Macau Business Daily May 19, 2016 by Business Daily

U.S. imposes strong tariffs on Chinese steel Commodities Page 8

Thursday, May 19 2016 Year V Nr. 1046 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Joanne Kuai Ownership disputes

Imperial Palace Hotel falls into ownership quagmire again Page 4

www.macaubusinessdaily.com

Banking

Shadow banking

Legal source: BNU shouldn’t share banking information with Portuguese bank Page 5

Beijing announces new measures against irregular financial business Page 10

Millennial Generation On The Move Non-gaming

The consumer power of the Millennial Generation is gathering momentum. For Macau to embrace the new era, Bloomberg Intelligence analysts suggest the city reposition its accommodation, entertainment and luxury retail offerings. Page 7

Blue card blues No more Gov’t Human Resources Office. The Executive Council has proposed wrapping the Office into the Labour Affairs Bureau. Following the merger, staff, budgets, and tasks will be undertaken by DSAL.

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

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Source: Bloomberg

Source: AccuWeather

Labour Page 2

HK Hang Seng Index May 18, 2016

Residential recovery

High hopes for Laos

Home prices China’s property sector continued to recover in April. With more cities reporting higher new home prices and market divergence narrowing. Of 70 large and medium-sized cities surveyed, 65 saw new home prices climbing month on month, up from 62 in March, the National Bureau of Statistics said. Page 8

Gaming Macau Legend Development Ltd. reported a y-o-y decline of 52.2 pct in adjusted EBITDA in Q1, to HK$35.8 mln. But it has great hopes for its Lao casino. Planned be “a regional entertainment hub in Southeast Asia”. Page 2

19,826.41 -292.39 (1.45%)

CITIC Ltd

+0.37%

Li & Fung Ltd

0.00%

Tingyi Cayman Islands

-3.48%

Power Assets Holdings Ltd

+0.07%

Galaxy Entertainment Group

-2.29%

Cheung Kong Property

-3.56%

I SSN 2226-8294

2 Business Daily Thursday, May 19 2016

Macau Lawyers

110 trainee lawyers in the city The Special Administrative Region currently has a total of 110 trainee lawyers, who will gradually become practicing lawyers once they pass certain courses and examinations, the president of the Macau Lawyers Association, Jorge Neto Valente, said yesterday in a press briefing for 2016 Lawyer’s

Day. According to Mr. Valente, the number of practising lawyers has registered an increase of 30 from last year. Meanwhile, the Association will provide free legal consulting services in Senado Square for the coming Saturday and Sunday as part of its three-day activities for Lawyer’s Day kicking off on Friday.

Labour Affairs Bureau

Banking

HR Office and Labour Affairs Bureau to amalgamate

Luso Int’l annual profit surges nearly 20 pct

Nelson Moura nelson.moura@macaubusinessdaily.com

he Labour Affairs Bureau (DSAL) and the Human Resources Office (GRH) will be combined, the Executive Council has declared in a press conference. The MSAR Government decided to fuse them to ‘optimise the performance of the human resources and labour areas, and reorganise the structure of Public Administration’, Executive Council spokesperson Leong Heng Teng announced. Following the merger the DSAL will also start processing company requests for hiring non-residents and the number of DSAL personnel will increase to 320 with 92 employees added to the GRH. The Executive Council spokesperson also stated the current DSAL budget of MOP300 million (US$37.51 million) and the GRH budget of MOP50 million will also be combined, with the DSAL continuing to be managed by a director and two

sub-directors, maintaining the current structure of six departments and twelve divisions, but will restructure four sections with the adding of the GRH personnel. However, no information was available on what functions the GRH co-ordinators will have after the merger.

“The fusion will allow [us] to access company information faster, optimising the human resources area and employment opportunities for resident workers,” DSAL director Wong Chi Hong stated in the press conference. When questioned if the restructuring would speed up SME’s requests for non-resident workers’ work permits, the DSAL director said “ we always have SEM’s interest in mind, but creating job opportunities for resident workers is always our priority.”

Banking

BOC Macau revenue jumps 7.5 pct in 2015 The local branch of Bank of China (BOC Macau) saw its total revenue reach MOP16.1 billion (US$2 billion) for the whole year of 2015, up 7.5 per cent compared to some MOP15 billion one year ago, according to its 2015 annual results released yesterday. Last year, BOC Macau posted MOP5.2 billion in profit, up 13. 5 per cent year-on-year from MOP4.58 billion for 2014. The bank’s revenue was primarily generated by its assets business, which raked in a total of MOP13.9 billion in the year, accounting for 86 per cent of the total. The amount also represents a year-on-year growth of 6.9 per cent compared to MOP13 billion derived in the same segment one year ago. Meanwhile, its revenue from banking service business soared 27.8 per cent year-on-year, amounting to MOP1.15 billion from MOP903 million for the whole of 2014. In addition, the bank’s securities and financial investments businress was folded 1.5 times, reaching MOP531.9 million in revenues, compared to MOP214.5 million one year ago. Total deposits at BOC Macau amounted to some MOP371.7 billion as at the end of last year, of which MOP118.9 billion were current deposits, MOP200.3 billion were fixed deposits whilst the other MOP52.6 billion was from public departments. K.L.

Luso International Banking Ltd. registered a notable increase of 19.8 per cent in its profit last year, attributable to the significant 52.9 per cent growth in total revenue. For the whole year of 2015, the local bank’s profit reached MOP663.4 million (US$82.9 million), up MOP109.8 million from a profit of MOP553.6 million one year ago, according to its annual results published yesterday in the Official Gazette. The bank generated a total of MOP3.7 billion in revenue for the year, surged by nearly MOP1.3 billion from MOP2.42 billion for the year before. Of the total, revenue earned from its assets business amounted to MOP2.5 billion, leaping 25 per cent year-on-year from MOP2 billion. Moreover, revenues from banking services and securities & financial investments reached MOP308.2 million and MOP421.9 million, which represents a year-on-year increase of 43 per cent and 254 per cent, respectively. As at the end of last year, total deposits from private sectors in the bank rose 28 per cent year-on-year to MOP66.96 billion whilst deposits from public departments grew 48.8 per cent year-on-year to MOP6.46 billion. K.L.

4 Business Daily Thursday, May 19 2016

Macau Opinion

Ashley Sutherland-Winch

Entertainment Capital of Asia ‘The Entertainment Capital of the World’ was an advertising slogan first developed for Los Angeles during the Golden Age of Hollywood but soon after, Las Vegas took the title. Famously, the MGM Grand in Las Vegas was the first casino to bill the slogan on their property. With famous acts performing nightly, Las Vegas had the glitz and glamour with performers from showgirls to the Rat Pack gracing the stages nightly. Now, Las Vegas is an epicentre of live entertainment. Giants like Cirque du Soleil, Celine Dion, Elton John, and Blue Group dominate the present day stage and more innovative and exciting shows are added yearly. Tourists travel from all parts of the globe to be entertained by the performances in Las Vegas. In recent years, Macau has been called the Entertainment Capital of Asia but I think that we may not have enough live entertainment to hold the title for long. The House of Dancing Water has been a powerhouse show for Melco Crown for many years and Studio City has brought a new vision of entertainment to Macau. Casinos like The Venetian and Galaxy are working to change the image of Macau’s gaming culture but with our declining casino revenue, will adding more shows appeal to the casinos? I’m concerned that if more live shows or at least a few resident entertainers are not added to the Macau marquee, we may lose our grip on our entertainment title. The other question that I ponder is tourist patronage for live entertainment. In present day Las Vegas, it is not uncommon for tourists to come to the city to indulge in entertainment and not participate in gaming at all. Can Macau offer the same experience and hope to alter the instincts of tourists visiting our city? If the average Macau tourist has gaming on their mind, can we entice them to watch a show for an hour or two? Currently, Studio City is dominating search engines with their meta tag line ‘Asia’s Entertainment Capital’ maximising their new brand message to the world. The promise of new casinos like Wynn Palace and The Parisian also make me hopeful that more forms of entertainment and live shows are on the horizon. Macau seems to be fighting to keep its hold on entertainment in Asia and I look forward to watching our city’s future unfold live and hopefully on stage. Ashley Sutherland-Winch is a Marketing and Public Relations Consultant and frequent contributor to this newspaper.

Ownership disputes Kai See Wai says he still has legal title to use the property

Imperial Palace Hotel falls into ownership quagmire again Last week, Empresa Hoteleira de Macau Lda announced in a notice its transfer of Imperial Palace Hotel to Victory Success Holdings Ltd. last October. But Ng Man San said the announcement was made by Victory Success, claiming the transfer should not be valid as his lawsuit fighting the transfer is still proceeding in the local court. Kam Leong kamleong@macaubusinessdaily.com

Limited is an attempt to influence the outcome,’ it added.

he ownership of the Beijing Imperial Palace Hotel (formerly known as New Century Hotel) has fallen once more into dispute following local businessman Ng Man Sun, also known as Kai See Wai, stating that he still owns ‘the lawful legal title’ to use the property – which was announced last week as having been transferred to a new operator. Last Thursday, Empresa Hoteleira de Macau Lda, the registered operator of the hotel property, announced in a notice in Chinese language newspaper Macao Daily that it had transferred the ownership of the hotel property to a company named Victory Success Holdings Limited on October 22, 2015.The notice indicates the deal is in the form of a settlement in lieu of debt. Nevertheless, Mr. Ng, who acquired Empresa Hoteleria in 1996 and is the founder of Greek Mythology Casino inside the property, said that the transfer announcement was made by Victory Success and was trying to ‘influence’ the outcome of a lawsuit he is fighting over the company, according to his notice posted in Portuguese language newspaper Jornal Tribuna de Macau on Tuesday and yesterday. ‘There is a legal action brought by Mr. Ng Man Sun against Victory Success Holdings Limited in the [Court of First Instance] wherein Mr. Ng Man Sun requests the reversion or nullity of the transfer of the property,’ the statement reads. ‘These proceedings are pending decision and the announcement made by Victory Success Holdings

Not the first time

In 2012, Mr. Ng fell out with his former girlfriend Chen Mei Huan over the ownership of the hotel and the Greek Mythology Casino. Ms. Chen claimed at that time she owned 80 per cent of the property, whilst Mr. Ng told a court in the British Virgin Islands – where the parent company of Empresa Hoteleira

Peckson Ltd. is registered – that the transfer of shares to Ms. Chen in 2011 was just temporary. In his statement in the Portuguese language newspaper this week, the local businessman also claimed the transfer of the property ‘is in violation of a decision of the courts of the British Virgin Islands’ The city’s Court of First Instance ordered in 2013 the seizure of the then New Century Hotel in lieu of an undisclosed debt owed to Hoi Cheng Nga, the head of Energy Travel Agency Ltd. One month after the court order, the hotel property was renamed Imperial Palace. Currently, Mr. Ng’s Hong Kong-listed company Amax International Holdings still owns some 24.8 per cent stake in Greek Mythology Entertainment - the operator of Greek Mythology Casino that has ceased operations for renovation since the beginning of this year.

