Alibaba’s founder, Jack Ma, becomes an advisor to Macau’s technology committee Society Page 4
Tuesday, June 7 2016 Year V Nr. 1059 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor ALEX LEE Tourism
Chinese tourists warned about 8 offenses while on vacation, including gambling Page 2
www.macaubusinessdaily.com
Finance
Local banks saw less deposits, but gave more loans to private sector Page 6
Business
SME’s and young startups got 47.1 million in loans, most of it for the retail sector Page 4
Not a washing machine Economy
Macau has launched new anti-money laundering rules for the gaming industry. Regulations have a broader scope than the last version enacted in 2006 and include keeping daily records and hiring compliance officers. Measures are expected to put more pressure on the VIP sector and increase casinos operating costs Page 7
Upgrading Nam Van
Saving while circling Cotai Look at it this way: it’s a first step. The plan to reduce shuttle bus traffic has three out of the six operators joining forces to create a route in Cotai. So far that’s all the information anyone is ready to release. On major routes though, it’s still a traffic jam of silence.
Society Tomorrow is the last day for anyone interested in registering for a stall at the newest Craft Market, just launched at one of the best spots in Macau, the Nam Van lakes. While just small businesses, they hopefully have the support of four government department’s, so it could be a new landmark for leisure and creativity. Page 3
27° 30° 25° 30° 27° 30° 27° 31° 27° 31° Today
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Source: Bloomberg
Source: AccuWeather
Transportation Page 5
HK Hang Seng Index June 6, 2016
21,030.22 +82.98 (0.40%)
Wharf Holdings Ltd/The
+5.20%
Hang Lung Properties Ltd
+1.86%
Henderson Land Develop-
-11.13%
Cheung Kong Property
+1.93%
China Construction Bank
+1.77%
Belle International Holdings
-3.52%
I SSN 2226-8294
2 Business Daily Tuesday, June 7 2016
Macau Health
241 smoking-ban violations in casinos this year
The Gaming Inspection and Coordination Bureau (DICJ) and the Health Bureau prosecuted a total of 241 violations of the current smoking ban inside local casinos in their 200 jointinspections during the first five
months of this year. According to a press release from the Health Bureau yesterday, 80.5 per cent, or 194, of the violators were tourists, whilst another 19.1 per cent were local residents. Since October 2014, smoking has been banned in all indoor areas of casinos, except in smoking lounges and VIP rooms.
Tourism
Mainland China tourism body issued warning on gambling Mainland Chinese visitors warned not to engage in bad behavior including not to gamble Annie Lao annie.lao@macaubusinessdaily.com
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travel warning has been issued, detailing nine ‘bad behaviors’ that Mainland Chinese tourists should avoid engaging in when traveling either domestically or overseas. China National Tourism
Administration (CNTA) issued the notice including a warning against ‘gambling’, according to a note from brokerage Union Gaming Securities Asia Ltd. Union Gaming (UG) says that the CNTA has issued these warnings before, as it is the same from last year and believes this only applies to VIP gambling in Macau.
‘‘It is hard to reconcile Beijing’s support for its SARs, including the diversification efforts ongoing in Macau to make it a much more mass market centric destination, with the CNTA’s warning against gambling while on vacation,’’ noted UG. Union Gaming does not believe this warning has had any impact on Macau. “We
suspect the CNTA has not compiled this list based on direct orders from Beijing to try and hamper the nascent mass market growth story in Macau. Rather, we suspect the CNTA is just doing its part to talk tough as it relates to the ongoing anti-corruption or anti-extravagance campaigns with VIP being most closely associated,” the note said. ‘‘Persons found to be in violation will have their information recorded in a
black book, which will be kept for a period of one to three years (or three to five years if a person has committed a crime),’’ noted UG. So far, no visitors have been listed in the black book after coming to Macau to gamble says the brokerage firm. The other eight specific offenses include prostitution, drug taking, damaging cultural relics, disorderly conduct on public transportation, unhygienic activity in public, violating social customs, endangering themselves and others and damaging ecological environments.
Crime
Illegal funds collected by property firm increases to HK$66 mlllion The amount involved in the illegal fundraising scheme run by a local property group has increased to HK$66 million (US$8.25 million), up from last week’s HK$33 million figure, a spokesperson for the Judiciary Police (PJ) reported on Sunday.
Last week, the police department announced that it had cracked down on a property group’s illegal fundraising scheme, detaining three shareholders of the company surnamed Lao, Lam and Ip. Speaking on local broadcaster
TDM’s Macau Forum, the PJ spokesperson Chan Cho Men claimed the security body had received 24 new reports from victims related to the case – leading the number of victims in the case to total 48 as at the end of last Saturday. Urging more victims to contact the police department, the PJ spokesperson said during the show that the difficulty investigating the case was not in legal terms, but due to the fact that no victim had been willing to assist with the investigation of the PJ, or to provide any evidence before the illicit scheme was stopped. The PJ said last Tuesday that the property group had attracted deposits from victims ranging from HK$500,000 to HK$16 million by offering a monthly interest rate of 1.5 per cent to 2.2 per cent in return. On Sunday, Mr. Chan however, declined to disclose the total number
of suspects found to have been involved in the case apart from the three detained shareholders. He added that the PJ is still chasing after others involved. The illegal capital collection was only exposed after victims started receiving bad cheques from the property group since January of this year. The PJ has not named the group involved or the three detained suspects, but several Chinese-language media, quoting sources, have reported that the involved property firm was Macao Group’s Buildings Agency and the company’s president Lao Meng Tong. Buildings Agency has been rumoured to have been having financial difficulties since the end of last month. During the middle of this month, a group of 20 employees of the real estate firm sought help from the Labour Affairs Bureau for back pay from the company.
Business Daily Tuesday, June 7 2016 3
Macau Society
Brand new landmark for leisure, culture and creativity in Nam Van Sales are low during the weekdays but more families are coming on the weekend so extra promotions are needed to attract more local residents and tourists to visit Nam Van. Annie Lao annie.lao@macaubusinessdaiy.com
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nim’Arte Nam Van officially opened last Friday, organized by the Cultural Affairs Bureau (IC), featuring cultural and creative shops, arts pavilions, indoor and outdoor craft markets, book shops, handcraft workshops, dining and live music performances. The 2016 “Nam Van Lake Craft Market” will also be open until next January (Mondays to Sundays) at the Nam Van Lake Square, featuring about 20 stalls selling creative products, run by cultural and creative entities from Macau, Mainland China (mainly from Guangzhou) and Hong Kong. Aiming to further make Nam Van a leisure centre for local residents and tourists, the Craft Market, organized by the IC, together with the Sports Bureau, the Macao Government Tourism Office (MGTO) and the Institute for Tourism Studies (IFT), jointly offers catering, water activities, cultural and creative activities and art performances at the Nam Van Lake Square. The total budget spent on the project by the four government entities was MOP 4 million. The project intends to help transform Macau into a ‘World Centre of Tourism and Leisure’ by making Macau’s tourism industry more diverse. “We hope to attract more tourists to visit Nam Van from San Ma Lo, then to the Chapel of Our Lady of Penha, and also encourage them to visit A-Ma Temple. It is our ultimate goal to attract them to visit our World Heritage sites,” said the Secretary for Social Affairs and Culture, Alexis Tam Chon Weng during the opening
ceremony.
More promotion needed
Since the opening, several stall owners told Business Daily that their sales performance was understandingly better during the weekend and suggested more promotions should be done to encourage visitors to come to Anim’Arte Nam Van. One of participants at Nam Van Lake Craft Market, Wing Lei, coordinator of Happy Shop, run by Fuhong Society of Macau, a non-profit organization established in 2003 providing services to intellectual disabilities and ex-mental illness persons, told Business Daily, “Our sales are higher during the weekends. During the weekdays, many office workers come by, but overall, we tend to have less customers during the weekdays.”
“It is our ultimate goal to attract tourists to visit our World Heritage sites” Alexis Tam, Secretary for Social Affairs and Culture, The organization provides art training services by local designers for the disabled to learn how to make handmade crafts, then sell their cultural creative souvenirs at the shop. Their own brands include ‘Love is a Charity Flower’ and ‘Hong Tsai’. She pointed out that due to the recent promotions, more families were coming with their
children on the weekend, but only a few tourists have come to visit to her shop. Another non-profit organization, Caritas Macau is also one of the participating stalls invited by IC to the Nam Van Lake Craft Market, selling educational toys for children made by the disabled and the training teachers.
4 Million MOP Amount spent on Anim’Arte Nam Van
Celia Ip, events Coordinator of Caritas Macau told Business Daily that more families came to her shop during the weekend for a family workshop. “Nam Van is a good location, it is quiet and suitable for family activities here such as water sports,” Ms. Ip said. However, Ms. Ip added that the shop still needs more customers to come and buy their products during the weekdays, even with more families coming in during the weekend. “If the shop only relies on customers to come on the weekends, it is hard to run in the long term,” Ms. Ip explained. Ms. Ip revealed that if the products here are selling successfully, more different types of products will be produced for children as she sees there is a lack of educational toys for children in Macau. All the profits made will go back to the makers of the products.
Nam Van needs time
The owner of Macau Origami Family, Hazel Wong, is selling her homemade origami at Nam Van Lake Craft Market. Ms. Wong has been selling her products since 2008 at Tap Seac Art Fair and moved to Nam Van Lake
Craft Market recently. She revealed that most local stall owners are likely to run their craft stalls part-time on the weekends as most of them have full-time jobs. In addition, given that the markets have only recently opened and due to the recent affect of rainy weather, not many people know about Anim’Arte Nam Van as it is still very new to local residents and tourists Ms. Wong explained. She suggested more promotions are needed. “To be honest, Tap Seac Art Fair was not popular in the beginning so it is the same for Anim’Arte Nam Van. But after Tap Seac Ar Fair was gradually promoted with more workshops and new products from other overseas artists, it has become popular until now,” Ms. Wong said.
Applications still open
Registration for Craft Market stalls is still open until tomorrow. Stall owners have the opportunity to showcase, promote and sell their original brands and products here.
“If the shop only relies on customers to come on the weekends, it is hard to run in the long term” Celia Ip, Event Coordinator of Caritas Macau,
Applicants must be local Macau residents. Registration is free of charge. IC will select stall operators according to the originality and peculiarity of their products. The SAR government is planning to call for public tenders by inviting merchants to open their business at Anim’Arte Nam Van in order to introduce more cultural and creative shops in Macau, according to a press release published by Macao Government Tourism Office.
