Co Ltd and Beijing-based investment firm J.D. Capital also put in bids, they added. It was not immediately clear who submitted the top offer. One person said it was about 25 per cent bigger
than the next highest bid. A winner is likely to be announced next month, the people added. The unit represents an attractive way for a traditional insurer to expand sales of its products using Dah Sing’s network of 70 branches in Hong Kong, Macau and on the mainland. Other suitors not currently in insurance are keen to diversify away from their slowing home market, the people said.
Attractive insurance
Insurance businesses in Hong Kong have generated strong interest. Last year J.D. Capital bought Ageas’ Hong Kong operations for about US$1.4 billion. Sun Life, Country Garden, Qian Hai and China Taiping Insurance declined to comment. A representative for J.D. Capital could not be reached for a comment. Dah Sing said in an email that it was reviewing strategic alternatives for its life insurance business but that no decision had been made and no timetable had been set. The sale had attracted over two dozen suitors but many traditional insurers dropped out, unable to match aggressive offers from other bidders, the people added. Dah Sing’s insurance business has
an embedded value of about US$500 million, one of the people said. Embedded value is the net asset value of an insurer plus the present value of potential future profits from existing life and health insurance contracts. Dah Sing’s insurance business reported a 29 per cent rise in net profit
in 2015 to HK$325 million. Hong Kong has a developed life insurance market, with a life and health insurance premium to GDP ratio of 13.4 per cent in 2015, the second-highest in Asia, according to Swiss Re. Premiums are forecast to grow 9.2 per cent in 2016. Reuters
4 Business Daily Monday, May 16 2016
Macau Gaming G2E Asia to kick off tomorrow
A decade’s-worth of networking With 180 exhibitors confirmed, the organiser is expecting 12,000 visitors to the three-day event.
Joanne Kuai joannekuai@macaubusinessdaily.com
experience, customer service,” added Ms. Lee.
he 10th edition of the Global Gaming Expo (G2E) Asia starts tomorrow. The threeday event has 180 confirmed exhibitors, a 12 per cent increase compared to last year. Of these, 40 per cent will be joining the event for the first time. In addition, the organiser is expecting 12,000 visitors. “As of today, we have about 5,000-plus pre-registered visitors. All casinos in Asia were covered in that pre-registration visitor number,” said Josephine Lee, Executive Vice President of Reed Exhibitions Greater China, one of the co-organisers of the event. “The number of conference delegates – pre-registration – has gone up by 17 per cent to about 300 conference delegates.” The exhibition areas will occupy around 9,200 square metres at The Venetian in Cotai, some 12 per cent more than last year. “In terms of content, we’ve also made an effort in diversifying the non-gaming elements, including retail, customer
Gaming regulators to gather
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Ms. Lee indicated that one of the highlights of this year’s conference side is that concerning the participation of gaming regulators. Macau’s Director of the Gaming Inspection and Co-ordination Bureau, Paulo Martins Chan, is expected to speak on May 18 on the topic of ‘Transformation in Changing Conditions’. “On the 18th, we will also be organising the first-ever gaming regulators luncheon. As of today, about 30 regulators are confirmed. They will be getting together, exchanging notes on what’s happening, how they can get some new ideas from each other,” said Ms. Lee. According to her, Mr. Paulo Chan will also be participating in this closed-door event, with other gaming regulators “not only from Asia but also from the U.K., Australia, U.S.”
and conference. Starting off at the Macau Tower, with about 3,000 square metres of expo space, the show has now grown threefold – now covering about 10,000 square metres. However, Ms. Lee stated that “organising an exhibition is not only about size or number of exhibitors,” but at the end of the day, whether the customers - which are their exhibitors, as well as the participants - and their visitors “achieve what you want to achieve, whether you feel this is the place you can get the information that you want, you can meet the people that you want to meet, you can network [with] the colleagues, the peers, and get to know the latest about the market.” Ms. Lee also added that as of two years ago the event started introducing more non-gaming elements, as the market demanded the change “not only in Macau, but also globally, and in Asia”.
10th anniversary
Personalised matchmaking service
This year also marks the 10th anniversary of this annual trade show
Some other highlights of the event include a specialised project team
helping buyers and suppliers meet at G2E Asia in a more cost-effective way by providing a systematic and customised business matching service. As of last Friday, over 170 meetings had been arranged through the online platform and Targeted Attendee Programme (TAP) - originated by Reed Exhibitions - 66 per cent more than last year. In terms of iGaming, a designated zone seeks to provide the growing iGaming community with direct market access and a networking platform of over 50 iGaming exhibitors bringing along their latest iGaming solutions and products from Asia and abroad. This fast-growing segment will more than double the number of exhibitors joining compared to 2015. More than 65 per cent of these will be new companies. In addition produced by Asia Gaming Brief, in association with G2E Asia and the Innovation Group - the inaugural edition of AGAwards will be recognising operators, regulators, suppliers and service providers for their contributions to the industry.
Gaming
Las Vegas Sands Corp. agrees to pay US$2 million (MOP16 million) fine Las Vegas Sands Corp.(LVS) has agreed to pay a US$2 million(MOP16 million) fine for alleged violations of the Nevada Gaming Control Act and Regulations of the Nevada Gaming Commission (NGC), according to a Nevada Gaming Control Board (NGCB) release. The gaming authority filed a complaint against Las Vegas Sands Corp., Las Vegas Sands, LLC and The
Venetian Casino Resort LLC, alleging ‘violations of the Nevada Gaming Control Act and Regulations of the Nevada Gaming Commission. The NGCB also entered into a ‘Stipulation for Settlement and Order’ with the respondents (LVS and previously mentioned LLCs) in which Las Vegas Sands Corp. neither ‘admit nor deny the allegations set forth in the complaint and
agree to pay a fine in the amount of US$2 million’. The release notes that the allegations revolve around a previously announced settlement Las Vegas Corp. reached with the U.S. Securities and Exchange Commission on April 7, agreeing to pay a US$9 million penalty to settle charges for violating the U.S. Foreign Corrupt Practices Act (FCPA) by failing to properly
authorise or document millions of dollars in payments to a consultant facilitating business activities in China and Macau, as reported by Business Daily. The U.S. Foreign Corrupt Practices Act makes it illegal for U.S.-based companies and their executives to attempt to influence foreign government officials with personal payments, and in the April 7 SEC litigation it
stated that the casino operator run by billionaire Sheldon Adelson violated the internal controls and books and records provisions of the Foreign Corrupt Practices Act by transferring US$62 million between 2006 and 2011 to a consultant, in circumstances that frequently lacked supporting documentation or appropriate authorisation, Business Daily reported. N.M.
Business Daily Monday, May 16 2016 5
Macau Laos Macau Legend enters into agreement with Laos Gov’t. on Savan Vegas Casino
Whose land is it, anyway? Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
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acau Legend hasannounced that it had entered into a ‘Project Development Agreement’ with the Lao People’s Democratic Republic Government to purchase the Savan Vegas Hotel and Entertainment complex, located in the Savannakhet Province in the centre of Laos ‘at a consideration of US$42 million (equivalent to approximately HK$325,920,000) in a filing with the Hong Kong Stock Exchange. The contract extends to the ‘issuance to the Project Company of the Concession Certificate […] authorising the Project Company [formed by Macau Legend] to engage in the Concession Activities in
connection with the Project during the Term,’ notes the filing. This comes in the wake of the termination of the bidding on the casino - announced by RGB International Bhd, a member of a consortium that was one of the six shortlisted companies for the casino sale – coming right on the heels of three lawsuits levelled by Lao Holdings N.V. against the Laos Government. These were allegedly ‘in response to specific illegal actions by the Government of Laos and its agents’ and the company handling the management and sale of the property, San Marco Capital Partners LLC, last week. The filing on the stock exchange notes that ‘the unaudited net book value of the Savan Vegas Hotel and Entertainment Complex as at 31 December
2015 was approximately US$31,091,000 (equivalent to approximately HK$241,266,000)’ with the audit occurring nearly seven months after the seizure of the casino by the government from Sanum Investments Ltd., a company 100 per cent owned by Lao Holdings N.V. and 80 per cent owner of the Savan Vegas Hotel and Casino. Sanum and the Lao Government had reached an arbitration agreement, in which 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’, as Business Daily reported. However, according to the filing, with no mention of Lao Holdings N.V. ‘the Consideration of US$42,000,000
(equivalent to approximately HK$325,920,000) shall be paid at Closing by a wire transfer of immediately available funds to the bank account designated by the Government of the Lao PDR no later than three Business Days before Closing.’
More on the horizon
The project development agreement grants the property for 50 years, with an option to extend for a period not exceeding 49 years, if the company has ‘fulfilled all its obligations for the initial term’. During the term, the Lao Government ‘shall not grant to any third party any licence, permit or concession authorising such third party to operate any Gaming Activities within the exclusivity zone,’ consisting of the Bolikhamsay, Khammouane and Savannakhet
provinces ‘without the prior written consent of the Project Company’. This allows Macau Legend to operate on the project’s ‘gaming tables, semi-automated gaming tables and Electronic Gaming Machines, either in a casino or in the form of Interactive Gaming.’ In addition, the government will consider Macau Legend’s interest ‘in developing an integrated resort at Site A, an area in the Savan Seno Special Economic Zone of Savannakhet Province,’ which could include ‘two golf courses, 600 hotel rooms, villas, spa and pool facilities, staff quarters and training facilities’ as well as ‘a shopping arcade, an exhibition hall, medical tourism facilities, a floating restaurant, a botanical garden, a dinosaur exhibition and other resort-type facilities and activities’ although the filing notes that the two are still in ‘preliminary discussions on the potential development’. Macau Legend opined that the expansion would ‘provide a viable and valuable opportunity for the Group to expand its business outside Macau’ in the filing. The group will be able to ‘have full rights to the Project Area and use of the existing Project and Project Area infrastructure and facilities’ and to ‘further develop the infrastructure and facilities […] whether by way of renovation or construction of new infrastructure and facilities’, says the report. The project was ‘determined after arm’s length negotiations between the Government of the Lao PDR and the Company’, notes the report, labelling Macau Legend a ‘suitable casino operator’ and that the group has ‘received indication from the Government of the Lao PDR that its participation in this gaming sector is welcomed.’ As at publication, neither Macau Legend nor Sanum Investment Ltd. were available for comment.