Banking

Local banks’ international business dips in Q1 The banking sector posted MOP1,128 billion in international assets as at the end of March, accounting for 84.6 per cent of its total assets, which marginally dropped by 0.3 percentage points from the end of 2015. Local banks saw their international business register a slight drop for the first three months of the year compared to the last quarter of 2015, with their international assets falling to 84.6 per cent in total banking assets from 84.9 per cent, whilst their international liabilities were also down by 0.3 percentage points to 80.2 per cent. According to the latest official data released yesterday by the Monetary Authority of Macao (AMCM), total international assets of the city’s banking sector reached MOP1,128 billion (US$141.3 billion), down 0.9 per cent quarter-to-quarter. Nevertheless, on a year-on-year comparison, the amount represents an increase of 8.9 per cent. Of total international assets, external assets amounted to MOP832.1 billion, which grew by 9.1 per cent year-on-year. In addition, local assets in foreign currencies went up by 8.4 per cent, accounting for MOP262.2 billion, while external interbank loans rose by 10.2 per cent

year-on-year to MOP372.9 billion of the total. On the other hand, local banks’ total international liabilities posted a slight quarter-to-quarter decline of 0.9 per cent to MOP1,069 billion. The amount, compared to one year ago, grew by 9.2 per cent year-on-year. External liabilities and local liabilities accounted for MOP589.9 billion and MOP479.2 billion of the total, which increased by 14.5 per cent and 3.3 per cent year-on-year, respectively. Foreign currency deposits held by residents and the MSAR Government in local banks also grew by 2 per cent to MOP432.7 billion, compared to MOP424.2 billion one year ago.

Transactions in non-local currencies

According to AMCM, non-local currencies continued to be the dominant denomination in the city’s international banking transactions. Local currency, the pataca, only accounted for 0.8 per cent of total international assets and 2.6 per cent of total

international liabilities as at the end of the first quarter. Meanwhile, the Hong Kong Dollar was the dominant denomination in international assets and liabilities, accounting for 41.7 per cent and 47.1 per cent of the total, respectively, followed by the US Dollar, which represents 38.8 per cent of the total international assets and 34.9 per cent of total liabilities. In terms of region, the majority of the city’s external assets and liabilities were related to Asia and Europe, the monetary authority said. As at the end of March, claims on Hong Kong and Mainland China accounted for 40.4 per cent and 22.4 per cent of total external assets, while claims on Portugal and the United Kingdom took up 3.2 per cent and 2.1 per cent, respectively. For external liabilities, Hong Kong SAR and Mainland China occupied 50.8 per cent and 17.1 per cent of the total, respectively, whilst France and Portugal amounted to 1 per cent and 0.9 per cent, respectively. K.L.

Business Daily Thursday, May 19 2016 5

Macau BNU

Legal source: BNU shouldn’t share banking information with Portuguese bank Request of information by Caixa Geral de Depósitos (CGD) in Portugal could be a “smart move” by the Portugal Tax Authority to obtain banking information on assets held by Portuguese nationals in Macau. Nelson Moura nelson.moura@macaubusinessdaily.com

anco Nacional Ultramarino (BNU) shouldn’t share clients’ data information with Caixa Geral de Depósitos (CGD) in Portugal since that data could be used by the Portugal Tax Authority, an anonymous legal source told Business Daily. In recent months, BNU clients have received a letter requesting an update of personal data and their authorisation for this data to be shared with Portuguese bank CGD. The request raised concerns that the data could be shared with the Tax Authority of Portugal for effects of tax requests and in the same letter - defined as a ‘Know Your Client’ (KYC) letter clients were informed that refusal to authorise the data sharing would be cause for termination of their banking services, Business Daily has reported. CGD is a shareholder of Banco Nacional Ultramarino, S.A but a legal source told Business Daily that as a separate jurisdiction entity BNU has no need to share individual client banking statements with the Portuguese bank. “There is no reason to share banking information of BNU clients with the CGD, because since Macau’s handover to China the BNU isn’t a financial branch of the Portuguese bank. CGD as a Portuguese bank is under the jurisdiction of the Portugal Government but it’s not true individual accounts in Macau have to be shared since BNU is a completely separate entity, under the jurisdiction of the Monetary Authority of Macao (AMCM),” the legal source told Business Daily.

In a statement to the newspaper, BNU promised the information wouldn’t be shared with the Tax Authority of Portugal and that discontinuing progressively the commercial relationship due to refusal is ‘legal’, while the Monetary Authority of Macau considers KYC letters are part of the ‘prevention and suppression of money laundering and terrorist financing crimes’. Bing Shui, an associate professor from the Faculty of Law at the University of Macau. told Business Daily that according to the Personal Data Protection Act (Act 8/2005) and Guidelines on Merchants’ Processing of Identification Documents of Payment Cardholders the data collected by BNU ‘can only be used against money laundering and financing terrorism’ [and] ‘thus the bank does not have the right to transfer the data to a third party, including the Portuguese Tax Authorities,” Shui told Business Daily.

Smart loophole

Macau has committed to joining the Common Reporting Standard (CRS), an agreement developed within the Organisation for Economic

Co-operation and Development (OECD) to automatically exchange information starting in September of 2017, according to the OECD website, but currently the exchange of information can only be carried out on request by other jurisdictions. “In the current agreements, banking data sharing between the fiscal authorities in Macau and Portugal is already authorised, but it’s a complex process and implies a request by the Portuguese Tax Authority to the Chief Executive in Macau,” the legal source stated. In a statement to Business Daily, BNU has said that ‘as approved by the Personal Data Protection Office of Macau, subject to the consent from customers, the transfer of information from BNU to CGD can only be used for the purpose of consolidated banking supervision’ and that this bank sharing wasn’t related to the CRS. Last month, the Portuguese Government approved a European directive which effectively mandates the financial sector in Portugal to provide information about their clients to the Portuguese Tax Authority, in order to better detect irregularities in income declarations and detect undeclared

assets in other countries, according to Portuguese newspaper Journal de Negocios, which could mean data sent to CGD would have to be shared with the Portuguese Tax Authority. Macau hasn’t yet made an agreement with the European Union for financial information sharing but Business Daily’s legal source has stated it “has no doubt that information sent will be used by the Portugal Tax Authority,” and that this was a “smart move” by the institution to go over some limits on data sharing regarding Portuguese nationals with assets in Macau “I think this a smart move by the Portuguese Government to go over the fact that Macau, Hong Kong and Singapore haven’t agreed yet with the new European directive which mandates banking data be exchanged in relation to any European Union citizens. For years, Portuguese authorities have tried to expand that agreement to these three territories, who have refused. I think it’s way by the Portugal Tax Authority to get information on assets Portuguese nationals have in Macau in order to take advantage of the territory’s low tax,” the legal source told Business Daily.

6 Business Daily Thursday, May 19 2016

Macau Macau Legend Ccompany profit halved in Q1

Outreaching David Chow says the casino in Laos is already in operation, and the group “expects to utilise our experience and connections to build it into a regional entertainment hub in Southeast Asia”. Nelson Moura nelson.moura@macaubusinessdaily.com

ocal casino and hotel operator Macau Legend Development Limited (Macau Legend) registered a first quarter adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of HK$35.8 million (US$4.6 million/ MOP36.87 million), representing a decrease of 52.2 per cent when compared to the first quarter of 2015, according to a Tuesday filing with the Hong Kong Stock Exchange. The group also recorded a total gross gaming revenue of HK$350.6 million in the first three months of the year, a 3.7 per cent decrease year-on-year. “All gaming segments in Macau including the VIP, premium mass and mass market continue to be difficult but gradually there are signs that the market has stabilised,” stated Macau Legend Co-Chairman, Executive Director and Chief Executive Officer David Chow according to the group statement.

Non-gaming increase

The group statement mentioned how the ‘mid-term gaming sector performance’ review recently released by the Macau Government has ‘cast a favourable overall tone in terms of the industry’s contribution to expanding the economy, attracting foreign investment, improving social welfare and labour productivity’ while ‘indicating a likely stronger oversight in the VIP segment and that diversification is needed in order to lessen dependence upon a single industry.’ The filing results show Macau

Legend’s non-gaming revenue increased by approximately 9.9 per cent to approximately HK$134.2 million in the first quarter, while gaming revenue went down 10.6 per cent to around HK$216.3 million, from the first quarter of last year. Notwithstanding gross gaming revenue from mass market gaming tables at Babylon Casino and New Legend, a self-run VIP operation, increased by 11.5 per cent and 58.3 per cent year-on-year, respectively, with both operations contributing HK$138.2 million to the group.

Hotel blues

In terms of hotel occupancy, in the first quarter the Landmark Macau increased 1.6 per cent year-on-year to 65.4 per cent, Harbourview Hotel increased 26.9 per cent to 69.2 per cent, while Rocks Hotel saw it’s occupancy rate dip 3.1 per cent to 70.6 per cent. However, Landmark Macau saw the biggest year-on-year decrease in revenue per available room of 29.1 per cent to approximately HK$735.6, while Harbourview Hotel, which began operations last February, had an 18.5 per cent increase to HK$603.8. Macau Legend’s filing also states that on March 23 of this year the group entered into a letter of intent regarding a ‘definitive investment agreement within 6 months’ for the future disposal of the Landmark Macau to a ‘company invested in by a connected person to the group’ after a valuation report by an independent professional valuer was concluded. David Chow declared in the release “structural factors will likely take time to improve,” while the group was “taking positive steps in

David Chow, Macau Legend Co-Chairman, Executive Director and CEO.

spreading risks”. The Macau Legend Co-Chairman also indicated the second new hotel in Macau Fisherman’s Wharf was on schedule for a 2016 opening, claiming the group’s “mass market and New Legend VIP businesses will have a new 5-star environment to upgrade.” Harbourview Hotel, the group’s first new hotel in the redevelopment of Macau Fisherman’s Wharf, contributed HK$33.3 million in non-gaming revenue, an increase of 139.8 per cent year-on-year.

