China’s central bank is extending beyond its traditional range PBOC repositions Page 8
Wednesday, March 18 2016 Year V Nr. 1045 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey WIlhelm
www.macaubusinessdaily.com
Testing the Turnaround
Gaming Expect average growth of 7 pct in gross gaming revenue. So says a respected CLSA analyst at the Global Gaming Expo which kicked off today. He refers to Macau casinos’ take in the next five years. VIP is expected to lift about 4 pct, the brokerage notes, with the slow development of the city’s infrastructure – showing ‘little progress’ over the course of a decade – of major concern. Page 6
Call me, maybe Telecommunications The local telecommunications regulator has started pre-preparatory works for the issuance of tri-network licences. Covering telecom, cable TV and internet. Plus the drafting of related regulations. Residents should have new options for telecom services within three years. Page 3
Halting halts Stock markets National exchanges are going to issue new rules for limiting trading halts. Intended to help Chinese markets’ inclusion in MSCI Indexes. Halts played a key role in last Summer’s slowdown in the Shanghai and Shenzhen markets. Page 9 HK HSI May 17, 2016 20,118.80 +234.85 (1.18%) Bank of East Asia Ltd/The CNOOC Ltd
+4.80%
+2.50%
PetroChina Co Ltd
+2.46%
BOC Hong Kong Holdings
+2.30%
China Mengniu Dairy Co
-0.63%
Want Want China Hold-
-1.39%
Hengan International
-1.78%
China Unicom Hong Kong
-2.13%
Cheung Kong Infrastruc-
-2.54%
24° 27° 24° 28° 24° 28° 24° 27° 25° 28° Today
thu
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Moving sale Housing transactions dropped 16.8 pct q-to-q in Q1. Despite home prices being cheaper on average, DSEC data shows. Average home prices dropped 4.2 pct q-to-q for the first three months of this year. To MOP72,955 per square metre of usable area. Real Estate Page 3
Gaming
Sanum Investments: ‘Behind closed doors’ sale of Savan Vegas hotel 16.8 pct of estimated max Page 7
Infrastructure
MOP630 million infectious disease control centre already over-budget Page 2
Cross-Strait deals
Taiwan starts reviewing Tsinghua’s proposed acquisition of technology companies Page 10
I SSN 2226-8294
sat
sun
Source: AccuWeather
+2.61%
Kunlun Energy Co Ltd
Source: Bloomberg
+3.01%
HSBC Holdings PLC
2 Business Daily Wednesday, May 18 2016
Macau Aviation
Royal Flight commences Macau-Moscow charter flight
each week, whilst frequency is to be increased to three flights a week from July 3. Local airport operator Macau Direct charter flights connecting the International Airport Company Ltd. Special Administrative Region to Moscow in Russia officially commenced (CAM) said in a press release that yesterday. The new route, which is the the Russian airline is also aiming to gradually convert its new charter city’s first long-haul route, is operated by Russian charter airline Royal Flight. service to a regularly scheduled service within this year. Royal Flight, founded The carrier currently provides two in 1993, is based in Abakan in Russia. charter flights between the cities
Health
Infectious disease centre overruns MOP630 million budget Nelson Moura nelson.moura@macaubusinessdaily.com
T
he new contagious disease control centre has already surpassed its MOP630 million budget, according to Secretary for Social Affairs and Culture Alexis Tam, who announced the need for a budget increase at a plenary session in the Legislative Assembly (AL) yesterday. The new contagious disease control centre at Alto do Coloane, the possible demolition of six heritage buildings next to CHCSJ, and the risk of proximity to residents were also debated by the legislators. Motions were advanced by legislators Au Kam San, Song Pek Kei, Si Ka Lon and Leong Veng Chai regarding the location of the infectious disease complex with most legislators agreeing with the necessity for the centre; questions were raised about the lack of concrete plans regarding the proximity to residential areas. “We all know Macau is an international city that receives more than 30 million tourists, so when it comes to control of contagious diseases we have to reinforce prevention and cases such as the SARS outbreak in 2003 which spread panic and affected the local economy. The increase [in budget] of the infectious building complex is understood as a necessity by the population, it’s consensual, but the specific location and the methods are very polemic,” stated legislator Song Pek Kei. Secretary Tam responded that the project was approved by health specialists from the World Health Organization (WHO) and Mainland China and that building infectious disease centres in proximity to hospitals in highly populated areas is common in many developed countries. “We’re not making false assumptions, we didn’t ask people to support us. Hong Kong and Beijing also have hospitals near their populations; they
just have to enforce more rigorous requirements,” said the Secretary.
Up to international standards
The facilities were previously evaluated by a four-member team from WHO, at the government’s invitation, who concluded that the facilities at the São Januário Hospital were in line with WHO requirements, although some legislators still doubt the future impact of the project. “Just because there isn’t an impact at this moment, that doesn’t mean there won’t be an impact in the future,” legislator Fong Chi Keong stated. “There isn’t a scientific decision so if this building will be close to a residential building couldn’t this affect the residents nearby? The Secretary is not an expert on these issues so the government also needs to hear the population’s view; you can’t just say a decision was already made and
that’s it. You live near Penha Hill but for the ones living near the Hospital it is a different issue,” the legislator opined. Legislators Ma Chi Seng and Song Pak Kei queried whether the new complex would be up to international standards and would guarantee the safety of not just the residents near the complex but of the health professionals inside – as 2,300 people would work in the complex and more than 1,500 patients enter and exit the hospital daily. Tam stated that the planned building would follow requirements “superior to the ones in the U.S.”, with a planned distance to residential areas of more than 30 metres and will have the necessary “isolation units” and “disinfection” to prevent leaks. When asked about the purpose of the planned new complex in Coloane, Tam responded that the infectious disease centre would focus on “serious cases of radioactivity or biochemical attacks.” “There needs to be an isolation of the patients and prevention of the spreading of the disease - like everywhere in the world. If anybody is detected in the future and goes to CHCSJ or the Hospital das Ilhas, we have to first detect and isolate the patient as early as possible, and discover the source; that’s why we give so much importance to the building in Cotai.”
No public tender or new budget announced
When asked by legislator Song Pek Kei about the opening of the public tender for the project and estimates for construction expenses, the Secretary noted that a public tender has already been conducted for the planning of the complex but that a public tender for the construction had yet to be planned, directing questions to the Secretariat for Transport and Public Works Raimundo Arrais do Rosário, while saying that any more delays “could have not just serious
health dangers but serious financial dangers.”
Late and too big
Legislators asked the Secretary why it took ten years after the 2003 SARS outbreak to start planning an infectious disease complex, with legislator Vong Hin Fai asking what would happen if an outbreak of Ebola or the Zika virus reached Macau. Secretary Tam noted that a plan was already defined in 2008 for the expansion of the CHCSJ building but standards for the protection of the Guia Hill lighthouse delayed the project, with a current deadline in 2019, and that the current 45 units at CHCSJ and units at Hospital das Ihas would be enough for an emergency although delays could be dangerous. “I believe the increase of the CHCSJ can’t be delayed because it can affect the safety of the population and can have financial consequences. In November last year, we already mentioned the project needs to be finished after taking the initiative to hear the opinions of different residents, students, and health professionals. In Hong Kong, there are 42 public hospitals and the isolation beds are enough but in Macau if we keep delaying the project the consequences could be very serious,” said Tam. There were also concerns that the construction of the complex near the Guia Hill would endanger six heritage buildings and an historical wall, with the planned building to occupy an area of 5,565 square metres including 120 wards specially equipped for infection control and treatment of patients, as well as world-class medical facilities. Alexis Tam argued that only two buildings would be demolished, and that last year the Cultural Heritage Council had conducted a study in November approving the expansion, as the two buildings are not considered public heritage.
Business Daily Wednesday, May 18 2016 3
Macau Property Home prices down 4.2 pct quarter-to-quarter in Q1
Cheaper homes and offices; industrial units costlier Latest official data shows housing transactions dropped 16.8 per cent quarter‑to‑quarter in the first quarter despite home prices being cheaper on average. Kam Leong kamleong@macaubusinessdaily.com
T
he city’s average home prices went down 4.2 per cent quarter-to-quarter for the first three months of this year, valued at some MOP72,955 per (US$9,119) per square metre of usable area in the period, reveals the latest official data released yesterday by the Statistic and Census Service (DSEC). According to DSEC, the average price of office units also registered a decrease of 4.2 per cent month-on-month to MOP97,568 per square metre during the quarter, while that of industrial units grew by 14.6 per cent quarter-to-quarter to MOP43,850 per square metre.
In the three months, a total of 1,928 building units and parking spaces were purchased and sold at MOP8.45 billion based on the recorded Stamp Duty, which is down by 22.3 per cent and 23.5 per cent quarter-to-quarter, respectively. Housing transactions – purchase and sale - accounted for 1,215 or MOP5.55 billion of the total, down 16.8 per cent and 20.6 per cent quarter-to-quarter, respectively. In fact, most housing transactions were made on completed units, which totalled 1,082 at MOP4.65 billion, down 15.4 per cent (purchase) and 16 per cent (sale), respectively. Meanwhile, housing transactions on offplan units plunged 26.9 per cent year-on-year to 133, with total worth diving 38.1
per cent quarter-to-quarter to MOP0.91 billion. In addition, signed real estate sale contracts, involving 2,599 properties, dropped 8.6 per cent quarter-to-quarter to 2,595, while signed mortgage contracts, involving 3,283 properties, decreased 14.9 per cent quarter-to-quarter to 2,522.
