Entire month of June to celebrate today’s Portugal Day culture Page 3
Friday, June 10 2016 Year V Nr. 1062 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor ALEX LEE
www.macaubusinessdaily.com
Unbearable prices ECONOMY
It’s not just Macau’s landscape that has changed. Living costs in the city are rapidly advancing. Actually, Macau recorded the highest cost of living growth among countries worldwide in the past five years. Our town is now the 12th most expensive in Asia Pacific and the 27th most expensive out of 450 globally, jumping 57 places in just 3 years. Page 4
Game of thrones
gaming Sheldon Adelson couldn’t resist, and according to investment firm Sanford C. Bernstein accused Galaxy Phase 2 and Studio City of failing to drive new visitation to Macau. Galaxy reacted in disgust: “Unprofessional behaviour”. Page 5
Thank you, but no thank you
CONTROVERSY Pritzker Prize-winning architect Siza Vieira understands the reason for a public tender instead of a direct adjudication to him for the reconstruction of Hotel Estoril, but he is not interested in participating in the tender. Page 3
Entertainment challenge BUSINESS Disney’s CEO announces the company will produce movies in Mainland China starting next year Page 16
It’s crowded up there and it’s gonna get worse
Property
Court of Second Instance denies Politex appeal for Pearl Horizont plot Page 2
Hong Kong and Shenzhen airports are planning third runways and the latter is anticipating three more airports to be built, all in a region that already has five airports and overcrowded airspace. While Macau authorities claim they still don’t have any knowledge about these plans and the local airport expects blue skies ahead, several analysts share their different views with Business Daily.
21,297.88 -30.36 (-0 .14%)
China Petroleum & Chemical
+2.54%
Hengan International Group
+1.20%
BOC Hong Kong Holdings
-3.25%
Sun Hung Kai Properties Ltd
-0.95%
PetroChina Co Ltd
+2.33%
China Resources Power
+1.09%
China Merchants Holdings
-2.07%
Hang Seng Bank Ltd
-0.92%
CLP Holdings Ltd
+1.66%
Bank of China Ltd
+0.91%
Cheung Kong Property
-1.88%
China Mobile Ltd
-0.82%
China Mengniu Dairy Co Ltd
+1.31%
China Overseas Land &
+0.82%
Sino Land Co Ltd
-1.61%
China Shenhua Energy Co
-0.76%
Lenovo Group Ltd
+1.27%
Link REIT
+0.81%
Hong Kong Exchanges and
-1.24%
Li & Fung Ltd
-0.73%
27° 31° 28° 31° 28° 32° 28° 31° 28° 31° Today
Source: Bloomberg
HK Hang Seng Index June 8, 2016
Sat
Sun
I SSN 2226-8294
Mon
Tue
Source: AccuWeather
Transportation The full report on pages 6 & 7
2 Business Daily Friday, June 10 2016
Macau Opinion
Property
Time to renew licenses Pedro Cortés (In)Confidentiality of the authorities We often see on the news, the authorities giving notice of alleged practices or acts that may constitute a crime. Suspects are put on the news with their heads covered by black hoods. Nonetheless, their identities are disclosed to the public, sometimes on public online forums of the Public Security Police (PSP) or other judiciary authorities, completing disregarding what should be a duty of confidentiality of the criminal process and investigations, as stated in the Macau Code of Criminal Procedure. This cannot be accepted as normal or customary, as it is a violation of the principle in dubio pro reo, which is one of the basic principles of our “advanced” civilization. I totally agree that PSP or other authorities should announce their activities, but they must be the first entities to respect and abide by the rules, and not be a source of its constant breach and violation, especially when the fundamental rights of Macau citizens (including permanent residents, non-permanent residents, non-residents and tourists) are involved. I am sure that if one of the agents or authorities breached the law, they would not be happy to have their identities disclosed, as they would want and deserve to have, a fair trial under the Rule of Law that is still the main principle of our second system. This said, I kindly urge the authorities to stop showing people – even with their heads covered – to the public when they are arrested and stop disclosing their identities on online forums. It is not ethical and does not serve as an example to anyone. I understand that this practice has been in place for some years, but there are many other behaviors that were once accepted for many years in the past, and it is not because of that that they have not been changed. Civilization is something that we must achieve. Respect for other human beings and for the law should also be taken into consideration or, otherwise, our Rule of Law system may well be in danger. As a lawyer, I cannot accept that such violations are perpetrated without any consequences. For those that cannot read Portuguese, I am happy to make a free translation of Article 76 of the Macau Criminal Procedure Code and explain what happens when such principles are violated pursuant to article 335 of the Macau Penal Code. It is quite simple, my dear friends, we must all ask that the rules – which permit the existence of our second system – be respected. Of course, there is always the option of changing the law, but then if the current practices are permitted, we should not expect to live in a Region that operates within international legal standards. Pedro Cortés is a lawyer and frequent contributor to this newspaper.
More promotions for new online applications are needed
real estate business in the city. Also, the Bureau now accepts applicants with applications and relevant documents for both real estate agencies and real estate brokers.
Annie Lao annie.lao@macaubusinessdaily.com
More promotions needed
T
he Housing Bureau (IH) is urging the city’s real estate agencies and real estate brokers whose temporary licenses will expire by the end of this month, to reapply as soon as possible, according to the bureau. As of the end of last month, nearly half of the existing 589 real estate agencies had not yet reapplied. A higher number of real estate brokers have also not applied, 70 per cent of the existing 2,329. The new online application process, simplified by IH, aims to optimize the
But local real estate agencies are complaining about the long procedure time for applications, and the time-consuming process for going through different departments to get relevant documents for the application. “It took us more than one month to get the paper work done and to finish the application to get the license renewed,” Jennifer Un, senior regional director of Ricacorp Macau Properties Ltd told Business Daily. More promotions of the new online application procedure are needed as real estate companies still visit the Housing Bureau in person to apply for new applications and license
renewals, she says. ‘‘I only found out that we could apply online when I submitted my renewal application in person at the Housing Bureau last month. At first, we didn’t know about the new online service so we all did our applications in person at the Bureau,’’ Ms. Un said.
More time as well
From April to May, real estate agency companies can start applying for their license renewals. Another real estate agency suggested more time is needed to prepare the documents. “It adds more workload to us, such as getting the right documents through different government departments,” Roy Ho, director of Centaline Macau told Business Daily. “During this time now, we have a lot of applications and documents to process. I would suggest giving both parties (property agencies and the Bureau) more time to settle the applications,” Mr. Ho commented.
Property
Second court turns down developer’s appeal for Pearl Horizon plot The Court of Second Instance has rejected a request filed by Polytex Corporation Ltd to overturn the government’s decision to take back the land plot where its high-end residence Pearl Horizon was to be built. According to the court’s official website, the decision was made by Judge José Cândido de Pinho on Wednesday, but no other details relating to the verdict were uploaded by the court, or disclosed by the developer. The government declared Polytex’s land grant for the Pearl Horizon plot invalid in the Official Gazette this January, stating that the company
Two fatal work accidents
had failed to complete the residential project before its temporary concession, which carried a term of 25 years, expired on December 25 last year. The dispatch indicated that the developer could file an administrative appeal to the city’s Court of Second Instance, as well as the Chief Executive. Polytex is the local arm of the Hong Kong-based developer Polytec Group, which owns an 80 per cent interest in Pearl Horizon. This is not the first time the developer’s request relating to the plot has been rejected by local courts. Last December 18, the company also
One construction worker died yesterday morning at a residential construction site, Lotes T+T1, located in Novos Aterros da Areia Preta on the Macau Peninsula, according to the Labour Affairs Bureau (DSAL). The deceased worker was a 53-year-old Macau resident. He died after falling to the ground while he was installing a platform at the entrance of the lift on the 14th floor using a wooden ladder. The worker was found to have not been wearing a safety belt on the site. The development project at Lotes T+T1 is run by Polytec Asset Holdings Ltd. According to its latest annual report, the expiry date of the
filed an appeal to the Administrative Court, requesting to prolong its land concession and land-use terms on the land parcel. The appeal was turned down by the court this February. The temporary land concession for Polytex regarding the Pearl Horizon site was granted by the then-Portuguese Government in 1990. The plot, located on Lot P in Novos Aterros da Areia Preta, is designed to house 18 towers of a total of 5,000-plus residential units. Business Daily tried to contact the manager of Polytex, Chan Sai Tin, for more information on the court’s decision against the company, and to ask whether the company would file further appeals. However, the company executive was unreachable for comment before this story went to press. K.L.
land concession is July 5, 2017 and the foundation work of the project was completed in February this year. Another fatal accident happened yesterday at the construction site of Manduco Social Services Complex building. The deceased worker was a 31-year-old male, non-resident, who died from an electrical shock while welding. A suspension notice has been issued to both contractors by DSAL until the contractors have implemented effective measures to improve occupational safety and health standards at the sites. An assessment needs to be conducted by DSAL in order for work to be allowed to resume. A. L.
Business Daily Friday, June 10 2016 3
Macau CONTROVERSY
Editorial
Diplomatic refusal Pritzker Prize-winning architect Siza Vieira will not participate in the tender for the conversion of Hotel Estoril .
P
ortuguese architect Siza Vieira will not participate in the tender for the conversion of Hotel Estoril, a project that had previously been promised to him by direct adjustment, said the Secretary of Culture of Macau. “Unfortunately, Mr Vieira is no longer available to participate in an open competition,” said Alexis Tam to the public television station, TDM. In April last year, the Macau government announced that the conversion work of the old hotel, abandoned for decades, would be assigned to the Pritzker Prize winner, who
had expressed a willingness to demolish the building. However, last Friday, Alexis Tam revealed that a public tender would occur instead, allowing local architects to compete for the project. Some had expressed dissatisfaction with the direct adjustment decision. Classifying the change in direction as a “political matter”, the Secretary assured that the Portuguese architect would be invited to participate in the tender. In the meantime, Siza Vieira revealed that he “naturally” accepted the government’s decision. But, as Alexis Tam has now revealed, the Portuguese architect will not
participate in the tender. “I wanted to invite him, but as you know here in Macau today, it’s all a mess. Unfortunately, I am sorry, I will prepare a letter to thank Siza Vieira,” he said. The Macau government wants to convert the former Hotel Estoril building into an arts center and arts school aimed at young people. The hotel was built in the 1960s and was where Stanley Ho started his gambling concession. The hotel closed its doors in the 1990s and it has been vacant ever since. When Siza Vieira defended the demolition and
decision not to maintain the building’s facade, a debate about the rehabilitation of the building and its eventual patrimonial and historical value was generated, and the Macau government launched a public consultation and ordered an inquiry. In September, city planners association Macau Root Planning launched a petition to ask for the evaluation of the assets of the former hotel and adjacent pool. On 15 March this year, the Macau Cultural Heritage Council decided that the building would not be classified.
