Macau Business Daily May 24, 2016 by Business Daily

Japan’s exports shrink faster in April Trade Page 12

Tuesday, May 24 2016 Year V Nr. 1049 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor kelsey wilhelm

www.macaubusinessdaily.com

Transportation

Revolving doors

Provident fund

Fiscal surplus slides 31.4 pct as at end-April

Non-Mandatory Central Provident Fund scheme to be debated soon in Legislative Assembly Page 5

Page 3

The Plan Hong Kong hiatus Total visitor arrivals dropped 3 pct y-o-y to some 2.47 million for April. Due to a plunge in the number of Hong Kong tourists – the second biggest source of the city’s visitors. Overnighters accounted for 1.22 million. Representing a y-o-y increase of 5.6 pct.

China’s employees of drug industry regulator move to private sector Page 9

Tourism The ‘Macao Tourism Industry Development Plan’. Presented yesterday by the Macao Government Tourism Office, it seeks to revitalize tourism. Increasing visitation. Expanding waterfront area recreation. Increasing budget hotels. And pushing non-gaming revenue to MOP14 bln in 2025. All via more diversified visitors – including those from the Meetings, Incentives, Conferences and Exhibitions sector. Public consultation will be key to next-steps. Page 2

Taxing times

Cashing in

Local fiscal plan China’s local governments are struggling to fill treasure chests. Some suggest dealing with pension commitments, redistributing sales-tax revenue or applying new levies on housing. Page 8

Labour Employment remained stable in Q1. With average earnings for full-time employees of the banking sector increasing 5.2 pct y-o-y for March, amounting to MOP25,150. Wages for bank tellers increased 10.2 pct y-o-y on average at MOP15,320. Page 4

Tourism Page 5 25° 29° 25° 29° 26° 29° 26° 28° 26° 30° Today

BOC Hong Kong Holdings

thu

19,809.03 -43.17 (0.22%)

+2.00%

China Construction Bank

+1.10%

Want Want China Holdings

China Merchants Holdings

+1.69%

Bank of Communications

+0.89%

Lenovo Group Ltd

Power Assets Holdings Ltd

+1.46%

China Shenhua Energy Co

+0.85%

Hengan International Group

-1.64%

Galaxy Entertainment Group

-1.81%

Tingyi Cayman Islands

-1.90%

Li & Fung Ltd

-2.26% -3.31% -4.66%

Source: Bloomberg

HK Hang Seng Index May 23, 2016

wed

I SSN 2226-8294

fri

sat

Source: AccuWeather

Ferry operators don’t plan ticket price reduction despite fuel price drop Page 4

Finance

2 Business Daily Tuesday, May 24 2016

Macau Tourism

Tourism plan predicts growth, growing pains Macao Government Tourism Office estimates non-gaming revenue could reach MOP112 billion in 2025 in newly presented tourism plan. Nelson Moura nelson.moura@macaubusinessdaily.com

he ‘Macao Tourism Industry Development Plan’, presented yesterday by the Macau Government Tourism Office (MGTO) seeks to increase tourist visitation, expand the waterfront area, increase the number of budget hotels, push non-gaming revenue to MOP14 billion in 2025 and attract more diversified visitors – including those from the Meetings, Incentives, Conferences and Expositions sector. The consultation paper will be available for public consultation from May 23 to June 22. “The first stage of this plan has been completed and we now have a general draft, which will be available for public consultation for two months. We hope to hear the opinions and use the feedback for the implementation of the future plan,” said MGTO Director Maria Helena de Senna Fernandes. The study was commissioned last year and conducted by AECOM Asia Company Limited, with Ms. Senna Fernandes stating the contract budget was “more than MOP18.3 million (US$2.28 million)”, and that the reason the contract was awarded to a private company was that the development plan aimed to take the tourism sector to a more international level; as such, MGTO decided to “organise an international tender and award the study to an international consultant company.”

Asia Pacific Tourism Association, and other international organisations,” MGTO deputy director Chen Wai Tong stated, adding that the tourist office “can’t be sure the visitation will always grow, as in the past years we’ve witnessed very low or even negative growth, but when it comes to the five-year period we think that 1 to 2 per cent annual growth is realistic.” When questioned about the impact the increase of visitors would have on the city and what politics would be proposed to improve the infrastructure to accommodate the increase of tourists Ms. Senna Fernandes stated that the “estimates were made in the belief the facilities and other infrastructure would be increased,” providing more affordable accommodation for budget tourists, better exploration of the waterfront area of Macau and increasing “online bookings and online response” for existing economy hotels. In the study it is estimated that in a moderate visitor scenario the number of rooms could increase as much as 35.83 per cent to 51,500 rooms in 2025, while the percentage of overnight stays would increase 6.4 per cent.

When asked what would be changed if during the public consultations residents expressed an aversion to an increase in visitors, Ms. Senna Fernandes only stated the “dream was to create a city that isn’t just pleasant for tourists but for residents,” but that at this time it is not possible to state exactly how the plan will be enforced. In terms of diversification of tourism visitors the MGTO director stated that since 90 per cent of tourism visitors came from Greater China, including Hong Kong, the percentage of international tourists should go from 9 per cent currently to “14 or 15 per cent in 2025.”

Non-gaming revenue

The plan also estimates non-gaming revenue could go as high as US$14 billion (MOP112 billion) in 2025, more than double the current US$6.4 billion (MOP51.2 billion). When questioned how that amount was estimated, Deputy Director Cheng Wai Tong told Business Daily that the estimates were “based on the current condition forecasts of the non-gaming sector,” and were reached on a calculation of per capita spending by visitors with the estimated increase

of visitors. The Deputy Director also told Business Daily that accommodation, shopping, food and beverage, entertainment and festivals were considered to be the possible biggest contributors for the increase of non-gaming revenue.

Many goals but many challenges

The plan includes as major goals ‘managing tourism growth in a sustainable way’, diversifying source markets by ‘attracting MICE business, conferences, events and other high value visitors’, while improving the visitor experience through better ‘service, quality and efficiency’. However, many challenges are raised in the study for the proposed goals such as a short average period stay for international visitors and lack of affordable stays, with “60 per cent of existing 33.047 rooms being from 5-star hotels,” the director of MGTO stated. The interconnectivity of the city was also found to be lacking in the study, with the quality of the current 200 Wi-fi Go hotspots considered needing improvement, while travel information should be provided preferably through ‘one integrated platform’ instead of the current websites and mobile apps. The low amount of quality resources and reliance upon non-resident workers is also considered worrying, with Macau needing to provide ‘quality services’ in areas such as ‘immigration, sightseeing, retail, hospitality, transportation, and dining’.

A crowded future

The study estimates that total visitor arrivals could increase from 30.7 million visitors in 2015, to between 33 to 35 million yearly, with a 1 per cent to 2 per cent visitor growth per year in a low growth scenario; while in a modest visitor growth scenario it is estimated total visitors could reach between 38 to 40 million, with 3 to 5 per cent yearly growth. “For total visitation, we use different scenarios and data from the WTO [World Tourism Organisation],

Law President of Court of Final Appeal sees city as platform of judiciary exchange

President of Portuguese Supreme Court of Justice visits The President of the Portugal Supreme Court of Justice, António Silva Henriques Gaspar, visited the Public Prosecutor’s Office of the MSAR (MP) over the weekend as part of a fourday trip to the territory by invitation of the President of the Court of Final Appeal, Sam Hou Fai. The trip seeks to promote co-operation and the exchange of opinions between the judiciary systems. In his presentation at the Court of Final Appeal Sam Hou Fai stated that since the handover to China the SAR has managed to maintain the independence of its judicial system, also mentioning that the increase in the number of judges recruited from

President of the Portugal Supreme Court of Justice António Silva Henriques Gaspar meets with CE Fernando Chui Sai On.

Portugal to the SAR from four to eight has contributed to the healthy functioning of Macau courts. The Court of Final Appeal President also reiterated Macau’s role as a platform of co-operation and exchange between the courts of Chinese and Portuguese-speaking countries, especially in the wake of the judiciary co-operation agreement signed last week between the Supreme People’s Court of the People’s Republic of China and its Portuguese counterpart, according to the release. The Portuguese representative stated that due to historical ties between Portugal and the SAR, the Supreme Court of Justice in Portugal

gives great importance to co-operation with the territory’s judicial system, stating that more practical and efficient ways of co-operation should be fostered, the release notes. The two sides agreed on planning the 10th conference between the Presidents of the Supreme Court of Justice from Portuguese-speaking countries and China, and that some decisions and accords by the Portugal Supreme Court deemed of larger importance would be translated into Chinese and published on a website for international court judgments. The Portuguese delegation also visited with the Chief Executive during its stay in the territory. N.M.

Business Daily Tuesday, May 24 2016 3

Macau Construction

DSFSM building expansion contract extended

A new contract for the first phase of expansion and modernisation of the Public Security Forces Affairs Bureau of Macau (DSFSM) building has been authorised by the Chief Executive, according to a dispatch in the Official Gazette. The contract, originally agreed in 2014 with Companhia de Decoração

San Kei Ip, Limitada, for the works, will be extended to this year without an increase in the planned budget of MOP26.52 million (US$3.31 million). So far, MOP24.22 million has been paid for works performed throughout 2015, with a further MOP2.29 million scheduled for payment for the project this year, according to information in the Official Gazette.

Finance

Fiscal surplus slides 31.4 pct as at end‑April

he MSAR’s fiscal surplus amounted to MOP14.5 billion (US$1.8 billion) for the first four months of the year, which represents a yearon-year decline of 31.4 per cent compared to the MOP21.1 billion recorded one year ago, due to the continual decrease in the government’s received

revenue. Between January and April, the fiscal surplus posted by the Special Administrative Region had already surpassed the government’s budgeted amount of about MOP3.5 billion for the whole year of 2016, with the budget execution rate reaching 417.7 per cent.

Monetary

Macau Pass to launch mobile payment this year Local card issuer Macau Pass SA is planning to launch a mobile payment system as soon as the third quarter of this year, the group’s vice president William Mio said over the weekend, according to Chinese language newspaper Macao Daily. The company executive said on Sunday that the card issuer would release the new payment services during the third or fourth quarter of this year, adding that the company would adopt a highly encrypted transaction method for the new service.

According to Mr. Mio, the new service would require users to link their bank cards with the service, with verification codes to ensure the security and safety of the new payment method. Meanwhile, the company VP revealed that the total transaction value of Macau Pass had registered a yearon-year increase of 30 per cent for the first quarter of this year. However, Mio did not disclose the related financial figures at that time. Regarding the company’s recently launched online payment platform - M+Pay - last month, Mr. Mio said on Sunday that the company has not had any related data on the platform transactions so far. But he believes market demand for the platform will keep increasing whilst the total transaction value via the platform will also keep climbing.

