Macau Business Daily May 26, 2016

Gov’t declares two more land grants invalid Land Page 2

Thursday, May 26 2016 Year V Nr. 1051 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor kelsey wilhelm Finance

Banks see positive year in 2015, with profits and revenues on the rise Pages 6

Business

IPIM grants MOP42.2 million in subsides in Q1 Page 4

www.macaubusinessdaily.com

Reform hurdles

Rust-belt provinces rely on shadow financing after regular lending tightening Page 8

Strategy

Taiwan’s banks extend reach to South East Asia Page 9

Retail Sales Slump Retail

Retail sales have posted a decline of 11.2 pct y-o-y to MOP14.7 bln (US$1.84 bln) for Q1. Sales of vehicles nearly halved vis-a-vis one year ago.

With retail sales of motor vehicles bringing in just MOP470 mln for Q1, a plunge of 48.4 pct y-o-y. Page 4

Red to Green

Downgraded Moody’s has downgraded Macau’s issuer rating to Aa3 from Aa2. And assigned it a negative outlook given the continued slump in the gaming sector. The group describes growth as ‘highly volatile’ and says the downgrade is in response to ‘the sharp weakening in the economy’. AMCM maintains the local situation is ‘stable’.

Finance Macau Pass digs itself out from an MOP860,000 loss from the previous fiscal year. And welcomes a MOP7.39 mln profit for 2015 year, on the back of MOP59.6 mln in revenue.

Amounting to 49 pct growth y-o-y. The group attributes the climb to its non-major businesses. Page 3

Menacing mortgages

Realty lending Chinese financial institutions are lending more to homebuyers and developers. The top five banks extended mortgages and loans to the sector in the amount of 12.4 tln yuan (US$1.9 tln) as at end-2015. The biggest exposure on their books. Page 10

25° 30° 26° 30° 26° 31° 27° 31° 26° 31° Today

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Source: Bloomberg

Source: AccuWeather

Economy Page 3

HK Hang Seng Index May 25, 2016

20,368.05 +537.62 (2.71%)

China Shenhua Energy Co

+6.08%

PetroChina Co Ltd

+3.90%

China Resources Power

-2.74%

Hengan International Group

+5.00%

China Construction Bank

+3.85%

Belle International Holdings

-0.42%

I SSN 2226-8294

2 Business Daily Thursday, May 26 2016

Macau

Land

Two more land grants declared invalid

Y

esterday, the government declared two more land grants invalid as land awardees had failed to fulfil land use purposes, according to yesterday’s Official Gazette.

One land plot that the government is to reclaim was

granted to a company called Polymar Internacional – Fibras Ópticas Limitada in 1994.

The plot - known as ‘Lot O4b’ and occupying a total of 2,170 square metres - is located adjacent to the Avenida Son On and Rua Heng Lon in the Pac On reclamation zone in Taipa.

According to yesterday’s dispatch by the Secretary for Transport and Public Works, Raimundo do Rosario, the land parcel was originally granted for the company’s industrial use for building a factory to produce optical fibre cables.

Meanwhile, another land

plot that the government is to recover is located in the NAPE region on the Peninsula. The plot, known as Lot 12(A2/g), was granted to Fomento Predial Golden Bowl Limitada in 1992 for building a three-storey annex plus two 13-storey towers for commercial, residential and car parking

Construction

Infrastructure

Developer explains Alto de Coloane residence project timeline The developer of the controversial residential project in Estrada do Campo in Coloane, Win Loyal Development Ltd., has established a web page explaining the development timeline of the project, one mired in criticism that it could damage the natural environment of Coloane, local media reports.

The controversy of the project lies in the reason why the government would have given the greenlight to the developer to build the 100-metre high project in 2011 despite its location in Coloane - where height restrictions are applied to most of the architectural projects to not exceed

use. The plot occupies 6,480 square metres.

The two companies can still file an appeal to the court of Second Instance and the Chief Executive F e r n a n d o Ch u i Sa i O n within 30 days and 15 days, respectively, after yesterday’s dispatches. K.L.

a 90-metre threshold.

But according to the recently established web page of the company, it firstly applied to local authorities to build the project to a height of 198 metres in 2010, in consideration of ‘the lack of land resources in Macau so that urban architecture should be developed vertically.’

‘From the perspective of environmental protection, [the plan] can reduce the mountain area needed to be flattened,’ it noted.

Local businessman Sio Tak Hong is one of the developers of the project.

Meanwhile, the web page also indicated that the company had acquired

Coloane was originally slated to be the SAR’s ‘green lung’

the privatelyowned land parcel for residential use in a public auction in Hong Kong in 2004 via real estate service firm Jones Lang Lasalle.

The land parcel occupies 53,866 square metres. But the overall area has been decreased to 48,868 square metres following the government’s requirement of the developer to allocate some 4,997 square metres for the city’s public assets.

On the other hand, the developer claimed that it had given up a 28-storey building for development on the project in 2014 in order to fulfill the government’s requirements after an abandoned blockhouse occupying 11 square metres was found in the plot.

The web page, www.e-campo.net, also includes a video made by the developer on the timeline for the project in the Cantonese dialect. K.L.

Infrastructure Investment and Construction Forum comes to SAR The seventh edition of International Infrastructure Investment and Construction Forum will be held in Macau on June 2 to 3, with over 1,400 representatives from global infrastructure players and institutions, said the forum’s organizers here Wednesday.

The co-organizer Macau Trade and Investment Promotion Institute’ s executive director Irene Va Kuan Lau said at a press conference that 50 officials of vice-ministerial level and above from 35 countries and regions, and some 1,400 delegates from infrastructure contractors, financial institutions and consultant services will attend the forum.

“The financing is one of most urgent challenges for international infrastructure cooperation. According to Global Infrastructure Hub set up by G20, the financing gap of infrastructure investment market in 2030 will reach 10 to 20 trillion U. S. dollars.

Traditional financing mode has been unable to meet the demand of current infrastructure construction,” said Yu Xiaohong, vice chairwoman of another co-organizer China International Contractors Association (CHINCA).

According to CHINCA, the attending banks and financial institutions include China Development Bank, UBS, Sumitomo Mitsui, Islamic Development Bank, Asian Development Bank, International Finance Corporation and African Export-Import Bank.

The forum will hold multiple theme forums and panels, including the Second China-Latin America Infrastructure Cooperation Forum.

“Macau can play its unique role in financing market to provide financial platform and services for countries and regions along the route of ‘One Belt, One Road’, and help Chinese enterprises enter the markets of Portuguese-speaking countries,” Irene Va Kuan Lau added. Xinhua

Business Daily Thursday, May 26 2016 3

Macau Issuer Rating

Moody’s downgrades Macau rating as gambling sector slumps

M

oody’s downgraded Macau’s issuer rating to Aa3 from Aa2 yesterday and assigned it a negative outlook given a protracted slump in the gambling sector on which the city’s economy overwhelmingly depends.

China’s slowing economy and a pervasive anti-corruption crackdown has sapped demand from wealthy gamblers and prompted operators in the southern Chinese city to shift their focus to lower spending regular punters.

Although gambling income is still five times that of Las Vegas, last year revenues in the former Portuguese colony dropped 34 per

Annual report

cent to US$29 billion. Average monthly revenues have halved from what they were at the start of 2014 and are set to fall for a 24th consecutive month in May. The international credit rating agency said the downgrade was in response to “the sharp weakening in the economy, with growth remaining highly volatile.”

The long-term foreign currency bond ceiling was lowered to Aa2 from Aaa and its long-term foreign currency deposit ceiling rating was cut to Aa3 from Aa2.

Moody’s, which still rates Macau three notches below the top Aaa rating, said its credit profile remains strong compared with many other places.

Macau’s growth is highly dependent on the gambling sector, which accounts for 58.3 per cent of economic output at current producer prices, about three-fourths of its service exports, and three-quarters of total fiscal

revenues.

The drop in tourist arrivals from mainland China has hit Macau hard. In 2015, the economy shrank 20.3 per cent year-on-year, extending a 0.9 per cent contraction in 2014. This is in sharp

contrast with the 13.7 per cent average annual growth clocked during the preceding five years.

“The negative outlook reflects uncertainties surrounding the trajectory for growth, the policy response, and the consequences for Macao’s fiscal and external buffers,” it said while indicating a higher likelihood of a rating change over the medium term.

The Monetary Authority of Macau (AMCM) noted in response to the rating that the ‘economic situation of the SAR maintains, in principle, stable,’ and that ‘the general economic bases of Macau continue positive,’ and the ‘international rating agencies agree.’ Reuters

The card issuer posts an annual profit of MOP7.39 mln

Macau Pass out of the red Local card issuer Macau Pass SA posted MOP7.39 million (US$923,750) in profit for the whole year of 2015, turning around from a loss of MOP859,649 recorded for the year before, according to its 2015 annual results published in yesterday’s Official Gazette.

Last year, the card issuer generated

total revenue amounting to MOP59.6 million, which represents a growth of 49 per cent year-on-year from some MOP40 million one year ago.

Such a significant climb in revenue is due to monies earned in its non-major businesses (other businesses) multiplying nearly 3.5 times year-on-year to MOP19.2 million

from MOP5.5 million.

Meanwhile, the company’s business revenues totalled MOP25.3 million for the year, which rose by 13.3 per cent year-on-year, compared to MOP22.3 million one year ago.

However, its service revenue posted a slight decrease of 3.6 per cent yearon-year to MOP7.93 million.

The president of the company’s board of directors, Liu Hei Wan, stated

in the report that the circulation of Macau Pass cards exceeded 210,000 as at the end of 2015, jumping 24 per cent year-on-year.

In addition, he claimed that the total transaction value of the cards surged 13 per cent year-on-year. However, there were no related financial figures detailing this value disclosed in the report.

‘Along with the rapid development of the Internet, the company will allocate resources to developing online business in 2016,’ the Macau Pass president asserted. K.L.

Waste management

Money laundering

CSR: 20.9 per cent increase in total capital in 2015

New rules for luxury commercial transactions

Macau Waste Systems Co. Ltd. (CSR), the company responsible for waste management in the Macau SAR registered a 20.9 per cent increase in total assets in 2015, valued at MOP100.88 million (US$12.61million), according to an independent audit presented in an Official Gazette release. The dispatch also reveals that CSR posted MOP198.54 million in active assets and MOP106 million in passive assets in 2015, a 24.56 and 22.46 per cent increase from 2014.

The locally registered company, presided over by Antoine Evrard Grange, claimed that despite adverse local and international economic conditions CSR managed to register lucrative operational activities due to the implementation of cost saving programmes and improved efficiency.

CSR has provided street cleaning, collection and transportation of waste for the MSAR since 1992, with a new 10-year contract awarded by the government in 2014 valued at MOP2.13 billion, as reported previously by Business Daily. N.M.

Jewellery and luxury car businesses should consider any transaction over MOP300,000 (US$37,500) made without the use of promissory notes, checks or credit cards to be of high risk of money laundering or terrorism financing, and should demand client identification for any transaction above MOP120.000, according to a dispatch by the Macao Economic Services (DSE), published in the Official Gazette yesterday.

In order to reinforce identifying procedures any documents related to client identification or any representative for the transaction should be kept for a minimum period of five years and should always be available for review, with the involved businesses having the obligation to inform the MSAR Financial Intelligence Office within a maximum of two days, notes the release. N.M.