4 Business Daily Tuesday, June 7 2016
Macau Financial aid
Retail, the young start-ups business The majority of the MOP 47.1 million worth of subsidies last month was invested in the retail sector. Kam Leong kamleong@macaubusinessdaily.com
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he government’s approved lending to the city’s small and medium-sized entrepreneurs (SMEs) and young start-ups totalled MOP47.1 million (US$5.9 million) in May, the latest data released by Macao Economic Services (DSE) shows. Last month, the economic department lent out a total of MOP40.1 million to 105 successful applications under the SME Aid Scheme, compared to some MOP1.2 million to two successful applicants in April. The SME Aid Scheme, implemented since May 2003, provides loans of up to MOP600,000 per applicant for different financing purposes such as the purchase of equipment, renovations, advertising, etc. Beneficiaries have up to eight years to repay the loans. However the Bureau also turned down some 28 applications for such loans last month, the data shows. For the first five months of the year, total loans of MOP97 million have been approved by DSE. Of the total, 29.3 per cent, or MOP28.3 million, have been lent to SMEs engaged in the retail business, while another 13.9 per cent and 11.6 per cent of loans went to property companies and construction firms, amounting to MOP13.5 million and MOP11.2 million, respectively. On the other hand, another
SME-support scheme by the government - the SME Credit Guarantee Scheme - did not approve any new loans last month, according to the official data.
More lending to young entrepreneurs
In addition to SMEs, the government granted some MOP7 million-worth of loans to the city’s young entrepreneurs under the Young Entrepreneur
Aid Scheme last month, up by 6.4 per cent compared to MOP6.6 million one month ago. During May, a total of 36 applications were filed with the authority for the loans. The Bureau greenlighted 31 applications it received and rejected two. Since the beginning of the year, the economic department has approved loans of MOP34.2 million to local young start-ups. Accumulative approved lending under the scheme has totalled MOP190.2 million since the inception of the scheme in August 2003. Again, retailers have been the biggest beneficiaries of the scheme,
which approved loans worth MOP15.2 million for the first five months of the year, accounting for 44.3 per cent of the total. In addition, young entrepreneurs running F&B and hotel establishments in the territory were granted loans amounting to MOP5.6 million, occupying 16.2 per cent of the total approved loans in the first five months of the year. The Young Entrepreneurs Aid Scheme aims to offer interest-free l o a n s o f u p t o M O P 300 , 000 (US$37,500) to young entrepreneurs aged between 21 and 44 for the purpose of starting their own businesses.
Politics
Jack Ma invited to advise two gov’t committees Jack Ma, the founder of China’s biggest e-commerce firm Alibaba Group, has been invited to be an advisor to Macau’s economic development committee and technology committee, the government announced yesterday. Chief Executive Fernando Chui Sai On met with the Mainland Chinese billionaire yesterday at Government House following Mr. Ma attending the inauguration ceremony of the Association of Zhejiang Entrepreneurs of Macao at the University of Macau. According to the press release issued by the Office of the Chief Executive, the two parties exchanged opinions on youth affairs, economic
development and technology innovation. Mr. Ma indicated that the city has a lot of development opportunities for local young people and SMEs, believing they should participate in global economic competition via the Internet and innovative technology, in addition to making use of the SAR’s advantages as a platform for Portuguese-speaking countries. Other attending officials at the meeting included Secretary for Economy and Finance Lionel Leong Vai Tac, Secretary for Transport and Public Works Raimundo do Rosario, as well as the president of the Legislative Assembly Ho Iat Sent.
Business Daily Tuesday, June 7 2016 5
Macau Transportation
‘Cotai Connection’ to reduce bus routes around Cotai Gaming operators Galaxy, Melco and Venetian launch a joint Cotai shuttle bus route in order to follow government’s directives to reduce shuttle bus traffic, but no major routes registered so far. For now, they are just circling the Cotai area
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alaxy entertainment Group (Galaxy), Melco Crown Entertainment (Melco) and Venetian Macau Limited, owned by Sands China Ltd (Sands China), have launched the ‘Cotai Connection’ a joint shuttle bus route, in order to facilitate the transport of guests and local residents within the Cotai Strip, according to a joint press release. The new project is in line with the recent MSAR policy to reduce the number of gaming operator shuttle buses in Macau, which saw the cancelling of 11 bus routes between Cotai and Taipa districts and the optimisation of 10 routes in February, as reported by Business Daily. Most visitors prefer the shuttle buses operated by the hotels and casinos, however, the average daily utilization of shuttle buses is around 33 per cent, and is identified as a main generator of road congestion in Macau, as mentioned in the ‘Macao Tourism Industry Development Plan’, presented by the Macau Government Tourism Office (MGTO). The Transport Bureau (DSAT) plan to ease traffic in Macau established a planned cut of 20.55 per cent, from 73 routes to 58 in 2016, however so far Melco Crown has only eliminated one of their bus routes, down to 13 routes. Galaxy is still expected to reduce its bus routes by 18.75 per cent this year, while Sands China has removed the largest number of routes, from 21 down to 17 bus routes, as reported by Business Daily. Now the three gaming operators expect the new service will “advance transportation in Macau” and “not only will the number of shuttle buses travelling between hotels be reduced, alleviating traffic in Cotai, but it will also help streamline the shuttle bus routes and improve visitors’ overall
experiences and promote the city as a ‘World Centre of Tourism and Leisure’”, the gaming operator’s joint press release stated. The service, which commenced yesterday, will operate daily from 11:30am to 10:30pm for a three-month trial period, passing through Galaxy Macau, Broadway Macau, Studio City, City of Dreams, The Venetian Macao and Sands Cotai Central, according to the release.
No free-loaders
In April, MGM China Holdings Ltd and Wynn Macau Ltd started requiring passengers to present a casino loyalty programme membership card or a purchase receipt to be allowed on board the free shuttle buses departing from their respective properties, with
City of Dreams, belonging to Melco Crown Entertainment, also starting to demand the same documents for people wanting to use the free shuttle bus route to the Gongbei border gate during rush hour. Enquiries were sent to Galaxy Entertainment Group, Melco Crown Entertainment and Venetian Macau Limited asking if the new Cotai bus route would have any restrictions for users, and if there is any future planned cooperation with gaming locations on the Macau peninsula. Business Daily received an e-mail with the three gaming operator’s joint response stating that the ‘Cotai Connection does not operate routes between Macau and Cotai, and therefore does not affect existing Macau-Cotai routes of the three operators.’
Retail
L’Occitane revenue decreases French retailer of skincare products L’Occitane International S.A. registered a 9.6 per cent decrease in revenue of US$13.6 million (MOP109 million), according to a filing with the Hong Kong Stock Exchange. The company attributed the revenue decrease to ‘net unrealised foreign exchange losses' and settlements of tax disputes with the French Tax Authorities. In terms of contribution to overall growth, the Hong Kong and Macau market, decreased 9.3 per cent, as the ‘Hong Kong retail market remained depressed due to the drop in mainland Chinese tourists and the
relatively strong dollar’ and softer sales to ‘Travel Retail operators in the greater China region’. Nevertheless total net sales saw an 8.6 per cent increase year-on-year, mainly due to the Chinese, French, Japanese, Brazilian and Russian markets, with China being the fastest growing market at 16.8 per cent. The company also registered a small 3.3 per cent increase in sales in Hong Kong and Macau, yearon-year. L’Occitane sales in Macau and Hong Kong comprised 10.8 per cent of its total net sales in the first quarter of 2016. As at the end of March,
the retailer owned three retail stores in Macau and 33 in Hong Kong. The company increased the number
of its own retail stores to 1,463 as of last March, a net increase of 79 own stores, with the biggest number of store openings registered in the Asia Pacific region at 52 openings.
Editorial
Better commitment needed It is not only in Macau, quite the opposite. Luxury retail results are feeling the pinch of the “new normal”, especially those markets that are more dependent on Chinese consumers. As we report in this edition, Singapore’s reputation as a shopper’s paradise, which has seen investors pour S$10 billion (US$7.25 billion) into retail developments in the state city in the past five years, is taking a pummelling because of weaknesses in the local economy and a drop in spending by tourists. As Reuters clearly states, we can all see the signs of bets that have gone wrong: a bet that the domestic economy would remain robust, allowing demand from Singapore’s 5.5 million people to stay strong, and that retail splurges by visitors from the rising middle classes in China, India and Southeast Asia would keep increasing. Recently, luxury brands have been closing stores in Hong Kong while others are struggling to cope with the incredible high rents. This is something Macau should have learnt by now, even if it’s an easier boat to manoeuvre. When forcing investors to diversify, the local government must be aware of its own responsibilities. It’s easy for the government to impose rules and force companies to launch new services and then shrug as if it has nothing to do with it. Responsibility to the city is everyone’s task, especially the government’s. A good strategy and a transparent regulatory framework are needed in all sorts of businesses. And the city must learn that it needs to impose rules and regulations on everyone, not only on the less fortunate who can’t lobby their way out of trouble, and that in moments of need, it should join as the partner that it should have always been. On the other side, investors must continue to make efforts to bring their best services and practices to town instead of immediately worrying about their profit margins and the annual dividends of their shareholders. If there’s a time to invest and show commitment, this is when the city and its businesses need it the most. It’s always too easy to find friends on every corner when the winds are blowing favorably.
6 Business Daily Tuesday, June 7 2016
Macau Health
Dangerous residues, no thank you
import of certain goods. The referred dangerous residues are described by the Basil Convention for Border Movement The importation and transportation Control and Elimination of Dangerous of dangerous residue from Taiwan to Residues, which include residues created the MSAR has been prohibited by the by chemical products, industrial material Chief Executive, a dispatch from the elimination, pharmaceutical production, Official Gazette reports. According to tar based products or mineral oils. The the Macau External Trade Law, in order present decision took effect from June 1, to protect the environment and public safety, the CE can prohibit the trade and the dispatch stated. N.M.