Government

Human Resources Office now under wing of Labour Affairs Bureau The Human Resources Office (GRH) is now officially under the management of the Labour Affairs Bureau (DSAL), according to a dispatch by the Chief Executive published yesterday in the Official Gazette. The merger will take place on May 28, with DSAL taking on GRH functions in regard to processing company requests for hiring non-residents. The number of DSAL personnel will subsequently undergo an increase, bringing its numbers up to 320 by adding 92 employees from

GRH, as reported by Business Daily. No incremental changes are expected in regard to the financing of the two departments by the Financial Services Bureau and the current organisation of the DSAL will be maintained - with one director assisted by two deputy directors overseeing six departments and twelve divisions, while DSAL personnel from the four recently restructured divisions won’t see changes in their current positions, according to the dispatch. “The fusion will allow [us] to access company information faster, optimising the human resources area and employment opportunities for resident workers,” DSAL director Wong Chi Hong stated last week, as reported by Business Daily. N.M.

In fact, the government’s revenue in these four months was still affected by the city’s gaming downturn, with received direct taxes from the sector falling 15.1 per cent year-on-year to MOP26.8 billion in the period. This decrease dragged down total revenue by 15.8 per cent year-on-year to MOP32.1 billion for the months.

Nevertheless, the amount that the government has raked in is in line with its own expectations. If monthly revenue remains at the same level for the rest of the year as shown in these four months, which amounts to some MOP8 billion per month, annual revenue would still outperform the budgeted MOP92 billion for this fiscal year. On the other hand, government expenditure totalled MOP17.7 billion for the first four months, up 3.6 per cent year-on-year compared to MOP17 billion during the same period of last year. Total expenditure accounts for nearly 20 per cent of the annual budget of MOP88.6 billion. Of the total, the majority was classified as current expenditure - MOP17.1 billion for the period - up 7.5 per cent year-on-year from MOP15.9 billion one year ago. Meanwhile, the government’s capital expenditure was slashed by 51.1 per cent year-on-year to MOP553.7 million. Amounts spent on the investment plan (PIDDA) totalled MOP541.5 million, which only accounted for 4.9 per cent of the annual budgeted amount of MOP11 billion. K.L.

4 Business Daily Tuesday, May 24 2016

Macau EDITORIAL

Banking Average earnings for banking employees over MOP25k in March

Manpower of banking sector ‘relatively stable’ in Q1

T Professional road campaigns more than urgent The good side of driving in Macau is the very unique temperament of its drivers, most of whom don’t give a fig for the rules. Drivers that know they don’t know or don’t want to know and, thus, we rarely see any cases of road rage. Contrary to what is found in several European countries, particularly in the south; you know - the mostly Latino climes. But it’s more than time for the authorities to be genuinely concerned by the fact that most drivers negotiate the roads oblivious to traffic rules. Good education is necessary. Courtesy is necessary. But in Macau people drive badly. Period. They drive in the right-hand lane when they should be in the left, don’t obey traffic rules and common sense is practically nonexistent. Teaching in driving schools, apparently, is not controlled. And even the police often don’t respect the fundamental rules of propelling a motor vehicle, doing the same as everyone else. Meaning that being a widespread evil it becomes a lesser evil? The state of grace of the new Traffic Bureau (DSAT) team has ended. Road safety campaigns are urgent. Well-made campaigns, professionally executed. With a strong educational component; and with projects developed in collaboration with schools while young minds are still forming. Major campaigns to involve more than one government department, a multidisciplinary project, shall we say, is also a must. With the Education and Youth Bureau (DSEJ), and with the cabinet of the Secretary for Security. How can we continue to pretend that we’re preparing Macau to be a World Centre of Tourism and Leisure while the city suffers the most basic of defects, remains uneducated, and has few professional services to offer? The clue is in the driving mentality. Fix that and who knows what treasures may lie in store.

he ‘manpower situation of the Banking Sector was relatively stable’ for the first quarter of the year, according to a release by the Statistics and Census Service (DSEC) published yesterday. Average earnings for full-time employees of the sector increased 5.2 per cent year-on-year for the month of March, amounting to MOP25,150 excluding bonuses and allowances. The average earnings for bank tellers also increased, amounting to 10.2 per cent year-on-year for the month, equalling MOP15,320. Employment remained stable as in the first quarter the number of new recruits to the sector amounted to 160, while the number of employees leaving employment in the sector reached 173, with an employee recruitment rate of 2.7 per cent and an employee turnover rate of 2.9 per cent – a fall of 1.6 percentage points and 0.8 percentage points, respectively.

Job vacancies for the sector dropped by 80 vacancies at the end of the first quarter compared to a year ago, resting at 238. Vacancies for clerks were nearly triple that of bank tellers, at 131 and 45, respectively. By occupation, there were a total of 1,614 managers and directors in the sector and 2,109 clerks, including 764 bank tellers employed. Regarding vocational training, some 4,940 employees attended

vocational training courses provided by their employers – including those organised by the banks themselves or via other institutions with bank sponsorship – with 80.8 per cent of participants attending those sponsored by banks. Some 73.9 per cent of these participants attended Business and Administration courses, with 15.4 per cent attending Law courses. K.W.

Fuel prices

DSE: No ferry operator planning to reduce fares No ferry operator in the city has plans to decrease the price of ferry tickets despite international fuel prices having posted significant drops, the director of the Macao Economic Services (DSE), Tai Kin Ip, revealed in a reply to a written enquiry by legislator Chan Meng Kam. ‘According to related regulations, adjustments of ferry ticket fares need to be increased and applied by ferry operators. Meanwhile, the SAR Government has not received any such related application recently,’ the DSE head wrote. In the interpellation, the directly-elected legislator queried why local ferry operators did not lower their ferry prices when local flag carrier Air Macau announced lower fuel surcharges

starting from March this year, questioning whether the government has supervised the pricing of ferry tickets. “Ferry operators have increased the ticket fares by double-digit percentages accumulatively since 2011. They claimed each time that the rise was due to the increase in fuel prices. With international fuel prices having registered significant falls, ferry fares, however, are not decreasing to an appropriate level,’ Mr. Chan said. In response, the DSE director claimed that the Marine and Water Bureau has been controlling the growth rate of ferry ticket fares in recent years in consideration of the affordability of residents and the business of operators. The official

Telecommunications

CTM service severely slated Local telecommunications operator Companhia de Telecomunicações de Macau (CTM) came under fire today at the Legislative Assembly, as the Monitoring Committee for Public Administration Affairs set out its order of

business for the coming months, reported news broadcaster TDM Radio. Chan Meng Kam, president of the commission, announced that “prices are high and the quality of service is lacking,” stating his

added that such control has effectively decreased the impact of ferry fare increases on residents and tourists. The legislator also questioned the government’s progress in amending the city’s consumer protection law in order to combat joint pricing among fuel suppliers. The DSE director said in his reply that the government is to withdraw the regulations on joint pricing and the abuse of market advantages from the amendment bill as the two issues focus more on equal competition between operators. According to Mr. Tai, the government will conduct an initial study for drafting a future working direction on the two issues. K.L. dissatisfaction with the service. “The price is much higher than in neighbouring regions. Because of this, CTM maintains an annual turnover of MOP1.1 billion. Their profits have increased. Why can the price charged [to users] not be lowered?” he asked the operator. The legislator said that the commission is unanimous in its pursuit to prioritise the topic. “This question deserves to be followed up on, because it’s linked to the daily life of residents . . . Sometimes the signal fails and that affects the touristic image of Macau. [On the other hand] this is also linked to the equality of the competition,” noted the president of the commission, referring to the second major operator in the market MTEL, per the broadcaster. Legislators are urging the government to present a report on the concession assets of CTM in order to revert the concession’s assets for public use, following the termination of the exclusivity contract with the operator. K.W.

Business Daily Tuesday, May 24 2016 5

Macau

Tourism April visitor arrivals down 3 per cent on the year

They come, they go The MSAR recorded a year-on-year increase in the number of Mainland Chinese tourists last month but the total visitor number still posted a decrease due to fewer tourists from Hong Kong. Kam Leong kamleong@macaubusinessdaily.com

acau’s total visitor arrivals dropped 3 per cent year-onyear to some 2.47 million for April, due to a plunge in the number of tourists from Hong Kong – the second biggest source of the city’s visitors. Last month, overnight visitors accounted for 1.22 million, a year-on-year increase

of 5.6 per cent. Overnight visitors stayed in the territory for some 1.1 days on average, up 0.2 days year-on-year. However, the number of same-day visitors decreased by 10.1 per cent year-on-year to some 1.25 million. Despite the number of visitors from the Mainland registering a year-on-year increase of 1.2 per cent to 1.65 million, those from Hong Kong sharply declined by 19.4 per cent year-on-year to 485,970.

Of the total visitors from Mainland China, those travelling under the Individual Visit Scheme dropped 2.3 per cent year-on-year to 694,604. Mainland Chinese tourists that the city received were primarily from Guangdong Province, which accounted for 666,166 of the total, followed by those from Hunan Province and Fujian Province, at 75,290 and 65,373, respectively. In terms of international markets, the Special Administrative Region welcomed 39.5 per cent more tourists from Thailand than one year ago, of which the total number reached 25,321 last month. In addition, visitors from South Korea and Taiwan rose 5.9 per cent and 9.7 per cent

year-on-year, amounting to 43,661 and 92,141 in the month, respectively. Yet, those from the Philippines registered a slight drop of 0.7 per cent to 25,979 compared to the same month of last year. Meanwhile, long-haul visitors from the United States and the United Kingdom posted slight decreases of 0.2 and 0.7 per cent yearon-year, totalling 16,849 and 5,672 during the month, respectively. Tourists from Australia and Canada, however, grew 3.5 per cent and 2.7 per cent year-on-year to 8,796 and 6,530, respectively.

Visitor arrivals total 9.93 mln in four months

For the first four months of the year, total visitor arrivals

reached 9.93 million, down 0.3 per cent compared to the same period of last year. Same-day visitors accounted for nearly 5.2 million of the total whilst overnight visitors amounted to some 4.7 million. In terms of origin, those from Mainland China and Hong Kong were down 1 per cent and 3 per cent year-onyear, totalling 6.59 million and 2.04 million, respectively. Nevertheless, tourists from South Korea and Taiwan jumped 3.7 per cent and 11.1 per cent year-on-year to 217,585 and 343,015, respectively. The city also saw more long-haul visitors from the United States, Australia and Canada as well as the United Kingdom, according to data from the DSEC.

