Export orders from all of Taiwan’s key markets fell again in April Trade Page 8
Monday, May 23 2016 Year V Nr. 1048 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm
www.macaubusinessdaily.com
Hotels Hold Steady Hospitality
Average hotel occupancy and room rates slightly rebounded in April. Despite both indicators suffering decreases on a y-o-y basis. The average room rate increased 3.5 pct in the city vis-à-vis March, costing MOP1,288 (US$161) per night compared to MOP1,245 per night. Page 3
Number of doctors and nurses increased in 2015 Page 4
Gaming
SJM seeks 500 tables for Grand Lisboa Palace Page 5
Industry
Local industrial production index (IIP) jumped by 13.9 per cent q-to-q Page 2
Time ripe for Rosé Now is the time. Rosé Revolution wine festival host Eddie McDougall says revival of Rosé is in the air. The proprietor of the Flying Winemaker company tells Business Daily that the tipple is ideal for young Asians, the outdoor lifestyle, and those seeking a lighter, colourful drink. Especially as China consumers search out alternatives to high-end wines. But education is key, he says. Interview Pages 6&7
Job market
Guangdong companies adapt hiring policy in uncertain economic environment Page 16
Court finds for Chan
Finance reloaded
Government The Court of First Instance has acquitted the former VP of the Cultural Affairs Bureau. Stephen Chan Chak Seng had been in the dock for abuse of power and breaches of confidentiality obligations. He was, however, found guilty of two charges of declaring incorrect information. Page 3
P2P Mainland authorities have approved a plan to clean up the online financial sector. Calling for stricter rules for peer-to-peer (P2P) platforms. And forbidding them from holding clients’ capital in-house. Pages 8&9
23° 29° 25° 29° 25° 29° 26° 29° 26° 28° Today
China Resources Power
wed
19,852.20 +157.87 (0.80%)
+5.12%
China Overseas Land &
China Resources Land Ltd
+4.99%
Cheung Kong Property
Belle International Holdings
+4.38%
China Shenhua Energy Co
+3.45%
Lenovo Group Ltd
-0.80%
Tingyi Cayman Islands
-1.45%
+3.15%
Hengan International Group
-0.98%
China Merchants Holdings
-2.36%
MTR Corp Ltd
-7.67%
+2.80%
HSBC Holdings PLC
-1.12%
Source: Bloomberg
HK Hang Seng Index May 20, 2016
tue
I SSN 2226-8294
thu
fri
Source: AccuWeather
Health
2 Business Daily Monday, May 23 2016
Macau Construction
Some 17 new hotels being built as at Q1-end
A total of 17 hotel projects were under construction during the first quarter of this year, while 34 others were at the design stage, according to the latest official data from the Land, Public Works and Transport Bureau (DSSOPT). These 51 new hotel projects will, upon completion, provide a total of 8,884 rooms to the total
supply for the city. Meanwhile, during the first three months of the year, the DSSOPT granted occupancy permits for 15 residential projects - which offered 429 units in total – whilst projects that are still under construction or awaiting inspection checks totalled 94, involving 9,907 units. In addition, the Bureau said 207 residential projects were under design – to supply some 20,488 flats during the quarter.
Finance
BNU posts big increase in business Nelson Moura nelson.moura@macaubusinessdaily.com
B
anco Nacional Ultramarino achieved a 31.3 per cent increase in its business volume for the first quarter, contributing 46.75 per cent of the total international contributions of its shareholder Caixa Geral de Depósitos (CGD) – a Portuguese state-owned bank - according to CGD’s first quarter report. Of the approximately US$44 million (MOP394.4 million) total of international contributions – a year-on year increase for the quarter of 79 per cent - to CGD, BNU contributed US$20.87 million. Of the international European contributions to CGD, the group’s French and Spanish operations saw the largest growth – at 14.2 and 3.6, respectively - amounting to increases of 498 million euros and 107 million euros. Asia BNU’s operations grew 284 million euros, representing a 10.6 per cent increase compared to the same quarter last year. The group’s African operations saw an 11.2 per cent drop compared to the same period last year. The group noted that they ‘continue to develop a strong commitment in its activities backed by the international platform of the CGD Group for the development of relationships with internationalized clients in these markets as well as the increase of external commercial negotiations,’ states the group in its report. Local bank BNU saw operating income for the quarter amounting to MOP285.6 million - corresponding to a 20.4 per cent increase compared to the first quarter of last year, despite registering a 3 per cent increase in costs and earning the group an
efficiency ratio for the period of 29.2 per cent, compared to 34 per cent for the first quarter of 2015. Statutory accounts totalled MOP187.1 million before taxes, a 20.3 per cent increase, while net income saw a 35.3 per cent increase to MOP164.6 million.
CGD reeling
Overall for the quarter, the net results reached negative values amounting
to US$83.26 million, compared to a profit of US$2.36 million seen in the same quarter last year. Client resources amounted to 73.94 billion euros, a 3.9 billion euro increase compared to the first quarter of last year. Financial operations, which saw a profit of US$105.7 million in the first quarter of 2015, dropped to a loss of US$109.19 due to ‘high volatility felt in financial markets internationally’. In 2016, liquid commissions
Industrial production
Industrial production index jumps 14 pct in Q1 T h e M SA R’ s i n d u s t r i al production index (IIP) jumped by 13.9 per cent quarter-to-quarter to 89.4, which is attributed to a 37.9 per cent surge in the production index of electricity, official data released last week by the Statistics and Census Services (DSEC) shows.
During the quarter, the production index of electricity rose to 80.4 from 58.3 as at the end of last year, driving the production index of electricity, gas and water to post a growth of 28.8 per cent quarter-to-quarter for the three months despite the production index of water supply dropping by 7.7 per cent quarter-to-quarter to 114.8. Meanwhile, the overall production index of the city’s manufacturing sector dropped 0.4 per cent quarter-to-quarter to 97.2, dragged down by the 22.7 per cent drop in the production index of tobacco
manufacture, as well as a decrease of 24.5 per cent in that of the manufacture of non-metallic mineral products. In addition, the production index of the manufacture of wearing apparel declined 68.8 per cent quarter-to-quarter to 0.5, while that of the manufacture of textiles fell by 14.1 per cent to 113.7 from the previous quarter. However, the production index for the manufacture of food products and beverages achieved 155, which represents a jump of 16.5 per cent compared to 133.1 as at the end of last year. K.L.
decreased 8.5 per cent to US$129.72 million, as a result of ‘strong competition and regulation on commission collecting,’ while maintaining a financial margin of US$315.9 million, with a 9.8 per cent growth year-onyear, the group stated. This growth highly benefited from a 20.7 per cent and 10.6 per cent decrease in funding costs and interest rates for active operations, respectively. However, the first quarter of 2016 saw a significant decrease due to hedging operations on interest rate risks for Portugal’s public debt, according to news agency Lusa. ‘Income from financial operations were particularly affected in the quarter by the climate of instability in the financial markets and increased risk aversion, in the context of strong uncertainty regarding economic growth prospects at an international level,’ the group stated. In 2012, in order to recapitalise the CGD, the Portuguese Government invested US$840 million directly in bonds and US$1 billion in contingent capital, investments the CGD as a state-owned bank still pays annual interest on, according to Lusa. Until now CGD hasn’t repaid the debt and no deadline was provided for the payback, with the contingent capital turning into bonds if no payment is made until 2017, notes the newswire. The Portuguese Government is currently discussing with the European Commission if the government, as sole CGD shareholder, should increase capital in the bank, but the European Union authorities consider any capital raised by the Portuguese state as aid for the bank, which would imply a new restructuring of CGD, could lead to budget and personnel cuts, Lusa reported.
Manufacturing sector drops in index due to tobacco production slowdown.
Business Daily Monday, May 23 2016 3
Macau Hospitality Average hotel occupancy reached 81.1 pct last month
April hotel occupancy and room rates pick up
More hotel rooms were occupied in April than in March even though they were slightly more expensive. Kam Leong kamleong@macaubusinessdaily.com
T
he city’s average hotel occupancy rate and room rate slightly rebounded in April from March despite both rates still suffering decreases compared to the same month in 2015, according to the latest data released last week by Macao Government Tourism Office (MGTO). Last month, the local hotel occupancy rate reached 81.1 per cent, up some 3.3 percentage points compared to 77.8 per cent in March. In addition, the average room rate increased 3.5
per cent, costing MOP1,288 (US$161) per night compared to MOP1,245 per night one month ago. On a year-on-year comparison, April’s average occupancy, however, still dropped by 2.1 percentage points from 83.2 per cent, while the average room rate declined by 10.2 per cent year-on-year from MOP1,434 per night. In terms of category, the monthly occupancy rate of the city’s 3-star hotels is the highest, reaching 90.4 per cent. The category is also the only one posting a year-on-year increase of 1.5 per cent in occupancy as its average cost for a room fell by 11.5
per cent year-on-year to MOP835 from MOP944 one year ago. Meanwhile, 5-star hotels registered the lowest occupancy rate of 77.7 per cent in the month, down 3 percentage points compared to 80.7 per cent one year ago. Room rates at 5-star hotels dropped 9.3 per cent year-on-year to MOP1,664 per night. The 4-star hotels also saw their room rate decrease - by some 11.4
per cent year-on-year to MOP761 on average. Yet, such a significant drop did not help to boost occupancy, which fell slightly by 1.5 percentage points year-on-year to 84.7 per cent last month.
Occupancy down in first four months
Accumulatively, the average occupancy rate of local hotels reached 79.5 per cent during the first four months of the year, down 2.5 percentage points compared to 82 per cent during the same period of last year. In addition, hotel room rates plunged 15.5 per cent year-on-year, down to MOP1,353 on average in the four months from some MOP1,601 for the same period one year prior. Meanwhile, 4-star hotels, which registered the highest decrease in room rates of 18.2 per cent yearon-year to MOP806.4 in the four months, saw their occupancy rate post a slight increase of 0.5 percentage points year-on-year to 80.6 per cent in the period. By contrast, occupancy rates at 5-star hotels and 3-star hotels declined 4.2 and 0.4 percentage points year-on-year, reaching 77.9 per cent and 86.2 per cent, respectively. The average room rate of 5-star hotels dived 13.8 per cent year-onyear to MOP1,712, whilst that of 3-star hotels decreased 16.1 per cent yearon-year to MOP913.2 for the first four months of the year.
Legislation Domestic violence codified a public crime
Anti-domestic violence bill passed last week The Legislative Assembly (AL) unanimously passed the final reading of the government-proposed bill on preventing domestic violence last Friday, listing domestic violent actions as a public crime. The approved bill will come into effect 120 days after the official dispatch appears in the Official Gazette. In addition, it mandates a review of regulations of the bill three years after implementation. Under the new law any physical, mental or sexual maltreatment between kinships or equivalent relationships will be perceived as domestic violence. Violators can be sentenced to jail for a period of one to five years. It has been about three years since
the government conducted public consultation sessions on whether the bill should list domestic violence as a public crime or a semi-public crime, since September 2011. Last Friday’s AL plenary session also greenlighted the first reading of the bill increasing the requirements for law practitioners to become a private notary; this includes a mandatory five-year period of experience in the Special Administrative Region. In addition, a debate motion on amending local taxi regulations, which was jointly filed by legislators Mak Soi Kun and Zheng Anting, was passed by the legislators with 25 votes in favour. Nevertheless, a debate motion on the residential project on Alto de Colane filed by pro-democrat Au Kam San was vetoed, as was another debate motion on supervising amounts of public expenditure filed by the legislator’s companion Antonio Ng Kuok Cheong.