Monetary Deposits from residents fell 1.4 pct to MOP451 bln
Deposits at banks slightly down The local banking sector saw fewer deposits for April but its approved domestic loans to the private sector increased slightly. Kam Leong kamleong@macaubusinessdaily.com
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otal deposits at local banks posted a slight decrease of 0.4 per cent month-onmonth to MOP891.2 billion (US$111.4 billion) for April, due to the decrease in deposits from local residents, according to the latest official data released yesterday by the Monetary Authority of Macau (AMCM). In the month of April, the city’s banking sector saw deposits from residents drop by 1.4 per cent monthon-month to MOP451 billion. The amount, compared to MOP457.2 billion one year ago, represents a drop of 6.2 per cent. Nevertheless, deposits at banks from the public sector jumped 1.7 per cent month-on-month, or 22.6 per cent year-on-year, amounting to MOP150.8 billion for the month, whilst deposits from non-residents remained at some MOP289.4 billion, similar to March this year. According to AMCM, the majority of deposits at local banks were denominated in Hong Kong Dollars (HKD), accounting for 47 per cent of the total, followed by US Dollars occupying some 21.5 per cent. Local currency Pataca deposits (MOP),
meanwhile, accounted for some 20.5 per cent of the total deposits at the city’s banks.
reaching MOP12.7 billion. On a year-on-year comparison, the amount represents a jump of 10.2 per cent. The supply of M1, however, decreased by 11.3 per cent monthon-month to MOP56.7 billion, as
demand deposits plunged 14.1 per cent in the month. Concurrently, quasi-monetary liabilities rose 0.2 per cent month-on-month, leading M2, the sum of these two items, to decline by 1.3 per cent to MOP463.7 billion.
which owns 72.2 per cent of Wynn Macau, Limited (Wynn Macau), and operates Wynn Macau, has a market cap set at US$9.8 billion. Its shares have increased 53.98 per cent since October of 2015, with Archer currently holding 11,900 WYNN shares valued at U$1.11 million after the deal, as of the end of the first quarter. International ratings agency Fitch Ratings considered WYNN and its Macau subsidiaries’ financial outlook
as ‘stable’ at the end of the first quarter, stating the company’s current liquidity to be ‘strong’ at US$2.1 billion in cash, with an estimated US$200 million for ‘cage-cash purposes’ and US$252 million in investment securities. Fitch also predicted Wynn’s gaming revenue market share in Macau will increase around 13 per cent by 2018, after the group’s current planned developments, such as Wynn Palace, are completed. N.M.
Loans approved
On the other hand, local banks approved some MOP395.5 billion-worth of domestic loans to the city’s private sector in April, an increase 0.4 per cent month-on-month, or 9.9 per cent year-on-year. Of the total, MOP259.6 billion was denominated in HKD, which accounted for 65.6 per cent, whilst those denominated in MOP amounted to MOP113.3 billion, or 28.6 per cent of the total. Another MOP2.5 billion and MOP17.1 billion worth of loans were granted in Renminbi (RMB) and USD, accounting for 0.6 per cent and 4.3 per cent of the total, respectively. Meanwhile, the approved external loans by local banks fell by 0.4 per cent month-on-month to MOP367.1 billion in April, of which nearly half, MOP177.5 billion, was denominated in USD, whilst another MOP96.1 billion and MOP60.4 billion were granted in HKD and RMB, respectively.
Money supply
The AMCM data indicated the city’s currency in circulation grew slightly by 0.1 per cent month-on-month,
Stocks
Archon Partners LLC sells Wynn shares Archon Partners LLC (Archon), a hedge fund based in New York, has decreased its share in Wynn Resorts Ltd (WYNN) by 77.12 per cent, according to the company’s first quarter results filed with the U.S. Security Exchange Commission. The New Yorkbased hedge fund has a total market value of US$375 million (MOP3 billion)
and manages US$477 million in assets from 10 different clients, according to data from NASDAQ and Credio. The group decided to sell 40,100 of the 52,000 shares it owned in the gaming and entertainment group at the end of last quarter, after WYNN’s stock increased 35.86 per cent on the market, according to CCH Daily News. WYNN,
Business Daily Tuesday, June 7 2016 7
Macau
Money Laundering
New rules, more costs for casinos Anti-money laundering regulations tightened for the gaming industry. Macau has introduced new anti-money laundering rules for its US$29 billion (232 billion-pataca) casino industry, the world’s biggest, adding to costs for operators at a time when revenues have slumped to fiveyear lows. The new regulations, published on the Gaming Bureau’s website this month, have been in effect since May 13. They are far broader in scope than the last version issued in 2006. Over the past two years, revenues have tumbled due to a nationwide anti-corruption campaign in China and slowing economic growth, which have compounded industry woes. Increased scrutiny and tighter
regulatory policies have also hit sentiment and slammed junkets, the middlemen who are employed by the casinos to bring in wealthy gamblers. The tighter regulations in Macau contrast with the lax money laundering laws of Manila, where a lack of robust controls made it an easy target for a brazen cyber-heist from Bangladesh’s central bank. Macau’s new measures, which include keeping daily records and hiring compliance officers, are expected to compound pressure on the high-roller VIP sector and increase operating costs for casinos, said analysts. “Casino and junket operators now have to assume more due diligence
and operational obligations, and to adopt more pre-emptive measures,” said Karen Tang, an analyst at Deutsche Bank in Hong Kong.
Key Points Both casinos and junkets can no longer do business with anyone using an alias Operators need to know the identities of ultimate beneficiaries for transactions over 500,000 patacas
Galaxy Entertainment, Wynn Macau and SJM Holdings will likely be most impacted, given their relatively higher VIP exposure, said Tang. Casino operators now have to verify and sign any large or suspicious
reports submitted by junkets. And both casinos and junkets can no longer do business with anyone using an alias. Operators also need to know the identities of ultimate beneficiaries for transactions over 500,000 patacas (US$60,000). Jamie Soo, analyst at Daiwa Capital Markets in Hong Kong, downgraded the sector last Friday, stating expected weakness, and cut his forecast for annual revenue to a 10 per cent fall versus a 5 per cent drop previously. Despite headwinds, Macau is set to open three large-scale resorts this year, with features including a halfsize scale version of the Eiffel Tower, a large lake with a gondola ride and ultra-luxury shopping and dining, as operators try to appeal to a broader type of customer than the traditional hardcore gamblers. Reuters
Transportation
Taxi regulation revision draft ‘completed’ Director of Transport Bureau hopes taxi regulation draft can be approved before the legislature term end and announces new bus route app. The proposed Taxi regulation draft is “complete” and hopefully the legislative process can be finished during the current legislature, according to statements by the director of the Transport Bureau (DSAT), Lam Hin San, TDM reported. On the sidelines of a one-day event of the Macau Federation of Trade Union’s Workers Stadium for senior drivers traffic safety awareness, the DSAT director stated that “many members from the transport advisory committee and other groups have discussed and supported the major direction of the policy. Therefore there isn’t much modification to the current proposal.” Lam added he expects the draft bill will be up for vote at the Legislative Assembly (AL) after October, and that he hoped the draft would be approved before the legislature term ending on August 15 next year. The proposed revisions to the Regulations for Transport of Passengers in Light Vehicles for Renting or Taxis include the introduction of ‘passive entrapment’ with harsh punishments and a license suspension system for taxis that violate regulations, as Business Daily reported. The revisions state that taxi drivers accumulating eight violations of the law over a period of one year will have his or her operating license suspended for one week. If the eight-count violations happen again, the suspension will last for
two weeks. On the third occasion the driver reaches the eighth violation, the taxi driver will be suspended from service for a maximum three-month period. And in cases where the driver continues driving after the suspensions, their license will be cancelled permanently. The ‘passive entrapment’ proposals include the use of undercover police
officers as clients to observe drivers’ actions and register if they are illegal, and the installation of recording equipment, measures that received strong opposition from taxi driver associations. Previously the Macau Taxi Passenger Association proposed different fines for taxi drivers committing illegal acts, suggesting that first-time offenders should have a US$624 (MOP5,000) fine, while two-time offenders should suffer a one-month license suspension and three-strike offenders should have their taxi driver’s license withdrawn for three years, as reported
by Business Daily. When questioned about the taxi driver association’s resistance, the DSAT director responded that “[DSAT] didn’t make any concessions.”
New bus app incoming
Lam Hin San also mentioned that he hoped the new bus route information app created by DSAT could be approved in two or three weeks, with residents being able to download it by the end of the month. The application will allow people waiting for a bus to keep track of the bus they’re waiting for, although authorities still have to address the issue of poor signal reception in areas with a high number of high rises, which would result in inaccurate readings, TDM reported.
8 Business Daily Tuesday, June 7 2016
Greater China Private report
Jobless rate may be triple official number Leaders have stressed that keeping employment stable is a top priority.
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hina’s authorities may face a bigger worry than slowing economic growth. The jobless rate may be three times the official estimate, according to a new report by Fathom Consulting, whose China’s Underemployment Indicator has tripled to 12.9 percent since 2012 even while the official jobless rate has hovered near 4 percent for five years. The weakening labour market may explain China’s decision to uncork the credit spigots and revive old growth drivers in an effort to stabilize the world’s no. 2 economy. Leaders have stressed that keeping employment stable is a top priority. Fathom’s data shows that while mass layoffs haven’t materialized, the number of people not working at full capacity or hours has increased. “The degree of slack has surged in recent years,” analysts at the London-based firm wrote. “China has a substantial hidden unemployment problem, in our view, and that explains why the authorities have come under so much pressure to re-start the old growth engines.” Leaders of the world’s most populous nation have promised to slash excess
capacity in coal mines and steel mills while at the same time ensuring that the economy grows by at least 6.5 percent this year. Across the nation, state-backed ‘zombie’ factories are being kept alive by local governments to keep a lid on any social unrest. To keep the plants ticking over, employees in some cases have been asked to work half the time
for half the pay. The official registered unemployment gauge is notorious for not changing during economic cycles. It’s compiled from the number of people who register at local governments for unemployment benefits, which excludes most of the nation’s more than 270 million migrant workers. Another official jobless rate, based on
surveys into major cities and supposed to be more accurate, stayed at about 5.1 percent as of April. That’s also little changed in the past two years.
“Job insecurity is a key driver of social instability – something that China’s authorities need to avoid at all costs” Fathom Consulting’s report
Though official data show employment weathering a slowdown, any deviation from that would touch a nerve for top Communist Party officials. “Job insecurity is a key driver of social instability – something that China’s authorities need to avoid at all costs,” Fathom wrote. Beijing’s top officials may also worry about waning productivity growth. That’s been “particularly weak” in the services sector, which absorbs most labor, the consultancy says. While growth slowed last year to 6.9 percent, the weakest in 25 years, Fathom estimates it was just a fraction of the official pace: 2 percent. Bloomberg News
Monetary policy
Lew says Beijing must be ‘more adept’ at policy communication Speaking yesterday at the opening session of the dialogue, Lew said the U.S. supports development of Chinese capital markets China must improve monetary policy communication as it takes on an increasingly large role in the global economy, U.S. Treasury Secretary Jacob J. Lew said Sunday ahead of talks in Beijing between the two countries. The market gyrations that followed the People’s Bank of China’s decision in August to devalue the yuan reflected “something that was confusing and not well communicated, and it gave rise to fears that China’s economy was in a much weaker place than it actually appears to be or was perceived by policy makers to be,” Lew said in an interview with Bloomberg Television. The episode underscores the importance of China “becoming more adept at communicating its policy path and its analysis of its own economy, because the world and markets are hanging on what China thinks is going to be the next step in its economy,” Lew said. Lew said he was on vacation when China devalued the yuan, and he spent much of that time on the phone urging China’s central bank policy makers to explain what they had done.