Provident fund Executive Council finishes discussing build-up of new provident fund system

Non-Mandatory Central Provident Fund on the way The bill creating a non‑Mandatory Central Provident Fund scheme will soon be sent to the city’s legislative body. The Legislative Assembly may soon deliberate the bill on establishing a non-Mandatory Central Provident Fund scheme, according to the president of the Administrative Committee of the Social Security Fund (FSS), Iong Kong Io. “The Executive Council has already finished the discussion on the bill [regarding] the building-up of a non-Mandatory Central Provident Fund at the beginning of this month. The bill will be submitted to the Legislative Assembly as soon as possible,” Mr. Iong disclosed, while attending local broadcaster TDM

Radio’s Macau Forum yesterday morning. According to the government’s public consultation on the Fund scheme in 2014, it suggests that this non-compulsory provident fund system should first apply to those earning between MOP6,500 (US$813.9) to MOP 30,000 each month. The FSS president said yesterday that he hopes local employees, especially those of the over 100,000 now contributing to private pension funds, will adapt to the government’s new fund scheme. “If employees join this central provident fund scheme they can also use the amount that the government has allocated to their accounts for investment,” Mr. Iong indicated. “Over the past seven years, the government has allocated each equitable resident a total of MOP42,000 to their central provident fund

accounts. Such an amount would certainly surpass MOP50,000 as at the end of this year…If employees join the non-mandatory central provident fund scheme, they can use this amount for investment as well, which I believe is quite appealing to employees,” the FSS head claimed. According to the official, the government is planning to provide some tax concessions to the city’s employers in order to instigate the use of the new fund scheme. He hopes the non-compulsory scheme can gradually transition to a mandatory one. On the other hand, Mr. Iong said there is an audit report being conducted on the financial balance of the

Fund. He added that the report would include a study of the feasibility for setting up a mechanism - pegging the government’s allocation to the social security fund with the city’s fiscal surplus. Meanwhile, the FSS president told reporters after the radio show that the financing of the autonomous body is in an ideal situation. “For last year, the total assets of the Social Security Fund amounted to MOP54 billion. We estimated that our surplus would reach some MOP14.4 billion for this year, adding up total assets to some MOP68 billion as at the end of the year,” the official forecasts. K.L.

FSS increasing subsidies from July

The Social Security Fund announced yesterday that it would increase its current subsidies to residents from July this year, according to yesterday’s Official Gazette. Both pension and subsidies to individuals with disabilities will grow by three per cent to MOP3,450 per month from the current MOP3,350. In addition, the unemployment allowance will jump to MOP138 per day from MOP134, while both birth allowances and marriage allowances will climb to MOP1,957 from MOP1,900. Funeral allowances will also be increased to MOP2,534 from the beginning of the third quarter.

6 Business Daily Tuesday, May 24 2016

Macau Retail

Tse Sui Luen yearly profit down 40.6 pct

ales drops in Hong Kong and Macau drove jewellery retailer Tse Sui Luen (TSL) Jewellery (International) Ltd’s annual net profit to a drop of 40.6 per cent year-on-year, the company announced in a filing with the Hong Kong Stock Exchange yesterday. For fiscal year ended February 29, the jewellery retailer’s net profit amounted to HK$23.6 million (US$2.9 million), plunging some HK$16.2 million from one year ago, with earnings per share for the year down to 11.2 HK cents. ‘The decline in sales and profit attributable to owners of the Company for the year was mainly attributable to a significant year-on-year drop in retail sales activity in Hong Kong,’ the group announced in the filing. According to its annual results report, the company’s revenue generated in Hong Kong and Macau slumped 25.4 per cent yearon-year to some HK$1.67 billion compared to HK$2.24 billion one year ago. It explained the fall is due to ‘a significant drop in the number of tourists visiting Hong Kong and Macau from Mainland China during the year; overall tourist and customers’ spending decreased as a result.’ As at the end of February, TSL operated 28 self-operated outlets in Hong Kong and another three in Macau. Despite sales declines in the two

Special Administrative Regions, the retailer saw its revenues in Mainland China increase 13.5 per cent yearon-year to nearly HK$1.8 billion compared to HK$1.58 billion for the financial year of 2014/2015. The segment also recorded same store sales growth of 1.5 per cent year-on-year.

The company credited the revenue increase in the Mainland to the rapid growth in the number of shops and expansion of the sales network of franchise business in the country. As at the end of February, TSL’s total number of self-operated outlets in China amounted to 187.

‘Driven by its fast expansion during the Year, the group believes that the franchising model in Mainland China will continue to be a major element to the growth of the Group’s turnover, brand development and profitability,’ the company noted. K.L.

Heist

Philippine legislators end US$81 million cyber-heist investigation Philippine lawmakers ended a two-month investigation into the disappearance of US$81 million stolen from the Bangladeshi central bank through the Southeast Asian country’s casinos and banking system. The Senate Blue Ribbon Committee may issue a report detailing legislative recommendations next week, Senator Teofisto Guingona said after the last of seven hearings was held in Manila on Thursday. Central bank officials said they have also finished their own probe, and the Monetary Board will issue a full report soon. The Philippine financial industry and its casinos are in the spotlight for one of the

manager of the Rizal bank branch that transmitted the cash to the casinos, has been fired. The company’s President Lorenzo Tan quit two weeks ago to take “moral responsibility” for the lender’s involvement in the heist, even after an internal investigation by the bank cleared him of any wrongdoing. Deguito has denied any wrongdoing in her testimony at past Senate hearings. The central bank’s report from its probe into the money laundering will detail policy proposals and penalty recommendations, Bangko Sentral ng Pilipinas Deputy Governor Nestor Espenilla told reporters after Thursday’s hearing. Bloomberg

largest bank heists in modern history, where thieves hacked into Bangladesh Bank’s account at the U.S. Federal Reserve and routed the funds to accounts at Rizal Commercial Banking Corp. The money was then wired by a local remittance company into local gaming halls, where the money trail has gone cold. About US$15 million of the funds stolen in the heist three months ago has been recovered, all from casino junket operator Kim Wong. Wong denies wrongdoing and claims to have received the money from two Chinese nationals allegedly linked to the cyber heist. Maia Santos Deguito, the

Corporate

MACA attends meeting on copyright law

Representatives from the Macau Association of Composers, Authors and Publishers (MACA) attended the three-day biannual Asia-Pacific Committee Meeting, hosted by the International Confederation of Authors and Composers Societies (CISAC) as well as a training session running from May 16 to 20. The focus of the meeting was to deliberate the current conditions and trend of the copyright law system as well as sharing views on licensing

applications and performer obligations on public occasions. CISAC praised MACA on its achievements, in particular in the development and expansion of licensing focusing on small and medium-sized enterprises. The group commended the enthusiasm of the group in raising public awareness of intellectual property as well as communicating with local music users. Representatives from the authors’ societies included APRA from Australia, CASH from Hong Kong, MCSC from Mainland China and BMI from the United States, among others.

Rotaract Club holds first ‘Zero Distance’ Olympics

Attracting over 200 participants, the first ‘Zero Distance’ Olympics, organised and supported by the Rotaract Club of Macau and supported by local associations, held on Sunday, welcomed performances, workshops, game booths and Olympic Games activities, with proceeds of the event going to the Macau Association of Support for the Disabled and the End Polio Foundation of Rotary International. Ms. Cathy Lo, President of the Rotaract

Club of Macau expressed the group’s commitment to upholding the Rotary spirit and serving the community in different ways according to its current needs. The group hopes that through events such as the ‘Zero Distance’ Olympics they can support Rotary International in its efforts to eradicate polio from the world – targeting 2018. The group also expressed its hope of sending a message promoting an inclusive society to local communities, raising public awareness regarding disadvantaged individuals.

Business Daily Tuesday, May 24 2016 7

Macau Gaming Niraku profit nosedives 94 pct for fiscal year

Niraku: ‘Difficult year for pachinko operators’

iraku GC Holdings, Inc. saw a 94 per cent drop in its profit for the 2015 fiscal year, ending March 31, according to a filing with the Hong Kong Stock Exchange. The holding company and its subsidiaries operate pachinko and pachislot hall operations and hotel operations as well as restaurant operations in Hong Kong and abroad. The group held its initial public offering on the stock exchange in April of last year earning it approximately HK$339 million, reported Business Daily. Despite opening two new slot halls in the fiscal year, each equipped ‘with over 600 machines,’ according to the filing – which generated 630 million yen (MOP45.89 million) in revenue and 5.77 billion yen (MOP420.1 million) in gross pay-ins - the group saw a 6 per cent drop in its pachinko and pachislot business, with revenue falling by over 1.92 billion yen (MOP140.2 million) to 30.2 billion yen for the year (MOP2.2 billion). For the fiscal year, the group saw a profit of 181 million yen (MOP13.2 million) for the year, with only 6 per cent of the recorded 3.03 billion yen (MOP 220.72 million) recorded the previous fiscal year.

Challenges and opportunities

‘The environment of our pachinko business remains to look bleak in

2016,’ notes the filing, referencing the Environmental Business International report, ‘the market scale for 2016 is forecast to decrease by 10 per cent to 15 per cent compared to the previous year’. In addition: ‘the population of pachinko participants is estimated to plunge by 2 per cent to 5 per cent in 2016,’ compared to the previous year – this led to a ‘decline of 317 stores’ over the course of the year notes the filing. Niraku operates 55 pachinko halls and has fallen under ‘new standards with reduced gambling element’. These types of machines ‘are challenging to generate revenue like the high-gambling pachinko machines that have been our traditional revenue source,’ notes the filing, with expectations that ‘overall revenue is expected

13.2 Million patacas Profit recorded for the group for fiscal year 2015

to decrease’ and ‘consumer reception to these [new] pachinko machines will remain to be seen and unclear.’ This has caused the group to note that revenue growth is not expected to be seen despite the increases costs of replacing these machines, with the outlook expected to be a difficult year for pachinko operators. Niraku notes that the ‘increased revenue from the new halls […] did

not offset the decline in total revenue due to the drop of customers and lower revenue generated by higher rate of low playing cost machines,’ and plans to continue ‘to focus on expanding pachinko business . . . [by] . . . providing a wider range of machines, optimising its pay-out ratio and enhancing hall services.’ while also exploring ‘new opportunities to broaden the revenue base,’ notes the filing. This includes a ‘sales and purchase agreement’ entered into with Coastal Heritage Limited on May 19 to acquire 66.7 per cent of equity interest in Nha Trang Holdings Limited, notes the filing. Nha Trang operates seven Vietnamese restaurants and one ‘pinot duck’ restaurant in Hong Kong. The share agreement was decided for an aggregate consideration of HK$100 million and ‘aligns with the Group’s strategy of expanding its scale of operating in the hospitality business.’ The group expects the acquisition to bring in new income, and enhance its market presence. The group’s vending machine income also suffered a fall - of 0.67 per cent - to 588 million yen (MOP42.83 million), while its hotel operations grew, resulting from a 3 per cent increase in its occupancy rates - to 83 per cent – giving an income of 164 million yen (MOP11.95 million) for the fiscal year. K.W.