New casino in Laos

The Macau Legend Co-chairman also mentioned the recent agreement with the Lao People’s Democratic Republic Government to purchase the Savan Vegas Hotel and Entertainment complex, located in the Savannakhet Province in the centre of Laos for US$42 million, obtaining a “fully operational integrated resort

entertainment complex in Savannakhet Province of the Lao PDR, which features gaming facilities with 92 tables and 493 slot machines; a contemporary 476 room hotel and convention centre, restaurants, bars and other facilities.” The agreement came after the public tender was terminated due to a court motion by Lao Holdings N.V., the casino’s previous owner through Sanum Investments Ltd., against the Laos Government. In a statement to Business Daily, Sanum claimed the purchase value was conducted ‘behind closed doors’ and sold for 16.8 per cent of the maximum estimated value. David Chow didn’t mention the recent events, only stating “the casino is already in operation, and [Macau Legend] expect to utilise our experience and connections to build it into a regional entertainment hub in Southeast Asia.”

Junkets

Chinese VIPs wooed to tropical isles as Macau tightens rules Macau’s gaming promoters are betting they can make money bringing high rollers to casinos in Southeast Asia and other tropical destinations as increased government control crimps casino revenue in the world’s biggest gambling center. Imperial Pacific International Holdings Ltd.’s said it will invest US$7.1 billion through 2020 to expand its casino presence on the island of Saipan in the western Pacific Ocean and will debut a permanent casino there early next year. Melco International Development Ltd. is exploring a casino business in Vietnam, said Andy Choy, the company’s chief gaming officer on the sidelines of a casino conference in Macau. “Junkets are diversifying from Macau,” said Shen Yan, Hong Kong-based Imperial’s president of global capital markets. “The junket business in Macau has been really difficult because of the shrinking margin. It’s natural for these people to go abroad and take their customers to locations where clients want to go to and junkets can make money.” Gaming promoters, also known as junkets, were dealt another blow this month when the Macau government banned phone betting, as tightened regulations called for stricter accounting transparency. Macau’s US$30

billion gaming industry has seen revenue declines for nearly two years amid China’s slowing economy and anti-corruption campaign.

Junket law

Imperial Pacific shares dropped 2 per cent at 11:26 a.m. in Hong Kong trading Wednesday while Melco International fell 1.7 per cent.

Macau plans to raise capital requirements for junkets and is preparing to set up a credit database to help weed out risky gamblers, the government said this month as part of an interim review of the gaming industry. Macau’s VIP revenue, as measured by their favorite baccarat card game, was worth US$16 billion last year, after plunging

by 40 per cent from 2014. The middlemen, who loan money to high-end clients to gamble, have quickly moved business to countries such as the Philippines and Vietnam where phone betting is allowed after Macau’s sudden ban, said Tony Tong, vice chairman of the Macau Gaming Information Association. Operators are looking abroad

for destinations with stable governments and favorable tax structures and policies for gaming, Tong said at a gaming conference in Macau Tuesday. Imperial Pacific’s temporary casino on Saipan, which opened last November, has delivered better-than-expected revenue, according to Yan. A junket law has been approved on the island earlier this year, and he expects gaming promoters can bring more big gamblers to the tropical island. Meanwhile, Melco International, the biggest shareholder of Macau-based casino operator Melco Crown Entertainment Ltd., is looking at Vietnam and other destinations for its expansion, said Choy. Melco Crown already operates a casino resort in the Philippines. Junket promoters such as Suncity Group and Jimei International Entertainment Group Ltd. are now attracting Chinese high rollers to the gaming tables and crystal blue waters of Vietnam, Cambodia and other Southeast Asian gaming attractions. The fun tourist activities, along with gambling, have become a draw for VIP gamblers, said Tong. “Many leading junkets in Macau are looking for ways that they can make money by capitalizing on their existing customer base,” Tong said. Bloomberg

Business Daily Thursday, May 19 2016 7

Macau

Catherine Lim, Senior Industry Analyst at Bloomberg Intelligence. Non-gaming Creating a “wholesome experience” to complement gaming

Bloomberg: Millennials the future of non-gaming Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

espite non-gaming only accounting for around 7 per cent of the overall visitor spending in the SAR, according to data from Bloomberg Intelligence, the shift in trend on consumer spending and the switch from VIP to mass has left

Macau with little option but to adapt accordingly and expand non-gaming offerings. According to Catherine Lim and Margaret Huang, analysts from Bloomberg, this has to be in three main areas: hospitality – to shift accommodation offerings and positioning, in entertainment – to provide more and diversified forms focusing on video games, films, live entertainment and

more, and in retail – for luxury brands to adjust their product mix and pricing to win back more visitors. “Hotels make up 25 per cent of non-gaming revenue,” says Margaret Huang. “The hotel business has declined in revenue since 2014, but the hotel operators – because they have more rooms to work with they’re pricing more competitively and they’re pricing out the small guys,” allowing the large integrated resorts to win customers against the small hospitality-only businesses, but: “The last thing you want to do is get into a price war.” The key point to maintaining and increasing room rates is capturing the “millennial” market, which currently only make up around 30 per cent of Chinese visitors to Macau, compared to the 50 per cent seen in the 30-49 age range. This, however is also positively influenced by both retail and entertainment offerings.

Retail

The other focus – also millennial-centric, has to be retail, with a particular focus on profiting off the luxury market, while not making it inaccessible to spending capabilities. “Prior to 2014, retail sales - particularly of watches and jewellery - actually grew faster than visitor’s growth,” notes Catherine Lim, leading her to call the city “a retailers’ paradise prior to 2014.” Given that the city drew more “impulse buyers” and not “bargain buyers”, the trend is to concentrate on markets such as Hong Kong, Japan and Taiwan, accounting for the drop to 45 per cent in non-gaming spending in the fourth quarter of last year compared to the 50 per cent seen in the same quarter just two years previous. However, the situation is not unique to Macau, as “it’s a new dynamic in Chinese spending,” notes Ms. Lim. “The first quarter overseas tax free spending has declined about 3 per cent,” says the analyst, concluding that the shift away from luxury overseas shopping overseas could “open up new opportunities for spending at home or regions closer to home – like Macau or Hong Kong,” with Macau being the most likely outlet as Hong Kong is mostly for “bargain hunters”, but this requires Macau “luxury brands,” to adjust “their product mix, some their pricing, to narrow the gap and lure customers back,” she says.

Entertainment

“The players in Macau need to come together,” says Ms. Lim. The healthy development of a sustainable

entertainment industry would require something like the Made in Korea model, whose “success was [due to a collaboration between the entertainment industry and brands such as cosmetics – they came together to create a phenomenon that was big enough to create a global impact.” But the local city is lacking many things. “Certain aspects of culture – cultural activities. It’s nothing compared to what some of he Koreans have in terms of the k-pop phenomenon. This could be an area that we can look into,” says the analyst. This should focus, however, mostly on video games and film/box office related events as currently there’s strong growth predicted in these two areas over the next five years, with 47 per cent of the non-gaming enter-

Key Points To boost revenue and encourage non-gaming spend, it may make sense: 1) for Macau hotel operators to shift their accommodation offering and positioning 2) focus on providing more entertainment in the form of live performances, theme parks, etc. 3) for luxury brands to adjust product mix and pricing to win back visitors

tainment revenues seen as derived from video games and 30 per cent film and box office, as compared to 15 per cent on theme parks and 7 per cent on live performances, according to data from Ovum/Informa Telecom & Media/PwC. These would in turn boost both retail and hospitality revenues. “It doesn’t have to be the large scale of Hollywood. But there’s also other things they [the operators] could try in terms of the public trends, and those are things that would engage people and make them want to come,” says Ms. Huang. All of the above needs to take into account rising mobile usage and dependence, as China Daily data shows 92 per cent of Chinese aged 18-30 own a smart phone, 58 per cent prefer to travel independently, booking their own rooms, shows and attractions as well as paying attention to currency trends, with strengthening Won and Yen leading to drops in retail spending and leading to opportunities arising.

8 Business Daily Thursday, May 19 2016

Greater China In Brief Fitch

Mainland leads Asian mutual-fund market Chinese mainland is the fastest growing mutual-fund market in Asia and will hold that position for the foreseeable future, Fitch Ratings said yesterday in a report. The Chinese mainland accounted for more than 3 percent of the global market in 2015, Fitch said, citing increasing incomes, high savings and the preference for bank deposits over asset-management products as major driving forces. At the end of 2015, total mutual fund assets in the Chinese mainland, Taiwan and Hong Kong, as well as the Republic of Korea, Malaysia, Singapore and Thailand, had grown to US$4.2 trillion from US$2.3 trillion in 2011. Tighter rules

Alipay overseas push faces setback Alipay, China’s biggest third-party payments system, faces a setback in its push to expand overseas as the nation’s central bank tightens rules on the money kept in accounts. Customers who don’t have a mainland China bank card won’t be able to keep money in accounts from July 1, according to a statement from parent Zhejiang Ant Small & Micro Financial Services Group yesterday. Alipay, which has 450 million users, didn’t specify how many customers would be affected and has told clients to clear their balances to avoid the risk of funds being frozen.

Power strategy

Authorities to boost energy storage to cut power waste The government said in its latest 2016-2020 “five‑year plan” that it would seek breakthroughs in the commercialisation of energy storage.

hina is expected to raise its power storage capacity to 14.5 gigawatts by 2020, as the world’s second-biggest economy tries to cut massive waste from renewable energy projects, an industry association said. China is the world largest wind and solar power producer, but some regions are estimated to be losing more than 40 percent of their power because of technical restraints and bottlenecks in the grid, alongside weak power demand growth. Storage technologies, such as pumped storage hydropower or lithium ion batteries, are expected to play a critical role in improving the China’s capacity to make better use of renewables.

International companies involved in providing storage technology to China include ABB and TUV Rheinland, while domestic players include Soaring Electric, Sifang Automation and joint ventures such as Sungrow-Samsung SDI Energy Storage Power Supply company. China currently has 105 megawatts of storage capacity after an 110 percent increase each year over the previous five years, according to a report released this week by the China Energy Storage Alliance, an industry body. “We didn’t count pumped hydropower, and we project growth to rise to 14.5 GW by 2020 based on manufacturers’ orders,” said Tina Zhang, managing director of the alliance. The government said in its latest

2016-2020 “five-year plan” that it would seek breakthroughs in the commercialisation of energy storage, but it did not set a target. “China is heading an energy revolution led by the transformation to low-carbon energy and the opening up of its wholesale power market, and storage will be important to bolster the changes,” said Jiang Liping, vice president of the State Grid Energy Research Institute. Most storage projects are not yet financially viable and investors want more government support. Xu Honghua, president of Beijing Corona Science and Technology, which designs renewable technology, said China needed to bring in a mechanism for different prices for peak and off peak power to provide incentives to use energy from storage, and the return on investment needed to be 12 percent to support the new technology. Reuters

“China is heading an energy revolution led by the transformation to low-carbon energy and the opening up of its wholesale power market” Jiang Liping, Vice president of the State Grid Energy Research Institute

M&A

Midea makes takeover offer for robotics firm Chinese appliance giant Midea yesterday launched a takeover offer for German industrial robotics supplier Kuka and is seeking at least a 30 percent stake, according to a statement, the latest major overseas Chinese investment. Midea - best known for its washing machines and air conditioners - offered 115 euros (US$130) per share for Kuka, one of the world’s leading manufacturers of industrial robots, in the voluntary takeover offer. The deal values Kuka at 4.6 billion euros (US$5.2 billion) and a 30 percent stake would make Midea its biggest shareholder, Bloomberg News reported.