Greyhound racing Macau-bound greyhounds blocked at London airport
Anima unleashes new strategy Ireland, once a minor supplier of greyhounds, has now become a new battlefield for animal rights groups. Some 24 Irish greyhounds bound for Macau and scheduled to arrive last Friday were seized by British health authorities and retained at London’s Heathrow airport. According to British media reports, the greyhounds had been taken from Ireland by ferry to Holyhead, Wales last Wednesday. Their journey was filmed by animal activists. Footage by Caged North West, a Manchester-based greyhound protection group, shows the activists repeatedly confronting a group of men. Activists then staged a protest at Manchester Airport in the belief that the Irish greyhounds would be bound for the SAR via a Lufthansa
flight. The dogs were taken instead to Heathrow, but the Heathrow Animal Reception Centre, which checks that animal shipments meet International Air Transport Association regulations, refused permission for an airline to transport them because the crates in which they were carried did not meet regulations, according to a spokesman for the City of London, which runs the Centre. The airline was Qatar Airways, which flies from Heathrow to Hong Kong via Doha, said the spokesman. According to the non-profit organisation Birmingham Greyhound Protection, the pack had been transported from Ireland to England in irregular conditions, including not being fed or watered for at least three days. The dogs are now being taken back to Ireland by road and ferry.
New battlefield
“It’s a great victory,” Albano Martins, President of the President of
Anima (Society for the Protection of Animals) told Lusa News Agency. The local animal concern has made a continual effort in urging the closure of Macau’s greyhound racing track. The concession for greyhound racing track operator Macau (Yat Yuen) Canidrome Co. was set to expire by the end of last year. However, it was extended until December 31, 2016 according to an executive order. The government argued back then that ‘it would not be fair to close the space from one day to the other’. Now facing a new deadline, Anima has adopted a new strategy of blocking the supply of dogs to Macau, with one victory claimed - blocking one of the main suppliers in Australia from exporting dogs to the SAR started last December. The campaign focused next on Ireland, initially a minority supplier, but now essential for the Canidrome’s dog supply. Ireland prohibited the export of dogs to
China in 2011, but the rule does not cover Macau. Albano Martins disclosed that he will be travelling to Ireland on 2 June, where he hopes to be received by the Minister of Agriculture, after a petition to stop sending greyhounds to Macau gathered some 350,000 signatures. According to Anima, the Canidrome Macau needs to frequently acquire new dogs because all animals begin to show less positive ‘performances’, even when they are still young and healthy. According to Anima, without an adoption programme and with limited space, the Canidrome slaughter hundreds of animals annually. The animal concern group estimates that between 260 and 280 dogs died last year, some only a month after arriving at the track. Currently, there are about 720 greyhounds in the Macau Canidrome. In 2015, the Canidrome generated MOP125 million (US15.6 million) in revenues out of the MOP231.81 billion generated by the whole of the gaming industry in Macau, which represents less than 0.05 per cent.
6 Business Daily Monday, May 16 2016
Macau Economy Exclusive interview
“It’s essential to diversify sources of clients” The Secretary for Economy and Finance is the last of the Secretaries to talk exclusively to Project Asia Corp. media group, proprietor of Macau Business, Business Daily and Business Intelligence amongst other titles. Lionel Leong sends a clear signal to gaming operators. Gaming tables will not be divided equally and will depend upon investment in non-gaming activities and other factors. Macau is now leaning towards a new financial leasing model to diversify its unique role and conferences are now the strongest sector of the MICE industry.
we mentioned the market, we always considered it from the perspective of demand. Now, this notion has shifted to ‘Supply Side Restructuring’. For us, it means that we must continuously change the factors. That’s the only way we can produce satisfactory effects in favour of the healthy development of industries,” explains Mr. Leong.
Positive budget balance In terms of revenues, if the results continue on a monthly average of MOP18 billion to the end of the year, Macau can expect a 5.5 per cent drop compared to 2015. The Secretary prefers not to express any pessimism: “With available data, gross gaming revenue dropped 13.3 per cent during this year’s first quarter. In 2015, gross gaming revenue reached MOP230.8 billion. When we prepared the 2016 budget, our forecast was MOP200 billion, anticipating a 13.35 per cent drop. Thus, the decrease is well within our forecast. So far, based on our estimate, we believe that a positive budget balance is still possible this year, at about MOP3.4 billion”. Still, the Secretary explains that Macau needs to “change” its total dependence upon one single factor. “Our clients originate from one area, so we need to develop the non-gaming elements and invest more in order to elevate our competitiveness on the world tourism stage. It’s essential to diversify sources of customers”, he tells us. Besides, the mass market is more stable, says Mr. Leong. And drives more requests for rooms and F&B than the VIP segment and “creates more jobs” because it employs more croupiers. Definitely, mass is the trend to follow while the city expects operators to invest in more non-gaming facilities to attract more families instead of the individual, he explains.
‘In other territories, it is believed that chaos would follow a drop of over 30 per cent in their predominant sectors and over 20 per cent in their GDP. But in Macau, our resilience and dynamics persist.’ Cheong Kam Ka
Paulo A. Azevedo pazevedo@macaubusinessdaily.com
T
he interview took a long time to set up but was finally scheduled. Lionel Leong and a full hand of his team members didn’t know much about the contents of it. Not that they didn’t try to ask for the questions ahead but the answer to that, as to all who have asked in the past, was a polite rebuff. For the sake of ethics, which some publications still uphold. The game was on, literally, for the conceded 45 minutes interview that became 1.5 hours. Gaming, the hottest topic of the moment. Well, for the past 60 years but especially now,
given the amazing results once the semi-liberalization of the industry took off, reaching its peak in 2012 and 2013 – followed by the vertical descent to a more down to earth reality. But still the biggest gaming mecca in the world, revenues wise, at fourfold that of Las Vegas. The Secretary for Economy and Finance receives with an undisguised smile the journalist’s questions. Cards on the table, requests the journalist. Lionel Leong is not ready to show his poker hand, but takes the opportunity to send a message: “The authorisation of tables is a very important measure in the management and supervision of the gaming sector. It’s an important stimulus for gaming operators
to invest in non-gaming elements, as well as in other activities that contribute towards Macau becoming a World Centre of Tourism and Leisure”. Which means that the government “will not divide the number of additional tables equally among the operators”. Message received. Crystal clear. What about the VIP market, any place at all? Sure, believes the government. But like any analyst will tell you, probably never again like it was in the past. Mass market is the way ahead now, which, according to the official, “may produce a positive effect in diversifying the clientele”. As everything changes in life, so does the industry, he says. “Before, when
As we feel the Secretary becomes more confident, it seems to be the ideal moment to launch a more aggressive hand. The gaming law allows SJM’s concession to be extended to a maximum of 20 years, which is 2 more years than what Stanley Ho got while the other two operators got a straight 20 years, so what’s the plan? Extend SJM the two years - and consequently its sub-concessionaire MGM - or open a public tender for that concession? Lionel Leong didn’t fall for that and preferred not to answer. “The time for that hasn’t arrived yet”, he says, by way of an apologetic explanation. However, this was not the only question he avoided. When confronted with the proposal of legislator Chan
Business Daily Monday, May 16 2016 7
Macau ‘I agree that any GDP stimulus must be powered by exports, investment and consumption. The three factors must occur simultaneously.’ and build a sustainable future”, Mr. Leong explains. We will wait and be here to remind him. He smiles. Next challenge.
SME support
Cheong Kam Ka
Meng Kam for a “casino of the people” - a gaming operator in which every Macau citizen would be a shareholder - Mr. Leong declines to respond. “The current scenario is three concessionaires and three sub-concessionaires. Until the end of the contracts, we have to study if the need is there to renew them. So far, no decision has been made,” he asserts. As for the long awaited new casino in the “most expensive hotel in the world”, as the international media describes The 13, Secretary Leong repeats what he has already declared in parliament. “All casino and gaming tables requests must come through the gaming concessionaires. Until now, I have not received any request for a casino in the location you mentioned. If we do receive it, we must analyse all the factors”, he points out. However, from just a legal point of view, he adds, “there are no legal dispositions that forbid the existence of a casino in Coloane”.
MICE: Conferences are the favourites At one stage, MICE (Meetings, I n c e n ti v es, C o n f e r e n c es a n d Exhibitions) was all the political fashion and considered one of the areas the government needed to support on its way to a more diversified economy. However, last year’s results revealed an industry punching way below its weight, contributing less than 0.05 per cent of GDP. Lionel Leong seems undaunted and serene. Maybe because the target was settled before his term. MICE “has different stages”, he says. “We will change its development model which previously was focused only on endlessly organising fairs. From a ‘more is better’ concept, we will now transition to a phase where great efforts will be made to catapult the sector towards a path of sophisticated and robust development. That’s why we suggest a policy that prioritises conferences”. Conferences, then, becomes the strongest leg of the concept. “Because we feel that they attract clients that have an increased spending capability, with a consumption model that
‘We will change [the MICE] development model which previously was focused only on endlessly organising fairs.’
is more appropriate to the retail and services that Macau provides. According to data from 2015, more than 70 per cent of fairs and exhibitions took place in the same hardware, or were held in the same venue, thus creating a centralised situation when it came to client sharing. With conferences, which may be of different scale, they can be held in different places, so it would help promote a more generalised client sharing and contribute towards reinforcing the activity in those parts of the city”. It seems, as he explains, a similar concept to the VIP-mass market formula. To avoid concentration and allow other areas to share visitors’ expenditure. He elaborates: “When we speak of an adequate diversification of the economy, of developing the gaming sector and Macau’s economy, we should take into account all the related measures; but these measures aren’t just those that help distribute clients. On the contrary, they should allow the same clients to be shared by other people”. The Secretary defends the little importance he gives, or so he says, to GDP, which is one of the indicators for a “proper evaluation of the economy’s diversification”, as he puts it. “But we also need to look at full employment, employment options and business creation, so that we can ponder and do a better job in the pursuit of adequately diversifying the economy. As Secretary, I pay close attention to GDP figures and the drop in gaming revenue, but in this phase of economic readjustment we can see that the unemployment rate has only increased from 1.7 per cent to 1.9 per cent. In other territories, it is believed that chaos would follow a drop of over 30 per cent in their predominant sectors and over 20 per cent in their GDP. But in Macau, our resilience and dynamics persist”. As Lionel Leong explains, economic diversification is indeed a hard task ahead, but “this year’s results are better than last year’s results and next year’s results will be better than this year’s”, he avers. The time for the interview has ended twice, with only a quarter of the interview nailed down so the journalist insists, almost wringing his hands, and is granted another hour the following week. “We’re not used to this; normally, he only concedes one hour”, explains his chief of staff. We take it as a compliment and agree: “Yes, some people see us as a pain…” With a smile, apparently, you can say so much more.