Prices of off-plan units post greater drop
DSEC data indicates the average price of pre-sale housing units declined by 8.9 per cent quarter-to-quarter in the first three months of the year, costing MOP94,165 per square metre as off-plan units on the Peninsula, in particular, decreased 16.1 per cent quarter-to-quarter. Meanwhile, the average price of a completed
residential unit cost only MOP69,825 per square metre in the quarter, representing a slight drop of 1.7 per cent from the fourth quarter of 2015. Most transactions on off-plan residential units were made on properties in Coloane, which amounted to 78, costing MOP94,495 per square metre on average, whilst Baixa da Taipa was the most popular area for transactions on completed housing units, where a total of 154 housing transactions were recorded, with average prices coming in at MOP77,804 per square metre during the three months. In terms of year of completion, the average price of those built 5 years ago or less was down by 4.6 per cent quarter-to-quarter to
Telecommunications MTel confident network coverage will reach 70 pct of total residences by year-end
DSRT: Tri-network licence issuance complete in three years The local telecommunications regulator said that it has started pre-preparatory works for the issuance of tri-network licences - including the drafting of related regulations - hoping residents will have new options for telecom services within three years. Three-network convergence, or tri-network integration, is the integration of telecommunications networks, cable TV networks and the Internet. The city will complete the licence issuances for the three-network convergence within three years, according to the acting director of the Bureau of Telecommunications Regulation (DSRT), Tam Van Iu, who claims the Bureau is working on the pre-preparation for the issuance, including preparation of new telecommunication licences for the SAR, the acting head told reporters on the sidelines of a public event yesterday. “We need certain preparation before the issuance of licences, such as drafting regulations and preparing auxiliary facilities for networks […] The whole process may take between two and three years, from carrying out regulations to issuing operational licences,” Ms. Tam said. “Following the full opening up of the telecommunications market, whilst current services and networks [are meeting the standards], we are speeding up the process to issue other licences, hoping residents would have one more options for overall
CTM 4G users 30 pct of total
Local telecommunications service provider Companhia de Telecomunicações de Macau, S.A.R.L. (CTM) saw its 4G users increase to 30 per cent of its total, following the launch of its 4G service last October, according to the executive director of its parent company Citic Telecom International Holdings Ltd., Lin Zhen Hui. Mr. Lin disclosed the increase to Hong Kong media after the company’s general board meeting on Monday. He did not give the exact number of 4G users that
telecommunication services,” the official added. The city’s draft of its first Five-Year Development Plan, released at the end of last month, suggests operators start providing tri-network services in 2019. Following the launch of local 4G services, Ms. Tam said the Bureau had received complaints about the services. Without disclosing details of these complaints to reporters, the official claimed her Bureau would pay close attention to these and request operators to follow up and address the complaints.
MTel to cover 70 pct of local residences by year-end
On the other hand, the chairman of fixed-line telecommunication service provider MTel Telecommunication Company Ltd., Michael Choi, is confident that his company’s network will cover 70 per cent of local residential buildings as mandated in its contract with the government. According to Mr. Choi, the company’s network currently covers 55 per cent of the Peninsula and 45 per cent of Taipa, as well as 50 per cent of Coloane. The MTel chairman yesterday urged the Transport Bureau (DSRT) to give the nod to the company on over 300 applications for road works to lay cables, so that it could meet the requirement of the network to cover all local schools by the end of this year. “The government did not approve
CTM currently has. According to the local firm’s 2015 annual report, it had a total of 821,000 mobile users as at the end of last year, of whom 33,000 were 4G users, accounting for some 4 per cent. The Citic executive director also said that the company would not invest too much in CTM’s 4G service in the future, due to the small size of the Macau market, adding that future investment would be primarily used to strengthen the local subsidiary’s network coverage.
any of MTel’s road work applications last year as it said other companies were conducting other construction. However, MTel needs to cover all
local schools by this year-end. If it doesn’t give the green light again this year, what should we do?” the MTel boss queried.
4 Business Daily Wednesday, May 18 2016
Macau Opinion
Bank cards
UnionPay: Overseas-issued cards contribute half int’l business
José I. Duarte
transaction number of overseas-issued UnionPay cards in Mainland China jumped 30 per cent year-on-year. UnionPay International, a subsidiary of the state-backed Nevertheless, the card issuer does not indicate related figures in its latest press release. It said over 55 million UnionPay card brand, claims that the transaction UnionPay cards have been issued in 40 overseas volume of overseas-issued UnionPay cards accounted for about half of UnionPay’s total international business countries and regions, of which Hong Kong, Macau, as at the end of the first quarter of this year, compared Japan and South Korea are major regions for UnionPay card-issuance outside the Mainland. to 27 per cent as at the end of 2013. In particular, the
Words matter Last week, I raised questions about the usage of the word ‘eugenics’ in the Five-Year document under public review. (Reminder: the document states, on page 55 of the Portuguese version, as part of the demographic policy, the government’s intention to ‘incentivise couples to have more children applying the concept of eugenics’.) Eugenics is a politically and historically charged word, even if we leave the Nazi connotations aside. The Portuguese language newspaper Ponto Final approached the department in charge and got some answers. They failed, however, to allay the concerns and added a couple of them. What did they say? First, that the intended meaning of the Chinese expression was - I quote - to “improve the health of newborns through medicine and prenatal care.” Second, that a Portuguese-Chinese dictionary (unidentified) and the Encyclopedia Britannica both supported such (neutral?) interpretation and made no link to Nazi-era policies. I cannot check and comment upon the undisclosed dictionary, obviously. But Britannica is easily accessible. The first paragraph of the related online article starts by declaring that ‘Eugenics [is] the selection of desired heritable characteristics in order to improve future generations, typically in reference to humans’. And ends by saying ‘it ultimately failed as a science in the 1930s and ’40s, when the assumptions of eugenicists became heavily criticised and the Nazis used eugenics to support the extermination of entire races’. Therefore, the justification (or dismissal) fails patently on both counts. The status and pedigree of the idea are fully explained in the first paragraph. Nowhere is there any reference to perinatal care. They also claimed the characters used in the Chinese version have a different meaning. Maybe. My Chinese skills, or lack thereof, prevent me from going too far down that road. It still mystifies me that all the Chinese dictionaries I could find online that include the word translate it, consistently, as ‘eugenics’. We must conclude that, at the very least, the concept, as used in the plan, is fuzzy, not fully defined. It would be wiser, may I suggest, dropping it. And improving perinatal care, a worthy and desirable aim, should be better dealt together with health topics. Words matter, ideas matter: what the government actually means and what are the policy implications of the wording choices are not trivial matters. Proper use of words - and the clarity of ideas and purpose that comes with it – does matter. José I. Duarte is an economist and permanent contributor to this newspaper.
Expo G2E Asia kicks off, runs until Thursday
Gathering of the Asian gaming industry Striding into the 10th edition, G2E Asia kicked off with 180 exhibitors. The three-day event anticipates 12,000 visitors. Joanne Kuai joannekuai@macaubusinessdaily.com
G
lobal Gaming Expo (G2E) Asia kicked off yesterday at The Venetian Macao casino resort. The threeday event, co-organised by Reed Exhibitions and the American Gaming Association (AGA), welcomed 6,500 pre-registered visitors from 95 countries, according to the organisers, who previously revealed they are expecting 12,000 visitors for this year’s edition. “The Asian gaming industry is currently undergoing a transformation that is presenting numerous exciting opportunities,” said Hu Wei, President of Reed Exhibitions, Greater China, at the opening ceremony of the event yesterday. “G2E Asia is the perfect place for industry professionals to meet and discuss business opportunities.” The tradeshow debuted in 2007, defining itself as the premier show for the Asian gaming entertainment industry. According to the organiser, all casinos in Asia have a presence at the event. The co-organiser also expressed strong confidence in the market. “We have more exhibitors here than ever before. More buyers here than ever before. Interest is at its peak. This market continues to have great potential. When you look at China,
the penetration within China is still quite minimal. The sky, the potential here, is enormous,” said Geoff Freeman, President and CEO of the American Gaming Association, on the sidelines of the opening ceremony.
Bullish outlook
With regard to the gaming revenue downturn, the AGA President, despite the worries, claims that uncertainty exists in every market and that despite short-term decisions the investments made here are for the long run. He also expressed faith in non-gaming developments and that of the region in general. “The market in Macau is stabilising. We are seeing that. The number is still quite strong. This is still a US$27 billion market, the largest market in the world. I know there are members that are here - they are making investments for the long-term. They intend to be here for many, many years to come and they are very optimistic about the future,” said Mr. Freeman. “Macau is already generating billions of dollars in non-gaming revenue. Different properties have a different emphasis here,” said Freeman. “In Macau, there is a bright future for non-gaming. It has great potential. But it has to move in concert with the customers. It’s what the customers are interested in. It’s developing here in Macau. People should feel very good about the development that’s already happening on the non-gaming front. We’re very excited for what they would do in the future.” “We have 1,000 casinos in the United States. There is plenty of room for growth across Asia. Japan is obviously a market that people are interested in. Korea is doing some new things.
There is plenty of room for Macau to grow and other markets to grow simultaneously,” he added.
A decade of networking
Striding into the 10th edition this year, G2E Asia kicks off with 180 exhibitors, representing a 12 per cent increase from the previous edition, with over 40 per cent of them joining for the first time, and 80 per cent from overseas. The exhibition area has also tripled in size since it started 10 years ago to more than 9,200 square metres now. The organiser is also expecting more than 800 VIPs and buyers, and around 4,000 conference delegates, in addition to over 12,000 visitors from all major gaming operators and regulators in Asia and beyond. One of the highlights of this year’s showcase is the fast-growing iGaming Zone which has more than doubled the number of exhibitors since 2015. Over 65 per cent of those are new companies. The zone gives the growing iGaming community direct market access and a networking platform with over 50 iGaming exhibitors showcasing their latest solutions and products from Asia and abroad. Today, Macau’s gaming regulator, Paulo Martins Chan, Director of the Gaming Inspection and Co-ordination Bureau (DICJ), is expected to deliver a talk on ‘Transformation in Changing Conditions’ and will also attend the 1st Gaming Regulators Networking Luncheon with his counterparts from Asia and beyond to exchange views, share updates and export co-operation opportunities at a time when the gaming market in Asia is fast-changing and rapidly growing.
6 Business Daily Wednesday, May 18 2016
Macau Gaming
Imperial Pacific executive director company increased to 286 million shares, which represents 0.21 per cent of the total increases share Casino operator Imperial Pacific International Holdings Ltd. said on Monday evening that its executive director Yuki Yu Xia has acquired 25 million shares of the company in the open market for a total consideration of HK$3.78 million (US$470,024). After the acquisition, the executive director’s holding stake in the
issued share capital of the operator. In addition, Imperial Pacific announced in a separate filing that Robert James Woolsey has been appointed an independent nonexecutive director of the company. Mr. Woolsey, aged 74, was Director of Central Intelligence (CIA) between 1993 and 1995 under American President Bill Clinton.