4 Business Daily Thursday, May 26 2016

Macau Opinion

Ashley Sutherland-Winch Embrace Generational Marketing Are we considering generational marketing as we experience the economic downturn that is upon us in Macau? Yang and Lau, from the Institute of Tourism Studies, explored the differences between Chinese Generation X and Y tourists in Macau in 2015, finding that “while Generation X places more weight on convenience and food and Generation Y on security; satisfaction does not induce loyalty, whereas value fully or partially mediates the quality-loyalty relationship; and Generation X is value-centered in building loyalty, yet Generation Y exhibits both value consciousness and stronger demands for upscale quality features.”

The year before, marketing experts convened in Las Vegas - determining that ‘Baby boomers are suckers for appeals to their narcissism.

Generation X can’t stand their parents and Millennials want to feel like do-gooders.’ The American consultants that were advising the Nevada tourism industry at the time recommended that they must begin concentrating the city’s branding efforts on building marketing strategies that target different generations in order to maximise their post-2008 efforts to rebuild Las Vegas tourism.

Both studies identified that attention to generations was important. Recently, Andy Masi, CEO of Las Vegas company The Light Group, said: “Gen X and Gen Y are really more into entertainment and dining and seeing shows and staying in great hotels than they are into gaming.”

It is a complicated process for businesses to learn how to communicate with their customers today. There’s a disconnect in how businesses market. This disconnect in generational marketing could be affecting profits and preventing growth. Companies must identify how to connect with the skeptical, ecologically-minded, anti-consumerist nature of Generation X but must also tap into the style conscious, tech savvy, socially and environmentally aware, pro-community interests of Generation Y. Then, to make marketing even more challenging, all of these considerations must also envelope the brand conscious, community-minded, multicultural and pro equality traits of Generation Z. Younger generations tend to gravitate towards promotions that they find online and respond well to digital marketing campaigns like text and instant messages and with platforms like WeChat, Facebook, and Instagram.

If a business is not adaptable and listening across multiple channels, they ignore a lot of their current and potential customers. The Millennials want quality times quantity without any responsibility or consequences and recognising generations as archetypes may be a better strategy moving forward for Macau to increase its economic growth and tourism.

It worked for Vegas and it can work for us.

Ashley Sutherland-Winch is a Marketing and Public Relations Consultant and frequent contributor to this newspaper.

Retail Total retail sales value down 11.2 pct y-o-y

Local vehicle sales nearly halve in Q1 Both sales volume and sales value of vehicles fell in the first three months following the hike in motor vehicle tax last year.

Kam Leong kamleong@macaubusinessdaily.com

T

he total value of retail sales in the city registered a decline of 11.2 per cent yearon-year to MOP14.7 billion (US$1.84 billion) for the first three months of this year, of which the sale of vehicles nearly halved compared to one year ago.

According to the latest official data released yesterday by the Statistics and Census Services (DSEC), retail sales of motor vehicles amounted to only some MOP470 million for the first quarter, a plunge of 48.4 per cent year-on-year compared to MOP910 million in the first quarter of 2015.

In addition, the sales value of motorcycles, parts and accessories recorded a notable decrease of 44.3 per cent in the period, as well, amounting to MOP48 million, compared to MOP87 million in the same period one year ago.

During the first three months of the year, the total volume of retail sales posted a decline of 8.7 per cent yearon-year according to the DSEC. In particular, the sales volume of motor vehicles and motorcycles, parts and accessories again plunged by 50.6 per cent and 46.5 per cent year-on-year, respectively.

The significant decreases in both the sales value and the sales volume of vehicles followed the government’s hike in the motor vehicle tax last December, which raised the average tax rate of newly imported automobiles to 40 to 72 per cent depending upon the imported price, whilst that on motorcycles and scooters increased from 24 to 50 per cent.

Luxury goods sales down

Meanwhile, the sales value of watches, clocks and jewellery fell 18.3 per cent year-on-year to MOP3 billion in the three months. The sales value of such products accounted for 20.8 per cent of the total retail sales in the period.

In addition, the sales value of food in department stores was down 9.6 per cent year-on-year to MOP2.2 billion, accounting for 15.2 per cent of the total. However, increases were recorded in the sales value of Chinese food products and that of cosmetics and sanitary articles, which rose by

11.1 per cent and 8.4 per cent year-onyear, amounting to MOP221 million and MOP609 million, respectively.

In terms of sales volume, that of footwear decreased by 15.1 per cent year-on-year in the quarter, whilst that of watches, clocks and jewellery dropped by some 12.3 per cent year-on-year. By contrast, the sales volume of cosmetics & sanitary articles grew by 8.7 per cent year-on-year, while that of Chinese food products and adults’ clothing increased 8.4 per cent and 8.1 per cent, respectively.

Worsening business expected

According to the DSEC, half of its surveyed retailers expected that their business would worsen in the second quarter of this year compared to the first, whilst some 32.3 per cent anticipate business will remain stable and only some 16.9 per cent anticipate an upcoming improvement.

Furthermore, nearly 60 per cent of these interviewees forecast that the total sales volume would decrease year-on-year for the second quarter of this year, whilst only 13.3 per cent are confident in an increase.

Some 66.7 per cent of the surveyed retailers foresee retail prices remaining stable in the second quarter compared to one year ago, whilst some 23.2 per cent expect a decrease.

IPIM

IPIM: Over MOP42.2 million subsidies in Q1 Subsidies from the Macao Trade and Investment Promotion Institute (IPIM) for the first quarter of 2016 totalled more than MOP42.2 million (US$527,523), according to a dispatch in the Official Gazette, published yesterday. For the partial funding of the Dynamic Macau

Business and Trade Fair in Jiangmen, Guangdong (amounting to 50 per cent of the funding of the whole event), the trade and investment institute dedicated 83.29 per cent of their first quarter subsidy total, amounting to MOP3.47 million, according to Business Daily calculations. A further 13

Largest single subsidy was granted for participation in the 27th International Jewellery Tokyo (expo)

per cent of the subsidies went to the Macao Convention and Exhibition Feature.

The remainder of the funding MOP305,888 – went towards the participation of local companies in international commerce and trade fairs - comprising 7.24 per cent of the total awarded by IPIM in Q1.

The second largest subsidy for an event – some MOP114,000 - was attributed to 20 groups in amounts of MOP6,000 each for local companies’ participation in the 2015 Winter Food Shopping Expo, according to Business Daily calculations. The International Toy Game Exhibition 2015 received MOP72,000 divided into 12 subsidies of MOP6,000 each, while six companies received a total of MOP41,208 for participation in the 5th Asia Food Expo (Winter) & Home Delights Expo.

Grémio dos Ourives de Macau received the biggest individual subsidy of the first quarter of MOP46,436 for participating in the 27th International Jewellery Tokyo (expo). N.M.

Business Daily Thursday, May 26 2016 5

Macau

Politics

A house divided The methods for deciding future municipal organs decided of political power create division between legislators Nelson Moura together with Macau Business nelson.moura@macaubusinessdaily.com

A

fter the Legislative Assembly announced last year that it would conduct studies on the establishment of setting-up non-political municipal organisations in Macau, an intense debate on the way those bodies would be created has arisen between local politicians.

While some defend the importance of the popular vote for the direct election of the future municipal organs, others believe that more indirect

methods of appointment should be used.

“Several incidents, like those in the past few years, show that the current consultation mechanism of the government in public service is inadequate,” legislator Antonio Ng Kuok Cheong said regarding the topic, adding, “municipal bodies by popular vote could help the administration in this regard.”

Mr. Ng, together with legislator Au Kam San, proposed that the city could be divided into five districts, with each electing several members of the future municipalities by popular vote, creating a 31-member organisation that would then discuss topics of concern from the communities with government departments.

Legislator José Maria Pereira Coutinho also stated that the popular vote would be a way for the government to show it “genuinely wants to incorporate more public voices in their policies,” while political commentator Camoes Tam Chi Keong stated in a political seminar

by the pan-democratic New Macau Association that the popular vote method would be a way to improve the quality of legislators in the city, with wannabe politicians having a new platform to prepare for future political challenges.

Direct vote could not work

Some legislators and experts have considered that the popular vote might not be a viable option, since the Macau Basic Law states that municipal organisations are not organs of political power, an opinion supported

by Wang Yu, an associate professor of the Macau Polytechnic Institute, who stated that “the methods for selecting members of organs of political power cannot be simply applied to the non-political municipal organisations.”

When asked if Macau could apply a similar system to that of Hong Kong, where its district councils garner nearly 95 per cent of its members by popular vote, a legal scholar stated that the method used in Hong Kong was “not really in line with the spirit of organs without political power”, suggesting that members of the municipality in Macau could be

appointed by the authorities after nomination by local associations or the public.

“If some members of [future municipal organisations] are against some government policies it will be more difficult for the government to proceed as the members are elected representatives of the public,” said Eilo Yu Wing Yat, associate professor of government and public administration at the University of Macau, who added that already existing consultative bodies are underused and should be optimised and reformed.

No concrete response so far

So far, authorities have remained noncommittal on the topic, with Chief Executive Fernando Chui Sai On saying in a question and answer session at the Legislative Assembly public consultation that it would be conducted in the second half of this year and that municipalities could be set up in 2018; the Secretary for Administration and Justice Sonia Chan stated that she was more concerned about how the municipal organisations could work with existing services.

6 Business Daily Thursday, May 26 2016

Macau Banks

Bank profits on the rise Bank of East Asia increases profit 71.62 pct in 2015

B

anks in the SAR, on average, saw increases in profit and revenue for the 2015 fiscal year, according yesterday’s Official Gazette.

The Bank of East Asia Macau branch led the pack with a 71.62 per cent increase in profit for the fiscal year, while Tai Fung Bank also saw positive results with a 38.3 per cent increase in profit for the fiscal year.

The Bank of East Asia registered profits amounting to MOP121 million

(US$15.13 million) in 2015 with the bank management stating that ‘although economic growth in 2015 slowed down, [the bank] performance was stable’. Although active credits saw a 67.53 per cent decrease to MOP6.4 billion, the bank considered the ‘quality of its Macau branch credit was still good.’

In the case of Tai Fung, the bank stated that the general economic environment ‘maintained a stable and progressive development, to which the banking sector contributed positively,’ with profits before tax amounting to MOP1.205 billion, a growth of 38.3 percent compared to 2014, according to their annual results.

Active assets at the end of 2015 amounted to MOP121.7 billion, a growth of 40 per cent compared to the previous year, with Tai Fung announcing ‘the bank achieved good results from its performance and social benefits, registering the best results in terms of profit from its business segments’.

The bank predicts that next year the global economy will, with difficulty, achieve a significant improvement in terms of recuperation.

HSBC

HSBC’s local branch also registered a 9 per cent increase in revenue to MOP615 million, with profit before taxes amounting to MOP294 million,

while loans to customers increased 18 per cent to MOP 14.7 billion and the financial margin rose by 9 per cent year-on-year, as seen in their annual results.

This performance followed a: ‘global strategy of a differentiated and sustainable model’, with the 9 per cent of interest ‘sustained by the growth of loans to Clients [while] costs were also reduced in an efficient form, despite our continual investment in systems and human resources for combating financial crime’. The bank stated that in regard to current works on its local headquarters they ‘hope the renovation project will be finalised mid-2016’.