Courts
Former vice cultural head acquitted of abuse of power Last Friday, the Court of First Instance acquitted the former vice president of Cultural Affairs Bureau Stephen Chan Chak Seng of abuse of power and breaches of confidentiality obligations regarding allegations of helping his brother obtain a service contract outsourced by the Bureau in 2008. Nevertheless, the court convicted the former official of two charges regarding the declaration of incorrect information in his 2008 and 2010 property submissions, as well as another charge on property of unknown origin, imposing a fine of MOP420,000 (US$52,500) on the official. Following the court’s ruling, Mr. Chan told reporters that he had never made any mistakes related to public
affairs, claiming that the allegations had had a great impact on him, according to Chinese language newspaper Macao Daily. The ex-official added that he would decide whether to file an appeal on the court’s decision after studying the verdict with his lawyer. In 2011, the city’s graft watchdog – the Commission Against Corruption (CCAC) - found that the ex-civil worker was suspected of deliberately revealing quotations offered by other bidders for a maintenance service contract to his younger brother in order to have him adjudicated the contract, which violates the functional obligation of confidentiality of public servants. But the lowest court ruled last week that there was no solid evidence proving that Chan’s brother is a partner in the company that was awarded the service contract, or that the former vice Bureau head had revealed the quotations of other bidders to his sibling. Mr. Chan stepped down from his position as his term was terminated by the then Secretary for Culture and Social Affairs in August 2012.
4 Business Daily Monday, May 23 2016
Macau Uber
Wheels but no traction Commission for public administration praises Uber ride service.
Nelson Moura nelson.moura@macaubusinessdaily.com
A
report by the commission for public administration to the Legislative Assembly (AL) – the Monitoring Committee for Public Administration Affairs - praises the car ride sharing app Uber in an analysis of the current oversight regarding taxi regulation and licences. In the report it was revealed that some legislators have suggested to the government that due to the popularity of the service it would be of public interest to legalise Uber. Also, due to the high demand for taxis, the right conditions for the implementation of a similar online platform for requesting car rides should be created. The report states that legislators have said that ‘although this kind of passenger transport doesn’t satisfy the current legal requirements, the fact is it [has been] welcomed by local citizens. In their opinion, the quality of this service is much better than ordinary taxis, service is quick and
effective, and solves their transport needs.’ The popular car ride sharing application was considered illegal by the Transport Bureau (DSAT) and the Public Security Police Force (CPSP) in October of last year, one week after the service started operating in the territory, Business Daily reported.
A local Uber for taxis
According to the report, some legislators have suggested the government create a platform similar to the Uber service for requesting taxis, which would make life ‘easier’ for passengers and drivers, while resolving the exploration of non-licensed vehicles. The government is said to have responded by expressing its intent to establish a platform for networked services for ‘eligible special taxi services’ and that the statute of passenger transport services through ‘car ride software’ would be considered, according to the report. However, since under the current traffic regulations - in which private cars cannot be used for paid transportation - the CPSP would continue
to ‘combat […] the illicit actions of unlicensed rental vehicles’ while increasing personnel for oversight purposes. The Regulations for Road Traffic and the Regulations for Transport of Passengers in Light Vehicles for Renting or Taxis stipulates that a vehicle being used for a purpose other than that registered with the DSAT is liable to a fine of MOP30,000, while the second says drivers being paid to transport passengers are not allowed to charge a different fare from the tariffs defined by law.
Taxi associations discuss
In term of taxi licences, the report mentions that the Chief Executive’s decision in January to proceed to a pubic tender of 250 taxi licences, with a base price of MOP200,000 and valid for an eight year period, goes ‘against the current position’ taken by the government on the taxi licence issue and opinions from the taxi professional sector reject that model. The commission questioned the government about the model and considered it necessary to eliminate
‘the investment component’ of the public tender, with some legislators stating that with a model based on the highest bidder ‘taxi rentals will increase significantly’ potentially leading to taxi drivers committing illicit activities. In the report, the government is said to have considered suggestions for the ‘elimination’ of the investment component of taxi licences but added that the measure could be adapted to the ‘Macau reality, where there are 650 taxi licences without an expiry date’ and since a study by the DSAT suggested the number of taxis shouldn’t exceed 1,700, the measure would be implemented ‘gradually.’ Other legislators proposed that a model where taxi licences are awarded to drivers who fulfill certain requirements could reduce costs and minimise the risk of illegal acts by drivers, even suggesting a similar model of free rental vehicle exploration used in Chinese cities like Hangzhou, Nanjing and Shenzhen, to which the government responded that the free exploration of vehicle renting could lead to a high increase of vehicles in Macau, and that it would consider introducing a revision based on Singapore’s taxi regulations, where taxi services are provided by taxi associations who can also award licences and monitor taxi services. The report also mentions that the CPSP has reinforced its joint operations for preventing infractions by taxi drivers; however, the fight against excessive fare charging and transport refusal has not been effective due to the excessive time taken by the DSAT during administrative sanctioning procedures, while fines are ‘too low’ to be a deterrent. New measures, such as voluntary recording and entrapping illegal-activity taxi drivers, higher taxi violation penalties, police stings and licence cancellation were also discussed, with the government considering it has already ‘taken into account the opinion of the taxi sector’ for the licence cancellation issue, according to the report.
Health 2.6 doctors and 3.5 nurses per 1,000 residents
More doctors and nurses last year The total number of doctors and nurses registered a year-on-year increase of 5.2 per cent and 14.5 per cent, respectively, as at the end of last year, according to the latest health data released last Friday by the Statistics and Census Service (DSEC). In 2015, some 1,674 doctors and 2,279 nurses were working in the Special Administrative Region, representing 2.6 doctors and 3.5 nurses per 1,000 members of the population, an increase in the ratio of 0.1 and 0.4 compared to one year ago, respectively. There were five hospitals in the city last year, providing a total of 1,494 in-patient beds, up by 73 compared to 2014. The occupancy rate of these in-patient beds recorded a marginal growth of 0.8 percentage points year-on-year to 76.6 per cent as the
number of in-patients grew by 4 per cent year-on-year to 54,000. Meanwhile, over 1.63 million out-patient consultations were conducted at these five hospitals last year, an increase of 7.5 per cent year-onyear. In particular, consultations in Chinese Medicine rose by 16.5 per cent year-on-year to 183,000. In addition, attendances for emergency service grew 2.7 per cent yearon-year to 475,000. Those on the Peninsula registered an increase of 7.3 per cent year-on-year to 361,000, whilst those in Taipa were down 9.4 per cent year-on-year to 113,000. Some 708 primary healthcare establishments last year provided over 3.98 million consultations, while the number of blood donors totalled 10,157, up 1.4 per cent yearon-year. K.L.
Business Daily Monday, May 23 2016 5
Macau Gaming
SJM to apply for 500 tables for Grand Lisboa Palace
L
ocal gaming operator SJM Holdings Ltd is planning to apply for 400 to 500 gaming tables for its new Cotai gaming project Grand Lisboa Palace, according to the group’s Chief Executive Officer Ambrose So Shu Fai last Friday. Chinese language newspaper Macao Daily reports that the SJM CEO claimed that the operator would file its application for gaming tables when the construction of the project is nearly finished next year.
Previous filings from SJM with the Hong Kong Stock Exchange indicated that its new Cotai project is expected to accommodate some 700 gaming tables and 1,000 slot machines. When asked by reporters whether the construction of the new casino project would be delayed, Mr. So said that the completion of the complex is still projected for the fourth quarter of 2017, adding that it is hard to forecast the progress of construction. He remarked that the decrease
Letter to the Editor Banco Nacional Ultramarino, S.A. refers to your published article “Legal source: BNU shouldn’t share banking information with Portuguese bank”, on the issue of May 19, 2016. […] The Bank was the subject of criticism based on false news and therefore wishes to provide for the correction of such facts. 1. The article contends that “(...) 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.” The letters sent to our customers indistinctly referred to by Business Daily as KYC are in fact two different letters: the KYC letter which requests our customers to update customer information in accordance with Anti-Money Laundering and Combating the Financing of Terrorism AMCM Guideline, and the letter under the title Managing Your Information Consolidated Banking Supervision which is a request of our customers’ informed consent for transferring personal data exclusively for consolidated supervision banking purposes, pursuant to the applicable provision of the Macau Financial System Act. 2. The article contends that “’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.” Contrary to anonymous and less informed opinions voiced in Business Daily’s article, AMCM supervision authority has been observed and respected by the Bank. The Bank operates in Macau’s jurisdiction and being part of an international banking group is therefore subject to
both Macau and international laws. In fact the transfer of such information for consolidated banking supervision purposes is made under the provisions of the Macau Financial System Act, being irrelevant the Bank’s new legal status after Macau’s handover to the People’s Republic of China as evidenced by article 9.4 of the aforesaid Macau Financial System Act. 3. The article contends that “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,’” Contrary to what has been published by Business Daily, the Bank fully complies with all relevant legislation, in particular the provisions reflected in Macau’s Personal Data Protection Law. In addition, the procedure of transferring information for consolidated supervision purposes to the Bank’s parent company Caixa Geral de Depósitos, S.A that aims to give Caixa Geral de Depósitos, S.A., a basic knowledge of who our customers are, limited to a specific scope of information, has been previously coordinated with the Macau Office for Personal Data Protection. The procedure, overseen by the Macau Office for Personal Data Protection, guarantees the correct use of the Bank’s customer’s personal information. 4. The article contends that “(...) 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” Business Daily incurs in false allegations when it states that Portuguese tax authorities are using the Bank to get
information regarding Portuguese nationals residing in Macau that the Portuguese Government wouldn’t otherwise have access to, allegedly taking advantage of what the author calls “smart loophole”. It should be noted that the Bank is a responsible member of the Macau financial and business community and conducts its activity in the utmost observance of local and international laws and regulations. The Bank has a strong compliance record both in Macau and on an international level. The Bank has coordinated with Macau regulators, Caixa Geral de Depósitos, S.A., and indirectly with the Head Office’s supervisors in order to ensure the fulfilment of all necessary requirements in both jurisdictions. The transfer of customers’ personal data to Caixa Geral de Depoósitos, S,A., coordinated with the Macau Office for Personal Data Protection and subject to the respective customer’s expressed and informed consent, can only be and will be solely used for consolidated banking supervision and should not be mistaken with any other matters. The Bank has always operated under the absolute duty of secrecy and does not intend to or, by any means, provide Portuguese tax authorities with personal data or information about its customers and their accounts. Allegations of the Bank doing otherwise and violating its duty of secrecy and strict confidentiality of its customers are completely unsupported and shall not be tolerated. Regarding the abovementioned four points, the Bank finds it regrettable that prior to the publishing of the article, Business Daily has contacted the Bank to make inquiries on point 4, but never inquired on point 1 to 3, thus resulting in the publication of incorrect information. Yours Sincerely, Pedro Manuel de Oliveira Cardoso Chief Executive Officer Leandro Rodrigues da Graça Silva Executive Director
Gaming
Corporate
Sheraton lands second consecutive Best Leisure Hotel award
The Sheraton Grand Macao Hotel, located in Cotai, received the Best Leisure Hotel of the year in Hong Kong and Macau award at the 2016 China Travel & Meetings Industry Awards event – marking the second consecutive time the hotel has received the distinction. The event is hosted by Travel Weekly China. “We are deeply privileged and humbled, knowing that there are so many deserving hotels in the same category within the region,” said Janet McNab, Managing Director of the Sheraton Grand Macao Hotel and The St. Regis Macao. “China has always been one of our most important markets and definitely our biggest for leisure travel,” Ms. McNab said. “The strength of the Sheraton brand in China, coupled with our vast and varied service and product offerings makes us a popular choice for family travel. We will continue to develop this market in 2016 through the introduction of new experiences for children and families.”
in the gaming revenues of the VIP rooms still cannot be offset by the mass market despite mass gaming tables and slot machines posting slight increases in their performances. Mr. So expects that the city’s gaming industry will not see any V-shape or U-shape rebound but hopes the sector will maintain its current stable development and register slight growth for the rest of the year. The CEO also added that the government’s recent ban on proxy betting at local gaming tables has not had much impact on the gaming business due to only a small number of gamblers placing their bets via phone.