Gaming Macau in “good shape” but “desperate for infrastructure”
CLSA: Bullish outlook for long term CLSA analyst predicts an average 7 pct growth in gross gaming revenue in Macau casinos in the next five years. Joanne Kuai joannekuai@macaubusinessdaily.com
B
rokerage CLSA predicts that Macau gaming revenue will fall 1 per cent in 2016 and resume growth next year, with an average increase of 7 per cent throughout 2016 to 2020, thanks to rising personal incomes of consumers in the region and a growing appetite for outbound travel by Mainland Chinese. “Macau is still in pretty good shape, with gaming companies generating above average returns and little risk of bankruptcy; the government’s still sitting on a fiscal surplus; and local residents have basically full employment and GDP per capita is among the highest in the world,” said Aaron Fischer, CFA, Head of Consumer &
Gaming Research at CLSA Asia Pacific Markets, who was speaking at the Asia Gaming Market Outlook conference session on the first day of the Global Gaming Expo (G2E) Asia 2016 held in The Venetian. The trade show and conference on the Asia-Pacific gaming industry is co-organised by Reed Exhibitions and the American Gaming Association. Fischer added that the mass market would grow 10 per cent on average in the next five years while the VIP market would probably rise by the smaller amount of 4 per cent, the brokerage added.
Desperate for infrastructure
Despite the confidence in the longterm gaming market, the analyst pointed out that the slow development of the city’s infrastructure is of concern, as “in the past 10 years, we see little progress,” referring to the Hong Kong-Zhuhai-Macau Bridge, Pac On Ferry Terminal, Light Rail Transit, and the pedestrian walkway connecting properties. “The pedestrian walkways here are terrible. It’s very difficult, for example, it’s very difficult to walk
down to Studio City from any of the properties in Cotai. Over on the Peninsula, from the ferry terminal, it’s very hard to walk from there to Sands Macao, which is really a bit of a joke. The Peninsula walkway should be finished and improved by now,” said Mr. Fisher. However, Mr. Fisher did express an optimistic outlook about the completion of the Hong Kong-Zhuhai-Macau Bridge, pointing out that it would not only help with bringing in tourists from Hong Kong, but most importantly “connect Macau with the 60 million travellers using Hong Kong International Airport,” for which he sees great potential.
Wynn Palace and The 13
Pointing out the current high occupancy rates of local hotels, Mr. Fisher reckoned that the increase in hotel rooms will benefit the market by dragging down room rates - which he perceives to be still at a high level - and attract more visitor arrivals. In terms of the new projects that are in the pipeline in Macau, Wynn Palace is a favoured pick for the brokerage. “Despite the fact that the VIP market has been weakening over the past couple of years we still have a preference for high-end properties because Macau is going to be fully built out in a short period of time and we won’t see any new properties being developed in a decade,” he said. “So we think it’s more advantageous to have a better quality property opening up.”
New hotel The 13, owned by Hong Kong-listed Louis XIII Holdings Ltd., is also a pick of the CLSA analyst. “It is targeting a special niche, the premium customers, and we think that it is the first property opening in Macau that will put Macau on the map to attract players from Southeast Asia and the Middle East, and Europe,” he added.
“Holy grail”
In other Asian markets, Mr. Fischer said that the operators in Singapore also felt the strain from China. In addition, the high hotel room rate there is also one of the factors preventing the growth in the number of visitor arrivals. With regard to the Philippines, the CLSA analyst predicts an 8 per cent year-on-year growth in gross gaming revenue this year, on top of the 17 per cent growth achieved in 2015. However, growth could be constrained by the current shortage of quality infrastructure, as well as a perception of safety for tourists being a concern. In addition, Japan - regarded by the analyst as “the holy grail” - is considered one of the world’s major untapped gaming markets, as it has good access to Northern Asia and a large and wealthy middle class, and is estimated to have the potential to be a US$20 billion market. However, Mr. Fischer points out that legislative efforts to allow casino gambling have experienced fits and starts. The analyst expects “2023 to be the earliest that doors open on the first integrated resort, should it happen at all.”
GGR Telsey: May gross gaming revenue down 11 pct y-o-y
Slow and steady Gross Gaming Revenue for the SAR is tracking down 11 per cent year-onyear for the month of May, according to a report by the Telsey Advisory Group. The analysts note that despite the drop year-on-year gross gaming revenue for the territory is seeing a 4 per cent increase compared to the previous month. The group assumes an estimate for the month of HK$17.6 billion but the slide has increased from last week’s 6 per cent drop yearon-year, with ‘property visits’ noting a ‘marginal decline’ while the VIP market shows continued ‘volatility’ which is ‘negatively affecting the overall market,’ notes the report. ‘We view the results as modestly negative for companies exposed to this market; namely, Wynn, LVS and MGM, although we note that the results continue on a trend line consistent with our forecast for the year,’ the analysts state. The group maintains its ‘forecast for a decline of 11.5 per cent yearon-year for Macau GGR in 2016,’ and ‘discussions with company
management teams’ have yielded an impression that ‘there is some actual improvement in mass play offset by declines in VIP, which provides for a positive profitability mix shift’. So far cumulative gross gaming revenue in the first four months of the year was ‘down 12.4 per cent year-on-year’ and the group notes
they ‘concede that there are some less negative elements in market activity’ allowing the group to ‘remain focused on significant growth in supply going forward and the demand necessary to support it, which is at the moment not clearly evident’. As May trends appear to be consistent with April the group states that they are not inclined to change
their view on the market overall and ‘do not expect change significantly ahead of the forthcoming growth in supply’ of movements among market share of the operators. ‘We expect Wynn to be a taker of share on its opening of the Palace in early August while other operators could experience pressure,’ the group opines. K.W.
Business Daily Wednesday, May 18 2016 7
Macau Gaming Sanum: Savan Vegas sold for 16.8 pct of estimated value
The elephant in the room
Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
T
he sale of the Savan Vegas Hotel and Casino announced on Friday by purchaser Macau Legend Development Ltd. for the property located in Savannakhet Province in Laos was conducted ‘behind closed doors’, excluding former project operator Sanum Investments, the company told Business Daily. The project was also sold for 16.8 per cent of the maximum estimated value that Sanum Investments attributes to it, the group stated. ‘Sanum and Lao Holdings are currently evaluating our options, but do not intend to stand quietly [by] while Savan and the slot clubs are sold for a price that is a fraction of the price
they are worth,’ the company said in a written response to Business Daily. Sanum notes that the sale – conducted by the Laos Government via the current operator of the casino and manager of the sale San Marco Capital Ltd. – is ‘in violation of our 2014 Settlement Agreement,’ and notes that they were not informed about the sale until ‘we were sent the Macau Legend press release by the Lao lawyers . . . at the same time they released it to the public.’ The circumstances of the Settlement Agreement were reached following the seizure of the casino from Sanum by the government due to a ‘retroactive assessment of over US$70 million in taxes,’ notes a press release previously filed by the company. The agreement mandated that the government drop the taxes and the two
“We were sent the Macau Legend press release by the Lao lawyers at the same time they released it to the public.” Sanum Investments
owners – Sanum Investments at 80 per cent and the Lao Government at 20 per cent – engage a party to sell the group’s assets in Laos for maximum value. In addition to the drop from Sanum’s
estimated maximum value of ‘US$250 million’, the group notes that ‘it appears that the purchase price is being used to pay illegal tax claims to the Lao Government, which is also in violation of the Settlement Agreement’. The group is not averse to the pursuit of a sale of the property, saying, ‘while we were not consulted, pursuant to the Settlement Agreement, we are not opposed to a sale to Macau Legend at maximum value for the assets, but we are bitterly opposed to a sale at this low price’. However, the group is confident that the sale monies will be provided to Sanum Investments in that ‘the Settlement Agreement between Laos and Lao Holdings/Sanum states that 100 per cent of the sales proceeds will be paid into an escrow in Singapore and then distributed 80 per cent to Sanum and 20 per cent to the Lao Government. We expect Macau Legend and the Lao Government to pay 100 per cent of the proceeds into the escrow as agreed’. With regard to the lawsuit against Kelly Gass of San Marco Capital, no acknowledgement has been so far forthcoming. ‘San Marco has not yet responded to the lawsuit which was filed last week. Since Ms. Gass and the government have chosen to exclude us from the sale, we have no way of knowing what motivated their decision to conduct a secretive sale to Macau Legend behind closed doors, but this sale was not transparent,’ leaving the group to pursue the only avenue left – ‘evaluating the situation and contemplating courses of action’. Sanum Investments is registered in Macau and is a wholly-owned subsidiary of Lao Holdings N.V. – who filed two lawsuits against the Lao Government and one against San Marco Capital Holdings Ltd. on May 5.
8 Business Daily Wednesday, May 18 2016
Greater China Monetary authority
As Beijing revamps regulation, PBOC gears up for central role Central bank wants to consolidate risk monitoring so problems in banks or markets are spotted before they blow up.
A
s China’s leaders consider ways to improve market oversight and avoid the kind of boom and bust in equities that shook investors around the world last year, the nation’s central bank is already extending its oversight to areas beyond its traditional focus. The People’s Bank of China this month expanded its powers to cap cross-border capital flows by adding controls for banks and companies to its new Macro Prudential Assessment system. The risk-monitoring system announced in December was expanded just one month later to include bonds, equities and off-balance sheet assets held by commercial banks, giving the central bank authority that was once the turf of the banking regulator. The PBOC is also spreading its tentacles regionally, saying last month it plans to re-establish a provincial-based bureau structure that was abolished in 1990s so it can better gauge conditions on the ground. The goal: to consolidate risk monitoring so problems in banks or markets are spotted before they blow up and do real economic damage. China’s need for better oversight of its bubble-prone markets and improved communication of policies was plain to see last year, when a US$5 trillion
stock-market collapse and shock currency devaluation rattled global investors. Authorities are considering convening a top-level finance work conference this summer - a year ahead of schedule - to map out a sweeping consolidation of the financial regulatory system, Bloomberg reported last month.
Broad mandate
The PBOC has an “upper hand” in any shake up because of its broad mandate to maintain financial stability, according to Zhu Ning, deputy dean at Shanghai Jiao Tong University’s Advanced Institute of Finance in Beijing and author of the book “China’s Guaranteed Bubbles,” which examines China’s rising debt threat. Zhu said there are two likely outcomes from the regulatory revamp: the PBOC emerges as the key coordinating regulator, or a new super regulator is created to work alongside the PBOC. The PBOC-led option has the advantage of being clearer and more effective, according to Zhu, by avoiding the potential for conflicting policies or loopholes that could be exploited. Spokespeople for the PBOC and the securities, banking and insurance regulators didn’t immediately respond yesterday to faxed requests for comment on the regulatory changes.