China Construction Bank

China Construction Bank registered a MOP88.95 million profit, a 2.76 per cent increase, stating that it ‘overcame the difficulties brought about by the alterations in the economic environment, while maintaining sustainable development,’ for the year it noted on the Official Gazette. In terms of active assets it registered MOP799.02 million, and MOP558.43 million in passive assets, with the bank stating to have ‘engaged in adjustment of its active and passive assets, achieving results of which we are proud [of] in regard to profit, activity development, expansion of clientele, internal management […] and elevated the capacity to create profit and sustainably develop.’ N.M.

Retail

Belle annual net profit dives 38.4 pct The Hong Kong-listed retailer saw revenue drop in Hong Kong and Macau by 9.1 per cent year-on-year.

Footwear and sportswear retailer Belle International Holdings Ltd. registered a year-on-year plunge of 38.4 per cent in net profit for its fiscal year ended February 29 despite total revenue showing a slight increase of two per cent year-on-year.

According to its filing with the Hong Kong Stock Exchange on Tuesday after trading hours, the retailer raked in 2.93 billion yuan (MOP3.58 billion/US$447.6 million) in net profit for the last fiscal year, down 1.83 billion yuan compared to the 4.75 billion yuan posted for the 2014/2015 fiscal year.

Nevertheless, the company’s total revenue increased to 40.8 billion

yuan for the period, compared to some 40 billion yuan one year ago.

The retailer’s business in Hong Kong and Macau declined by 9.1 per cent year-on-year in terms of revenue, which amounted to some 1 billion yuan from a previously registered 1.1 billion yuan. Its Mainland China market improved by some 2.4 per cent, generating revenue of 39.5 billion yuan.

Sportswear sales surge

In terms of business type, Belle saw the revenue derived from its sportswear and apparel business jump by 16.2 per cent year-on-year to nearly 20 billion yuan.

‘The relatively fast growth of the sportswear and apparel business was mainly due to the relatively higher same store sales growth and a healthy expansion of the retail network,’ it claimed in the filing.

But the shoe retailer’s revenue earned from the footwear business was down by 8.5 per cent

Corporate

SJM to host Business Awards Gala at Grand Lisboa

For the fourth consecutive year Sociedade de Jogos de Macau (SJM) will host the Business Awards Gala Ceremony at the Grand Lisboa Hotel, in the Grand Ballroom on November 24 of this year.

“SJM is proud to be the sponsoring host of the Macau Business Awards Ceremony for the fourth consecutive year. The Business Awards give recognition to the best local enterprises – small, medium and large-sized, as well as non-profit organisations – and professionals that contribute to the prosperity and welfare of Macau,” notes Dr. Ambrose So, Chairman of the Board of Directors of SJM. Business Awards Chairman Paulo A. Azevedo also praised this year’s partnership: “Since our inception in 2013, the reputation of the Awards

has flourished thanks to the support of our generous sponsors. We would especially like to thank SJM for their continued commitment. They also recognise the outstanding contributions of local corporations and professionals, none of which would be possible without their support, and we thank them for their generosity.”

year-on-year to 21 billion yuan compared to the 23 billion yuan of one year ago. It explained that the decrease is due to the drop in same store sales of over 10 per cent.

‘Such a decline was largely in line with the overall sales decline in the footwear departments across over

2,000 department stores according to data collected by the Group,’ Belle added in the filing.

As at the end of February, the company operated 12,505 self-managed outlets across the Mainland, as well as some 144 stores in Hong Kong and Macau.

Belle also proposes an annual dividend of 6 cents in yuan per ordinary share, down 68.4 per cent year-on-year. K.L.

Business Daily Thursday, May 26 2016 7

Macau Wynn

Fitch Ratings considers Wynn Resorts’ financial outlook ‘stable’ Fitch Ratings estimates Wynn Palace project will post US$370 million in revenue upon completion Nelson Moura nelson.moura@macaubusinessdaily.com

I

nternational ratings agency Fitch Ratings considers Wynn Resorts, Ltd. (WYNN) and its Macau subsidiaries financial outlook as ‘stable’, according to a Fitch Ratings press release on Business Wire. The subsidiaries mentioned include Wynn Macau, Ltd. (Wynn Macau) and Wynn Resorts S.A., with Fitch ratings predicting Wynn’s gaming revenue market share in Macau will increase around 13 per cent by 2018, with an estimate that the SAR’s market-wide gaming revenue will decrease by 5 per cent in 2016, but growing to 6 per cent thereafter.

Fitch announced the company’s current liquidity to be ‘strong’ at US$2.1 billion (MOP16.79 billion) in cash, with an estimated US$200 million for ‘cage-cash purposes’ and US$252 million in investment securities, while predicting the group’s current planned developments when completed will help place the group’s ‘operating mix’ more at the level of other global gaming competitors like Las Vegas Sands and MGM Resorts.

Waiting for Wynn Palace

With regard to the US$4.2 billion Wynn Palace project, Fitch Ratings believes it will open in July 2016 and ‘outperform other casino developments on Cotai’, estimating US$370

million in incremental earnings before interest, tax, depreciation and amortisation (EBITDA), while competitors’ Macau projects are attributed estimated incremental earnings of between US$100 million and US$200 million.

Fitch considers that after the planned completion of Wynn Palace Wynn Macau’s cash flows - placed between US$600 million and US$800 million annually - will be free to be distributed to its parent company and its minority shareholders, while helping the group consolidate its market share locally, growing revenues at a faster pace than the market in 2016 and 2017.

The positive outlook for Wynn Palace was justified as a result of the ratings agency ‘confidence’ that Wynn will be able to transfer ‘underutilised resources’ from the Macau Peninsula to Cotai, such as ‘50 tables and US$100 million of annualised labour costs’, while also factoring in WYNN’s ‘relatively healthy’ mass market utilisation statistics during the Macau economic growth slo down, the Fitch release announced.

Wynn Macau keeps up

The ratings agency also believes Wynn Macau will generate about US$1.075 billion of EBITDA in 2017, with current revenue per room remaining higher than other Macau operators, at a rate of US$307 for this year’s first quarter. Mass market win

per table – which saw a 38 per cent decline in the same period - was considered ‘decent’ when taking into consideration the 28 per cent increase of mass table games at Wynn Macau, while market-wide mass market revenues declined by about 30 per cent.

Regarding the local outlook, Fitch forecasts a 5 per cent decrease in

market-wide revenue growth for 2016, which includes ‘modest sequential growth in the mass market’ while the VIP sector will continue its continuous, albeit slower, downturn.

China’s rising middle class, together with improved capacity and infrastructure in Macau, is also mentioned as reasons for the positive financial outlook.

Vietnam

The Grand Ho Tram Strip inks US$75 mln MOU with Cotec Construction In the wake of United States President Barack Obama’s visit to Vietnam The Grand Ho Tram Strip has signed a memorandum of understanding with Cotec Construction Joint Stock Company to co-operate on a US$75 million expansion of the integrated resort complex for the group, as announced by a wholly-owned subsidiary of the developer for the Strip - Asian Coast development (Canada) Limited - on Monday.

The details of the project include a new hotel tower, adding 559 rooms to the complex and increasing total capacity to 1,100. Additionally, the expansion will add two 70-seat movie theatres, a shopping arcade, themed restaurants, a sky top lounge, karaoke, 2,000 seat outdoor amphitheatre, water park, marine habitat pool and a roller coaster, all aimed at further developing the Strip’s family-friendly entertainment offerings.

Upon completion of the new tower, the development’s total investment will exceed US$1 billion.

The release notes that this memorandum, ‘represents another step forward for U.S. – Vietnam commercial co-operation, and underscores the mutual gains that can be achieved,’ when the nation’s ‘collaboratively engage’. Additionally, two weeks ago the government opened an office in Hanoi, which the report sees as ‘evidence of the depth of business linkages that have formed between the United States and Vietnam in the months leading up to President Obama’s highly anticipated visit to the country’.

The executive chairman of The Grand Ho Tram Strip expressed his enthusiasm for the memorandum, noting that the actions are “not only escalating investments in Vietnam, but also empowering Vietnamese companies and citizens through The Grand Ho Tram Strip’s operations, such as our partnerships with CotecCons, Vietjet, and our appointment of Vietnamese citizens to senior management positions at our resort.”

Signing of the MOU at an event hosted by the American Chamber of Commerce and Vietnam Business Forum

8 Business Daily Thursday, May 26 2016

Greater China Irregular loans

Rust-belt country to expensive shadow bank loans The sharp retreat of weaker regions into shadow lending suggests that traditional creditors are rapidly abandoning the long-held belief that lending to state-owned enterprises is risk free Nathaniel Taplin

M

ainstream lenders in China are squeezing borrowers in the country’s rust-belt provinces, forcing firms to take on higher interest-rate loans from so-called shadow banks, a Reuters analysis of central bank figures shows.

In several of the hardest hit industrial provinces, including deeply troubled steel and coal producing regions, the swing back to the shadow sector

Key Points Shadow banking reliance up sharply in rust belt provinces Comes as mainstream lenders avoid some state-owned borrowers Follows tough rhetoric from Beijing, increasing defaults Shows mainstream lenders no longer see state firms as risk free

- lenders outside conventional banking who usually charge much higher interest rates than traditional banks - has been stark.

Firms in Liaoning, an industrial powerhouse in China’s northeast, borrowed over 2,000 percent more from shadow banks in the first quarter of this year, compared with a year earlier. The borrowing accounted for 19 percent of the province’s total financing, up from just 1 percent in the first quarter of 2015.

The sharp retreat of weaker regions into shadow lending - when credit as a whole has expanded massively suggests that traditional creditors are rapidly abandoning the long-held belief that lending to state-owned enterprises (SOEs) is risk free because local governments nearly always bail them out.

An increasing number of bond defaulters over the past half year have been state-owned firms, many in legacy industrial sectors.

The change is in line with official efforts to shrink the country’s industrial overcapacity, but could shift growing risks in the corporate bond market back onto the shoulders of retail investors buying wealth management products backed by shadow banking loans.

Economists have long argued the government needs to ensure credit is delivered to more productive parts of the economy if it wants to sustain growth. For that to happen, lenders need to price in real credit risk.

To an extent, that now appears to be happening.

Central bank figures show that wealthier regions largely found credit

easy to come by in the first quarter when commercial bank lending rose to a record high.

Among better-off regions, only Shanghai experienced a substantial increase in the share of non-bank lending as a proportion of overall loans in the first quarter.

But firms in legacy industrial regions like Liaoning found themselves increasingly reliant on shadow bank finance.

Net shadow bank lending in Hebei, Shanxi, Jilin, Anhui, Henan, Sichuan and Shandong rose 240 percent to 249 billion yuan in the first quarter, against a 30 percent rise nationwide.

Getting tough

Shadow banking rose to prominence in the boom years after the global financial crisis when Beijing encouraged a debt binge to help the economy bounce back from the downturn. Between 2011 and 2013, outstanding shadow bank credit jumped more than 50 percent to over 30 trillion yuan (US$4.58 trillion), ratings agency Moody’s said.

Worried about the pace of growth, the government initiated a broad

crackdown on shadow banking in 2014.

That year, China also began to cautiously allow bond issuers to default, although many were subsequently bailed out.

This year the climate is more severe.

An unprecedented number of over 20 bond defaults have been confirmed as many companies, especially in industries with surplus production, feel the pinch of China’s weakest economic growth in 25 years.

China’s policymakers have issued a series of tough comments on “zombie” SOEs, many of which are heavily indebted from years of breakneck expansion.

Reflecting the changing attitude, corporate debt sold off sharply in April and credit spreads rose to their widest levels since 2012 as investors pricedin different risk for different debtors.