Diversification, a myth? The following Monday, evening. The Secretary concludes his thoughts on where and how Macau may
‘This year’s results are better than last year’s results and next year’s results will be better than this year’s.’ contribute to a more diversified economy. He chooses the financial sector with “Macau characteristics”. By way of background, Macau and Hong Kong – the unique advantages of which “are mentioned several times in the Mainland’s work reports of 2015 and 2016” - have the concept of “One country, two systems” as a differentiation with the rest of the inner regions and provinces. Whilst Macau has its “unique connection to Portuguesespeaking countries”. “Regarding the financial sector and its articulation with some of the national policies, we have to consider that the country has to invest in certain large equipment in the construction of the ‘One Belt, One Road’ [The Silk Road Economic Belt and the 21st Century Maritime Silk Road] and in the context of projects financed by the Asian Infrastructure Investment Bank [AIIB]. Heavy machinery must be exported for that and we’re trying to see if part of that process can be done in Macau, by adopting the financial leasing model. Macau would only address the application of that model, which doesn’t take a lot of physical space. As Macau becomes a platform for Portuguese-speaking countries to pay for transactions in RMB we already have the basic structures that will allow us, in the future, the capability to participate in the country’s projects; namely, in the export of machinery backed by financial leasing made in Macau. Besides, Macau also provides tax benefits and certain advantages in the free flow of currencies”, he explains. A mammoth task but is it feasible? Not only feasible but it will open the door to other activities “such as registration, insurance, etc.”, he says, apparently confident that this specific financial activity will lead us to the “birth of a new and modern services sector”. We can only hope. But exactly when? Next year, in five years? The journalistic impatience needed to be matched by the political serenity: “Rome wasn’t built in a day. In order for a sector to perform well, infrastructure is required in the legal and fiscal areas, as well as much talent. That’s the only way we’ll be able to take the first steps
The government was quick to implement austerity measures when gaming revenue dropped. It was widely criticised because of it. After all, the steep drop doesn’t put Macau in any danger. Revenue still surpasses expenditure, the government never spent even half of what was budgeted for PIDDA and the public coffers are comfortably full. So, we ask if wouldn’t it make more sense to promote the internal economy and internal consumption to offset decreasing foreign investment? Secretary Leong denies the implementation of austerity measures was quick. And explains the intention behind the decision: “to promote less spending within the public administration”. “Because of that, for 2015 and 2016, we didn’t make any budget changes to decrease expenditure in social welfare. At the time, I was firm in my intention to increase PIDDA’s execution rate [in 2015]. I agree that any GDP stimulus must be powered by exports, investment and consumption. The three factors must occur simultaneously. When we notice that the exports sector is underperforming, something must be done, like increasing public investment and supporting private investment. However, about the savings in public administration expenses, I would like to highlight that the concept must be present at all times and not just during difficult economic times”. As the hour wore on - even though the intended interview had just passed the half way mark - the necessary measures to provide support to the SME’s (Small and Medium Enterprises) was up next. Lionel Leong was expecting a similar move, even if we made it, as the government’s help is seemingly nothing more than some tax exemptions. “Not just”, he says, and enters a comfort zone (and his team as well, it seems, who very kindly provide a couple of graphics to illustrate the government’s efforts). “The government has also launched a revenue tax payment exemption. Nearly 98 per cent of Group B companies are exempt from that tax. On top of that, we will continue to provide interest free loans to SME’s, as well as help with banking loans through a guarantee system”, explains the city’s head of Economy and Finance. “We also promote training courses. Regarding human resources, we can see that manpower available to SME’s has also increased”. In addition, he concludes, “in all the efforts to promote Macau’s economic activity, the government has focused its attention on promoting regional co-operation. The ‘Macau Week’ activity aims to help SME’s enter markets in China’s inner provinces. The food products distribution centre, which is already operational, allows for online and offline contact with retailers and potential clients”. The journalist concedes the more positive political move to end the interview. Maybe that will make him concede another, some time from now, as so many topics still beg to be addressed. Or maybe not; as now he knows that he can’t kick us out within the allotted hour. Time will tell.
8 Business Daily Monday, May 16 2016
Greater China
Growth
Hong Kong’s GDP contracts on weak exports, spending A string of retailers from fashion to jewellery firms have posted grim performance figures, with retail sales contracting for the 12th successive month in March.
H
ong Kong’s economy shrank in the first quarter from the final quarter of 2015, hit by falling exports and weak consumer spending, with the risk that momentum will slow further. On the doorstep of the world’s second-largest economy, Hong Kong has been buffeted by China’s slowdown. A slump in visitors from the mainland, weak retail sales
and falling asset prices have combined to put the economy on the verge of recession. The trade-dependent economy contracted 0.4 percent in the first quarter, the first contraction in nearly two years. On an annual basis, growth was just 0.8 percent in the first quarter, its weakest pace in four years. It was worse than economists’ expectations for 1.48 percent growth and less than half the pace of the fourth
quarter. “We think in the second quarter, or even the second half, there should be even more of a slowdown,” said Kevin Lai, senior economist at Daiwa Capital Markets in Hong Kong. “I am also worried that the whole macro situation in Hong Kong looks like we are not any better than 1997 and 1998,” he said referring to the period before the Asian Financial crisis. Hong Kong’s economy grew
2.4 percent in 2015, about half the pace of 2011, as China’s slowdown and a weaker yuan curbed Chinese spending, while a volatile stock market also hit domestic consumption. A string of retailers from fashion to jewellery firms have posted grim performance figures, with retail sales contracting for the 12th successive month in March, Hong Kong’s tourist arrivals, which dropped 20.5 percent in
February, slid 4.3 percent from a year earlier to 4.21 million in March. Mainland visitors, which accounted for 72 percent of the total, fell 6.9 percent to 3.02 million. Cracks are also widening in the city’s real estate market, one of the most expensive in the world, and accounting for nearly a fifth of economic output. Apartment prices are down by 12 percent from a September high and investment banks predict a further 20 percent decline in coming months. While the city’s leaders have announced a range of relief measures in its March budget, a turnaround in economic activity is unlikely in the near term given weak global growth and Hong Kong’s strong links to a slowing Chinese economy, analysts say. Reuters
Future driving
Apple, mainland rideshare deal heats up race for te Analysts say Apple’s investment could also bolster relations with the Chinese Government. Alexandria Sage and Julia Love
Apple Inc’s US$1 billion investment in Chinese ride sharing company Didi Chuxing intensifies a race to acquire technology, talent and market access in a rapidly evolving global personal transportation market. Apple’s investment comes as auto and technology industry executives and investors are placing bets that self-driving car systems, electric vehicles and ride sharing will eventually converge to allow companies to sell rides in self-driving vehicles, generating revenue day and night. For Apple, Chief Executive Tim Cook said to Reuters that investing in the leading Chinese ride sharing service could expand its presence in that “very, very important” market, and serve other ends as well. “We are making the investment for a number of strategic reasons, including a chance to learn more about certain segments of the China market, and we also see lots of opportunities for closer cooperation between the two companies. Of course, we believe it will deliver a strong return for our invested capital over time as well,” Cook said in an interview Thursday. Analysts said Apple’s investment also could bolster relations with the Chinese government, and put a roadblock in the way of rivals Alphabet Inc and Uber Technologies, among others looking to profit from re-making the personal transportation market. “(Apple is) going to learn a ton about
what driving a car is like in China,” said analyst Jan Dawson of Jackdaw Research. Apple’s ride-sharing investment highlights a surge in automotive technology deals, which have increased by 58 percent in 2015, with a 154 percent jump in funding, according to CBInsights, a venture capital database. In 51 deals, investors put US$409M into auto tech companies in 2015. “It’s a reflection of fact there are very few industries in the world ... that are going to go through as much disruptive transformation as transportation,” said Michael Linse of Linse Capital - which last week invested another US$50 million in electric vehicle charging company Chargepoint.
Dipping into the money chest
The ride-sharing investment barely dents Apple’s war chest, which stood at US$232.9 billion in cash and cash equivalents as of its most recent earnings. The investment is something of a departure for the iPhone maker, which has made few large deals in its history, with the exception of its roughly US$3 billion acquisition of headphone maker Beats in 2014. Pressure is mounting for Apple to untap new sources of growth as sales of the iPhone, which accounts for about two-thirds of its revenue, declined for the first time last quarter. Investments and acquisitions could be a short cut for Apple to return to the kind of growth that Wall Street has come to expect, said analyst Bob O’Donnell of TECHnalysis Research. “It’s clearly time for Apple to dip into their money chest,” he said. “Just moving forward with what they’ve got is not going to really cut it.” Estimates of the size of the market for transportation services vary, but industry executives agree it is big. Ford Motor Co Chief Executive Mark
Fields tells investors the market for transportation services could grow to US$5.4 trillion a year - which is why Ford earlier this year set up a new business unit, Ford Smart Mobility LLC, to develop ventures and alliances in
the sector. Yoav Leitersdorf, managing partner of California and Israel-based YL Ventures, said self-driving car technology is “the Holy Grail” of investors right now. “Anything leading to that is very hot
Business Daily Monday, May 16 2016 9
Greater China Institutional participation
In Brief
Shanghai-Hong Kong stock link attracts more institutions Greater institutional participation bodes well for China’s stock markets at a time when turnover on the Shanghai bourse is near its lowest point this year. Saikat Chatterjee
A landmark scheme connecting Shanghai and Hong Kong stock markets is finally starting to attract more global institutional investors, as a lag in trading and settlements that posed a risk to investors has been ironed out. More institutional activity on the platform will likely speed up reforms and the rollout of another scheme linking the southern city of Shenzhen and Hong Kong, market participants say. “I dismiss the thought that it is only a retail product,” Kevin Rideout, head of business development at the Hong Kong Stock Exchange, said at the FIX conference on Thursday. “What I can see is that the recent top 10 overall stock connect volumes are made up from the international firms and that probably tells me that it’s largely institutional.” Launched in November 2014, the Shanghai-Hong Kong Stock Connect had promised to open up China’s capital markets to foreign investors, heralding bolder stock market reforms with the ultimate goal of full capital account convertibility. Instead, it was criticised for being used by retail investors and hedge funds to dabble in mainland markets. Quotas inbound and outbound have not been fully used up, aggravated by a mid-year stock market crash in 2015 and volatility in the renminbi that spooked investors. The failure of the scheme to draw institutions, such as insurance companies
and funds, forced Beijing to postpone the launch of the Shenzhen project and also from expanding the scope of the existing programme. Recent reforms, however, particularly in stock delivery and settlement services, have removed some uncertainty for investors.
Kinks ironed out
Connect brokers were hopeful of more institutional participation since last year but problems around settlement issues were only resolved in April. China follows a unique T+0 settlement model - shares are exchanged on the day they are traded but funds are transferred the following day. In most markets, including Hong Kong, a T+2 model is followed. A lag in settlement gives rise to broker counterparty risks.