Strategic talks
“When I understood what they perceived their action to be, I immediately said ‘that is not what the world saw,’” Lew recalled, adding that after a few days PBOC Deputy Governor Yi Gang offered a clearer explanation “that started to help settle things down” and Governor Zhou Xiaochuan later gave a long interview that explained the views. The yuan has fallen further since August, posting a five-year low in January and sinking back toward that mark last week in the face of an uncertain economic outlook. Lew and U.S. Secretary of State John
Kerry are in Beijing for the U.S.-China Strategic and Economic Dialogue which began yesterday with China Vice Premier Wang Yang and State Councillor Yang Jiechi. The two-day talks aim to foster discussion on key issues for the world’s two largest economies, including China’s transition to a more market-based exchange rate and a reduction of its excess capacity.
Hard issues
“The state of the world’s economy depends on us each doing well, and that requires us to work through issues, often very hard issues,” Lew said. “It’s a relationship of necessity.” This week’s talks are the eighth and final under President Barack Obama. With U.S. elections months away, it’ll be important that a new administration continue to foster a dialogue between the two countries, as “I don’t think walking away from that relationship would serve the interests of the United States or the world,” Lew said. Challenges remain on structural reforms in China. At the same time, the U.S. is pushing China to subject its economy to market forces, saying more openness is needed to create a level playing field for companies that want to do business there. Illustrative of the dynamic is the excess capacity debate. China has been cutting surplus production in sectors including coal and steel while striving to keep growth above their 6.5 percent minimum target for this year.
much as 150 million tons that will put more than half a million people out of work, Li said. “I don’t think that we’ve seen the implementation yet on policies to deal with excess capacity,” Lew said in the interview. Global steel and aluminium markets are being “distorted” by China’s excess capacity, and it would have a “corrosive effect on future growth if you let the problem linger,” he said. But politically and socially, dislocating workers is a challenge.
Threading needle
“Threading that needle is hard - you don’t have a choice,” Lew said. “If you have excess capacity and you’re just kind of grinding down your future potential growth, that’s not going to be good for people either. So they made the policy commitment to make these changes, they now have to implement and execute, not just at the national level but at the provincial level as well.” There’s a similar push for China to allow its currency to fluctuate more freely, and “compared to where we were just a few years ago, we’ve seen real progress,” Lew said.
“The state of the world’s economy depends on us each doing well, and that requires us to work through issues, often very hard issues” Jacob J. Lew, U.S. Treasury Secretary
“We have very much made clear that we need to make sure that the commitment to moving in an orderly way to more market-determined exchange rates will stay a firm policy as there’s up and down pressure, and that it not become a one-way policy in the future,” he said.
Market determined
Speaking yesterday at the opening session of the dialogue, Lew said
Excess capacity
Still, exports of steel from China won’t decline significantly from last year’s record, Li Xinchuang, president of the country’s Metallurgical Planning Institute, said in May. China is already doing its share to reduce the global problem, with proposals to lower capacity by as
Chinese President Xi Jinping (R) meets with US Secretary of State John Kerry (C) and the joint opening ceremony of the eighth round of the US-China Strategic and Econom
Business Daily Tuesday, June 7 2016 9
Greater China Graft fight
In Brief
Government aims to speed up extradition treaties China last year urged the United States to start talks about an extradition treaty. China aims to speed up the signing of extradition treaties with countries where corruption suspects have fled to, a senior official wrote in state media, as Beijing steps up its overseas hunt for citizens suspected of corruption. China has been trying to get increased international cooperation to hunt down suspected corrupt officials who have fled overseas since President Xi Jinping
“Strengthen propaganda and public opinion work ... use various platforms to tell China’s anti-corruption story well, expound upon China’s position and increase our right to speak internationally” Huang Shuxian, Deputy Head of the graft-busting Central Commission for Discipline Inspection
began a war against deeply-rooted graft more than three years ago. But Western countries have been reluctant to help, or sign extradition treaties, not wanting to send people back to a country where rights groups say mistreatment of criminal suspects remains a problem, and also complaining China is unwilling to provide proof of their crimes. Beijing has vowed to pursue an overseas search dubbed Operation “Fox Hunt” for corrupt officials and business executives, and their assets. Writing in the latest issue of influential bimonthly Communist Party journal Qiushi, Huang Shuxian, deputy head of the graft-busting Central Commission for Discipline Inspection, said more efforts needed to be made to recover corrupt officials and their assets from overseas. “Grasp well the important elements of ‘people, money and proof’,” Huang wrote. “Speed up the signing of extradition treaties and establish law enforcement cooperation with destination countries for those who have fled abroad.” There needs to be a “new international order to fight corruption”, with more diplomatic efforts exerted, he added. At the same time, controls on allowing officials abroad also need to
be strengthened, he said. China last year urged the United States to start talks about an extradition treaty, something the United States has been reluctant to do. Huang said in April that China faces a tough task in hunting down corruption suspects abroad. In an indirect admission that China has done a poor job in getting suspects back, Huang wrote that China needed a better understanding of international laws so it had greater “legal tools” at its disposal. Propaganda efforts needed work too, to win over an international audience. “Strengthen propaganda and public opinion work ... use various platforms to tell China’s anti-corruption story well, expound upon China’s position and increase our right to speak internationally,” Huang wrote. Reuters
HKEx
the U.S. supports development of Chinese capital markets, “which create conditions to move further toward a market-determined exchange rate.” And as a broad policy matter, he said, it’s important China “use its fiscal and lending policies to support stronger consumer demand, since growing consumer demand is essential for a successful economic transition.” In the interview, Lew demurred from discussing U.S. monetary policy, noting that Federal Reserve Vice Chairman Stanley Fischer would be in Beijing to meet with his Chinese counterparts. However he did note general progress in the domestic economy despite “bumps along the way.” “Sometimes you see spikes of good news, but the trend over time has remained very strong, and we would like to do better,” Lew said. A June 3 report showed that U.S. economy added just 38,000 jobs in May, the fewest in six years. While the trajectory will need to be watched, the long-term trend is still positive, he said in remarks to students Sunday at Tsinghua University in Beijing. Bloomberg News
d US Treasury Secretary Jack Lew during mic Dialogue
Opening mainland bond market a threat to Hong Kong connect plans China has said it will remove quotas for most financial institutions to invest in the interbank bond market in February. Eduard Gismatullin and Justina Lee
Hong Kong Exchanges & Clearing Ltd. is facing a challenge to its plans to allow customers to trade in the Chinese bond market as the country’s central bank offers access to international investors. While HKEx is talking to Chinese authorities about an electronic trading link to the nation’s interbank bond market, the People’s Bank of China and State Administration of Foreign Exchange last month published rules allowing foreign investors to buy those securities, part of a broader effort to open up to direct overseas investment. HKEx will also be in competition with Germany’s Deutsche Boerse AG in offering access, a departure from the dominance it enjoys in the equities market. “The bond market is all new for them, but they are not going to have a monopoly,” said Tony Tanaka, a Tokyo-based analyst at Haitong International Securities Group. “What it can do is to help connect bond markets between mainland and overseas, but a pure connection role has limited potential” for HKEx’s revenue. Expanding in the fixed-income market is part of the exchange operator’s plans to broaden its products and increase projects with China. The company, which has seen its share price fall 35 percent in the past year, is looking for ways to prop up revenue, which is projected to decline this year for the first time since 2012. Though it faces challenges, HKEx is optimistic about the potential in tapping a relatively new asset class, according to Julien Martin, head of fixed income and currency product development. “We are aware that the amount of bonds we have right now in the exchange is not a good enough value proposition,” Martin said in an interview at the company’s headquarters. “The interest is actually to have Hong
Kong become a much more relevant fixed income and currency centre then it is at this moment.” The Hong Kong bond market was about US$795 billion at the end of the first quarter, according to Asia Securities Industry & Financial Markets Association data. China’s bond market is US$8.4 trillion, data compiled by Bloomberg show. The bond connect could boost high-yield issuance in Hong Kong and lure Chinese private firms unqualified to sell domestic notes to the city, Martin said. He didn’t provide a start date, saying the bourse is still in talks with the authorities.
“We have one foot in, one foot outside China” Julien Martin, HKEx’s head of fixed income and currency product development
China has said it will remove quotas for most financial institutions to invest in the interbank bond market in February, after announcing earlier that fund managers approved under its Qualified Foreign Institutional Investor program won’t need to apply for allocations. A Hong Kong bond trading link will also face competition from Deutsche Boerse. That exchange’s Clearstream unit plans to link to China’s interbank bond market, people familiar with the plan said in April. Martin said the city has advantages that puts it ahead of its challengers. “We have one foot in, one foot outside China,” Martin said. “We’ve got a legal system, we’ve got rule of law. I’m convinced the mainland market will eventually be essential and the Hong Kong market can develop on the back of that.” Reuters
Stock market
Taiwan will increase issuance of NCDss Taiwan’s central bank will increase its issuance of 14day negotiable certificates of deposit (NCDs) on June 13 and June 14, an indication that further raises market expectations the central bank will cut interest rate late this month. The central bank is encouraging financial institutions to apply for 14-day and 28-day NCDs in even amounts, it said in a statement on Saturday. They now apply for larger amounts in 28-day NCDs and less in 14-day. The rate for 14-day NCDs is at 0.25 percent, while 28-day NCDs are 0.66 percent. M&A
Fosun in advanced talks for stake in French company Chinese diversified group Fosun is in advanced talks to take a 10 to 15 percent stake in tourism and leisure group Compagnie des Alpes, Le Monde newspaper said in its weekend edition. Compagnie des Alpes specialises in ski resorts, family parks and attractions. The newspaper said the company, in which French state-owned bank Caisse des Depots (CDC) holds a 39.54 percent stake, is looking for partners to beef up its capital and accelerate its international development. “We are in contact with several groups, not just Chinese,” Dominique Marcel, Chief Executive Officer of Compagnie des Alpes told Le Monde. Deals
Swatch Group signed contract with Geely Swatch Group has signed a contract with Chinese car maker Geely allowing it to use an innovative battery developed by the watchmaker’s research firm Belenos, its chief executive said in an interview on Sunday. “We’re giving Geely the possibility to use our revolutionary battery system,” Nick Hayek told NZZ am Sonntag. “This is a first breakthrough for our invention and shows the huge interest industrial firms take in it.” Hayek has said that the performance of the new battery, co-developed with ETH Zurich, is at least 30 percent superior to ordinary batteries. Results
Nestle sees turnaround in mainland After a period of disappointing growth, Nestle SA is experiencing a turnaround in China as the multinational food company focuses on e-commerce and product innovation. Sales have posted “steep numbers” for products - recently relaunched in China - like Nescafe coffee and Shark wafers, Reinhold Jakobi, managing director of the food and beverage business in greater China, said in an interview on Sunday. The company’s e-commerce business in China, expanding at triple-digit rates, and is on average more profitable than brick-and-mortar retail, he said.