Hotel Estoril
Celebration
From a day to a month June 10 has long been the Day of Portugal, Camões, and the Portuguese Communities in Macau, but this year the Asian city with the biggest Portuguese soul has expanded the celebration of Portuguese culture to
the whole month. “The Portuguese that live and work here, and their descendants, represent as a community a Portuguese legacy. Transforming this National Day into ‘June-month of Portugal’ was an idea to show how these commemorations are not just a formality
restricted to one date, but a collective cultural, economic and institutional movement to promote Portugal and strengthen its ties with the MSAR,” Vitor Sereno, Portuguese consul general to Macau and Hong Kong told Business Daily. For Macau’s French community, the month of May has traditionally been the time to celebrate French culture in the city, while the Portuguese community has generally restricted its celebrations to just one day, June 10. The President of the Macau House of Portugal, Amélia Antonio told Business Daily, “the French community has always had good support from the French Ministry of Culture, while we always had to use the house silverware to pay for our commemorations.” Now the President of the House of Portugal Association sees this years’ June as a chance to show “the past, present and future of Portuguese culture” through arts, music, food and literature, and to celebrate the important role Portugal has played in the “root” of Macau’s culture. Open reception to the community at the Portuguese Consulate - June 10 at 8pm Portugal Gastronomy and Wine Festival at Clube Militar - from June 3 to 13 Portuguese Cinema festival at Cinematic Paixao - June 11,12 and 13 Euro 2016 Portuguese Games at IPOR June 15 Portugal vs. Iceland at 3am; June 19 Portugal vs. Austria 3am; June 22 Portugal vs. Hungary 12pm Portuguese Ceramic Exhibition at the Portuguese Consulate - June 3 to 30 Portuguese Book Month at the Portuguese Bookshop - June 8 to 30 Theatre play “My dinner with Andre” at D. Pedro V Theatre - June 19 at 8pm Arraiolos tapestry exhibition at the consul general residence - June 10 to 30 Painting Exhibition by Natalia Gromicho at Casa Garden - June 30 to August 14 Painting Exhibition by Graca Morais at Clube Militar - June 1 to 12
Stop the mess The Secretary for Social Affairs and Culture is right. In terms of public tenders and direct adjudications for major building projects, Macau “is a mess”. It's worth noting that in some cases the government decides to use direct adjudications for certain projects, particularly when it wants to ensure that buildings and infrastructure here are connected to some of the world’s biggest names in architecture. And Pritzker Prize winners are – as recognized by the professionals themselves – as famous as you can get. As Wikipedia puts it, simply, the Pritzker Architecture Prize is awarded annually “to honor a living architect or architects whose built work demonstrates a combination of those qualities of talent, vision and commitment, which has produced consistent and significant contributions to humanity and the built environment through the art of architecture” That is why everywhere in the world, cities choose names of reference to design important projects. From Philip Johnson in 1979 to I.M.Pei in 1983 – who was invited to design Macau’s Science Center – to Oscar Niemeyer in 1988, responsible for building Brasilia’s Congress, in Brazil in 1960. Also Álvaro Siza Vieira in 1992 and the late Zaha Hadid in 2004. Her recent passing means the first female winner of the renowned prize will sadly not see her distinctive Macau project finished, the latest tower being added to Melco Crown’s Entertainment City of Dreams. But for the city’s international name and fame, the building will be here, forever connected to her. “It’s a mess,” vents the Secretary. But it should not be. At least not when there’s a political reason to adjudicate directly. It can be a mess when there’s no political excuse, but that was not the case here. However it was on so many other occasions in the recent past. Other projects have been given directly to architects in the past, and nobody seemed to worry. Even when the architects were too close to the local political power circle, and ethics, morals and common sense should have advised for a public tender, still it was not done. And, again, nobody seemed to complain. Secretary Tam is right. This is a mess. And it is time to give transparency to these procedures once and for all. Hopefully, this case will do just that, helping our political decision makers and high level government officials. Because from now on we will all pay much more attention to the adjudication practices here and discuss the reasons behind future decisions.
4 Business Daily Friday, June 10 2016
Macau
Economy MSAR ranked 12th costliest location to live in Asia Pacific
Surging costs for living The city is one of the 15 costliest locations in the region and one of the 30 most expensive in the world – despite its economic downturn. Kam Leong kamleong@macaubusinessdaily.com
T
he Special Administrative Region is ranked as the 12th costliest city to live in the Asia Pacific for 2016, a survey finds, adding that local living costs recorded the highest growth among countries worldwide in the past five years. According to the survey on cost of living published by global consulting firm ECA International on Wednesday, the overall living costs in Macau are the 27th most expensive among 450 locations around the world for this year. “Macau has climbed 10 places in the regional rankings this year to make the regional top 15. Macau saw the largest rank increase in the Asia Pacific region in 2016,” the survey indicated, adding the city’s global ranking had also risen by 57 places compared to its 84th place back in 2012. According to the consulting firm, such surveys are conducted on the basis of “a basket of day-to-day goods and services commonly purchased by
assignees,” covering food and basic and general items, such as household goods, leisure and recreational services, clothing, meals out, alcohol and tobacco. However, accommodation costs are excluded. The chairman of Macau Economic Association, Joey Lao Chi Ngai, told Business Daily yesterday that the city’s consumer price index has been hinting that the overall living costs in Macau are outpacing most other locations worldwide. “Despite the fact that the city’s economy has entered an adjustment phase, and while Gross Domestic Product (GDP) has fallen for some 18 months, we can see that our inflation rate has still been hovering at some three per cent for the past few months,” he told us on the phone. Mr. Lao added that an inflation rate of around three per cent, even though much lower than the 5 to 6 per cent that Macau recorded few years ago, is still quite a high number compared to many other places. “The consumer price index usually lags in reflecting the economic situation of one place. As such, we are still
50 most expensive cities in Asia Pacific region: 1 year change Country Japan Hong Kong China China Japan Japan Japan China Korea Republic Singapore China Macau Korea Republic China China China China China China China Korea Republic China China China Papua New Guinea Taiwan Australia New Zealand New Zealand Australia Taiwan Australia Australia New Zealand Australia Australia Australia Bangladesh Thailand Indonesia Cambodia Laos Philippines Vietnam India Vietnam India Thailand Malaysia Indonesia
Location Tokyo Hong Kong Shanghai Beijing Yokohama Nagoya Osaka Guangzhou Seoul Singapore Shenzhen Macau Busan Dalian Chengdu Nanjing Tianjin Suzhou Xi'an Qingdao Ulsan Wuhan Chongqing Xiamen Port Moresby Taipei Sydney Auckland Wellington Canberra Kaohsiung Melbourne Perth Christchurch Brisbane Darwin Adelaide Dhaka Bangkok Jakarta Phnom Penh Vientiane Metro-Manila Hanoi New Delhi Ho Chi Minh City Mumbai Chiang Mai Kuala Lumpur Surabaya
2016 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50
Regional rank 2015 Difference 6 7 2 4 1 2 2 2 13 8 14 8 9 16 5 3 6 3 9 1 8 3 10 22 6 7 2 12 17 2 5 21 18 1 1 19 20 1 15 5 10 11 25 3 1 24 27 3 10 15 2 28 30 3 5 23 26 3 31 1 6 37 32 33 29 5 35 36 34 3 39 1 1 38 42 2 3 44 43 1 40 3 5 49 41 4 4 50 48 1 45 3 3 46 58 8 *source: ECA International
posting inflation despite the fact that our economy has been going downward,” the economics academic said. According to official data of the Statistic and Census Service (DSEC), the city’s inflation rate was 3.5 per cent year-on-year for the first four months of the year. In particular, the overall prices of alcoholic beverages and tobacco surged by 38.2 per cent compared to the same period last year, while transportation costs also jumped by some 6.95 per cent year-on-year.
this time period. It is likely that major Chinese cities will remain expensive destinations for mobile executives for the foreseeable future,” the analyst added.
“Despite the fact that Macau’s economy has entered an adjustment phase, and while GDP has fallen for some 18 months, we can see that our inflation rate has still been hovering at some three per cent for the past few months”
Tokyo most expensive in the region
The capital city of Japan, Tokyo, is ranked as the most expensive city to live in Asia Pacific for this year, followed by Hong Kong – which climbed two places from last year’s fourth most expensive city. But China’s two tier-one cities, Shanghai and Beijing, which were the two most expensive cities to live in the region last year, both dropped by two places to the third and the fourth costliest cities in this year’s rankings. “We have seen a small depreciation of the renminbi against the yen and HK dollar over the past year, and this has led to Shanghai and Beijing falling below Tokyo and Hong Kong in the rankings,” the Asian regional director of the consulting firm, Lee Quane, remarked. “However, this does not truly reflect the general trend seen in China over the past five years with locations in Mainland China averaging a 54 place increase in the global rankings over
Joey Lao Chi Ngai, Chairman of Macau Economic Association
Globally, Kinshasa of the Democratic Republic of Congo is ranked as the costliest location, followed by four Swiss cities, Zurich, Geneva, Basel and Bern. Meanwhile, Tokyo and Hong Kong are ranked as the seventh and the ninth most expensive cities to live in the global rankings, respectively.
Top 20 Asia Pacific: Global rank change 2012 - 2016 Location Tokyo Hong Kong Shanghai Beijing Yokohama Nagoya Osaka Guangzhou Seoul Singapore Shenzhen Macau Busan Dalian Chengdu Nanjing Tianjin Suzhou Xi'an Qingdao
Regional rank 2016 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Mar-16 7 9 10 11 12 13 14 15 17 18 24 27 33 36 37 38 39 40 42 43
Global rank 2012 5 year change 6 1 26 35 25 15 19 8 6 6 3 10 7 7 55 40 28 11 13 31 54 30 84 57 57 24 54 90 110 73 116 78 85 46 109 69 75 117 86 43 *source: ECA International
Top 20 most expensive cities worldwide for international assignees Country Democratic Republic of Congo Switzerland Switzerland Switzerland Switzerland Sierra Leone Japan Angola Hong Kong China China Japan Japan Japan China Uzbekistan Korea Republic Singapore Guinea Norway Macau
Location
Global rank Mar-16 Mar-15
Kinshasa
1
7
Zurich Geneva Basel Bern Freetown Tokyo Luanda Hong Kong Shanghai Beijing Yokohama Nagoya Osaka Guangzhou Tashkent Seoul Singapore Conakry Oslo Macau
2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 27
3 4 6 5 16 2 12 8 9 28 31 33 14 59 10 19 17 11 43 *source: ECA International
Business Daily Friday, June 10 2016 5
Macau Gaming
Galaxy & Sands China in verbal sparring again Sands China boss Sheldon Adelson has recently suggested that Galaxy Phase 2 and Studio City are not as good as his new project the Parisian, causing Galaxy to fight back, calling the American businessman “impolite” and “unprofessional”. Kam Leong kamleong@macaubusinessdaily.com
L
ocal gaming operator Galaxy Entertainment Group (GEG) said it is “deeply disappointed” with the boss of Sands China Ltd, Sheldon Adelson, who recently said that Galaxy Phase 2 and Studio City have failed in attracting more visitors due to their lack of differentiation. “Galaxy Entertainment
Group (GEG) would like to express its deep disappointment in his unprofessional behaviour. Belittling the competition through unfair comments benefits no one,” GEG said in a statement to Business Daily, adding the comments made by Mr. Adelson are “impolite”. The Sands boss’ comments on Galaxy and Studio City were disclosed in a report by investment firm Sanford C. Bernstein last week. According to the report, the
Sheldon Adelson
American gaming businessman said during the brokerage’s 2016 Strategic Decisions Conference that the failure of Galaxy Phase 2 and Studio City to drive new visitation into the Special Administrative Region was due to “a lack of differentiation and distinctiveness of the new casino properties”. “He pointed out that from the exterior, Galaxy Macau’s new casino tower looks exactly like the other two,” the analysts wrote in the report. In addition, they quoted the American gaming boss as saying that “the opening of Parisian with its unique attractions may change [the situation in driving new visitation]”. But GEG defended itself in a statement saying that the lack of change in visitor numbers is due to the overall global economy and the performance in each industry. “Overly simplifying the reason for the lack of growth in Macau’s visitor arrivals,
pets
Coaches and greyhound owners accused of selling greyhounds to Macau The regulator of greyhound racing in the state of New South Wales in Australia, has accused 179 trainers and dog owners of violating industry rules by allegedly sending animals to Macau without authorization. According to the Australian public broadcaster, ABC, the charges arose in connection with an investigation launched by the state regulator in December, into the export of greyhounds to Macau. The investigation was prompted after the disclosure of a report which revealed how hundreds of Australian
greyhounds, considered too slow to compete, have been exported to Asia, violating the rules of racing. Lyn White, president of the association Animals Australia, has warned that the conditions of greyhounds in Macau are “repugnant” and said in the program that the trip to Macau is “for these dogs a death sentence.” The state regulator of New South Wales banned the export of greyhounds to Macau in 2013. If the accused are found guilty, they face fines, suspensions and possible disqualification from the sport.