8 Business Daily Tuesday, May 24 2016

Greater China Fiscal reform

Cash-strapped local governments look to boost funds The local economies hardest hit by revenue shortfalls are falling back on land sales to plug the gap.

hina’s cash-strapped local authorities are scrambling for ways to rebuild their fiscal firepower as a tax overhaul has seen them lose out to the central government and efforts to clear unsold apartments prompts many to restrict land sales for new development. Proposals include turning over pension commitments to Beijing, redistributing sales-tax revenue from the central government to local coffers, or allowing provinces to start applying new levies on housing, according to proposals by former officials and tax experts in Beijing. The Ministry of Finance is in the midst of an overhaul of the nation’s tax system, with details on how local governments can boost

revenue anticipated in coming weeks and months. Meantime, the local economies hardest hit by revenue shortfalls are falling back on land sales to plug the gap, potentially worsening their longterm housing problems by adding to excess supply. The northeast rust-belt provinces of Heilongjiang, Liaoning and Jilin are most reliant on land sales, a Bloomberg provincial risk tracker shows. The government has orchestrated a debt swap for local governments to convert expensive loans into bonds, with 5 trillion yuan (US$764 billion) of such borrowings maturing this year. Provincial authorities play a vital role sustaining China’s investment-led

economy by helping fund infrastructure projects, and are an important backstop for consumption as the provider of pensions and welfare. With local officials relying more on Beijing’s assistance, “their sense of uncertainty has grown, making them more reluctant to plan for long-term development of their local economies,” said Xu Shanda, former deputy director of the National Taxation Administration. Still, regional and local governments’ fiscal and economic position improved in the first quarter and should continue to do so in coming quarters as the real estate market and macro economy stabilize, Moody’s Investors Service wrote in a report dated yesterday. Provinces heavily exposed to excess

capacity industries such as steel and coal are lagging behind, it said. Here are three of the more prominent proposals put forward: Consumption Tax: Turning over central government revenue from taxes on consumption goods such as cigarettes, alcohol and cosmetics to local authorities would be an “adequate and sustainable” supplement to help shore up the local revenue shortage, according to Gao Peiyong, a senior tax researcher at the Chinese Academy of Social Sciences, a state-backed think tank that advises the government in Beijing. Property Tax: Policy makers are also weighing new levies on real estate owners and are running trial programs, with a levy based on property values tried in Chongqing and transaction taxes applied in Shanghai. The National People’s Congress wrapped up a draft law on real estate tax last year, but it was halted on concern it would dent sales and slow a reduction of excess housing inventories in smaller cities. Now isn’t the best time for new property taxes as policy makers are already having to juggle the need to cap prices in first-tier cities while removing restrictions in smaller places to try to spur sales, said Qiu Xiaoxiong, former deputy director of the National Taxation Administration. Social Security Switch: Another alternative is for the central government to take on a bigger slice of provincial social security obligations. Wei Jianing, a researcher from the Development Research Centre of the State Council - a key advisory body to China’s cabinet said the benefits of such a move would go beyond just easing local fiscal burdens. Central government payments of welfare entitlements would also facilitate city-to-city migration and urbanization, since currently pension and medical reimbursement entitlements are based on birth place rather than residence. Greater labour force mobility would be a big productivity driver and is a stated aim of China’s reform blueprint. Bloomberg News

Corporate changes

Boss of solar firm Hanergy steps down after losing billions He remains the chairman and chief executive officer of parent company Hanergy Holding Group. The controversial boss of Chinese solar energy firm Hanergy Thin Film Power Group - once listed as China’s richest man - has stepped down as chairman and executive director, the company said, almost a year after its shares imploded. Li Hejun stepped down from Friday “for the reason of strengthening corporate governance”, Hanergy said in a statement to the Hong Kong stock exchange, where its shares have been suspended since May last year after plunging 47 percent in less than half an hour, wiping US$19 billion off its market capitalisation. The territory’s securities regulators also announced a probe into the company. Hanergy had captured the attention of investors after growing more than six fold to became the world’s largest solar power company by market value before the collapse, amid

questions over the firm’s share price and revenue sources. The meteoric rise in share price once gave Li the title of China’s richest man, according

to one wealth survey, but he has since fallen well down the rankings and regulatory filings showed he later sold some of his shares at a 95 percent

discount. He remains the chairman and chief executive officer of parent company Hanergy Holding Group, according to

the parent. The statement said there were no matters relating to Li’s resignation that needed to be brought to the attention of the stock exchange or shareholders. Hong Kong’s Securities and Futures Commission has yet to make a public announcement about its investigation, almost a year after it started. Two other executive directors of Hanergy Thin Film also stepped down, according to the latest statement, with Yuan Yabin, a deputy general director of the parent taking over as chairman and an executive director of the listed unit. The collapse of Hanergy and some other top-performing stocks on the Hong Kong stock market prompted critics to question the oversight of regulators. AFP

Business Daily Tuesday, May 24 2016 9

Greater China

Wanda’s Wang aims barbs at Disney ahead of park opening The company has been positioning itself as a direct rival to Disney. The billionaire head of China’s Wanda Group said rival Walt Disney faces high costs and other hurdles at its first mainland theme park opening in June, a rare public criticism that underlines rising tension as firms vie for the fast-growing entertainment market. The comments by Wang Jianlin, made in an interview with state television aired late on Sunday, pits him against both the iconic U.S. firm and its local government-linked partner, which owns a majority stake in the park. Disney’s US$5.5 billion resort in Shanghai, a joint venture between the U.S. entertainment giant and Chinese state-backed consortium Shanghai Shendi Group, is slated to open on June 16. Wanda has been positioning itself as a direct rival to Disney, breaking ground on a 16 billion yuan (US$2.44 billion) tourism “city” in southwest China last week and preparing to open another park in south-eastern Nanchang city this week. “As far as the opening of the Disney Shanghai park goes, I’m sure that we will win out,” Wang said in an almost hour-long interview on state-run China Central Television (CCTV). “At Wanda I always say we want to ensure Disney is not profitable for 10-20 years in this business segment

Wang Jianlin, head of Wanda Group

Officials at the CFDA told Reuters the staffing issues are hampering watchdog’s ability to police drugs market. Adam Jourdan

Promises of higher salaries and greater freedom at work are luring officials from China’s high-profile drugs watchdog to the companies they had regulated, a blow just as the country looks to tighten oversight and drive innovation. China wants to crack down on substandard drugs and healthcare as it seeks to produce more of the drugs consumed in the country and to build up its pharmaceutical exports. It also has ambitions to develop cutting-edge drugs to combat major diseases, from cancer to Ebola. But in the past two months alone, high-profile scandals concerning a criminal vaccine ring and experimental cancer treatments have exposed what Li Guoqing, head of the China Food and Drug Administration’s (CFDA) drug supervision department, in March publicly called “dead spaces and blind zones.” Current and former officials at the CFDA told Reuters the staffing issues are hampering its ability to police the world’s second-largest drugs market, including the monitoring and testing of new medicines. “The brain drain of skilful people definitely impacts the CFDA’s ability to operate, especially for example its ability to evaluate new drugs,” said Cheng Gang, 44, a former CFDA section chief who left to set up his own drugs company at the end of 2014. He said senior staff eventually moved

Silk Road Belt

Boao Forum to hold conference on cooperation Boao Forum for Asia is set to hold a conference to promote cooperation among Asian and European countries along the routes of the China-proposed Silk Road Economic Belt and the 21st Century Maritime Silk Road. The Conference on Energy, Resources and Sustainable Development of Boao Forum for Asia and the Silk Road National Forum, with the theme of “One Belt and One Road Integrated with the Eurasian Economic Union,” will be held at the Independent Hall of Astana from Tuesday to Thursday. Trade

in China.” A Shanghai-based Disney official declined to comment. In the wide-ranging interview that also touched upon Wanda’s investment strategy overseas and interest in global soccer, Wang added Disney faced hurdles to win over consumers to its key animation characters. “We still haven’t seen a real craze here or a generation blindly following Mickey Mouse of Donald Duck,” Wang said. Wanda itself does not have any hugely well-known characters, but several newer Chinese animations such as

“Boonie Bears” and “Pleasant Goat and Big Big Wolf”, developed by domestic companies, are very popular on the mainland. Wang added the Disney park would have to face challenges with Shanghai’s weather due to cold winters and a rainy season in summer, while the U.S. firm’s costs were also higher than Wanda’s, creating a “serious challenge”. “To balance the books, (Disney) has to charge high prices, which will put some customers off,” Wang said. “On top of this China already has Wanda they really ought not to have come to China at all.” Reuters

on for bigger pay packages at drug companies, where he said they could earn more than 600,000 yuan (US$92,000) a year, versus around 120,000 yuan at the regulator. One current senior official at the CFDA, who declined to be named because he is not authorised to speak to the media, told Reuters some areas like drug supervision and front line enforcers were particularly hard hit. An analysis by Reuters of professional websites such as LinkedIn China show that departures have included section heads and senior enforcement officers. At the heavily guarded Beijing office block that houses the CFDA’s headquarters, a tightly controlled work environment has done little to stem the flow of departures. Cheng said staff were not allowed to go online or even use messaging apps when he was there, though it could not be ascertained whether that was still the case. In some ways, the CFDA is a victim of its own progress - those with regulatory experience are increasingly in high demand in China partly because drug firms are facing an ever more complex regulatory environment. They leave the CFDA for multinational companies, local drugmakers, consultancies and investment firms. Ge Li, CEO of Shanghai-based drug research firm WuXi AppTec, said only around a third of drugs approved in the United States have made it through the approval process in China. “China wants to set a standard, but it also needs to have the expertise and the talent,” he said.

“We have been drained of a lot of our core people,” said Bi. The CFDA is candid about the challenge - it said in a statement to Reuters that it needs to offer higher salaries and improved status to deal with the staff shortage. “Being able to evaluate and approve drugs is what decides the competitiveness of a country’s pharmaceutical market,” the watchdog said. In his comments in response to the illegal vaccines scandal in March, the CFDA’s Li was stark in his assessment of the talent problem. “There aren’t even 500 people with the aptitude to inspect drugs,” he said. “Regulatory targets are many, but there are few people on the ground.” The CFDA declined to provide Bi or Li for interview for this story.

Public workers

Drugs watchdog struggles as senior staff lured away by industry

In Brief

In a speech earlier this year, CFDA boss Bi Jingquan, put the size of his drug evaluation centre at 130 people, versus 5,000 at the FDA in the United States. A third of front line drug evaluation staff have left in the last three years, he added, moving to a private sector where salaries could be as much as ten times higher.