10 Business Daily Tuesday, June 7 2016
Greater China Stock exchange
World’s most battered market is the worst place to find bargains than US$480 billion to prop up the market last summer, still owns at least US$77 billion of mainland equities, according to exchange filings compiled by Bloomberg. The true scale of government support is almost certainly even bigger, with cash from CSF and other state funds flowing into the market through multiple channels that don’t always show up in public disclosures. Not everyone is concerned about China’s valuations. While the market’s median price-to-earnings ratio is an appealing metric to some analysts because it downplays the impact of low-priced bank stocks with big index weightings, others prefer an aggregate measure that gives more influence to the largest companies. On that basis, the Shanghai Composite trades at 16 times reported earnings, cheaper than the S&P 500’s multiple of 19. Mainland’s investors checking stocks evolution
China’s dual-listed stocks offer perhaps the clearest indicator of the persistent disconnect between valuations on domestic exchanges and those in international markets Kyoungwha Kim and Bonnie Cao
I
t’s going to take more than the world’s deepest stock-market selloff to turn China into a destination for international bargain hunters.
Even after a 40 percent tumble in the Shanghai Composite Index over the past 12 months, valuations for China’s domestic A shares are three times as expensive as every other major market worldwide. The median price-to-earnings ratio on
Wide variety the nation’s exchanges is 59, higher than that of U.S. technology shares at the height of the dot-com boom in 2000. One year after China’s equity bubble peaked, valuations have yet to fall back to earth as government intervention keeps stock prices elevated at a time of shrinking corporate profits. For money managers at Silvercrest Asset Management and Blackfriars Asset Management who predicted last year’s selloff, China’s weak economic growth and fragile investor sentiment mean it’s too early to jump back into the US$6 trillion market. “We do not own any A shares,” said Tony Hann, the London-based head of equities at Blackfriars, which oversees about US$270 million. The firm’s Oriental Focus Fund has outperformed 83 percent of peers this year. “The bull case seems to be that I can buy at this P/E because someone else will buy it from me at a higher P/E. The biggest risk is that investor psychology on the mainland changes.” There’s plenty for investors to be worried about. After expanding at the weakest pace since 1990 last year, China’s economy shows few signs of recovery. Earnings at Shanghai Composite companies have declined by 13 percent since last June, while corporate defaults are spreading and the yuan is trading near a five-year low. The gloomy outlook is a stark contrast to the mood this time last year, said Pan Lizhi, a 54-year-old retiree in China’s Hunan province. Like many of the country’s 106 million individual investors, Pan traded shares almost every day during the bubble, hoping to ride a boom fuelled by explosive growth in margin debt and the official endorsement of staterun media. Now, she spends most of her time watching TV. Of the 320,000 yuan (US$48,860) in her brokerage account, all but 6 percent is parked in cash. “I don’t foresee a bull market in the coming year,” Pan said. Brokerage analysts are more upbeat. They still see gains for Shanghai Composite companies, with shareprice targets compiled by Bloomberg signalling a 13 percent rally over the next 12 months. Potential catalysts for gains include this month’s MSCI Inc. decision on whether to include mainland shares in its international indexes and the anticipated start of an exchange link between Hong Kong and Shenzhen. Bulls say the downside for share prices is limited by government intervention. China Securities Finance Corp., the agency armed with more
“China’s actually quite attractive,” said Sam Polyak, a Boston-based money manager at Fidelity Management & Research Co., whose US$71 million Fidelity Total Emerging Markets fund invests in A shares through the Shanghai-Hong Kong exchange link. He prefers Internet and consumer staples companies, along with select industrial firms. Finding bargains in China is difficult because shares with depressed valuations often have problems, while firms with the best prospects are pricey, according to Daniel Morris, a senior investment strategist in London at BNP Paribas Investment Partners, which oversees US$592 billion. On the low end, Industrial & Commercial Bank of China Ltd. trades at 5.6 times reported earnings. The nation’s largest lender has dropped 16 percent over the past year amid concern that a surge in non-performing loans will erode profitability. Leshi Internet Information & Technology Corp., which boosted revenue by more than 90 percent in 2015 and was one of the darlings of last year’s bubble, has a multiple of 175.
“The parts that you like, with the growth potential, you’re paying for that” Daniel Morris, a senior investment strategist in London at BNP Paribas Investment Partners
“Some parts of the market are cheap, but perhaps for a good reason,” Morris said. “The parts that you like, with the growth potential, you’re paying for that.” China’s dual-listed stocks offer perhaps the clearest indicator of the persistent disconnect between valuations on domestic exchanges and those in international markets. Mainland shares fetch an average premium of 93 percent over identical equities traded across the border in Hong Kong, with the gap reaching as high as 634 percent for Luoyang Glass Co., a producer from Henan province. “There’s a lot of downside to China’s market,” said Patrick Chovanec, the chief strategist at Silvercrest Asset Management, which oversees about US$17 billion in New York. “The fundamentals are poor and perhaps getting worse.” Bloomberg News
Business Daily Tuesday, June 7 2016 11
Asia
Retailing
Shoppers’ paradise lost? Singapore’s malls suffer as locals, tourists curb spending The sluggish global economy has put a brake on spending by Singaporeans Manesha Pereira and Masayuki Kitano
A
fter serving only a handful of customers in five hours on a recent weekday, Sam Goh said he was worried the sportswear shop he manages, LIV ACTIV, will eventually join other brands in leaving Singapore’s Orchard Road shopping boulevard. Singapore’s reputation as a shoppers’ paradise, which saw investors pour S$10 billion (US$7.25 billion) into retail developments here in the past five years, is taking a pummelling because of weakness in the local economy and a drop in spending by tourists. Commercial space has increased by a tenth in that period, but vacancy rates have risen to 7.3 percent from 5.0 percent and industry analysts expect them to keep rising. “Instantly when you enter this mall you see emptiness,” said the 44-year-old Goh, whose shop gave up a quarter of its space last month to cut costs. Further down the street, cashiers play games on their phones, while some shop assistants have improvised a mini-golf game along a quiet corridor of a shopping centre. Thirteen of 16 units on the 5th floor lack tenants. Store space in places with lower foot traffic is getting few takers. For example, in a suburban area on the west side of Singapore, more than two-thirds of a basement shopping centre that has been open for almost two years remains empty. These are all signs of bets that have gone wrong: that the domestic economy would remain robust, allowing demand from this city state of 5.5 million people to stay strong, and that retail splurges by visitors from the rising middle classes in China, India and Southeast Asia would keep increasing.
For Singapore this is not a small thing - wholesale and retail trade vies with manufacturing to be the biggest contributor to the city-state’s gross domestic product and it is the biggest employer here. But the sluggish global economy has put a brake on spending by Singaporeans, especially workers in hard-hit export sectors. Shoppers from abroad, meanwhile, spent 7 percent less in the first nine months of 2015 than they did in the same period of 2014.
Landlords hit
Wealthy Chinese, hit by an economic slowdown and a corruption crackdown at home, have less appetite for the luxury items they flocked to Singapore to buy during the boom years. China also has built many of its own luxury malls and has even set up duty-free paradises in local tourist hot spots to lift consumption and spur domestic tourism. And Indonesians, Thais and Malaysians now have cheaper versions of the same products back home. A luxury bag made by Coach can now cost twice as much in Singapore as in these countries. In Bangkok and Jakarta, retail space has risen 20-25 percent in five years, with vacant space shrinking, data from real estate firm CBRE shows. “Many rich Chinese used to come and spend money on luxury items and that is no longer the case and in the region you have a lot of competition,” said Christine Li, director of research at commercial real estate services company Cushman & Wakefield. “I am pessimistic about retail here,” she said in reference to Singapore. The deteriorating retail outlook is among several challenges faced by Singapore’s property sector, which
includes developers and real estate investment trusts or landlords, with shares of companies such as Frasers Centrepoint, Capitaland and Wheelock Properties losing 10-20 percent in the past 12 months. More than 2 million square feet of new retail space will be ready for occupation in Singapore by the end of 2017, and it won’t be easy to find tenants. But many of the bigger developers are partially protected from the downturn because they are present across segments like hospitality or homes in other Asian markets and beyond.
“Many rich Chinese used to come and spend money on luxury items and that is no longer the case and in the region you have a lot of competition” Christine Li, Director of Research at commercial real estate services company Cushman & Wakefield
“Over the next three years you can see that supply is fairly strong and although the first quarter was fairly resilient, you’re not seeing much revenue growth,” said Joshua Tan, an analyst with Maybank Kim Eng, referring to real estate investment trusts. He said that many of the retailers suffered from having similar product offerings to their rivals. Sales of apparel and footwear in Singapore dropped 3.5 percent yearon-year in March and 14.6 percent in February, with brands such as British apparel brand New Look and Celio
of France planning to close branches in Singapore this year. Seth Kok from SG Debt Busters, has seen a 23 percent increase so far this year in shopowner clients seeking advice on how to reduce debt or deal with bankruptcy. Retailers “expanded way too fast,” said Kok. “But things turned bad ... everything started when China slowed down.”