Reverse repos

PBOC drains 10 billion yuan from market China’s central bank yesterday allowed 10 billion yuan (US$1.53 billion) to drain from the market to ensure a stable money supply. The People’s Bank of China (PBOC) put 70 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. Meanwhile, reverse repos worth 80 billion yuan mature yesterday, so the central bank has effectively drained 10 billion yuan from the market.

U.S. tariffs

Authorities to support steel exports The U.S. Commerce Department said the new duties will effectively increase import prices more than fivefold. Ruby Lian and David Lawder

China said it would persist with controversial tax rebates to steel exporters to support the sector’s painful restructuring programme, defying a United States move to impose punitive import duties on Chinese steel products. A worldwide steel glut has become a major trade irritant, with China under fire from global rivals who say it is dumping cheap exports after a slowdown in demand at home. In a marked escalation of the spat, the United States on Tuesday said it would impose duties of more than 500 percent on Chinese cold-rolled flat steel, which is widely used for cars body panels, appliances and construction. However, China’s Ministry of Finance, said it would “continue to implement a tax rebate policy on steel exports” as it tries to finance a costly capacity closure plan. China, by far the world’s largest steel producer, plans to eliminate 100-150 million tonnes of annual production more than U.S. produces per year - over the next five years. The ministry said China was making special funds available to curb overcapacity in both the steel and the coal sectors, and would reward local authorities for exceeding their targets and meeting them early. The policy document, though dated May 10, was published just hours after the U.S. tariffs were announced. It is

the latest policy announced by different departments including the Ministry of Human Resources and Social Security to push forward the overcapacity cut. The U.S. Commerce Department said on Tuesday the new duties effectively will increase by more than five-fold the import prices on Chinese-made cold-rolled flat steel products, which totalled US$272.3 million in 2015. It found that products were being sold in the U.S. market below cost and with unfair subsidies. China’s commerce ministry expressed its “strong dissatisfaction” with ruling and said the United States should rectify its mistakes as soon as possible. “The United States adopted many unfair methods during the anti-dumping and anti-subsidy investigation into Chinese products, including the refusal to grant Chinese state-owned firms a differentiated tax rate,” the ministry said in a statement posted on its website. The Group of Seven rich nations plans to address the steel glut when it meets in Japan later this month, in a move seen likely to add to pressure on China.

China denies flooding markets

Analysts said the potential closing off of the U.S. market would not substantially reduce China’s exports, accounting for just 2 percent of its total shipments. “The duty will not have a big impact on China’s overall steel exports because the volume to the United States is very small... but because of anti-dumping, export destinations are becoming more and more dispersed,” said Kevin Bai, an analyst with CRU in Beijing. While a flood of cheap Chinese steel has been blamed for putting overseas producers out of business, China has repeatedly denied its mills have been dumping their products on foreign

markets, stressing that local steelmakers are more efficient and enjoy far lower costs than their international counterparts. China has also denied there are any inducements in place that encourage steelmakers to sell their products overseas, saying trade flows are determined by the market. “Global demand is increasing, and Chinese steel products are very competitive, so exports are increasing a little, but the steel sector is mainly used to satisfy domestic demand and there has never been any policy support for large volumes of exports,” CISA chairman Ma Guoqiang said at a conference this week. However, a vaguely-worded statement from the central bank and several other government bodies last month said China would encourage exports and provide financing for steel and coal firms looking to move overseas. While the government has offered as much as 100 billion yuan (US$15 billion) to help handle worker layoffs, China’s debt-ridden steel sector cannot afford to abandon the financial lifeline provided by exports. Foreign sales reached a record 112.4 million tonnes last year, up 19 percent, though total value fell 10.5 percent to US$62.8 billion as a result of plunging prices. More than half of large steel mills still made losses last year, according to the China Iron and Steel Association (CISA). Steelmakers have called on more proactive support for the export business, with Chen Ying, the general manager of Jiangsu Shagang, telling a conference on Monday that boosting foreign sales would help speed up the country’s restructuring efforts. “China should support exports - steel product exports and moving projects and plants abroad,” she said. Reuters

Business Daily Thursday, May 19 2016 9

Greater China Real estate

April home prices accelerate Compared with March, however, price gains slowed, suggesting recent tightening policies might be gaining traction. Clare Jim and Brenda Goh

hina’s home prices posted their fastest growth in two years in April, with gains in regional centres indicating a broader recovery in the country’s housing market beyond the major cities. However, while Shanghai and Shenzhen remained the country’s two hottest housing markets, there are signs recent tightening measures are beginning to temper demand in those cities. Average new home prices in 70 cities climbed 6.2 percent in April from a year ago, up from March’s 4.9 percent rise, according to Reuters calculations based on data released by the National Statistics Bureau (NBS) on yesterday. That was the quickest yearon-year increase since April 2014, while 46 of 70 major cities tracked by the NBS saw annual price gains, increasing from 40 in March. “(Price) growth in first and second-tier cities continued to accelerate, while third-tier

cities reversed declines to post growth,” Liu Jianwei, a senior statistician at the NBS, said in a statement accompanying the data. The recovery in China’s property market since late last year has been a rare bright spot in the world’s second largest economy, which has been slowing amid internal restructuring and weak global demand. However, rising debt levels in the country have also been a source of angst for policymakers who have publicly warned against excessive lending. Shenzhen and Shanghai were still the two top performers, with home prices rising 62.4 percent and 28 percent from a year ago, respectively. Compared with March, however, price gains slowed, suggesting recent tightening policies might be gaining traction, with Shenzhen growth easing to 2.3 percent from 3.7 percent, while Shanghai growth slowed to 3.1 percent from 3.6 percent. Both cities tightened downpayment requirements for second homes and raised the eligibility bar for non-residents

in late March. “A change was observed in the growth trend among cities... secondary homes in Shenzhen even posted a month-onmonth drop, while growth in some of the second-tier cities accelerated and exceeded first tiers,” Liu said. Realtors said home sales in Shenzhen and Shanghai have plunged as much as 60 percent after the new policies. China’s housing market bottomed out in the second half of the year on a series of government support measures,

although most smaller cities haven’t been able to clear their oversupply issues, prompting many local authorities to push for even more stimulus. Property professionals in some lower-tier cities said prices have been recovering, helped by the slew of support measures. “Prices have been on the rise since the start of this year after the loosening of mortgage rate and purchase restriction,” said Chen Ruisheng, a property development manager in the eastern coastal city of Wenzhou.

“Many developments are completing sales...government stimulus and subsidies must have some positive impact.” The area of property sold in the January to April period grew at the fastest pace in three years, rising 36.5 percent, according to official data on Saturday. Property investment in April grew 9.7 percent, maintaining March’s pace, as developers continued project starts in response to surging home sales, which are giving a much-needed boost to the slowing economy. Reuters

10 Business Daily Thursday, May 19 2016

Greater China Shadow banking crackdown

Beijing to limit fund houses’ subsidiaries Analysts say the measures mirror similar capital rules imposed on China’s trust firms in 2010.

hina is stepping up its crackdown on risky shadow banking with plans to rein in explosive growth of fund houses’ subsidiaries - a US$1.5 trillion business widely used by banks to move their loans off balance sheet to skirt regulatory oversight. The Asset Management Association of China (AMAC) will raise the thresholds for fund houses to establish subsidiaries and use capital ratios to limit the subsidiaries’ ability to expand, according to a copy of the draft rules seen by Reuters.

Beijing’s long crackdown on shadow banking has taken on fresh urgency amid a growing number of company defaults as the economy cools, and as policymakers worry about the risks of too much debtfuelled stimulus. “The business of fund companies’ subsidiaries has exploded in recent years because there have been almost no capital requirements, and their investment scope is very wide,” said Ivan Shi, head of research at fund research firm Z-Ben Advisors. “Now, if such subsidiaries want to grow bigger ... they need capital injections. Otherwise, they need to shut some businesses,” he said, adding he still needs to see the official rules to assess the full impact of the changes.

Under the proposed rules, fund houses applying to set up subsidiaries must manage at least 20 billion yuan (US$3.06 billion) in assets excluding money-market funds, and have a minimum 600 million yuan in net assets. A subsidiary’s net capital also may not be lower than the company’s total risk assets, while net assets must not be lower than 20 percent of its liability, in effect slashing the leverage ratio of the business. AMAC did not have an immediate comment. “In future, it will be very difficult for fund companies to set up subsidiaries, as the bar is very high,” said an executive at a mutual fund house in Shanghai, who declined to

be identified. “The subsidiary businesses have been growing too fast, and the situation would be out of control if it implodes.” Analysts say the measures mirror similar capital rules imposed on China’s trust firms in 2010, a move also aimed at curbing riskier shadow banking practices. In recent years, loosely-regulated subsidiaries set up by mutual fund firms have expanded rapidly, overtaking trust firms as the key channel for shadow banking. Fund companies’ subsidiaries managed 9.8 trillion yuan of assets at end-March, nearly triple that of a year ago, and more than China’s 7.8 trillion yuan of mutual fund assets, according to the AMAC. Reuters

At least three members of the Washington-based International AntiCounterfeiting Coalition, including board member Tiffany & Co, quit the group in protest and others threatened to leave after Alibaba was admitted as a member in April. On Friday, the IACC suspended the new category in which Alibaba was admitted, effectively terminating its membership. “Given the IACC’s desire for additional time to reflect upon the viability of its general membership category, Alibaba feels it best that Jack Ma postpone his appearance,” Jennifer Kuperman, head of international corporate communications,

said in a statement. Alibaba Group President Michael Evans will speak at the conference in Orlando, Florida instead. Kuperman reiterated Alibaba’s stance that it is “firmly committed to the protection of intellectual property rights and combating counterfeits”.