British model
One approach gathering support among policy makers is to use the Bank of England’s position as a reference and grant the PBOC more power over financial firms in an enhanced macro-prudential
PBOC headquarters in Beijing.
role, Bloomberg reported last month. Li Bo, director of the central bank’s monetary policy division, wrote in an article in February that combined regulatory authority similar to the U.K.’s framework is a “preferable” option in China. The central bank’s governor Zhou Xiaochuan criticized the local regulatory system at a Group of 20 meeting in Shanghai in February, saying its performance through the financial turmoil of 2015 was “unsatisfactory” and the shakeup should be coordinated with the new macro prudential framework in mind.
Anticipated resistance
“The central bank is expanding its authority and scope of management in the name of macro-prudential assessment,” said Ming Ming, head of fixed income research at Citic Securities Co. in Beijing. He anticipates resistance from the nation’s other three regulators that currently oversee banking, insurance and securities. The China Securities Regulatory Commission was established in 1992 and led by Zhou from 2000 until 2002, when he became PBOC governor. The CSRC has been bruised recently, with its performance criticized by Premier Li Keqiang, and its chairman removed in February. The new head, Liu Shiyu, is a former PBOC deputy governor.
Money management
BlackRock’s Fink expresses concern about rising national debt Some investors are betting the credit bubble will pop, devastating the economy. Bei Hu
BlackRock Inc.’s Laurence D. Fink, who oversees the world’s largest money manager with US$4.7 trillion of client assets, said “we all have to be worried” about China’s mounting debt amid slowing growth, even as he remains bullish on the economy in the long run. “You can’t grow at 6 percent and have your balance sheets grow faster,” Fink said in a Bloomberg Television interview with Angie Lau on the side-lines of a forum in Hong Kong yesterday. “In the future, I would prefer seeing the economy growing 6 percent with some form of deleveraging,” he said. China, whose surprise August yuan devaluation sent shock waves worldwide, is dividing the biggest names in finance more than any other market. While Fink said in April that investors would regret not betting on China this year because government stimulus may result in higher economic growth than many expect, billionaire investor George Soros said last month that the nation’s debt-fuelled economy resembles the U.S. in 2007 and 2008, at the onset of the global financial crisis. New credit in China increased a record 4.6 trillion yuan (US$706 billion) in the first quarter, surpassing the level of 2009 during the depths of the global financial crisis. Total debt from companies, governments and households was 247 percent of gross
BlackRock Inc. Chairman and CEO Larry Fink.
The banking watchdog, formed in 2003, has also been criticized by analysts for not doing enough to curb the rampant borrowing for leveraged share trading that exacerbated last year’s swings.
Bigger role
That leaves the central bank - itself not unscathed with global investors calling for better communication after last year’s surprise move to weaken the yuan - taking on a bigger regulatory role while it also tries to keep the economy humming. In a statement Saturday, it said monetary policy will remain supportive after new credit rose less than expected last month, fuelling concerns over the economic outlook. Giving the PBOC a “superior position” to track financial risks and keep threats from slipping through the cracks should make Chinese markets a safer bet, according to Shen Jianguang, chief economist at Mizuho Securities Asia Ltd. in Hong Kong. “It would fill in the current regulatory loopholes and prevent systematic risks,” he said. “That should allow economic growth to speed up and facilitate supply-side structural reforms, reducing the spillover effects of a slowing Chinese economy on global markets.” Bloomberg News
Business Daily Wednesday, May 18 2016 9
Greater China Securities
Authorities to restrict trading halts boosting MSCI odds China’s exchanges allowed trading halts that shut down half the stock market during last Summer’s sell-off.
S
hanghai and Shenzhen stock exchanges will publish new rules on trading halts as early as next week, the China Securities Journal reported, a move that would raise the odds of the country’s stocks being included in MSCI Indexes. The rules are aimed at curbing arbitrary trading halts by companies listed in China, so-called A shares, and limiting the trading-halt period, the report said yesterday, citing an unidentified official at Shanghai Stock Exchange.
Some public companies abuse the current system to announce merger and acquisition plans to push up stock prices and then say the deals fail, the report said. “The rule change, if realized, is in part to clear the hurdles for the A share market’s inclusion in the MSCI Indexes,” Gao Ting, Shanghai-based chief China strategist with UBS Securities Co., said by phone. “There were over 1,000 shares halted for trading during the market frenzy last July. The regulators clearly think that trading halts are being abused and is aiming to address that.” China’s exchanges allowed trading halts that shut down half the stock market as officials struggled to stop a US$5 trillion selloff last summer. MSCI said in March a decision to include yuan-denominated shares in its index will depend in part on regulators
implementing changes so that widespread halts can’t happen again.
Main obstacle
A Bloomberg poll of strategists and fund managers found that 16 of the 23 surveyed named stock suspensions as a main obstacle to China’s inclusion in MSCI’s indexes. Capital controls, government intervention, stock beneficiary ownership and cross-border investment quotas were other common concerns ahead of MSCI’s decision in June, the survey showed. The Securities Journal report said that the rules will require that if a company halts its shares for restructuring, it has to disclose in the first month which industry the deal target is in. If the halt extends into a second and third month, the companies will have to disclose more details on the target. If the target changes after trading resumption, the exchange will retrospectively probe the restructuring and take measures if wrongdoings were found, according to the report. Bloomberg News
“The rule change, if realized, is in part to clear the hurdles for the A share market’s inclusion in the MSCI Indexes” Gao Ting, Shanghai-based chief China strategist with UBS Securities
domestic product last year, up from 164 percent in 2008, according to data compiled by Bloomberg.
Bass’s prediction
Some investors are betting the credit bubble will pop, devastating the economy. Kyle Bass, the founder of Hayman Capital Management, a Dallas-based hedge fund firm, told investors earlier this year that China’s banking system may see losses more than four times those suffered by U.S. banks in the financial crisis. The world’s second-largest economy grew 6.7 percent in the first quarter, within a government target range, with surging credit in March shifting concern back to the durability of the recovery. Growth in aggregate financing fell below analyst estimates last month in a Bloomberg survey, after the record flow of credit in the previous three months led policymakers to shy away from boosting growth at all costs. Commercial banks may be becoming more reluctant to lend after soured loans rose to the highest level in 11 years, with defaults spreading from small private firms to large state-owned enterprises. Nonperforming loans rose 9 percent to 1.39 trillion yuan in March from December, the fastest increase in three quarters, data from the China Banking Regulatory Commission showed this week.
Reorienting economy
At the forum in Hong Kong, Fink said he is very impressed with China’s leaders, especially with respect to how they’ve sought to transform the manufacturing and export-oriented economy into one that’s domestic and services-oriented. It took some developed economies 50 years to manage that, and several recessions during the process, Fink said. “I would say the Chinese leadership has done a very good job of identifying the need to reorient their economy, much more proactive than other leaders of other countries,” Fink said.
China has had to grapple with a global and domestic economic slowdown during this transition as well as excessive leverage of many of its financial institutions, Fink said. “They need to be more aggressive in their reforms,’’ he said, adding there are still too many state-owned companies and signs of credit explosion again in the last three or four months. “However, I’m relatively bullish on China.”
“Chinese leadership has done a very good job of identifying the need to reorient their economy” Larry Fink, BlackRock Inc. Chairman and CEO
Fink said the “safest neighbourhood” to invest right now is North America. Negative rates are “terrible” for Japan, which is overly reliant on monetary policy, he said. China’s August devaluation, growth concerns and capital outflows fuelled speculation of further depreciation in the first quarter, with hedge fund managers from Bill Ackman to Crispin Odey positioned for declines. “I believe China would be very against their plan to devalue the currency,’’ Fink said yesterday. “Their plan is about domestic consumption, having cheaper import prices, whether it’s agriculture goods, energy goods or the important goods of what Chinese are demanding in their purchases. A devaluation would only make that more difficult.” Fink built BlackRock from a bond shop started in a one-room office to a global money manager with much of the growth fuelled by acquisitions, including the 2009 purchase of Barclays Plc’s investment unit. Bloomberg News
In Brief Business engagement
Beijing plans to slow exodus of trade exporters China will take steps to stem the outflow of processing trade businesses to other countries by encouraging them to move to its central and western regions where labour costs are lower, a spokesman for the commerce ministry said yesterday. China will use differentiated policies including reserving land for the processing trade in some other parts of the country, Ministry of Commerce spokesman Shen Danyang said. “Production costs in China are rising, and some processing trade firms are moving abroad. We hope we can slow the transfer to other countries and keep these processing trade businesses within China,” Shen said. Overcapacity
Top steelmaker urges more support for exports Jiangsu Shagang, the listed unit of China’s biggest privately-owned steel producer, said on Monday the government should provide steelmakers with more support in their efforts to export products and shift capacity overseas. China’s massive steel sector has come under growing international scrutiny, with foreign steelmakers accusing the country’s firms of flooding the global market with cheap, subsidised steel and driving them out of business. But Chen Ying, Shagang’s general manager, said supporting exports would help speed up China’s efforts to tackle a massive capacity surplus now amounting to around 300 million tonnes a year, nearly double the total annual production of the European Union. Reverse repos
PBOC drains 20 bln yuan from market China’s central bank yesterday allowed 20 billion yuan (US$3 billion) to drain from the market to ensure a stable money supply. The People’s Bank of China (PBOC) put 50 billion yuan into seven-day reverse repos, a process by which central banks purchase securities from banks with an agreement to sell them back in the future. The reverse repo was priced to yield 2.25 percent, according to a PBOC statement. Reverse repos worth 70 billion yuan mature yesterday, so the central bank has effectively drained 20 billion yuan from the market. Securities
Government cuts its U.S. treasuries China, the top buyer of U.S. Treasury securities, cut its holding in March, the latest data from the U.S. Treasury Department showed on Monday. China reduced its holding of the treasuries by US$7.7 billion to US$1.2446 trillion in March, following an increase of US$14.4 billion in February. Japan, the second largest foreign holder of U.S. treasuries, increased its holding by US$4 billion to US$1.1371 trillion in March. In March, overall foreign holdings of U.S. Treasury securities rose to US$6.287 trillion from February’s US$6.2362 trillion.