MECC announces Awards for Euroexcellence winners
The Macau European Chamber of Commerce has celebrated its third annual Gala Dinner, commemorating relations between Europe and the SAR in commerce and culture. The event also marked the MECC Awards for Euroexcellence in Luxury, Food and Beverage and Innovation. Taking first place in the Luxury category was Zung Fun Motors (Macau) Limited due to its co-operation with the Mercedes-Benz brand in an enduring partnership. In the Food and Beverage category, Lord Stow’s Bakery took home the prize for its contributions to the local tourism industry and its professional British service. In the innovation category Moon Chun Memorial College of the University of Macau was awarded for its European-style approach to education – encouraging interaction between different nationalities and cultures. The gala took place at the Grand Lisboa Hotel and marks the second year of the MECC Awards for Euroexcellence.
Not quite there yet In the wake of statements made by the executive vice president and group chief executive of gaming at Scientific Games Corp during the Global Gaming Expo Paradise Entertainment Limited - a manager of live multi game terminals and slots - has issued an announcement clarifying the progress of a case regarding Scientific Games Corp’s right to sell electronic table games in the local market. The announcement, filed with the Hong Kong Stock Exchange, notes that ‘No decision was granted by the Macau Courts in favour of Scientific Games Corp. […] regarding the right to sell any electronic table games in the Macau market.’ It additionally notes that the legal dispute, between Mr. Jay Chun of Natural Noble Limited and LT Game Limited, against SHFL (Shuffle Master Asia Limited – the former name of Scientific Games Corp.) is ‘pending for trial and, therefore, is pending for the decision to be made’. A previous case, brought by SHFL Macau against LT, Natural Noble, Jay Chun and Paradise Entertainment Ltd. ‘was dismissed earlier this month’. In the case ‘SHFL Macau alleged that the abovementioned entitites and/ or individuals were infringing the rules of fair competition,’ noting that the case was ‘dismissed after SHFL Macau withdrew its claim’ after the company was ordered to ‘pay all court fees relating’ to the case. K.W.
6 Business Daily Monday, May 23 2016
Macau Wine Interview Winemaker maintains the city lacks sufficient talent to support the wine market
‘Time for Rosé wines to return to the market’ Host of wine festival Rosé Revolution Eddie McDougall believes now is the appropriate time to revive the oncepopular Rosé wine sector in Asia, especially as China is experiencing an economic slowdown and consumers are looking for an alternative to high-end wines. McDougall also says his company The Flying Winemaker - would love to expand its footprint in Macau but the lack of human resources and exorbitant shop rentals are causing him to bide his time. Kam Leong kamleong@macaubusinessdaily.com
This is the sixth consecutive year of the Rosé Revolution. What are the primary objectives of promoting Rosé wines in the region? Rosé, as a wine style, was very popular around the 1960s and 1970s. However, during the 1980s and 1990s, its popularity gradually decreased. My vision is to revive this category of wine because it’s very suitable for Asian markets. In addition, Rosé is very sexy. Wines don’t always look sexy as they are either red or white. But Rosé, in its pink colour, is very appealing and attractive. I think this is part of the entire experience of [tasting] wines as it’s about sensation. Meanwhile, Rosé also represents a kind of style. Rosé events are always outdoors, served with barbecue food... It’s a beautiful connection of everything lifestyle, wines, good taste - which is the new way of bringing people together. The Festival will be held in four Asian locations – Macau, Hong Kong, Shanghai and Singapore. How popular are Rosé wines in these cities? People are not too familiar with Rosé wines. However, people in Hong Kong are becoming more and more familiar with this kind of wine, following [our hosting of the event] for six years while Hong Kong has been our home base. As such, over these six years, we have been growing a Rosé Fan Club . . . Meanwhile, for Shanghai, it’s probably the slowest to catch on, like the rest of Mainland China. People there still favour big brands, red wines or fine wines. Given the economic slowdown in China, with people spending less now, they are looking for an alternative category of wine. For young people, they also don’t have as much money as before, so they need to spend more wisely now. And Rosé for sure is a very wise option as you can get a very good quality bottle without spending a lot of money. How about the local market? In Macau, it is interesting as it has the Portuguese culture in the background. Rosé is a very important part of Portuguese wines. The biggest Rosé winemaker before was a Portuguese brand. Meanwhile, Macau is set as a
Eddie McDougall, The Flying Winemaker company owner.
‘Rosé events are always outdoors, served with barbecue food... It's a beautiful connection of everything – lifestyle, wines, good taste which is the new way of bringing people together.’ place where Hong Kong people will come during the weekend. They will drink Rosé wines, they will drink Portuguese-brand Rosé wines, they will go to Portuguese restaurants and drink Portuguese wines. So it’s there. It all goes in cycles. Trends change. Youth has a different mindset. Rosé wines are becoming [a symbol] of hipsters and [being] cool. You even get guys loving Rosé. I think it’s a very good time that Macau is back
[to exploring the Rosé wine market] because all the heritage [of Portugal] is in the background.
New Trend What do you plan to introduce to the local market? Macau positions itself as a holiday destination so it’s very driven by tourism. Obviously, inbound tourism is a big part of Macau’s business. And we want to be a part of that as it’s a very significant place for investment in F&B. Hence, we need to provide alternative F&B concepts for places like this because there are a lot of in-house activities here but they rely upon us to bring in creative ideas, creative concepts from outside Macau so that people here can enjoy these things. But do you see the city calling for more Rosé wines as a more economic alternative? Demand is growing, especially from the hospitality sector. They now give more emphasis on Rosé wines. For example, hotels may now list more
Cheong Kam Ka
Rosé wines on their menus. As customers going to a restaurant in the afternoon may want a glass of notso-heavy wine that is lighter and refreshing, which is Rosé. People are picking up [on the trend] again. What are the features of this year’s Rosé Revolution compared to last year’s? It was more about people engaged in trade last year, with people from restaurants, bars, hotels and some individual consumers. This year, the event will be held in a much bigger venue, which is in MGM. And it will include the mass market of Macau as we aim to make it a local event. Last year’s was quite small because it was a test to see if the event is suitable for Macau, and if Macau is ready [for Rosé wines]. I think this is quite a nice test to get the market out, to get the ideas out and get some people. This year, the event will be divided into two sections. One is specifically for trade people - such as business buyers of wines, those from hotels, restaurants and bars, on Friday - while the other is for all consumers, on Saturday.
Business Daily Monday, May 23 2016 7
Macau
Cheong Kam Ka
How many participants do you expect? Well, the venue can accommodate some 200 people. To give you an example, in Hong Kong, we sold out all 280 tickets [two weeks before] the Festival . . . For Macau, I’m confident that we will get all 200. You mentioned you want to be a part of receiving Macau’s inbound tourism. Do you target tourists as well? Not a lot of tourists for the event as we really want to make it a local event. My vision is that there are not many things designated for Macau people but many things for tourists. As such, I think this event needs to be more [about] local impact. And it would be a good way of doing this. How is the current business of your company, The Flying Winemaker, in the city? At the moment, we sell wines that we make in Macau. We sell it through local importers. In addition, we do events, such as wine dinners [as well as] Rosé Revolution.
Hold on Are there any difficulties in selling your own-made wines in Macau? It is difficult. Macau is just difficult as there are not enough talented people to promote wines probably – especially, there are lots of regulations for employing people from outside Macau, such as restrictions on blue cards, etc. This is actually what makes
Rosé Revolution
Rosé Revolution, a wine festival that seeks to promote and revive the popularity of Rosé wines, is hosted by award-winning winemaker Eddie McDougall and his company The Flying Winemaker. The Festival, in its sixth consecutive year, has already been to Hong Kong and Singapore earlier this month and to Shanghai. Meanwhile, the Macau Festival, in its second year, is scheduled for The Vista at MGM Macau from 12:00 noon to 6:00pm this coming Saturday (May 28) According to Mr. McDougall, there will be some 30 different Rosé wines offered at the Festival.
‘Given the economic slowdown in China, with people spending less now, they are looking for an alternative category of wine.’ me go back one step as education is the much bigger force needed now to make Macau people more knowledgeable about wines so that wines that are not from big brands, [and those] such as mine can also be sold in local restaurants. For example, my wines sell very well in Wynn Macau as staff there are very professional and well-trained. But in small restaurants, staff there may not be that well-trained and don’t know what to do [except for] pouring the wines only. Do you see Macau as a more difficult market compared to Hong Kong? Hong Kong is a more mature market as I guess there’s a lot more training offered to staff, as well as exposure. Hong Kong is very aggressive when it comes to these two points. Moreover, a lot of big global brands invest quite heavily there so Hong Kong is very lucky for that reason. Macau is a little unfortunate in that it doesn’t have as
“The Festival will be a very good opportunity for people to try different high-end Rosé wines. As when people usually shop in supermarkets for Rosé wines, they’re usually very low-end. Of course, low-end Rosé wines are okay, too. But the Festival will offer a very good opportunity for people to realise that Rosé could be that good, the Hong Kongbased winemaker told Business Daily. Mr. McDougall’s company, The Flying Winemaker, runs an online wine shop based in Hong Kong, and makes its own wines in Australia and France in addition to providing other wine-related corporate services.
much [wine] investment from the outside so people cannot be more educated on wines. What are your marketing strategies here when Macau is dominated by red wines? Our idea is to make it very easy for people who don’t drink wine, or who don’t know anything about wine, to start with us. We are providing the baby steps; for example, we give them a spoon, they taste, and we slowly give them a little bit more and more. And it will get to a point that you are able to make your own decision. In the beginning, it will be all about giving the right tools – especially education, which is very important. We started our entire business based on the aim [of making] the education of wine really fun. For example, at the Rosé Revolution people would try a lot of different Rosé wines but I’m not going to give you a book and ask you to write things down. It’s really about the experience. We want to make it very easy for people to understand, we want to give them the best opinions to resolve their confusions. So, education is the first thing we will work on in Macau.
Shift of focus Official data shows the city’s imports of red wines, white wines and champagne all posted year-on-year drops for the whole year of 2015. How do you see the prospects of the wine market here given the downturn? I think the market still has potential depending upon different categories of wine. At the beginning, the wines imported were so expensive, with the value per bottle very high. It makes the average not realistic. However, when you start to focus on those who are really drinking wines on a daily basis, the average [value per bottle] would drop. For example, the average value per bottle may now be MOP120 instead of MOP300. There may be a shift in the volume – that of MOP120 will go up and that of MOP300 will go down. So are sellers shifting their targets to a more mass market, and buyers tending to purchase cheaper wines at the same time? Well, people still have the money, but they are smarter about how they spend money. They may not say yes as easily as before. Now they may
think a bit more – to read the label well and to compare the prices of different bottles. They make better decisions now and they’re buying smarter. It’s a great thing. It changes the pattern, from selling five [items] that are worth MOP1,000 to selling five thousand worth MOP30. And five thousand people, compared to five people is a much bigger number. So that’s kind of the trend that the market is going for everyone. Any other business plans for the Macau market? There are a lot of business plans, but whichever we choose to do is always difficult especially as Macau has been going through a downturn for at least the past 12 months. The Macau market has not been so good. We’re waiting before we make our next move. But the next move would be very local for sure. It’s not going to be an international concept. Meanwhile, we’ve launched a publication called Asian Wine Review, which is the first publication dedicated to promoting, reviewing and scoring Asian wines. We will probably bring this concept over to do a trade-specific event, to present Asia’s different wines to the trade industry and to promote winemakers who are doing great things in Asia that not far away from Macau. How about opening a physical store in the city? Not yet a store in Macau! I think the real estate needs to calm down a little bit more first. And location is important as well. But when it really happens, we would prefer it in street shops as I want to make it local, so it would be near a local neighbourhood.