Cracking down

Since his appointment last year, Bi has sought to shake up regulation by introducing new policies for drug approvals, tougher testing for generic drugs and a crackdown on dodgy drug trial data. Among others, Li Chen, the chief executive of drug development firm Hua Medicine, said that Bi takes a “no mercy” approach to regulation. China’s drug exports are rising: they hit 25 billion yuan in 2015, up almost tenfold from 2002, according to Fitchowned BMI Research. These exports are set to hit around 44 billion yuan by 2020, BMI said. The staffing crunch, however, raises doubts, over whether China really can implement and enforce the new rules - raising the risk that bad corporate behaviour will continue, and new drug development will be held back, even as China’s drugs reach more people. Slow approvals for new drugs are already a bugbear for multinational firms - despite China’s pledges to speed up proceedings. Drugs like Merck & Co’s vaccine for HPV and others to treat hepatitis and cancer have been waiting for approval for lengthy periods, a number of years in some cases. “China’s growth and appetite for medicines are growing faster than its regulatory infrastructure can keep up,” said Sophie Cairns, senior analyst at consultancy IHS Life Sciences. Reuters

Australian fruit exports to China to surge in 2017 China could import up to one-quarter of the nectarines produced in Australia next year, as local growers plan to expand into the Chinese market with the lowering of trade tariffs. Australiangrown nectarines and peaches, both types of summer fruit, will be on their way to China as of January 1 next year, and industry bosses have hailed the introduction of the China-Australia Free Trade Agreement (ChAFTA) for opening the market. It’s the first new export market for the Australian stone-fruit producers in more than two decades, and will lead to lower domestic fruit prices. International relations

Cooperation with Kyrgyzstan to deepen China is willing to work with Kyrgyzstan to boost bilateral relations and cooperation in all fields, visiting Chinese Foreign Minster Wang Yi said here on Sunday. During a meeting with Kyrgyz President Almazbek Atambayev, Wang said bilateral relations have registered new and important development since the establishment of the two countries’ strategic partnership by Chinese President Xi Jinping and Atambayev. China is willing to take the joint construction of the Silk Road Economic Belt and the 21st Century Maritime Silk Road (“Belt and Road”) as an opportunity to push forward the two countries’ cooperation in production capacity, infrastructure, and people-to-people and cultural exchanges, he said. Natural disaster

Inner Mongolia sweats in severe drought A severe drought in north China’s Inner Mongolia Autonomous Region has inflicted damages in almost half of the region, causing more than 10 million yuan (US$1.5 million) in economic losses. The drought is particularly heavy in Siziwangqi under the city of Ulanqab, where only 4.5 mm of rainfall has been recorded since March. The drought has affected 34,520 local people, with 18,543 short of water supply, according to the local government. About 37 percent of its crop fields and grassland have suffered damages, the government said on Sunday, adding that about 11,400 livestock were also affected.

10 Business Daily Tuesday, May 24 2016

Greater China

China tries to make the transition from a low-cost factory location into a high-tech industrial hub

M&A

FGC to buy Germany’s Aixtron for US$752 mln Aixtron is the latest in a series of German industrial groups to be targeted by Chinese buyers Maria Sheahan

ujian Grand Chip Investment Fund LP (FGC) has agreed to buy Aixtron in a deal valuing the German semiconductor equipment maker at US$752 million, adding to a string of Chinese takeovers of German technology companies. FGC, a Chinese investment

fund controlled by businessman Zhendong Liu, said yesterday it would offer 6 euros per share to buy loss-making Aixtron, representing a 51 percent premium over the company’s three-month volume-weighted average share price. News of the deal pushed the German company’s stock up 15 percent to a five-month high of 5.49 euros in early trade. Aixtron is the latest in a series of German industrial groups to be targeted by Chinese buyers as the world’s second-largest economy tries to make the transition from a low-cost factory location into a high-tech industrial hub. Last week, Chinese home

appliance maker Midea Group made an offer to buy factory robot manufacturer Kuka AG for around US$5 billion. Aixtron makes metal organic chemical vapour deposition or MOCVD tools, which are key for the production of red, blue, green and white light emitting diodes (LEDs). Its stock lost more than half of its market value after Sanan Optoelectronics, China’s biggest LED chip maker, cancelled an order. “In our view, it makes sense for FGC to acquire Aixtron for its MOCVD and compound semiconductor technology, as ... Sanan is located in the same province as FCG and is backed by local government,” Berenberg analyst

Tammy Qiu said in a note. Aixtron’s strategy is to remain unchanged following the takeover, and it will maintain its three technology hubs at its headquarters in Herzogenrath, Germany, in Britain’s Cambridge and Sunnyvale in the United States, the two companies said. Cost and staff cuts are not

Key Points Fujian Grand Chip (FGC) to offer 6 euros/shr for Aixtron Aixtron supervisory board supports offer Aixtron shares jump 15 pct to five-month high

part of the takeover plan, and Aixtron’s Chief Executive Martin Goetzeler and Chief Operating Officer Bernd Schulte are to remain in office, they said. FGC will provide around 1.7 billion yuan (US$260 million), or around 231 million euros, of equity financing, while the rest of the funds for the takeover will come from debt facilities. JP Morgan is acting as financial adviser to Aixtron and White & Case LLP is its legal adviser. Buttonwood Finance Ltd is investment adviser to FGC, Deutsche Bank is financial adviser, and Paul Hastings LLP and Glade Michel Wirtz are legal advisers to the Chinese group. Reuters

Going public

UK advisers struggling with Chinese stock listings Of the 40-odd China-based firms to list on AIM over the past decade, only a handful have seen their shares rise in value Alasdair Pal and Patrick Graham

Almost two-thirds of the advisory firms who assist in stock exchange listings in London say they are struggling to guide Chinese firms through the process, a survey showed, in the latest sign of problems with such initial public offerings. The survey by accounting firm Moore Stephens showed 64 percent of advisers said they had faced difficulties in communicating with Asia-Pacific and Chinese companies listing on the small-cap Alternative Investor Market (AIM). “China is a key market for AIM, but unfortunately the adviser-client relationship is often not functioning as smoothly and successfully as it might,” said Marty Lau, Head of Capital Markets at Moore Stephens. Of the 40-odd China-based firms to list on AIM over the past decade, only a handful have seen their shares rise in value. At a time when Beijing is steadily opening the way to more investment flows into and out of China, at least 15 Chinese firms on AIM have delisted and the majority have seen their value fall by at least 50 percent compared

with their initial valuations. The lack of confidence in the Chinese listings has added to broader criticism of AIM, which one U.S. regulator has described as a “casino” where 30 percent of issuers are gone in a year. “Companies are very aware of the

importance of good communication with advisers, as well as investors and regulators, but from where advisers are standing, especially as regards China, the appropriate channels are not always clear,” Lau said. Nominated advisers are responsible for helping firms list and providing

broking services and research coverage. Lau said that if companies opened offices in the UK and appointed UK-domiciled executive directors it might help restore confidence. But investors in the market say the issues are broader. “A lot of companies have had problems with corporate governance, and it’s unclear why the exchange doesn’t do anything about it,” said Colin McLean, Chief Executive of SVM Asset Management and an investor in the market. He is an investor in Hutchison China Medtech, one of the few Chinese AIM stocks to have risen in price since its launch. Its shares are up nearly five-fold since listing. Reuters

“A lot of companies have had problems with corporate governance, and it’s unclear why the exchange doesn’t do anything about it” Colin McLean, Chief Executive of SVM Asset Management

Business Daily Tuesday, May 24 2016 11

Asia Fiscal reform

Philippines outgoing minister recommends US$3 billion tax plan The tax reform package includes cutting personal and corporate income tax rates to 25 percent within six years. Siegfrid Alegado

utgoing Philippine Finance Secretary Cesar Purisima will submit tax reform recommendations to the administration of newly elected President Rodrigo Duterte that he says could yield as much as US$3 billion of revenue annually, enough to wipe out the budget deficit last year. The proposal includes lowering income and corporate taxes while lifting the sales tax, Purisima said in a May 20 interview in Manila. It also calls for increasing the excise tax on oil, removing exemptions for the sales tax, and lifting bank deposit secrecy, all of which could yield as much as 141 billion pesos (US$3 billion) in the first year of implementation, he said. “They can look at how we planned to approach tax reform and mix it with whatever their concepts are,” Purisima, whose six-year term ends in June, said in an interview at his home. “We wanted to do it, but we ran out of time.” While outgoing President Benigno Aquino has almost doubled state earnings by hunting tax evaders and curbing corruption, Fitch Ratings estimated general government revenue remains low at about 20 percent of gross domestic product in 2015, compared with the 28.6 percent median for similarly rated nations.

President’s ear

Reforming the country’s tax regime forms part of Duterte’s economic agenda outlined by his designated Finance Secretary Carlos Dominguez on May 12. Purisima said he is confident in the skills of his successor, who he met for lunch before the interview, citing Dominguez’s previous stint as

Outgoing Philippine Finance Secretary Cesar Purisima.

“We wanted to do it, but we ran out of time” Cesar Purisima, Outgoing Philippine Finance Secretary

Agriculture Secretary, deep business experience and strong support from Duterte. “Having the president’s ear is crucial” if you want to push for reforms, Purisima said. The tax reform package includes cutting personal and corporate income tax rates to 25 percent within six years, and exempting workers earning 1 million pesos and below a year from paying taxes, said Purisima. The corporate tax rate is currently

30 percent while income tax rates are as high as 32 percent, among the highest in the region, according to the International Monetary Fund. The plan also recommends increasing the sales tax to 14 percent from 12 percent, reducing incentives for industries like real estate and allowing revenue agencies to retain part of their collection to modernize and fund personnel enhancement, according to a summary of the study obtained by Bloomberg.

Similar plan

The proposal is similar to a plan unveiled by incoming Economic Planning Secretary Ernesto Pernia. The new economic team plans to cut personal income taxes to benefit low-income earners, while the corporate income tax can be patterned after neighbours in Southeast Asia

where the rate is about 25 percent, Pernia said by phone on May 20. There’s also a plan to lift bank deposit secrecy and reduce tax perks to offset foregone revenue due to lower income taxes, said Pernia, professor at the University of the Philippines’ School of Economics who was previously lead economist at the Asian Development Bank. The Philippines must ensure any tax reductions are offset by revenue-enhancing measures to protect fiscal gains and fund pro-poor programs, Purisima said. Under Aquino, the nation won its first-ever investment grade ratings and had its best period of growth since the 1970s. “We’re turning over a country in a better position, a country now with wind beneath its wings,” said Purisima. Bloomberg News

Price risks

Japan, Italy central bankers see risks to inflation outlook Central bank in Japan is three years into a massive asset purchase programme but inflation has ground to a halt. Stanley White and Leika Kihara

Italian and Japanese central bankers warned yesterday of the damage that weak inflation expectations could inflict on their economies, as the euro-zone and Japan suffer from anaemic prices despite years of aggressive monetary easing. Bank of Italy Director General Salvatore Rossi said central banks should never let inflation remain low as that could affect people’s psychology and hurt inflation expectations. “In Europe, we see risks of a de-anchoring of inflation expectations. That’s why

(European Central Bank President Mario) Draghi said many times that the stance of euro-area monetary policy is so accommodative and every tool is brought on the table,” Rossi told a seminar hosted by Japan’s Keio University. Bank of Japan (BOJ) Deputy Governor Hiroshi Nakaso told the same seminar that Japan’s two-decades experience of deflation showed it was very important to “act quickly” against subdued price growth as once entrenched, it would hurt inflation expectations. “Our experience probably tells you that if actual inflation stays low for too long, it affects inflation expectations.” Japan’s central bank is three years into a massive asset purchase programme but inflation has ground to a halt. Nakaso declined to comment on how a strong yen could affect the BOJ’s policy decisions. But he stressed that it was important to look not just at first-round effects of