Lui Che-woo
brings into question his understanding of the business,” the gaming operator claimed. The Hong Kong-based operator also indicated that industry operators in Macau have been “offering distinctive facilities and amenities as well as exceptional services to attract visitors rather than blindly copying others”. “Our average hotel room occupancy is 99 per cent, while the hotel room occupancy at Venetian is less than 78 per cent,” GEG added in the statement.
Not the first time
Th i s i s n o t t h e f i r st time that the two gaming
operators have engaged in a verbal battle. Last July, Mr. Adelson said during a company conference call, that: “Galaxy made an enormous mistake. The other companies will make big mistakes. They’re already making big mistakes. Now don’t ask me what they are doing because I don’t want to stop them from making mistakes in the future”. The founder and chairman of GEG, Lui Che-woo, responded at that time saying: “holding his head high to other operators in the same industry and offending others by words should not be the acts of a high-status person”.
6 Business Daily Friday, June 10 2016
Macau Opinion
Ashley Sutherland-Winch Password Protected Mark Zuckerberg had a bad Monday. The billionaire owner of Facebook and Instagram was hacked earlier this week, and for a brief period lost control of his Twitter and Pinterest accounts as a hacker started making posts. It is believed that Zuckerberg’s weakness was re-using his passwords. Personally, I find it slightly calming to know that a media mogul like Zuckerberg, despite running one of the world’s biggest websites, can have the same security glitches as us mere mortals. The fact is however, is that reusing passwords is a terrible idea even if you aren’t a billionaire with a target painted on your back. The only account that should be at risk if Twitter gets hacked is Twitter, not your Facebook, WeChat, or Pinterest accounts in addition to Twitter because all of your passwords are the same. Did you know that 80% of the time, online accounts are compromised by a “hacker” with mediocre skills? The truth is that often passwords are just too easy to guess. Why is it that we are told over and over to not use duplicate passwords and even to change are codes frequently, but we ignore the advice? I know that we like to gamble here in Macau but perhaps we should make efforts to decrease our chances of digital violation and cybercrime. While it is hard enough to remember one password let alone a unique and different password for each of our accounts, it might be time for us to finally take the step. We must remember a more complicated password than our birthday, pets name, or 123456 or our name and birthday. Many security experts now recommend a minimum of 15 characters combining letters, numbers, and symbols. More characters are necessary now because a five-character password can be cracked in a mere five seconds by a savvy hacker. A new popular method for choosing safe passwords is creating a phrase maze. This is done by creating a phrase like “Create a Safe Password” and turning into a complicated password Cre8A$@feP@$$w0rd. Then your task is to think of several new phrases for each of your different accounts. While this task might seem daunting for some, it is a complete necessity to protect ourselves. In a post to users on Monday, LinkedIn stated, “ All members should take care to manage and change passwords across other sites, avoid reuse, leverage advanced security features, and update often.” I think it would be wise for all of us to take this advice. Ashley Sutherland-Winch is a Marketing and Public Relations Consultant and frequent contributor to this newspaper.
Airport
Shenzhen’s planned airport friend or foe? The possible new airport in Shenzhen has created fears of less passenger traffic for Macau and overcrowded air space, but experts believe the current market focus on the tourism business, and connections with the Hong Kong and Zhuhai airports, can safeguard it from any decrease in business. But any future business increases will still be limited by Macau's small population. Nelson Moura nelson.moura@macaubusinessdaily.com
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he Shenzhen government is considering the construction of three new airports, creating fears of overcrowded airspace over the Pearl River Delta and the possibility of reduced traffic at Macau International Airport this week. The 1.4 trillion yuan (US$213.9 billion/MOP1.6 trillion) Eastward Shift Strategic Action Plan for 2016 to 2020, released last month, stated that the Chinese city bordering Hong Kong was planning to become a south China transport hub through the construction of a commercial airport near Huizhou, a hydroplane airport on Da Peng Peninsula and a helicopter airport.
Overcrowded skies
The announcement comes after the current Shenzhen airport, which handled 39.7 million passengers last year, announced a planned 11.2-billion-yuan third runway and fourth
terminal, designed to meet demand until 2045. International flights to Shenzhen are also expected to double by 2020, according to Hong Kong newspaper South China Morning Post. Just recently, a planned third runway for Hong Kong International Airport (HKIA) caused concern. Previously CAM representatives told Business Daily the regional airspace could become too crowded and could be affected by regional air space issues. Simon Carrington, a Macau-based pilot told this newspaper that the “Shenzhen airspace is hemmed in between Hong Kong, Macau, Zhuhai, Guangzhou and military areas” and that he couldn’t see how Shenzhen could add significantly more flights without a “complete airspace redesign,” with the project being a very “complex and time-consuming project.”
A different focus
With these developments, the adding of more regional traffic by a possible
Live feed of air traffic in Hong Kong and in Macau yesterday at 6:35pm.
Photo of Huizhou where the possible Shenzhen second airport would be situated
new Shenzhen airport has spurred fears that Macau’s own airport expansion will be rendered useless and traffic will decrease if most international and local traffic is directed to that city. However some experts see the Shenzhen airport and Macau airport has having different target markets and not as direct competitors. “The Shenzhen and Macau airports have different recruitment areas, we focus on different sectors. You can see Shenzhen airport is facing competition from the Guangzhou and Hong Kong airports. They want to develop it as a hub and as a multi-function business, while in Macau we are only focused mainly on the tourist market. So we can say we have a different development target,” President of Macau Political Economy Research Association, and former Strategic Advisor at Macau International Airport, Samuel Tong, told Business Daily. Simon Carrington states that currently Shenzhen airport has “very little international traffic, and almost zero long-haul” with long-haul passengers currently passing through Hong Kong or Guangzhou, so any future Shenzhen airport would affect these airports since Macau is harder to get to from Shenzhen, and therefore “not really a competitor.” For Samuel Tong, Macau will need to find its niche market, especially in low cost carriers and general aviation for tourism passengers from Mainland China and Southeast Asia as “it’s very hard for Macau to attract the same airlines as Hong Kong airport, and airlines can only develop business on networking portto-port. To develop in Macau they need to check the demand and we target tourists coming from Mainland China or South Asia, so they follow the direction of the demand.” For Tong, after the new bridge is completed, the Macau Airport will be more diversified, with cooperation
Business Daily Friday, June 10 2016 7
Macau with Hong Kong and Zhuhai airports crucial to provide a multi-functional business. “The three regions’ airports will be at the same position and we will compete with the Shenzhen airport and Guangzhou airport,” Tong told Business Daily.
Betting on growth
The Aviation Authority seems to have bet its chips on expanding the current Macau International Airport capacity and on the completion of the Light Rail Transit System and the Hong Kong-Zhuhai-Macau bridge, in order to increase the local airport traffic, stating that “with the enhancement of infrastructure development in the region (…) access from mainland cities in the region to Macau will be made a lot easier.” The local Aviation Authority believes there is an “opportunity to grasp” to make Macau a “spoke and hub centre in Asia” after convenient express link facilities are built. This would allow passengers from Mainland China to actually fly to their final destinations via Macau International Airport and vice versa, they told Business Daily. When questioned by this newspaper about the possible new Shenzhen airport, the Civil AAC claimed to “not have information about the opening of new airports in the Pearl River Delta.”
A population problem
However Jack Galati, CEO of Jet Asia Ltd, believes Macau’s airline business growth is limited by its own low population, since most airline companies look to base themselves in airports with great outbound resident populations. “The problem with the Macau International Airport is pretty simple, it does not have the local residents that can support this airport, with only 600,000 residents. For an airport to grow, you really need growth of population, and it hasn’t grown in Macau in 20 years, which is why the airport is still doing the same amount of traffic as at its peak in 2005,” Galati told Business Daily. In fact, the Jet Asia CEO states that transport of cargo has decreased “tremendously.”
Tourism hasn’t worked that well
Galati doesn’t believe focusing on tourism will do much to spur Macau’s airline business, since most airline companies look to base themselves in airports with great outbound resident populations. “Even Air Macau hasn’t grown, and it has been in existence for almost 20 years. It should’ve grown to at least 50 or 60 aircrafts. It hasn’t grown, not because they’re not doing the right job, but because you just don’t have passengers living in Macau wanting to travel to other destinations. Macau brings business in, not out, of Macau. You just don’t have it and the Hong Kong airport just offers more international flights on a daily basis, and that’s what passengers like.” Nevertheless Galati thinks the Macau airport expansion is positive, and if Macau’s population can grow to 1 million people, expansion should really be considered, however he doesn’t understand why it wasn’t
Satellite image of Shenzhen Bao'an International Airport
already expanded in 2005 when the Master Plan was put together.
Expansion too late and useless?
The MSAR government has finished a Macau International Airport Master Plan, targeting at expanding maximum handling capacity to 15 million passengers per year, and aims to expand the facilities in three short, medium and long-term stages, says Euphemia Lam, Senior Officer at the Aviation Authority. The CAM-Macau International Airport Company Ltd. has also started expanding the north passenger terminal, aiming to increase its total area from 45,000 to 59,000 square meters by mid-2017. The project aims to increase usage of passenger areas, the commercial areas and the operation areas of the airport, and to connect the passenger terminal with the projected Light Rail Transit System. In terms of passenger traffic, Macau International Airport currently ranks 37th on the list of China’s busiest airports, with an expansion to 15 million passengers likely to raise that position to 20th, according to CAAC statistics from 2015. Zhuhai Jinwan Airport, which only caters to China’s domestic flights, is placed 41st with 4.7 million passengers, while Hong Kong Airport placed second with 68 million passengers, only surpassed by Beijing Airport. “I worked on the Master Plan 15 years ago and we had a pretty good plan to get more parking spaces in between the taxi ways and so forth. We anticipated many years ago that this airport would have at least doubled its traffic by now, but it has not,” Galati stated. From the CEO’s own experience, the growth has not occurred because the population has not grown, and Hong Kong airport has become to efficient, tripling its traffic since 2000, to 600 flights a day. “Because they are efficient and have
Hong Kong International Airport
the population and airlines wanting to fly there,” Galati told Business Daily.
Expand, and quickly
Some experts believe the problem lies in the pace at which the current expansion and bridge are being constructed. Problems with the US$10.6 billion planned bridge construction have delayed its opening to 2017, while the LRT Taipa section, with 11 stations covering the Cotai area and Lotus Border checkpoint, has had its operational date pushed back from the originally scheduled 2016 to 2019. “I think it is critical for the airport to plan ahead and expand as fast as possible. The airport already operates at its 6 million passengers per year designed capacity, but is growing at 10 per cent per year. Statistically speaking, each new mega-resort adds over 200,000 passenger movements per year,” Simon Carrington told Business Daily. The experienced Macau-based pilot believes the growth trend will continue as Wynn Palace and the Parisian open this year, with MGM and SJM’s new properties opening next year. “Historically the mega-resorts have not marketed themselves (or Macau), since the bulk of profits came from a limited number of VIP gamblers organised by mainland junkets. With the change in the mainland’s political/economic climate, these resorts have now begun proper marketing campaigns,” Simon Carrington told Business Daily.