“The business of fund companies’ subsidiaries has exploded in recent years because there have been almost no capital requirements, and their investment scope is very wide” Ivan Shi, Head of research at fund research firm Z-Ben Advisors

Fake products

Alibaba’s Ma cancels speech after row with anti-counterfeiting group China’s biggest e-commerce firm has pledged to fight fake goods and has hired an army of employees to root them out, but many brands say the problem is still widespread. John Ruwitch

Alibaba Group Holding Ltd’s chief Jack Ma has cancelled a speech at an anti-counterfeiting conference in the United States after the trade group behind it suspended the e-commerce

giant’s recently gained membership. Alibaba has been dogged for years by accusations that its online shopping platforms were conduits for counterfeiters and critics say it has not done nearly enough to stop the problem.

‘Damaging adversary’

On Tuesday - the same day as the cancellation - Ma had lunch with U.S. President Barack Obama at the White House, an Alibaba source with knowledge of the situation said. China’s biggest e-commerce firm has pledged to fight fake goods and has hired an army of employees to root them out, but many brands say the problem is still widespread, particularly on the hugely popular shopping site Taobao. In a letter to the IACC explaining its decision to leave the group, luxury brand Michael Kors called Alibaba “the largest marketplace for counterfeit merchandise the world has ever seen” and blasted the IACC for providing “cover to our most dangerous and damaging adversary”. Last week Taobao said it was tightening controls on the sale of luxury goods, requiring sellers to show proof of authenticity as a way to try to combat the sale of fakes. Fake products are widespread in China - both online and in bricksand-mortar shops. The official People’s Daily newspaper said this month Chinese authorities would launch a campaign to clean up e-commerce, targeting trademark violations, counterfeit and poor quality products, in a move potentially affecting Alibaba as well as rivals JD.com Inc and Baidu Inc. Reuters

Business Daily Thursday, May 19 2016 11

Asia GDP

Japan’s economy dodges recession in Q1 Key Points Q1 GDP +1.7 pct annualised, +0.4 pct on quarter Leap year effects boost growth, momentum seen weak Domestic, external demand add 0.2 pct pt each to Q1 growth Economy may contract again in Q2 -analyst PM Abe weighs possibility of sales tax hike delay

Private consumption, which makes up 60 percent of GDP, rose 0.5 percent, more than double the median market forecast.

Government officials have said the data will be crucial in Abe’s decision on whether to postpone a sales tax hike scheduled for next year. Leika Kihara and Tetsushi Kajimoto

apan’s economy expanded at the fastest pace in a year in the first quarter, thanks in part to a leap year consumption boost, but analysts say the rebound was not strong enough to dispel concerns over a contraction in this quarter. With private consumption making only a feeble recovery from last quarter’s slump, the data keeps alive market expectations that Prime Minister Shinzo Abe will delay a scheduled sales tax hike next year, analysts said. The world’s third-largest economy expanded by an annualised 1.7 percent in January-March, much more than a median market forecast for a 0.2 percent increase and rebounding from a 1.7 percent contraction in the previous quarter, Cabinet Office data showed yesterday. Analysts had worried that the January-March period would not

produce enough growth to avert recession - defined as two straight quarters of contraction - after stripping out the estimated boost from the leap year. “Taking into account the effects of the extra day from the leap year, which pushed up the quarter-on-quarter growth rate by 0.3 percentage point, growth is not as strong as the headline number shows,” said Hidenobu

Prime minister: Tax plan as scheduled

Japanese Prime Minister Shinzo Abe said yesterday there is no change to his plan of proceeding with a scheduled sales tax hike next year unless a crisis of the scale of the collapse of Lehman Brothers, or a huge earthquake, hits the economy. But he said Japan’s private

Tokuda, senior economist at Mizuho Research Institute. “The GDP data will likely press Abe to decide to delay a planned sales tax hike next year and to roll out additional fiscal stimulus worth at least 5 trillion yen (US$45.76 billion). I also expect the Bank of Japan to ease policy further in July given weak growth and tame inflation.” Following the data, Koichi Hamada, an emeritus professor of economics at Yale University and key economic adviser to Abe, reiterated his opposition to the planned tax hike, which he told lawmakers would cause “quite a confusion”.

consumption has been weaker than expected since it was hit by the first sales tax hike in 2014. “There are downside risks to the global economy,” Abe said in a parliament debate with opposition party leaders. “I’m focusing on whether such risks materialise beyond what can be considered as due to cyclical factors,” he said.

Chief Cabinet Secretary Yoshihide Suga told a news conference after the data that Japan is making steady progress towards beating deflation but private consumption continues to be weak with the effect of a sales tax hike in 2014 remaining.

Weak consumption

Private consumption, which makes up 60 percent of GDP, rose 0.5 percent, more than double the median market forecast, as households boosted spending on televisions, food and beverages, and recreation, the data showed. But the rebound failed to make up for a 0.8 percent drop in the previous quarter. Government officials have said the data will be crucial in Abe’s decision on whether to postpone a sales tax hike scheduled for next year. The data also comes ahead of a Group of Seven leaders’ summit Abe will host in western Japan next week, where he hopes to foster agreement on the need for global coordination of policies to jump-start growth. Japan’s economy contracted in the final quarter of last year as slow wage growth hurt private consumption, while exports felt the pinch from sluggish emerging market demand and the pain of a strong yen. Abe raised the sales tax to 8 percent from 5 percent in 2014, which tipped the economy into recession. That led Abe to delay a second tax hike to 10 percent by 18 months. Reuters

Energy policy

Australian LNG exports face restrictions in Labour Party plan Under the plan, an independent board would make a recommendation evaluating the impact a new project would have on government revenue and local gas consumers. James Paton

New liquefied natural gas projects in Australia, which is forecast to become the world’s largest exporter of the fuel, may need to set aside supplies for domestic use under a policy proposed by the opposition Labour Party. Rising gas demand in Asia is set to lead to higher prices at home, hurting households and businesses, Chris Bowen, the shadow treasurer, wrote in a letter published yesterday in the Australian Financial Review. If elected, Labour would introduce a policy to ensure that new LNG plants, or significant expansions, are in the national interest, he wrote. “Australia’s abundant gas resources could and should be an affordable and relatively clean source of energy for our plants and factories,” he wrote with Scott McDine, national secretary of the Australian Workers’ Union. “Yet this potential competitive

advantage is being snatched away by high prices.” Prime Minister Malcolm Turnbull has called elections for July 2, seeking to end almost a decade of political instability and convince voters he’s best-placed to steer the economy. Standing in his way is union-backed Labour leader Bill Shorten, who’s portraying the coalition as

out of touch with average workers. A Newspoll published by the Australian newspaper on May 9 gave Labour a 51 percent to 49 percent lead over the coalition on a two-party preferred basis. The opposition would need to gain a uniform swing of about 4 percent to win enough seats to form government.

Chevron C orp., Royal Dutch Shell Plc, ConocoPhillips and Santos Ltd. are among energy companies that have built LNG developments in Australia, putting the country on course to overtake Qatar as the largest supplier. Plunging energy prices and surging supplies globally have put future LNG investments in Australia in doubt. The Labour policy would discourage investment in developing gas reserves, the Australian Petroleum Production & Exploration

Association wrote in an e-mailed statement. “Adding new regulatory risks does not help, especially at a time of depressed prices.” Under the plan, an independent board would make a recommendation to the Treasurer after evaluating the impact a new project would have on government revenue and local gas consumers. The government would then assess whether any restrictions should be imposed, including reserving some gas for domestic use, Bowen wrote. Bloomberg News

12 Business Daily Thursday, May 19 2016

Asia Commerce rules

Fintech business

New Philippines minister to bar private traders from importing rice

Australian hub seeks start-up launch in controlled environment

Private traders are currently allowed to bring in annual shipments of up to 805,200 tonnes with a 35 percent tariff.

Many fintech business models do not easily fit into the existing license-based financial regulatory framework operated in many countries.

The new Philippines administration will bar private traders from importing rice and aims to stamp out rampant smuggling of the grain in the world’s third-biggest importer, incoming Agriculture Secretary Emmanuel Pinol said. The task of importing rice to ensure food security will now be solely in the hands of the state grains agency, the National Food Authority (NFA), Pinol said in a radio interview after the announcement of his appointment by President-elect Rodrigo Duterte on Tuesday. Rice imports are politically sensitive in the Philippines, with the government pushing to keep tariffs high to protect local farmers but also sometimes needing to quickly import thousands of tonnes to ensure adequate domestic supplies. “The directive of our president-elect is that there will be no more rice importation by the private sector. It will only be the NFA. And I can assure the Filipino people that rice smuggling will be stopped,” said Pinol, a former governor of a southern Philippine province. Private traders are currently allowed to bring in annual shipments of up to 805,200 tonnes with a 35

percent tariff. Rice importation is regulated by the NFA, which issues import permits and allocations to private traders via auctions, a practice prone to abuse because importers with permits can offer other importers and brokers the use of their permits for a fee. In 2014, the Philippines moved to loosen restrictions on rice imports by reducing tariffs to 35 percent from 40 percent and increasing the volume of annual shipments covered by such tariffs to 805,200 tonnes from 350,000 tonnes. Last week, Duterte’s campaign spokesman Peter Lavina told Reuters a plan by the incumbent government to import an additional 500,000 tonnes of rice this year to beef up state reserves would be reviewed. Lavina also said the new administration prefered to enter into the more transparent government-to-government deals in transacting rice imports. The Philippines regularly imports more than a million tonnes a year of the food staple to meet demand from its growing population. Vietnam is the country’s main supplier, though Thailand also usually ships in some rice. Reuters

Swati Pandey and Michelle Price

Australia’s financial technology hub is in talks with the country’s securities regulator to allow companies to get started without a formal license, the CEO of the hub said yesterday. If approved, the new regulatory pilot would create a controlled environment, or “sandbox”, to allow start-ups to launch in the market with restricted authorisation before being granted a full license, Alex Scandurra, CEO of Sydney fintech hub Stone & Chalk told the Reuters Financial Regulation Summit. “We are exploring the opportunity to create a sandbox that allows startups to validate, rapidly prototype and engage with various customer groups prior to having to engage in a formal licensing process,” Scandurra told the summit, held at the Reuters office in Sydney. The Australian Securities & Investments Commission is expected to release a discussion paper on the regulatory sandbox proposal as early as next month. Many fintech business models do not easily fit into the existing license-based financial regulatory framework operated in many countries, making it

tough for start-ups to become established and sparking calls for regulators to provide more clarity on the rules for fintech services. The U.K. Financial Conduct Authority (FCA) last year said it would launch a regulatory “sandbox” for fintech firms to create a safe space in which authorized firms can experiment to validate their business models. Under that programme, which opened to applicants last week, fintech firms which meet certain FCA criteria will be granted “restricted authorization” by the FCA to test their ideas without fear of prosecution if they break the FCA’s rules. Australia wants to develop Sydney as a fintech hub similar to Silicon Valley and has announced tax breaks for early-stage investments as well as a visa scheme for entrepreneurs to attract talent. Reuters

South Korean markets

Hotel Lotte plans year’s largest IPO Two Seoul-based fund managers said institutional investors were likely to buy at least some of the listing shares due to the massive offer size. Lee Chang-ho and Joyce Lee

South Korea’s Hotel Lotte Co Ltd plans a share sale worth up to 5.7 trillion won (US$4.85 billion) next month, sources said on Wednesday, in what would be the world’s biggest initial public offering since late 2015. The sprawling Lotte Group said last year it would list Hotel Lotte, which includes the third-largest global duty-free retail chain, as part of efforts to simplify its ownership structure amid a family feud over leadership succession. The listing would headline what could be a bumper year for South Korean IPOs, fuelled by a rise in the share market and as conglomerates that dominate Asia’s fourth-largest economy restructure. About 86 percent of Hotel Lotte’s revenue in the January-March quarter came from its duty-free business, according to a company filing. However, competition in South Korea’s tax-free shopping industry - the world’s biggest - is intensifying, and Lotte is poised to lose the licence on its second-largest store, in Seoul, when it

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expires at the end of June. Two Seoul-based fund managers said institutional investors were likely to buy at least some of the listing shares due to the massive offer size, although duty-free uncertainties may weigh on sentiment. They declined to be identified before the IPO filing document is available. Last month, South Korea said it would issue four more

duty-free store licences in Seoul, taking the number of stores to 13 by the end of 2016 from six a year earlier. While that could enable Lotte to replace its expiring licence, it intensifies competition.