Bank of Japan Deputy Governor Hiroshi Nakaso.

yen rises but the full passthrough effect on the economy and prices. “The first-round effect is the direct impact on consumer price index, while the full pass-through effect includes indirect channels such as improvements in the output gap and inflation expectations.” He also reiterated that it was desirable for currency rates to move stably, reflecting economic fundamentals. “The desirability of exchange-rate stability is widely shared by the Japanese industry,” he said. On the impact of a British referendum on whether to stay in the European Union, Rossi said it was not all negative. “If Britain votes to stay, there could be some upside because confidence would improve,” Rossi said. “The resilience of the euro-area economies and financial markets to such exogenous shocks have increased substantially,” he added. Reuters

12 Business Daily Tuesday, May 24 2016

Asia considerable flexibility and it would be wrong to cut rates mechanistically in response to low inflation. “Two percent we regard as a good measure of price stability,” Brash said. “That doubles the level of prices in 35 years. Hells bells, that doesn’t sound like price stability to me.” New Zealand was on the cusp of deflation when consumer prices rose 0.1 percent in the 12 months through December. A period of falling prices was unlikely to delay spending or disrupt the economy, said Brash. “For most things, we’re not going to stop buying with some prospect of a modest 1 to 2 percent fall in price over the next 12 months,” he said. “Will people stop buying because prices go down? That’s a nonsense argument.”

iPhones, groceries

Reserve Bank of New Zealand headquarters.

Former governor

New Zealand central bank needn’t rush to inflation target RBNZ Governor Graeme Wheeler has cut interest rates five times since June to a record low. Tracy Withers

New Zealand’s central bank needn’t be in a rush to return inflation to its 2 percent target, according to former governor Don Brash. The economy can handle less inflation or even a brief period of deflation, Brash, who was governor from 1988 to 2002, said in an interview. Inflation has been below the Reserve

Bank of New Zealand’s (RBNZ) 1-3 percent target range for six straight quarters, and hasn’t reached the 2 percent midpoint it aims for since 2011. “Why we should be panicked when for a while it’s briefly under 2 percent I don’t understand,” said Brash, 75, who oversaw the introduction of inflation targeting in 1990 that helped to tame rampant price increases. Asked if New Zealand is too fixated on getting back to the middle of the target, he said “I personally think we are.” RBNZ Governor Graeme Wheeler has cut interest rates five times since June to a record low, as he attempts to boost inflation toward 2 percent. Lower borrowing costs are fuelling a housing boom, posing a risk to financial stability and prompting Wheeler to consider further prudential measures to curb mortgage lending. “How does he keep inflation up while not further igniting the property market around the country?” said Brash. “He has limited instruments to deal with that. The single biggest

instrument is not in his control, and that’s land supply.”

RBNZ’s mandate

Under the policy targets agreement with the government, the central bank is required to target 2 percent inflation on average over the medium-term. Wheeler said in a February speech that the PTA afforded him

“For most things, we’re not going to stop buying with some prospect of a modest 1 to 2 percent fall in price over the next 12 months” Don Brash, Reserve Bank of New Zealand former governor

Consumers will buy iPhones, knowing perfectly well the price will be 50 percent less in six months or 12 months, or buy grocery items knowing they might be cheaper in a few weeks’ time, he said. Consumer prices rose 0.4 percent in the year through March, and the central bank doesn’t forecast 2 percent inflation until 2018. The annual inflation rate was less than 3 percent when Brash stepped down in 2002, down from a peak of almost 19 percent in 1987. He said he “remains very comfortable” with the RBNZ’s mandate of achieving price stability, noting the challenges faced by peers such as the Federal Reserve or the Reserve Bank of Australia, which have additional mandates to maximize employment. “I suspect in their heart of hearts they wish profoundly they had a single mandate,” he said. “They know that with one instrument they can’t deliver two targets.” The RBA cut rates this month after core inflation slowed to the weakest on record in the year through March. Still, lowering the central bank’s 2-3 percent inflation target would be “wildly premature”, RBA board member John Edwards told the Wall Street Journal last week. Australia’s annual inflation rate has been below 2 percent since the third quarter of 2014. Reuters

Real estate

CapitaLand commercial to buy Singapore tower The purchase comes as the Singapore office market is slowing amid weak economic growth and large supply. Pooja Thakur

CapitaLand Commercial Trust, Singapore’s largest office real estate investment trust by value, is buying the remaining 60 percent stake in CapitaGreen, an office tower in the city-state’s central business district. CapitaLand Commercial will buy the stake for S$393 million (US$285 million) from its partners, CapitaLand Ltd. and Mitsubishi Estate Asia Pte, the company said in a filing to the stock exchange yesterday. That compares with an average of two independent valuations for the 40-story tower of S$1.6 billion, or S$2,276 per square foot, over the remaining land tenure of 57 years. “The pricing on this trophy asset shows the state of

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the prime-office market,” Priyaranjan Kumar, regional executive director of capital markets at Cushman & Wakefield Inc. in Singapore, said. “Given the current outlook on rents, this signals perhaps a pause in valuations for other prime-office assets where the threat of declining

rents over the next two years may crimp valuations.” The purchase comes as the Singapore office market is slowing amid weak economic growth and large supply that outstrips demand for prime space. Office rents may decline as much as 25 percent in a prolonged slump that could last until the end of 2018 as demand slows, Daiwa Securities Co.

said in March. The average gross rent in the central business district declined 4.4 percent to S$9.06 per square foot per month in the quarter ended March from the previous three-month period, according to Jones Lang LaSalle Inc. CapitaLand, which owned half of CapitaGreen, said it made a gain of S$196 million from the sale of its stake, in

a separate statement to the Singapore stock exchange. Mitsubishi Estate Asia, a unit of Japanese developer Mitsubishi Estate Co., held a 10 percent stake in the office tower. CapitaLand Commercial had a call option to buy the remaining stake in the office tower as part of the joint venture agreement signed in 2011. The trust will acquire the stake from MSO Trust, a special purpose subtrust which holds the office tower. Reuters

“The pricing on this trophy asset shows the state of the prime-office market” Priyaranjan Kumar, Regional executive director of capital markets at Cushman & Wakefield Inc.

Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Joanne Kuai; Nelson Moura; Annie Lao; Kelsey Wilhelm Group Senior Analyst José I. Duarte Design Francisco Cordeiro Web & IT Janne Louhikari Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@‌projectasiacorp.‌com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily. com Advertising advertising@‌macaubusinessdaily.‌com Subscriptions sub@‌macaubusinessdaily.‌com Online www.‌macaubusinessdaily.com

Business Daily Tuesday, May 24 2016 13

Asia Trade

Japan exports suffer biggest drop in 3 months Imports fell 23.3 percent in April, worse than a 19.0 percent annual decline expected by economists.

apan’s exports fell in April at the fastest pace in three months. Exports declined 10.1 percent year-on-year in April, Ministry of Finance data showed yesterday, in line with a 10.0 percent annual drop expected by economists in a Reuters poll but worse than a 6.8 percent drop in March. It was the seventh straight month of declines and the biggest since 12.9 percent in January, when Japanese shipments to Asia slowed sharply ahead of the Lunar New Year holidays. The decline was likely exaggerated by a drop in U.S.-bound car exports due to supply-chain disruptions caused by last month’s earthquakes in southern Japan, but a rising yen and weak global demand are clouding the outlook for the year. “Drops in U.S.-bound car exports were noise,” said Takeshi Minami,

chief economist at Norinchukin Research Institute. “Asia and the global economy remain weak. On top of that, yen gains squeeze profits at exporters, causing wages and capital spending to weaken, which would hamper ‘Abenomics’ aim of creating virtuous growth,” Minami said. Imports fell 23.3 percent in April, worse than a 19.0 percent annual decline expected by economists and pointing not only to weak commodity prices but sluggish domestic demand. A private business survey yesterday suggested more pain ahead

Key Points April exports -10.1 pct yr/yr in line with f’cast, Mar -6.8 pct Yen gains, emerging mkt slowdown weigh on shipments Imports -23.3 pct yr/yr vs f’cast -19.0 pct, Mar -14.9 pct Trade balance +823.5 bln yen, third straight month of surplus Kumamoto quakes hurt U.S.-bound car shipments

for Japanese manufacturers. The Markit/Nikkei preliminary survey for May showed total new orders declined at the sharpest pace in 41 months. The data adds to pressure on Prime Minister Shinzo Abe to do more to rev up flagging growth amid persistently weak demand at home and overseas. Abe is hoping win consensus on fiscal stimulus at a summit of leaders of G7 advanced economies in Japan later this week. Exports to China - Japan’s largest trading partner - fell 7.6 percent in April, while the U.S.-bound shipments fell 11.8 percent year-on-year. Car exports to the United States fell 4.4 percent, down for the first time since November 2014. Exports to Asia, which accounts for more than half of Japan’s shipments, fell 11.1 percent in the year to April, but EU-bound shipments rose 9.9 percent. Toyota Motor Corp recently forecast a bigger-than-expected 35 percent tumble in net profit for the current year due to the sharp appreciation of the yen, ending three straight years of record profits driven in part by a weak currency. But it still expected global sales to inch up this year. Reuters

In Brief Drugs marketing

Australia watchdog appeals Reckitt Benckiser fine Australia’s competition watchdog has filed an appeal against a fine of A$1.7 million (US$1.2 million) imposed on British consumer goods giant Reckitt Benckiser for misleading consumers on painkiller marketing, arguing that it is too light. Australia’s federal court this month imposed the penalty after finding Reckitt Benckiser had been deceptive in suggesting on its web site and packaging that its Nurofen Back Pain, Period Pain, Migraine Pain and Tension Headache products were formulated to target those types of pain although they all had the same active ingredient. Steel

Rivals consider joint bid for Tata’s UK steel assets Excalibur Steel, a management buyout group interested in purchasing Tata Steel’s British steelmaking operations, is considering joining forces with rival bidder Liberty House, The Sunday Times newspaper reported. Tata said in March it wanted to sell its UK steel operation, which has been hit by cheap Chinese imports, rising costs and weak demand. The decision prompted a political scramble to find a buyer that could save the thousands of jobs at stake. A decision on how to proceed with the sale is set to be taken at a meeting of the Tata board in Mumbai on Wednesday. Securities

Indonesia sells 4 trillion rupiah of retail bonds

Tokyo harbour.