The great discount
Internal factors are at play as well. Measures to give Singaporeans priority for jobs have curbed the number of expatriates on juicy salaries. Wage growth is expected to slow to 2.5-3.0 percent in 2016, compared with a 10-year average of 3.6 percent. “We cannot fight these major trends,” said Stephen Goh, executive director at Orchard Road Business Association, mentioning the job curbs, a strong currency, weaker tourism spending and a tendency for more Singaporeans to shop in cheaper malls overseas. Many hopes are pinned on “The Great Singapore Sale”, an annual marketing event, which started on Friday and will last 10 weeks this year. But discount signs have been ubiquitous across the island for some time. Robinsons department stores have been offering up to 70 percent off a variety of goods for the past two weeks. Rising interest rates prompted by the U.S. Federal Reserve’s hike in rates in December have also restrained domestic spending. Mortgage consultants say the monthly cost of repayments on a mid-range condominium apartment goes up by S$400 for every 1 percentage point rise in Sibor. “My family and I used to shop ... almost every week,” said 50-yearold store manager Dino Ahmari, who pays a mortgage. “Now we make it a point to spend only once every two months.” Reuters
12 Business Daily Tuesday, June 7 2016
Asia Sovereign rating
S&P scorned by investors for keeping Indonesian debt at junk Fitch Ratings and Moody’s Investors Service awarded the nation investment grade status more than four years ago. Liau Y-Sing and Denise Wee
I
nvestors have kept faith in Asia’s best-performing sovereign bond market after S&P Global Ratings left Indonesia at junk status. One fund manager described the decision as disappointing and another as inexplicable. S&P stands alone among the three major debt assessors to keep the nation below investment grade after affirming its BB+ rating and positive outlook on June 1. An upgrade could occur over the next 12 months if Indonesia cuts deficits and implements fuel subsidy changes fully, S&P analysts Kyran Curry and YeeFarn Phua said in a statement. “I simply cannot rationalize this failure to upgrade, as they have been well behind the curve to begin with,” said Edwin Gutierrez, the London-based head of emerging-market sovereign debt at Aberdeen Asset
Management Plc, which oversees US$421 billion globally. “I’m not sure what kind of grudge they hold against Indonesia, but its debt ratios have been commensurate with an investment-grade country for a long time.” Indonesia’s ratio of debt to gross domestic product is the lowest in Asia after China. Rupiah-denominated sovereign debt has lured US$4.7 billion of inflows in 2016 as a pickup in government spending bolsters sentiment toward Southeast Asia’s biggest economy. Three interest-rate cuts this year are helping boost growth from a six-year low, and President Joko Widodo plans to increase revenue by offering a tax amnesty for bringing back money stashed abroad.
‘Bit disappointing’
“S&P’s decision was a little bit disappointing,” said Manu George, a Singapore-based Asian fixed-income investment director at Schroder
Investment Management Ltd., which oversees about US$470 billion globally. “Those who are currently invested in Indonesian bonds are not rating sensitive and hold them for reasons of carry and relative attractiveness.” Finance Minister Bambang Brodjonegoro on Thursday criticized S&P’s decision, saying it was “not appropriate,” and lacked a thorough analysis.
“I’m not sure what kind of grudge they hold against Indonesia, but its debt ratios have been commensurate with an investmentgrade country for a long time.” Edwin Gutierrez, the London-based head of emerging-market sovereign debt at Aberdeen Asset Management
S&P has kept Indonesia’s rating unchanged since 2011. While Widodo’s administration has reduced energy subsidies and cut red tape, credit quality of Indonesian companies has worsened since end-2014 amid a drop in commodity prices, S&P said its statement. Bad loans at banks have climbed form a record low in 2013, and the government’s fiscal deficit is expected to increase, it said.
S&P defends
“We assign sovereign ratings based on the application of our sovereign ratings criteria and peer comparison
analysis,” Curry said by e-mail Friday. S&P “hasn’t totally shut out the possibility of an upgrade,” said Arthur Lau, the co-head of emerging-market fixed income at Pinebridge Investments in Hong Kong, which manages US$83 billion of globally. “It will continue to pressure the government to continue to reform, which is a good thing.” Indonesian bonds have gained more than 10 percent this year, Asia’s best performance, according to indexes compiled by Bloomberg. Foreign ownership of rupiah-denominated government debt reached an unprecedented 627 trillion rupiah (US$46 billion) last month. The nation’s currency has strengthened 2.3 percent against the dollar in 2016, and the Jakarta Composite Index of shares is up 6.3 percent.
Bond rally
The yield on Indonesia’s 10-year notes has dropped 92 basis points this year to 7.83 percent, compared with a 23-basis point decline to 3.94 percent for similar-maturity Malaysian securities. After adjusting for inflation, the Indonesian securities offer the highest yield in Southeast Asia. Economists forecast Indonesia’s economy will expand 5.1 percent this year, rebounding from the slowest growth since 2009. Despite S&P’s disappointing assessment, the country is on track to a very positive future, said Alvin Pattisahusiwa, chief investment officer at PT Manulife Aset Manajemen Indonesia, which manages more than US$3 billion in assets. “We remain positive on Indonesia bonds and rank Indonesia highly among other Southeast Asian countries,” said Edward Ng, a Singapore-based fixed-income portfolio manager at Nikko Asset Management Co., which oversaw 18.5 trillion yen (US$170 billion) at the end of 2015. “Bank Indonesia’s accommodative monetary stance should continue to support the bond market.” Bloomberg News
Oil minister
India ready to help revive Nagarjuna oil refinery Completion of the facility, with a capacity of 120,000 barrels per day, would help fill a looming shortage in processing capacity. Nidhi Verma
Energy-hungry India is ready to revive projects including the Nagarjuna Oil Refinery in the south of the country to boost its oil sector, oil minister Dharmendra Pradhan told a local television channel yesterday.
India, the world’s fastest growing major economy, meets about three-quarters of its oil needs through imports and wants to expand its production and refining capacity to meet soaring demand. The Nagarjuna refinery, in the state of Tamil Nadu, was in an advanced
stage of construction when it suffered severe damage in a December, 2011 cyclone. The firm lacks the financial strength to continue work at the site. Completion of the facility, with a capacity of 120,000 barrels per day, would help fill a looming shortage in processing capacity but would require a cleanup of the site and extensive renovation work. “The government will support any project, within the legal framework, to boost the country’s oil sector. The Nagarjuna refinery is also one of
these projects,” Pradhan told CNBC’s Hindi-language news channel in an interview. Nagarjuna Oil Refinery earlier said it was in talks with prospective investors, including state-run firms like Indian Oil Corp, as well as the royal family of Saudi Arabia, to revive the facility.
“The government will support any project, within the legal framework, to boost the country’s oil sector.” Dharmendra Pradhan, India’s oil minister
In other comments, Pradhan played down reports that the country’s biggest explorer, Oil and Natural Gas Corp, would be forced by the government to bail out Gujarat State Petroleum Corp (GSPC). He said it was a commercial matter and the boards of the firms would take a decision. GSPC has been rapped by the federal auditor for investing about US$3.5 billion in an offshore block off India’s eastern seaboard without achieving significant success. 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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Business Daily Tuesday, June 7 2016 13
Asia In Brief Automobile
Vietnam’s car imports rise sharply Vietnam spent US$195 million on importing about 12,000 completely built-up cars in May 2016, an increase of 33 percent compared to April and 12 percent against the same period of 2015, according to the country’s General Statistics Office yesterday. In the first five months of this year, the number of car imports was 41,000 units, worth a total US$927 million, said GSO. Local business insiders said Vietnam’s auto imports increased sharply during May as consumers wanted to buy cars before the government tax hikes on imported automobiles come into effect. Assets
BlackRock to sell Singapore office tower
Japanese Prime Minister Shinzo Abe gestures during a press conference at Abe’s official residence in Tokyo, Japan, last week. Abenomics
Japan Prime Minister pushes “equal pay” to lift economy The government aims to bring the wage differential between regular and non-regular workers to the same levels as in Europe. Tetsushi Kajimoto
When Fumiko Kasai returned to work a decade ago she found Japan’s job market was very different to the one she had left in the 1980s to raise her four children. Kasai, who had enjoyed a well-paid full-time job with a car firm before giving up work when she married, is now a temporary worker at a butcher’s. Earning 200,000 yen (US$1,835) a month, her hourly pay is around half that of a full-time worker doing the same job. Prime Minister Shinzo Abe has put tackling Japan’s labour inequality at the centre of his policy agenda as the number of temporary workers hits a record high, posing a challenge to his “Abenomics” stimulus package ahead of a summer election. “At first I saw nothing strange about a housewife doing a low-paid parttime job,” 59-year-old Kasai said. “But no matter how hard I worked, my salary would not rise much even as I bear the responsibility as a team leader. I don’t want employers to treat temporary workers as cheap labour force for the sake of cutting personnel costs.” With part-time and temporary workers now making up about 40 percent of the labour force, Abe vows to adopt an “equal pay for equal work” scheme, forcing firms to pay the same wage for workers doing the same job. Abe is counting on the plan - a centrepiece of a mid-year raft of policy announcements - to boost flagging consumption and win votes ahead of a July upper house election. But the plan could backfire on Japanese firms by pushing up labour costs and squeezing profits, analysts say. It also faces resistance from the businesses who would have to implement it. “It will be a step forward towards fixing a labour gap,” said Yuriko Kinoshita, a member of the Seikyo Roren representing co-op workers. “But it’s hard to carry it out without support from the management and understanding from regular employees who worry about pay cuts in the
name of equal pay for equal work.” Sadayuki Sakakibara, head of Japan’s biggest business lobby Keidanren, has said he would support Abe’s plan, but added: “We must consider Japan’s own pay system and job practice, rather than just promising the same pay for the same job.” In the Reuters Corporate Survey earlier this year only 9 percent of Japanese firms described the plan as realistic.
Lost decades
Structural reform to boost consumption and revive growth is one of the “three arrows” of Abenomics - aimed at reviving the economy after two so-called lost decades of torpor and deflation - alongside fiscal stimulus and massive monetary easing. But Abe has so far struggled to push labour reforms that would make it easier for companies to hire and fire, due in part to opposition from unions representing full-time employees. Meanwhile, the gap has been growing between “regular” and “non-regular” workers. The former are full-time employees with permanent contracts and pay scales based on seniority; the latter are temps, part-timers and short-term contract workers with more precarious jobs.
Key Points Abe vows to implement ‘equal pay for equal work’ Plan may support consumption, but could backfire on companies Labour gap widens between full-time, temporary workers Before Japan’s bubble burst in the early 1990s, 80 percent of workers were full-time employees with job security, and most felt middle class. Last year, the share of non-regular workers in the labour force hit a record 37.5 percent. Suzuka Watanabe, 53, a temporary store manager at a grocery, said her pay was about 60 percent of regular workers in the same job. Watanabe
took up the job three years ago when her husband died and she had to raise their teenage son by herself. “I agree there needs to be a system in which part-timers work for a short time and flexibly,” Watanabe said. “But that doesn’t mean part-timers should put up with lower hourly pay than full-time workers if they do the same job with the same responsibilities.” Masaki Kuwahara, senior economist at Nomura Securities, said Japan needed to make more use of women and older workers given its dwindling labour force. “However, it will be difficult to implement such a policy anytime soon and the hurdle is high if you attempt to force it under Japan’s traditional labour system, which is based on the lifetime employment and seniority-based wage system,” he said.