This last setback was ironed out in April when a “delivery versus payment (DVP)” model was introduced. “We are seeing more institutional flows on our platform going into the northbound leg with more participation from the European funds,” said the head of electronic trading at a U.S. bank in Hong Kong. While overall aggregate quota utilisation on the Shanghai leg of the scheme remains low at 42 percent, below a peak of 57 percent last June, there are signs of a pick-up. Greater institutional participation bodes well for China’s stock markets at a time when turnover on the Shanghai bourse is near its lowest point this year. The share of the top-ranked broker category, which services institutional clients, has grown recently and accounts for nearly 70 percent of turnover on the China-bound leg, Hong Kong stock exchange data shows. “We are definitely seeing more institutional clients on our platforms focused on stock connect and the cheap valuations are an additional attraction,” said Andrew Sullivan, managing director of sales trading at Haitong International Securities in Hong Kong. Reuters
Francisco autonomous driving startup Cruise Automation. That deal is one of a series of moves by global automakers to expand beyond traditional manufacturing. Automakers are under pressure from investors to demonstrate they can
Police bust gang selling HK identity cards Shenzhen police said yesterday that they have arrested five members of a gang selling Hong Kong identity cards in Shenzhen City, Guangdong Province and Hong Kong. According to an initial investigation, the identity cards sold by the gang were used in crimes related to credit cards, money laundering, telecom fraud and illegal business. The police seized 815 ID cards. Two of those detained are from Hong Kong and three from Guangdong. Investigation showed the chief of the gang Hong Kong resident Guo, 56, has a previous criminal record for fake IDs and fraud. The other suspect from Hong Kong has a record for drug-dealing, theft, gambling and other crimes. Protectionism
Beijing urges an end to EC anti-dumping investigation The European Commission (EC) should follow World Trade Organization (WTO) rules in its anti-subsidy investigation into Chinese steel exports, a Ministry of Commerce (MOC) official has said. On May 13, the EC started to investigate steel imports and impose anti-dumping and countervailing duties on hot-rolled flat steel products originating from China, over which a so called “anti-dumping” investigation has been done earlier in February. The Chinese government has expressed concern over EC protectionism before, the official said, adding they do not help in tackling global steel overcapacity but hurt the sustainable development of the international steel industry.
tech-smart cars right now,” said Leitersdorf, who invests in Israeli technology firms, most recently cybersecurity company Karamba Security. General Motors Co on Friday said it had closed its acquisition of San
ID investigation
fend off disruption of their traditional profit engines. GM earlier this year invested US$500 million to buy a stake in Lyft, which also has an alliance with Didi. GM executives have outlined plans to use Cruise technology to deliver autonomous, electric vehicles that Lyft could use in its fleets. A GM spokesman on Friday said the automaker has ridesharing pilot projects in China, but not in connection with Didi. The investment offers tremendous new resources for the collaborative work Didi does with Lyft, said Lyft spokeswoman Sheila Bryson, adding that the executive teams and technical teams of both companies work closely together. “It’s really exciting for Lyft, too,” said Bryson. Apple’s alignment with Didi may deliver a blow to Uber, which is fiercely competing for market share in China, one of its most critical and intense markets. The company is losing more than $1 billion a year there, Uber CEO Travis Kalanick told Reuters earlier this year. German automakers BMW AG and Daimler AG have invested in car-sharing services, and also with Volkswagen AG have acquired stakes in HERE, a European digital mapping company. The German automakers have said HERE will be integral to their efforts to develop self-driving cars. Fiat Chrysler Automobiles NV earlier this month struck a deal with Alphabet Inc’s Google autonomous car operation to supply 100 Pacifica minivans that Google will outfit with its self-driving vehicle technology. Both companies have portrayed this as a limited agreement - Google will not share its technology with Fiat Chrysler. The deal is the first direct collaboration on autonomous vehicle production between an automaker and Google. Reuters
FX
Cross-border capital flows expected to stabilise China will maintain a surplus in its current account and a deficit in its capital and financial account in 2016, the country’s foreign exchange regulator said on Friday. The State Administration of Foreign Exchange (SAFE) said in its annual report released on Friday that it expects cross-border capital flows to stabilise this year. It added that China’s foreign exchange reserves are ample. China’s economic development outlook remains sound and it will continue to attract foreign investment, especially long-term capital inflows, it said in the report. Logistics
JD.com teams with Siasun for e-commerce automation Chinese online retailer JD.com has teamed up with robot maker Siasun to automate its logistic network, the company said on Friday. JD said it will work with Siasun to develop logistics robots to increase automation from order to delivery. JD has already invested heavily in making its warehouses and deliveries more efficient. “Logistics in the future will go beyond basic infrastructure,” said JD’s technology chief Zhang Chen. JD said it will work with other companies on automation similar to that at Amazon’s distribution centres.
10 Business Daily Monday, May 16 2016
Greater China Economic activity
April data disappoints, fuelling recovery doubts It was upbeat March data that sparked hopes China’s economy was picking up. Pete Sweeney and Jessica Macy Yu
C
hina’s investment, factory output and retail sales all grew more slowly than expected in April, adding to doubts about whether the world’s second-largest economy is stabilising. Growth in factory output cooled to 6 percent in April, the National Bureau of Statistics (NBS) said on Saturday, disappointing analysts who expected it to rise 6.5 percent on an annual basis after an increase of 6.8 percent the prior month. China’s fixed-asset investment growth eased to 10.5 percent year-on-year in the January-April period, missing market expectations of 10.9 percent, and down from the first quarter’s 10.7 percent. Fixed investment by private firms continued to slow,
indicating private businesses remain sceptical of economic prospects. Investment by private firms rose 5.2 percent year-on-year in January-April, down from 5.7 percent growth in the first quarter. “It appears that all the engines suddenly lost momentum, and growth outlook has turned soft as well,” Zhou Hao, economist at Commerzbank in Singapore, said in a research note. “At the end of the day, we have acknowledge that China is still struggling.” Reuters reported on Saturday that China’s banking regulator has sent an urgent notice to banks telling them to clear bottlenecks holding back lending to private firms. In its data announcement, the statistics bureau said “because the total amount of private investment is relatively large, its continued slowdown could restrain stable growth, and requires a high degree of attention.”
March data sparked hope
Retail sales growth in April, which captures both private and government purchasing, rose 10.1 percent on an annual basis, slower
than expected. Analysts had forecast sales would rise 10.5 percent on an annual basis, the same percentage increase as reported for March. It was upbeat March data that sparked hopes China’s economy was picking up in a wake of a more than yearlong blitz of fiscal, monetary and administrative stimulus measures. A recovering property market has also boosted demand for raw materials, giving a boost to long ailing heavy industries such as steel mills. But much of the data on April, which included weaker-than-expected exports and imports, plus soft factory
Key Points Housing investment is April’s only bright spot April factory output +6.0 pct y/y, vs f’cast +6.5 pct China ‘is still struggling’ economist Jan-April fixed asset investment +10.5 pct vs f’cast +10.9 pct April retail sales growth +10.1 pct vs f’cast +10.5 pct
Financial sector
Beijing orders banks to clear hurdles slowing private sector lending Chinese banks sharply cut new lending in April after a record firstquarter credit spree. Li Zheng and Pete Sweeney
China’s banking regulator has sent an urgent notice to banks telling them to clear bottlenecks slowing lending to private firms, sources with direct knowledge told Reuters, highlighting rising concern in Beijing about torpid private investment. Chinese banks sharply cut new lending in April after a record first-quarter credit spree, much of which appeared to go to the state sector and may have helped inflate asset bubbles in real estate and commodities. According to the document seen by Reuters, the China Banking Regulatory Commission (CBRC) is requiring financial institutions to conduct checks on their implementation of central government directives intended to make it easier for private firms to access bank credit. It also tells them to work to resolve any problems in cases where lending support to private enterprise is insufficient, including small and micro-businesses. The document requires institutions to report their implementation results to the regulator by May 20. The CBRC did not respond to calls seeking comment from Reuters. The document also called for banks to reduce costs for short-term credit products such as bridge loans, which private firms rely on to stay afloat
activity surveys, continued to underline lingering weakness in the broader economy. The only bright spot was investment in housing, which grew 9.7 percent in April from a year earlier, according to Reuters calculations, keeping even with
March’s pace. China’s economic growth has cooled to 25-year lows, weighed down by a combination of weak demand at home and abroad, factory overcapacity and increasing amounts of debt. The government has made reducing the capacity glut one of its top priorities, and has vowed to put “zombie” companies out of business. But economists expect authorities to move slowly to avoid a sharp jump in unemployment. Reuters
Global legal frame
through tough business cycles, while examining risk in their loan guarantee businesses. One of the people with direct knowledge of the order said the important part “is to implement State Council requests and notifications. The key points are areas where policy solutions have not been put into place, or measures have not been introduced, impacting private investment’s stable and sustainable growth.”