10 Business Daily Wednesday, May 18 2016
Greater China
M&A
Taiwan begins review of Chinese Tsinghua’s chip stake deals Investment Commission said it would look at proposals as one and subject the offers to review by the island’s newly elected parliament. J.R. Wu
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aiwan has begun reviewing Chinese state-backed Tsinghua Unigroup’s proposals to buy stakes worth nearly US$1 billion in two domestic semiconductor companies, putting the deals under intense scrutiny of a new government less friendly toward its giant neighbour.
A final decision on Tsinghua’s partial acquisitions of chip testing and packaging firms Powertech Technology Inc and ChipMOS Technologies Inc will be a test for the new government of President Tsai Ingwen, which takes office on Friday. Tsai had earlier slammed Tsinghua’s proposals as a “huge threat” for Taiwan. But given that the number of proposals by Tsinghua have dropped to two from three earlier and that the value of the total deal has more than halved, the chances of the proposals being approved have increased, industry executives say. The results of the review process won’t be known for some months. “We have asked for more information, both involving basic and key issues,” a representative of the island’s Investment Commission,
which reviews major inbound and outbound investments involving Taiwanese companies, told Reuters, without elaborating on what the issues were. Tsinghua Unigroup submitted its applications about a month ago but the review process didn’t begin until after Siliconware Precision Industries Co (SPIL), a third Taiwanese chip test and packager, announced it was
Key Points Taiwan regulator has asked for more information from Tsinghua Review begins as new govt takes office on Friday Tsinghua’s Taiwan investment plan shrinks after SPIL deal off
terminating a similar deal with the Chinese investor at the end of April, people familiar with the deals said. “It categorically kicks off the review process,” said David W. Wang, a ChipMOS vice president. Tsinghua Unigroup, which told Reuters last year that it has ambitions to become the world’s No. 3 chipmaker, did not immediately reply to an emailed request for comment. Beijing distrusts Tsai and her ruling Democratic Progressive Party, which traditionally favours independence for Taiwan and won decisively in parliamentary and presidential polls in January. Taiwan’s Investment Commission said early on it would look at Tsinghua’s proposals as one and subject the offers to review by the island’s newly elected parliament, national security advisers and financial regulators. With SPIL’s US$1.76 billion deal off the table, Tsinghua’s acquisition plans in Taiwan more than halved from an original US$2.6 billion in total. Reuters
M&A
USDA to join U.S. panel reviewing Syngenta deal Syngenta said earlier this year it would make a voluntary filing with CFIUS for its deal with the Chinese state-owned firm. Greg Roumeliotis
The U.S. Department of Agriculture has agreed to join the U.S. government panel that is reviewing stateowned ChemChina’s planned US$43 billion acquisition of Swiss seeds and pesticide maker Syngenta AG, people familiar with the matter said on Monday. The move will subject the deal to additional government scrutiny. It comes after lawmakers wrote to Treasury Secretary Jacob Lew in March to ask that the USDA be involved in the review so that the potential impact of the transaction
on domestic food security could be better assessed. Lew chairs the Committee on Foreign Investment in the United States (CFIUS), which reviews deals for potential national security threats and is comprised of representatives from 16 U.S. agencies including Treasury, Homeland Security and Defence. The sources asked not to be identified because the USDA’s role in CFIUS has not been publicly disclosed. Treasury declined to comment, with a spokesperson saying, “by law, information filed with CFIUS may not be disclosed by CFIUS to the public. Accordingly, the department does not comment on information relating to specific CFIUS cases, including whether or not certain parties have filed notices for review.” A USDA spokeswoman also declined to comment, citing the same reasons. Syngenta declined to comment. A spokesman for China National Chemical Corp, known as ChemChina, did not immediately respond to a request for comment. While the USDA is not one of the agencies comprising CFIUS, there is precedent of it joining in a review of a deal. In 2013, CFIUS cleared the way for China-based Shuanghui
International Holdings Ltd to buy U.S. meat company Smithfield Foods Inc with the USDA’s participation. Syngenta said earlier this year it would make a voluntary filing with CFIUS for its deal with the Chinese state-owned firm “even though no obvious national security concerns were identified during due diligence.” Unveiled in February, the deal is the largest foreign acquisition ever by a Chinese company, as China is
ChemChina headquarters.
looking to secure food supplies for its population. Syngenta, which is headquartered in North Carolina and generates nearly a quarter of its revenue from North America, is the biggest seller of pesticides in North America and also a key player in seeds. It has other facilities in North Carolina, as well a presence in California, Delaware, Iowa and Minnesota, among other states. Reuters
Business Daily Wednesday, May 18 2016 11
Asia Investment
From car parts to condos, faltering Thailand lures Chinese money Chinese investors have found a warm welcome in an economy that has seen investment crimped by a decade of political turmoil. Orathai Sriring and Satawasin Staporncharnchai
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verywhere you look on Thailand’s Amata industrial estate in Rayong you see signs in Chinese. It’s a similar story just along the coast in the tourist resort of Pattaya, where Mandarin is increasingly visible alongside English and Russian. As China’s economy slows, its investors are looking abroad for growth and Thailand, home to one of the world’s largest ethnic Chinese minorities and a gateway to Southeast Asia’s 600 million consumers, is a hot investment destination in everything from industry to condominiums. “Thailand is usually the first stop for Chinese tourists and investors,” said Xu Gen Luo, who runs the Thai-Chinese Rayong Industrial Zone, about 200 km south east of Bangkok. Dozens of new Chinese-owned solar, rubber and industrial manufacturing plants have opened in the zone since 2012. “Thailand’s investment environment, especially its investment promotion policies, are among the best worldwide,” he said, adding that labour costs were higher in China. Since a May 2014 coup, Thailand and China have drawn closer diplomatically and militarily as the ruling generals seek to counterbalance the country’s cooling ties with Washington. Chinese investors have found a
warm welcome in an economy that has seen investment crimped by a decade of political turmoil, and where the junta has struggled to revive exports and domestic demand in the two years since seizing power. Investment pledges from China jumped fivefold in the first quarter from a year earlier to 5.7 billion baht (US$163 million), from just 1.1 billion baht, giving China the third largest investment slate during the period as Chinese firms raced to meet a tax break deadline and U.S. investors held back. That was still some way behind Japan, which pledged 15.6 billion baht. Japan and China jostle for influence in Southeast Asia and Tokyo has long been Thailand’s largest investor, with several large car plants accounting for much of the investment.
“Lost in Thailand”
But Chinese investment is growing strongly, in part due to Beijing’s policy of encouraging manufacturers to shift production abroad to deal with industrial overcapacity at home. “What we’ve seen so far in Chinese investment into Thailand is small compared to what’s coming,” said Joe Horn-Phathanothai, chief executive
Key Points Thailand attracting Chinese solar, rubber, auto parts firms Beijing encouraging manufacturers to move capacity overseas Thailand and China have drawn closer since 2014 coup Chinese visitors largest group of tourists in Thailand Many buying property for leisure, business base
About 7.9 million Chinese visited the “Land of Smiles” last year.
of Strategy613, a strategic advisor focused on Chinese and Thai corporate investments. “Hand-in-hand with the slowdown in China we’ll see an increase in the number of deals the Chinese do abroad.” Last year China was the fourth biggest foreign investor in Thailand, behind Japan, the United States and Singapore. Tourist numbers have also jumped, helped by the huge success in China of the 2012 slapstick comedy “Lost in Thailand”. About 7.9 million Chinese visited the “Land of Smiles” last year, up 71 percent from 2014, when unrest in Bangkok that preceded the coup scared tourists away, and Thailand expects more this year. There has been no slowdown in the number of tourists due to the economic deceleration in China, helped by the growth of budget airlines, tour operators say. “Our products are relatively cheap. We have good food and culture and no political problems with their government, unlike Japan and Taiwan,” Ronnarong Chewinsiriamnuai, president of the Thai-Chinese Tourism Alliance Association. Thailand is expecting a record 33 million tourists in 2016, with China providing the bulk of the increase from the record set in 2015 of just below 30 million.
“One belt, one road”
Xu expects the number of Chinese firms at his park - jointly developed by China’s Holley Group and Thai industrial estate developer Amata Corp - to increase to about 100 this year, from 75 currently, and to 500 in the next five years. In March, China’s Trina Solar, the world’s No. 1 solar panel maker, opened a manufacturing facility there.
Moving to Thailand can also help companies in industries such as solar and chemicals sidestep anti-dumping measures, industry experts said. “China is facing trade barriers from many countries, particularly on solar, so many Chinese firms are coming to invest in Thailand,” said Visnu Limwibul, chairman of a Thai electronics and telecommunications industry group. State-owned Gang Yan Diamond Tools (Thailand), which makes precision manufacturing blades, followed Beijing’s “One Belt, One Road” policy to rebuild ancient Silk Road trade links with Asia and Europe and set up in Thailand in 2014. “When we first came, we were concerned about the political situation and social instability. We are still concerned now,” said board chairman Zhao Gang, but added the strength of the Chinese business community in Thailand helped overcome those concerns. China and Thailand are discussing cooperation on the Thai section of a rail project under the “One Belt, One Road” plan that would eventually connect Kunming in southwest China with Singapore, but have to date failed to agree on terms. As the expatriate Chinese community grows and more Chinese look for holiday homes in Thailand, real estate investment is on the rise. Bundit Sirithunyhong runs the Suttangrak Group, which has just joined with Chinese firms to develop housing projects worth 5 billion baht (US$140 million) to sell as timeshares to Chinese buyers. “I think they are not just investing in real estate, but starting to use Thailand as a base for business in Southeast Asia,” he said. “Here they can stay and work as their second homes. It’s a step further in business expansion.” Reuters
12 Business Daily Wednesday, May 18 2016
Asia Monetary minutes
Australia’s central bank considers holding rates steady The minutes of the central bank gave little away on whether the RBA would cut rates again. Ian Chua
Australia’s central bank members discussed leaving interest rates on hold earlier this month, but decided in the end that a cut would help return inflation to target over time. Investors were quick to temper expectations for a follow-up policy easing in the near term and sent the Australian dollar up more than half a U.S. cent to a session high of US$0.7368.
“On balance, members were persuaded that prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy at this meeting,” minutes of the May 3 policy review revealed. At that meeting, the Reserve Bank of Australia (RBA) reduced the cash rate by a quarter point to a record low 1.75 percent. Su-Lin Ong, senior economist at
RBC said the minutes confirmed the decision to cut rates was a “line-ball call.” “The market will derive from this that another cut near term is unlikely. But we’re not sure that is the right conclusion.” The minutes showed the central bank was mostly concerned about surprisingly soft inflation last quarter. “Although the March quarter outcome for the CPI reflected some temporary factors, the broad-based softness in prices and labour costs signalled less momentum in domestic inflationary pressures than had previously been expected,” the minutes said. The RBA noted there had been no material change in its outlook for growth and was still of the view that the economy was continuing to rebalance away from the mining sector, thanks to “very accommodative” monetary policy and a lower exchange rate since 2013.