Airline market

Vietnam’s VietJet to buy 100 Boeing planes The company has ambitions to become a pan-regional low-cost airline. My Pham and Siva Govindasamy

Vietnam’s VietJet yesterday agreed a firm order of 100 Boeing 737 MAX 200 jets worth US$11.3 billion at list prices, making it one of Southeast Asia’s fastest-growing low-cost carriers. The deal, signed during U.S. president Barack Obama’s visit to Vietnam, represents a coup for Boeing, as VietJet has only operated its European rival Airbus’ A320 airplanes since it began operations in December 2011. The airline also signed a US$3.04-billion deal for engines made by Pratt & Whitney, a unit of United Technologies, for the 63 Airbus planes of the 99 it ordered and 7 hired since 2013. VietJet says it now has 36 Airbus planes in service, and the delivery of the Boeing planes, expected during 2019 to 2023, will bring the fleet to more than 200 aircraft by the end of 2023, potentially surpassing flag

carrier Vietnam Airlines, which now has 89 operating aircraft. Vietnam Airlines ordered 19 Boeing 787 and 14 Airbus A350 planes and 11 of those have been delivered. “Our investment in a fleet of B737 Max 200 will accommodate our strategy of growing VietJet’s coming international route network, including long haul flights,” President and Chief Executive Officer Nguyen Thi Phuong Thao said in a statement. VietJet has been rapidly expanding in Southeast Asia while taking on Vietnam Airlines in the domestic market, and the Boeing deal is the biggest aircraft order in the country’s history. The budget carrier has a 40 percent share of Vietnam’s domestic market and will probably surpass Vietnam Airlines this year as the largest domestic carrier, according to a January report of the CAPA Centre for Aviation. VietJet has ambitions to become

a pan-regional low-cost airline, following in the path of AirAsia of Malaysia and Lion Air of Indonesia, which also ordered hundreds of single-aisled planes, such as the A320 and Boeing 737. Southeast Asia’s airline market has grown rapidly over the last decade, fuelled by the emergence of budget airlines that offer greater travel options for the middle class. VietJet will also be unique in being one of the few low-cost carriers to order both Airbus A320s and Boeing 737s, as operating two types of planes is costly. Lion Air is the only other one, starting services with 737s before also ordering A320s and operating both aircraft types concurrently. The 737 Max and A320neo are the upgraded versions of both planes that promise better fuel economics and lower running costs. Airlines generally get discounts at list prices. Reuters

Indonesia raised 3.92 trillion rupiah (US$288.77 million) from retail bond sales, the finance ministry said in a statement yesterday, as the country tries to lure more citizens to invest in government debt. The notes, dubbed saving bonds by the government because they must be held until maturity and cannot be sold in secondary market, have a floating interest rate with a minimum coupon of 7.50 percent and are set to mature in 2018. More than 11,900 Indonesians bought the notes. Indonesia is aiming to sell more bonds to local individual investors this year as it tries to lower its dependence on foreign funds. Capital

Toshiba to more than halve its base Japan’s Toshiba Corp said yesterday it would more than halve its capital base - a move that comes in the wake of a US$1.3 billion accounting scandal last year. It will cut its capital to 200 billion yen (US$1.8 billion) from 439.9 billion yen to plug a deficit in its earnings reserves on its balance sheet after posting huge losses, it said. The capital reduction will be subject to shareholders’ approval and would be effective July 31, the embattled industrial conglomerate said in a statement. The company also said that it was correcting its earnings results for the year that ended in March. Its operating loss came to 708.7 billion yen, compared with the 719.1 billion yen loss announced earlier this month.

14 Business Daily Tuesday, May 24 2016

International In Brief M&A

Bayer announces US$62 bln cash offer for Monsanto German drugs and chemicals group Bayer AG said it had made an offer to buy U.S. seeds company Monsanto for US$122 per share in cash, or a total value of US$62 billion including debt, to create the world’s biggest agricultural supplier. Bayer said yesterday that the proposal made to Monsanto’s management represented a 37 percent premium over the closing price of Monsanto shares on May 9, before rumours of a planned bid emerged. Monsanto disclosed last week that Bayer had made an unsolicited takeover offer for the group. Financial sector

PMI

Euro zone business growth slows Despite Germany and France make the grade. Jonathan Cable

usiness growth across the euro zone dipped to a 16-month low in May but stronger showings from Germany and France suggest it is the smaller member countries that may be struggling. Offering the latest evidence that a strong acceleration in growth in the first three months of the year was only temporary, Markit’s flash Composite Purchasing Managers’ Index edged down to 52.9 from April’s 53.0. While essentially stable - and still

indicating growth - the reading was the lowest since the start of 2015. It ran against expectations in a Reuters poll, which had predicted a tick up to 53.2 in one of the earliest reported broad indicators of growth during the month. Markit said the PMI pointed to quarterly GDP growth of 0.3 percent, in line with forecasts in a Reuters survey published earlier this month, but short of 0.5 percent in the first quarter, which was initially reported as 0.6 percent. Individually, surveys showed growth in Germany’s private sector accelerated to hit the fastest rate so far this year. French business activity also grew faster than expected, returning to a rate not recorded since before the Nov. 13 attacks in Paris.

Legal costs burn Europe bank profits European banks have spent a third of their net profits on provisions to cover expected legal costs since the start of the economic crisis in 2008, European Central Bank data showed yesterday. Between 2008 and 2015, European banks have set aside US$160 billion in provisions for legal costs, equal to almost half of their net income over that period. This means their profits could have been almost onethird higher were it not for these legal costs. For firms such as Germany’s Deutsche Bank, Switzerland’s UBS and Britain’s Lloyds provisions by far outstripped net profits over the period. Trade deal

Obama confident TPP can be ratified President Barack Obama said yesterday he remained confident the Trans-Pacific Partnership (TPP) trade deal would be ratified in the United States despite strong political opposition in Washington. “The reason I remain confident is it’s the right thing to do,” he told reporters. “I have not yet seen a credible argument that once we get TPP in place we are going to be worse off... we’re going to be better off,” he told reporters in a press conference with his Vietnamese counterpart. But the US leader conceded getting the ambitious tariff-slashing deal through a hostile, Republican-dominated Congress will be “noisy”. European Union

Some members call for the removal of data barriers Half of the European Union’s member states yesterday called for the removal of barriers to the free flow of data both within and outside the 28-nation bloc to ensure the continent can benefit from new data-driven technologies. In a letter to the European Commission and the Netherlands - which holds the rotating EU presidency - ministers from countries including Poland, Britain, Sweden and Finland urged Brussels to make sure regulation is not a barrier to the development of data-driven technologies and to avoid one-size-fitsall rules for online platforms such as Amazon and Facebook.

“That suggests that the PMIs for the other major euro zone economies such as Italy and Spain will be soft when released next week,” said Stephen Brown at Capital Economics. Germany and France are the only individual euro zone countries for which Markit publishes flash PMIs. May surveys for other euro zone members will be published early next month. Markets were unmoved after the data as they were still digesting last week’s surge in expectations for a rate hike in the United States following a more hawkish tone from the Federal Reserve.

May June be better?

While the headline composite PMI was above the 50 mark that separates growth from contraction, the index measuring prices businesses charge remained below it at 49.0, although that was an increase from last month’s 48.3. This may concern policymakers at the European Central Bank who have been battling to get inflation up to their 2 percent target ceiling. Consumer prices fell 0.2 percent in April, despite the Bank’s ultra-loose monetary policy. Even with price discounting, new order growth slowed and there was no acceleration in activity in the bloc’s dominant service industry. A Reuters poll had predicted an increase to 53.3 but the PMI held steady at April’s 53.1. The manufacturing PMI fell to 51.5 from 51.7, missing the median Reuters poll forecast for 51.9, while an index measuring output dropped to 52.4 from 52.6. Details in the data hint that there may be little or no improvement in June. Optimism among service firms fell to a 10-month low, with the sub-index plummeting to 61.7 from 64.5, and factory recruitment slowed. The manufacturing employment index fell to 51.4 from 51.6. “The flash PMIs provided slight disappointments to the markets,” said Tuuli Koivu at Nordea, who expects 0.3 percent growth in Q2. “However, the negative surprises were only minor ones and do not cause any changes to our GDP growth forecast.” Reuters

Basic income salary

Swiss debate giving away money The proposal is opposed by the government, which says the stipend would mean higher taxes, create disincentives to work and cause a skills shortage. Catherine Bosley

The Swiss are discussing paying people US$2,500 a month for doing nothing. The country will vote June 5 on whether the government should introduce an unconditional basic income to replace various welfare benefits. Although the initiators of the plan haven’t stipulated how large the pay-out should be, they’ve suggested the sum of 2,500 francs (US$2,500) for an adult and a quarter of that for a child. It sounds good, but — two things. It would barely get you over the poverty line, typically defined as 60 percent of the national median disposable income, in what’s one of the world’s most expensive countries. More importantly, it’s probably not going to happen anyway.

Switzerland’s People Power

Plebiscites are a common part of Switzerland’s direct democracy, with multiple votes every year. The basic income initiative is taking place after

the proposal gathered the required 100,000 signatures, though current polls suggest it won’t get any further. The idea of paying everyone a stipend has also piqued interest in other countries, such as Canada, the Netherlands and Finland, where an initial study began last year. The initiators say the sum they’ve mentioned would allow for a “decent existence.” Still, on an annual basis, it would provide only 30,000 francs — just above the 2014 poverty line of 29,501 francs. About one in eight people in Switzerland were below the level in that year, according to the statistics office. That’s more than in France, Denmark and Norway. Among those over 65, one in five were at risk of being poor. “It’s not like you see abject poverty in Switzerland,” said Andreas Ladner, professor of political science at the University of Lausanne. “But there are a few people who don’t have enough money, and there are some people who work and don’t earn enough.”

Among the proponents of basic income is former Greek Finance Minister Yanis Varoufakis, who says it’s necessary as automation and robots increasingly eliminate jobs. “A rich country like Switzerland has the great opportunity to try out this great experiment,” he said. The initiative doesn’t lay out the conditions under which non-citizens would qualify. The proposal is opposed by the government, which says the stipend would mean higher taxes, create disincentives to work and cause a skills shortage. The economy is already hamstrung by the franc’s strength, with businesses warning they’ll move production to less pricey locations to reduce costs. “We’ve come to the conclusion that such an initiative could weaken our economy,” said Interior Minister Alain Berset. That view has struck a chord with the electorate: Polls show some 60 percent also oppose it. Bloomberg News

Business Daily Tuesday, May 24 2016 15

Opinion Business Wires

The Star Private equity (PE) activities in SouthEast Asia, impacted by macro uncertainty, rich valuations and high competition, have dwindled to its worst ever performance since 2004. The total deals value for last year was US$4.2 billion (RM17.2 billion), down from US$7.5 billion in 2014 and about one-third of the five-year average, according to a study by Bain & Company. Based on reports, the two biggest deals in the PE business in the region last year involved the raising of funds by RRJ Capital of some US$4.5 billion and Baring Private Equity Asia raising US$4 billion.