Family feud

Hotel Lotte plans to use its IPO proceeds to expand its global business, including hotels, with acquisitions a possibility, a group spokesman said, declining to give details or to confirm the listing details. Last year, Hotel Lotte paid US$805 million for the New York Palace hotel.

Preliminary plans call for shareholders to sell about 13.65 million shares, or a 10 percent post-listing stake, while 34.2 million new shares, a 25 percent stake,

Key Points On track to be world’s biggest IPO since late 2015 86 pct of Q1 sales from duty free business South Korea hoping for bumper IPO year Family feud for control of Lotte Group

would be issued at an indicative price range of 97,000 won to 120,000 won per share, the sources said. Raising between 4.7 trillion won and 5.7 trillion won based on the preliminary price range, the IPO could top South Korea’s previous biggest float, of Samsung Life Insurance Co Ltd for 4.9 trillion won in 2010. It would be the world’s biggest since Japan Post Holdings Co Ltd raised US$5.7 billion in October, 2015. Other likely listings in South Korea this year include biotech drug contract manufacturer Samsung Biologics Co Ltd and construction equipment maker Doosan Bobcat Inc. The IPO comes amid a family feud over who controls the Lotte Group, South Korea’s fifth-largest conglomerate. Shin Dong-bin, the youngest son of 93-year-old founder Shin Kyuk-ho and CEO of the companies that are Hotel Lotte’s main shareholders, cemented control of the group in August with the support of shareholders in a key Japan-based holding company. Older brother Shin Dong-joo is engaged in legal proceedings seeking to wrest control. The feud prompted criticism of Lotte’s shareholding structure, triggering a reorganisation including the Hotel Lotte IPO. Reuters

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Business Daily Thursday, May 19 2016 13

Asia Industry

Crisis for South Korean shipbuilders as golden age fades A prolonged slump in oil prices and the global economic slowdown has sapped demand for tankers and container ships. Jung Ha-Won

fter more than a decade of global dominance, South Korea’s shipbuilders face an unprecedented crisis that threatens the very survival of one of the flagship industries of Asia’s fourth largest economy. South Korea’s “Big Three” shipbuilders were once considered the holy trinity of Korea Inc. - controlling nearly 70 percent of the global market after seeing off their European and Japanese rivals in the 1980s and 1990s. Year after year, the shipyards of Hyundai Heavy Industries, Daewoo Marine and Shipbuilding, and Samsung Heavy Industries churned out massive cargo ships, oil tankers and offshore drillers for shipping firms and energy giants around the world. But a prolonged slump in oil prices and the global economic slowdown sapped demand for tankers and container ships, while overcapacity, regional rivalry and competition from cheaper Chinese shipbuilders squeezed profit margins. The three firms racked up a collective loss of 8.5 trillion won (US$7.4 billion) last year, while outstanding orders among all South Korean shipbuilders hit their lowest level in 11 years in February. “Orders are drying up. We are faced with an unimaginable situation at which our dock may soon be empty,” Hyundai Heavy chairman Choi Kil-Seon said in a letter to employees in March. “Even banks are so reluctant to lend to us. This is the harsh, undeniable reality we are facing today,” Choi said.

‘Oversized and complacent’

Hyundai - the world’s top shipbuilder by sales - has reported a net loss for two straight years, totalling 5.0 trillion won. It posted its first net profit for more than two years in the first quarter of 2016, but Choi said that was largely thanks to lower raw material prices and a weaker Korean currency.

The company became “oversized and complacent” during the boom years of the 2000s, he said, urging “bone-crushing efforts” to compete against Chinese shipbuilders that won more than half of all new global orders this year. “If we can’t compete against Chinese ... our jobs will be eliminated,” he said. Yang Jong-Seo, analyst at the Export-Import Bank of Korea, said the next two years would be the “worst years ever” for the shipbuilders as they embark on a period of painful, state-led restructuring. In return for state aid and debt extensions, Seoul’s financial regulators have pressed for more asset sales, mass layoffs, pay reductions and streamlined business plans.

“Now we are shedding the ‘Tears of Ulsan’” Jun Young-Do, Head of the Ulsan city’s chamber of commerce

“I think the situation will hit the bottom in the latter half of 2017 and revive in 2018. The key question is whether the shipbuilders can manage to stay alive until then,” Yang told AFP. “If they end up falling apart, I’m afraid the pillar of the global shipbuilding industry will really shift to China,” he said.

Storm to come

The knock-on effect of any such collapse would be enormous The southern port of Ulsan and Geoje island - home to the three shipbuilders’ main docks - are the bedrock of a regional economy that relies heavily on the industry for tax revenues and consumer spending by nearly 200,000 workers. Hyundai shed more than 1,000 jobs at its Ulsan shipyard in 2015 and is reportedly planning to lay off around 3,000 workers this year. Their suppliers that hire tens of thousands of

workers are being pushed to the brink of collapse. The situation is even bleaker at the number two shipbuilder Daewoo. The firm has failed to win a single order so far in 2016, after suffering a record net loss of 5.5 trillion won last year. Daewoo - partially owned by the state-run Korea Development Bank - has proposed laying off 3,000 workers by 2019 but the government is demanding an even bigger job cut. “The whole city is a big community of shipbuilding workers and their families. And we are all feeling the pinch,” an official at the Geoje city council told AFP. More than two thirds of the city’s 250,000 population either work for Daewoo or Samsung or are family members of those who do.

Tears of Ulsan?

Most area businesses, especially restaurants and retail shops, have reported a sharp double-digit fall in sales and many are on the brink of closure, said the city official who declined to be named. “Many people here bought a house and a nice car and sent their kids to college when things were good...and people are worrying whether those days are coming to an end,” she said. The same sense of impending loss is growing in Ulsan -- a vibrant blue-collar city that is the home to the Hyundai Heavy shipyard as well as Hyundai Motor’s main plant. Thanks to fat pay checks from Hyundai, the city has boasted the highest per-capita income in the country for years. Some say it now faces the same fate as the Swedish port of Malmo, once known for its robust shipbuilding industry. Malmo’s iconic, 128 metre-tall Kockums Crane - a symbol of its manufacturing industry - was sold to Hyundai in 2002. The crane was nicknamed the “Tears of Malmo” after residents reportedly cried at the sight of its being shipped to Ulsan. “Now we are shedding the ‘Tears of Ulsan,’” said Jun Young-Do, the head of the Ulsan city’s chamber of commerce. AFP

In Brief

Rate-rigging

Australia’s regulator in advanced stages of probe Australia’s markets watchdog is in the advanced stages of an investigation into the fixing of benchmark interest rates in which it has already hauled two of the country’s major banks to the courts, a top official said yesterday. The Australian Securities & Investments Commission (ASIC) launched two separate court actions against ANZ Banking Group and Westpac Banking Corp earlier this year for allegedly fixing the bank bill swap reference rate (BBSW), an allegation both banks have rejected. ASIC will also publish a report in the next couple of months on equity research independence. Japanese PM

G7 sees need to boost demand G7 leaders agree on the need to take measures to boost global demand and eliminate factors that hamper productivity amid lingering risks to the world economy, Japanese Prime Minister Shinzo Abe said yesterday. “There are downside risks to the global economy,” such as the fallout from China’s slowdown, Abe said during a debate with opposition party leaders. “I’ve called on the need to create demand and to remove supply-side constraints,” Abe said, in explaining what he discussed with European leaders during his visit to Europe earlier this month. ASEAN-Russia summit

Myanmar’s president leaves for Sochi Myanmar President U Htin Kyaw left Yangon yesterday to attend the two-day ASEAN-Russia Commemorative Summit in Sochi, according to official sources. The summit, which is scheduled from May 19 to 20, is to mark the 20th anniversary of ASEAN-Russia Dialogue relations. U Htin Kyaw is expected to meet the Russian leadership on the side line of the event and touch upon promotion of bilateral relations. An agreement between Myanmar and Russia on defence cooperation is also expected to be signed at the event. Fuel efficiency

Suzuki says used wrong tests Suzuki Motor Corp said yesterday it had used emission and fuel efficiency testing methods that were different from Japanese regulations on 16 models now sold in the country, but that proper testing showed no need to amend the data. Japan’s fourth-largest automaker said the improper testing method dated back to 2010 and that around 2.1 million vehicles were affected. The discrepancy does not affect any Suzuki-badged vehicles overseas, it said in a statement.

14 Business Daily Thursday, May 19 2016

International In Brief Top official

ECB should hold steady course until autumn The European Central Bank should not discuss whether more policy action is needed until autumn, Governing Council Member Vitas Vasiliauskas said yesterday, adding that the bank’s arsenal is nonetheless far from empty. It could even buy new types of assets if needed, he said in an interview with Reuters. “The current situation is stable with positive perspectives,” Vasiliauskas, who also head Lithuania’s central bank, said. “So if you ask me what do you think about possible steps during the summer, my answer would be: nothing. Job market

British unemployment stays at ten-year low Britain’s unemployment rate stands at its lowest level since 2005 after a dip in the amount of people without work, official data showed yesterday. The unemployment rate stood at 5.1 percent in the three months to March, unchanged from the quarter to the end of December, the Office for National Statistics (ONS) said in a statement. The ONS added that the unemployment total dipped by 2,000 to 1.69 million people. Fed officials

U.S could raise interest rates 2-3 times this year A U.S. Federal Reserve policymaker said on Tuesday that he will push for an interest rate hike in June or July and two others still see up to three rate increases this year, leaving the door open to a change in monetary policy relatively soon. The U.S. central bank has held rates steady at a target range of 0.25 to 0.50 percent since moving from near zero in December. In its April policy statement it indicated it wants to have more confidence in the economy’s overall health before raising rates again.