The minutes gave little away on whether the RBA would cut rates again. In its quarterly monetary policy report published a few days after the rate decision, the RBA slashed its 2016 underlying inflation forecasts to below its target band of 2 to 3 percent, prompting investors to bet on at least one more cut in interest rates this year. In the wake of the minutes, interbank futures trimmed chances of a near-term move in rates with markets now giving a 60 percent chance of a cut by August, down from 76 percent. The minutes appear to support the view that the RBA only ever intended to cut rates once and it was just deliberating the timing, said Paul Dales, Australia & New Zealand economist at Capital Economics. “We disagree and believe that rates will be cut to 1.5 percent at the August meeting.” Reuters
Business model
Indonesia turns to Temasek as example for investment Temasek was founded in 1974 to own and manage shares and assets held by Singapore’s government. Neil Chatterjee and Herdaru Purnomo
I
ndonesia is turning to Singapore’s Temasek Holdings Pte. as a model to create a sovereign investment company to drive development in Southeast Asia’s biggest economy. The government is considering starting an investment holding company for four or five state-owned entities, which could then buy shares in Indonesian companies, Finance Minister Bambang Brodjonegoro said in an interview in Jakarta on Monday. If the fund is successful, it may over time invest in assets overseas, as Temasek did, he said. “A super-holding of our SOEs, that could be a very good sovereign wealth fund for Indonesia,” Brodjonegoro said. “This process has to start.”
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President Joko Widodo took office at the end of 2014 with a mandate to spur economic growth through public spending to combat a slowdown in demand from China for the nation’s commodities, such as coal and palm oil. He is seeking to fast-track
infrastructure projects and has pledged to cut red tape to attract businesses.
Record assets
Temasek was founded in 1974 to own and manage shares and assets held by Singapore’s government, such as shipyards previously controlled by its former colonial power, the U.K. It began investing in foreign equities in 2002 and had record assets of S$266 billion (US$195 billion)
at the end of March last year. “There are still a lot of big Indonesian companies not really owned by Indonesians, so this could be a good opportunity,” Brodjonegoro said. “They can invest, they have the financing capability, and later, maybe if the thing is already settled, with investing in Indonesia, they can of course go abroad.” State banks and energy
“There are still a lot of big Indonesian companies not really owned by Indonesians, so this could be a good opportunity” Bambang Brodjonegoro, Finance Minister
Finance Minister Bambang Brodjonegoro.
firms may be possible targets for an investment holding company. Dwi Soetjipto, chief executive officer of PT Pertamina, said this week he wants to combine with gas company PT Perusahaan Gas Negara. State-Owned Enterprises Minister Rini Soemarno said in April that PT Danareksa Investment Management will be a holding company for government-owned financial firms. Indonesia is also putting efforts into boosting tax revenue to fund its infrastructure drive, with a planned amnesty for declaring and repatriating hidden offshore funds seen as key to widening the tax base. Brodjonegoro said he expects the planned tax amnesty bill to be passed by parliament this month. “We need to have the amnesty to bring part of the money back to Indonesia,” he said. “We need to improve our tax base.” The economy will probably expand more than 5 percent in the second quarter as public spending picks up and farming output improves, the minister said. Bloomberg News
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 Wednesday, May 18 2016 13
Asia Currency policy
Japan to struggle to overcome G7 rift on yen Government insists that recent yen gains have been speculative and that a U.S. Treasury report including it in a new currency watch list did not constrain its currency policy. Leika Kihara and Tetsushi Kajimoto
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weekend gathering of G7 finance leaders may expose a rift on issues ranging from currency and fiscal policies within the close-knit group of advanced economies, dashing Japan’s hopes of mustering a coordinated policy response to spur global growth. U.S. Treasury Secretary Jack Lew, Federal Reserve Chairman Janet Yellen and European Central Bank President Mario Draghi will be among Group of Seven finance leaders gathering in Sendai, northern Japan on May 20-21. Japan has failed to bridge differences with the United States on the yen, with Washington dismissing Tokyo’s concerns that recent yen rises are excessive and instead pushing for agreements against currency market interventions. The rift may be evident at the weekend G7 meeting, diminishing prospects of an agreement beyond reiterating the importance for exchange-rate stability. There is also no consensus on how much fiscal stimulus the global economy needs with Germany resisting calls from Japan and the United States for bigger spending. Japanese policymakers are taming market expectations, saying Tokyo never intended the G7 nations to agree on joint fiscal action it sees as only possible in times of crises such as the collapse of Lehman Brothers in 2008. The G7 will likely settle with a vague agreement on the need to deploy a “balanced” dose of monetary, fiscal and structural policies, officials involved in the negotiations say. The result could be another meeting in which officials claim progress in pushing an agenda of structural
reforms, rather than concrete steps to avoid a global recession. “It’s just a way to say you did something when you did very little,” said Tamim Bayoumi, a visiting fellow at the Peterson Institute, a Washington think tank for international economics. While no communiqué will be released, Japanese Finance Minister Taro Aso hopes to lay the grounds for a G7 leaders’ summit to be held next week, where measures to address stagnant global growth will be high on the agenda. For Japan’s currency mandarins, the top priority in Sendai is to garner a G7 agreement on the importance of “exchange-rate stability,” officials with knowledge of the negotiations say. That will give Tokyo justification to intervene in the currency market if it considers any yen gains as excessive. It may also be the most the G7 nations can agree on given differences
Key Points G7 finance leaders to meet May 20-21 Japan, U.S. seen failing to bridge gap on yen No G7 consensus on size of fiscal spending G7 seen settling on vague agreement for reforms Finmin Aso, BOJ Kuroda to meet press May 21
between Tokyo and Washington on what is defined as excessively volatile yen moves. Lew said on Friday his views have not changed on Japan’s currency policies since a G20 meeting in April, when he told Aso that markets were “orderly” despite a rising yen. He also said Japan has relied too heavily on monetary policy and needed to focus more on boosting domestic demand and pursuing structural reforms. Japan insists that recent yen gains have been speculative and that a U.S. Treasury report including it in a new currency watch list did not constrain its currency policy. Aso has repeatedly threatened to intervene to stem yen rises. “The United States will probably keep emphasising that countries shouldn’t resort to competitive currency devaluations, while Japan will argue that excess volatility is undesirable,” said a G7 source familiar with the negotiations. “But no country, including the United States, will disagree strongly that exchange-rate stability is important,” he said. Japan had hoped to garner a G7 agreement on the need to ramp up fiscal spending but has received a cool response from Germany, which insists on fiscal discipline. If the G7 nations share their concerns over weak global growth, however, premier Shinzo Abe may use it to justify delaying a sales tax hike and deploy fiscal stimulus to resuscitate Japan’s fragile recovery, some analysts say. Reuters
Drought
India’s coffee output to fall to lowest in two decades Italy, Germany and Belgium are the main buyers of India’s crop, paying a premium over global prices. Rajendra Jadhav
India’s coffee output in the next crop year is expected to drop by around a quarter to the lowest in nearly two decades as poor rains and hot temperatures hit plantations during the crucial flowering stage, the head of an industry body said. The Asian country is the world’s sixth-biggest coffee producer, although is well behind leaders Brazil and Vietnam. Nonetheless, lower production
from India could provide more support to global prices, already surging due to a drop in the output in top producer Brazil. “Dry weather is hitting plantations in the crucial flowering stage. On a conservative basis, we are estimating a 25 percent drop in production,” Baba P. S. Bedi, chairman of the Karnataka Planters Association (KPA) told Reuters. The southern state of Karnataka accounts for about 70 percent of India’s total output. India is likely to produce 350,000 tonnes coffee in the current season ending on September 30, according to estimates by the state-run Coffee Board. With a 25 percent reduction in Karnataka, production could drop to 263,000 tonnes in the 2016/17 crop year, the lowest since 1998/99. The Coffee Board is expected to provide its first production forecasts for 2016/17 by mid-June, said D R Babu Reddy, an agricultural economist at the Board. India, which started coffee cultivation in 1670 with seven smuggled beans, produces mainly robusta, used primarily in instant coffee. “Due to the back-to-back droughts,
ground water has been depleted,” said Bedi, pointing to lower rainfall since the start of March on top of drought last year. Coffee growing regions in southern India received up to 70 percent lower rainfall than normal from March to mid-May, according to the India Meteorological Department. Higher than normal summer temperatures alongside water scarcity had badly impacted the conversion of coffee flowers into cherries, said Anil Kumar Bhandari, a large planter. India exports three-quarters of its coffee production and production problems will dent shipments in 2016/17, said an exporter based in Bengaluru. “This year, exporters are aggressively selling due to a recovery in global prices. Next year we will have very limited carry forward stocks,” the exporter said. Italy, Germany and Belgium are the main buyers of India’s crop, paying a premium over global prices. India’s coffee exports have risen 19.4 percent to 213,187 tonnes since the start of current marketing year on October 1. Reuters
In Brief White paper
Japan’s oil and gas investment to tumble Investment by big Japanese firms in upstream oil and gas developments is set to fall by around 40 percent to about 1.2 trillion yen (US$11 billion) in 2016/17 due to current low prices, a government Energy White Paper showed yesterday. The upstream investments by 10 firms including Inpex, JX Holdings, Mitsubishi Corp and Mitsui & Co had already slipped from 2.1 trillion yen in 2014/15 to 1.9 trillion yen in the year ended in March, the trade ministry said. The other firms surveyed are Japan Petroleum Exploration, Cosmo Energy Holdings, Idemitsu Kosan, Itochu Corp, Marubeni Corp and Sumitomo Corp. Cyber theft
Failed hack via SWIFT on Vietnam bank Vietnam’s central bank said yesterday a failed hacking attempt on Tien Phong Bank (TPBank) using the SWIFT messaging system sought to fraudulently transfer 1.2 million euros (US$1.36 million) to a Slovenian bank late last year in one transaction. The thwarted transfer on Dec. 8 was the only hack attempt via SWIFT detected by TPBank and no other Vietnamese lenders, or the central bank itself, have been affected, Le Manh Hung, head of the State Bank of Vietnam’s Information Technology Department told Reuters in an interview. Working holiday visa
Australia’s backpacker tax delayed Australia’s federal government will delay the introduction of a backpacker tax by six months, the ABC reported yesterday. Assistant Treasurer Kelly O’Dwyer said the government would conduct a review into working holiday visas and postpone any changes until January 2017. Several lobby groups have said the tax might damage Australia’s tourism sector in the long term. The tax, which was set to come into effect from July 1, would have seen backpackers on a working holiday visa pay 32.5 cents on every dollar earned. The National Farmers’ Federation (NFF) told the ABC yesterday it supported the review of the visa system. M&A
Gunawan weighs sale of PT Asuransi Indonesia’s Gunawan family is weighing the sale of as much as an 80 percent stake in its general insurance business, PT Asuransi Multi Artha Guna, to Canada’s Fairfax Financial Holdings, sources familiar with the matter said. The family is working with a Western investment bank on the deal, which could fetch a significant premium over the insurer’s current priceto-book multiple of around 1.2 times based on Thomson Reuters data, the sources said. PT Asuransi’s market capitalization is US$132 million. Fairfax is very active in both the insurance sector and in Asia.