Cheap labour force
Overall employees’ annual pay stood at 4.15 million yen as of 2014, having peaked at 4.67 million yen in 1997, reflecting a steady decline in the number of well-paid full-time workers, government data shows. Hourly wages for part-timers stand at 56.8 percent of those for full-time workers, excluding benefits. In France, by comparison, the ratio is 89 percent, while in Germany it is 79 percent and in Britain and Italy about 70 percent, according to data from the Japan Institute for Labour Policy and Training, a semi-governmental institution. The government aims to bring the wage differential between regular and non-regular workers to the same levels as in Europe. “Labour inequality is becoming a serious problem even as companies are raising record profits,” Masahiko Shibayama, special adviser to the premier, told Reuters. “To boost consumption, we must improve treatment of non-regular workers.” Fusako Hirasawa, a single mother of a seven-year-old girl, earns 150,000 yen-a-month as a temporary worker delivering door-to-door food and groceries near Tokyo five days a week, about 70 percent of what regular employees make. “It’s quite common nowadays for women to work regardless of being married or a single mother, so I hope companies treat workers more equally,” she said. Reuters
BlackRock Inc has agreed to sell a 43-storey office building in Singapore to Qatar Investment Authority, a sovereign wealth fund, for S$3.4 billion (US$2.5 billion), in what the U.S. firm said was the largest-ever single-tower real estate deal in the Asia-Pacific region. Asia Square Tower 1, located in the city-state’s financial district, has over 1.25 million square feet of net lettable area and has Citigroup Inc as its anchor tenant, BlackRock and Qatar Investment Authority said in a joint statement. BlackRock was advised by real estate consultant firms JLL and CBRE. LNG
Australia’s UGL faces more provisions Australian contractor UGL Ltd warned yesterday it may have to book a provision of up to A$200 million (US$146 million) for losses on its work for the Ichthys liquefied natural gas (LNG) project, knocking its shares down 35 percent. Ichthys, off northwestern Australia, is running at least six months behind its original schedule due and is now not expected to start producing until September 2017 due to changes in the scope of the project, mainly owned by Japan’s Inpex Corp and France’s Total SA. Power retail
Japan reaches million mark on electricity switching More than a million Japanese retail electricity customers have switched suppliers, nine weeks into a major power industry shake-up aimed at boosting choice and energy security, figures from the national grid monitor showed. The change represents about 1.7 percent of retail electricity users, with Tokyo Electric Power (Tepco) - the operator of the wrecked Fukushima Daiichi nuclear station - losing nearly 650,000 customers. The reforms, introduced on April 1, were sparked by the 2011 earthquake and tsunami and subsequent nuclear disaster, which highlighted problems in transferring electricity across regions.
14 Business Daily Tuesday, June 7 2016
International In Brief Reform push
Kenya’s opposition threatens to intensify protests Opposition Coalition for Reforms and Democracy said it plans to double the frequency of weekly protests in the next two weeks should the government fail to agree to negotiations on electoral reform. The party’s supporters marched on all but one Monday last month to rally against alleged corruption at the Independent Electoral and Boundaries Commission. At least three people were killed during one of the demonstrations when police fired at protesters, according to media including Nairobibased broadcaster Citizen TV. A President Uhuru Kenyatta has said the opposition should use parliament to eject the commissioners, not street marches.
Economic transformation
Saudi economic diversification plan finalised Among its wide-ranging goals the plan aims to reduce unemployment.
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audi officials have finalised a detailed plan to diversify the kingdom’s economy away from oil and have sent it for cabinet approval, official media said yesterday. The National Transformation Programme (NTP) will elaborate upon Vision 2030, an 84-page document released in April by Deputy Crown Prince Mohammed bin Salman, 30, who is leading the reform charge. At the heart of the Vision is a plan to float less than five percent of state oil firm
Saudi Aramco on the stock market. The proceeds would become part of the world’s largest state investment fund, with US$2 trillion in assets. Profits from the investment fund would help economic diversification and provide an alternative to oil revenues that have fallen by about half since 2014. The collapse has accelerated Saudi efforts to move away from petroleum which still accounts for the bulk of government income.
The main economic coordinating body, the Council of Economic Affairs and Development chaired by Prince Mohammed, on Sunday night decided to submit the “final version” of the NTP to the cabinet for approval, the Saudi Press Agency said. The cabinet normally meets on Mondays. A press conference is expected in the Red Sea city of Jeddah, the summer home of the government, on Monday night. According to Vision 2030, the NTP relates to the government’s role “in implementing the initiatives necessary for delivering on national priorities.”
It said opportunities for partnering with the private sector were being looked at, “as well as innovative administrative and funding approaches. We are detailing specific initiatives that have clear performance indicators.” Among its wide-ranging goals the Vision aims to reduce unemployment, increase women’s participation in the workforce, boost private sector economic contributions, and develop cultural and entertainment activities in the kingdom. Saudi Arabia is one of the world’s most conservative societies, but more than half of its citizen population is younger than 25. AFP
Factory orders
Weak export demand hits German industry Weakness in Germany’s export partners has prompted the biggest drop in industrial orders in Europe’s top economy in more than a decade, official data showed yesterday. German industrial orders, a key measure of demand for goods, dropped sharply in April as foreign demand slumped, according to data released by statistics office Destatis. The drop of two percent in comparison with March was far worse than the 0.7-percent decline forecasted by analysts polled by financial services provider Factset. German industrial orders had not shown such a deep slump since July 2005, Destatis said. Business bill
Albania mulls new measures to benefit companies The Albanian Ministry of Finance has revealed a new bill containing a package of measures designed to relieve burdens of businesses, Albanian Top Channel reported yesterday. The main new measures include automatic reimbursement of value-added tax (VAT) for more enterprises, less penalties, and the use of electronic bills, it said. Currently, the government makes automatic VAT reimbursement only for companies that export all of their products. But the new draft law will expand the benefit to about 40 percent of all the enterprises in the country. Hedge fund
Brevan Howard’s flagship to slip again in May Brevan Howard Asset Management LLP’s main hedge fund lost money in May, its third straight monthly decline this year, according to two people with knowledge of the matter. The Brevan Howard Master Fund fell 0.3 percent last month, deepening its losses for the year to 2.1 percent, said the people, who asked not to be identified because the information is private. The fund, which managed US$16.9 billion at the end of April, lost 0.9 percent in April and almost 2 percent in March, according to a company website.
Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble Presidential vote
Merkel faces tough political choices The election by a special assembly of lawmakers and state delegates rather than by public vote ensures there will be no populist candidate. Tony Czuczka
Chancellor Angela Merkel’s election season is starting early with a possible chance to propose Germany’s next president, after a newspaper reported that incumbent Joachim Gauck won’t seek a second term. One lawmaker from Merkel’s Christian Democratic Union was quoted as suggesting Finance Minister Wolfgang Schaeuble for the post, which is largely ceremonial and would be filled by a special federal assembly next February if Gauck does indeed bow out. That scenario would free up Merkel to revamp her cabinet before parliamentary elections due by the fall of 2017. A Finance Ministry spokesman in Berlin didn’t immediately return phone calls seeking comment. Schaeuble “has done an excellent job in high government offices and also enjoys a great reputation internationally,” Wolfgang Bosbach, a six-term CDU lawmaker told the Sunday newspaper Bild am Sonntag, which also reported Gauck’s intention to stand aside. “Even our political competition will find it hard to deny that.” While it’s early days and Merkel hasn’t confirmed she’ll seek a fourth term as chancellor, German presidential ballots are usually parsed for domestic political messaging. Speculation is already under way whether the CDU and its Bavarian sister party, the Christian Social Union, would agree on a joint candidate after public spats over refugees policy. There is
also talk of the Social Democrats, Merkel’s junior partner in the federal government, fielding a contender together with the opposition Left and Green parties.
‘Germany’s presidency mostly involves representing the country abroad’ The election by a special assembly of lawmakers and state delegates rather than by public vote ensures there will be no populist candidate with any chance of winning.
Merkel’s record
Germany’s presidency mostly involves representing the country abroad, though Gauck has also intervened in domestic politics, including on Merkel’s handling of the refugee crisis. The 76-year-old former East German pastor without party affiliation plans to make an announcement today, Bild am Sonntag said. Schaeuble, 73, is the nation’s longest-serving lawmaker, the dean of euro-area finance ministers and a decisive pillar of support for Merkel within the CDU after last year’s migrant influx eroded her poll ratings. Only two other cabinet members have been with Merkel uninterrupted since she won power in 2005: Defense Minister Ursula von der Leyen and
Interior Minister Thomas de Maiziere. Even so, Schaeuble might struggle to win cross-party support for the non-partisan role after being blamed for aggravating divisions in Europe during the euro-are debt crisis, notably in Greece. What’s more, presidential votes haven’t always gone Merkel’s way. In 2012, she swung behind Gauck only after her original pick for the post, CDU politician Christian Wulff, resigned two years into office.
Coalition conflict
Filling a presidential vacancy might give Merkel a chance to rebuild unity between her CDU and the smaller CSU, which has criticized her open-border refugee policy for months as too accommodating and a boon for the anti-immigration Alternative for Germany party. Support for the CDU-CSU dropped to 30 percent and the Social Democrats polled 19 percent, both record lows, according to an INSA poll published Tuesday. Bavarian premier Horst Seehofer, who heads the CSU, sought to rein in the squabbling after talks with Merkel last week. “The chancellor and I have re-established a foundation of trust that we can build on again,” Bild am Sonntag quoted him as saying. Merkel is also facing a challenge as her junior partner seeks to assert its independence before heading into an election year. “The constant infighting among the Union parties is harming the reputation of the entire government, and even of politics at large,” SPD head and Economy Minister Sigmar Gabriel, who also is Merkel’s vice chancellor, told a party gathering in Berlin on Sunday. “We Social Democrats have been and will remain a ‘Volkspartei’ of the left.” Bloomberg News
Business Daily Tuesday, June 7 2016 15
Opinion Business Wires
The Times of India With numerous political and corporate opinions swarming over RBI governor Raghuram Rajan’s tenure, the Internet is also abuzz with at least seven online petitions doing the rounds in support of a second term for him which have garnered nearly 60,000 signatures so far. On the other side of the debate, at least two petitions are making a case against extending Rajan’s term, but they have received relatively little support so far. A noted economist and often hailed as the ‘James Bond’ of the central banking space, Rajan is currently at the centre of a debate on whether he will get an extension or not beyond his current three-year tenue ending in September.
Populists and productivity
The Phnom Penh Post Nearly four months after the Ministry of Commerce implemented a fuel-pricing mechanism that lowered prices at the pump to reflect the fall in the global commodity last March, petrol prices have inched back up to pre-intervention levels. Prices in early June are now back up to the same level as before the government stepped in and intervened after a drawn-out two-month negotiation process brought the Kingdom’s oil importers to the table. As consumers continue to criticise the regular 10-day hikes of fuel prices, the government has stood by the pricing mechanism, saying that it adequately represents global oil fluctuations.