Funding

Petrobras return to global bond markets State-controlled Petróleo Brasileiro SA raised US$6.75 billion on Tuesday from a sale of five- and 10-year dollar-denominated bonds, in a closely watched return to global debt markets after the suspension of Brazilian President Dilma Rousseff. The sale is the first by a Brazilian company since June and the first to test investor sentiment toward Brazil since Rousseff was ousted last week to face an impeachment trial. Petrobras, as the firm is known, later announced that it had doubled the maximum buyback of debt maturing in 2018 to US$6 billion.

Strong figures

U.S. data bolsters second-quarter growth prospects The Labour Department said its Consumer Price Index increased 0.4 percent last month, the largest gain since February 2013.

.S. consumer prices recorded their biggest increase in more than three years in April as gasoline and rents rose, pointing to a steady inflation build-up that could give the Federal Reserve ammunition to raise interest rates later this year. Other data on Tuesday showed housing starts and industrial production rebounded strongly last month, suggesting the economy was regaining steam early in the second quarter after almost stalling early in the year. The Labour Department said its Consumer Price Index increased 0.4 percent last month, the largest gain since February 2013, after rising 0.1 percent in March. That took the yearon-year increase in the CPI to 1.1 percent from 0.9 percent in March. Americans also paid more for medical care, food, recreation, tobacco, motor vehicle insurance, airline fares and grooming. Economists polled by Reuters had forecast the CPI gaining 0.3 percent last month and advancing 1.1 percent from a year ago. The so-called core CPI, which strips out food and energy costs, rose 0.2

percent after climbing 0.1 percent in March. In the 12 months through April, the core CPI increased 2.1 percent after increasing 2.2 percent in March.

Growth picking up

Financial markets have almost priced out a rate hike before September, given sluggish growth at the beginning of the year. The U.S. central bank lifted its benchmark overnight interest rate in December for the first time in nearly a decade and policymakers have forecast two more increases this year. The are signs, however, the economy got off to a strong start in the second quarter. In a separate report, the Commerce Department said housing starts increased 6.6 percent to a seasonally adjusted annual pace of 1.17 million units last month, with builders ramping up the construction of singleand multi-family homes. Building

Key Points Consumer prices increase 0.4 percent in April Core CPI rises 0.2 percent on rents and medical care Housing starts rise 6.6 percent; permits up 3.6 percent Industrial production increases 0.7 percent in April

permits rose 3.6 percent to a 1.12 million-unit rate. The improving outlook was underscored by a third report from the Fed showing industrial production increased 0.7 percent in April after two straight months of declines as a 5.8 percent surge in utilities output offset another decline in mining. Manufacturing production rose 0.3 percent, with machinery and motor vehicles and parts output increasing solidly. Mining output fell 2.3 percent as it continues to be undermined by the delayed pass-through of the oil price plunge between June 2014 and December 2015, which has caused a sharp reduction in capital spending by energy firms. Mining output has decreased more than 1-1/2 percent per month, on average, over the past eight months. While Tuesday’s data added to strong retail sales numbers in suggesting that economic growth regained steam early in the second quarter, a slowdown in payrolls gains last month and a recent spike in new applications for unemployment benefits have raised some concerns about the labour market’s health. The inflation report showed gasoline prices jumped 8.1 percent last month, the largest gain since August 2012, adding to March’s 2.2 percent increase. Food prices rose 0.2 percent after falling 0.2 percent in March. Within the core CPI basket, owners’ equivalent rent of primary residence rose 0.3 percent after increasing 0.2 percent in March. Medical care costs increased 0.3 percent after gaining 0.1 percent in March. Prescription drugs shot up 0.7 percent and the cost of hospital services increased 0.3 percent. But apparel prices fell for a second straight month as did the cost of used cars and trucks. Reuters

Trade deal

Anti-trade rhetoric not denting U.S. trade chief’s hopes for TPP vote TPP critics say the agreement does not do enough for workers, the environment or consumers. The top U.S. trade official is not losing hope for congressional approval of a sweeping pan-Pacific free trade agreement this year despite strong anti-trade rhetoric in the U.S. presidential campaign that may be influencing reluctant lawmakers. U.S. Trade Representative Michael Froman told Reuters in an interview in Lima, Peru, that he continues to have “good meetings” with members of Congress about the 12-country Trans-Pacific Partnership agreement. As more industry groups voice support for the deal, U.S. lawmakers

are likely to come out in favour of it, he said. “The more they learn about the agreement, the more comfortable and positive they are about the substance,” Froman said. “I think at the end of the day we’ll have produced the necessary support.” While he would like to see a vote as early as possible, he said he is discussing with congressional leadership and key committee chairs “about what the appropriate window is for bringing it forward.” Some key Republicans, such as Senate Majority Leader Mitch McConnell, have voiced opposition to a vote before the November presidential election, while others, including Senate Finance Committee Chairman Orrin Hatch, have said that a vote this year would be “difficult,” especially for a “lame-duck” Congress. The Obama administration is gearing up for another major TPP sales pitch as a new analysis of the deal by the U.S. International Trade Commission is released yesterday. Froman said he did not know the results of the independent body’s cost-benefit analysis of the TPP. But he noted that another study of TPP, by the Peterson Institute for International Economics, which uses a similar

U.S. Trade Representative Michael Froman.

long-term estimating model, found that the trade deal would boost U.S. national income by US$131 billion annually by 2030.

Campaign headwinds

Even so, the trade deal has come under withering attacks on the U.S. presidential campaign trail. Donald Trump, the presumptive Republican nominee for the November 8 election, has attacked the TPP as bad for American jobs and said he prefers bilateral trade deals. Hilary Clinton, the likely Democratic nominee, ditched her one-time support for TPP, at least in its present form, as challenger Bernie Sanders has railed against it. Froman said the backlash against TPP largely stemmed from misplaced frustration with jobs lost to automation and anxiety over rising income equality after years of stagnant wages. “I think trade agreements have become the proxy for a number of other concerns that people have, it’s the vessel into which they pour a lot of their very understandable, very legitimate concerns,” Froman said. “And politicians pick up on that.” TPP critics say the agreement does not do enough for workers, the environment or consumers. On Monday, U.S. and Colombian labour unions said Colombia had failed to enforce worker protections in its free trade agreement with the United States, raising questions about similar provisions in the TPP. Froman said the TPP would help improve labour and environmental standards in a rapidly-globalizing world. After a visit to a remote Amazonian region in Peru, he pointed to joint U.S.-Peru efforts to fight illegal logging that started after implementation of their free trade agreement in 2009. “This is only because we negotiated the forest annex and they agreed to certain environmental provisions,” Froman said. Reuters

Business Daily Thursday, May 19 2016 15

Opinion Business Wires

The Straits Times Indonesia says it will stop sending new live-in maids abroad from as early as next year. Its authorities want domestic workers to live separately from their employers in dormitories, work regular hours, and get public holidays and days off. The Indonesian Ministry of Manpower’s director for the protection and placement of Indonesian migrant workers abroad, Mr Soes Hindharno, told The Straits Times that, in turn, employers will get “better-quality” workers. They will be certified in Indonesia and trained to excel in specific skills, such as cooking, childcare and eldercare.

The way back for monetary policy

The Korea Herald Korea’s top two tech giants spent more on research and development projects in the first quarter of the year, data showed yesterday. No. 1 tech firm Samsung Electronics spent 3.81 trillion won (US$3.2 billion) on R&D in the JanuaryMarch period, accounting for 7.7 percent of its revenue, according to the company’s quarterly report. The figure marks a 0.3 percentage point rise from 7.4 percent posted a year earlier. Samsung’s local rival, LG Electronics also increased R&D spending to 1.16 trillion won from last year’s 1.14 trillion won.

Bangkok Post Thai rice prices have soared to a twoyear high on anticipated lower supply in light of widespread drought conditions. According to Chookiat Ophaswongse, an honorary president of the Thai Rice Exporters Association, prices for all types have risen. The price for 5% white rice is quoted at US$424 a tonne, up from US$397 in April, and the price for glutinous rice is quoted at US$900 a tonne, up from US$867 last month. The free-onboard export price for Hom Mali fragrant rice remained stable at US$795 a tonne.

he central banks of major advanced economies have been navigating uncharted territory in recent years. While their use of a range of unconventional monetary-policy tools has had benefits, it has also generated significant uncertainty, without fully stabilizing the world economy. Now the time has come to head back toward more familiar policy terrain. Following the 2008 financial meltdown, the US Federal Reserve cut the policy rate to almost zero and pursued so-called quantitative easing (QE), by purchasing long-term securities from the public and private sectors. The central banks of the European Union, Japan, and the United Kingdom soon launched similar unconventional programs. The result was a vast amount of cheap liquidity that helped to stabilize the financial sector, restore stock and real-estate prices, and increase domestic demand. All of this helped to limit the fallout of the financial crisis and push the global economy toward recovery. But this aggressive approach has its limits. Indeed, as Reserve Bank of India Governor Raghuram Rajan has pointed out, after years of effort, the benefits of unconventional monetary policy are diminishing, while the costs are increasing. Recognizing this, the Fed ended QE at the end of last year and raised its policy rate by 25 basis points. The rate hikes will likely continue this year, though the speed and extent of the increases are uncertain. Yet the European Central Bank and the Bank of Japan (BOJ) have decided to sustain their QE programs. Moreover, they have adopted a negative interest-rate policy – which amounts to charging a fee for bank reserves – to revitalize depressed demand. Unsurprisingly, the effects on inflation and real output have been limited. Monetary policy is an effective means of managing inflation and can boost employment and output in a recession. Lowering interest rates below zero, however, has hurt banks’ balance sheets, reducing their lending capacity. As a result, it has failed to increase business investment. Even low positive interest rates, if maintained for a prolonged period, could backfire, fuelling asset bubbles and enabling household and corporate debt to grow to unsustainable levels. Meanwhile, asset purchases have caused the balance sheets of major central banks to swell to unprecedented levels. The orderly rewinding that is now needed will be very difficult to manage. Beyond the domestic sphere, unconventional monetary policies have had far-reaching spillover effects. In particular, they have sent emerging economies, with their financial links to advanced economies, on a capital-flow roller-coaster ride. First, the emerging economies were flooded with liquidity flowing from the advanced economies. Large capital inflows led to overheating and inflation, asset-price bubbles, and rapid currency appreciation. Then, the Fed’s tapering of QE led to the sudden withdrawal of that capital, creating a risk of financial disruption and currency crises. The emerging economies’ monetary authorities have struggled to cope with these shocks using available instruments, including interest rates, exchange rates, prudential regulation, and capital controls. But that is not all. Because advanced economies’ unconventional monetary policies have also depreciated their currencies and stimulated their exports, the risk of competitive devaluations is now a real concern. If, say, the BOJ moved to intervene outright in the exchange-rate markets