‘It all goes in cycles. Trends change. Youth has a different mindset. Rosé wines are becoming [a symbol] of hipsters and [being] cool. You even get guys loving Rosé.’
8 Business Daily Monday, May 23 2016
Greater China P2P
Beijing approves plan to clean up online finance industry China’s cabinet is urging the 14 ministries to work together and share information to clean up the online finance sector. Shu Zhang and Matthew Miller
C
hina’s government has approved a plan to clean up the country’s online financial sector, according to people with direct knowledge of the matter, including rules to limit the activities of P2P lending firms, the source of recent fraud scandals. The plan, drafted by China’s central bank, follows a mid-April video-conference with 14 ministries and regulators organised by the State Council, the country’s cabinet, which approved the plan document seen by the sources. It outlines stricter rules for peer-topeer (P2P) platforms, where lending quadrupled last year to 440 billion yuan (US$67 billion), according to Citigroup research, forbidding them from holding clients’ capital in-house. Instead, client funds must be deposited with a qualified third-party banking institution and kept separate from a P2P platform’s own corporate funds. Firms must also set up “firewalls” to manage transactions with affiliates. “The online finance sector has entered a tough period this year,” Wang Zhijian, CEO of FuYin, a Shanghai-based P2P platform, said at a financial forum on Friday. “Good platforms welcome government regulation for a simple reason: without good rules, bad players push out good players,” said Wang, adding a lack of regulation forced all platforms into unfair competition.
In February, authorities arrested 21 officials of Ezubao, once China’s biggest P2P lending platform, which collected US$7.6 billion inside two years from more than 900,000 investors. It used savvy marketing, authorities said, to fund “a complete Ponzi scheme” that used investor funds to support a lavish lifestyle for company executives. Last month, police arrested 21 executives at Zhongjin Capital Management - a high-profile Shanghai-based platform that promised retail investors double-digit returns for short-term projects - accusing them of “illegal fundraising.” “These big cases are neither online finance nor P2P. They are frauds covered in the name of P2P and online finance,” Wang Sicong, chairman of
P2P platform eLoan told Reuters. He said eLoan’s business dropped by a third after the Ezubao fraud was exposed. Internet lending has made headlines not just in China recently, with the U.S. Department of Justice investigating San Francisco-based Lending Club Corp which has admitted falsifying documentation when selling a package of loans.
Collaboration
China’s cabinet is urging the 14 ministries to work together and share information to clean up the online finance sector, the sources said. The government is also calling for the establishment of a centralised registration system for Internet financial products and a unified platform for
Internet bank accounts. The plan restricts what online financial platforms can do without a licence - from raising cash to fund real estate projects to engaging in financial services such as asset management. It also creates additional responsibilities, such as a requirement to match a client’s risk profile to the investment products they sell. The plan also forbids false advertising of financial products, and prohibits non-financial companies from registering names including “finance”, “asset management”, “P2P”, “payments”, “fund”, and “trading exchange”. An inter-government body led by the central bank is also being set up, with representatives from the banking, securities and insurance
Trade
Taiwan April export orders fall for 13th month The Ministry of Economic Affairs said it expected the value of orders in the second quarter to decline from the same period last year. Faith Hung and Roger Tung
Taiwan’s export orders fell for the 13th straight month in April and at a far sharper pace than expected as demand in China and its other major global markets faltered, deepening challenges facing the island’s new government. Export orders contracted 11.1 percent from a year earlier, well below the forecast of a 4.3 percent drop in a Reuters poll and a 4.7 percent slide in March. Orders from all of Taiwan’s key markets fell by more than 10 percent, with its biggest customers China and the United States down 10.9 percent and 11.4 percent, respectively, data from the Ministry of Economic
Key Points April export orders drop 11.1 pct, much worse than expected All major export markets show double-digit declines China -10.9 pct, U.S. -11.4 pct, Europe -15.0 pct Japan -25.3 Reinforces view central bank will have to cut rates again
Affairs showed on Friday. The ministry said it expected the value of orders in the second quarter to decline from the same period last year. Hours before the grim data, new President Tsai Ing-wen highlighted the problems facing the trade-reliant economy.
“This country urgently needs a new model for economic development,” Tsai said in her inauguration speech, adding it needs to find new markets and not rely too heavily on China. Still, some analysts do not expect Tsai to unveil a quick fiscal stimulus program.
“Limited fiscal space will constrain the capacity of the government budget to fund Taiwan’s new growth model that is envisioned by Dr Tsai,” Moody’s said in a note after the speech. Taiwan’s export orders, which are dominated by orders for components used in smartphones, electronics and computing gadgets, are an indication of the strength
of Asian exports and of global demand for hi-tech products in general. Orders for precision equipment tumbled 26.4 percent in April, the biggest fall among major products, while those for information and telecommunication products dropped 10 percent. Taiwan is struggling to shake off last year’s recession, with the economy shrinking more than expected in the first quarter as trade weakness showed no sign of abating. Exports fell for the 15th st rai ght m o n th i n A p ri l though not as much as expected. But the outlook remains bleak. While the U.S. economy appears to be improving, Asian exporters are not reaping the benefits as they have in the past. Indeed, U.S. orders for Taiwan’s goods fell at a much sharper rate than in March, as did those from China and Europe. The bleak order data is likely to cement expectations that Taiwan’s central bank will need to cut interest rates at least twice more this year, after three reductions since September. Still, the central bank has acknowledged there is little it can do to combat a slowdown being induced by external factors. Reuters
Business Daily Monday, May 23 2016 9
Greater China In Brief regulators, along with the State Administration for Industry and Commerce and the Ministry of Housing and Urban-Rural Development. The plan calls for those ministries and departments to complete their field investigations by July and finish a sector-wide clean-up by November. The cabinet intends to issue a report by next March. China’s central bank and State Council did not immediately respond to requests for comment. The contents of the plan document also appeared on social media in China on Friday, and in Chinese media earlier. Reuters
Key Points Tougher rules for P2P lending platforms - plan Online financial platforms will need licence for some activities Inter-govt body to be set up; cabinet to report by March
M&A
Firm to buy up to 20 per cent of TAP
Fintech
Hong Kong council to issue green finance proposals this week China has vowed to make “green finance” a top priority of the Group of 20 nations as chair of the group this year. Elzio Barreto and Denny Thomas
An advisory council to the Hong Kong government will unveil a series of recommendations to attract green finance investments to the city this week, the chairman of the council told Reuters. “Green finance is absolutely new in Hong Kong and I think not many people are doing it in Asia and that is why we feel we should seize the opportunity,” said Laura Cha, chairman of Hong Kong’s Financial Services Development Council (FSDC). The country needs at least 2 trillion yuan (US$305.6 billion) a year over the next five years in green investments to promote environmentally-friendly investments and reduce the effects of pollution from its rapid industrial growth over the past three decades. “China is on the chair of G20 and they are very keen on green finance among other things. The September summit
under G20, you would expect some action,” she said, adding the recommendations will likely be published on May 24. The FSDC, whose members include asset managers, banks, securities firms, consultancies and law firms, is also considering forming a group to discuss recommendations to develop the city’s financial technology, or fintech, industry as it grows in importance, Cha said. Unlike China or India, where a large portion of the population remains without access to bank accounts or financial services, Hong Kong is a mature market that is “well served,” so fintech rules in the city would have to consider that, she said. “We are absolutely not moving fast enough” on fintech, Cha added. “This is an area of development that is a very key element of the financial industry that we cannot ignore.” The FSDC was set up by Hong Kong’s government in 2013 to examine how the city could maintain its status as a major Asian financial hub amid competition from regional rivals. It has issued recommendations to bolster the city’s position as an international centre for trading of China’s currency, lure more initial public offerings and real estate investment trusts (REITs), among others. Reuters
Chinese aviation and tourism giant HNA will buy up a stake of up to 20 percent of Portuguese national airline TAP, a private shareholder of the southern European company said Saturday. HNA will buy an initial seven percent stake of Atlantic Gateway, the private consortium that owns half of TAP, businessman Humerto Pedrosa told reporters in Lisbon. The Chinese conglomerate’s direct and indirect stake in TAP’s shares could reach 20 percent, Pedrosa said. The indirect stake could come through HNA’s ownership since a November buyout of 23.7 percent of Brazilian airline Azul’s shares. Commerce Ministry
U.S. measures do not address root problem U.S. efforts to protect its steel industry will not solve the sector’s fundamental problems, which stem from past protectionist measures, China’s Ministry of Commerce said on Saturday. The comments were posted on the ministry’s website following a decision on Friday by the U.S. International Trade Commission to continue probing imports of certain steel products from 12 countries, including China and Korea. The United States slapped Chinese steelmakers with final import duties of 522 percent on cold-rolled flat steel on Tuesday after finding their products were being sold in the U.S. market below cost and with unfair subsidies. NPL
Bank of China to issue first bad loan ABS since ‘08
Football market
Mainland buyers circle soccer “super” agent Stellar Group A deal would give the Chinese buyer access to some of the most connected football agents. Adam Jourdan
Four Chinese investor groups are locked in a more than US$140 million bidding war for one of the world’s most powerful soccer agencies, UK-based Stellar Group, a source said, a sign that China’s appetite for sport is outgrowing trophy club investments. According to documents reviewed by Reuters and a source with direct knowledge of the talks, the Chinese bidders include model car maker Rastar Group, which last year bought a majority stake in Spanish soccer club Espanyol. The potential investment would be music to the ears of avid soccer fan President Xi Jinping, who has an ambition to host and one day win the World Cup. He set out a plan 18 months ago to create a sport industry worth US$850 billion by 2025. “This is just the start of China’s global sporting and football ambitions and we should expect more of the same over the next five years,” said Simon Chadwick, Professor of Sports Enterprise at Salford University, Manchester. Ultimately, Chinese sports businesses will emerge that own assets across and throughout the global sport industry,
Chadwick said. If a deal is done, Stellar Group, founded by British agent Jonathan Barnett, would be a major addition to China’s fast-expanding roster of global football assets, which includes stakes in England’s Manchester City, Spain’s Atlético de Madrid and a growing domestic league. Last week, Chinese entrepreneur Xia Jiantong bought struggling English club Aston Villa. Barnett is one of football’s so-called “super” agents, who broker multi-million dollar deals to trade players between clubs. Stellar Group was behind Wales international Gareth Bale’s record-breaking 86 million pound (US$125 million) move to Real Madrid in 2013. A deal would give the Chinese buyer access to some of the most connected football agents, and a list of high-profile players at a time when China is ploughing money into grassroots academies, television rights and transfer deals for overseas stars. The Chinese Super League, still way behind European leagues in terms of
quality and prestige, spent around 340 million euro (US$382 million) in the latest winter transfer window, more even than the cash-flush English market. Stellar Group could cost around 900 million yuan (US$138 million) said the source, adding prices had only been verbally discussed. The person said Barnett was planning to travel to China at the end of the month to meet the suitors. Reuters was not able to independently confirm the valuation. The person, who asked not to be named because the negotiations had not been made public, declined to disclose the names of the other three investor groups. Reuters could not immediately reach Rastar for comment. Barnett did not respond to emailed requests for comment. Stellar Group represents hundreds of athletes, including footballers Bale and current England internationals Joe Hart, Luke Shaw, Phil Jagielka and Danny Drinkwater, according to transfermarkt.com. Reuters
Chinese bidders include model car maker Rastar Group, which last year bought a majority stake in Spanish soccer club Espanyol.