The Phnom Penh Post A new report has alleged labour rights abuses at Cambodian supplier factories for apparel giant H&M, as more than 500 garment workers gathered in Phnom Penh on Sunday to air some of the same concerns over working conditions during a workers’ forum. An independent investigation by Asia Floor Wage Alliance, which interviewed 201 workers at 12 H&M supplier companies in Phnom Penh and the surrounding areas, found that a large number of workers at nine of the factories were improperly employed on fixed-duration contracts, while many were forced to work long overtime hours and threatened with termination if they became pregnant.

Federal Reserve headquarters in Washington.

Fed to markets: we mean it this time, really

T Jakarta Globe A revised government regulation allowing workers who resign from employment, as well as those who are fired, to claim their mandatory old-age savings in the Social Security Administration Body for Employment is brought into a public debate, due to a controversy over the effectiveness of the current scheme. “The government Regulation No. 60, year 2015 and Labour Minister Regulation No. 19, year 2015, actually contradicts the philosophy of old-age-savings that should cover workers’ financial risks in their old age. They need to be revised,” said R. Abdullah, the chairman of Chemical, Energy and Mining Workers Union.

The New Zealand Herald The Reserve Bank (RBNZ) has softened the policies it’s looking at imposing for banks that outsource some of their services after lenders warned the cost was too high. The central bank is now seeking more feedback on its new proposals to more tightly define what functions should be covered by the outsourcing policy and when that policy kicks in. The RBNZ said submitters were generally comfortable with the objectives of the proposal, but banks were critical of the low threshold of the policy, the prohibition on certain functions being outsourced, a new materiality threshold, and the short timeframe to transition.

aking a page out of the high school relationship handbook, the Federal Reserve has a message for financial markets: start paying attention to us or we might start dating your friend. Except the Fed version of the dump and switch is an interest rate hike in June or July, a step the U.S. central bank has been at pains to stress it is very happy to do. Speaking a day after minutes from the Fed’s April meeting jolted markets into upgrading expectations of a rate hike soon, New York Federal Reserve President William Dudley on Thursday sounded happy to be taken, at last, seriously. “Clearly looking back a few days ago I think there’s a pretty strong sense among FOMC membership that the market was not putting a sufficient probability (on the) June or July meeting,” Dudley said, calling himself “quite pleased” that expectations had risen. Markets are now placing a onein-three probability of a June hike and a 53 percent chance of one in June or July. As ever hedging their bets, even when sending a message, the April Federal Open Market Committee minutes said “if incoming data were consistent with economic growth picking up in the second quarter, labour market conditions continuing to strengthen and inflation making progress toward the (Fed’s) 2 percent objective, then it likely would be appropriate for the (Fed) to increase the target range for the federal funds rate in June.” Some officials, according to the minutes, saw market expectations of a June hike as “unduly low” while putting stress on the need for clear communication about how they will respond to developments. We are now getting that clear communication, and along with it a rise in the value of the dollar and moderate drop in share markets. The issue, though, is that Fed communication exists, like high school romances, in a context, in this case one which makes it slightly difficult to take threats too very seriously. While the Fed continues to call itself “data dependent” we have had only one rate hike, and that one was delayed last year by unpleasant market trading in China, or more to the point, when China concerns caused a U.S. sell-off in risk assets.

“

James Saft Reuters columnist.

pace, slightly above the Fed’s target, and unemployment is at 5 percent. So why were futures markets so certain hikes would be delayed? What has happened, instead, to cause the market to downgrade its expectation that the Fed would be slow in getting around to the four rate hikes it forecast at the beginning of the year are essentially global events. Another bout of China jitters in the early part of the year, and the language coming out of the Fed in reaction was what built those market expectations which the central bank now seeks to correct. To put it simply, there is a widespread belief that the Fed has an unvoiced mandate to support asset prices. This belief may well be proved wrong - perhaps the S&P 500 will tumble 6 or 8 percent and we will still get our hike in June or July. It might happen but it would be a departure from previous form. James Montier and Philip Pilkington at fund managers GMO have shown that the eight annual FOMC days account for 25 percent of the real returns on the S&P 500 since 1984. So, if things look OK in June, and if the British vote on EU membership seems highly likely to result in continued union, then we might see a hike from the Fed. Surely, they would dearly love to be able to hike, if only to increase the distance between them and the zero lower interest rate bound. “The unacknowledged elephant in the room may well be their desire to distance themselves from negative rates territory,” Citibank strategist Steven Englander wrote after the release of the minutes. “They have few adequate policy responses to a negative shock when rates are this low, and view negative rates as toxic politically. They may simply not want to be in a position where any modest negative shock opens a debate on the absence of policy options.” The Fed’s problem may be that it needs to hike as insurance, not against runaway inflation or an over-heating economy, but to have something set by for a rainy day. If so, we will see if asset prices really have been supported by policy. Reuters

The Fed’s problem may be that it needs to hike as insurance, not against runaway inflation or an over-heating economy, but to have something set by for a rainy day

Dependent on which data?

U.S. core inflation is rising at a 2.1 percent annual

”

16 Business Daily Tuesday, May 24 2016

Closing E-shopping

Mainland’s online consumption soars over past five years

growth and supported China’s transition from an investmentdriven economy to one led by consumption, said Jia Kang, head of the China Academy of New Supply-side Economics. Spending Online shopping in China has soared over the past five years, on food and restaurants, flights, education and other daily services becoming a key growth driver against downward economic posted average annual growth of more than 70 percent in the past pressure, a report showed. The volume of total online purchases five years, the report showed. Residents in Beijing, Shanghai and surged over 12 times from January 2011 to April 2016, while per Zhejiang showed higher spending on cosmetics, jewellery and capita consumption grew by 27 percent, according to a recent entertainment, while remote provinces such as Hainan and Tibet report released by Alibaba’s financial services platform Ant Financial and a private economics research institute. The steady and also made the top 10 online spenders thanks to their growing demand for daily necessities amid rising incomes. Xinhua strong growth of online shopping has helped stabilize economic

Financial industry

Taiwan’s new regulator won’t push for bank consolidation The island sought to introduce financial reforms from 2004 to 2008. Faith Hung

aiwan’s top financial regulator said yesterday it won’t encourage consolidation in the island’s crowded banking sector, dashing expectations of some in the market that the newly-elected government would push for local mergers. The island has about 40 banks serving a population of 23 million and oversupply has led to price cuts and left banks’ returns on assets among the lowest in Asia for many years. The swearing in of Taiwan’s new

president, Tsai Ing-wen, last week had spurred expectations among some foreign analysts that a new administration would seek rationalisation in a sector where previous such attempts have failed. “If we use the government’s power to encourage consolidation, it would bring in some trouble,” Ding KungWha, the Financial Supervisory Commission’s (FSC) new chairman under Tsai’s administration, told a news briefing yesterday. He did not elaborate. Taiwan sought to introduce financial reforms from 2004 to 2008, setting a

target for banks to be merged as part of efforts to make local banks more competitive in the region. The reforms stalled in 2008 when then President Chen Shui-bian’s term ended. He and his wife were later convicted of bribery with Chen sentenced to prison. Tsai’s new government was elected on a pledge to reinvigorate the island’s trade-dependent economy, which has languished amid a slump in exports, in turn hurting confidence in local stocks. Ding said an increase in daily turnover of local stocks to T$150 billion (US$4.6 billion) from current levels

would be a “reasonable” increase to achieve, given the market’s priceto-earnings ratios have been revised down. Daily turnover of the broader market has been hovering around US$2 billion recently, reflecting investor concern over the island’s sluggish trade-reliant economy. “Our PE ratios have been quite low,” Ding said. “We hope institutional investors, including big investors, can return to the market as soon as possible.” 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 other major global markets faltered, government data showed Friday. Reuters

Inflation

International relations

Tourism

Singapore’s CPI falls again in April

U.S. lifts arms embargo on old foe Vietnam

Foreign visitors to S.Korea spend US$1,700 on average

Singapore’s consumer price index in April fell again by 0.5 percent, the 18th straight month of decline, according to the latest data released by Singapore’s Ministry of Trade and Industry (MTI) and Monetary Authority of Singapore (MAS) yesterday. The consumer price index (CPI) came in at minus 0.5 percent in April on a year-on-year basis, compared with minus 1 percent in March, mainly on account of the low base associated with the disbursement of Service & Conservancy Charges (S&CC) rebates in April last year, said MTI and MAS in the joint media release. MAS core inflation, which excludes the cost of accommodation and private road transport, went up to 0.8 percent, compared with 0.6 percent in March, due to higher services inflation as well as a smaller decline in electricity tariffs. Private road transport cost fell by 7.1 percent, faster than the 5.9 percent decline a month earlier. This was mainly due to a larger decline in car prices amid weaker Certificate of Entitlement (COE) premiums, as well as a bigger drop in petrol pump prices. Services inflation rose to 0.7 percent from 0.4 percent a month earlier, mainly on account of a stronger pickup in the cost of holiday travel and domestic services. Xinhua

U.S. President Obama announced yesterday that Washington will fully lift an embargo on sales of lethal arms to Vietnam. At a lavish state luncheon in Hanoi, Vietnamese President Tran Dai Quang toasted Obama’s first visit to the country as the arrival of a warm spring after a cold winter. Obama, the third U.S. president to visit Vietnam since ties were restored in 1995, has made a strategic ‘rebalance’ towards Asia-Pacific a centrepiece of his foreign policy. “The decision to lift the ban was not based on China or any other considerations, it’s based on our desire to complete what has been a lengthy process of moving towards normalisation with Vietnam,” Obama said. He said the sale of arms would depend on Vietnam’s human rights commitments, and would be made on a case-by-case basis. China’s foreign ministry said after the announcement in Hanoi that it hoped the development in relations between the United States and Vietnam would be conducive to regional peace and stability. China is Vietnam’s biggest trade partner and source of imports. But trade with the United States has swelled 10-fold over the past two decades to about US$45 billion, and Vietnam is now Southeast Asia’s biggest exporter to America. Reuters

Foreign tourists to South Korea spent an average of about 2.03 million won (US$1,712.5) when they visited the country last year, a government report showed yesterday. The result was based on a survey of 12,900 foreign tourists aged above 15, who visited South Korea in 2015, according to the Ministry of Culture, Sports and Tourism. The 2015 figure was up 107 dollars from a year ago. The daily spending by tourists while they stayed here averaged about 388,000 won (US$328.1) last year, up from 315.8 dollars the previous year. Myeong-dong special tourist zone in central Seoul was picked by 35.7 percent of respondents as the best tourist destination, followed by Dongdaemun Market in Seoul selected by 18.6 percent. The results indicated that shopping was one of the main goals of touring South Korea amid growing popularity of the so-called “Korean Wave” that boosted preference for South Korea-made cosmetics and clothing worn by K-pop and K-drama stars. About two-thirds of foreign tourists picked shopping as the most considerable factor when deciding to visit South Korea last year, according to the survey. Xinhua