An April 20 central bank statement appears to have helped crystallize bond market scepticism. It urged financial institutions to support the “rational” financing needs of coal and steel firms but “resolutely compress and withdraw” loans for long-term money-losing firms that had “lost market

Cross-strait commerce

Taiwan has no schedule for resuming trade talks A bill on approval process will require government officials to get legislative consent before, during and after any talks with Beijing.

Taiwan’s new government has no schedule for re-starting trade talks with China, Economics Minister Lee Chih-kung said yesterday, adding that the pro-independence ruling party first wanted to pass a law governing oversight of all negotiations with Beijing.

Beijing has already condemned the Democratic Progressive Party’s (DPP) proposed “supervisory law”, and critics in Taiwan say it could paralyse relations with China.

The bill requires government officials to get legislative consent before, during and after any talks with Beijing. They cannot sign any agreements with China before all three stages of legislative approval are completed.

“The cross-Strait supervisory bill is still in parliament. Trade talks need the

“The cross-Strait supervisory bill is still in parliament.

Trade talks need the oversight, so to hold trade talks would be of no use” Lee Chih-kung, Taiwan’s Economics Minister

Oil industry

Taiwan’s Tsai urged China in her inaugural speech Friday to “set aside the baggage of history and engage in positive dialogue.”

oversight, so to hold trade talks would be of no use,” Lee said in his first news conference since Friday’s inauguration of President Tsai Ing-wen.

The DPP’s Tsai has said democratic principles will rule Taiwan’s ties with Beijing while reiterating her government will keep the peace and forge a consistent, predictable and sustainable relationship.

She urged China in her inaugural speech Friday to “set aside the baggage of history and engage in positive dialogue.”

China yesterday reiterated its opposition to the DPP’s pro-independence stance, warning of negative consequences if the party fails to recognize Taiwan is a part of China, under a “One China” principle.

“If the ‘One China’ principle cannot be upheld, political mutual trust will no longer exist and is bound to have adverse effects,” said Ma Xiaoguang, spokesman for China’s Taiwan Affairs Office, at a regular news conference.

“Everyone is very clear about the DPP’s history. This party adheres to the ‘Taiwan independence’ stance...

Obviously, it is precisely the DPP which needs to drop the baggage of history,” he said. Reuters

From hinterland to wonderland: “teapot” refin The rise of the teapots is reshaping the local economy in dilapidated rural areas.

Meng Meng and Chen Aizhu

For Zheng Ruifeng, the 25-year-old son of a wheat farmer from eastern China, acceptance at a technical school specialising in petrochemical engineering was a life-changing event.

Zheng, who grew up expecting to spend a lifetime toiling on the family farm, instead works as a technician monitoring control panels for Chambroad Petrochemical, one of China’s largest independent refineries.

Earning 5,000 yuan (US$760) per month - roughly five times what he could have expected to make working the fields - he got married two years ago and bought an apartment in nearby Boxing.

“At our company, employees are considered losers if they cannot save enough money to buy a home within five year of being hired,” Zheng said.

Zheng’s story offers a vivid example of the new wealth created by China’s so-called “teapots” - independent oil

refineries that have become a new force in global energy markets since Beijing allowed them to start importing crude last year.

The teapots, who previously refined mostly low-margin fuel oil and whatever excess crude they might be able to pick up from the big state-owned players, have seen their profits soar.

The rise of the teapots, now able to refine imported crude in much greater quantities into high-value products such as gasoline, is reshaping the local economy in dilapidated rural parts of eastern Shandong province, where most are located.

At Boxing, a new Volkswagen dealership and freshly painted condos line a four-lane highway leading to the Chambroad refinery, where smokestacks rise above swathes of farmland.

Refinery workers in their 20s have driven up vehicle sales and home prices in this rural town of around 10,000 people.

Tough job

Despite their nickname, derived from their comparatively small size compared with refineries run by stateowned giants such as Sinopec, China’s teapots are now big enough crude buyers that global markets are taking

Business Daily Thursday, May 26 2016 9

Greater China Lawsuit

competitiveness.”

In March, a banker at a mid-tier commercial bank in northern China told China Business News his bank had begun a two-pronged strategy of “controlling growth, reducing existing” credit towards coal and steel dependent regions, including Shanxi.

And earlier this month, state-owned Shaanxi Coal and Chemical Industry Group Co Ltd became the latest coal firm to delay a planned bond issue, citing “highly volatile” market conditions.

Lending by trust firms, key actors in the shadow banking market that package loans into investment products, rose in the first quarter to its highest level since June 2014.

Research firm Puyi said new trust products created in the first quarter offered investors annual yields averaging 8-9 percent, highlighting the risks for struggling economies borrowing from the sector.

In Liaoning, for example, the economy shrank 1 percent on the year in the first quarter.

Perhaps aware of growing wariness about shadow bank lending, some trusts are using creative methods to get investors to part with their cash.

In Tibet, where shadow bank lending rose 50 percent in 2015, trusts are offering leased BMWs as an inducement to invest in one- and three-year products. Reuters

Huawei files patent suits against Samsung Electronics The lawsuit marks a reversal of roles in China where firms have often been on the receiving end of patent infringement disputes.

Yimou Lee and Anne Marie Roantree

Huawei Technologies Co Ltd yesterday said it sued Samsung Electronics Co Ltd claiming infringement of smartphone patents, the Chinese firm’s first intellectual property challenge against the world’s top mobile maker.

Huawei has filed lawsuits in the United States and China seeking compensation for what it said was unlicensed use of fourth-generation (4G) cellular communications technology, operating systems and user interface software in Samsung phones.

“We hope Samsung will ... stop infringing our patents and get the necessary licence from Huawei, and work together with Huawei to jointly drive the industry forward,” Ding Jianxing, president of Huawei’s Intellectual Property Rights Department, said in a statement.

Samsung told Reuters it would “take appropriate action to defend Samsung’s business interests” without elaborating further.

The lawsuit marks a reversal of roles in China where firms have often been

“We hope Samsung will ... stop infringing our patents and get the necessary licence from Huawei, and work together with Huawei to jointly drive the industry forward” Ding Jianxing, President of Huawei’s Intellectual Property Rights Department

nery boomtowns notice.

Major oil ports such as Qingdao, in Shandong, have struggled to cope with the teapots’ thirst, causing huge congestion with super tankers sometimes waiting several weeks to discharge their oil.

In January, profit margins for independent refiners processing crude reached around 600 yuan per tonne, according to data from commodities specialist Sublime China Information Group. By contract, gross margins for refineries processing the teapots former staple fuel oil and crude blend stand below 70 yuan per tonne.

More than 20,000 truck drivers are employed by Shandong’s teapots to haul crude and refined products. Demand for drivers is such that wages have surged from 3,000 yuan per month

In Brief

to at least 10,000 yuan.

Wang Xiaojun, 38, had struggled to make ends meet with a series of parttime jobs and periods of unemployment before finding work driving a tanker.

“It’s a tough job. I work almost 16 hours every day,” said Wang, who eats on the road and sleeps in the cab of his truck. “Every single moment I want to quit my job. Then I think about how much I am paid.”

Reversal of fortune

The current boom represents a dramatic reversal of fortune for the teapots, with their newfound success running counter to Beijing’s policy for years of trying to squeeze them out by curbing access to bank loans and crude supplies.

By the end of 2000, more than 80 percent of Shandong-based refineries had closed.

But in late 2014, with China’s economy slowing towards its lowest rate of

on the receiving end of patent infringement disputes. In smartphones, makers have grown rapidly in recent years but different intellectual property laws outside of China have slowed overseas expansion.

Last year Xiaomi Inc was forced to briefly halt sales of handsets in India after a patent infringement complaint from telecom equipment maker Ericsson.

In the broader smartphone industry there has been a flurry of patent lawsuits in recent years, most notably between Samsung and U.S. rival Apple Inc. Apple sued Samsung in the United States in 2011, claiming the Korean maker used unlicensed technology and imitated the look of the iPhone.

The pair subsequently filed a number of suits against each other in several other jurisdictions but agreed in August 2014 to drop all litigation outside the United States.

In China, Samsung’s fortunes saw it become the biggest smartphone vendor before being leapfrogged by local brands and losing market share to late-comer Apple. It is now ranked sixth by sales, trailing Huawei, OPPO, Vivo, Apple and Xiaomi.

Last year, Shenzhen-based Huawei invested 59.6 billion yuan (US$9.2 billion), or 15 percent of annual revenue, in researching and developing technologies, products and wireless communications standards, the company said in its statement.

Huawei, which generates most of its revenue making telecommunications infrastructure, said it has been granted 50,377 patents globally as of December 31.

Samsung, also the world’s No.1 memory chip and television maker, said in a May 16 filing it held 110,145 patents globally at end-2015 and invested 14.8 trillion won (US$12.45 billion) in research and development as well as intellectual property last year. Reuters

growth in a quarter of a century, the Shandong government unexpectedly published plans to support the province’s 49 large teapot refiners.

The provincial government did not respond to Reuters request for comment on the document.

The new state backing, combined with Beijing’s move last July to allow independent refiners to directly import crude, created tens of thousands of jobs in cities hard hit by lay-offs in the coal and steel sectors.

Mom-and-pop logistics business have mushroomed in Zibo, a small city at the epicentre of the teapot boom, while trading companies specialising in petrochemicals and oil products have seen their office rents double to 50-60,000 yuan per 100 square metres per year.

Wang Cong has a computer science degree from a top-ranked university in Beijing, but works as a manager at a small logistics company in Zibo. His wife, an alumnus of the elite National Academy of Chinese Theatre Arts in Beijing, is a commodities news editor with a local data provider.

Wang complains about rising prices in Zibo’s restaurants - a recent quick lunch with clients that cost 200 yuan would have cost around 80 yuan six years ago, he says - but thinks both job prospects and work-life balance are better here than back in Beijing. Reuters

Regulator

Beijing considering opening up commodities futures China may open up its commodities futures markets to overseas and financial investors, the country’s securities regulator said, as the world’s top consumer of many raw materials seeks to play a larger role in setting global commodities prices. China’s commodities exchanges will also maintain a close eye on movements in the futures market, China Securities Regulatory Commission (CSRC) vice-chairman Fang Xinghai told a conference. A surge in prices of China commodities futures this year followed by a rapid slide have sparked fears of a boom-and-bust cycle.

Premier Li

Protect IP without overregulated innovation China will focus on protecting intellectual property and commercial secrets, while offering a fair playing field for both domestic and foreign companies, premier Li Keqiang said on Tuesday at a technology summit. Li also said that new innovations should be given room to grow, free from over-regulation, even if new and traditional industries sometimes run into conflict. China is pushing entrepreneurship and innovation to encourage economic growth, although government oversight and support for state firms remains strong. China is backing a new round of opening its economy to overseas industry, and welcomes foreign companies expanding in China, Li said.

Payment

Sinosteel extends bond redemption period Sinosteel, a Chinese stateowned steelmaker, said it will extend until June 14 the registration period for early redemption on a putable bond that investors could originally elect to redeem last October.

The statement posted on the website of one of China’s main bond clearinghouses on Tuesday marked the tenth time Sinosteel has extended the redemption period. The repeated extensions come after Sinosteel had asked bondholders of its 2 billion yuan (US$304.94 million) October 2017 bond not to exercise a put option on October 20, because the company would not be able to make a full payment.