Bank of China Ltd and China Merchants Bank Co Ltd are poised to issue China’s first bad debt backed securities since 2008, according to statements posted on the website of China’s main bond clearinghouse. Bank of China will lead the asset-backed security (ABS) launch this week with a 301 million yuan (US$45.99 million) deal, while China Merchants Bank will follow up with a 233 million yuan (US$35.60 million) product. The amounts are miniscule compared with an outstanding 1.39 trillion yuan (US$212.37 billion) of non-performing loans at Chinese commercial banks by the end of the first quarter. Health system
Beijing cuts drugs price Chinese health authorities announced price cuts of up to two-thirds for three drugs on Friday in the latest move to reduce the cost of healthcare for patients in the world’s second-biggest economy. The National Health and Family Planning Commission said the cost of GlaxoSmithKline’s hepatitis B drug Viread would fall to 490 yuan (US$75) a month from 1,500, and AstraZeneca’s lung cancer pill Iressa to 7,000 from 15,000. Icotinib, another lung cancer drug made by China’s Betta Pharmaceuticals, will come down to 5,500 from 12,000 yuan a month.
10 Business Daily Monday, May 23 2016
Greater China Cross-strait relations
New Taiwan president pledges peace Tsai, nation’s first female President, said Taiwan would play a responsible role and be a “staunch guardian of peace” with China.
T
aiwan’s new president urged China on Friday to “drop the baggage of history” in an otherwise conciliatory inauguration speech that Beijing’s Communist Party rulers had been watching for any move towards independence. President Tsai Ing-wen was sworn in with Taiwan’s export-driven economy on the ropes and China, which views the self-ruled island as its own, looking across the Taiwan Strait for anti-Beijing sentiment that could further sour economic ties. “Cross-Strait relations have become an integral part of building regional peace and collective security,” she told thousands outside the
presidential office. “The two governing parties across the Strait must set aside the baggage of history and engage in positive dialogue for the benefit of the people on both sides.” China’s Taiwan Affairs Office said Tsai’s remarks were an “incomplete answer”, warning that China saw any push for Taiwan independence as “the biggest menace to peace across the Taiwan Strait”, according to the official Xinhua news agency.
Chinese Foreign Ministry spokeswoman Hua Chunying, asked about the inauguration, merely praised the record of the “one China” policy. “Regardless of what internal changes take place within Taiwan, China will uphold the one China principle and oppose Taiwanese independence,” she told a briefing.
“Let’s set aside disputes”
Taiwan markets reacted calmly to Tsai’s speech. The main stock index reached an
intraday high as she spoke, before closing 0.4 percent higher. Tsai pledged to abide by the constitution of the Republic of China, Taiwan’s formal name, and promised to safeguard the island’s sovereignty and territory. “Regarding problems arising in the East China Sea and South China Sea, we propose setting aside disputes so as to enable joint development,” she said. The American Institute in
Taiwan, which represents U.S. interests in the island in the absence of formal diplomatic ties, said it looked forward to working with the new government. The United States switched diplomatic recognition from Taiwan to China in 1979 but is also Taiwan’s biggest ally and arms supplier. China is deeply distrustful of Tsai’s DPP, whose charter includes a clause promoting “a sovereign and independent Republic of Taiwan”. Reuters
Taiwan President Tsai Ing-wen speaks in front of the crowd after her swearing-in as the 14th President of Taiwan, in Taipei, Taiwan, 20 May 2016.
Key Points New president says Taiwan will be a “staunch guardian of peace” Urges positive dialogue between Taiwan and China Tsai’s pro-independence DPP won landslide January elections China says Tsai’s remarks an “incomplete answer”
M&A
CIC ends talks with Yum Brands over Mainland business Separately on Friday, Yum unveiled a US$4.2 billion share buyback and declared a quarterly dividend of 46 cents per share. Lauren Hirsch and Greg Roumeliotis
A consortium that includes sovereign wealth fund China Investment Corp (CIC) and U.S. buyout firm KKR & Co has ended discussions to buy a stake in Yum Brands Inc’s China unit, according to people familiar with the matter. Louisville, Kentucky-based Yum Brands, owner of the Pizza Hut and KFC fast-food chains, has been looking to spin off its 7,205 China restaurants by the end of 2016, amid pressure from activist investor Corvex
Management, whose founder, Keith Meister, is on Yum’s board. One of the main sticking points was the CIC consortium’s desire to have majority control in the China business, something Yum would not entertain because of the negative tax implications on proceeds, the people said on Friday. CIC’s consortium also had concerns around achieving the investment returns it desires in a capital-intensive business amid a slowing Chinese economy, the people added, asking
not to be identified because the negotiations were confidential. “Our board is fully committed to maximizing shareholder value, and we are making great progress towards the separation of our China business by year-end and at the same time returning significant capital to our shareholders,” a Yum spokeswoman said. “Our China business is a large, unique and valuable asset ... We’re confident that, as a well-capitalized, standalone public company, it will have a long runway for continued growth,” she added. KKR declined to comment, while CIC did not respond to a request for comment. Separately on Friday, Yum unveiled a US$4.2 billion share buyback and declared a quarterly dividend of 46
“Our China business is a large, unique and valuable asset ... We’re confident that, as a wellcapitalized, standalone public company, it will have a long runway for continued growth” Yum spokeswoman
cents per share. The move follows its previous commitment to return US$6.2 billion of capital to shareholders before the planned separation of its China business. Yum, still the largest fast-food chain in China, has been losing ground to McDonald’s Corp as they both strive to revive sales in the teeth of growing competition from local rivals and a slowing economy. In recent years, it has sought to address challenges in supply chain control and food safety. It is common for newly public listed companies in China to secure so-called “anchor investors” prior to a public listing. The spin-off is expected to proceed with or without an anchor investor. The auction for a roughly 20 percent stake in Yum’s China unit also includes Singapore state investor Temasek Holding and another private equity-backed consortium, Reuters reported last week. Second round bids for the auction are due by the end of this month. Questions continue to persist around valuation, as Yum pursues its China unit spin. The entire China unit is valued between US$8 billion and US$11 billion, based on its core earnings of about US$1 billion, according to the sources. “I will tell you as a large shareholder, the Yum board selling this business for US$7 billion or US$8 billion is not the right thing, and I don’t think anyone would disagree about that,” Corvex’s Meister told CNBC in an interview in April. Corvex owns 5.2 percent of Yum, according to Thomson Reuters data. Reuters
Business Daily Monday, May 23 2016 11
Asia
Japanese Finance Minister Taro Aso (C) speaks past Bank of Japan Governor Haruhiko Kuroda (R) during a presidency news conference at Akiu in Sendai, Japan, 21 May 2016.
Currency Wars
Japan disagreement on yen moves overshadows G7 meeting G7 leaders called for a mix of monetary, fiscal and structural policies to boost demand but left it to each country to decide its own policy priorities. Leika Kihara and Tetsushi Kajimoto
T
he United States issued a fresh warning to Japan against intervening in currency markets on Saturday as the two countries’ differences over foreign exchange overshadowed a Group of 7 finance leaders’ gathering in the Asian nation. Japan and the United States are at logger-heads over currency policy with Washington saying Tokyo has no justification to intervene in the market to stem yen gains, given the currency’s moves remain “orderly”. The rift was on full show at the G7 finance leaders’ meeting in Sendai, north-eastern Japan, with U.S. Treasury Secretary Jack Lew saying he did not consider current yen moves as
“disorderly” after a bilateral meeting with his Japanese counterpart. “It’s important that the G7 has an agreement not only to refrain from competitive devaluations, but to communicate so that we don’t surprise each other,” Lew told reporters on Saturday. “It’s a pretty high bar to have disorderly (currency) conditions. Japanese Finance Minister Taro Aso said there was no “heated debate” on the yen with Lew, and that it was natural for countries to have differences in how they see exchange-rate moves. But the meeting with Lew did not stop him from issuing verbal
Key Points Japan’s Aso says recent yen moves are disorderly, one-sided U.S. Lew says ‘high bar’ for yen to be considered disorderly Europeans show little concern over recent FX moves Japan fails to gain consent for joint G7 fiscal action
warnings to markets against pushing up the yen too much. “I told (Lew) that recent currency moves were one-sided and speculative,” Aso said in a news conference on Saturday, adding that the yen’s gains in the past few weeks have been disorderly. While Aso said his G7 counterparts reaffirmed the importance of exchange-rate stability, Japan received no public endorsements from other G7 members for intervention to contain “one-sided” yen rises. “There is a consensus that monetary policy is well-adapted and there are no big discrepancies in currencies, so there is no need to intervene,” French Finance Minister Michel Sapin told reporters after the two-day G7 gathering concluded on Saturday.
‘Go-your-own-way’ agreement on policy
As years of aggressive money printing stretch the limits of monetary policy, the G7 policy response to anaemic inflation and subdued growth has become increasingly splintered. G7 leaders called for a mix of monetary, fiscal and structural policies
to boost demand but left it to each country to decide its own policy priorities - dashing Japan’s calls for more aggressive joint fiscal action. Germany has shown no signs of responding to calls from Japan and the United States to boost fiscal spending. “The most important are structural reforms...there are more and more (in the G7) recognising that structural reforms are crucial,” German Finance Minister Wolfgang Schaeuble said at a briefing in Sendai. Lew also urged Japan to keep fiscal policy loose, warning that proceeding with a scheduled sales tax hike next year could be damaging to its economy unless it was mitigated by additional fiscal spending. “Obviously Japan has to make its own judgment on the course to take. But the critical consideration has to be not to put drag on the economy,” Lew said on Saturday. While Aso has publicly warned of intervention after the yen’s recent rise to 18-month highs, some economic policymakers have signalled that they are not too worried the yen will derail a fragile economic recovery. Reuters
Finance minister
South Korea urges parliament to adopt reforms Economic growth halved in the first quarter to 0.4 percent from the previous threemonth period. South Korea’s finance minister said on Friday sluggish domestic investment and exports made it urgent for the new parliament that opens on May 30 to get on with structural and regulatory reforms to revive economic momentum. Finance Minister Yoo Il-ho painted a gloomy picture for the country’s efforts to create jobs, urging policy chiefs of the two main opposition parties, as well as the ruling party, to join the government’s efforts to implement reform initiatives. “Exports are not good, and employment growth is slowing and youth unemployment
is growing due to sluggish investment and slowing vitality in the private sector,” Yoo was quoted by Yonhap news agency as telling parliamentary policy leaders. “So frankly, we have a situation where we don’t have much room to create jobs,” he said. South Korea’s ruling Saenuri Party suffered a surprise defeat in parliamentary elections in April, stoking worry that it will get even tougher for the government of President Park Geun-hye to implement key economic reforms. Park’s three major legislative proposals to reform the labour market, boost the services industry and ease regulations in Asia’s fourth-largest economy were effectively scrapped as the outgoing parliament sat for the last time on Thursday without bringing them to a vote. She is expected to try and
revive the bills in the next parliament. Weak global growth has hit South Korea’s exports and sluggish capital investment and spending on R&D is a
further drag on the economy’s momentum, Yoo said. “We need structural reforms to overcome this. But there’s a limit to how much the government can do by itself. We need the cooperation of both sides in parliament to accomplish results.”
South Korea’s Finance Minister Yoo Il-ho.