14 Business Daily Wednesday, May 18 2016
International In Brief Prices evolution
U.K. inflation rate unexpectedly declines U.K. inflation unexpectedly slowed in April, highlighting the struggle Bank of England policy makers face to revive price growth. The rate fell to 0.3 percent from 0.5 percent in March, driven lower by the cost of air fares and clothes, the Office for National Statistics said in London yesterday. Economists had forecast a rate of 0.5 percent, based on the median estimate in a Bloomberg survey. Inflation has been below the BOE’s 2 percent target for more than two years, largely due to lower oil costs and a stronger pound. White House
U.S. defence bill would face veto President Barack Obama’s White House set up one last fight with the Republicancontrolled Congress over defence spending, threatening to veto a 2017 defence authorization bill over its use of special war funds. The House of Representatives draft of the US$602 billion National Defence Authorization Act would shift US$18 billion of wartime Overseas Contingency Operations funds to avoid automatic budget cuts to military programs. The Obama administration objects to the use of that money, saying it threatens U.S. security and unfairly spares the Pentagon from cuts faced by important civilian programs such as medical research and education. Oil loans
Venezuela says better deal reached with China Venezuela has reached a deal with its main financier China to improve the conditions of an oil-for-loans deal, giving the OPEC member’s crisis-hit economy “oxygen” ahead of heavy debt payments, its top economic official said on Monday. Venezuelan Economy Vice-President Miguel Perez told Reuters that all conditions, including loan time frames, investment amounts and non-financial aspects, had been improved. China has lent some US$50 billion to Venezuela in that arrangement over the last decade, and markets are watching to see if Beijing will help President Nicolas Maduro’s socialist government as it struggles with recession, shortages and reduced oil revenue. U.S. deal
Colombia not enforcing labour standards Colombia has failed to enforce worker protections in a free trade agreement with the United States, U.S. and Colombian labour unions said on Monday, raising questions about similar provisions in the massive Trans-Pacific Partnership trade deal. In a complaint filed with a division of the U.S. Labour Department, the unions said threats and acts of violence against trade unionists in Colombia were neither properly investigated nor prosecuted.
Job market
French president says won’t back down on labour reform Hollande said he defended the right of people to protest, but insisted the reforms were necessary.
F
rench President Francois Hollande yesterday said he would not withdraw the labour market reforms which have sparked two months of street protests and led to an unsuccessful attempt to bring down the government. “I will not give way because too many (previous) governments have backed down,” the president said in an hour-long interview with Europe 1 radio. France is facing a week of strikes in protest at a package of reforms the government says will make the notoriously rigid labour market more flexible, but which opponents say will erode job security. “I prefer that people remember me as a president who made reforms rather than a president who did nothing,” he said. Hollande also promised tougher action against troublemakers who have infiltrated street protests against the reforms, damaged property and provoked confrontation with riot police. Many of the demonstrations against the reforms have descended into violence. “It will not be accepted,” Hollande said, promising more arrests and bans on protesting for others. “Demonstrating is a right, but smashing things up is a crime,” he said. The president said more than 1,000 people had already been arrested and that 350 police officers had been injured in the violence. The Socialist government last week survived a vote of no-confidence, which was called by the centre-right opposition, after it forced through the
French President Francois Hollande.
labour market reform bill without parliament’s approval. The draft law will now be debated in the Senate, the upper house of parliament. A defiant Hollande said the law “is going to go through because it
“I prefer that people remember me as a president who made reforms rather than a president who did nothing” Francois Hollande, French President
has been debated, agreed on and amended”. Many unions and student groups say the reform will do little to address France’s jobless rate, which has been stuck at 10 percent overall, and nearly 25 percent for young people. With less than a year to go until the presidential election, Hollande defended his assertion a month ago that France was “doing better”. “When I came up with this turn of phrase, I did not mean that everything is getting better,” he said. “But things are effectively getting better for France. It’s not a campaign slogan, it’s the reality.” Hollande, who has some of the lowest poll ratings of any postwar French president, has said he will decide by the end of the year whether to stand for re-election next May. AFP
Overcoming sanctions
Swedish firm first to seek listing for investment in Iran The main challenge for any international company, however, is vetting Iranian partners to ensure they are not on the U.S. blacklist. Jonathan Saul
A Swedish firm is looking to launch the first initial public offering to raise capital for investments in Iran since international sanctions on Tehran were lifted. But the precautions it takes to demonstrate that its dealings are legitimate show that the undertaking, even on this small scale, is time-consuming and costly. Although global trade sanctions against Iran were lifted in January in return for Tehran curbing its nuclear programme, the United States still forbids its own nationals and firms to do business in Iran, and prohibits dealings with a list of Specially Designated Nationals (SDNs) deemed to engage in undesirable or terrorist activity. For those reasons, Pomegranate Investment AB, set up in Sweden in 2014, is entering the Iranian market cautiously. Chief executive Florian Hellmich told Reuters on a visit to London on
Monday that the firm, which has raised 80 million euros ($91 million) from European investors since 2014 in anticipation of sanctions easing, hopes to launch its IPO in Sweden within 12 months, for investments in Iran’s consumer technology sector. He declined to say how much it might raise, but U.S. and Canadian citizens and corporations will be excluded from the offer. To avoid any risk of infringing a ban on dollar payments to or from Iran passing through U.S. financial institutions - one that still frightens European banks, some of which received heavy U.S. penalties for doing business in Iran - all transactions are done in euros. The main challenge for any international company, however, is vetting Iranian partners to ensure they are not on the U.S. blacklist. “We have learned to operate in a sanctions environment, which means we have had to engage in a high amount of KYC (“Know Your Customer”): legal due diligence of all our partners, including the banks we do business with,” Hellmich said on a visit to London. Many Iranian companies have beneficial owners who are not easily traceable, making it hard to be certain that investments will not end up, for instance, going into the wide-ranging business empire of the hardline Revolutionary Guards Corps, which the
United States accuses of sponsoring terrorism. “We have engaged an armada of lawyers who have been advising us in terms of disclaimers and due diligence. Again it comes back to the cost of doing business. It is time-consuming,” Hellmich said. “This is also where the opportunity is - everyone could have done the work we have done, but nobody has.” Hellmich, a veteran of emerging markets including Russia who was previously with the Moscow-headquartered investment bank Renaissance Capital, said Pomegranate was working with a “combination of Swedish banks and Swiss banks”, but declined to be more specific. “We found regional banks with no U.S. exposure a lot more accommodating in how we do business,” he said. Around 50 percent of Pomegranate’s shareholders are from Sweden, including the prominent investor Per Brilioth, and others come from Britain, Switzerland and elsewhere in Europe. “There are plenty of liquidity pools in Europe to be successful,” Hellmich said. The firm has already taken minority stakes in Iranian companies including the Internet and e-commerce company Sarava and Iran’s second largest online classifieds company Sheypoor. Reuters
Business Daily Wednesday, May 18 2016 15
Opinion Business Wires
Inquirer.net Cash sent home by Filipinos abroad through banks inched up to US$2.42 billion in March as deployment of overseas workers remained steady during the first quarter. The latest Bangko Sentral ng Pilipinas (BSP) data released Monday showed a 1.5-percent increase in cash remittances last March from US$2.39 billion a year ago, bringing the first quarter total to US$6.56 billion. The March figure was a steady rise from US$2.02 billion in January and US$2.11 billion in February. The cash remittances that came in during the first three months exceeded by 4.4 percent the US$6.282 billion recorded in the first quarter of 2015.
New Zealand Herald New Zealand needs to develop a new primary sector story to help sell its products to the world, says Mike Petersen, New Zealand’s special agricultural trade envoy. Speaking at yesterday’s Dairy NZ Farmer Forum at Mystery Creek, Petersen said he has been “banging on” about this idea for some years without getting much traction. “We need a coherent New Zealand story and we need it desperately to take out into the world,” he said. “We are behind the game at pulling this together to make the most of our opportunities.”
The Phnom Penh Post While Cambodia’s Ministry of Agriculture, Forestry and Fisheries aims to increase fish production by 1.3 per cent this year, members of fishery organisations believe that is an unlikely target as drought conditions have tapped out natural resources. According to ministry’s annual report issued last week, fresh water fish production declined by more than 3 per cent last year. With production amounting to 487,905 tonnes in 2015, the ministry aims to increase that number modestly to 494,000 tonnes this year. The annual report emphasised that the main challenges facing production include the burning of flooded conservation forests and illegal fishing.
Thanh Nien News The board of Vietnamese dairy firm Vinamilk has decided to remove its 49 percent foreign ownership cap, an official said on Monday, paving the way for an expected flood of interest from overseas investors in a company valued at US$7.85 billion. No timeframe has yet been agreed on when the current limit will be removed and shareholder voting is not required for it to go ahead, Vinamilk investor relations manager Tran Chi Son said. Vinamilk’s share value has grown 18 times since it first listed in 2006 to 146,000 dong (US$6.54) as of Monday’s close.