Investing abroad

Beijing becomes major investor in Uzbekistan China’s investment in Uzbekistan now matches that of former Soviet overlord Russia, according to a figure announced on Tuesday

by Chinese Foreign Minister Wang Yi, highlighting Beijing’s growing role as a regional economic powerhouse.

China has invested a total of US$6 billion in the Central Asian nation, Wang told reporters in Tashkent, where he was attending a meeting of the Russia- and Chinaled Shanghai Cooperation Organisation security bloc.

“China is becoming one of the biggest investors for our partners (in Central Asia),” Wang said.

10 Business Daily Thursday, May 26 2016

Greater China In Brief

Moody’s

Internet titans see revenue growth from O2O Online-to-offline (O2O) investments by China’s three Internet titans, namely Baidu, Alibaba and Tencent, collectively known as “BAT,” have begun to contribute to revenue growth, global rating agency Moody’s said yesterday. “We expect a 15-percent to 30-percent year-on-year revenue growth for all three Internet companies that we rate over the coming 12 to 18 months, driven in part by their O2O efforts, which have in turn led to increased consumer engagement and higher monetization potential,” said Lina Choi, a Moody’s Vice President and Senior Credit Officer.

Public enterprises

State firms profits continue to decline Combined profits of China’s state-owned enterprises (SOEs) reached 652.26 billion yuan (98.8 billion U.S. dollars) in the first four months this year, down 8.4 percent from one year earlier, official data showed yesterday. The pace of decline, however, eased from the 13.8-percent fall registered in the first three months, the Ministry of Finance said.

Cooperation

Mainland firm to build hospital in Djibouti Cooperation between China and Djibouti will see the former construct a regional hospital in Tadjourah, the main town in northern Djibouti, an official source has said. A delegation led

by China’s ambassador to Djibouti, Fu Huaqiang, met on Monday with Djibouti’s Health Minister Djama Elmi Okieh to discuss the project’s feasibility study. From a technical view point, the future Tadjourah regional hospital will be built on a radius measuring 50,000 square meters. The structure which will be a referral hospital and whose construction cost has not yet been revealed, will have a 120 bed capacity.

Natural disasters

Floods displace thousands in Hunan More than 27,000 people have been displaced in central China’s Hunan Province following heavy rain this past week. Hunan flood control authority said that 1,826 houses were destroyed in storms in the north-western and south-eastern parts of the province. At least four large reservoirs opened gates to release water in Hunan.

Schools were closed in Jianghua County after several campuses were inundated.

A section of highway near Guidong County was made impassable by a landslide and local authorities estimate that it will take 20 days to clear up the debris.

Real estate

Mortgages, the glass chin of mainland banks In April average home prices in tier-1 Chinese cities rose at their fastest in four years Sumeet Chatterjee and Patturaja Murugaboopathy

C

hina’s top banks are lending more to homebuyers and developers than at any time since at least the global financial crisis, making them vulnerable to a property market downturn as prices overheat and real-estate firms struggle with a growing debt burden.

China’s top five banks had mortgages and loans to the sector of 12.4 trillion yuan (US$1.9 trillion) at end2015, up 11 percent over the year, and representing 28 percent of total loans, a Reuters analysis of their balance sheets shows.

That is the biggest exposure on their books, more than to manufacturing or transportation, and it exceeds 40 percent, up from about 26 percent seven years ago, if all loans secured on property are included.

And as banks including Industrial and Commercial Bank of China and Bank of China increase their exposure, property prices in China’s big cities have soared, forming what some fear is a bubble waiting to burst.

“There are two concerns - the reliance on property collateral to secure loans has increased, and property prices have also increased to a level

Key Points China’s banks lending more to homebuyers and developers Mortgages, developer loans at 28% of top 5 banks’ lending Big city home prices rising sharply, raising fears of bubble Home buyers taking bigger mortgages relative to home value Non-performing loans at China banks already at 11-year high

that some may argue is over-heated,” said Jack Yuan, associate director for financial institutions at Fitch Ratings.

“If there is a very sharp fall in prices, then the consequences could be quite serious,” he said, adding that the authorities do have tools to try and avoid such a tumble.

Many developers are already saddled with debt from China’s most recent real-estate bubble - an eightyear frenzy that left many with unsold and uncompleted projects when prices turned lower in late 2013.

As China’s economy stutters to its weakest growth in a quarter of a century, and the property market remains subdued outside the larger cities, the build-up in debt is continuing.

Developer Yang Guang Co Ltd is among those taking on more. It said last week it would borrow an extra 300 million yuan on top of its existing 6.1 billion yuan liabilities, though its revenues halved in 2015. On current cashflow it would take 17 years to clear its debts.

The company did not respond to a request for comment.

Standard and Poor’s in March flagged the risks to Chinese developers’ credit ratings, as many were ploughing more capital into land and construction, increasing leverage despite falling profitability.

Those buying expensive land in tier-1 and tier-2 cities could be particularly at risk if prices dropped, it said.

There are also growing risks to banks from homebuyers.

A study by Natixis showed buyers took out 1 trillion yuan in new mortgages in the first quarter this year on home sales of 1.6 trillion yuan, implying a loan-to-value (LTV) ratio of 62 percent.

That remains a comfortable cushion for lenders, but the direction of travel is remarkable, jumping from 28 percent the previous quarter.

Defaults

In April average home prices in tier-1 Chinese cities rose at their fastest in four years, fuelled by six interest rate cuts since 2014 and easier

downpayments.

Shenzhen and Shanghai were the hottest spots, with prices up 62.4 percent and 28 percent over the year, according to government data.

“It’s a parabolic surge before the burst. It doesn’t reflect the real economy,” said Roshan Padmadan, an equities fund manager with Singapore-based Luminance Global Fund.

“The property market may cause a serious destabilisation of the Chinese banking sector,” he said, adding his fund had recently build up some short positions in Chinese banks.

The situation still appears much less threatening than it was in the United States leading up to the global financial crisis, when banks’ real estate-related loans increased from 42.6 percent to 56.5 percent in the five years to March 2007.

But there are question marks over the quality of Chinese commercial banks’ balance sheets.

Defaults in the property sector were once unthinkable, but that changed when developer Zhejiang Xingrun failed to pay its bank loans in March 2014, and Kaisa Group defaulted on its dollar bonds 10 months later.

Banks’ non-performing loans are already at an 11-year-high, or nearly 2 percent of the total, according to China’s banking regulator, and many analysts believe the situation is much worse, as some banks are slow to recognise problem loans or park them off balance sheet.

Brokerage CLSA thinks the real figure is between 15 percent and 19 percent, while RBS says 15 percent is its most optimistic estimate, and 35 percent its least.

At ICBC, China’s biggest lender by assets, new impairment losses on loans to real estate developers tripled in 2015 from a year earlier, its latest annual report showed.

ICBC said in the report it had “strengthened risk management” of the sector and enhanced monitoring and analysis of outstanding property loans.

The big five banks did not return requests for comment. China’s central bank, which is responsible for financial stability, did not immediately respond to request for comment. Reuters

Business Daily Thursday, May 26 2016 11

Greater China Expansion

Taiwan banks explore promise, peril of Southeast Asia Pretax earnings from Taiwan banks’ overseas business have risen each year from 2008 to 2014 Faith Hung

Taiwan banks led by CTBC Financial and Fubon Financial are looking to step out of their comfort zone into newer markets in Southeast Asia, as the domestic economy slows and growth peaks for the US$1.2 trillion-asset banking sector.

The expansion began in 2013 and is likely to accelerate over the next few years thanks to the new Taiwanese government’s backing for companies to diversify away from China and venture into countries like the fast-growing Philippines.

Fatter margins and burgeoning middle classes are two of the prizes, although they come with risks such

as tough foreign ownership restrictions and competition from established players like Singapore’s DBS and ANZ of Australia.

“It’s not easy to compete in Asia ... Southeast Asia governments place a 40 percent stake cap on what foreign banks can buy, and most financial institutions are family-controlled,” Fubon Financial President Vivien Hsu told Reuters in an interview.

“The big challenges are how can you find a partner you can work with, and reach agreements in management and strategic directions,” Hsu said in her first interview with foreign media since she took the position in 2013.

In just a few weeks, CTBC Financial Holding, parent of Taiwan’s biggest credit card issuer, has announced two southbound deals, agreeing to buy a 35.6 pct stake in Thailand’s LH Financial Group for US$469 million and RBS’s Malaysia unit for US$189.7 million.

These come on top of a wave of acquisitions over the past three years.

Fubon bought a 48 percent stake in Hyundai Life Insurance for T$6.1 billion (US$185 million). Bigger rival Cathay Financial Holdings purchased a 24.9 percent stake in Bank Mayapada and a 22.3 percent stake in the Philippines’ Rizal Commercial Banking Corp (RCBC).

Canada-based Scotiabank’s US$1.7 billion stake in Thailand’s Thanachart Bank could be the next target, with Morgan Stanley reaching out to potential bidders before an auction, according to banking sources.

Japanese, Taiwanese and Malaysian banks have been approached, the sources

Key Points Taiwan banks expand into SE Asia Ownership caps in some target country a challenge Profit from overseas contributions growing Banks struggle in crowded home market

said, requesting anonymity because the matter was confidential.

Careful what you wish for

On top of the foreign investment restrictions that prevent banks taking control of their investments, some analysts warn that hasty expansion into Southeast Asia could leave some Taiwanese banks stretched.

“We expect banks to ramp up their overseas expansion initiatives over the next two to three years,” Standard and Poor’s Taiwan ratings’ credit analyst Eunice Fan said in a report published this week.

“But expansion into unfamiliar territories with often higher economic risk highlights the need for prudent capital management and adequate risk controls. Without such, banks could face constraints to maintain their capitalisation and overall credit profiles above the domestic average during expansion cycles.”

Pretax earnings from Taiwan banks’ overseas business have risen each year

from 2008 to 2014, exceeding T$100 billion for the first time in 2014, according to the latest data from the Financial Supervisory Commission.

That made up 37.3 percent of their total earnings and surged 48 percent from 2013, it added. This contrasted with a mere 14 percent gain in domestic earnings.

Even so, the banks have already hit some headwinds in their journey south.

The Philippines’ RCBC, in which Cathay Financial is one of the two biggest stakeholders, said earlier this month it had accepted the resignation of its president, even as it cleared the official of any wrongdoing in connection with a US$81 million money laundering scandal.

“This is an isolated incident in the course of development.

I don’t’ think it will affect our continuing investments in Southeast Asia,” Cathay President C. K. Lee told Reuters.

ANZ’s experience is another reminder of the difficulties.

The only major Australian bank that expanded into Southeast Asia is now exiting non-profitable segments in the region to focus on its home market. Reuters

Hong Kong branch of Fubon bank

Stock market

Peak Sport says may be taken private, shares soar The company was among 38 Hong Konglisted enterprises that investment bank UBS identified in a report last month as potential delisting candidates Chinese sportswear maker Peak Sport Products, which has several U.S. basketball sponsorship and endorsement deals, said it may be taken private and delist from Hong Kong, joining a growing queue of mainland firms looking to exit the city’s stock market.

Investment firm Ever Sound Development Ltd, Peak’s controlling shareholder, is considering plans to take the company private, though no final decision has been made yet.

The news, announced in a filing late

Key Points Peak Sport shares jump as much as 20 pct on take-private plans Company joins Wanda Commercial, others seeking HK delisting

on Tuesday, sent Peak Sport shares sharply higher yesterday. The shares were up 14 percent in late-afternoon after trading as much as 20 percent higher earlier.