“

Lee Jong-Wha Professor of Economics and Director of the Asiatic Research Institute at Korea University.

to depreciate the yen, the odds that the People’s Bank of China and the Bank of Korea would opt for weaker currencies would increase. All of this would be highly destabilizing, particularly for emerging economies like Brazil that are facing a brutal combination of internal and external challenges. Instead of viewing all of this as motivation to back away from unconventional monetary policy, however, some economists are recommending that the ECB and the BOJ pursue an even more extraordinary policy: so-called “helicopter drops.” The idea, introduced by the Nobel laureate economist Milton Friedman in 1969, entails the distribution of freshly printed money directly to the public, with a commitment from the central bank never to withdraw it. As Former Fed Chairman Ben Bernanke points out, monetary finance is essentially equivalent to a broad-based tax cut, with the central bank committing to purchase government debt. Among the influential economists advocating helicopter drops for Europe and Japan are Bernanke, Willem Buiter, Kemal Derviş, and Adair Turner. They argue that even if it is not an ideal solution, it can cure their economies. For governments restrained by high public debt and deficits, the proposal is certainly tempting. But helicopter drops are highly risky. As Bernanke himself warns, such a policy could undermine central banks’ long-term independence. Moreover, it would enable governments to monetize fiscal deficits without constraints, and potentially to abuse money-printing power for political considerations. And it might not even work as intended, with the money benefiting only certain groups. Given the difficulty of regaining lost sovereignty and credibility, central banks must keep helicopter drops as a last resort. The reality is that recourse to easy windfalls produced through loose monetary policy could have serious longterm repercussions, especially if they are used to delay efforts to address underlying issues. Japanese Prime Minister Shinzo Abe’s economic revitalization strategy – so-called Abenomics – is a case in point. The strategy was supposed to use a mix of monetary and fiscal expansion to help facilitate structural reforms. Yet the reforms have faced delays, and employment and output growth has been limited. What advanced-country central banks should be doing now is implementing monetary policies aimed at restoring their credibility, while governments focus on implementing effective fiscal policies and structural reforms. Crucially, advanced and emerging economies must coordinate their policies, in order to foster confidence and strengthen growth. This is the only way back onto the path of sustained global economic health. Last month, finance ministers and central-bank governors of the G-20 countries acknowledged the limitations of monetary stimulus and embraced structural reforms, infrastructure investment, and fiscal policy as the key to future growth. But they have yet to back their words with strong action. Their credibility – not to mention the fate of the global economy – is on the line. Project Syndicate

Beyond the domestic sphere, unconventional monetary policies have had far‑reaching spillover effects.

The Times of India In a bid to encourage start-ups to patent their technologies, the government has slashed the fee by up to 80% and opened a special (Tatkal) window to expedite clearances for them as well as entities that route their global patent applications via the Indian Patents Office. Applying to the special window will attract up to three times of normal fees. This is the first time the government has opened a window for faster patents along with efforts to speed up application clearing process. Currently, it takes five-to-seven years to clear a patent application.

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16 Business Daily Thursday, May 19 2016

Closing M&A

Foxconn’s FIH to buy Microsoft phones

About 4,500 employees will transfer to the new owners with HMD also signing an Microsoft Corp. agreed to sell its feature phone agreement to make new devices under the Nokia brand. business to FIH Mobile Ltd. and HMD Global Microsoft moved into phone production almost for US$350 million, exiting a business that once dominated the mobile market under the two years ago when it bought the handset division of Nokia in a US$9.5 billion deal in a Nokia name before Apple Inc.’s iPhone. bid to make the company relevant in consumer FIH, part of Foxconn Technology Group, will also acquire a manufacturing facility in Hanoi, computing beyond PCs. The company later wrote down most of that purchase. Bloomberg News Microsoft said in a statement Wednesday.

Top rank visit

Zhang Dejiang asks Hong Kong for ‘broader mind’ amid protests During his speech, Zhang said China wanted Hong Kong to become a financing hub for the One Belt, One Road program.

hina’s top official for Hong Kong urged greater integration with the mainland’s development plans, as protesters struggled to get their pleas for a different future to the National People’s Congress chairman. Zhang Dejiang - the Communist Party’s No. 3 official and the highest-ranking state leader to visit Hong Kong in four years - issued his call yesterday at a conference on President Xi Jinping’s signature “One Belt, One Road” infrastructure initiative. In a 30-minute speech that steered clear of contentious political issues, he urged Hong Kong to “take a more active part in the national development strategy.” “I hope that Hong Kong, with a broader mind and vision, would fully seize the major opportunities of the Belt and Road, link its own development with the Belt and Road, and further bring out its own advantages,” Zhang told the gathering at the Hong Kong Convention and Exhibition Centre in Wan Chai. Hong Kong was on high alert for the three-day visit, which comes amid growing political tensions over Beijing’s rule over the former British colony. The city has deployed as many as 6,000 police officers for each day of the trip and established a broad security cordon to keep protesters more than a block from the convention centre, citing fears of demonstrations and international terrorism. Pro-democracy demonstrators, waving flags and banners reading, “Put an end to one-party dictatorship” and “Build a democratic China!” tested security barriers in a mostly peaceful protest timed to coincide with Zhang’s speech. The crowds thinned out after police steered them

back toward designated protest zones. Democracy advocates hope to muster more numbers later in the day, with some pledging “guerrilla-style” actions to get Zhang’s attention.

Occupy protests

Since then-President Hu Jintao’s trip in 2012, Hong Kong has been riven by escalating disputes over China’s perceived interference in its governance, including protests in 2014 that shut down key business districts for months and a February riot. The Occupy protests two years ago came after Zhang’s National People’s Congress handed down guidelines requiring a panel dominated by Beijing loyalists

to screen candidates for what was to be Hong Kong’s first citywide election for chief executive in 2017. At the convention centre, barricades filled with water were set up to keep protesters at least 100 feet from the venue. Construction sites were halted, trash bins were removed and paving tiles, which were tossed at police during February’s riot, had been glued together. Police said in a statement that authorities wouldn’t tolerate any acts of violence or disruptions to social order.

Silk road

During his speech, Zhang said China wanted Hong Kong to become

a financing hub for the One Belt, One Road program, which aims to build a “New Silk Road” of roads, railways, pipelines and ports from Asia to Europe. That includes providing legal services, facilitating capital flows and promoting the Chinese yuan’s internationalization along the route. Hong Kong Chief Executive Leung Chun-ying, who spoke before Zhang, has promoted Xi’s infrastructure initiative to offset a decline in mainland tourists and retail sales, mentioning the strategy four dozen times in his January policy address. After arriving Tuesday, Zhang said Beijing was satisfied with Leung’s work and pledged to listen to Hong Kong’s concerns. The city’s sagging stock market also got a boost from China on Tuesday, as buying by mainland institutions via an exchange-trading link surged to 2.6 billion yuan (US$400 million), the highest level in a year and sent Hong Kong’s Hang Seng Index up 1.2 percent. Bloomberg News

Zhang Dejiang, Chairman of the Standing Committee of the National People’s Congress (C), Leung Chun Ying, Hong Kong’s Chief Executive (L), and Tung Chee-hwa, Hong Kong’ former Chief Executive (R), attend the opening ceremony of the Belt and Road Summit at the Hong Kong Convention Centre in Hong Kong.

M&A

Landslide disaster

Diplomatic shift

Frankfurt, London stock exchanges to tie knot in July

Sri Lankan president promises Myanmar welcomes US move immediate relief for victims to ease more sanctions

Deutsche Boerse and LSE, the operators of the Frankfurt and London stock exchanges, said yesterday they intend to seal their planned merger to create a new global player in July. In a brief joint statement, the companies outlined the timetable for the next stages in the tie-up. The detailed shareholder documents will be published in June; LSE shareholders will vote on the plans at a meeting in July; and Deutsche Boerse’s offer to LSE shareholders will expire in July, the statement said. The tie-up, which both sides describe as a “merger of equals”, will create one of the world’s biggest stock exchanges. Under the agreed terms, Deutsche Boerse shareholders will end up with 54.4 percent of the new holding company’s capital, and LSE shareholders with 45.6 percent. The LSE and Deutsche Boerse are to become intermediate subsidiaries of the combined group, which will have headquarters in both London and Frankfurt and the board would have “equal representation” from both sides. It will be headed by Deutsche Boerse chief Carsten Kengeter. AFP

Sri Lanka’s President Maithripala Sirisena visited Arunayake in Kegalle district yesterday, where a massive landslide has killed at least 13 people and left hundreds missing. Sirisena met the relatives of the victims and vowed to provide the government’s immediate relief to those who had been affected. The president also viewed the site of disaster as rescue teams continued their search operations. The landslide, which struck on Tuesday night due to strong winds and heavy rains, has buried three villages. According to the Sri Lanka Red Cross, over 200 families were still missing while 13 bodies were recovered. The army said 150 people had been rescued from under the debris and the military together with police and other teams were continuing with rescue efforts. The army also said three bodies had also been recovered from Bulathkohupitiya, around 72 km away from the capital, when a landslide struck the area in the early hours yesterday. Around 6 rows of houses had been damaged in the landslide, some completely buried, and 13 people were missing. Rescue efforts were on-going. Xinhua

A US decision to pare back economic sanctions on Myanmar could unclog investment as the country claws its way out of poverty, Aung San Suu Kyi’s civilian government said yesterday, welcoming the move. Suu Kyi’s party took power in March after clinching a majority at last year’s election, the freest in generations for a nation that withered under half a century of military rule. It now faces a daunting task of rehabilitation in the Southeast Asian country, which is hampered by decrepit infrastructure, conflicts in resource-rich borderlands and the continued influence of the military and junta-era cronies, who still dominate the economy. The United States lifted a host of financial and trade embargoes Tuesday to recognise the “historic milestone” of the country’s transfer to a civilian-led government, according to a statement by the Treasury department. Washington has rolled back many of its sanctions to reward reforms since the end of outright military rule in 2011, but retains scores of names on its blacklists as it seeks to push further changes and promote human rights. AFP