South Korea’s central bank kept its policy rate at a record low 1.50 percent on May 13 for an 11th straight months believing economic recovery could continue at the current level without a cut, although many analysts expect a move in June. Reuters
12 Business Daily Monday, May 23 2016
Asia Prime minister meeting
Apple’s Tim Cook maps his vision for India An Indian telecommunications ministry official said May 3 that the country had rejected Apple’s request to import and sell refurbished iPhones. Andrea Tan
Apple Inc.’s Tim Cook outlined his vision for his company in India in a meeting with Prime Minister Narendra Modi on Saturday where they also discussed cybersecurity and data encryption. “Cook shared Apple Inc.’s future plans for India,” according to a statement from the Indian government on Saturday. “He spoke of the possibilities of manufacturing and retailing in India.” The Apple chief executive officer on his first trip to India opened a development centre, dined with Indian celebrities and met corporate executives. Cook’s four-day visit comes as Modi’s administration reviews Apple’s application to open retail stores in the world’s second-largest mobile population. Modi in a Twitter post on Saturday thanked Cook after the Apple executive launched
an updated version of a mobile application named after the premier. Cook in return thanked Modi for a “ great meeting.” “Already looking forward to next visit to India,” he wrote on his Twitter account.
Renewable energy
The men also discussed Modi’s initiatives for renewable energy, according to the statement. Cook has left India and visited an Apple store in Dubai, according to pictures posted on his Twitter feed. An Indian telecommunications ministry official said May 3 that the country had rejected Apple’s request to import and sell refurbished iPhones to Asia’s third-largest economy. India is a market where most phones are bought outright and aren’t s u bsi di z e d b y ca r ri e rs through calling plans. The challenge for Apple is
Apple Chief Executive Officer Tim Cook (L), during a meeting with the Indian Prime Minister Narendra Modi (R) in New Delhi, India, 21 May 2016.
that its products are beyond the reach of many in India, where most people live on less than $3.10 a day, according to World Bank data.
As China’s market becomes more saturated and people across the globe upgrade their smartphones less frequently, Apple, Samsung Electronics
Co. and other vendors are keen to sell to India’s middle class, which is projected to quadruple to 200 million by 2020. Bloomberg News
FDI
Monetary policy
Mongolia’s foreign investment picks up
Sri Lanka holds rates, expects past hikes to work
It has been one of the countries worst impacted by China’s reorientation to domestic consumption. Terrence Edwards
Mongolia’s foreign investment picked up in the first quarter of this year, breaking a four-year losing streak, as the resource-rich country tries to rebuilds its reputation and wean itself off coal and copper towards more sustainable growth. Foreign investment rose by 70 percent in Q1 2016 compared with the same period last year, and was 1.3 times more than the whole of 2015, Mongol Bank, the central bank, reported this week. Total foreign investment in Q1 was US$166.4 million. “It is not explained by a single project,” said Sandagdorj Bold, the Mongol Bank’s chief economist, said in an email. The country, pinched between China and Russia, earned the nickname “Mine-golia” during the resources boom from 2009 to 2011 and was hailed as the next investment magnet with a reported US$1.3 trillion of resources. At the height of the mining boom in 2011, Mongolia recorded US$4.7 billion in foreign investment. But it began to slide in 2012 when the country ran into disputes with foreign miners over its coal and copper, and prices for those commodities began to soften. Bold credited the increase in investment to efforts to diversify away from mining, instead focusing on other sectors such as agriculture and import-replacement. Mongolia has been one of the countries worst impacted by China’s reorientation to domestic consumption, and policymakers are trying to avoid the consequences of
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depending too heavily on resources, though it has not abandoned mining. Under Prime Minister Chimed Saikhanbileg, Mongolia has cleared disputes blocking inflows of foreign funds, including two years of loggerheads with Anglo-Australian Miner Rio Tinto. Construction of a mine that will unlock 80 percent of the resource wealth at the huge Oyu Tolgoi copper mine is now ready with the approval by Rio Tinto’s board for a US$4.4 billion financing package to fund the project. Rio Tinto’s majority-owned Turquoise Hill Resources plans to spend at least US$5.3 billion over the next five to seven years. This week, Mongolia paid a US$70 million settlement to a Canada-based company, Khan Resources, to settle a seven-year dispute over a uranium mine that Mongolia took away and instead handed over to Russian partner ARMZ. “Risk premiums in Mongolian assets have dropped sharply following the restart of Oyu Tolgoi underground and the Khan Resources arbitration settlement,” says Nick Cousyn, chief operations officer at Ulaanbaatar-based brokerage BDSec. The central bank expects economic growth of 2.7 percent this year, and 5 percent in 2017, compared with the Asian Development Bank’s estimates of 0.1 percent growth in 2016 and 0.5 percent growth in 2017. “Positive and stable outlook for FDI in the medium-term shall support macroeconomic external balance and shall have a positive effect on growth outlook,” said Bold. Reuters
Private sector credit grew 27.7 percent in March year-on-year. Sri Lanka’s central bank held its key policy interest rates steady for a third straight month on Friday, as expected, saying the recent tightening measures should start to rein it rapid credit growth and temper liquidity conditions. The central bank left the standing deposit facility (SDF) rate and the standing lending facility rate (SLFR) at 6.50 percent and 8.00 percent, respectively. It tightened the policy twice since December as authorities stepped up efforts to defend a sliding rupee. “Reflecting the gradual transmission of increased short term...to broader market interest rates, the expansion of monetary and credit aggregates is expected to moderate from the second quarter of the year,” the bank said in a statement. Private sector credit grew 27.7 percent in March year-on-year, its fastest pace since August 2012 despite the recent tightening and has raised worries about investments in “speculative” assets. “Rising credit growth is a worrying sign. This also shows that the past tightening measures” are yet to be felt, said analyst Shiran Fernando at Colombo-based Frontier Research.
3.1 Per cent Rise in Sri Lanka’s consumer prices in April from a year earlier
The on-hold decision comes less than a month after the International Monetary Fund (IMF) reached agreement with the Sri Lankan government for a US$1.5 billion bailout to help the island nation avert a balance of payments crisis. Policy makers’ have also been focused on halting a slide in the rupee currency, which has been hit by low interest rates, a yawning fiscal deficit and an outflow of capital following U.S. Federal Reserve’s shift to a tightening cycle. The fragility of the rupee has inflamed worries over Sri Lanka’s precarious balance of payments position after a sharp depletion of its foreign exchange reserves - a legacy of massive debt piled up under the previous government. The spot rupee is hovering at 145.70 per dollar, but the market has switched to rupee forwards as banks are reluctant to trade below this level due to subtle pressure from the central bank, currency dealers say. Central Bank Governor Arjuna Mahendran is walking a tight rope as a wobbly global economy means policy levers cannot be tightened too aggressively, although a pick up in inflation remains a headache. Sri Lanka’s consumer prices rose 3.1 percent in April from a year earlier, accelerating from the previous month’s 2.0 percent. The central bank said the recent increase in taxes is expected to have a one-off impact on inflation. “The supply side disruptions due to prevailing adverse weather conditions could exert some upward pressure on inflation in the immediate future,” the central bank said, referring to heavy rains that have caused floods and landslides. Reuters
Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Joanne Kuai; Nelson Moura; Annie Lao; Kelsey Wilhelm Group Senior Analyst José I. Duarte Design Francisco Cordeiro Web & IT Janne Louhikari Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily. com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com
Business Daily Monday, May 23 2016 13
Asia India’s central bank
Modi ally says ruling party backs moves to oust governor The uncertainty over Rajan’s reappointment is a key risk for investors who credit him with taming one of Asia’s fastest inflation rates. Vrishti Beniwal and Bibhudatta Pradhan
T
he Indian lawmaker leading a charge to oust central bank Governor Raghuram Rajan says he’s backed by the “overwhelming majority” of Prime Minister Narendra Modi’s party, raising risks for investors in Asia’s third-largest economy. Subramanian Swamy, a member of Modi’s ruling Bharatiya Janata Party and a rival to Finance Minister Arun Jaitley, wrote a letter to the prime minister earlier this week calling for Rajan to either be fired or dismissed when his term ends in September. The subsequent silence of Modi and his party indicates tacit support, Swamy said in an interview in New Delhi on Friday. “Nobody has said a word against what I have said,” said Swamy, 76, who formerly taught classes at Harvard University. “It’s an overwhelming majority. Even the intellectuals in the party are in full support.” He didn’t name anyone specifically or elaborate on how he drew that conclusion. While Jaitley on Tuesday declined to address Swamy’s letter directly, he told ET Now news channel that a decision on Rajan would be taken without outside influence. The Finance Ministry and Reserve Bank of India have a “very mature level of consultation,” Jaitley said, adding: “What is important are issues, not personalities.”
Rajan uncertainty
The uncertainty over Rajan’s reappointment is a key risk for investors who credit him with taming one of Asia’s fastest inflation rates,
stabilizing the rupee and moving to clean up 8 trillion rupees ($120 billion) of stressed assets in the financial system. Rajan has been a key advocate of fiscal discipline and has called macroeconomic stability India’s “single most important strength” in a time of global market turmoil. “I do not think that Mr. Swamy’s view will have a significant bearing on the reappointment,” said Madan Sabnavis, chief economist at Mumbai-based Credit Analysis and Research Ltd. “I am sure that those involved in reappointment will use their economic judgment.” Alpana Killawala, a spokeswoman for the Reserve Bank of India, didn’t respond to requests for comment. Calls to Jagdish Thakkar, a spokesman at the prime minister’s office, weren’t answered. Finance Ministry spokesman D.S. Malik declined to comment. In a press conference on Thursday,
“I do not think that Mr. Swamy’s view will have a significant bearing on the reappointment” Madan Sabnavis, Chief economist at Credit Analysis and Research Ltd
BJP President Amit Shah declined to answer questions on Swamy’s letter, telling reporters: “That is his opinion.” G. V. L. Narasimha Rao, a spokesman of the BJP, referred to Jaitley’s comments.
Rising clout
While Swamy holds no formal position in Modi’s government, his outspoken attacks against political foes, lawsuits to expose corruption and large Twitter following make him an influential player in Indian politics. Last month he was nominated for a position in India’s upper house of
parliament, indicating his rising clout within Modi’s party. “Rajan was building up a huge lobby to get a second term,” Swamy said on Friday. “Somewhere - I won’t say where - I got an indication that if you want to stop him, this is the time.” “My guess is Modi will find it very hard to extend it,” Swamy said, referring to Rajan’s term as governor. Swamy said Rajan’s push for a consumer-price inflation target - which was adopted by Modi’s government last year - has hurt the economy. He said India should get rid of it and move toward an employment target instead.