Peak joins at least 10 Chinese companies with Hong Kong listings that have unveiled plans to either delist, spin off assets and list them in China or sell a controlling stake to a mainland-listed company since November 2015.

Several companies, including Dalian Wanda Commercial Properties, have said a listing in China would allow for better valuations.

P ea k w a s a m o n g 3 8 H o n g Kong-listed Chinese companies that investment bank UBS identified in a report last month as potential delisting candidates because they had similar characteristics to those recently exiting the market.

The criteria used to create the list included a negative share price performance since listing, a forward price-to-earnings (P/E) multiple below 30 and where founders own more than 40 percent of the companies, UBS said in the report.

chairman Xu Jingnan said in the filing “preliminary consideration is still in progress” on the take-private plan, without disclosing any reason for the move nor potential financial terms.

Ever Sound was not immediately available for comment.

Peak Sport is engaged in manufacturing and distribution of sports products, including footwear, apparel

In progress

Ever Sound Development owns 61.19 percent of Peak Sport, according to the latter’s filing. Peak Sport

Hong Kong Stock Exchange floor

and accessories under the brand name PEAK. A smaller rival to ANTA Sports Products and Li Ning Co, Peak saw its profit rise 22 percent in 2015, but expects a challenging 2016 amid slow consumer spending and fierce competition.

The company has sponsorship deals with U.S. basketball teams Houston Rockets, Miami Heat and San Antonio Spurs and players including Tony Parker of the Spurs and Dwight Howard of the Rockets. Reuters

12 Business Daily Thursday, May 26 2016

Asia Monetary policy

Indonesia's central bank governor flags possible easing In the past policymakers have been reluctant to ease during times of stress in the rupiah currency Hidayat Setiaji and Gayatri Suroyo

I

ndonesia’s central bank may ease monetary policy again next month, its governor said yesterday, in a sign that policy makers are keen to stoke a slowing economy despite risks of capital outflows from further rate increases in the United States.

Governor Agus Martowardojo said that further easing would depend on stable economic conditions, but didn’t elaborate on the conditions that may prompt it to act.

In the past policymakers have been reluctant to ease during times of stress in the rupiah currency.

“If next month this condition can be maintained, supported by data, there is a possibility for monetary (policy) easing,” Martowardojo told reporters at a central bank event.

Policymakers’ concerns about the economic outlook may have been heightened by a disappointing result in the first quarter, which forced the central bank to cut 2016 growth outlook to 5.0-5.4 percent from 5.2-5.6 percent last week.

Bank Indonesia’s (BI) next policy review begins on June 15 with a decision expected the next day. This would make it among the first central

banks to announce its policy after the Federal Reserves concludes its meeting in June.

Hawkish comments from Fed officials, and solid data have seen markets placing a higher chance of a Fed rate increase next month, in turn putting pressure on the rupiah.

The rupiah, until recently Asia’s second best performing currency, slumped to its weakest level in three months on Tuesday. The stock market has also weakened.

Martowardojo acknowledged that “a hawkish Fed statement will have an impact to the global financial market,” but he said investors could also see some positive catalysts, including

expectations that Britain will vote to stay in the European Union.

BI began an easing cycle early this year by cutting its benchmark rate three times, totalling 75 basis points, to spur economic growth. It has also reduced banks’ reserve requirement

Key Points BI Gov: possible to ease monetary policy again in June BI cuts key rate three times in January-March totalling 75 bps BI next meeting is on June 15-16, the Fed meeting on June 14-15

ratio, effectively injecting trillions of rupiah into the financial system.

Gundy Cahyadi, DBS’ economist in Singapore, said there are many ways to loosen policy and the governor’s comments may not necessarily mean a June rate cut, noting BI’s plans to ease loan restrictions for mortgages.

“In fact, by tolerating a weak rupiah, BI has also continued to sustain its accommodative policy stance,” he said.

BI has said its recent easings have been facilitated by benign inflation tracking inside its 3-5 percent target range - a relatively stable currency and a shrinking current account deficit. Reuters

GDP growth

Singapore slashes trade outlook The economy expanded 0.2 percent in JanuaryMarch from the previous three months on an annualised basis Jongwoo Cheon and Masayuki Kitano

Singapore slashed its export forecasts for this year after the trade-reliant economy barely grew in the first quarter, heightening uncertainty over the outlook and prompting some calls for the government to step up fiscal stimulus.

Trade-focused countries from Japan to Singapore have been hit by a global downturn in demand. In particular, a slump in commodity prices and a slowdown in China the city state’s biggest export destination - hurt local manufacturers and oil rig builders.

International Enterprise Singapore said yesterday it expects total merchandise trade to shrink by 6.0-8.0 percent this year, having predicted a -1.0-1.0 percent range back in February.

The trade agency sees non-oil domestic exports contracting 3.0-5.0 percent, compared with previous expectations of a 0.0-2.0 percent expansion.

The weaker trade outlook increased downside risks for Singapore’s economy even as the Ministry of Trade and Industry said in a separate statement it maintained its 1.0-3.0 percent growth forecast for the year.

“The risks have moved to the downside,” said Daniel

Martin, senior Asia economist for Capital Economics. He added, however, it was too early to change his 2.0 percent 2016 growth forecast.

The economy expanded 0.2 percent in January-March from the previous three months on an annualised basis, a final reading showed yesterday.

The government in April initially estimated that the city-state’s economy stalled in the first quarter, as did a

International Enterprise Singapore said yesterday it expects total merchandise trade to shrink by 6.0-8.0 percent this year

Key Points Trade agency cuts exports, trade forecasts Q1 GDP +0.2 pct qtr/qtr annualised vs forecast 0.0 pct Q1 GDP +1.8 pct y/y vs forecast +1.8 pct MAS says monetary policy remains appropriate the unprecedented step of easing three times in the last 18 months.”

The Monetary Authority of Singapore’s deputy managing director Jacqueline Loh said the current policy stance “remains appropriate” in light of the latest economic data.

Last month, MAS unexpectedly eased its exchange-rate based monetary policy by setting the rate of appreciation of the Singapore dollar NEER policy band at zero percent.

Th e G D P b r ea k d o w n showed services contracted a revised 5.9 percent in the first quarter from the previous three months, the sector’s first quarterly contraction since early 2015.

The city-state’s manufacturing sector rose a revised 23.3 percent on-quarter, stronger than the initially estimated 18.2 percent growth. Reuters

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 Aivi Remulla 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 Founder & Publisher

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Reuters poll last week.

From a year earlier, the economy grew 1.8 percent, in line with estimates.

Given widespread expectations the central bank would not ease monetary policy further absent a major shock to global growth, some economists expect the government to provide more stimulus instead.

“There are chances of greater fiscal stimulus,” said Selena Ling, an economist at OCBC Bank.

“I wouldn’t write off more (central bank) easing but they have already gone to

Business Daily Thursday, May 26 2016 13

Asia Cash shortage

In Brief

Indian banks still resisting rate cuts Bankers say that there is not enough liquidity in the market for them to lower rates and lend more freely Neha Dasgupta

India’s central bank has stepped up fund injections in the two months since Governor Raghuram Rajan pledged to gradually erase a cash deficit in the financial system, but commercial banks say it is still not enough for them to sharply lower interest rates.

The Reserve Bank of India has slashed rates by 150 basis points (bps) since the start of last year, bringing the policy rate to a five-year low of 6.50 percent, but the country’s banks have cut lending rates by less than half that, frustrating Rajan’s efforts to revive weak private investment.

The issue will be front and centre at the Reserve Bank of India’s (RBI) policy review on June 7, when Rajan is expected to leave rates on hold. He has made clear his focus will now be on ensuring that the aggressive rate cuts over the last year are fed through to

the economy.

Bankers say that there is not enough liquidity in the market for them to lower rates and lend more freely while still being sure they can fulfil their liquidity requirements.

At the RBI’s last review on April 5, Rajan committed to erasing the liquidity deficit to near zero. The central bank has since injected 400 billion rupees (US$5.92 billion) via open market operation (OMO) bond purchases, which excludes yesterday’s on-going auction for 150 billion rupees. Alongside, RBI bought around 80 billion rupees from foreign exchange interventions.

That should provide the market with enough liquidity for banks to lower rates and lend more, two RBI officials said.

But bankers say it is still nowhere enough, and that stripping out seasonal or temporary fluctuations India continues to have a daily core liquidity deficit

“Neutral liquidity needs to be achieved as quickly as possible” Ananth Narayan, Regional head of financial markets for ASEAN and South Asia at Standard Chartered Bank

of around 1 trillion rupees (US$14.81 billion), little changed since the RBI’s pledge.

These cash shortages increase banks’ funding costs, making it harder for them to lower lending rates, according to bankers, who say they plan to press the issue with the RBI. “Neutral liquidity needs to be achieved as quickly as possible,” said Ananth Narayan, regional head of financial markets for ASEAN and South Asia at Standard Chartered Bank.

Yet the central bank fears injecting too much money into the system would spark inflation.

The amount of currency in circulation has already surged since October largely due to spending related to recent state elections.

And cash withdrawals from banks hit 17.5 trillion rupees in the week ended May 13, the biggest weekly total in 15 years.

The RBI says the this money will at some point make it back into the financial system and that more cash injections now could result in excess liquidity.

“Basically, the focus is on inflation control,” said one of the RBI officials.

Bankers believe the central bank can remove any excess liquidity via open market bond sales something the RBI has been reluctant to do because it fears it would make inflation management more volatile. The RBI’s last open market operation bond sale was in July 2015.

RBI officials note that short-term money rates have come down substantially since Rajan’s liquidity pledge - with the 91-day treasury bill yield at 6.85 percent, down from around 7.26 percent before the April 5 review.

“The governor made an announcement ‘we will provide liquidity’, and OMOs are being conducted regularly,” said a second official. Reuters

Financing

Sri Lanka seeking to borrow US$3.5 billion through foreign debt The nation is heavily indebted, partly due to borrowing by the previous government during its nine-year tenure Shihar Aneez and Ranga Sirilal

Sri Lanka is in the process of borrowing up to US$3.5 billion from foreign sources via syndicated loans, sovereign bonds, and sukuk, the country’s finance minister said yesterday.

The borrowing plan comes as the South Asian nation seeks to fix its precarious balance of payments position after a sharp depletion of its foreign exchange reserves - a legacy of massive debt piled up under the previous government.

“A US$500 million syndicated loan is almost done with Credit Suisse.

Once that is done, we will be going for another US$500 million syndicated loan,” Ravi Karunanayake told a Foreign Correspondents Association forum.

“Then we will go for the sovereign bond within two to three weeks. We

‘The finance minister said the refinancing debt will be used to ease the pressure on the repayment of expensive loans in the past’

will also go for a sukuk.”

Karunanayake also said the government has appointed eight banks and four non-banking institutions as the lead managers for the upcoming sovereign bond but did not name the institutions. He added the government may look to sell bonds to Chinese and Japanese investors.

Sri Lanka is heavily indebted, partly due to borrowing by the previous government during its nine-year tenure that ended in January 2015. It faces a balance of payments crisis with around US$2 billion in foreign outflows leaving the government securities market since October 2014.

The finance minister said the refinancing debt will be used to ease the pressure on the repayment of

expensive loans in the past.

The US$82.2 billion economy delayed its 2016 borrowing plan until it reached an agreement with the International Monetary Fund (IMF) for a US$1.5 billion bailout to help the island nation avert a balance of payments crisis.