Government complains to WTO on U.S. tariff implementation
Private investment crucial
In another sign of escalating trade tensions between China and the United States, Beijing told the World Trade Organization on Friday that Washington was failing to implement a WTO ruling against punitive U.S. tariffs on a range of Chinese goods. China’s Ministry of Commerce (MOFCOM) said it had requested consultations with the United States over the issue, and anti-subsidy duties on products including solar panels, wind towers and steel pipe used in the oil industry. China’s complaint to the WTO was filed just days after Washington lodged a similar complaint against China, accusing it of unfairly continuing punitive duties on U.S. exports of broiler chicken products in violation of WTO rules. “By disregarding the WTO rules and rulings, the United States has severely impaired the integrity of WTO rules and the interests of Chinese industries,” MOFCOM said in a statement distributed by the Chinese embassy in Washington. The case was first brought before the WTO by China in 2012 against U.S. duties on 15 diverse product categories that also include thermal paper, steel sinks and tow-behind lawn grooming equipment. In December 2014, the WTO’s Appellate Body ruled in favour of Chinese claims that the products subject to duties had not benefited from subsidies from “public bodies” favouring particular manufacturers. The deadline for implementation of the rulings and recommendations of
A broad measure of investment fixed-asset investment - by private companies rose just 5.7 percent in the first quarter from a year earlier, a sharp slowdown from the pace of a year earlier. In contrast, fixed-asset investment by state-owned firms jumped 23.3 percent. Encouraging private investment is crucial for Beijing both because such investment tends to create more jobs and because such firms are seen as more efficient users of capital and more innovative in moving up the value chain. That is in sharp contrast with the inefficient state-owned sector, which has struggled to produce positive returns on capital invested. Data shows the proportion of private investment as a share of total social financing rose from 49.8 in 2012 to 64.2 percent in 2015. The People’s Daily published an interview on May 9 in which it cited an “authoritative person” saying excessive credit growth in China may lead to recession. The article prompted speculation rift is growing within the government about how to best use credit to support growth. There are concerns that a return to state-dominated investment programmes targeting infrastructure and property - like that launched in the aftermath of the global financial crisis - will saddle Chinese banks with even more bad debt. Reuters
Trade tensions between the two largest economies have been rising in the past year. David Lawder
the WTO Dispute Settlement Body, set through binding arbitration, expired on April 1, according to WTO records. A U.S. Trade Representative spokesman said the United States had been “working diligently to comply with the recommendations” and to fully conform with its WTO obligations. He added that the U.S. response to China’s request for consultations would come “in due course.” Trade tensions between the two largest economies have been rising in the past year as China’s economic slowdown floods world markets with manufactured goods. U.S. producers of steel and aluminium have filed a number of anti-dumping and anti-subsidy complaints against imports from China. On Tuesday, the U.S. Commerce Department is scheduled to announce its final determination in an anti-dumping investigations of imports of cold-rolled flat steel products from both China and Japan. That case was brought by major U.S. producers U.S. Steel Corp, AK Steel Corp Arcelor Mittal USA, Nucor Corp and Steel Dyanmics Inc. Reuters
“By disregarding the WTO rules and rulings, the United States has severely impaired the integrity of WTO rules and the interests of Chinese industries” China’s Ministry of Commerce statement
Business Daily Monday, May 16 2016 11
Greater China Financial control
Authorities ask Britain advice on creating super regulator The UK Treasury has lobbied hard to become China’s partner of choice on a range of financial issues. Michelle Price and Benjamin Kang Lim
China has asked Britain for advice on plans to create a financial super-regulator, as it looks to improve financial oversight following last year’s stock market crash, sources with knowledge of the talks told Reuters. The discussions between representatives from China and the UK Foreign Office and Treasury highlight Britain’s burgeoning relationship with Beijing on financial issues, notwithstanding this week’s gaffe by Queen Elizabeth, who was caught on camera grumbling that Chinese officials accompanying President Xi Jinping on a visit to the UK last year had been “very rude to the ambassador”. The talks signal Beijing’s growing willingness to seek outside help to improve regulation of its financial infrastructure, in a bid to increase transparency, reduce systemic risk, and stop companies exploiting loopholes. Several Chinese and British sources with direct knowledge of the talks said Beijing had sent delegations to London to study the UK regulatory framework, with two sources citing a visit in the first quarter. UK government representatives also visited Beijing last month to discuss financial, economic and regulatory issues, two sources with knowledge of the visit said. Weaknesses in Chinese regulation were exposed last summer when China’s stock markets lost a third of their value in a month, having soared 150 percent in the previous 12 months. Government and regulators rushed out a series of measures to arrest the crash, including limiting short-selling, stopping new listings and strong-arming big funds to buy more stocks. The interventions were widely criticised for over-riding market mechanisms, poor inter-agency coordination and creating moral hazard by implying government support.
Overhaul
Reuters reported in November that China was considering consolidating supervisory powers in one regulator
covering banking, mutual funds, insurance and securities, but two Chinese sources with direct knowledge of the matter said no decisions had yet been made. The Chinese sources said any proposals would include a few options for China’s cabinet, the State Council, to choose from, but it was unclear if a proposal had yet been submitted. Britain overhauled its regulatory system after the global financial crisis of 2008-09, handing enormous power to the Bank of England, which is responsible for averting risks to the financial system as a whole. The new structure aims to reduce blind spots by more closely aligning macro-economic policies with onthe-ground regulation and supervision of financial institutions and markets. China can’t exactly recreate Britain’s regulatory structure due to differences in their political systems and potential rivalries over where such a powerful regulator would fit among
Key Points Beijing aims to improve oversight after summer stocks crash Officials visited UK to study regulatory framework -sources UK officials also visit China to discuss regulation -sources UK overhauled financial supervision after 2008 global crisis China mulling whether to create single super-regulator senior decision makers. “The UK model is a reference, but we can’t completely copy it,” said one of the sources. “The UK model is worth us studying but it would have flaws when implemented in China.” This is not the first time China has sought foreign help in addressing financial problems at home. Reuters reported in March that the People’s Bank of China (PBOC), the central bank, approached the U.S. Federal Reserve last July for advice on handling its tumbling stock markets.
The UK Treasury has lobbied hard to become China’s partner of choice on a range of financial issues, and the two are collaborating on several economic and financial projects, including a stock trading link between London and Shanghai. Another source briefed on the matter said Britain had “answered questions when asked” on its regulatory structure as part of this broader dialogue, but added that “Chinese regulation is a matter for the Chinese government.” The Foreign Office and Treasury declined to comment.
New system
In one of the options currently under discussion, China’s top financial regulators - the China Securities Regulatory Commission (CSRC), the China Banking Regulatory Commission (CBRC) and the China Insurance Regulatory Commission (CIRC) would be merged. Currently these three agencies operate independently, reporting to the State Council, China’s cabinet, and would continue to report to the cabinet if merged. Another option under consideration would see the new super-regulator report to the PBOC, giving the central bank more power, as in Britain. The PBOC would still report to the State Council, the sources said. One Chinese source said this proposal would partly reinstate the pre-2003 system in which the PBOC was responsible for supervising the country’s banks. China’s major state lenders had to be recapitalised and restructured between 1998 and 2003 following a credit binge. “Merging the CBRC, CSRC and CIRC under the central bank would be reverting to the old system when the PBOC had too much power,” this person said. In August, the Financial Stability Board, an international watchdog, said China’s current structure allows the three agencies to pursue conflicting policy objectives, potentially undermining the central bank’s capacity to maintain financial stability as the country opens up its markets. The CSRC, CBRC, CIRC, PBOC and State Council Information Office did not respond to requests for comment. Reuters
In Brief IP
Anti-Counterfeiting group suspends Alibaba An anti-counterfeiting group said on Friday it was suspending Alibaba Group Holding Inc’s membership following concerns raised by some of its member companies. The International AntiCounterfeiting Coalition (IACC) statement follows a report that the group’s president, Robert Barchiesi, had stock in Alibaba and that he used family members to help run the coalition. The group told its members that it failed to inform the board about conflicts of interest involving the Barchiesi. In a letter sent to its members, IACC said conflicts were not disclosed to the board “because of a weakness in our corporate governance procedures.” Fiscal pact
Deal signed to fight tax avoidance China said it has signed a multilateral agreement to share tax information on multinational companies, paving the way for it to join the fight on global tax avoidance. China signed the country-by-country tax reporting agreement, along with Canada, India, Iceland, Israel and New Zealand, during a meeting of the OECD Forum on Tax Administration in Beijing last week, bringing the number of countries that have signed the pact to 39. The pact was in line with the commitment made by G20 leaders on Base Erosion and Profit Shifting, a programme to fight global tax avoidance. M&A
Fosun among bidders for ACR China’s Fosun International is among suitors bidding for ACR Capital Holdings Pte Ltd, the owner of Singapore’s biggest reinsurance firm, in a deal valued at around US$1 billion, people with knowledge of the matter said. If Fosun were to be successful, it would be the first major deal for the conglomerate since its chairman, Guo Guangchang, went briefly missing late last year. The latest move also represents a shift in Fosun’s strategy, which in recent years has struck deals outside Asia. The names of other bidders could not be immediately ascertained. Pyramid scheme
Police crack online scam involving 5,800 people Chinese police have dismantled a pyramid scheme involving more than 5,800 victims from 28 provinces and millions of yuan, said the Ministry of Public Security on Friday. “Wantong Qiji,” which became “Global Unity,” was run by World Capital Market Inc (WCM). It claimed to sell third-party cloud computing services, according to the ministry statement. The company promised investors returns of 60 percent to 80 percent in 100 days. The scheme was run from Beijing by a small ring led by WCM president surnamed Xu.
12 Business Daily Monday, May 16 2016
Asia Monetary policy
Bank of Korea holds rate for 11th month Four new board members who made their monetary policy debut on Friday were widely perceived as keen on rate cuts.
Bank of Korea headquarters.
Christine Kim
South Korea’s central bank kept its policy rate at a record low 1.50 percent on Friday for an 11th straight month as expected, believing economic recovery could continue at the current level without a cut, although many analysts expect a move in June. Many market participants believe the Bank of Korea (BOK) should cut rates to support economic activity, given weak exports and an on-going restructuring of South Korea’s massive shipping and shipbuilding industries. “The governor showed he is willing to coordinate with the government on future policy. I think he kept the door open today to another cut the only issue is when,” said Kim Jina, fixed-income analyst at IBK Securities. “Just because there was a unanimous vote to hold rates today doesn’t change the fact that the new board members will change their tendencies.”
Four new board members who made their monetary policy debut on Friday were widely perceived as doves by investors and analysts, and
Key Points Bank of Korea holds rates at 1.50 pct Analysts see rates cut to 1.25 pct soon Friday’s rate vote was unanimous, nudging won up BOK chief refused to comment on restructuring
therefore likely to favour rate cuts. Kim said the BOK is likely to cut in June, unchanged from her previous view. All but two of the 26 analysts surveyed by Reuters this week had forecast the Bank of Korea would leave its base rate unchanged at Friday’s meeting but a majority of respondents did see the bank cutting soon. Lee offered no sign of what assistance the Bank of Korea might provide to the two state-run banks most exposed to the troubled shipping and shipbuilding industries, although the governor said the board was watching the situation very closely.
“We are currently in discussions on how the Bank of Korea can support the corporate restructuring process. I will refrain from commenting further on the subject at this time,” said Lee, despite being pressed repeatedly to address the issue. A joint taskforce consisting of the government, central bank, and other institutions such as the financial regulator are currently in talks to ensure the state-run banks do not hit a credit crunch in the corporate overhaul of the sector. The taskforce said it will announce its shipping industry restructuring plans by end-June. Reuters
restrictions, and years-long talks with the EU all but stalled. “One big conflict at the highest level (is) that the Modi government is very pro-investment but at the same time, very anti-trade access,” said Richard Rossow of the Centre for Strategic and International Studies (CSIS) in Washington. Even Facebook - personally courted by tech-loving Modi in Silicon Valley - ran into trouble with Free Basics, an initiative to give limited free Internet to the poor. After Indian entrepreneurs railed against corporate paternalism, Free Basics was blocked by the telecoms regulator, in a ruling ostensibly over data pricing. Some suggest India’s buoyant economy, expected to have grown 7.6 percent this year, has bolstered nationalist tendencies.