Jakarta Globe DBS Indonesia, the local unit of Singapore’s DBS Bank has set a new strategy to increase its fee-based income to around half of its total income in the next three years, as loan growth in Southeast Asia’s largest economy remains subdued. The lender will seek to boost services from their treasury, hedging and bancassurance divisions—the last of which sells insurance products to customers, said Peter Suwandi, vice president director of DBS Indonesia. The company is also putting more effort to increase fee-based income from cash management, trade financing, foreign exchange transaction, custodian and club loan services.
The Japan News Mitsubishi Motors Corp. developed an illegal computer program for obtaining data to calculate fuel efficiency using a different measurement system than that required by the government, according to sources. This is the latest finding in the on-going scandal over the automaker’s falsification of fuel efficiency data. MMC developed the illegal program just after the government stipulated a measurement method in 1991, and MMC officials in charge used the program for many years. This indicates that the MMC officials have been aware that using the program was illegal since the time the system was introduced.
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ince the global financial crisis erupted in 2008, productivity growth in the advanced economies – the United States, Europe, and Japan – has been very slow both in absolute terms and relative to previous decades. But this is at odds with the view, prevailing in Silicon Valley and other global technology hubs, that we are entering a new golden era of innovation, which will radically increase productivity growth and improve the way we live and work. So why haven’t those gains appeared, and what might happen if they don’t? Breakthrough innovations are evident in at least six areas: ET (energy technologies, including new forms of fossil fuels such as shale gas and oil and alternative energy sources such as solar and wind, storage technologies, clean tech, and smart electric grids). BT (biotechnologies, including genetic therapy, stem cell research, and the use of big data to reduce health-care costs radically and allow individuals to live much longer and healthier lives). IT (information technologies, such as Web 2.0/3.0, social media, new apps, the Internet of Things, big data, cloud computing, artificial intelligence, and virtual reality devices). MT (manufacturing technologies, such as robotics, automation, 3D printing, and personalized manufacturing). FT (financial technologies that promise to revolutionize everything from payment systems to lending, insurance services and asset allocation). DT (defence technologies, including the development of drones and other advanced weapon systems).
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Nouriel Roubini Chairman of Roubini Macro Associates and Professor of Economics at the Stern School of Business, New York University.
to argue that the mis-measure of productivity growth is more severe today than in past decades of technological innovation. So far, there is no hard empirical evidence that that is the case. Yet some economists suggest that we are not correctly measuring the output of cheaper software – as opposed to hardware – and the many benefits of the free goods associated with the Internet. Indeed, between search engines and ubiquitous apps, knowledge is at our fingertips nearly always, making our lives easier and more productive. A third explanation is that there is always a lag between innovation and productivity growth. In the first Internet revolution, the acceleration in productivity growth that started in the technology sector spread to the overall economy only many years later, as business- and consumer-facing applications of the new digital tools were applied in the production of goods and services far removed from the tech sector. This time, too, it may take a while for the new technologies to become widespread and lead to measured increases in productivity growth. There is a fourth possibility: Potential growth and productivity growth have actually fallen since the financial crisis, as aging populations in most advanced economies and some key emerging markets (such as China and Russia), combined with lower investment in physical capital (which increases labour productivity), have led to lower trend growth. Indeed, the hypothesis of “secular stagnation” proposed by Larry Summers is consistent with this fall. A related explanation emphasizes the phenomenon that economists call hysteresis: A persistent cyclical downturn or weak recovery (like the one we have experienced since 2008) can reduce potential growth for at least two reasons. First, if workers remain unemployed for too long, they lose their skills and human capital; second, because technological innovation is embedded in new capital goods, low investment leads to permanently lower productivity growth. The reality is that we don’t know for sure what is driving the productivity puzzle or whether it is a temporary phenomenon. There is most likely some merit to all of the explanations on offer. But if weak productivity growth persists – and with it subpar growth in wages and living standards – the recent populist backlash against free trade, globalization, migration, and market-oriented policies is likely to strengthen. Thus, advanced economies have a large stake in addressing the causes of the productivity slowdown before it jeopardizes social and political stability. Project Syndicate
The reality is that we don’t know for sure what is driving the productivity puzzle or whether it is a temporary phenomenon
At the macro level, the puzzle is why these innovations, many of which are already in play in our economies, have not yet led to a measured increase in productivity growth. There are several potential explanations for what economists call the “productivity puzzle.” First, some technological pessimists – such as Northwestern University’s Robert Gordon – argue that the economic impact of recent innovations pales in comparison to that of the great innovations of the First and Second Industrial Revolutions (the steam engine, electricity, piped water and sanitation, antimicrobial drugs, and so on). But, as economic historian Joel Mokyr (also at Northwestern) has argued, it is hard to be a technological pessimist, given the breadth of innovations that are occurring and that are likely to occur in the next few decades. A second explanation is that we are overlooking actual output – and thus productivity growth – because the new information-intensive goods and services are hard to measure, and their costs may be falling faster than standard methods allow us to gauge. But if this were true, one would need
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16 Business Daily Tuesday, June 7 2016
Closing Liquidity injection
Chinese central bank pumps 40 billion yuan into market
unchanged from Friday’s injection of 40 billion yuan, according to a PBOC statement. The move followed a net injection of 70 billion yuan and 95 China’s central bank yesterday pumped more billion yuan into the financial system on Thursday money into the market to ease a liquidity strain. The People’s Bank of China (PBOC) conducted 40 and Wednesday, respectively. In yesterday’s interbank market, the benchmark overnight billion yuan (US$6.1 billion) in seven-day reverse repurchase agreements (repo), a process in which Shanghai Interbank Offered Rate (Shibor), which measures the cost at which Chinese banks lend to central banks purchase securities from banks one another, dropped by 0.1 basis point to 1.998 with an agreement to resell them in the future. The reverse repo was priced to yield 2.25 percent, percent after the injection. Xinhua
Finance minister
Beijing says has room to expand fund for laid-off workers Lou Jiwey also said there should not be too much worry about another U.S. interest rate hike Kevin Yao
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hina has room to expand its 100 billion yuan (US$15.23 billion) assistance plan for laid-off workers in industries hit by cuts in excess capacity, finance minister Lou Jiwei said yesterday. China also must implement relatively loose fiscal policy to support supply-side reform and ensure medium to high-speed economic growth, Lou said at the annual U.S.-China Strategic and Economic Dialogue this week in Beijing. China’s excess industrial capacity will have a “corrosive” impact on its future growth and efficiency unless it is reduced, U.S. Treasury Secretary Jack Lew said on Sunday, adding that it was also causing distortions in global markets. Lou said China’s industrial
overcapacity issue was very much a result of its stimulus program implemented during the global financial crisis, during which China contributed to about 50 percent of world economic growth. “Back then, the whole world applauded and gave thanks to China... now you are saying that China’s overcapacity is affecting the world, why did you not say that then,” Lou said.
China cut 90 million tonnes of steel capacity last year, and will continue to cut capacity, Lou said. Lou also said China cannot impose any hard quotas on steel capacity given that more than 52 percent of steel firms are privately owned. The government can only use market-based levers to cut capacity given that it is no longer a centrally planned economy. China raised hope of a solution in February when it pledged to shut 100-150 million tonnes of old production capacity in five years, but actual production is expected to stay high as
Beijing tries to minimise job losses which could be in the millions - and potential social disruptions. Lou also said there should not be too much worry about another U.S. interest rate hike, despite the fact that it could have a broad impact on financial markets, and added that the U.S. economic recovery remains fragile. “The (Fed) rate rise issue is like a sword hanging over people’s heads... it’s impact has been largely digested by the market, so people should not worry too much about it.” Reuters
“Back then, the whole world applauded and gave thanks to China...now you are saying that China’s overcapacity is affecting the world, why did you not say that then” Lou Jiwei, China’s finance minister
Lou Jiwei, Minister of Finance, reacts during a press briefing at the eighth round of US-China strategic and economic dialogues and the seventh round of US-China high-level consultation yesterday
Public support
Annual meeting
India to support state banks Xi opens U.S. talks to deal with bad loans with plea not to fear disagreements India is committed to protecting state banks suffering from mounting bad loans after they reported almost US$2.7 billion in losses in the last two quarters, Finance Minister Arun Jaitley said yesterday. The banks are struggling under a mountain of soured loans, prompting central bank governor Raghuram Rajan to set a 2017 deadline for them to clean up their balance sheets. After meeting the heads of India’s 27 public-sector banks, Jaitley said the government has already earmarked 250 billion rupees (US$3.7 billion) for recapitalisation of banks this year and would provide more if needed. “Banks should be empowered and constitutionally should be protected so as they can bring about commercially prudent settlements,” Jaitley told reporters after the meeting. “We must support them fully so that their ability to support (economic) growth remains sound.” Jaitley said the government has overhauled its bankruptcy law, which will soon make it vastly easier to wind up companies and help banks recover bad loans. AFP
President Xi Jinping opened an annual meeting of top U.S and Chinese officials by listing areas where cooperation brought success, striking a cooperative tone even as tensions simmer over China’s economic policy and land-reclamation work in the South China Sea. The world’s two biggest economies have seen tangible benefits in the areas of economic policy communication, military exchanges and a landmark climate-change agreement last December, Xi said at the start of the two-day Strategic and Economic Dialogue in Beijing. He said China and the U.S. shouldn’t fear disagreements. “It’s not scary to have disagreements,” Xi said. “The key is not to use disagreements as an excuse for confrontation. Some disputes may not be solved in a short time. Both sides should put themselves in each others’ shoes and manage them in a pragmatic and constructive way.” The annual dialogue is taking place until today, and is led by Vice Premier Wang Yang and State Councillor Yang Jiechi on the Chinese side, and Secretary of State John Kerry and Treasury Secretary Jacob Lew on the U.S. side. Bloomberg News
Extractive sector
Mainland company reaps first gold at Tajikistan mine A Chinese-run gold mine in ex-Soviet Tajikistan has produced its first gold, state media reported yesterday, highlighting Beijing’s deepening interest in the impoverished Central Asian country’s extractive sector. State television showed footage of Tajikistan’s President Emomali Rakhmon clutching two gold ingots produced at the Pokrud gold mine and announced investments totalling US$256 million at the mine to date. The mine operated by the Pokrud Chinese-Tajik joint venture is expected to produce around 1.3 tonnes of gold per year initially, with production rising to 2 tonnes per year later, the TV report said. The mineral concession just south of the capital Dushanbe is one of several operated by Chinese companies. Notably a leading Chinese gold producer Zijin Mining operates the Zarafshan concession in the north of the country and expects to produce five tonnes of gold there annually in the coming years. Tajikistan, a landlocked country of over 8 million that borders both China and Afghanistan suffers from an absence of foreign investment and looks to Beijing to help prop up the domestic economy. AFP