The island nation has been taking steps to ease the pressure on foreign debt repayment including requesting China swap some of the US$8 billion Sri Lanka owes Beijing for equity in infrastructure projects and offering to sell stakes in its companies to Chinese ones.

It has also planned reforms in loss-making state-owned enterprises while raising taxes to increase government revenue, after repeated requests from the IMF. Reuters

Reserves

South Korea 1Q short-term external debt eases Nation’s ratio of short-term external debt to foreign reserves fell to 27.8 percent at the end of March from 29.1 percent at the end of the previous quarter, marking the lowest level in more than a decade, central bank data showed yesterday. The country’s short-term external debt fell to US$102.8 billion by the end of March from US$107.1 billion three months earlier while foreign reserves ticked up to US$369.8 billion from US$368.0 billion over the same period, the Bank of Korea data showed. The resulting ratio was the lowest since it marked 27.3 percent at the end of 2004.

Trade balance

New Zealand unveils surplus figures in April New Zealand posted a stronger-than-expected monthly trade NZ$292 million (US$196.90 million) surplus in April, bolstered by a rise in exports, Statistics New Zealand said yesterday. The annual trade deficit was NZ$3.658 billion. Economists polled

by Reuters had forecast a monthly surplus of NZ$60 million and an annual deficit of NZ$3.94 billion.

Exports totalled NZ$4.3 billion for the month while imports were NZ$4.01 billion. The New Zealand dollar got a lift from the data and was trading at US$0.6749. “It was better than expected and the kiwi is holding up reasonably well,” said Tim Kelleher, ASB Head of FX Institutional Sales New Zealand.

Bank of Japan

Economy recovering but consumption lacks strength Bank of Japan Governor Haruhiko Kuroda said yesterday the economy continued to recover moderately, but acknowledged that private consumption was disappointingly weak. “It’s true that consumption isn’t strong enough,” Kuroda told parliament, adding that rises in wages and household income were crucial for consumers to boost spending. Kuroda dismissed the idea of changing or watering down the BOJ’s 2 percent inflation target, when urged by an opposition lawmaker to make it a longterm goal instead of one with a specific time frame.

Impairment Charges

Wesfarmers signals US$1.6 billion hit Wesfarmers Ltd, Australia’s biggest company by sales, yesterday said it will take impairment charges totalling up to A$2.2 billion (US$1.6 billion) in fiscal 2016 due to poor coal prices and market conditions at department store Target. The owner of Kmart, Coles and Bunnings stores as well as chemicals and resources businesses said it would take a noncash charge of up to A$1.3 billion before tax on its Target business and a noncash, pre-tax charge of up to A$850 million on its Curragh coal business.

14 Business Daily Thursday, May 26 2016

In Brief Restructure

Greece in debt relief ‘breakthrough’ with creditors Eurozone ministers reached a vital deal with Greece yesterday to unlock bailout cash and start tackling the country’s debt mountain as demanded by the IMF, but analysts warned details are sketchy, spelling trouble further down the road.

The agreement unlocks 10.3 billion euros (US$12 billion) in bailout cash that Greece urgently needs to repay big loans to the European Central Bank (ECB) and International Monetary Fund (IMF) in July, having already fallen behind in paying for everyday government duties and wages. The IMF has made easing Greece’s huge debt burden a condition for its continued participation in the bailout programme.

Roadmap

Brazil’s Temer reveals plan to curb spending Interim President Michel Temer Tuesday floated new fiscal measures to curb government spending as part of efforts to close the country’s near-record public deficit.

Calling on the Congress to approve his proposal, Temer said this is “the first test” of his government which faces the staggering public debt now accounting for 67 percent of Brazil’s GDP. He proposed a cap on the country’s primary deficit of 170.5 billion reals (US$47.7 billion) for 2016, which if true, would be Brazil’s worst deficit ever.

e-commerce

EU seeks to make buying online abroad easier Under a proposal, e-commerce websites will not be allowed automatically to reroute customers to their home version without their consent Julia Fioretti

T

he E u r o p e a n Commission proposed yesterday to ban Internet retailers from treating customers differently depending on where they live to encourage consumers to shop across the bloc for online products.

The legislative proposal will apply to e-commerce websites such as Amazon, eBay and Zalando as well as to sales of services provided in a specific location, for example car rental, accommodation and concert tickets.

Geoblocking, limiting services to a country or region, is anathema to the EU executive, which last year presented a wide-ranging plan to knock down national barriers in the online world to create a digital single market.

“When a consumer enters a shop in another EU country, the owner does not ask for the consumer’s ID in order to accept a purchase or to adjust the price or conditions,” the Commission said in a statement.

“But in the online world, all too often consumers are blocked from accessing offers in other countries...

Such discrimination has no place in the single market.”

Under the proposal, e-commerce websites will not be allowed automatically to re-route customers to their home version without their consent or block their access entirely.

Amazon already makes it retail websites accessible to customers anywhere in Europe, and says 98 percent of its own stock is available to shoppers from any European country.

E-commerce websites will also not be allowed to prevent customers in another member state from buying products there, although they will not be forced to deliver cross-border.

Therefore, an Italian buying a TV off a German website will either have to arrange their own delivery or collect it at the trader’s premises.

Only 15 percent of consumers buy online from another country, the Commission said, either because it is too complicated

Key Points EU wants more consumers to buy online from other countries EU to ban online discrimination based on country of residence Exemption for copyrightprotected services such as music Separate proposal seeks to make postage prices more affordable

or expensive.

However the Commission for the time being exempted copyright-protected online services such as e-books, music and games from the geoblocking ban, saying that could change in the future depending on a review.

It thus avoided a showdown with the industry which had argued that it could have a waterbed effect on prices if a German citizen could suddenly buy a Spotify subscription in, say, Estonia, where it is much cheaper.

In a separate proposal, the EU executive sought to increase the transparency prices for cross-border parcel delivery and to give national authorities the power to assess whether they are affordable.

In addition, national postal operators will have to give other operators access to cross-border parcel delivery services.

The proposals will become law once they are approved by the European Parliament and national governments. Reuters

Reforms

Cuba to legally recognize private firms Cuba will recognize small and medium-sized private firms as legal entities, a Communist Party document published on Tuesday showed, a move that could remove obstacles for businesses and foster the emerging private sector.

Cuba’s government has relaxed restrictions on self-employment in recent years in an attempt to slash the state payroll and battle economic stagnation, leading to the creation of many independent businesses from hairdressers to restaurants. President Raul Castro recognized however at the Communist Party Congress last month that such businesses were working “without the necessary legal recognition,” under rules designed for small, family firms only.

M&A

EU regulators clear AB InBev, SABMiller deal The world’s largest brewer Anheuser-Busch InBev gained EU antitrust approval on Tuesday for its US$100 billion-plus acquisition of SABMiller on condition it sell almost the whole of SABMiller’s beer business in Europe. Reuters was the first to report that AB InBev’s concessions to sell substantial assets would secure the EU green light for one of the largest corporate takeovers ever. AB InBev has already agreed to sell SABMiller’s Peroni, Grolsch and Meantime beer brands to Japan’s Asahi Group Holdings Ltd and to divest eastern European assets, three people familiar with the matter said on Friday.

Finance minister

Russia to bypass foreign banks for future bonds issues Foreign investors had nevertheless bought US$1.2 billion of the bonds, with the remaining US$550 million acquired by Russian non-state banks, minister said Darya Korsunskaya

Russia plans to bypass foreign banks when it issues bonds in future, Finance Minister Anton Siluanov said yesterday, following what he called “absurd” pressure on Western

organisations not to be involved in its latest Eurobond issue.

On Tuesday Russia made a US$1.75 billion 10-year Eurobond issue, smaller than its previous placements, at a relatively high yield of 4.75 percent, underscoring the difficulties in finding buyers after Western officials warned international banks and investors against taking part.

Siluanov said that in a break from past practice, from now on Russia doesn’t intend to hire international banks either to help issue bonds or act as their fiscal agent.

But he said Russia is still continuing to negotiate with international clearing bank Euroclear and other settlement organisations, which have so far declined to settle the bonds.

“We hope that we will find a solution and will find ways to refrain from attracting international banks in future for issuing our bonds, and use our own issuance infrastructure both on the internal and external

markets,” he said.

Siluanov said that Euroclear had come under “unprecedented pressure”, and said officials from the U.S. government had phoned up investors telling them not to participate.

“One can’t talk about free movement of capital... if you don’t let your companies and banks earn money.

It’s absurd,” he said.

He said that foreign investors had nevertheless bought US$1.2 billion of the bonds, with the remaining US$550 million acquired by Russian non-state banks.

He said Russia had deliberately favoured bids from foreigners and from non-state banks, but declined to give a more detailed geographical break-down.

“In the first instance we gave attention to foreign investors wanting to invest in Russian papers,” he said.

The 4.75 percent yield was “entirely acceptable” in current market conditions, he said. Reuters

Business Daily Thursday, May 26 2016 15

Business Wires

THE TIMES OF INDIA More than 37,000 people have signed an online petition urging Prime Minister Narendra Modi to appoint Reserve Bank of India governor Raghuram Rajan for a second term. The petition on change.org was triggered by the recent attacks on Rajan mounted by BJP MP Subramanian Swamy. RBI governor’s term ends in September and there’s increasing speculation whether he would be given a second term or not. “I request all of my fellow citizens to sign this petition and seek Shri Modi ji to depute Mr Raghuram Rajan for a second term as RBI governor...,” according to the petition started

by Rajesh Palaria.

Rediscovering fiscal policy at the G7

VIET NAM NEWS Việt Nam’s cashew industry is expected to enjoy strong export growth in the coming years, especially shipments to the US, according to the Việt Nam Cashew Association. Việt Nam has been the world’s largest cashew nut exporter for many years, with exports reaching US$2.5 billion last year. This year the US has surpassed China to become the largest buyer of Vietnamese cashew as exports topped US$1 billion in the first five months, Nguyễn Đức Thanh, Vinacas chairman, told a seminar in HCM City on Monday organised by Vinacas and Thanh Niên newspaper.

THE PHNOM PENH POST Facilitated by Taiwan’s First Commercial Bank, seven foreign banks provided US$35 million in a syndicated loan to Sathapana Bank Plc, a newly formed Cambodian commercial bank, to expand its existing microfinance operations and broaden its commercial lending portfolio. Signed in Taipei last Wednesday, the loan brings together a host of Taiwanese lenders that previously had not financed banks in the Kingdom, signalling a shift that Asian lenders have become more confident in providing lines of credit to institutions that previously operated as microfinance institutions (MFIs), according to Sathapana’s CEO.

PHILSTAR A P77-billion tax reform package is being handed over by the Aquino administration to the next government which earlier vowed to prioritize tax amendments.

The amount corresponds to net revenues during the plan’s first year, which will see personal and corporate income tax rates slashed, value-added tax (VAT) increased and additional products charged with higher excise levy. According to the Department of Finance, the plan includes gradually lowering the highest personal and corporate income tax levies to 25 percent and restructuring brackets to four, increasing VAT to 14 percent and charging excise taxes on diesel and cooking gas.

A

s G7 leaders convene in Ise-Shima, Japan, the global economy’s fragility is a top concern. But instead of focusing on currency wars, the leaders of the major developed economies should be discussing fiscal policy, which under current conditions would be a more powerful tool than monetary policy for boosting economic activity. After all, today, unlike in normal times, the effects of fiscal policy would not be limited by too-high interest rates, inadequate private demand, strict capacity constraints, or excessive inflation.