Economic fairness and America’s presidential election
V
oters in the United States have shown their anger this year by turning out for anti-establishment candidates, both Democratic and Republican, in large numbers. One factor fuelling voter unrest is evident: many ordinary Americans think that the deck is stacked against them. Indeed, when asked the question, “Do you think the US economic system generally favours the wealthy or is fair to most Americans?” a whopping 71% – including a majority of Republicans – said that the system favours the wealthy. The tax system is a major source of this perception. When Americans are asked specifically about taxes, the same message emerges; a majority of voters (62%) believe that the US tax system favours the wealthy. In response to this growing resentment, both parties’ presidential candidates have promised to re-establish economic fairness and reform the tax system. The three most prominent anti-establishment candidates have proposed starkly different tax plans. Bernie Sanders, a political independent running as a Democrat, is proposing a US$15.3 trillion tax increase over the next decade. Under his plan, the wealthy would experience the biggest hikes, with the marginal tax rate on the richest Americans reaching 54.2%. The Republicans’ presumptive nominee, Donald Trump, has also presented a radical tax plan, as did his latest rival, Ted Cruz. But Trump’s proposed change runs in exactly the opposite direction, seeking to reduce total revenues over the next decade by US$9.5 trillion (Cruz’s plan targeted an US$8.6 trillion reduction and called for a flat income tax set at a rate of 10%). This raises an obvious question. Why are voters who believe that the tax system is unfair supporting candidates offering such radically different solutions? While some might claim that the poor and middle-class voters supporting the Republican tax plans have simply been duped, the full picture is much more complicated – and much more interesting. Our research examining US tax debates over the last 200 years suggests another reason: People can agree that taxation should be fair, but disagree fundamentally about the definition of “fair.” For some American voters, fairness is based on the principle of “the ability to pay”; the rich should be taxed at higher rates because they can afford it more easily. Others, no less adamant about the importance of fairness, define it in terms of “equal treatment.”
“
Kenneth Scheve Professor of Political Science at Stanford University.
David Stasavage Professor of Politics at New York University. They are the authors of Taxing the Rich: A History of Fiscal Fairness in the United States and Europe.
For the latter voters, fairness means that everyone should be taxed at the same rate – just like everyone in a democracy has one vote in an election. It should not be surprising that many Americans hold this view; polls show that even in an era of rising inequality, a significant share of voters continue to favour a flat tax. These two views of fairness may simply be another symptom of political polarization in US. But there is one area on which both sides agree: No one believes that the rich should be subject to lower rates than low- and middle-income taxpayers. And yet, according to the most recent IRS data available, for individuals lucky enough to be in the top 1% of income earners, that is exactly what the existing tax system dictates; within this group, the richer the individual, the lower his or her effective tax rate. It is likely no coincidence that the one thing all of the presidential candidates’ proposals have in common is the elimination of privileges for the richest taxpayers. Both Democratic and Republican candidates have pledged to repeal the carried-interest provision that allows hedge-fund and private equity managers to pay a lower rate than other earners. Similarly, Sanders and his Democratic rival, Hillary Clinton, favour effectively doing away with differential treatment of capital gains – a major reason why the richest Americans often enjoy lower rates. Clinton – the most “establishment” of the contenders – has proposed introducing what is known as the “Buffett Rule” (named for the billionaire Warren Buffett, who coined the term), establishing a minimum effective tax rate for high earners. Despite the huge philosophical differences between the two parties over the appropriate size of government, there is one uncontroversial way in which the candidate who is elected in November can address voter resentment. He or she can make sure that the rich no longer pay lower rates than everyone else. This would be a first step toward re-establishing basic economic fairness. Project Syndicate
People can agree that taxation should be fair, but disagree fundamentally about the definition of fair
”
16 Business Daily Wednesday, May 18 2016
Closing Public spending
China audit finds billions of yuan underused among the reasons given for the inefficient use of China’s top auditor said yesterday that 9.7 billion yuan (US$1.5 billion) of fiscal funds earmarked for social projects had gone unspent. The findings came as the National Audit Office released its Q1 review on the use of fiscal funds allocated to major social projects such as poverty relief, urban sewage treatment and affordable housing. Redundant procedures for project approval, insufficient budget plans and lagging policy implementation were
the funds. China has accelerated fiscal spending on major infrastructure projects as part of efforts to arrest the slowdown in economic growth. The government has put emphasis on efficient use of fiscal funds to support major infrastructure and social projects as the broader economy slows. The top auditor suggested improving coordination between government departments and better management of funds. Xinhua
Economic slowdown
Middle East luxury sales fading as oil falls and tourism slows A weak euro has made Europe more attractive for Middle Eastern consumers. Andrew Roberts and Vivian Nereim
A
t first glance, it might not seem like wallets are tight inside Riyadh’s Centria Mall. On a weekday afternoon, women with covered faces stroll the halls, drifting in and out of Dior and Burberry outlets. But they’re not buying like they did last year, says Mohammed Fahmawi, a manager at the Saudi Arabian mall’s Gucci store. A year ago, more than 100 customers would come through his doors daily, Fahmawi said. Now, it gets 20 on a good day. Traffic’s also down at the Cartier store nearby. “People are afraid,” he said, citing the economic slowdown brought on by the oil price slump. “They don’t want to spend their money.” Falling crude prices have crimped the spending power of luxury-goods consumers in the Middle East, while a weak ruble means fewer free-spending Russians have visited the region, according to consultant Bain & Co. Burberry Group Plc and Milan-based Prada SpA have said their sales in the region have been hurt by a lack of visitors. “We’ve experienced a fairly strong drop in traffic in the Middle East,” said Hermes Chief Executive Officer Axel Dumas. Middle-East luxury sales rose just 1 percent to 8.1 billion euros (US$9.2 billion) in 2015, slowing from the region’s 4 percent gain in 2014, Bain estimates. A fifth of respondents in a survey of Persian Gulf countries published last month, said they cut luxury consumption in 2015, compared with 13 percent a year earlier. The slowdown adds to the problems luxury-goods makers are facing as
The slowdown adds to the problems luxury goods makers face as demand weakens in parts of Asia.
weak demand in parts of Asia, the strong dollar as well as terrorist attacks in Europe have crimped sales. The global luxury sector will expand just 2 percent in 2016, making it the industry’s second weakest year since 2009, estimates Italian luxury association Fondazione Altagamma. In Saudi Arabia, cash withdrawals have declined for two straight months compared with the same period last year, according to central bank data. At Riyadh’s Al Faisaliah Mall on a recent Saturday, Missoni and Valentino’s stores were empty. At Swarovksi’s shop, a couple of women were browsing. A 55 percent slump in crude prices
since June 2014 has also affected demand abroad. While a weak euro has made Europe more attractive for Middle Eastern consumers, they aren’t spending there like they used to, Paris-based LVMH said in April. Global tax-free spending by shoppers from the United Arab Emirates, Qatar, Saudi Arabia and Kuwait was flat in March after growing for seven straight months, according to Global Blue. The Middle East hasn’t lost all its lustre. Yoox Net-a-Porter recently agreed to sell a stake to the founder of Dubai’s Emaar Properties PJSC to help the online distributor of brands like Armani expand in the region. In Qatar, the world’s richest country per
capita, residents and citizens spent an average of US$4,000 per month on luxury goods and services in 2015, up from US$2,500 a year earlier, according to a study for American Express Co. and Mawarid Group. Mauricio Manrique, a salesman for Richemont’s Montblanc brand at the Dubai Mall, says the downturn is probably just another blip. In his six years working there, whenever sales looked like they were weakening, Russians would arrive and snatch up US$460 ballpoint pens or wallets. Moving his hand up and down like a wave to illustrate how business rises and falls, the salesman says, “I cannot say this is a trend.” Bloomberg News
Cooperation agreement
IPO
NODX index
Guangdong looks to boost trade with Mexico
SAIC motor unit said to pick banks for going public
Singapore’s external trade down in April
Guangdong Province is aiming to boost its connections with Mexico in trade and exchanges, a visiting delegation of the province said. “We want to increase inter-connectivity. We hope both sides will work on it together,” said Hu Chunhua, a member of the Political Bureau of the Communist Party of China (CPC) Central Committee and secretary of the CPC Guangdong Provincial Committee, at a Mexico-China (Guangdong) Cooperation Forum that gathered some 300 officials and business people from both countries. The forum opened with the signing of 18 cooperation agreements, including projects to promote investment and facilitate information exchange. Hu suggested that the two countries expand the trade of seafood products, general industrial goods and increase their technical cooperation and high-level official exchanges. “In the near future, Guangdong’s main task will be to promote a structural adjustment. We are going to strive to develop the high-tech industry and upgrade traditional industry based on new technologies, such as intelligent manufacturing and China’s Internet Plus plan,” said Hu. Xinhua
Anji Automotive Logistics Co., a unit of China’s largest carmaker SAIC Motor Corp., has picked banks for an initial public offering that could raise at least US$500 million, people with knowledge of the matter said. The Shanghai-based logistics provider is working with China International Capital Corp., HSBC Holdings Plc and JPMorgan Chase & Co. to arrange the share sale in Hong Kong, according to the people. The offering could take place early next year, the people said, asking not to be identified as the information is private. Proceeds from the offering could help Anji benefit from growing vehicle demand in the world’s biggest car market. China reported sales of 25 million automobiles last year, up 4.7 percent from the year before, according to the China Association of Automobile Manufacturers. Anji is preparing a Hong Kong IPO amid the slowest start for new offerings in the city since 2013, according to data compiled by Bloomberg. Hong Kong first-time share sales have raised $4.2 billion this year, compared with US$7.1 billion during the same period in 2015, the data show.
Singapore’s non-oil domestic exports (NODX), a key gauge of the export performance of the small and highly open economy, decreased by 7.9 percent year-on-year in April, said International Enterprise (IE) Singapore yesterday. Following the 15.7 percent contraction in the previous month, the decrease in April was due to a decline in both electronic and non-electronic NODX, said IE Singapore. On a month-on-month seasonally adjusted basis, NODX increased by 4.5 percent in April following the previous month’s 0.1 percent growth. IE Singapore said the increase was due to the expansion in non- electronic NODX and the flat growth in electronic NODX. The trade promotion agency said electronic NODX contracted by 7. 4 percent in April on a year-onyear basis, which follows 9.1 percent decrease in March. The decline in electronic domestic exports was largely due to PCs, parts of PCs and ICs. While non-electronic NODX declined by 8.1 percent in April year-on-year, after the 18.0 percent contraction in March. The decrease in non-electronic NODX was led by structures of ships and boats, petrochemicals and civil engineering equipment parts. Xinhua
Bloomberg News