Several executives told AFP they find civil servants more approachable under the Modi government and said a drive to bring a vast ocean of approvals online has had a tangible effect. “We have certainly seen an improved willingness amongst some individuals in government organisations to close out historic project problems,” said Liz King, India managing director of engineering consultancy Mott MacDonald. Hundreds of backdated tax cases have been quietly resolved and it appears new ones are not being taken forward, said Rossow of CSIS. “In the weeds there are good things happening,” he said. The UK India Business Council said its members still cite legal and regulatory impediments as their biggest challenge to doing business in India. But, said its head Richard McCallum, things are moving faster. “It used to take three months to incorporate a company in India and now we are doing it in three weeks,” he said. AFP
Business environment
India eases red tape but foreign firms still struggle
Minister Modi and other senior Indian officials over the past two years, there has been limited progress in many key areas that make it challenging to do business in India,” the group wrote.
India ranks 130 out of 189 on the World Bank’s Ease of Doing Business index.
Modi took power after winning elections in May 2014 promising to make India “open for business”, seeking to replicate an impressive economic track record as chief minister in Gujarat and speed up a market opening that began 25 years ago. The potential is breath-taking: India’s population will overtake China’s within six years and comprise 1.7 billion people by 2050, according to the UN. But India ranks 130 out of 189 on the World Bank’s Ease of Doing Business index - the worst of all G20 countries. Regulations vary capriciously across its 29 states, where even the same law can be interpreted in bafflingly different ways. “It is a hassle, it’s a pain, the amount of (tax) bills we get, the number of licences we need,” the India head of one major European retailer told AFP on condition of anonymity. “Any store that we open, there are between 25 to 40 licences. It’s just a mess.” A much-reviled 2012 retrospective tax law has not been repealed, with telecoms giant Vodafone and oil explorer Cairn charged billions over previously cleared dealings. “The finance minister himself has said on more than one occasion that retrospective taxes have been an own goal,” Naushad Forbes, president of the Confederation of Indian Industry, told AFP. “They ruin our reputation and don’t bring us any revenue.” Trade remains a bugbear, with US exporters to India lamenting eye-wateringly high tariffs and protectionist
Emily Ford
Narendra Modi was elected two years ago this week promising to ease India’s notorious red tape and unpack regulatory tangles, but for foreign firms, doing business in the world’s fastest-growing large economy can still be a costly headache. With a billion consumers and rising middle class, India holds dazzling potential - yet despite signs of change on the ground, high-profile corporate tussles continue to bamboozle investors. British firms Cairn Energy and Vodafone have this year been hit with fresh bills for billions of dollars in backdated tax and threats of asset seizure linked to long-running disputes. Agribusiness giant Monsanto in March threatened to pull out of India over government plans to slash cotton seed royalties paid by local firms by about 70 percent to help farmers. And two major American business bodies this month voiced disappointment with the glacial pace of market reforms. In a submission to the US commerce secretary, the National Association of Manufacturers urged Washington to press for change during a visit by Modi in June. “Despite statements made by Prime
Business Daily is a product of De Ficção – Multimedia Projects
Open for business?
Change afoot
While headline-grabbing corporate wrangles spook investors, many businesses say they see signs of change.
Prime Minister Modi took power after winning elections in May 2014 promising to make India “open for business”.
Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Joanne Kuai; Nelson Moura; Annie Lao; Kelsey Wilhelm Group Senior Analyst José I. Duarte Design Francisco Cordeiro Web & IT Janne Louhikari Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily. com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com
Business Daily Monday, May 16 2016 13
Asia GDP
Malaysia’s growth drops to slowest pace in nearly seven years In January, the government revised its 2016 growth projection for Southeast Asia’s third largest economy to 4.04.5 percent from the initial 4.0-5.0 per cent. Rozanna Latiff and Emily Chow
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alaysia r e c o r d e d its slowest economic growth in nearly seven years in the first quarter, as weak exports and tepid domestic demand continue to hurt the trade-dependent nation. In January-March, the economy grew 4.2 percent from a year earlier, slightly beating the 4.1 percent median forecast in a Reuters poll but down from 4.5 percent in the previous quarter. The quarter was the fifth straight of declining growth and also had the slowest expansion since the third quarter of 2009. Muhammad Ibrahim, the newly-appointed governor of Bank Negara Malaysia, indicated the current quarter could bring further slowing. The governor projected that growth will improve in the second half “driven by higher production in manufacturing sector from added capacity, improved commodities production after El Nino and higher minimum wages” Muhammad, who succeeded highly-respected Zeti Akhtar Aziz, also reminded Malaysians that their country is an open economy and how it fares depend on global growth. “ We are not immune,” he added. Private section consumption increased 5.3 percent from a year earlier, an improvement on 4.9 percent in the previous quarter and 4.1 percent in July-September. But by historical standards, the increases are small for Malaysia. Consumption has been crimped by the government’s implementation of a 6 percent goods and services tax in April 2015. In January, the government revised its 2016 growth projection for Southeast Asia’s third largest economy to 4.0-4.5 percent from the initial 4.0-5.0 percent, on expectations of
India announced a new intellectual property policy on Friday, speeding up the online registration of patents and trademarks, but resisted pressure from the United States and other Western countries to amend its patent laws. The policy will make the Department of Industrial Promotion and Policy the agency in charge of regulating intellectual property rights in the country. Since Prime Minister Narendra Modi took office in 2014, global drug brands led by U.S. companies have been pushing for changes to India’s intellectual property rules. India’s strained patent and
Japan’s Abe to delay sales tax hike Japanese Prime Minister Shinzo Abe has decided to delay a sales tax hike set for next April as it would threaten the nation’s efforts to beat prolonged deflation, the Nikkei business daily reported on Saturday. Abe is expected to announce the delay after further consideration, including talks with fellow Group of Seven leaders at a summit in western Japan on May 26 and 27, the paper reported. The premier does not intend to dissolve parliament’s lower house and call a snap election on the same day as an upper house poll due in July, according to the Nikkei report.
Thailand expels Yamaguchi Gang backer
a sustained slump in global crude prices. The current account surplus narrowed to 5 billion ringgit (US$1.24 billion) in the first quarter from a revised 10.5 billion ringgit for October-December. In the second quarter, the ringgit has been Asia’s worst-performing currency, shedding more than 3 percent against the dollar, which analysts say partly stems for woes of state-owned fund 1Malaysia Development Berhad (1MDB), which recently defaulted on a payment to bondholders. But the ringgit remains the best performing currency this year, after strengthening 10 percent during the first quarter.
1MDB ‘priced in’ Key Points Q1 GDP +4.2 pct y/y vs +4.5 pct in Q4 C.bank governor: Growth should rise in H2 Headwinds still ‘significant’ analyst Growth rate has slowed five straight quarters
India announces new trademark, patent policy amid global pressure
Manoj Kumar
Fiscal policy
Organized crime
On Friday, Muhammad said concerns over 1MDB will not affect investor confidence and the country’s sovereign rating. “Because the government has already said they will honour all (its) debt obligations. The sovereign rating of Malaysia will not be unduly affected, and I think the ringgit has priced in the 1MDB issue,” he said. The central bank slapped a fine on the state fund last month for failing to comply with its rules, and added that it was ending its investigations into the fund. Economists say improved exports are essential for Malaysia, to get its growth-rate back up. The central bank said exports decreased 0.5 percent in the first quarter from a year earlier, a reflection of their subdued momentum. ANZ Research said that lower oil prices means that Malaysia “will still be confronted with significant growth and fiscal headwinds, with residual concerns about 1MDB”. Wellian Wiranto, economist at OCBC in Singapore, said the first-quarter GDP data is “not a print that would spook Bank Negara into trimming its policy rate anytime soon, much less when it meets next Thursday”. Reuters
Intellectual property
The new policy will try to safeguard the interests of rights owners with the wider public interest.
In Brief
intellectual property administration has failed to keep pace with growing technological advances. Global pharmaceuticals players have often complained about India’s price controls and marketing restrictions. “We hope it will lead to an interpretation of the Indian Patent Act that respects innovation, encourages research and facilitates effective enforcement mechanisms,” said Ranjana Smetacek, Director General, Organisation of Pharmaceutical Producers of India, a body of multinational drug makers in India. Nirmala Sitharaman, commerce and industry minister, told lawmakers last month that over 237,000 applications were pending in India’s four patent offices. The policy aims to spread awareness among public about trademarks, copyrights and patents to promote innovation within the country, Finance Minister Arun Jaitley told reporters. The new policy will try to safeguard the interests of rights owners with
the wider public interest, while combating infringements of intellectual property rights. Jaitley said India would retain the right to issue so-called compulsory licenses to its drug firms, under “emergency” conditions, and would not immediately need to change patent laws that were already fully World Trade Organization-compliant. “Compulsory licences are already provided in our patent law. That existing provision will continue,” Jaitley said after the cabinet approved national IPR policy on Thursday evening. Last month, the U.S. Trade Representative kept India, China and Russia on its “Priority Watch List” for inadequate improvement in IPR protection. India, however, says, it is party to the Trade-Related Aspects of Intellectual Property Rights (TRIPS), a WTO agreement that sets minimum standards for intellectual property regulation. “It (IPR policy) reiterates India’s commitment to the Doha Development Agenda and the TRIPS agreement,” a government statement said. Reuters
Shuhei Yoshizawa, alleged financial backer of the notorious Yamaguchi-gumi gang, was extradited from Thailand to Japan late Friday and was forbidden to enter the country again. Immigration police of Thailand escorted Yoshizawa, who was arrested on May 1, to Suvarnabhumi airport of Bangkok and five Japanese police came to pick him up. Yoshizawa was wanted on an arrest warrant in his home country for electronic fraud connected with the Yamaguchi-gumi gang, Japan’ s largest organized crime syndicate, Bangkok post reported. Development strategy
Laos expects industrial zone to become model The Saysettha Development Zone (SDZ) is expected to become a model of industrial zone in Laos, contributing to the country’s socio-economic development, Lao Prime Minister Thongloun Sisoulith said Saturday. While inspecting the zone in Laos’ capital Vientiane, the prime minister said the zone, covering an area of 1,149 hectares and located in Saysettha and Saitany districts, will focus on sustainable development. Thongloun said the zone will not only benefit local residents and promote socio-economic development of Vientiane, it will also help facilitate the realization of Laos’ target to graduate from Least Developed Country status by 2020. Results
Mizuho anticipates sharp profit fall this year Japan’s Mizuho Financial Group Inc on Friday forecast a 10.5 percent fall in net profit this financial year due to the central bank’s negative interest rate policy and an economic slowdown at home and overseas. Japan’s second-largest lender said it expected bad loan costs to more than double for the year ending in March 2017, adding that the jump was a result of the uncertain general business environment rather than anything specific related to the energy sector or Chinese market. “There is going to be some fallout from the economic slowdown in Japan and overseas,” Mizuho Chief Executive Officer Yasuhiro Sato told reporters.