The Hong Kong connection
Macau International Airport
Carrington also stated the Macau Airport is at a certain level ‘under-utilised’ by its own volition, due to influence by Hong Kong airport. “From 11am until 1pm, and again from 6pm to 8pm, there are two rush hour periods, and the parking stands, air bridges, and take-off slots are all busy,” the pilot stated, adding the
Hong Kong air traffic control only permits one departure every five minutes out of Macau, compared to one every 80-120 seconds out of Hong Kong, creating an “artificial constriction.” According to Carrington, for the rest of the day the Macau Airport doesn’t operate “anywhere near capacity” with a “24-hour shortage” in parking. The pilot also added there is massive demand for corporate jet parking in Macau, with Hong Kong airport having run out of space, and a real shortage of affordable space, representing a big opportunity for Macau Airport to quickly expand its current 20-year-old apron. “The real question is what the impact of the Hong Kong bridge will be? Personally I believe that smaller, low-margin traffic will be shunted off from Hong Kong to Macau, and I believe that long-haul airlines will start flying to Macau pending getting a slot in Hong Kong. We have already seen the start of that trend with regular charter flights from Macau to Moscow,” the pilot told Business Daily. “Clearly Macau has nothing like the capacity and infrastructure, but I foresee a rapid acceleration in Macau traffic post 2020 if the airport has the infrastructure in place.”
Zhuhai sword dangling
For Carrington the biggest threat to Macau’s airline business will be if the neighbouring Zhuhai airport decides to open up to international flights, since Macau acts as the international airport for Zhuhai. But Air Macau has done very little marketing in the area. However Samuel Tong believes the Zhuhai government is only planning to “develop the airport as a better chain for all aviation business, no matter if its for transportation, repairs, manufacturing or professional training. They want to become more competitive, and less focused on the transportation business.”
8 Business Daily Friday, June 10 2016
Greater China record levels last week. Non-food prices rose 1.1 percent, flat from April and continuing to show a lack of price pressures that would indicate activity in the broader economy was gaining steam. Analysts polled by Reuters had expected consumer inflation to come in at 2.3 percent, the same pace as in each of the previous three months.
Key Points Consumer inflation milder than expected, driven largely by food Good news for companies as producer deflation eases sharply Weak inflation means accomodative policy will continue-analyst Prices evolution
Inflation muted but producer deflation eases Consumer inflation rate remains well below the official 3 percent target.
D
eflationary pressures in China eased further in May, relieving some pressure on cash-strapped companies, but consumer inflation was cooler than expected, suggesting the
central bank will keep policy supportive in coming months but be in no hurry to cut interest rates further. Consumer inflation rose less than forecast as pressure from high food prices eased, while producer prices
recovered more than forecast, the statistics bureau said yesterday. The consumer price index (CPI) rose 2.0 percent year-on-year in May, compared with a 2.3 percent increase in April. Food prices were up 5.9 percent year-on-year in May after rising 7.4 percent in April. Prices of China’s staple meat pork rose 33.6 percent last month and hit
“On a month-on-month basis, China’s CPI has been dropping for three consecutive months, clearly pointing to an easing bias in monetary policy for the time being,” said Zhou Hao, senior Asia emerging market economist at Commerzbank in Singapore. Improvements in producer prices will not change China’s overall soft inflation outlook, Hao added. In a sign that strains on Chinese companies are easing, producer prices fell at their slowest rate since November 2014, supported by a government investment spree and higher commodity prices. The producer price index (PPI) fell 2.8 percent in May, up from a 3.4 percent
Cooperation drive
Experts satisfied with Sino-U.S. economic dialogue outcome Strategic meeting with U.S. makes progress in investment treaty, overcapacity and yuan internationalization China and the United States have made incremental progress in accelerating bilateral investment treaty talks, addressing industrial overcapacity and expanding RMB trading in the United States at this week’s annual high-level dialogue, U.S. experts said. Senior Chinese and U.S. officials have agreed to speed up negotiations on a bilateral investment treaty (BIT) during the eighth China-U.S. Strategic and Economic Dialogue (S&ED) that concluded Tuesday in Beijing. “The two countries will exchange new ‘negative list’ offers in mid-June,” Chinese Vice Premier Wang Yang told a news briefing on Tuesday. A negative list outlines sectors closed to foreign investment. The last time the two sides exchanged such lists was in
early September last year, days ahead of Chinese President Xi Jinping’s state visit to the United States. Xi on Monday urged both countries to strengthen coordination on their macroeconomic policies and reach a reciprocal bilateral investment treaty as early as possible. “I think this is as good as you could hope for, given how the U.S. has already expressed its view that the Chinese list is too long and needs to be cut for a BIT to become realistic,” Jacob Kirkegaard, a senior fellow at the Peterson Institute for International Economics, told Xinhua. That will “bode well” for the negotiations if China’s new negative list offer is “significantly reduced” in length from the previous offer, said John Frisbie,
U.S. Secretary of State John Kerry (L) shakes hands with China’s President Xi Jinping (R) at the end of the eighth round of US-China Strategic and Economic Dialogue
president of the U.S.-China Business Council (USCBC). China and the United States started to negotiate a BIT in 2008 and 24 rounds of talks were held ahead of the eighth S&ED as both countries sought to increase mutual investment.
Steel overcapacity
The two sides held candid discussions on excess capacity in steel and other industries during the two-day dialogue, and both recognized that this is a global issue which requires collective responses. “The United States and China support on-going international efforts aimed at identifying effective government policies for addressing global excess capacity and structural adjustment, and achieving greater transparency on industry developments to promote market-driven responses,” a joint statement released after the dialogue said, noting that the two countries will attend an OECD (Organization for Economic Cooperation and Development) Steel Committee meeting in September to address global excess capacity. The statement also said the United States acknowledges China’s recently announced plans to close 100 to 150 million metric tons of steel capacity, and to strictly prohibit the expansion of crude steelmaking capacity over the next five years. Thomas J. Gibson, president and CEO of the American Iron and Steel Institute, said on Tuesday in a statement
that his institute welcomed “the new commitments by Chinese leaders to adopt measures to strictly contain steel capacity expansion, reduce net steel capacity, eliminate out of date steel capacity, and dispose of ‘zombie enterprises’ through restructuring, bankruptcy and liquidation, as appropriate.” “China’s participation in further efforts to address global excess capacity at the OECD Steel Committee is also positive,” Gibson said. Frisbie, the USCBC president, called on the United States to use “internationally-accepted, legally-sound” trade tools to address distortions in the U.S. market caused by overcapacity problems. The China-U.S. annual strategic dialogue comes at a time when steel overcapacity has become an acute global challenge and U.S. steel producers are increasingly resorting to trade remedies and tariff protection to ride out a sluggish steel market, a practice strongly opposed by Chinese steel producers and exporters. Kirkegaard said he was convinced that this round of strategic dialogue “will help prevent a much more damaging confrontation later this year over steel and help channel the issue into a multilateral OECD-led process.”
RMB trading & clearing in U.S.
China has set up offshore RMB trading hubs in Hong Kong, London and Toronto, but the U.S. market remains untapped.
Business Daily Friday, June 10 2016 9
Greater China drop in April. On a monthly basis, producer prices rose 0.5 percent, the third increase in a row. Analysts had expected PPI to fall 3.3 percent, extending a more-than-fouryear decline which has eroded profit margins. China’s consumer inflation rate remains well below the official 3 percent target, and despite strengthening producer prices analysts do not see inflation at these levels impacting policy decisions. “At these levels, inflation dynamics are not an important factor in this year’s monetary policy decisions,” said Zhu Haibin, chief China economist at JPMorgan. Zhu says May and June economic data will continue to show a recovery, but expected growth will slow again in the second half, which should lead to further support from the government. “We still see one interest rate cut this year. It’s a close call, but we see that it is still likely to happen. We moved the timing to the fourth quarter when we see the growth dynamics slowing down.” Many economists have scaled back expectations of further cuts in interest rates and bank reserve ratios this year as the PBOC has shown a preference for more targeted cash injections to help badly stressed sectors such as farming and small companies. The government also seems to be putting a greater emphasis on fiscal spending to support growth, amid worries of the dangers of relying on too much debt-fuelled stimulus. Reuters
Qianhai metals market
HKEx plans to develop user base for mainland trading hub Lack of central regulator for regional commodities exchanges may represent an opportunity for HKEx to leverage its LME brand. Melanie Burton
Hong Kong Exchanges and Clearing plans to develop an industrial user base to back its metals trading hub slated for southern China, pushing to build its commodity business in the world’s No.2 economy. Qianhai, a new free trade zone near Hong Kong, is set to host the platform for trading metals before stretching into other commodities, pending regulatory approval, HKEx spokesman Scott Sapp told Reuters.
Key Points HKEx plans to start metals trading platform in southern China Says trade would be backed by physical cargoes Base metal mkts, trade to come under spotlight at LME Week Asia Gold trade also likely to be discussed at next week’s event
China will grant the United States a quota of 250 billion yuan (US$38 billion) under the country’s Renminbi Qualified Foreign Institutional Investor program and appointed one Chinese and one U.S. bank to conduct RMB clearing business in the United States, according to the statement. “It’s very encouraging that both sides have endorsed a framework for facilitating RMB trading and clearing in the U.S. for the first time,” said Michael R. Bloomberg, chair of the Working Group on U.S. RMB Trading and Clearing and founder of Bloomberg L.P. “This will help bring new momentum to the working group’s efforts to expand trade between the United States and China by allowing the RMB to be cleared in the U.S.,” he added.
S&ED mechanism
U.S. experts said the S&ED has become an important venue for promoting cooperation and managing differences between the world’s two largest economies, but this mechanism needs improvement to become more effective in the future. “As we approach the close of the Obama administration, it is important to remember that the S&ED was established in recognition of the need to expand engagement to address the array of issues in the U.S.-China relationship,” Frisbie said. “In the next administration, the mechanisms for dialogue can be tweaked to make further improvements and become more effective, but high-level engagement is now mandatory in the U.S.-China relationship,” he added. Kirkegaard said the S&ED is very much part of the overall process to manage the U.S.-China relations. “The S&ED is part of the process to ‘avoid doing stupid things’ and keep small problems from growing into something bigger - as such, its real value is largely pre-emptive as well as latent in the sense that if an important issue suddenly needs to be dealt with in U.S.-China relations, in the S&ED the two governments have a channel available,” he said. “This S&ED will surely have been instrumental in paving the ground for any big announcements made when President Xi and President Obama meet later in the year and also for helping avoid large confrontation over ‘manageable issues’ like steel,” he said. Xinhua
In Brief
“Our goal is to leverage our experience in launching new initiatives with the mainland and the LME’s (London Metal Exchange) successful model to ‘physicalize’ the mainland’s commodities market,” he said. HKEx bought the LME for US$2.2 billion at the peak of the commodities boom back in 2012, and a mainland presence would come after a yearslong struggle by the London bourse to break into China. HKEx Chief Executive Charles Li has
previously said plans by HKEx to create mainland, physically deliverable spot commodity markets are a way of getting the LME’s warehousing expertise into China. Sources said that the bourse’s new electronic method of tracking metal in warehouses would help a push into the mainland. LMEshield was introduced after a financing scandal in China’s Qingdao port two years ago that rocked the metals industry and opened up a market for securing metals inventory. The LME has unveiled a string of new locations to host LMEshield, but so far, not China. Warehousing sources suggested Qianhai and Qingdao port could be prime locations if regulatory approval is granted, with more detail expected at the LME Week Asia industry conference in Hong Kong next week. By the end of 2015, annual spot commodities trading volume had reached US$4.5 trillion on more than 350 independent exchanges in China, according to data from Euromonitor. Trading volume grew 35 percent annually from 2011 to 2015. But regional commodities exchanges have no central regulator and many investors have walked away burnt, perhaps an opportunity for HKEx to leverage its LME brand. Other issues expected to be discussed at next week’s conference include a new gold contract, possibly overthe-counter, as well as LME’s push to build liquidity on its monthly metals contracts. Declining LME volumes and market share, and a rival exchange mooted by the London bourse’s former chief are also likely to be talking points around the conference. The LME saw a 9-percent on-quarter decline in the trading of metals contracts in the first quarter, with U.S. rival CME Group snapping at its heels with a string of new metals product launches and its own storage expansion plans. Reuters
Private report
Households more optimistic about finances Surveyed families feel the domestic economic environment is steadily improving, according to a Bank of Communications’ report. Chinese households became more optimistic about their economic outlook in May, according to the latest Climate Index of China’s Wealth released by the Bank of Communications (BOCOM). The index, published bimonthly, increased to 133 in May from 126 in March. It is based on a survey that solicited opinions from well-off Chinese households on the economy, income and investment.