Rajan supporters
Swamy also continued to question Rajan’s allegiance to India, saying his time at the University of Chicago and International Monetary Fund make him unfit to run India’s central bank. In his letter to Modi, Swamy said that Rajan is “mentally not fully Indian.” As for possible replacements, Swamy named R Vaidyanathan, a professor at the Indian Institute of Management Bangalore, as among those who would be qualified to run the central bank. Vaidyanathan didn’t immediately respond to an e-mail seeking comment. Business groups this week started to push back against Swamy. Ninety percent of chief executive officers polled this week by The Economic Times newspaper said Rajan should get a second term when it expires in September - a view shared by many economists. “Politics apart, it’s very important for the government to continue Rajan, more so when disturbances in the financial market are largely transmitted from external environment,” said N.R. Bhanumurthy, an economist with the National Institute of Public Finance and Policy, a government-backed research group. “You should have a person who is more pragmatic and not stuck to some kind of ideology or theoretical background. Rajan has shown that pragmatism.” Bloomberg News
In Brief Modi visit
India pays part of Iran oil dues Indian refiners have cleared part of the US$6.4 billion owed to Iran for crude oil imports in euros through Turkey’s Halkbank, three sources privy to the payment said on Saturday. This is the first payment to Iran by India since the lifting of Western sanctions against the Persian Gulf nation earlier this year and comes just ahead of Prime Minister Narendra Modi’s visit beginning yesterday. State refiner Mangalore Refinery and Petrochemicals Ltd paid US$500 million while Indian Oil Corp has settled US$250 million through the Union Bank of India, the sources said. Fiscal plan
Japanese lawmakers urge PM to stick with sales tax hike A group of Japan’s ruling lawmakers has urged Prime Minister Shinzo Abe to proceed with a planned sales tax hike next April and compile a supplementary budget to mitigate the impact of the tax on the sluggish economy. The proposal marks a reversal in thinking for the policy study group, which is led by a Liberal Democratic Party (LDP) lawmaker Kozo Yamamoto, one of the architects of Abe’s economic policy strategy who previously proposed the tax hike be delayed. The lawmakers also proposed that the government should declare it won’t raise the tax beyond 10 percent for the moment. Production plans
Panasonic can speed up Tesla plant investment Japan’s Panasonic Corp is ready to bring forward its investment in a Tesla battery plant it is helping establish if this is required to meet demand for the electric car maker’s upcoming Model 3 sedan. “We will do our best to move up the schedule if requested,” Yoshio Ito, head of Panasonic’s automotive and industrial systems (AIS) division, told reporters at a briefing on Friday. Panasonic plans to contribute US$1.6 billion to Tesla’s US$5 billion “Gigafactory” in phases over the next few years. Production of the batteries is due to start later this year. Strategy
HSBC says to close 24 branches in India
Raghuram Rajan, Indian central bank Governor.
HSBC Holdings Plc said it plans to close 24 branches in India after a strategic review of its retail banking and wealth management business showed customers are increasingly opting for digital banking services. The bank said it would consolidate from 50 branches across 29 cities to 26 branches across 14 cities, and the closures will take place gradually over the next few months. The move comes five months after the lender said it was exiting its private banking unit in India as part of its group strategy.
14 Business Daily Monday, May 23 2016
International In Brief Austerity measures
Brazil sees massive fiscal gap The Brazilian government expects a record budget shortfall this year as a two-year recession drags down revenues, but policymakers vowed new austerity measures to regain investors’ confidence in the once-booming economy. The federal government’s primary budget deficit could reach a staggering 170.5 billion reais (US$48.7 billion) in 2016, or the equivalent of 2.75 percent of gross domestic product. Last year the government posted a record deficit of 1.94 percent of GDP. The new shortfall estimate will be the administration’s primary deficit target, which needs congressional approval before the end of the month to avoid a government shutdown. Funding
Loans rates
Banks identify possible replacements for U.S. Libor
Zimbabwe’s platinum industry calls for new investment
It is unclear how quickly investors would accept a replacement for the 30-year old rate benchmark with its entrenched status around the world.
Zimbabwe could double annual platinum production to more than 900,000 ounces in the next decade, making the metal the nation’s top export earner but current producers need US$2.8 billion in new investment to do so, an industry association said on Friday. The southern African nation holds the second largest known reserves of platinum after South Africa but mines have struggled with low prices, a black empowerment law forcing mines to sell more than 50 percent of the business to locals, and power shortages.
Richard Leong
Monetary policy
Pakistan central bank cuts interest rates Pakistan’s central bank cut its key policy rate by 25 basis points to 5.75 percent on Saturday, saying the country was on course to miss its economic growth target for the year. The bank said economic growth in the fiscal year ending June 2016 was likely to exceed last year’s 4.2 percent but miss the 5.5 percent target. The bank also said the inflation outlook was “low” despite headline inflation nudging up for seven consecutive months. The annual consumer inflation rate rose to 4.17 percent in April from 3.94 percent in March. M&A
EU regulators to clear AB Inbev, SABMiller deal Brewer Anheuser-Busch InBev is set to win conditional EU approval for its US$100 billion-plus takeover of SABMiller after agreeing to substantial asset sales, three people familiar with the matter said on Friday. The Belgium-based maker of Budweiser, Corona and Stella Artois is looking to boost its presence in Africa and Latin American countries to offset weaker markets such as the United States, where drinkers are shunning mainstream lagers in favour of craft brews and cocktails. The takeover, one of the biggest in the corporate world, will give AB InBev a third of the global beer market.
worth of daily trades. Bankers and regulators have raised alarms about diminishing daily liquidity in the markets for unsecured loans like Libor, calling into question their reliability as a gauge for U.S. borrowing costs. The stakes are large: Libor’s benchmark 3-month rate stands as a reference rate for pricing US$160 trillion of loans in the United States and, together with companion rates in Europe and Asia, has some US$350 trillion of global credit tied to it. “Having a viable rate alternative is important to financial stability especially if Libor activity were to cease at some point,” Sandie O’Connor, the committee’s chair and chief regulatory affairs officer at JPMorgan Chase said on a call with reporters. The group proposed a framework to phase in the new reference rates to minimize disruptions to financial markets. The plan would allow Libor-linked transactions to exist while the new benchmarks gain acceptance by dealers and investors. “The ARRC envisions a paced transition focusing on new transactions rather than a ‘big bang’ that would seek to change existing trades,” it said in a reported released on Friday. ARRC comprises 15 large global banks, which are also interest rate derivatives dealers along with the Fed, the U.S. Treasury Department,
the Commodity Futures Trading Commission and the New York Fed. Clearing houses such as Bank of New York Mellon, CME and LCH.Clearnet are also part of the group. ARRC’s effort began in November 2014 and parallels those by authorities in Britain, Japan, Switzerland and the euro zone. The committee said it picked OBFR and secured general collateral lending rates over four others: monetary policy rates like the fed funds rate; Treasury bill or bond rates; term overnight index swap (OIS) rates and term-unsecured lending rates. These others suffer from smaller market sizes, as well as likely fluctuations in monetary policy framework and issuance. OBFR, developed by the New York Fed, launched in March and reflects US$300 billion of daily trades. The interest rate on secured general collateral repurchases, in which banks and dealers use Treasuries as collateral to borrow from investors, is of a comparable size. The Fed and Office of Financial Research are currently considering producing an index on the Treasury repo rate. “The plan is for the committee to pick a rate later this year with the expectation that trading in the new rate could begin as early as next year,” Fed’s Powell said. Reuters
Nigeria’s economy contracts in Q1
quickened to a near six-year high of 13.7 percent in April. Analysts in a Reuters poll predicted that the central bank will devalue the naira in the next few months and hike interest rates at the MPC meeting, scheduled for Monday and Tuesday, to control inflation. Speculation that the naira may soon be devalued has grown since the vice president said last week that currency policies needed to change to encourage investment. The NBS on Friday also said oil production stood at 2.11 million barrels per day in the first quarter of 2016, lower than the 2.16 million barrels recorded in the fourth quarter of 2015. The figures do not reflect the impact of the resurgence of attacks on pipelines and oil facilities in the southern Niger Delta region. The oil minister said this week that these had pushed production down to 1.4 million barrels a day, the lowest level for more than 20 years. The 2016 budget assumes oil production of 2.2 million barrels per day at US$38 a barrel. Reuters
A
group of global banks and clearing houses, working with U.S. regulators, said on Friday it has identified two possible replacements for Libor, the benchmark interest rate for US$160 trillion worth of credit for everything from home mortgages to corporate loans. The Alternative Reference Rates Committee (ARRC) said that together with the Federal Reserve it has identified the Fed’s Overnight Bank Funding Rate (OBFR) and the overnight rate on U.S. Treasury securities pledged as collateral in repurchase, or repo, transactions as alternatives. The London Interbank Offered Rate has been in regulators’ cross hairs since its credibility was tarnished by a rate-rigging scandal emerging from the 2008 financial crisis. About a dozen global banks collectively have paid tens of billions of dollars in fines to settle the matter. “The case for moving ahead to a new benchmark is very strong. The new benchmark is going be robust with a lot of transactions and will be resistant to manipulation,” Fed Governor Jerome Powell told Reuters. ARRC said the two rates it identified as replacements represent “robust” markets, each with US$300 billion
GDP
Africa’s biggest oil exporter has been hit hard by low world prices for crude, sales of which account for around 70 percent of national income. Alexis Akwagyiram
Nigeria’s gross domestic product contracted by 0.36 percent in the first quarter of the year, the Nigerian Bureau of Statistics (NBS) said on Friday, as the worst crisis to grip Africa’s biggest economy in decades continues to deepen. The contraction compares with growth of 2.11 percent in the fourth quarter of 2015 and 3.96 percent in the same period last year, heightening expectations that the central bank will take action when its
Monetary Policy Committee (MPC) meets next week. “This is probably the economy’s worst performance since the mid1990s,” said John Ashbourne, Africa analyst at Capital Economics, in a note on the GDP figures. The central bank has imposed currency restrictions but maintained the naira’s peg against the dollar. Investment has fallen, as foreign firms expect an eventual devaluation because of the slump in oil revenues. President Muhammadu Buhari has rejected calls by the International Monetary Fund for a more flexible exchange rate. “The biggest falls in growth came in the manufacturing sector, which is being squeezed by a complex and inflexible FX system,” said Ashbourne. “It is now clear that these policies have - as we’d long argued - made a bad situation worse.” Inflation has also been fuelled by pressure on the naira. Last week the NBS said annual inflation had
Business Daily Monday, May 23 2016 15
Opinion Business Wires
The Korea Herald South Korea plans to unveil a set of measures as early as this week to support local firms that suffer from business setbacks due to the shutdown of a joint industrial park in North Korea, a Seoul official said yesterday. The government is likely to soon announce supportive measures to help South Korean firms facing financial losses from Seoul’s decision to close the Kaesong Industrial Complex in the North in February. On February 10, South Korea shut down the complex, which housed 124 South Korean firms, in response to the North’s nuclear test.
The Straits Times Banks here are rushing to introduce voice biometrics authentication for phone banking in Singapore as they step up their innovation and security processes. DBS Bank wants to introduce the technology, which identifies “unique voiceprints”, by the end of the year to cut down the time to verify customers, it said in a statement on Saturday. It will shave 20 to 40 seconds off the process, and “instead of having to remember passwords and answers to security questions, customers can be verified in 15 seconds or less as they speak to customer service officers”, the bank added.
Supply side, demand side, or innovation side?
I
The Times of India India’s foreign exchange reserves went down marginally be US$970 million to US$361 billion as on May 13, the Reserve Bank of India (RBI) said. According to RBI’s foreign exchange data, the reserves stood at US$361.02 billion as on May 13, against US$361.99 billion as on May 6. On May 13, the foreign currency assets stood at US$337.04 billion, gold US$20.04 billion, special drawing rights US$1.50 billion and the reserve position with the International Monetary Fund (IMF) stood at US$2.43 billion. On the other hand, the foreign exchange reserves as on May 6, comprised foreign currency assets that stood at US$337.99 billion.