14 Business Daily Monday, May 16 2016
International In Brief Debt management
Greece aims to tap bond markets next year Greece will return to credit markets next year if the country’s international creditors offer debt relief measures at a crucial May 24 meeting of euro zone finance ministers, Prime Minister Alexis Tsipras told a newspaper on Saturday. The cash-strapped country, which has been cut off from global debt markets since 2014 and agreed a third multi-billion euro bailout last July, started talks with lenders earlier this week on how to make its debts more manageable. Tsipras’s government aims to conclude a review of its progress on bailout-linked reforms at the May 24 meeting. Currency value
Nigeria’s central bank denies devaluation Nigeria’s central bank denied on Saturday a website report that the West African nation planned to devalue the naira currency. Speculation of a devaluation has been rife since Vice President Yemi Osinbajo said on Wednesday the central bank needed to change its foreign currency policies to spur investment. The news website SaharaReporters.com, which focuses on Nigerian politics, said President Muhammad Buhari had agreed to devalue the naira in exchange for funds from the International Monetary Funds (IMF) to help offset a slump in oil revenues.
Debt qualification
Moody’s cuts Saudi, Oman, Bahrain rating The agency confirmed the Aa2 ratings of Kuwait and Qatar but gave both of them a negative outlook.
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oody’s Investors Service cut its debt ratings for Saudi Arabia, Oman and Bahrain on Saturday while assigning negative outlooks to three neighbouring states, as low oil prices continue to undermine government finances in the region. The rating agency downgraded Saudi Arabia’s long-term issuer rating by one notch to A1 but gave the kingdom a stable outlook, saying sweeping economic reforms announced by the government last month might stabilise the state budget. In late April, Deputy Crown Prince Mohammed bin Salman revealed Saudi Arabia’s biggest policy shakeup in decades, including tax rises, an efficiency drive and plans to give a bigger role to the private sector. “The government has ambitious and comprehensive plans to diversify both the economy and its balance sheet which, if even partly successful,
should stabilise its credit profile and which could, if achieved, offer a route back to a higher rating level over time,” Moody’s said. However, the agency said it was still uncertain how Saudi Arabia would fund a massive budget deficit averaging 9.5 percent of gross domestic product between 2016 and 2020, which would require total financing of US$324 billion. “It is not yet clear how this cumulative financing need will be met: while Saudi Arabia’s low levels of government debt at 5.8 percent of GDP in 2015 provide fiscal space, no medium-term funding strategy has yet been announced,” Moody’s said. The agency downgraded Oman by one notch to Baa1 with a stable outlook, and cut Bahrain by one notch to Ba2, deeper in junk territory, with a negative outlook. Both countries lack the huge financial and oil reserves of their wealthy neighbours. While Bahrain can expect support from its ally Saudi Arabia in a crisis, it is likely to find it increasingly hard to borrow in the international markets, particularly since it will be competing for money with its neighbours, Moody’s said. “The further deterioration in the government’s balance sheet, combined with increased external debt
issuance from other countries in the region, will lower the supply of external funding, thereby heightening the risk that finance is obtainable only at much less affordable rates for Bahrain, or potentially reduced amounts.” Moody’s also confirmed the Aa2 ratings of the United Arab Emirates and its biggest member, Abu Dhabi, but assigned a negative outlook to them. The UAE has been more proactive than its neighbours in restraining spending and reforming its finances in an environment of low oil prices, but Moody’s said the government’s policies to cut its budget deficit were still not clear. Moody confirmed the Aa2 ratings of Kuwait and Qatar but gave both of them a negative outlook. Reuters
‘Moody’s also confirmed the Aa2 ratings of the United Arab Emirates and its biggest member, Abu Dhabi’
Futures irregularities
Ex-Argentine leader indicted in central bank case Former Argentine President Cristina Fernandez was indicted on Friday over accusations that she oversaw irregularities in the central bank’s sale of U.S. dollars in the futures market while she was in office. Federal Judge Claudio Bonadio charged Fernandez, her former economy minister Axel Kicillof and former central bank chief Alejandro Vanoli with “unfaithful administration to the detriment of public administration,” according to court papers. The ruling, which gives a green light for prosecutors to put Fernandez on trial, may be appealed. There was no arrest warrant. Bangladesh heist
New York Fed defends fund transfer After an US$81 million cyber heist at the Bangladesh central bank, the Federal Reserve Bank of New York said there was no problem with its procedures for approving fund transfers, according to a letter released on Friday by a U.S. lawmaker who had questioned those methods. U.S. Representative Carolyn Maloney had called for a probe of the fund transfers triggered by the February cyber attack on the Bangladesh central bank. In the April 14 letter Thomas Baxter, general counsel and executive vice president at the New York Fed, said the correct procedures were followed in approving five transfers of money and in blocking 30.
Economies conditioned by oil are rethinking their structure.
Shops’ data
U.S. April retail sales post largest gain in a year The broad increase in retail sales last month suggests economic growth is picking up. U.S. retail sales in April recorded their biggest increase in a year as Americans stepped up purchases of automobiles and a range of other goods, suggesting the economy was regaining momentum after growth almost stalled in the first quarter. The Commerce Department said on Friday retail sales jumped 1.3 percent last month, the largest gain since March 2015. March’s retail sales were revised up to show a 0.3 percent decline instead of the previously
reported 0.4 percent drop. Excluding automobiles, gasoline, building materials and food services, retail sales shot up 0.9 percent last month after an upwardly revised 0.2 percent gain in March. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. Economists polled by Reuters had forecast retail sales rising 0.8 percent and core retail sales gaining 0.3 percent last month. The broad increase in retail sales last month is a welcome reprieve for a sector that has struggled with tepid demand, and suggests economic growth is picking up after braking to a 0.5 percent annualized rate in the first three months of the year. The economy expanded at a 1.4 percent pace in the fourth quarter. Retail sales have been sluggish in part because the strengthening labour market has not generated strong wage growth. Economists also say that some of
the savings from cheaper gasoline over the past year-and-a-half have been absorbed by rising rents and medical care costs. Retailers such as Macy’s and Nordstrom this week reported sharp declines in quarterly sales and lowered their full-year profit forecasts. In April, auto sales rose 3.2 percent, the largest increase since March 2015, after slumping 3.2 percent in March. Receipts at service stations increased 2.2 percent, reflecting recent increases in gasoline prices. Receipts at clothing stores surged 1.0 percent, the largest increase since May 2015. Online retail sales jumped 2.1 percent, the biggest gain since June 2014. Receipts at sporting goods and hobby stores rose 0.2 percent last month. Sales at electronics and appliance outlets increased 0.5 percent. Building materials and garden equipment store receipts, however, fell 1.0 percent last month, the largest decline since August. Sales at restaurants and bars rose 0.3 percent. Reuters
Business Daily Monday, May 16 2016 15
Opinion
Building stability for Indian growth
Business Wires
The Times of India The four-month window for declaring domestic black money will open on June 1 and those opting to come clean by paying 45 per cent tax and penalty will not be subject to scrutiny and enquiry by the tax department. The Income Declaration Scheme, 2016 will remain in force till September 30 for filing of declarations and payments towards taxes, surcharge and penalty must be made latest by November 30, the finance ministry said in a release. The scheme was announced by finance minister Arun Jaitley in the Budget.
Philstar The World Bank has approved $67 million in financial assistance for two renewable energy guarantee programs that would help poor households in far-flung areas gain access to electricity. The multilateral lending institution announced yesterday its board of directors has approved a US$44-million guarantee for the Philippines Renewable Energy Project implemented by the Local Government Unit Guarantee Corp. LGU Guarantee Corp. is a credit guarantee company owned by the Bankers Association of the Philippines and the Development Bank of the Philippines. The guarantee provided by World Bank to LGU Guarantee Corp. would help reduce risks of commercial lending to electric cooperatives.
I
n their efforts to stimulate demand by pursuing increasingly aggressive monetary policies, advanced economies have been imposing risks on emerging-market countries such as India. Indeed, one day we face surging capital inflows, as investors go into “risk-on” mode, and outflows the next as they switch risk off. India has responded to this external volatility by trying to create a domestic platform of macroeconomic stability on which to build growth. India’s latest central budget emphasizes fiscal prudence, adheres to past commitments, and aims at structural reforms, especially in agriculture. Fiscal consolidation has also helped to keep the current-account deficit under 1% of GDP. Moreover, inflation has been brought within the official target range. And parliament has created a monetary-policy committee for the Reserve Bank of India (RBI), which should ensure that multiple views are embedded in policy and improve continuity. We must also address banks’ non-performing loans so that their balance sheets have room for new lending. Unlike more developed countries, India does not have an effective bankruptcy system (though a bill to create one has just cleared the lower house of Parliament). But, using some “out-of-court resolution” mechanisms devised by the RBI, and with capital support from the government, banks should have well-provisioned balance sheets by March 2017. Perhaps the hardest challenge has been to persuade the public, impatient for rapid growth, of the need to ensure stability first. Growth, it is argued, is always more important, regardless of the looming economic risks. Yet, despite the focus on stability, inhospitable global growth conditions, and two successive droughts (any of which would have thrown the economy into a tailspin in the past), growth is above 7%. The task is to build on this base. For the first time in decades, global trade has grown more slowly than global output. As countries become richer, non-traded services constitute a greater share of output, causing GDP to grow faster than trade, while global overcapacity has restrained trade growth further. And, as advanced economies become more competitive, and as China moves up the value chain, more inputs are being sourced within countries. For all these reasons, the heady days of double-digit growth in Indian trade in goods and services will not return soon. Many emerging markets have been hit by lower prices for their commodity exports, but India’s exports of goods seem to be doing worse recently than those of other emerging markets. At the same time, India’s exports of services are doing somewhat better, perhaps because of demand from the United States. Of course, these differences are over very short periods, so it is probably unwise to draw too many conclusions – except that India is not alone in suffering a fall-off in trade
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The Korea Herald Mirae Asset Financial Group will merge its two brokerage units – Mirae Asset Securities and Mirae Asset Daewoo Securities - in November, the group announced Friday. The planned merger, widely expected after the group’s acquisition last year of Mirae Asset Daewoo, formerly KDB Daewoo, will create a titanic new leader with nearly 8 trillion of total assets in Korea’s fragmented securities sector. New shares will be launched on the bourse on November 28. The plan is subject to final endorsement by shareholders of the companies at their respective meeting on October 20.