‘Investment willingness sub-index limbed to 124 from 119.’ Government pro-growth policies have contributed to greater optimism about household income and employment despite downward pressure on the country’s economy, the BOCOM said. A reading above 100 indicates growth in wealth, while a reading below 100 represents deterioration.
Three main sub-indices all rose markedly, with that for income growth up to 147 from 139 in March. The sub-index for economic climate rose to 120 from 115 while that for investment willingness climbed to 124 from 119. The report surveyed nearly 1,850 families with annual after-tax incomes above 100,000 yuan (around US$15,750) in five metropolises, including Beijing and Shanghai, and 80,000 yuan in 21 other major cities. China’s economy grew by the slowest pace in 25 years in 2015, but some indicators have picked up since early this year, including property investment and manufacturing activity. The country has taken a slew of fiscal and monetary policies to support growth, cutting interest rates and taxes on companies. Xinhua
Rail project
U.S. company terminates deal with CRI The U.S. company XpressWest announced unilaterally Wednesday to terminate its cooperation with China Railway International (CRI) in building a high-speed rail between Las Vegas and Los Angeles, in violation of the terms reached by the two sides. The CRI later responded that it is waiting for an explanation from XpressWest about its decision, which would mark the abrupt suspension of the project. In a press release issued Wednesday afternoon, XpressWest said it “has terminated its joint venture activities with CRI regarding highspeed passenger rail.” LSE
Sovereign RMB bond listed at London A Chinese Finance Ministry issued three-year government bond worth 3 billion RMB (about US$457 million) has been successfully listed at London Stock Exchange (LSE). This is the first ever sovereign RMB bond issued outside China, and also the world’s first local currency sovereign bond issued outside the domestic market, said Shi Yaobin, Vice Minister of the Chinese Finance Ministry, on Wednesday. “This is the new practice in China’s financial opening-up process, and also makes history in the development of the global capital market,” Shi said. Innovation
More development zones to be created The Chinese government said on Wednesday that it will accelerate building two more national-level development zones to encourage innovation, as the country seeks to foster new engines for growth. The government approved the establishment of the two “national innovation demonstration zones” in Fujian Province and Anhui Province, respectively, according to a statement released after the State Council’s executive meeting on Wednesday. The decision was made after similar zones, including Beijing’s Zhongguancun, and Shanghai’s Zhangjiang high tech zone, have played experimental and pioneering role in the nation, said the statement. Tourism
LatAm trade bloc seeks to court mainlanders The four-nation bloc of Latin America’s Pacific Alliance (AP) wrapped up its 3rd Tourism Conference this week with a decision to attract Chinese tourists. The tourism event offered the member countries - Peru, Chile, Colombia and Mexico - an opportunity to transcend their borders and to strengthen the commercialization of combined tourism packages in China, Peru’s Minister of Foreign Trade and Tourism Magali Silva VelardeAlvarz on Tuesday told participants at the opening of the conference. According to China Tourism Research Institute around 80,000 Chinese travelled to the Pacific Alliance countries in 2015.
10 Business Daily Friday, June 10 2016
Greater China
Emerging markets
Mainland is worst bet for ETF investors this year Investors have been boosting bets that the declines will continue. Elena Popina
C
hina has been one of the few losing bets this year for U.S. investors who buy emerging-market assets through exchange-traded funds (ETF), and short sellers see more declines to come. Out of 93 country-specific ETFs invested in developing nations, 31 focused on China have declined in 2016, according to data compiled by Bloomberg. That’s about three out of every four that fell during the period. The funds have slumped as the country’s benchmark gauge posts the world’s worst performance this year, slumping 17 percent while the MSCI
Emerging Markets Index advanced 5.3 percent. Stocks in Shanghai have been tumbling as economic indicators from industrial production to retail sales trail estimates after the government has signalled that it will be less aggressive in boosting growth with stimulus. The Chinese currency is heading for its biggest monthly loss since last year’s devaluation, while swelling debt levels fuel concern that corporate defaults will increase after at least 10 companies have missed payments this year. The portion of outstanding shares sold short in the iShares China LargeCap ETF, which owns the 50 largest
companies, touched a two-year high of 18 percent this month, according to data compiled by Bloomberg and Markit Ltd. Bearish bets on the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF, the biggest in the U.S. that invests in mainland shares, have risen to more than 7 percent of outstanding shares from about 1 percent in March. The Shanghai gauge is this year’s worst performer among 93 global indexes, while the nation’s currency trades near the five-year low it touched in January. Goldman Sachs Group Inc. warned last week that the yuan weakness may trigger capital outflows and increase bets on a oneoff devaluation. The Deutsche X-trackers Harvest CSI 300 China A-Shares ETF has slipped 15 percent this year. The iShares China Large-Cap ETF has
retreated 1.6 percent. On the other end of the spectrum, funds focused on Brazil and Russia have gained the most this year.
‘The Shanghai gauge is this year’s worst performer among 93 global indexes’ The VanEck Vectors Russia ETF, the largest fund invested in the country, has rallied 24 percent this year, while iShares MSCI Brazil Capped ETF has gained 40 percent. In Russia, a rebound in oil, the country’s biggest export, is boosting an outlook for the country mired in a second year of an economic contraction., In Brazil, assets have rallied this year on hopes that a new government will step in to revive growth. Bloomberg News
HSBC CEO
Beijing to press ahead with making yuan global The chief lesson of the past year for the People’s Bank of China was to communicate more clearly with markets Patrick Graham
Financial turbulence over the past year has made foreign investors pause before pouring money into China but has not harmed the broader process of internationalising the renminbi, HSBC chief executive Stuart Gulliver said on Wednesday. Gulliver, speaking on the side-lines of a presentation on Beijing’s first yuan sovereign bond issue to be listed in London, also said Chinese banks were set to expand aggressively into international markets over the next couple of years.
HSBC chief executive Stuart Gulliver
He said he was as confident of progress in making the yuan an international currency as he was before a sell-off in January that prompted Chinese authorities to raise offshore borrowing costs and crack down on outflows through Hong Kong. “From those contacts we have in the PBOC (People’s Bank of China) and the Ministry of Finance there is no pushback in the process of internationalisation of the RMB (renminbi),” Gulliver said. But he also said the currency was unlikely to be freely floated any time soon.
“The future of the RMB is not necessarily floating in the way that sterling or the euro does,” he said. “This will be a managed float. Much as a number of countries manage their currencies, as Singapore does for example.” Beijing has launched multiple initiatives over the past year to attract more foreign investors into its mainland markets. A number of the big Western bond and stock market indexes are considering including onshore government and quasi-government debt, as well as Shanghai-listed shares, potentially bringing in a tide of new inflows. Asked if major investors had taken a step back from investing in mainland China after a turmoil in Chinese stock markets last August and in the yuan in January, Gulliver said: “In terms of equities yes, in terms of fixed income no. It is more about an asset allocation decision than fear about China in particular.
“Both offshore and onshore the bond market will expand much faster than equities.” The chief lesson of the past year for the People’s Bank of China was to communicate more clearly with markets.
“The future of the RMB is not necessarily floating in the way that sterling or the euro does” Stuart Gulliver, HSBC Chief Executive
“Part and parcel of (the yuan) becoming a broadly accepted currency is the central bank needs to communicate its actions,” he said. “So just as we pore over Janet Yellen and the communications from Mark Carney and so on, I think they have realised they can’t just do things and not accompany it with very detailed comments.” He said Chinese banks were “doing a lot” on acquisitions aimed at expanding into international markets where a number of big Western banks have withdrawn. “Whether they displace the Western banks is hard to predict but I absolutely think they will play a more active role. It is now and over the next couple of years,” Gulliver said. “Think back on the way the yen developed and the role the Japanese banks played in that. In ‘86 the yen floated freely and that was the point when the Japanese banks became international players. “You could argue that was not entirely successful ... but we know for a fact the Chinese have studied the Japanese banks quite closely so they should avoid those mistakes.” Reuters
Business Daily Friday, June 10 2016 11
Asia Monetary policy
Bank of Korea cuts rates to record low This was the first rate cut since the bank last lowered rates in June 2015. Christine Kim
S
outh Korea’s central bank cut its policy rate to a record low 1.25 percent yesterday, sooner than expected, as the government drives a major overhaul of the struggling shipping and shipbuilding industries that could see large job losses. Just four out of 23 analysts surveyed by Reuters had forecast the central bank would lower the rate, but a majority of those who saw a June hold forecast that rates would be cut in July. Market participants will hone in on the governor’s news conference to see whether yesterday’s decision was unanimous. “It will be burdensome to cut rates again this year. Plans from the government for the second half of the year will be eyed, but for now I expect this to be the last rate cut this year,” said Lee Sur-bee, a fixed-income analyst at Samsung Securities. “Many expected the U.S. Federal Reserve to hike rates in June or July but after the May jobs data a June hike now seems impossible. The BOK probably have thought taking action before the Fed’s rate hike would be safer.” Finance Minister Yoo Il-ho said in a meeting yesterday that economic activity in the private sector
was below par, although growth in the second quarter is expected to be better than the first. The comments were made just as the rate decision was announced. Lower rates have been expected
by analysts for a number of reasons as May inflation came in at 0.8 percent, well below the central bank’s 2 percent target. A tumble in exports since January last year has also darkened the outlook for Asia’s fourth-largest economy. As a result, the IMF lowered its 2016 GDP forecast for South Korea to 2.7 percent from 2.9 percent in April while earlier this month the OECD slashed its GDP projection from 3.1 percent to 2.7 percent. The Bank of Korea is also expected to trim its GDP forecast for this
year at its quarterly review in July. It currently forecasts growth of 2.8 percent. Most analysts see one more rate cut to end the current easing cycle if the global economy rebounds next year. To support the shipping industry restructure South Korea’s government and central bank will create an 11 trillion won (US$9.50 billion) fund to support two state-run banks most exposed to the shipping sector. A 20 percent drop in major shipbuilders’ capacity and a 30 percent drop in their workforce is expected by 2018 following the restructure. Reuters
Bank of Korea Governor Lee Ju-yeol starts a meeting of the monetary policy board at the central bank in Seoul yesterday.