Economists dismiss fiscal policy largely because it is “politically constrained.” But that is not a good reason to give up on it. On the contrary, if the political process is producing problematic fiscal policies, as it is today, that is all the more reason for economists to voice their concerns.

The heyday of activist fiscal policy was a half-century ago. Most advanced countries pursued a countercyclical approach, reining in spending or raising taxes during periods of economic expansion and enacting stimulus policies during recessions. The saying “we are all Keynesians now,” attributed to Milton Friedman in 1965 and Richard Nixon in 1971, captured the economic zeitgeist.

But, after 2000, some began to pursue pro-cyclical budgetary policies. When the economy was booming, they implemented fiscal stimulus, thereby reinforcing the upswing. When the economy experienced a downturn, they pursued fiscal austerity, exacerbating the recession.

Among those who acted pro-cyclically were some US politicians.

At the beginning of this century, President George W. Bush threw away the large fiscal surpluses that he had inherited from Bill Clinton, enacting large tax cuts and rapid spending increases even from 2003 to 2007, as the economy neared its peak. He was aided and abetted by Fed Chairman Alan Greenspan, who bizarrely considered the surpluses a threat. It was during this period that Vice President Dick Cheney reportedly declared that former President Ronald Reagan had proved that “deficits don’t matter.”

Saddled with debt, US leaders felt less able to enact badly needed fiscal stimulus when the Great Recession hit in 2007. Democrats understood that it was necessary, but Republicans decided, at precisely the wrong time, that deficits were bad, after all.

In January 2009, when the economy was tanking, the Republicans voted against President Barack Obama’s fiscal stimulus plan. Fortunately, the policy was enacted nonetheless, making a major contribution to reversing the free-fall. But once the Republicans took over the House of Representatives in 2010, they were able to block Obama’s further attempts to stimulate the stillweak economy.

Then there is the poster child for the post-millennial turn to pro-cyclical fiscal policy: Greece. Like Bush, the country ran excessive budget deficits while the economy was expanding, from 2003 to 2008. Then, in 2010, confronting a massive debt crisis, Greece acquiesced to its European creditors and adopted strict austerity, which exacerbated economic contraction. As a result, far from restoring a sustainable debt burden as intended, the policy caused the debt-to-GDP ratio to rise rapidly.

European countries in general base their budget plans on unnecessarily biased official forecasts, which can push them toward pro-cyclical policy.

“

Jeffrey Frankel Professor of Capital Formation and Growth at Harvard University.

Before 2008, all eurozone members, not only Greece, “unexpectedly” exceeded the 3%-ofGDP ceiling for budget deficits at times. And, after 2008, the pattern of pro-cyclical fiscal contraction, leading to falling income and rising debt-to-GDP ratios, played out not just in Greece, but in Ireland, Italy, Portugal, and Spain as well.

Austerity’s leading champion is, no surprise, Germany. The Germans had reluctantly agreed, at the April 2009 G20 summit in London, that the US, China, and other major countries would expand demand to help pull the world out of recession.

But when the Greek crisis erupted at the end of that year, the Germans reverted to their deeply held beliefs in fiscal rectitude.

At first, the International Monetary Fund went along with the claim by Greece’s creditors that austerity could work. But in January 2013, the IMF’s then-chief economist, Olivier Blanchard, published a paper concluding that fiscal multipliers were much higher than the IMF had thought, and thus that the austerity programs in the struggling countries of the eurozone’s periphery might have been excessive. Today, IMF Managing Director Christine Lagarde well recognizes that, for Greece to achieve a sustainable debt-toGDP ratio, it needs more debt relief, not demands for surpluses of 3.5% of GDP. Japan, host of this week’s G7 meeting, has also made fiscal mistakes. In April 2014, even with the Bank of Japan having pursued aggressive quantitative easing to kick-start economic growth, Prime Minister Shinzo Abe followed through on a planned consumption-tax hike, from 5% to 8%. As many had predicted, Japan fell back into recession.

Very soon, Abe must decide whether to raise the consumption tax again, to 10%. While Japanese officials are not being unreasonable in worrying about the country’s huge national debt, near-zero interest rates show that creditworthiness is not the problem today. What Japan needs is a stronger economy. This clearly indicates that Japan should not proceed with another large increase in the consumption tax.

What it could do instead is pursue a pre-set path of small annual increases in the consumption tax over the next 20 years.

To be sure, there are also examples of countries that have used countercyclical fiscal policy to their advantage since 2000. Some developing countries – including Chile, Botswana, Indonesia, Malaysia, and South Korea – took advantage of the boom years to run budget surpluses, pay down debt, and build up reserves. As a result, they had enough fiscal space to relax such policies when the 2008-2009 crisis hit.

Unfortunately, some that escaped pro-cyclicality in the last decade have since been backsliding. Thailand is one example. Another is Brazil, whose failure to take advantage of the renewed commodity boom of 2010-2011 to eliminate its budget deficit contributed substantially to the mess it is in today.

Politicians virtually everywhere would do well to re-read the fiscal policy chapter in their introductory macroeconomics textbooks. Project Syndicate

Economists dismiss fiscal policy largely because it is ‘politically constrained.’

But that is not a good reason to give up on it.

”

16 Business Daily Thursday, May 26 2016

Closing Financial push

Taiwan planning agency to set up fund to revive industry

Taiwan will set up a fund of up to T$100 billion (US$3.1 billion) to support industry innovation and transformation, Chen Tain-jy, minister of the National Development Council, the island’s long-term development planning agency, said yesterday. Chen made the comments in his first news conference since Friday’s inauguration of Taiwan President Tsai Ing-wen, who has pledged to find new growth drivers for the trade-reliant economy hit by China’s slowdown

and weak global demand. Chen said the council would borrow from banks to set up the fund, without providing further details. The council already runs several funding programmes to encourage new industry creation, including one that matches government funds into start-up projects.

It is part of the government’s aim to reduce the economy’s reliance on its tech manufacturing sector. Taiwan is due to publish revised first quarter gross domestic product data on Friday, with some economists expecting the government to cut its outlook for 2016 growth and exports. Reuters

Trade

Thai exports, imports shrink more than expected The ministry blamed the poor exports last month on global economic uncertainty Kitiphong Thaichareon and Pairat Temphairojana

T

hailand ’ s c u s toms-cleared exports fell more than expected in April after two straight months of growth, commerce ministry data showed yesterday, as the trade-dependent economy continues to face weak global demand.

Exports fell 8.0 percent from the same period last year, much worse than the median forecast of a fall of 1.25 percent in a Reuters poll.

The ministry blamed the poor exports last month on global economic uncertainty and falling commodity and oil prices.

“This is shocking - the market will once again be worried about exports,” said Charnon Boonnuch, senior economist at Tisco Securities.

“Even more of a concern now is a slump in imports which is a bad sign for both exports and investments in the future.”

Imports plunged 14.92 percent in April from a year earlier, deeper than the 7.65 percent decline in a Reuters

poll. That is an indication that exports will remain weak as many imported items are parts assembled into finished goods and shipped out.

In March, shipments rose 1.3 percent on-year following February’s 10.27 percent increase, though these gain came from unusual items, namely military helicopters and gold shipments.

Despite the weak April exports, the economy should still grow 3.3 percent this year, as forecast, due to improved consumption and higher

value-added tax revenue stemming from government stimulus measures, Finance Minister Apisak Tantivorawong told reporters yesterday.

The export decline in April was led by falls of 7.8 percent in industrial goods, 5.3 percent in electronics and 2.8 percent in agricultural products.

Shipments to major markets were all lower, including declines of 10.3 percent to Japan, 6.7 percent to the United States and 1.1 percent to Europe.

Shipments to Southeast Asian

countries declined 4.8 percent and those to China fell 5.9 percent from a year earlier.

Exports, worth about two-thirds of Thailand’s economic output, have contracted over the past three years and the central bank has forecast they will fall 2 percent this year.

That’s one reason why Thailand’s military junta has struggled to revive Southeast Asia’s second-largest economy after taking power in May 2014.

Domestic demand, another growth driver, has also been sluggish.

The economy grew 0.9 percent in January-March on-quarter and 3.2 percent on-year, but the recovery has remained fragile.

The central bank has forecast economic growth of 3.1 percent this year. Growth last year was 2.8 percent. Reuters

Key Points April exports -8.0 pct y/y vs -1.25 pct in Reuters poll April imports -14.92 pct y/y vs -7.65 pct in poll April trade surplus US$0.72 bln vs poll’s $0.5 bln surplus Jan-April exports -1.24 pct y/y M&A

Dollar hike

Foreign debt reaction

Fitch warns of Bayer China said to plan asking U.S. China’s government invites downgrade on Monsanto bid on timing of fed rate increase Citigroup to discuss risks The international credit rating agency Fitch said yesterday it would likely downgrade German chemicals and pharmaceuticals giant Bayer if its goes ahead with plans to buy US agrochemicals firm Monsanto for US$62 billion.

“Should the transaction go ahead at the conditions offered or with a revised higher offer, Fitch will likely downgrade Bayer’s ... ratings by a minimum of two notches,” Fitch said in a statement.

“The acquisition would cause an increase in leverage and business risk for the combined group,” it added.

Rival agency Moody’s had already announced on Tuesday that it was putting Bayer’s ratings on “creditwatch negative”, or set for a possible downgrade.

Bayer, a household name thanks to its painkiller Aspirin, said this week that it is offering US$122 per share in cash for Monsanto, or US$62 billion (55 billion euros) in all.

It would be the biggest takeover by a German group of a foreign company and create a new world leader in seeds, pesticides and genetically modified (GM) crops.

Monsanto has dismissed the offer as too low, but said it was willing to entertain further talks on a merger. AFP

Chinese officials plan to ask their American counterparts in annual talks next month about the chance of a Federal Reserve interest-rate increase in June, according to people familiar with the matter.

The Chinese delegation will try to deduce whether a June or a July rate rise is more likely, as their nation’s policy makers prepare for the potential impact on financial markets and the yuan, the people said, asking not to be named as the discussions were private. In China’s view, if the Fed does lift borrowing costs, a July move would be preferable, the people said.

China’s exchange rate has already been weakening as expectations rise for the U.S. central bank to boost its benchmark rate for the first time since it ended its near-zero policy in December with a quarter percentage point increase. It’s not unusual for senior officials to press each other on their policies, and any inquiries by the Chinese about the Fed would follow repeated expressions of concern from the U.S. about China’s intentions with its exchange rate. The Treasury Department put China on a new currency watch list last month to monitor for unfair trade advantages. Bloomberg News

The National Development and Reform Commission, China’s top economic planning agency, recently invited Citigroup for an exchange of views on managing risks associated with Chinese firms issuing offshore debt.

Topics discussed included global financial trends and controlling the scale and risk of offshore corporate debt issuance in the context of the U.S. Federal Reserve policy outlook and movements in the yuan, a notice posted on the commission’s website said yesterday.

As recent Federal Reserve statements have appeared to telegraph a probably rate hike in June, the second since the global financial crisis, the yuan has weakened significantly.

The onshore spot rate has fallen around 1.2 percent against the dollar since the end of April as the dollar has strengthened. Yesterday, China’s central bank set the state-administered midpoint of the yuan’s daily trading band at the weakest level against the dollar in five years.

Corporate debt issuance has also boomed in China over the past year, with net issuance hitting a new high of 1.3 trillion yuan (US$198.12 billion) in the first quarter, according to central bank. Reuters