Taipei Times Chinese Nationalist Party (KMT) Chairwoman Hung Hsiu-chu said that her party would mediate if cross-strait relations deteriorate after Democratic Progressive Party (DPP) president-elect Tsai Ing-wen (pictured) assumes office on Friday. Meeting with female KMT members in Kaohsiung yesterday, Hung called on Tsai to pay special attention to cross-strait relations, as “it is the most important of all the issues that have major effects on the nation’s development.” Hung also said that Tsai should pay equal attention to economic development, otherwise her administration might face serious consequences.
Raghuram Rajan Governor of the Reserve Bank of India.
That does not stop industry bodies from demanding that the authorities “do something” – especially by lowering the value of the rupee. The rupee seems to have weakened by about 6% against the dollar since the beginning of 2015. This depreciation should have helped our merchandise exports, and yet it coincides with their relative underperformance, because other currencies have depreciated against the dollar, too. For this reason, economists focus on the “nominal effective exchange rate,” which compares the rupee’s value to that of other currencies by weighing their share in trade. In trade-weighted terms, the rupee has remained relatively flat since early 2015. That said, inflation in India is higher than in most other countries. If a widget cost a dollar to make a year ago in the US, and cost 63 rupees to make in India, the Indian producer would have been competitive with the US because the dollar was worth 63 rupees. But if inflation in India is 5% and zero in the US, it will cost the Indian manufacturer 66.2 rupees to make it today – and still just a dollar for American competitors. Hence the need to look at the “real effective exchange rate,” or the nominal effective exchange rate adjusted for inflation. The higher the index is, the less the exchange rate has depreciated to offset inflation – and the more uncompetitive India is. Interpretation is in the eye of the beholder. Someone who wants to blame the exchange rate for India’s export slowdown can look at the index from the low point of September 2013 and argue that it has appreciated 20% (based on the IMF measure). But, over the past year, as goods exports have slowed, the real effective exchange rate has been rather flat. So someone who wants to absolve the exchange rate of blame will point to the recent period. But exchange rates are only one measure of competitiveness. Productivity also matters. In a rich country, firms typically can improve productivity only through innovation. In India, productivity can be improved simply by building a better road from a factory to the railhead. Much of the appreciation in the real exchange rate is offset by increased productivity. India’s trade has certainly been slowing – but not necessarily because of the rupee’s value. Non-economists typically advocate a strong rupee: Not only does it convey national strength, but it also allows one to buy more stuff when one travels abroad, and imports are cheaper. Of course, it is precisely because domestic tourism and production are disadvantaged relative to tourism and production abroad that many economists prefer a weak rupee. Yet these modern-day mercantilists do not acknowledge that undervaluation is a subsidy to India’s producers, financed by India’s consumers and savers. The ideal exchange rate for India is neither strong nor weak; it is the “Goldilocks rate” produced by market forces, with the RBI focusing on attracting long-term capital inflows and intervening only to maintain orderly movement of the rupee versus other currencies. To ensure such an orderly market, in good times we must resist the temptation to open up too much to short-term foreign-currency debt. Our rules now encourage investors in infrastructure and other projects with limited foreign earnings to issue Masala bonds (whereby Indian companies can borrow abroad in rupees), or to borrow long term, thereby limiting their risk when the exchange rate moves against them. So if the exchange rate is unlikely to be helpful, how should India export more? The answer is to improve productivity with better infrastructure; improve human capital with better schools, colleges, and vocational and on-the-job training; simplify business regulation and taxation; and improve access to finance. I am often asked, “Which industries should we encourage?” I would say that “encouraging” any industry may be the surest way of killing it. Our job as policymakers is to enable business activity, not to dictate its course. Project Syndicate
Perhaps the hardest challenge has been to persuade the public, impatient for rapid growth, of the need to ensure stability first
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16 Business Daily Monday, May 16 2016
Closing Culture
UK stage plays to screen in China to mark Shakespeare’s death
Directed by Gregory Doran, Shakespeare’s four plays Richard II, Henry IV Part I and Part II and Henry V will be presented Shakespeare plays recorded by the Royal from May to October in China. The Royal Shakespeare Company are to be screened Shakespeare Company will also work with in Beijing and Shanghai to mark the 400th Chinese playwrights and dramatists on new anniversary of the British playwright’s translations to help the works of Shakespeare death. “Live from Stratford-upon-Avon,” a collaboration between the Royal Shakespeare reach ordinary Chinese people. At the same time, Chinese classics will be translated into Company and Picturehouse Entertainment since 2013, was launched in China yesterday. English and staged in Britain. Xinhua
Memorabilia collectors
China’s Cultural Revolution, now highly collectible On website Kongfz. com, a search for Cultural Revolution turns up nearly 200,000 items with the most expensive an extensive collection priced at 3.0 million yuan. Bill Savadove
A
t the “East is Red” shop in Shanghai, every nook and cranny is packed with memorabilia of China’s Cultural Revolution, from small badges of Chairman Mao Zedong to gigantic posters of his iconic image. Owner Guo Bing himself is a child of the Cultural Revolution, born in 1966, the year the chaotic and violent decade was launched on May 16. His parents named him with the Chinese character for “soldier”, a common practice at the time. But now, Guo sees profits rather than Communist Party ideals in the relics of the past, as the market booms for collectibles from a time scarred victims would prefer to forget. “Prices have risen because of the anniversary of the Cultural Revolution,” said Guo at one of his two shops in China’s commercial hub, whose gleaming
skyscrapers epitomise the country’s economic boom after the abandonment of Maoist orthodoxy. “People suffered during the Cultural Revolution,” Guo admitted, before quickly adding: “We are meeting demand. There is a market.” Guo was a “Little Red Guard” as a child in Jiangsu province, he said, wearing his older brother’s army uniform, pinning a Mao badge to his chest and signing patriotic songs. One of them, “The East is Red”, gave him the name for his business, which has dealt in Cultural Revolution memorabilia for two decades.
Mao and a mango
among a cabal of radicals with links to the city who were among the driving forces behind the Cultural Revolution. “We can remember history,” Guo said. On a high bookshelf in the shop, a framed picture shows Mao with a mango, which became an object of veneration after the leader gifted the fruit to a group of workers in 1968. The cult of the mango, as it is known, was even the subject of an exhibition at the Museum Rietberg in Zurich in 2013. The reproduction sells for 50 yuan (US$8), Guo says but an original would cost hundreds of dollars.
The disparity offers an opportunity for the unscrupulous to profit, and collectors and dealers said that rampant fakes are a problem for Cultural Revolution memorabilia, like other collecting categories in China. On Chinese website Kongfz.com, an eBay-like platform for antiquarian books and other items, a search for Cultural Revolution turns up nearly 200,000 items with the most expensive an extensive collection priced at 3.0 million yuan.
‘A sensitive time’
“All along, people have appreciated Cultural Revolution objects,” said long-time dealer and collector Lin Ji.
“Where there is a market, there are fakes,” he added, citing reproductions of Red Guard armbands as an example. Mao badges and the “Little Red Book” of his thoughts and sayings were once ubiquitous in Chinese households, but collectors hope growing scarcity will increase prices over time. “There are too many things (from the Cultural Revolution). But the good stuff is getting harder and harder to find,” said Guo, who has a prized Mao statue stored away at home, not for sale. The founder of the Shanghai Propaganda Poster Art Centre, a private museum which includes several exhibits from the Cultural Revolution, declined to be interviewed by AFP in the run-up to the anniversary. “It’s a sensitive time right now,” said Yang Peiming. “The museum is an art museum without any other meaning.” AFP
For some buyers, such objects tap into nostalgia for a simpler time, when the state provided everything and society was more equal, despite the abuse the victims suffered. “It was an exciting time for kids,” Guo said. “Most collectors now are old people, younger people lag behind.” The objects on offer range from an enamelled metal plate with the slogan “Chairman Mao’s revolutionary art and literature line victory forever” to a book of cartoons published in early 1977, soon after Mao’s death and the fall of his widow Jiang Qing. Along with the three other members of the “Gang of Four”, she was officially blamed for directing the mayhem. Once a movie actress in Shanghai, she was
Real estate
Ministers meeting
ASEAN
New Zealand Gov’t urges land G7 pledge to tackle poverty sale to ease housing problem through education
Southeast Asian ministers discuss employment
New Zealand’s government will announce policies requiring councils to unlock more land for housing amid a property boom that’s pushed average house values in Auckland up by 70 percent since 2007. A national policy directive will be released next month under the Resource Management Act, Housing Minister Nick Smith said yesterday on TV One’s Q+A program. “That will put far tougher requirements on growing councils to ensure that they are freeing up long term the land that is required so that we don’t get into the sort of juggernaut that has been at the core of the unaffordable housing problems in Auckland,” Smith told the television program, according to an e-mailed transcript. The government also plans to ensure property investors aren’t avoiding paying taxes on their investments, Smith said, adding that the tax department is able to track every property that’s bought and sold for investment purposes. “People who are pretending they can make those investments in housing markets in Auckland without paying tax are going to get a very nasty surprise,” he said. Bloomberg News
Climate change, natural disasters, pollution, poverty and epidemics are among the risks to efforts to improve livelihoods of lowest wage earners and their households across Southeast Asia in the next decade, ministers said yesterday. Ministers of Labour from Association of Southeast Asian Nations (ASEAN) were joined by representatives of China, Japan and South Korea for meetings set to endorse the Vientiane Declaration on “Transition from Informal Employment to Formal Employment towards Decent Work Promotion in ASEAN.” In his opening speech, Lao Deputy Prime Minister Sonexay Siphandone said sustainable growth and employment, labour productivity and justice needed to be achieved for the region’s workforce via life-long learning, skills development and through public private partnerships. Citing ASEAN’s people-centred approach, Sonexay called for renewed efforts to improve human resource development to address skill shortfalls in the region’s labour markets and better regional coordination to promote and protect workers’ rights, encompassing migrant workers, particularly women and those engaged in hazardous environments. Xinhua
Education ministers from the Group of Seven industrialized countries pledged yesterday in Japan to cooperate through education on global issues including the on-going refugee crisis and poverty, along with general issues of peace in the world. Following a two-day meeting concluding yesterday, which took place in Okayama Prefecture in western Japan, the ministers from Britain, Canada, France, Germany, Italy, Japan, the United States and the European Union said that education underscores the future of peace in the world. The G7 ministers vowed in a joint declaration that education was essential to promote core global values and laws to young people, which could help to battle religious radicalization and, through higher quality education, help the Syrian war-linked refugee crisis and the countries in Europe that are dealing with the influx of those displaced. The ministers also concurred that young people throughout the wold equally had the right to receive an education and that such opportunities should be made available regardless of financial circumstances or gender. Xinhua