Manufacturing
Low Japan machinery orders flags weak capex ahead Compared to the previous month orders from manufacturers fell 13.3 percent Stanley White
Japan’s core machinery orders tumbled in April by the most in two years, partly due to earthquakes in a southern manufacturing hub but raising the risk that business investment will remain weak for most of the year. The 11.0 percent monthon-month fall in core orders was much deeper than the median estimate for a 2.3 percent decline in a Reuters
poll of analysts. It also marked the biggest decline since May 2014. In March, core orders rose 5.5 percent. Any further delays in capital expenditure raise pressure on Prime Minister Shinzo Abe’s government, which will announce more economic stimulus measures this autumn in an attempt to recharge a largely disappointing economic campaign.
“This is a result of the Kumamoto earthquakes, but China’s economic slowdown is also having a negative impact,” said Daiju Aoki, economist at UBS Securities. “Capex fell in the first quarter. The second quarter looks weak and this could extend into the third quarter. This will affect the size of government stimulus and monetary easing.” On April 14 the first of several strong earthquakes struck Kumamoto Prefecture in southern Japan, damaging houses, causing landslides and halting production at
electronics and car parts factories. Many companies were able to quickly resume production, but the April machinery orders data suggests the damage to business investment was deeper than expected, Aoki at UBS said. Compared to the previous month, orders from manufacturers fell 13.3 percent, while orders from the services sector fell 3.9 percent, the data showed. Compared with a year earlier, core orders, a highly volatile data series regarded as a leading indicator of capital spending, fell 8.2 percent in April, more than a median estimate for a 2.3 percent annual fall. Policymakers were counting on an increase in capital expenditure to fuel gains in productivity, create new jobs and increase wages, but hopes have gradually faded as data has shown that corporate profit growth has peaked. “Earnings have been falling from last year, which is leading companies to but the breaks on their investment plans,” said Hiroshi
Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities. “If the government’s stimulus policies contribute to improving the economic outlook, this could get companies investing again.”
Key Points April core orders -11.0 pct m/m vs forecast -3.8 pct Orders fall by most since May 2014 Decline due to Kumamoto quakes, China slowdown Govt’s economic agenda increasingly in doubt
Since taking office in late 2012, Abe’s government has offered tax breaks to encourage capital expenditure and lobbied Japanese companies directly to boost spending. Japanese companies investment needs are high because the country’s capital stock is ageing. Funding costs are also low due to ultra-easy monetary policy. Still, it has been difficult to maintain capital expenditure gains due to worries about a rising yen and a shrinking domestic market, economists say. Reuters
12 Business Daily Friday, June 10 2016
Asia Rate policy
NZ dollar kept on hold as home prices soar The market is now pricing in a 40 percent chance of a rate cut at next review. Rebecca Howard and Charlotte Greenfield
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ew Zealand’s central bank held its benchmark policy rate at a record-low 2.25 percent yesterday and signalled its reluctance to ease further amid concerns over a hot housing market, triggering sharp rally in the local dollar. The Reserve Bank of New Zealand (RBNZ) indicated it could cut rates again due to low inflation, a global menace that prompted South Korea to deliver an unexpected cut yesterday. The lack of price pressure is also a worry for policy makers around the world as they try to stoke their economies amid weak external demand.
In New Zealand, however, soaring home prices have put the central bank in a tricky situation after it slashed rates five times since June last year - the last 25-basis-point cut coming in March. “House price inflation in Auckland and other regions is adding to financial stability concerns,” said RBNZ governor Graeme Wheeler in a statement accompanying the decision. The market is now pricing in a 40 percent chance of a rate cut at the August 11 policy review, from 60 percent before yesterday’s decision, according to analysts. “There are powerful, opposing forces buffeting the monetary policy
stance. Price stability alone would warrant lower rates, but the clear argument for not moving yet is the housing market’s resurgence, and comments on the latter today convey more alarm than in April,” said Ben Jarman, economist at JPMorgan.
Key Points Central bank keeps interest rates on hold at 2.25 percent Further cut projected, but outlook uncertain High housing prices a concern RBNZ Indeed, this uncertainty around the policy outlook was echoed by Wheeler, who said that although one more cut was built into the bank’s
Reserve Bank of New Zealand governor Graeme Wheeler
interest rate projections, factors such as economic performance, the currency and inflation expectations will influence its decision. “You could end up in a situation where there is in fact no cut or there could be more cuts,” Wheeler told reporters.
High housing, low inflation dilemma
The RBNZ said it would be meeting in the next few weeks with Treasury officials to consider macro-prudential tools to curb the rise in home prices, including possible income related restrictions on mortgage lending. New Zealand’s housing prices, spurred by low interest rates, high levels of immigration and supply shortages, are the second fastest-growing in the world after Qatar, according to the International Monetary Fund. Analysts say the RBNZ has to walk a fine line between retaining sufficient curbs on an already overvalued housing market and stoking inflation, which at 0.4 percent is currently running below the central bank’s annual inflation target range of 1-3 percent. “Further policy easing may be required to ensure that future average inflation settles near the middle of the target range,” Wheeler said. In an interview with Reuters soon after the rate review, John McDermott, deputy governor of the RBNZ, said New Zealand was also facing external risks to the monetary policy outlook. “The world could potentially end up throwing quite a number of curve balls at us,” he said, noting expected rate rises by the U.S. Federal Reserve in coming months and Britain potentially exiting from the European Union as risk factors. Reuters
Prices
India inflation likely edged up in May But some economists expect inflation to tick lower in the coming months Deepti Govind
Higher food and fuel prices pushed Indian inflation up in May, according to a Reuters poll of economists who said good monsoon rains would temper it in the coming months and give the central bank room to ease further.
The survey predicted annual consumer price inflation nudged up to 5.52 percent in May from April’s 5.39 percent. Should that prove correct, it would put inflation further above the Reserve Bank of India’s target of around 5 percent by March
2017 and 4 percent over the medium term and mean it is uncomfortably close to January’s 17-month high of 5.69 percent. “We’ve seen incremental price pressures build up in the month of May on account of vegetable prices, pulses and edible oils. In addition, fuel prices have also moved up,” said Shubhada Rao, chief economist at Yes Bank. But India’s weather office
has stuck to its initial forecast for above average monsoon rains, adding to hopes of a revival in farm output and in turn lower food prices and interest rates. Indeed, some economists expect inflation to tick lower in the coming months. “Given that monsoon has hit the peninsular (already), and over the month of June it will spread across the country, we expect some price pressures to begin easing,” said Rao. However, others cautioned that both lower inflation and
further cuts to the RBI’s policy rate are contingent on the monsoon, which hasn’t always been reliable in the past.
Key Points May CPI forecast at 5.52 pct y/y CPI data due June 13 at 1200 GMT April factory output growth forecast at 0.5 pct y/y Factory output data due June 10 at 1200 GMT RBI Governor Raghuram Rajan also struck a more cautious tone at the bank’s policy meeting on Tuesday than he had in April. Rajan said the RBI was looking for room to ease and listed a good monsoon and astute management of stocks by the government as prerequisites to offset inflationary pressures ahead. The latest Reuters survey of over 20 economists also showed industrial output grew 0.5 percent in April, faster than 0.1 percent the month before. Economists in the poll expect India’s trade deficit to have widened to US$5.40 billion in May, up from a previous US$4.84 billion. Reuters
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Business Daily Friday, June 10 2016 13
Asia Bad-debt management
In Brief
Vietnam seeks faster clean-up with first cash purchase The central bank is aiming to curb non-performing loans to below 3 percent of total lending Nguyen Dieu Tu Uyen
Vietnam is accelerating the clean-up of its financial system to help boost lending in an economy threatened by a crippling drought and lower oil revenue. The Vietnam Asset Management Company (VAMC), set up to buy the bad debt of banks, will make its first cash purchase of non-performing loans this year, Nguyen Quoc Hung, chairman of the agency also known as VAMC, said in an interview Tuesday in Hanoi. The purchase “will help lay out steps to quicken the bad debt resolution process.” VAMC currently issues special bonds in return for the bad debt, which banks may use as collateral to secure funding from the central bank. Paying cash to clear the debt will give banks funds to speed up lending. “This is a major step,” said Alan Pham, chief economist at VinaCapital Group Ltd. in Ho Chi Minh City. “The net effect is to resolve the bad debt instead of moving it around. Once you pay the market price and you pay in cash, the debt is extinguished.”
The state agency also plans to resolve about 30 trillion dong (US$1.3 billion) of bad loans this year by selling debt and collateral, Hung said. VAMC has recouped about 8 trillion dong so far this year, he said. “This is going to help banks that need liquidity and to offload their bad debt,” said Trinh Nguyen, a senior economist at Natixis Asia Ltd. in Hong Kong. “We really have to wait and see what is the size of this.” VAMC, which is lacking in resources, will probably need financial support from the government or organizations such as the International Monetary Fund to address all of the bad debt in the country’s banking system, Pham said. VAMC has received offers from about 10 banks to sell as much as 17 trillion dong of bad loans so far this year, according to Hung. The
company is working with lenders to re-evaluate the debt for pricing, he said.
Spurring growth
Banks have crimped lending to businesses because of bad debt, a situation the government wants to reverse as it seeks to spur economic growth to 6.7 percent this year. The economy expanded 5.5 percent in the first quarter, the slowest pace since June 2014. The central bank is aiming to curb non-performing loans to below 3 percent of total lending. Governor Le Minh Hung in April allowed VAMC to buy and sell bad debt at market prices, according to its website. The World Bank said in a report in April that progress has been slow in consolidating the banking industry. The government’s target of reducing the number of commercial banks to as little as 15 by 2017 from 34 currently remains “challenging,” it said. International Monetary Fund Managing Director Christine Lagarde said in a March interview that the banking system needs to be made “stronger, better and more capitalized with less stressed assets” so that lenders can help spur the economy. Bloomberg News
Banking clean-up
Vietnam has done much to clean up its banking industry since 2012 when a lending spree and weak controls led to a surge in bad debts, the arrest of bank executives and a plunge in stocks. Non-performing loans stood at 17 percent at the time. The government created VAMC in 2013 to remove the bad debt from lenders.
M&A
British company said developing markets were responsible for its first year of sales growth since 2008
Vodafone PLC agreed to sell its New Zealand unit to Auckland-based Sky Network Television Ltd for US$2.4 billion in shares and cash, paving the way for a pivot by the British telecoms giant to faster growth markets in Asia. The deal, the biggest acquisition in New Zealand this year, also beefs up Sky as the country’s biggest pay-TV provider seeks to counter the rapid rise of online media streaming services like Netflix Inc. Sky shares jumped nearly 20 percent. Under terms of the deal announced yesterday, Sky will buy New Zealand’s No. 1 mobile phone provider for NZ$3.4 billion (US$2.4 billion) in total - NZ$1.3 billion in cash, to be funded through new debt, and the rest in new Sky shares. The deal is subject to regulatory clearance, the
Thai consumer sentiment at 8-month low Thai consumer confidence dropped for a fifth straight month in May, a university survey showed yesterday, due to concerns over economic prospects at home and abroad, drought and low commodity prices. Consumers felt the economic recovery was slow, the University of the Thai Chamber of Commerce said. The economy grew 0.9 percent in January-March from a year earlier and 3.2 percent from a year earlier. The Bank of Thailand forecast economic growth of 3.1 percent this year, up from 2.8 percent last year. Bank of Japan
Official says central bank ready to ease if needed Bank of Japan Deputy Governor Hiroshi Nakaso warned of lingering global economic uncertainty and signs of weakness in private consumption, signalling the central bank’s readiness to expand monetary stimulus if needed to hit its inflation target. He also defended the BOJ’s negative interest rate policy adopted in February, saying that it will spur capital expenditure by pushing down corporate borrowing costs and offset demerits such as squeezing financial institutions’ margins. Nakaso said risks were skewed toward the downside on uncertainty over the global economy and volatility in financial markets. Real estate financing
Vodafone to sell unit to Sky Network for US$2.4 billion
Byron Kaye and Rebecca Howard
Confidence
firms said. While Vodafone will own 51 percent of the combined entity if the deal goes through, analysts said it clears the path for the British firm to exit a market it has long considered non-essential by ultimately selling down its stake in a listed firm. “As far as Vodafone is concerned, it’s about them getting out of the New Zealand market altogether,” said Morningstar analyst Brian Han. It would be a “very natural read” to expect Vodafone to quit neighbouring Australia next, Han said. Analysts have suggested Vodafone should cut its exposure to the mature markets of Australia and New Zealand and instead focus on higher-growth Asia. Last month, Vodafone said developing markets were responsible for its first year of sales growth since 2008. Vodafone NZ has more than 2.35
Vodafone headquarters in Auckland, New Zealand
million mobile connections and more than 500,000 fixed-line connections in New Zealand. Sky has over 830,000 subscribers. The deal gives Sky the chance to broaden offerings beyond its traditional satellite broadcast market, shaken up by the arrival of Netflix 15 months ago, as well as by tech giant Apple Inc’s online content service.