Philstar The Philippine American Academy of Science and Engineering (PAASE) has joined the growing calls for the resumption of development and field testing of genetically modified eggplant in the country to boost crop productivity. Biotechnology is a revolutionary tool that is transforming the agricultural sector. Crops developed by genetic engineering can not only be used to enhance yields and nutritional quality but also to safeguard crops against disease. Eggplant production in the Philippines covers approximately 22,000 hectares yielding a volume of about 220,000 metric tons annually, valued at about PhP 2.6 billion.
t has become impossible to deny the so-called secular stagnation gripping the world’s most developed economies: Wealth is piling up, but real wages are barely rising and labour force participation has been on a downward trend. Worse yet, policymakers have no plausible idea about what can be done about it. Behind this stagnation is the slowdown in productivity growth since 1970. The wellspring of such productivity gains – indigenous innovation – has been badly clogged since the late 1960s (mostly in established industries) and was even more so by 2005. Ronald Reagan and Margaret Thatcher viewed the stagnation that was gripping economies by the 1970s from the supply side. They pushed through tax cuts on profits and wages to boost investment and growth, with debatable results. But today, with tax rates much lower, cuts of that size would result in huge increases in fiscal deficits. And with debt levels already high and large deficits ahead, such supply-side measures would be reckless. So now the best and brightest view things from the demand side, using the theory built by John Maynard Keynes in 1936. When “aggregate demand” – the level of real expenditure on final domestic goods that households, businesses, the government, and overseas buyers are willing to make – falls short of output at full employment, output is limited to the demand. And innovation won’t happen. But the demand-siders’ conception of the economy is strange. For them, private investment demand is autonomous, governed by forces that Keynes dubbed “animal spirits.” Consumer demand is essentially autonomous, too, because the so-called induced part is yoked to autonomous investment through the “propensity to consume.” Thus, government measures are the sole way to boost employment and growth when autonomous demand falls short and jobs are lost. This conception grasps neither growth nor recovery. In healthy economies, a contractionary demand shock sets off two types of responses fuelling recovery. Adaptations to emerging opportunities are one such response. When firms hit by reduced demand contract operations, the space they give up becomes available for use by entrepreneurs with better ways of running the business – or with better businesses. Some of the employees they let go will start firms (and hire employees) of their own. With every recession, many shops on Main Street disappear; and, over time, new shops – generally more successful – appear. The other response is indigenous innovation – new ideas springing from the brows of various businesspeople. When firms hit by reduced demand stop hiring for a time, some people who would have joined established firms use their situation to dream up new products or methods and organize start-ups to develop them. The growing number of aspiring innovators toiling in home garages may self-produce some of their
“
Edmund S. Phelps 2006 Nobel laureate in economics, is Director of the Centre on Capitalism and Society at Columbia University.
capital goods. More important, the accumulation of new start-ups will gradually generate rising investment demand – induced demand! – and growth, too. Some may doubt this. Can new products and methods fare well in the market if demand is deficient? As an innovator said to me amid the financial crisis, his objective was to take over a market – it mattered little that the targeted market was only 90% of its former size. Can capital be raised where incomes are depressed? Small firms and start-ups must always struggle for credit, and the Great Recession that followed the 2008 financial crisis made it harder for them. Yet the recession did not prevent droves of such firms from finding financing in Silicon Valley, London, and Berlin. No wonder Germany, the United States, and the United Kingdom are more or less recovered. In the US, total factor productivity growth set records in the 1930s, when the economy fell into and then grew out of the Great Depression. Recovery has fallen woefully short in two kinds of economies. France and Italy are lacking young people who want to be new entrepreneurs or innovators, and those few who do are impeded by entrenched corporations and other vested interests. Greece has no lack of would-be entrepreneurs and innovators, but it lacks a system of angel and venture capital. Some Greeks have formed start-ups, though not in Greece. The demand-siders say that innovation only makes recovery harder, because it enables firms to meet existing demand with fewer employees. Thus, they call for annual public-sector investment up to the level needed for full employment. But such infrastructure investment would go far beyond what would ever have been undertaken had the economy been left to regain high employment through the workings of adaptive or innovative activity. Indeed, such investment is costly beyond the expense because it pre-empts the adaptation and innovation that would have brought higher employment and faster growth. Moreover, as long as Western innovation remains narrowly confined, a demand-side commitment to a large, sustained flow of infrastructure investment – and, likewise, a supply-side commitment to a similar flow of private investment – must bring ever-diminishing returns, until, ineluctably, the economy reaches its near-stationary state. Supplying more of the same old goods never “creates its own demand,” as Keynes thought. But supplying new goods can. It is the impediments to adaptation and innovation – not fiscal austerity – causing our stagnation. And only renewed dynamism – not more fiscal irresponsibility – offers any hope of a durable way out. Project Syndicate
It is the impediments to adaptation and innovation – not fiscal austerity – causing our stagnation
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16 Business Daily Monday, May 23 2016
Closing Job opportunities
UN recruiting young professionals in Mainland
The United Nations has launched a second drive to recruit personnel in China under its Young Professionals Programme (YPP). Jobs in economic affairs as well as information and communication technology will be open to Chinese candidates under the age of 32, who are fluent in either English or French, the Ministry of Human Resources and Social
Security said in a statement. A bachelor’s degree is also needed. Candidates need to apply online before July 19, and written exams are scheduled to be held in Beijing on December 14, said the ministry, which will facilitate the exam. The YPP was set up in 2011 based on rounds of national recruitment exams held in China multiple times since 1995. A total of 139 candidates sat the first YPP exam for Chinese citizens in Beijing on December 3, 2013. Xinhua
State of labour
How old-school factories stay alive in China’s south A section of China’s manufacturing base has adapted to volatile conditions and higher wages. in 2016, and keep it at 2015 levels through 2018. “The total employment of the manufacturing sector is shrinking,” said He Fan, chief economist of Caixin Insight Group, but not the informal portion of that. He sees the shift to more casual labor as also partly led by younger workers. “If my assumption is correct, then the casual workers may outgrow the permanent workers.” Needing to maintain employment, local authorities appear to tolerate the arrangement.
Alexandra Harney
S
queezed by high costs and unpredictable demand, some factories in southern China’s manufacturing heartland are turning to a new strategy to survive: hiring workers by the day. It is a far cry from Beijing’s vision of a slick, hi-tech manufacturing future of computers and chip makers: on a warm morning in the southern town of Shiling, dozens of workers gather on a city street to haggle for a day of work making bags for US$20 to US$30. Factory owners in this leatherworking town, and in those nearby, say just-in-time labour allows them to stay competitive, even if day wages can be higher, individually, than full-time salaries. Workers, operating in a legal grey area, say they tolerate the conditions because many fear factories offering permanent jobs could fail to pay if clients dry up and the manager runs off. “We never used to hire temporary workers, because labour costs were not very high. Our workers were on staff,” said Huang Biliang, who runs a button factory in the southern city of Dongguan. “But recently we’ve started to hire more temporary labour.” In a stainless steel factory in the nearby town of Jiangmen, David Liang, manager of Chiefy, agrees: “Every additional (permanent) worker I hire is an additional risk.” The result is a section of China’s manufacturing base that has adapted to volatile conditions and higher wages - keeping the country’s hold on some labour-intensive work that it might have lost to cheaper regions elsewhere in Asia. Struggling companies do occasionally turn to temporary workers - but
Casual work has been thriving in pockets of the industrial landscape, especially where clusters have created a base of experienced workers.
this is a change for China, where authorities have sought to crack down on precarious employment, introducing tougher rules in 2012 to protect so-called ‘dispatch’ workers. China wants to shift away from piece-work toward a high-tech consumer economy. Shiling’s experience suggests, however, that casual labour could help the country’s plethora of small manufacturers remain sellers of cheap shoes, toys and stainless steel pans for a few years yet.
Dispatched
Casual work has been thriving in pockets of the industrial landscape, especially where clusters have created a base of experienced workers: in toys, garments and, Reuters found, in the bag and stainless steel industries in southern Guangdong province. “It’s an indication that China will probably succeed and maintain its manufacturing base,” said Ben Simpendorfer, managing director of consultancy Silk Road Associates. While the use of undocumented
day labourers by factories is hard to capture in statistics, academics, consultants and factory managers say it has risen since the financial crisis and accelerated in the last two years. There are no official statistics on informal work, but surveys show Chinese factory workers are leaving their jobs more quickly. In surveys by Laborlink, a San Francisco-based polling group, the percentage of Chinese workers who said they had been in their jobs less than one year rose from 33 percent in 2014 to 40 percent in 2016. And, China’s labour attitudes may be changing. Though China has tightened rules, officials have also expressed concerns about them. In March, Finance Minister Lou Jiwei publicly criticised the labour contract law, which requires companies to provide employees a written contract. The same month, Guangdong province - which has raised its minimum wage at regular intervals in recent years - said it would scrap scheduled rises to the local minimum wage
“A terrible industry”
In Shiling, in China’s bag capital, men and women gather in the early morning looking for a day’s work. Factory managers in vans and on scooters each hold a sample of the bag they produce; workers crowd around them, examining the sample and discussing the per-piece wage. Among the workers is 39 year-old Wang Binge, who until three years ago ran her own small handbag workshop nearby. The workshop was once profitable enough to allow her to buy a Toyota and build a house in her hometown in southern Hunan province. But orders dried up, and now Wang looks for jobs that pay at least 180 yuan (Us$27) for about a 12 hour day. So many factory owners have fled without paying their staff, Wang and other workers said, that they feel safer being paid cash by the day, while hoping for more stable work. One said she had found work only for half of the previous month. Wang hadn’t worked in four days. “Bags are a terrible industry,” said fellow day labourer Wang Guinan. “We know we should do something else, but we don’t know where to start.” Reuters
Memorabilia
Jim O’Neill
Inflation
Elvis guitar fetches US$334,000 at NY auction
China to play “very important UK’s Cameron warns Brexit role” at G20 Summit would drive up food prices
A guitar given to Elvis Presley by his father in 1969 went under the hammer for US$334,000 in New York during an auction that also saw a Michael Jackson vest fetch US$256,000. Vernon Presley is said to have changed the finish of the Gibson Dove acoustic guitar to ebony after his son earned his black belt in karate. It beat auction house Julien’s estimate of US$200,000 to US$300,000 for Saturday’s sale. During a 1975 concert in Asheville, North Carolina, Presley had given the guitar to fan Mike Harris, who had kept it until now. Another highlight of the auction was a red neoprene vinyl jacket created by Dennis Tompkins and Michael Bush for Michael Jackson to wear during the 1996-1997 HIStory world tour. It scored more than four times the auctioneers’ estimate of US$40,000 to US$60,000. The highest bid reached US$354,400, for John Lennon’s handwritten lyrics to Beatles song “Being for the Benefit of Mr. Kite!” AFP
The economist who coined the acronym BRIC to describe the four powerhouse emerging economies of Brazil, Russia, India and China has said that he thinks China will play a “very important role” in promoting economic cooperation at the G20 Summit held in China in September. Jim O’Neill, formerly chief economist with Goldman Sachs, told Xinhua that he expected China to nurture the growth of emerging economies when it hosts the G20 Summit, held for the first time in China in the city of Hangzhou in September. O’Neill said: “I think China can play a very important role (at the Hangzhou Summit) in a broader sense of economic cooperation. China has become the second largest economy in the world, on some criteria, purchasing power parity, it is already the largest or close to it.” O’Neill said that China had had “remarkable success,” not withstanding some of its considerable challenges, in raising the welfare and wealth of its 1.3 billion people. Xinhua
British Prime Minister David Cameron warned voters yesterday that they would face higher grocery bills if the country decides to leave the European Union at a June 23 referendum, citing a potential drop in the value of sterling. Cameron is leading the push to keep Britain inside the European Union ahead of the referendum, the outcome of which will have far-reaching consequences for the country’s economy, its role in world trade and its global diplomatic status. His comments mark a shift in campaign tactics by the ‘In’ side: a push to make explicit the direct link between the macroeconomic risks that have dominated the Brexit debate so far, and their potential impact on Britons’ day to day lives. “A weaker currency means more expensive imports; that means more expensive food and it drives higher business costs. And we all know where that ends up: higher prices in the shops,” Cameron wrote in the Sun on Sunday newspaper. Reuters