Key Points Agrees shares, cash deal with payTV firm Sky Deal is biggest M&A transaction in New Zealand this year Analysts see Vodafone pivoting toward higher-growth Asia Move beefs up Sky, under pressure from likes of Netflix Deal subject to regulatory clearance; Sky shares jump A spokesman for the NZ Commerce Commission said the country’s competition clearance regime is voluntary. “It will depend on whether or not Sky and Vodafone submit an application to us...Until all the detail is established, no-one can assess what the competition issues will be.” Reflecting the pressure on its business, Sky shares had fallen 28 percent in the year leading up to the deal’s announcement. If the deal succeeds, the new company will be one of New Zealand’s biggest listed companies with annual revenue of about NZ$2.9 billion, the companies said. Shareholders are scheduled to vote on the deal at a meeting in July. Reuters
NZ banks halt mortgages to non-residents Westpac New Zealand and ANZ tightened lending to non-resident mortgage borrowers yesterday, following the lead of their Australian parents, to reduce risk in New Zealand’s booming housing market. Westpac will no longer lend to non-resident borrowers paying off mortgages with overseas income, and borrowers on temporary resident visas would only be accepted if they have a local address and New Zealand-based income, a spokeswoman for the bank said in an email. “The tightening of policy reduces risk and will contribute to further strengthening our home lending portfolio with customers,” the Westpac spokeswoman said. LNG
Japan spot prices fall to lowest in 2 years Prices for liquefied natural gas (LNG) spot cargoes for Japan, the world’s top buyer, fell to the lowest in May since the trade ministry started publishing figures more than two years ago, official data showed yesterday. The average price of spot LNG contracted in May fell by 10 cents from the previous month to US$4.10 per mmBtu. The average price of spot cargoes that arrived in Japan in May fell by US$1.50 from a month earlier to US$4.30 per mmBtu.
14 Business Daily Friday, June 10 2016
International In Brief Guinea-Bissau
IMF suspends funding after misusing The International Monetary Fund (IMF) said yesterday it would not give Guinea-Bissau any more money unless the measures agreed in the aid package were followed, namely as regards the banking sector and the budget. “If the programme continues off the tracks, the IMF will not hand over the rest of the money that was approved on 10 June last year”, an IMF spokesman told Lusa, adding that the amount in question was almost €10 million for this year. “The private bank rescues last year implied an enormous expense for the government of over €5 million”, the source told Lusa. Industrial association data
Crisis destroys 60,000 jobs in Angola The chairman of the Industrial Association of Angola (AIA) told Lusa yesterday that Angolan companies had dismissed more than 60,000 workers because of the economic and financial crisis in the country, José Severino said the figures came from AIA associates and the unions, with the situation mainly affecting the civil construction and oil industries. Angola has been facing a severe financial and economic crisis since 2014 when the price of oil started falling and oils revenues dropped to half their previous level. In the meantime, however, the price of a barrel of oil has been rising and is now back up at about US$50 compared with US$30 at the beginning of the year.
Fiscal consolidation
Gulf states must cut deficits to keep currency pegs Budgets swung from surplus to deficit as Brent crude fell by as much as 75 percent from June 2014 to January this year. Onur Ant
G
ulf oil exporters must cut spending and narrow their budget shortfalls to keep their currencies pegged to the dollar, the International Monetary Fund said. While substantial foreign assets have allowed the six members of the Gulf Cooperation Council (GCC) to fix the value of their currencies to the greenback, keeping the status quo comes at a price as lower crude prices strain public finances, the lender said in a report titled “Learning to Live with Cheaper Oil.” “When a country faces prolonged fiscal and external deficits, policy adjustment must come from fiscal consolidation measures,” the IMF said in the report authored by Martin Sommer, deputy chief of its regional studies division. Maintaining the currency pegs “will require sustained fiscal consolidation through direct expenditure cutbacks and non-oil revenue increases,” it said. As investors increased bets that currency fixes may become too expensive to maintain, the United Arab Emirates and Saudi Arabia renewed their commitment to their
pegs - with the latter also said to ban betting against its currency. Gulf oil producers’ budgets swung from surplus to deficit as Brent crude fell by as much as 75 percent from June 2014 to January this year, before a partial recovery in recent months. Even after cutting spending, the combined budget gap in the GCC region - which also includes Kuwait, Qatar, Bahrain and Oman - as well as Algeria is expected to reach US$900 billion for the 2016-2021 period, and represent 7 percent of their gross domestic product in the final year, the IMF said.
Bond sales
Their debt-to-GDP ratio is expected to rise to 45 percent in 2021 from 13 percent last year as governments issue debt to plug their budget gaps. Foreign assets give governments varying amounts of “fiscal space” to cope with lower oil prices, with Kuwait, Qatar and the U.A.E. enjoying sizable buffers to finance more than 20- to 30 years of projected deficits, the IMF said. Even so, the GCC and Algeria need a fiscal “adjustment” of about 10 to 15 percent of gross domestic product, with every US$10-increase in the
ECB’s Draghi
Euro zone at risk of lasting economic damage Europe is at risk of suffering lasting economic damage from weak productivity and low growth, the European Central Bank’s president warned yesterday, underscoring his argument that monetary policy alone cannot end the bloc’s economic malady. “We do not let inflation undershoot our objective for longer than is avoidable given the nature of the shocks we face,” Mario Draghi told the Brussels Economic Forum. Draghi said growing below potential for too long actually reduced the economy’s potency because instead of output rising towards capacity, potential would fall towards the actual output, permanently embedding low growth. U.S. Justice Dept
Apple-Samsung should go back to lower court The U.S. Department of Justice asked the Supreme Court to overturn an appeals court ruling that had favoured Apple Inc over Samsung Electronics Co Ltd in smartphone patent litigation, and asked that it return the case to the trial court for more litigation. Samsung had appealed a federal appeals court ruling to the Supreme Court, which agreed to hear the case. The world’s top smartphone rivals have been feuding over patents since 2011. Following a 2012 jury trial, Samsung was ordered to pay Apple US$930 million. Samsung has been trying to reduce that figure ever since.
price of oil reducing that amount by about the equivalent of 4 percent of GDP, the IMF said. The lender expects oil to rebound to about US$50–US$55 a barrel by the end of this decade, based on futures markets. GCC members can tackle imbalances via non-oil income and public-spending measures, the report said. A value-added tax of 5 percent would raise the equivalent of about 1.5 percent of the region’s GDP, while better public investment efficiency could save the equivalent of about 2 percent of economic output, it said.
“It is a major challenge for countries where the populations have come to see the state as the essential provider of basic utilities, jobs and in a way, status.” Philippe Dauba-Pantanacce, a senior economist and global political analyst at Standard Chartered Plc in London Fiscal consolidation is no easy task given the rigidness in government spending on wages and social benefits which are seen as part of an “implicit social contract” between Gulf oil producers and their citizens, according to the IMF. Philippe Dauba-Pantanacce, a senior economist and global political analyst at Standard Chartered Plc in London, says retrenchment is “imperative in order to imagine a post-oil economy.” “It is a major challenge for countries where the populations have come to see the state as the essential provider of basic utilities, jobs and in a way, status.” he said by e-mail yesterday. “But it is not impossible, if it is done gradually. Taxation comes with accountability and in that sense the implicit social contract will progressively evolve.” Bloomberg News
Hidden-debt scandal
Mozambique’s prime minister pledges to cooperate in probe Three companies account for the bulk of the hidden debts that former government contracted without informing parliament and international institutions Mozambique’s prime minister on Wednesday pledged his government to cooperate with the judicial authorities to clarify the extent of the financial commitments that its predecessor contracted without duly informing parliament and international institutions. “The government will collaborate with the organs of administration of justice, in everything that is necessary, to ensure the clarification due of the questions raised around the problem of the debt,” said Carlos do Rosário at an extraordinary session of the country’s parliament called by the government to discuss the so-called hidden debts. The government, Rosário said, respects and has full confidence in the courts and will act in such a way that respects the principle of their independence. “The attorney-general, in fulfilling his constitutional and legal functions,
has proceeding to open cases to asses the legality of the proceedings in the case of the constitution and financing of the companies Ematum, Proindicus and MAM,” the prime minister told deputies.
‘The revelation prompted the International Monetary Fund to suspend the second tranche of a loan to Mozambique’ The three companies account for the bulk of the hidden debts that the Mozambican government, then headed by Armando Guebuza - who
is now the country’s president contracted without duly informing parliament and international institutions, to a total amount equivalent to more than €1 billion. The minister of finance told parliament earlier that the country’s public debt totalled US$11.6 billion (€10.1 billion), of which US$9.8 billion is external. The total debt is equivalent to more than 70% of gross domestic product, up from 42% in 2012. At the end of April the government recognised the existence of off-balance-sheet debt totalling US$1.4 billion, saying that it had been contracted in 2013 and 2014 to assure the country’s security and strategic infrastructure. The revelation prompted the International Monetary Fund to suspend the second tranche of a loan to Mozambique that had been agreed last year and cancel a visit by an IMF mission. The group of 14 donors to Mozambique’s state budget also suspended their payments, while the US also said it would review its aid to the country. In the latest development on that front the UK’s high commissioner in Maputo on Wednesday demanded an international forensic audit of Mozambique’s public finances, saying that the situation had undermined her government’s trust in the African country. Lusa
Business Daily Friday, June 10 2016 15
Opinion Business Wires
The Star The Malaysian retail industry recorded a 4.4% fall sales in the first quarter of 2016 compared to a 4.6% growth a year ago, according to Retail Group Malaysia. The fall was attributed to higher preGST sales a year ago, as well as weak Chinese New Year sales in February 2016. The report was based on interviews with members of the Malaysian Retailers Association on their retail sales performances. Although a negative first quarter growth rate was expected, the results were below the industry expectation of a 4% fall in sales, said the group.
The Asahi Shimbun In a move that could shake up the Bank of Japan’s monetary easing measures, the Bank of Tokyo-Mitsubishi UFJ Ltd. is considering withdrawing as a “primary dealer” in the government bond market. The megabank is considering pulling out because the BOJ’s negative interest rate policy, implemented in late January, no longer makes holding the special status as attractive. The Bank of Tokyo-Mitsubishi UFJ would be the first megabank to forfeit the status, which could have a ripple effect among the other major participating banks.
Let’s get fiscal
E The Times Of India Stressing on the need for private investment to pick up for faster economic growth, RBI governor Raghuram Rajan yesterday said there is “work to do” before celebrating though the economy is moving in right direction. He said India is capable of growing at a faster pace, while adding that the “true numbers” of GDP could be one per cent up or down. The latest official data puts the country’s GDP growth at 7.6 per cent while policymakers and some international organizations like IMF have described India as a “bright spot” in an otherwise gloomier global economy.
Jakarta Globe Indonesia’s government has proposed a law that will give its tax office access to client data held by banks, the finance minister said, taking another step toward boosting tax collection and rein in a widening budget deficit. The proposed revision to the tax administration law will “eliminate data secrecy for the purpose of taxes,” Finance Minister Bambang Brodjonegoro (pictured) said. Banks in Indonesia are currently protected by a law that requires the tax office to file a request to the financial services regulator to get access to a bank’s data on its customers, and only for the purpose of an investigation.
veryone knows there is no gain without pain. But there can be pain without gain – a lesson that Western populations have been learning the hard way since at least 2012. With years of fiscal austerity in the United States, Europe, and Japan having achieved nothing, it is time for governments to start spending again. The proposal will be met with outrage from many governments, especially, but not exclusively, Germany’s, and will be dismissed by the many political candidates who treat sovereign debt, built up by the incumbents they are seeking to depose, as the devil’s work. But beyond ideology and self-interest lies a simple and unavoidable truth: austerity is not working. Japanese Prime Minister Shinzo Abe reluctantly acknowledged austerity’s failure when he announced on June 1 that his government would postpone a planned increase in the country’s consumption tax. Far from helping to control Japan’s budget deficit and huge public debt, the tax hike probably would have reduced revenues. After all, the previous hike, implemented in April 2014, quickly drove the economy back into recession. The eurozone – the developed world’s leading champion of austerity – has yet to come to the same realization, despite glaring evidence. In 2012, eurozone leaders signed a fiscal compact aimed at controlling public debt – which, in total, amounted to 91.3% of GDP, according to the International Monetary Fund – by forcing countries to cut spending and raise taxes. By 2015, the eurozone’s budget deficit, as a share of GDP, had fallen by two-thirds from its peak in 2010. Yet gross public debt had actually increased, to 93.2% of GDP. Indeed, while Germany has managed to reduce its gross public debt, from 79.7% of GDP in 2012 to 71% last year, debt ratios in France and Italy have continued to rise, despite tight fiscal controls (especially in Italy). Elsewhere in Europe, the United Kingdom has followed a similar trajectory, with gross public debt increasing from 85.3% of GDP in 2012 to 89.3% of GDP in 2015. And in the US, the debt ratio rose from 102.5% to 105.8% over the same period. The problem, of course, lies in sluggish economic growth, which undermines wage growth, weakens tax revenues, and makes it impossible for governments to pay down their debts. Among the biggest drags on growth today is fiscal austerity. The more governments cut their deficits, the faster growth slows – and the further out of reach debt-reduction targets become. Thus runs the self-defeating cycle of fiscal austerity. To be sure, this is not always how austerity works. In the inflation-plagued 1970s and 1980s, when investors’ demand for inflation-risk premia pushed
“
Bill Emmott a former editor-in-chief of The Economist, is executive producer of the documentary “The Great European Disaster Movie.”
up long-term borrowing costs, larger deficits tended to boost long-term interest rates further, while smaller deficits reduced them. It was this experience that caused policymakers after 2010 to assume that reducing government demand would help to boost private investment. (In the eurozone, it should be noted, arguments for fiscal austerity were also fuelled by mistrust among governments, with creditor countries demanding that debtors endure some pain in exchange for “gains” like bailouts.) But times have changed. For starters, we are no longer living in an inflationary era. On the contrary, Japan and some eurozone countries face deflation, while inflation in the UK is essentially zero. Only in America is inflation picking up – and only gently. Moreover, long-term borrowing costs are at historic lows, just as they have been throughout the last five years. Pursuing austerity in this context has resulted in a drag on growth so severe that not even the halving of energy prices over the last 18 months has overcome it. Expansionary monetary policy – that is, massive injections of liquidity through so-called quantitative easing – is clearly not enough, either. While QE does serve a purpose – and remains necessary in Europe and Japan – it has failed to stimulate private investment and accelerate job creation and wage growth. Some direct intervention in wages may help. The UK has implemented an increase in the mandatory minimum wage, and some US states, led by California, will soon follow. Japan, which faces stagnant wages, despite apparent labour shortages, may stand to benefit the most from this approach. But, in today’s world, nothing can substitute for fiscal expansion. Many countries, particularly in Europe, need to boost public investment in infrastructure. More broadly, Europe needs a new Marshall Plan, this time self-financed, rather than funded by the Americans, to kickstart economic growth and boost productivity. There is plenty of scope for a similar program in the US, too. Such spending could even help get tax revenues growing, by pushing employment and wages higher. At a time of low borrowing costs and little to no inflation (or even deflation), austerity is not the answer. It is time for policymakers to recognize that there is no need for pain that is not bringing any gain. It is time to get fiscal. Project Syndicate
Beyond ideology and selfinterest lies a simple and unavoidable truth: austerity is not working
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16 Business Daily Friday, June 10 2016
Closing Labour protests
French government implores end to pre-Euros strike ‘mess’
commuter trains and caused rubbish to pile up on the streets of Paris and Marseille, Royal warned: “France’s pride is at stake.” On the eve of Euro 2016, French “Let’s not harm France’s capacity to Environment Minister Segolene Royal organise global events.” Sports Minister called for an end yesterday to “the mess” Patrick Kanner accused the hard-line CGT caused by transport and rubbish strikes and Sud unions, which are demanding that threaten to blight the football fiesta. “People want things to return to normal, for the withdrawal of a labour reform bill, of “guerrilla” tactics. Some two million foreign the mess to end,” Royal told iTele, saying visitors are expected at the month-long it was “not right for a modern country to championship, which kicks off Friday night continue being permanently disrupted.” when France host Romania at the Stade de Addressing the unions behind the strikes France stadium outside Paris. AFP that have severely disrupted regional and
Entertainment industry
Coming soon to a theatre near you: Made-in-China Disney movies Disney will need to compete with Chinese rival Wanda Cinema, which is building the world’s biggest movie studio when completed in 2017
W
alt Disney Co. is preparing to make Disney-branded films in China and at least one will be in production within a year in what will soon be the world’s largest film market, Chief Executive Officer Robert Iger said in an interview. “We have a lot of development activity right now to make Disney-branded films in China,” he said, speaking at the 963-acre Shanghai Disney, the company’s sixth resort worldwide and its first in mainland China, that’s set to officially open June 16. “We are very far along on this process, including developing ideas, concepts for films and identifying talent to make those films.” The stakes are high for Disney in the race to capture China’s growing middle class and dominate the country’s US$180 billion media and entertainment industry. The ambitious US$5.5 billion resort in Shanghai is seen as a capstone of Iger’s legacy as the company searches for Iger’s successor when his contract ends in 2018. Adding movie production in China would maximize the company’s ability to reap profits in the country and heat up the battle at the box office with billionaire Wang Jianlin’s Dalian Wanda Group Co., which is looking to expand its global entertainment empire. Disney already has a multi-year tie-up with state-owned Shanghai Media Group Pictures to co-develop Disney-branded movies for China
and other markets. Under the 2014 deal, it will partner U.S. screenwriters with writers and directors in China to develop projects. Iger declined to name its Chinese partner or offer other details.
Competitive market
Dalian said in April that it is consolidating its film operations into its Shenzhen-listed Wanda Cinema Line unit, including its US$3.5 billion acquisition of Hollywood studio Legendary Entertainment. Wanda Cinema is building movie-production facilities in the coastal province of Shandong in Qingdao city, which will be the world’s biggest movie studio
when completed in 2017. Wang threw a jab at Disney last month when he said the rival company’s one “tiger”—the Shanghai Disney resort—will be no match for Dalian’s “pack of wolves” in the form of the 15 entertainment and theme parks the Chinese conglomerate plans to build. Wang said the world’s biggest entertainment company has misread the Chinese market and lacked innovation.
“The film business has grown significantly and will continue to” Robert Iger, Disney’s Chief Executive Officer
Iger hinted at the verbal joust during the interview at the new Shanghai theme park Thursday, without naming Wang directly. “When people see this, they will realize that the gap between what we have built and what others have built is enormous,” he said, referring to Disney’s new resort. “All of the statements that have been said specifically about what we have been doing here are so highly inaccurate and come from such an uneducated point of view that there’s no reason for us to care that they have been made.” When it comes to the box office in China, Disney is on track for a record year: it has four out of the five highest-grossing imported films so far this year, including Zootopia and Jungle Book, putting it on track to be the first Hollywood studio to make 1 billion yuan (US$152 million) in a single year at the Chinese box office, said Jonathan Papish, an analyst for China Film Insider. “The film business has grown significantly and will continue to,” Iger said. Bloomberg News
Robert Iger
Stock markets
Governance model
Steel industry
Philippine index posts biggest US agency endorses plan single-day loss in 6 months to cede Internet oversight
India’s steel ministry to seek extension of floor price on imports
Most Southeast Asian shares ended lower yesterday, in line with broader Asian markets, with the Philippine index plunging more than 2 percent, its biggest single-day percentage loss in nearly six months. Philippine stocks fell 2.4 percent, its first loss in five days, with industrials and telecom service providers dragging the index down. The index posted its biggest daily percentage loss since January 21. “PLDT (Philippine Long Distance Telephone Co) could alone account for maybe half of the drop on the index, being the index heavyweight,” said Joseph Roxas, an analyst with Eagle Equities. Markets going down “is more of a corrective move.” Philippine Long Distance Telephone Co fell 3.6 percent, its biggest daily percentage loss since May 5. The stock has lost 25.6 percent over the last 12 months. Indonesia ended 0.8 percent lower, dragged down by financials and consumer non-cyclicals. Bank of India Indonesia and rice trader Bintang Mitra Semestaraya were among the biggest losers on the index. Vietnam bucked the trend to close 0.5 percent higher, led by energy and healthcare stocks. Reuters
India’s steel ministry will seek to extend a floor price on steel imports beyond August, a senior steel ministry source said, as the country looks to keep up its protectionist barriers to stem the tide of cheap foreign products. New Delhi imposed the minimum import price (MIP) on 173 steel products in February, helping cut inbound shipments last month to their lowest level in at least 14 months. The MIP expires in August. The steel ministry will call for the extension of MIP for as long products are being dumped in India, the official, who declined to be named as he was not authorised to speak to media, told Reuters. India is the world’s third-largest steel producer with a total installed capacity of 110 million tonnes. But the industry says its margins have been squeezed due to cheap imports from China, as well as Russia, Japan and South Korea. To shield domestic mills, India in March extended safeguard import taxes on some steel products until 2018 and has begun probing the possible dumping of cheap steel from China, Japan and South Korea. Last month it also imposed a provisional anti-dumping duty on seamless tubes and pipes imported from China. Reuters
The US administration yesterday endorsed a plan to cede its oversight of the gatekeeper of Internet addresses to the broader online community. Commerce Department assistant secretary for communications and information Lawrence Strickling told AFP that the proposal from the Internet Corporation for Assigned Names and Numbers (ICANN) meets the criteria set by the US administration. The plan aims to maintain Internet governance under a “multi-stakeholder” model which avoids control of the online ecosystem by any single governmental body. US oversight of ICANN had “irritated” some governments, which used what was Strickling depicted as a mainly clerical responsibility to vie for greater control of the Internet. The plan comes in response to the US government’s March 2014 announcement that it would transition “stewardship” of online domain name system technical functions from the Commerce Department to a body that would fairly represent all parties with interests in a vibrant and healthy Internet. Motivation behind the transition is to “preserve a free and open Internet,” according to Strickling. AFP